10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-06462

TERADYNE, INC.

(Exact Name of Registrant as Specified in Its Charter)

MASSACHUSETTS	04-2272148
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

600 RIVERPARK DRIVE NORTH READING, MASSACHUSETTS	01864
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (978) 370-2700

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $0.125 per share	New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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 such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x                    Accelerated filer  ¨                    Non-accelerated filer  ¨

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 aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2006 was approximately $2.8 billion based upon the composite closing price of the registrant’s Common Stock on the New York Stock Exchange on that date.

The number of shares outstanding of the registrant’s only class of Common Stock as of February 23, 2006 was 189,763,454 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement in connection with its 2007 annual meeting of shareholders are incorporated by reference into Part III.

TERADYNE, INC.

FORM 10-K

PART I

Item 1: Business

We are a leading global supplier of automatic test equipment.

Our automatic test equipment products include:

• semiconductor test systems (“Semiconductor Test Systems”);

• circuit-board test and inspection systems and military/aerospace (“Mil/Aero”) test instrumentation and systems (“Assembly Test Systems”);

• automotive diagnostic and test systems (“Diagnostic Solutions”); and

• voice and broadband access network test systems (“Broadband Test Systems”).

Broadband Test Systems and Diagnostic Solutions have been combined into “Other Test Systems” for purposes of our segment reporting. For financial information concerning our reportable segments and geographical data, see “Note S: Operating Segment and Geographic Information” in Notes to Consolidated Financial Statements.

On November 30, 2005, we completed the sale of substantially all of the assets and certain of the liabilities of our interconnection systems products business that designs and manufactures backplane systems, printed circuit boards and high-speed, high-density connectors (“Connection Systems”), including the capital stock of our wholly-owned subsidiaries, Teradyne Connection Systems (Malaysia) Sdn. Bhd., Teradyne Connection Sys. De Mexico S.A. de C.V. and Teradyne Ireland Ltd., to Amphenol Corporation pursuant to an asset and stock purchase agreement, dated as of October 10, 2005, between Teradyne and Amphenol, as amended.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), we are reporting Connection Systems as a discontinued operation in the consolidated financial statements for all periods presented. See “Note E: Discontinued Operations” in Notes to Consolidated Financial Statements for further discussion of the Connection Systems divestiture. Unless indicated otherwise, amounts provided throughout this Form 10-K relate to continuing operations only.

Statements in this Annual Report on Form 10-K which are not historical facts, or so called “forward-looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Investors are cautioned that all forward-looking statements involve risks and uncertainties and are qualified in their entirety by reference to the risk factors described in “Item 1A: Risk Factors” and those risks detailed in our filings with the Securities and Exchange Commission (the “SEC”).

Investor Information

We are a Massachusetts corporation incorporated on September 23, 1960. We are subject to the informational requirements of the Exchange Act. We file periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

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You can access financial and other information, including the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, our Corporate Governance Guidelines and Standards of Business Conduct, by clicking the Investors link on our website at www.teradyne.com. We make available, free of charge, copies of our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act through our website as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

Products

Semiconductor Test Systems

We design, manufacture, sell and support Semiconductor Test Systems on a world wide basis. The test systems we provide are used both for wafer level and device package testing. These chips are used in automotive, communications, consumer, computer and electronic game applications, among others. Semiconductor devices span a broad range of functionality, from very simple low-cost devices such as appliance microcontrollers, operational amplifiers or voltage regulators to complex digital signal processors and microprocessors. Semiconductor Test Systems are sold to Integrated Device Manufacturers (“IDMs”) that integrate the fabrication of silicon wafers into their business, “Fabless” companies that outsource the manufacturing of silicon wafers, “Foundries” that cater to the processing and manufacturing of silicon wafers, and subcontractors (“Subcons”) that provide test and assembly services for the final packaged devices to both Fabless companies and IDMs. Fabless companies perform the design of integrated circuits without manufacturing capabilities, and use Foundries for wafer manufacturing and Subcons for test and assembly. These customers obtain the overall benefit of comprehensively testing advanced performance devices while reducing their total costs associated with testing by using our Semiconductor Test Systems to:

• improve and control product quality;

• measure and improve product performance;

• reduce time to market; and

• increase production yields.

We have made significant investments in the last several years to introduce the new FLEX™ Test Platform Architecture. The FLEX^™ Test Platform Architecture advances our core technologies to produce test equipment that is designed for high efficiency multi-site testing. Multi-site testing involves the simultaneous testing of more devices and functions in parallel. Leading semiconductor manufacturers are using multi-site testing to significantly improve their “Cost of Test” (COT) economics. The FLEX Test Platform architecture addresses customer requirements through four key capabilities:

1) A high efficiency multi-site architecture that eliminates tester overhead such as instrument setup, synchronization and data movement, and signal processing;

2) The IG-XL™ software operating system which provides fast program development, including instant conversion from single to multi-site test;

3) Broad technology coverage by instruments designed to cover the range of test parameters, coupled with a Universal Slot test head design that allows easy test system reconfiguration to address changing test needs; and

4) An open architecture design (OpenFLEX) which complements the FLEX Test Platform’s broad set of high-density instrumentation by allowing third parties and customers to create customized test instrumentation that can further enhance system performance and test economics.

FLEX Test Platform purchases are being made by IDMs, Subcons and Fabless customers. The FLEX Test Platform has become a widely used test solution at Subcons and test houses by providing versatile testers that can handle the widest range of devices, allowing Subcons to leverage their capital investments. The broad consumer,

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automotive and broadband markets have been driving most of the device volume growth in the semiconductor industry. These markets include cell phones, set top boxes, HDTVs, game controllers, computer graphics, and automotive controllers to name a few. These end use markets are continuing to be a strong growth driver for the FLEX Test Platform family of products because they require a wide range of technologies and instrument coverage. The FLEX Test Platform has an installed base of more than 1,000 customer systems to date.

Assembly Test Systems

We also produce a variety of test and inspection systems sold to many of the industry’s leading printed circuit board (“PCB”) original equipment manufacturers (“OEMs”) and Subcons around the world. The demand for these products is being driven by rapid technological advances and the constant need to improve assembly quality. Because today’s PCBs and electronic assemblies bundle more functionality than ever before, they contain highly integrated circuits and more complex components that operate faster, use lower voltages and are more susceptible to assembly problems. Our assembly test and inspection systems combine the advanced diagnostic hardware and operating software needed to ensure product quality, sustain high manufacturing yield, verify functional operation, diagnose faults and effectively reduce manufacturing costs. Our products are sold to the electronics manufacturers of cell phones, servers, computers, Internet switches, automobiles and military avionics systems worldwide.

In-Circuit Test Systems

We manufacture in-circuit test (“ICT”) systems that are used to assess electrical interconnections, verify interoperation and find faulty circuits aboard fully assembled and soldered PCBs. Fast, accurate and cost-effective diagnostic capabilities are hallmark features of our ICT systems, including the TestStation^™ and Spectrum^™ product families used in a variety of in-line, high-volume PCB test applications. These systems are also used in sample test environments for prototype testing and early-stage PCB design and development. Supporting technologies such as our patented SafeTest^™ technology allow TestStation users to safely troubleshoot the low-voltage components and interconnects commonly found in battery-powered portable consumer electronics and low-power commercial equipment. In addition to standard ICT equipment, we offer combinational test platforms and handler-ready in-line test systems for high-volume board manufacturing.

Imaging Inspection Systems

PCB assembly trends are expected to force board manufacturers to reassess their inspection strategies. Due to the growing use of highly integrated system on chips and higher density double-sided boards, a high percentage of all solder connections are invisible to optical inspection systems. Combine this growing loss of visual and electrical access with the difficulties associated with detecting lead-free solder voids on double-sided boards, and the inspection problem is compounded.

Our newly introduced Xstation^™ MX, a fully Automated X-Ray Inspection (“AXI”) system, addresses these problems when inspecting PCBs for manufacturing defects, including improper component placement and orientation, electrical opens and shorts and a host of other board quality issues. The Xstation MX uses ClearVue^™, a patented three-dimensional X-Ray imaging technique, to more accurately detect subtle defects and manufacturing flaws, even as board complexities grow.

Military/Aerospace Test Systems & Instrumentation

Our expertise in the test and diagnosis of PCBs and subsystems has proven to be essential in supporting the ever-demanding military and aerospace markets. Our test solutions for these markets include high-performance systems, instruments and software solutions that manufacturers and repair depots all depend on to ensure the readiness of commercial and military avionics systems.

The swift pace of technological advances continues in the military and aerospace market, resulting in electronics assemblies of greater complexity, speed and accuracy. New programs from tactical aircraft to missile

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systems, as well as widespread enhancement programs, continue to fuel the demand for high performance test systems. We are a leading provider of test instrumentation and systems with performance well suited to the demands of military/aerospace electronics manufacturers and repair depots worldwide. Success in this market is illustrated by our penetration into major Department of Defense programs across all U.S. military service branches and many allied military services worldwide.

Diagnostic Solutions

Diagnostic Solutions provides electronic test and diagnostic systems to the automotive OEMs and their major subcontractors. The systems are used throughout the vehicle’s lifecycle from design through manufacture to after sale service and consist of highly integrated software and hardware components. As the number and complexity of electronic systems and embedded software proliferate in vehicles, the ability to manufacture and service those vehicles becomes increasingly dependent on electronic diagnostic equipment. Diagnostic Solutions’ products fall into two categories:

OEM Service Diagnostics

OEM dealer service technicians use Diagnostic Solutions systems to find faults in vehicles in use by their customers, and to reduce OEM warranty costs. Historically, the focus has been on fixing faults in the service bay, but is now growing to include constant monitoring of the vehicle to predict and prevent failure.

Vehicle Configuration and Test Solutions

Diagnostic Solutions’ VCATS^™ products are used on automotive and major automotive subassembly production lines. Diagnostic Solutions’ VCATS connects to the vehicle to test and program or “configure” the electronic systems on vehicles. These vehicle electronic systems include engine control modules and subsystems such as braking, navigation and climate control. Diagnostic Solutions is also able to link to an OEM’s manufacturing control system in order to provide statistical quality reports to operators and management.

Both VCATS and OEM Service Diagnostics products utilize Diagnostic Solutions’ GRADE-X^™ authoring software enabling the manufacturing and service phases of vehicle development. Diagnostics for electronic modules and systems used on vehicles of Diagnostic Solutions’ customers can be developed and written using the GRADE-X authoring software. The actual diagnosis of a customer’s vehicle occurs in the OEM dealer’s service bay utilizing a runtime portion of the software to facilitate the service and repair of the vehicle.

Broadband Test Systems

Broadband Test provides test systems for testing lines and qualifying lines for Digital Subscriber Line (“DSL”) telephone networks. As telephone companies deploy new technologies to provide “Triple Play” (voice, data, and video) services, the tasks of qualifying, installing, and maintaining subscriber service becomes more complex and costly. Our systems are used to support the delivery of responsive customer service while improving technician productivity.

Our products within the Broadband Test Systems market include:

4TEL^™ Line Service Test System

Testing more than 130 million subscriber lines for many of the world’s largest telecommunications companies, our 4TEL line test service assurance system dramatically improves field repair productivity and reduces call center costs by quickly and accurately determining fault locations in the network and whether or not an expensive field dispatch is required.

Celerity^™ DSL Test System

Telephone companies need to know which lines in their network are qualified for broadband DSL service before committing service to the consumer. Our patented Celerity system, in use on more than 60 million lines

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worldwide, uses accurate insertion loss, length and load coil detection, to quickly qualify lines for DSL service, enabling targeted marketing programs and low cost provisioning processes. Celerity also provides on-demand testing for in-service DSL lines to support quick fault isolation and efficient field repair dispatches.

Discontinued Operations

On November 30, 2005, our Connection Systems business was sold to Amphenol Corporation. This business designed and manufactured high-performance connection systems including backplane systems, printed circuit boards and high-speed, high-density connectors. Connection Systems has been reflected as a discontinued operation in the accompanying financial statements.

Summary of Net Revenue by Reportable Segment

Our three reportable segments accounted for the following percentages of consolidated net revenue for each of last three years:

	2006		2005		2004
Semiconductor Test Systems	79	%	76	%	81	%
Assembly Test Systems	12		14		11
Other Test Systems	9		10		8
Total	100	%	100	%	100	%

Sales and Distribution

Prices for our systems can reach $2 million or more. In 2006, 2005, and 2004, no single customer accounted for more than 10% of our consolidated net revenue. In each of the years 2006, 2005, and 2004, our three largest customers in aggregate accounted for 18%, 18%, and 21% of consolidated net revenue, respectively.

Direct sales to United States government agencies accounted for less than 3% of consolidated net revenue in 2006 and 2005, and less than 2% in 2004. Approximately 23%, 22%, and 23% of Assembly Test Systems’ revenue in 2006, 2005 and 2004, respectively, was to United States government agencies and 20%, 26% and 24% of Assembly Test Systems’ revenue in 2006, 2005 and 2004, respectively, was to government contractor customers.

We have sales and service offices located throughout North America, Asia, and Europe, as our customers outside the United States are located primarily in these geographic areas. We sell in these areas predominantly through a direct sales force. Although we conduct some manufacturing activities outside the United States as detailed in “Item 2: Properties,” our manufacturing activities are primarily conducted in the United States.

Sales to customers outside the United States accounted for 77% of consolidated net revenue in 2006, 78% in 2005, and 79% in 2004. Sales to customers located in Singapore were 10%, 13%, and 16% of consolidated net revenue in 2006, 2005, and 2004, respectively. Sales to customers located in Taiwan were 14%, 12%, and 19% of consolidated net revenue in 2006, 2005 and 2004, respectively. Sales to customers located in Japan were 12%, 9% and 6% of consolidated net revenue in 2006, 2005 and 2004, respectively. Sales are attributed to geographic areas based on the location of the customer site.

See also “Item 1A: Risk Factors” and “Note F: Financial Instruments” in Notes to Consolidated Financial Statements.

Competition

We face significant competition throughout the world in each of our reportable segments. These competitors include, among others, Advantest Corporation, Verigy, Inc. (a new company spun out from Agilent

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Technologies, Inc.), Credence Systems Corporation, and LTX Corporation. Some of our competitors have substantially greater financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. We also face competition from internal suppliers at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. See also “Item 1A: Risk Factors.”

Backlog

At December 31, 2006 and 2005, our backlog of unfilled orders in each of our three reportable segments was as follows:

	2006		2005
	(in millions)
Semiconductor Test Systems	$	212.4	$	289.7
Assembly Test Systems		81.5		70.1
Other Test Systems		44.9		62.4
	$	338.8	$	422.2

Of the backlog at December 31, 2006, approximately 96% of the Semiconductor Test Systems backlog, 95% of Assembly Test Systems backlog, and 98% of the Other Test Systems backlog is expected to be delivered in 2007.

Customers may delay delivery of products or cancel orders suddenly and without significant notice, subject to possible cancellation penalties. Due to possible customer changes in delivery schedules and cancellation of orders, our backlog at any particular date is not necessarily indicative of the actual sales for any succeeding period. Delays in delivery schedules and/or cancellations of backlog during any particular period could have a material adverse effect on our business, financial condition, and results of operations.

Raw Materials

Our products contain electronic and mechanical components that are provided by a wide range of suppliers. Certain of these components are standard products, while others are manufactured to our specifications. We can experience occasional delays in obtaining timely delivery of certain items. While the majority of our components are available from multiple suppliers, certain items are obtained from sole sources. We may experience a temporary adverse impact if any of our sole source suppliers delays or ceases to deliver products.

Intellectual Property and Licenses

Our development of our products, both hardware and software, is based in significant part on proprietary information, our brands and technology. We protect our rights in proprietary information, brands and technology through various methods, such as:

• patents;

• copyrights;

• trademarks;

• trade secrets;

• standards of business conduct and related business practices; and

• technology license agreements, software license agreements, non-disclosure agreements, employment agreements, and other agreements.

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However, these protections might not be effective in all circumstances. Competitors might independently develop similar technology or exploit our proprietary information and our brands in countries where we lack enforceable intellectual property rights or where enforcement of such rights through the legal system provides an insufficient deterrent. Also, intellectual property protections can lapse or be invalidated through appropriate legal processes. We do not believe that any single piece of intellectual property or proprietary rights is essential to our business.

Employees

As of December 31, 2006, we employed approximately 3,800 people. Since the inception of our business, we have experienced no work stoppages or other labor disturbances. We have no collective bargaining contracts.

Engineering and Development Activities

The highly technical nature of our products requires a large and continuing engineering and development effort. Engineering and development expenditures for the years ended December 31, 2006, 2005 and 2004 were $208.7 million, $223.0 million and $250.0 million, respectively. These expenditures amounted to approximately 15%, 21% and 18% of consolidated net revenue in 2006, 2005 and 2004, respectively.

Environmental Affairs

We are subject to various federal, state, and local government laws and regulations relating to the protection of employee health and safety and the environment. We accrue for all known environmental liabilities when it becomes probable that we will incur cleanup costs and those costs can reasonably be estimated. The amounts accrued do not cover sites that are in the preliminary stages of investigation. Estimated environmental costs are not expected to materially affect the financial position or results of our operations in future periods. However, estimates of future costs are subject to change due to protracted cleanup periods and changing environmental remediation laws and regulations.

In 2001, we were designated as a “potentially responsible party” (“PRP”) at a clean-up site in Los Angeles, California. This claim arose out of our acquisition of Perception Laminates, Inc. in August 2000. Prior to that date, Perception Laminates had itself acquired certain assets of Alco Industries, Inc. under an asset purchase agreement in 1992. Neither Teradyne nor Perception Laminates have ever conducted any operations at the Los Angeles site. We have asked the State of California to drop the PRP designation, but California has not yet agreed to do so.

In 2006, we received a general notice letter from the U.S. Environmental Protection Agency (“EPA”) which informed us that the EPA believes we are a de minimis PRP with respect to the Casmalia Disposal Site in California. We are currently waiting for further details from the EPA regarding the terms of the deminimis settlement offer that we expect to receive.

We believe that we have meritorious defenses against the above unsettled claims and intend to vigorously contest them. While it is not possible to predict or determine the outcomes of the unsettled claims or to provide possible ranges of losses that may arise, we believe the potential losses associated with all of these actions will not have a material adverse effect on our consolidated financial position or liquidity, but could possibly be material to our consolidated results of operations of any one period.

CEO Certification

An annual CEO certification was filed with the New York Stock Exchange by our CEO on June 22, 2006 in accordance with the New York Stock Exchange’s listing standards.

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OUR EXECUTIVE OFFICERS

Pursuant to General Instruction G(3) of Form 10-K, the following table is included as an unnumbered item in Part I of this Annual Report on Form 10-K in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders. The table sets forth the names of all of our executive officers and certain other information relating to their positions held with Teradyne and other business experience. Our executive officers do not have a specific term of office but rather serve at the discretion of the Board of Directors.

Executive Officer	Age	Position	Business Experience For The Past 5 Years
Michael A. Bradley	58	President and Chief Executive Officer	Chief Executive Officer since 2004; President of Teradyne since 2003; President of Semiconductor Test Systems from 2001 to 2003; Chief Financial Officer of Teradyne from 1999 to 2001; Vice President of Teradyne from 1992 to 2001.
Gregory R. Beecher	49	Vice President, Chief Financial Officer and Treasurer	Vice President and Chief Financial Officer of Teradyne since 2001 and Treasurer of Teradyne from 2003 to 2005 and since 2006; Partner at PricewaterhouseCoopers LLP from 1993 to 2001.
Eileen Casal	48	Vice President, General Counsel and Secretary	Vice President, General Counsel and Secretary of Teradyne since 2003; Vice President, General Counsel and Corporate Secretary of GSI Lumonics Inc. from 2001 until 2003; Vice President, General Counsel and Corporate Secretary of Adero, Inc. from 2000 until 2001; Vice President, General Counsel and Assistant Clerk of Teradyne, from 1999 to 2000; from 1986 until 1999, Ms. Casal held a number of legal positions at Stratus Computer, Inc. including Vice President, General Counsel and Assistant Clerk.
Jeffrey R. Hotchkiss	59	President of Assembly Test Systems and Diagnostic Solutions	President of Assembly Test Systems since 2004 and President of Diagnostic Solutions since 2005; Director, Chief Executive Officer and President of Empirix Corporation from 2000 to 2004; Chief Financial Officer of Teradyne from 1997 to 1999; Vice President of Teradyne from 1990 to 1999.
Mark E. Jagiela	46	President of Semiconductor Test Systems	President of Semiconductor Test Systems since 2003; Vice President of Teradyne since 2001; General Manager of Teradyne’s VLSI Test Division from 2000 to 2001; VLSI Test Division Engineering Manager from 1999 to 2000; Japan Division General Manager from 1991 to 1999.

Item 1A: Risk Factors.

Risks Associated with Our Business

We are subject to intense competition.

We face significant competition throughout the world in each of our reportable segments. Some of our competitors have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. We also face competition from internal suppliers at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics which

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may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in revenues or loss of market acceptance of our products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect our business, financial condition and results of operations.

Our business is dependent on the current and anticipated market for electronics, which historically has been highly cyclical.

Our business and results of operations depend in significant part upon capital expenditures of manufacturers of semiconductors and other electronics, which in turn depend upon the current and anticipated market demand for those products. The market demand for electronics is impacted by economic slowdowns. Historically, the electronics and semiconductor industry has been highly cyclical with recurring periods of over-supply, which often have had a severe negative effect on demand for test equipment, including systems we manufacture and market. We believe that the markets for newer generations of electronic products such as those that we manufacture and market will also be subject to similar fluctuations. We are dependent on the timing of orders from our customers, and the deferral or cancellation of previous customer orders could have an adverse effect on our results of operations. We cannot assure that the level of revenues or new orders for a calendar quarter will be sustained in subsequent quarters. In addition, any factor adversely affecting the electronics industry or particular segments within the electronics industry may adversely affect our business, financial condition and operating results.

Our operating results are likely to fluctuate significantly.

Our annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability.

The following factors are expected to impact future operations:

• competitive pressures on selling prices;

• our ability to introduce and the market acceptance of new products in 2007 and beyond;

• changes in product revenue mix resulting from changes in customer demand;

• the level of orders received which can be shipped in a quarter resulting from the tendency of customers to wait until late in a quarter to commit to purchase due to capital expenditure approvals and constraints occurring at the end of a quarter, or the hope of obtaining more favorable pricing from a competitor seeking the business;

• engineering and development investments relating to new product introductions in 2007 and beyond, and the expansion of manufacturing, outsourcing and engineering operations in Asia;

• the ability of our suppliers and subcontractors to meet product quality or delivery requirements needed to satisfy customer orders for our products, especially if product demand increases rapidly;

• provisions for excess and obsolete inventory relating to the lack of demand for and the discontinuance of products;

• impairment charges for certain long-lived assets; and

• parallel or multi-site testing could lead to a decrease in the ultimate size of the market for our products.

As a result of the foregoing and other factors, we have and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price.

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We are subject to risks of operating internationally.

A significant portion of our total revenue is derived from customers outside the United States. Our international sales and operations are subject to significant risks and difficulties, including:

• unexpected changes in legal and regulatory requirements affecting international markets;

• changes in tariffs and exchange rates;

• social, political and economic instability, acts of terrorism and international conflicts;

• difficulties in protecting intellectual property;

• difficulties in accounts receivable collection;

• cultural differences in the conduct of business;

• difficulties in staffing and managing international operations; and

• compliance with customs regulations.

In addition, an increasing portion of our products and the products we purchase from our suppliers are sourced or manufactured in foreign locations, including China, and a large portion of the devices our products test are fabricated and tested by foundries and subcontractors in Taiwan, Singapore, China and other parts of Asia. As a result, we are subject to a number of economic and other risks, particularly during times of political or financial instability in these regions. Disruption of manufacturing or supply sources in these international locations could materially adversely impact our ability to fill customer orders and potentially result in lost business.

If we fail to develop new technologies to adapt to our customers’ needs and if our customers fail to accept our new products, our revenues will be adversely affected.

We believe that our technological position depends primarily on the technical competence and creative ability of our engineers. In a rapidly evolving market, such as ours, the development of new technologies, commercialization of those technologies into products and market acceptance and customer demand for those products are critical to our success. Successful product development, introduction and acceptance depend upon a number of factors, including:

• new product selection;

• ability to meet customer requirements;

• development of competitive products by competitors;

• timely and efficient completion of product design;

• timely and efficient implementation of manufacturing and manufacturing processes;

• timely remediation of product performance issues, if any, identified during testing;

• assembly processes and product performance at customer locations;

• differentiation of our products from our competitors’ products; and

• management of customer expectations concerning product capabilities and product life cycles.

If our suppliers do not meet product or delivery requirements, we could have reduced revenues and earnings.

Certain components, including semiconductor chips, may be in short supply from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. Approximately 30% of material purchases require some custom work where having multiple suppliers would be cost prohibitive. If any of our suppliers were to cancel contracts or commitments or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders and have significantly decreased revenues and earnings, which would have a material adverse effect on

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our business, results of operations and financial condition. In addition, we rely on contract manufacturers for certain subsystems used in our products, and our ability to meet customer orders for those products depends upon the timeliness and quality of the work performed by these subcontractors, over whom we do not exercise any control.

To a certain extent, we are dependant upon the ability of our suppliers and contractors to help meet increased product or delivery requirements. Many of our suppliers have implemented cost reduction strategies, just as we have, to address the slowdowns in the market. It may be difficult for these suppliers to meet delivery requirements in a period of rapid growth, therefore impacting our ability to meet our customers demands.

We rely on the financial strength of our suppliers. There can be no assurance that the loss of suppliers either as a result of financial viability, bankruptcy or otherwise will not have a material adverse effect on our business, results of operations or financial condition.

Our operations may be adversely impacted if our outsourced service providers fail to perform.

In an effort to increase efficiencies and decrease costs we have outsourced a number of our general and administrative functions, including information technology, to reputable service providers. In some cases, we have used service providers that we have historically used before but in other cases, service providers may be new to us. New relationships may initially increase the time for such service providers to learn our systems, policies and procedures and create difficulty in effectively implementing a fully outsourced solution. Many of our outsourced service providers are in foreign countries, sometimes impacting communication with them because of language and time difficulties. Their presence in foreign countries also increases the risk they could be exposed to political risk. Additionally, there may be difficulties encountered in coordinating the outsourced operations with existing functions and operations. If we fail in successfully coordinating and managing the outsourced service providers, it may cause an adverse affect on our operations which could result in a decline in our stock price.

We have significant guarantees and indemnification obligations.

From time to time we make guarantees to customers regarding the performance of our products and guarantee certain indebtedness, performance obligations or lease commitments of our subsidiary and affiliate companies. We also have agreed to provide indemnification to our officers, directors, employees and agents, to the extent permitted by law, arising from certain events or occurrences while the officer, director, employee or agent, is or was serving at our request in such capacity. If we become liable under any of these obligations, it could materially and adversely affect our business, financial condition and operating results. For additional information see “Note J: Commitments and Contingencies—Guarantees and Indemnification Obligations” in Notes to Consolidated Financial Statements.

We have taken measures to ensure that we are prepared to address slowdowns in the market for our products, which could have long-term negative effects on our business or impact our ability to adequately address a rapid increase in customer demand.

We have taken, and continue to take, measures to ensure that we are prepared to address slowdowns in the market for our products. These measures include reducing our workforce, the relocation of our headquarters to our North Reading, Massachusetts facility, real estate consolidation which resulted in closing and/or selling facilities, outsourcing general and administrative functions, discontinuing certain product lines, implementing material cost reduction programs and reducing planned capital expenditures and expense budgets. We cannot assure that the measures we have taken will not impair our ability to effectively develop and market products, to remain competitive in the industries in which we compete, to operate effectively, to operate profitably during slowdowns or to effectively meet a rapid increase in customer demand. These measures may have long-term negative effects on our business by reducing our pool of technical talent, decreasing or slowing improvements in

12

our products, making it more difficult to hire and retain talented individuals and to quickly respond to customers or competitors in an upward cycle.

We may incur significant liabilities if we fail to comply with environmental regulations.

We are subject to both domestic and international environmental regulations and statutory strict liability relating to the use, storage, discharge, site cleanup and disposal of hazardous chemicals used in our manufacturing processes. If we fail to comply with present and future regulations, or are required to perform site remediation, we could be subject to future liabilities or the suspension of production. Present and future regulations may also:

• restrict our ability to expand facilities;

• restrict our ability to ship certain products into the European Union or elsewhere;

• require us to modify our operations logistics;

• require us to acquire costly equipment; or

• require us to incur other significant costs and expenses.

Pursuant to present regulations and agreements, we are conducting groundwater and subsurface assessment and monitoring and are implementing remediation and corrective action plans for facilities located in California, Massachusetts and New Hampshire which are no longer conducting manufacturing operations. As of December 31, 2006, we have not incurred material costs as result of the monitoring and remediation steps taken at the California, Massachusetts and New Hampshire sites.

On January 27, 2003, the European Union adopted the following directives: (i) the directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the “RoHS Directive”); and (ii) the directive on Waste Electrical and Electronic Equipment (the “WEEE Directive”). The WEEE Directive became effective August 13, 2005 and the RoHS Directive became effective on July 6, 2006. Both the RoHS Directive and the WEEE Directive alter the form and manner in which electronic equipment is imported, sold and handled in the European Union. Other jurisdictions, such as China, have followed the European Union’s lead in enacting legislation with respect to hazardous substances and waste removal. Ensuring compliance with the RoHS Directive, the WEEE Directive and similar legislation in other jurisdictions, and integrating compliance activities with our suppliers and customers could result in additional costs and disruption to operations and logistics and thus, could have a negative impact on our business, operations and financial condition.

We currently are and in the future may be subject to litigation that could have an adverse effect on our business.

From time to time, we may be subject to litigation or other administrative and governmental proceedings that could require significant management time and resources and cause us to incur expenses and, in the event of an adverse decision, pay damages in an amount that could have a material adverse effect on our financial position or results of operations.

For example, in connection with our August 2000 acquisition of each of Herco Technology Corp. and Perception Laminates, Inc., a complaint was filed on or about September 5, 2001 and is now pending, on appeal, before the U.S. Court of Appeals for the Ninth Circuit by the former owners of those companies naming as defendants Teradyne and two of our then executive officers. Additionally, in 2001, we were designated as a “potentially responsible party” at a clean-up site in Los Angeles, California. This claim also arises out of our acquisition of Perception Laminates in August 2000. Prior to that date, Perception Laminates had itself acquired certain assets of Alco Industries Inc. under an asset purchase agreement dated October 20, 1992. In 2006, we were also notified that we are a de minimis “potentially responsible party” with respect to the Casmalia Disposal Site in California. These matters are further described in “Item 3: Legal Proceedings.”

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If we are unable to protect our intellectual property, we may lose a valuable asset or may incur costly litigation to protect our rights.

We protect the technology that is incorporated in our products (“IP”) in several ways, including through patent, copyright, and trade secret protection and by contractual agreement. However, even with these protections, our IP may still be challenged, invalidated or subject to other infringement actions. While we believe that our IP has value in the aggregate, no single element of our IP is in itself essential. If a significant portion of our IP is invalidated or ineffective, our business could be materially adversely affected. In addition, we receive notifications from time to time that we may be in violation of patents held by others. An assertion of patent infringement against us, if successful, could have a material adverse effect on our ability to sell our products, or require a significant use of management resources and necessitate a lengthy and expensive defense which could adversely affect our operating results.

Our business may suffer if we are unable to attract and retain key employees.

Competition for employees with skills we require is intense in the high technology industry. Our success will depend on our ability to attract and retain key technical employees. The loss of one or more key or other employees, a decrease in our inability to attract additional qualified employees, or the delay in hiring key personnel could each have a material adverse effect on our business, results of operations or financial condition.

We may incur higher tax rates than we expect.

We are subject to paying income taxes in the United States and various other countries where we operate. Our effective tax rate is dependent on where our earnings are generated and the tax regulations and the interpretation and judgment of administrative tax or revenue entities in the United States and such other countries. We have pursued a global tax strategy which could adversely be affected by our failure to expand operations or earnings in certain countries, the mix of earnings and tax rates in the countries where we operate, changes to tax laws or an adverse tax ruling by administrative entities. We are also subject to tax audits in the countries where we operate. Any material assessment resulting from an audit from an administrative tax or revenue entity could also negatively affect our financial results.

Our business is impacted by worldwide economic cycles, which are difficult to predict.

Capital equipment providers in the electronics and semiconductor industries, such as Teradyne, have, in the past, been negatively impacted by sudden slowdowns in the global economies, and resulting reductions in customer capital investments. The duration of slowdowns in global economies and reductions in customer capital investments, which may adversely impact our business, are difficult to predict.

Acts of war, terrorist attacks and the threat of domestic and international terrorist attacks may adversely impact our business.

Acts of war and terrorist attacks may cause damage or disruption to our employees, facilities, customers, suppliers and distributors which could have a material adverse effect on our business, results of operation or financial condition. As we and our suppliers sell and manufacture products both in the United States and internationally, the threat of future terrorist attacks could lead to changes in security and operations at these locations which could increase our operating costs and which may adversely affect our business. Such conflicts may also cause damage or disruption to transportation and communication systems. We have completed some emergency preparedness planning and have a business continuity plan in case some of these events occur. However, we cannot be certain that our plans will be effective in the event of a disaster or other situation. All of these conditions make it difficult for us, and our customers, to accurately forecast and plan future business activities and could have a material adverse effect on our business, financial condition and results of operations.

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Provisions of our charter and by-laws and Massachusetts law make a takeover of Teradyne more difficult.

Our basic corporate documents and Massachusetts law contain provisions that could discourage, delay or prevent a change in control, even if a change in control might be regarded as beneficial to some or all of our stockholders.

We may acquire new businesses or form strategic alliances in the future, and we may not realize the benefits of such acquisitions.

We may acquire additional businesses, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing businesses. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate it with our existing operations and company culture. We may have difficulty in developing, manufacturing and marketing the products of a newly acquired company that enhances the performance of our combined businesses or product lines to realize value from expected synergies. We cannot assure that, following an acquisition, we will achieve the revenues or specific net income that justify the acquisition.

Item 1B: Unresolved Staff Comments.

None.

Item 2: Properties

The following table provides certain information as to our principal general offices and manufacturing facilities.

Location	Operating Segment	Major Activity+	Approximate Square Feet of Floor Space
Properties Owned:
North Reading, Massachusetts	Semiconductor Test, Assembly Test & Corporate Offices	1-2-3-4-5	763,000
Agoura Hills, California	Semiconductor Test	3-5	240,000
Kumamoto, Japan	Semiconductor Test	2-3-4-5	66,000
Deerfield, Illinois	Broadband Test	2-3-4-5	63,000	(a)
Subtotal of Owned Properties			1,132,000
Properties Leased:
Westford, Massachusetts	—	—	230,000	(b)
Woburn, Massachusetts	Semiconductor Test	2-6	205,000
Shanghai, China	Assembly Test & Semiconductor Test	2-5-6	43,000
Stockport, England	Diagnostic Solutions	2-3-4-5-6	75,000
Cebu, Philippines	Semiconductor Test	2-6	64,000
Agoura Hills, California	Semiconductor Test	—	59,000	(c)
Bracknell, England	Semiconductor Test, Broadband Test & Assembly Test	3-4-5	44,000	(d)
Tai Yuan, Taiwan	Semiconductor Test & Assembly Test	5	43,000
Walnut Creek, California	—	—	38,000	(e)
San Jose, California	Semiconductor Test	4-5	35,000
Subtotal of Leased Properties			836,000
Total Square Feet of Floor Space			1,968,000

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 + Major activities have been separated into the following categories: 1. Corporate Administration, 2. Sales Support and Manufacturing, 3. Engineering and Development, 4. Marketing, 5. Sales and Administration, and 6. Storage and Distribution

(a) This building is being marketed for sale. In 2007, Teradyne will consolidate and relocate this operation from the current location in Deerfield, IL to leased space in the Deerfield IL area.

(b) This space consists of two buildings. One building is subleased. A sublease for 100,000 square feet was signed in 2004 for space in the other building; however, the building remains unoccupied.

(c) This space is unoccupied.

(d) Portions of the property are subleased.

(e) This space is unoccupied and is currently being marketed for sublease.

Item 3: Legal Proceedings

On September 5, 2001, after our August 2000 acquisition of Herco Technology Corp. and Perception Laminates, Inc., the former owners of those companies filed a complaint against Teradyne and two of our then executive officers in the Federal District Court in San Diego, California, asserting securities fraud and breach of contract related to the acquisition. Pursuant to motions filed by Teradyne and by the plaintiffs, the District Court dismissed certain of the plaintiffs’ claims, granted partial summary judgment against them with respect to their breach of contract claim and denied their motion for reconsideration. The only claim that remained before the District Court from the original complaint related to an allegation of fraud in connection with the setting of the transaction price. On December 27, 2004, the plaintiffs voluntarily stipulated to the dismissal with prejudice of their remaining claim in the District Court, without having received any payment or other consideration from us. On February 2, 2005, the plaintiffs filed a notice of appeal from the District Court’s prior orders. The appeal is now pending before the U.S. Court of Appeals for the Ninth Circuit.

In 2001, we were designated as a PRP at a clean-up site in Los Angeles, California. This claim arose out of our acquisition of Perception Laminates in August 2000. Prior to that date, Perception Laminates had itself acquired certain assets of Alco Industries Inc. under an asset purchase agreement in 1992. Neither Teradyne nor Perception Laminates have ever conducted any operations at the Los Angeles site. We have asked the State of California to drop the PRP designation, but California has not yet agreed to do so.

In 2006, we received a general notice letter from the EPA which informed us that the EPA believes we are a de minimis PRP with respect to the Casmalia Disposal Site in California. We are currently waiting for further details from EPA regarding the terms of the de minimis settlement offer that we expect to receive.

We believe that we have meritorious defenses against the above unsettled claims and intend to vigorously contest them. While it is not possible to predict or determine the outcomes of the unsettled claims or to provide possible ranges of losses that may arise, we believe the potential losses associated with all of these actions will not have a material adverse effect on its consolidated financial position or liquidity, but could possibly be material to its consolidated results of operations of any one period.

In addition, we are subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Although there can be no assurance, there are no such matters pending that we expect to be material with respect to its business, financial position or results of operations.

Item 4: Submission of Matters to a Vote of Security Holders.

None.

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PART II

Item 5: Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

The following table shows the market range for our common stock based on reported sale prices on the New York Stock Exchange.

Period	High		Low
2005
First Quarter	$	17.33	$	13.53
Second Quarter		14.71		10.80
Third Quarter		17.30		11.60
Fourth Quarter		16.99		12.98
2006
First Quarter	$	18.08	$	14.22
Second Quarter		18.00		13.31
Third Quarter		14.49		11.50
Fourth Quarter		15.59		12.95

The number of record holders of our common stock at February 23, 2007 was 3,779.

We have never paid cash dividends because it has been our policy to use earnings to finance expansion and growth. Payment of future cash dividends will rest within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition.

See “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Equity Compensation Plans,” for information on our equity compensation plans and our performance graph.

The following table includes information with respect to repurchases we made of our common stock during the year ended December 31, 2006 (shares in thousands):

Period	(a) Total Number of Shares (or units) Purchased (1)	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet Be Purchased Under the Plans or Programs (1)
July 3, 2006—July 30, 2006	2,565	$	12.41	2,565	$	368,164
July 31, 2006—August 27, 2006	5,300	$	12.95	7,865	$	299,485
August 28, 2006—October 1, 2006	655	$	13.43	8,520	$	290,690
October 2, 2006—October 29, 2006	681	$	13.24	9,201	$	281,670
October 30, 2006—November 26, 2006	1,409	$	13.65	10,610	$	262,439

(1) In July 2006, our Board of Directors authorized a stock repurchase program. Under the program, we may spend up to an aggregate of $400 million to repurchase shares of our common stock in open market repurchases, in privately negotiated transactions or through other appropriate means through July 2008.

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Item 6: Selected Financial Data

	Years Ended December 31,
	2006		2005			2004		2003			2002
	(dollars in thousands, except per share amounts)
Consolidated Statement of Operations Data (1):
Net revenues	$	1,376,818	$	1,075,232		$	1,410,222	$	995,692		$	825,242
Income (loss) from continuing operations		202,643		(60,457	)		132,619		(170,007	)		(627,215	)
Net income (loss)		198,757		90,648			165,237		(193,993	)		(718,469	)
Income (loss) from continuing operations per common share—basic		1.04		(0.31	)		0.68		(0.91	)		(3.43	)
Income (loss) from continuing operations per common share—diluted		1.03		(0.31	)		0.67		(0.91	)		(3.43	)
Net income (loss) per common share—basic		1.02		0.46			0.85		(1.03	)		(3.93	)
Net income (loss) per common share—diluted		1.01		0.46			0.84		(1.03	)		(3.93	)
Consolidated Balance Sheet Data (1):
Total assets		1,721,055		1,859,732			1,922,562		1,785,362			1,900,150
Long-term debt obligations		—		1,819			398,932		407,658			450,561

(1) As a result of the divestiture of Connection Systems, we are reporting Connection Systems as a discontinued operation for all periods presented. See “Note E: Discontinued Operations” in the Notes to Consolidated Financial Statements for further discussion of the Connection Systems divestiture.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to the historical information contained in this document, the discussion in this Annual Report on Form 10-K contains forward-looking statements, made pursuant to Section 21E of the Exchange Act, that involve risks and uncertainties, such as statements of our plans, expectations and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as being applicable to all related forward-looking statements whenever they appear in this Annual Report on Form 10-K. Our actual results could differ materially from the results contemplated by these and any other forward-looking statements. Factors that could contribute to such differences include those discussed below as well as those cautionary statements and other factors set forth in “Item 1A: Risk Factors” and elsewhere herein.

Critical Accounting Policies and Estimates

We have identified the policies discussed below as critical to understanding our business and our results of operations and financial condition. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent

18

liabilities. On an on-going basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, bad debts, income taxes, pensions, warranties, contingencies, and litigation. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

Revenue Recognition

In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin No. 104, “Revenue Recognition,” we recognize revenue when there is persuasive evidence 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 of the related receivable is reasonably assured. Title and risk of loss generally pass to our customers upon shipment. In circumstances where either title or risk of loss pass upon destination, acceptance or cash payment, we defer revenue recognition until such events occur.

For equipment that includes software that is incidental to the product, revenue is recognized upon shipment provided that customer acceptance criteria can be demonstrated prior to shipment. Certain contracts require us 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, or in the case of new products, revenue is deferred until customer acceptance has been received.

For multiple element arrangements, we defer the greater of the fair value of any undelivered elements of the contract or the portion of the sales price which is not payable until the undelivered elements are delivered. For a delivered item to be considered a separate unit, the delivered item must have value to the customer on a standalone basis, there must be objective and reliable evidence of fair value of the undelivered items in the arrangement and the delivery or performance of the undelivered item must be considered probable and substantially in our control. We also defer the portion of the sales price that is not due until acceptance, which represents deferred profit. Fair value is the price charged when the element is sold separately. 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 to fifteen days of product shipment and is completed within one to two days thereafter. Training services are optional and do not affect the customer’s ability to use the product. We defer revenue for the fair value of installation and training. Extended warranties constitute warranty obligations beyond one year and we defer revenue in accordance with FASB Technical Bulletin 90-1.

Our products are generally subject to warranty and related costs of the warranty are provided for in cost of revenue when product revenue is recognized. We classify shipping and handling costs in cost of revenue. Service revenue is recognized over the contractual period or as the services are performed.

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

For transactions involving the sale of software which is not incidental to the product, revenue is recognized in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 97-2”). We recognize revenue when there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. In instances where an arrangement contains multiple elements, revenue is deferred related to the undelivered elements to the extent that vendor-specific objective evidence of fair value (“VSOE”)

19

exists for such elements. In instances where VSOE does not exist for one or more of the undelivered elements of an arrangement, all revenue related to the arrangement is deferred until all elements have been delivered. VSOE is the price charged when the element is sold separately. Revenue for the separate elements is only recognized where the functionality of the undelivered element is not essential to the delivered element.

For certain contracts eligible for contract accounting under SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts,” revenue is recognized using the percentage-of-completion accounting method based upon the percentage of incurred costs to estimated total costs. These arrangements require significant production, modification or customization. In all cases, changes to total estimated costs and anticipated losses, if any, are recognized in the period in which they are determined. With respect to contract change orders, claims or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. Such amounts are only included in the contract value when they can be reliably estimated and realization is reasonably assured, generally upon receipt of a customer approved change order.

Inventories

Inventories, which include materials, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, we use consistent methodologies to evaluate all inventory for net realizable value. We record a provision for both excess and obsolete inventory when such writedowns or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses.

Equity Incentive and Stock Purchase Plans

Effective January 1, 2006, we adopted the fair value recognition provision of SFAS 123R, using the modified prospective transition method and therefore have not restated results for prior periods. Under this transition method, stock based compensation expense for the first quarter of fiscal 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, and is calculated based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 “Accounting for Stock Based Compensation” (“SFAS 123”). Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provision of SFAS 123R. As required by SFAS 123R, we have made an estimate of expected forfeitures and are recognizing compensation costs only for those stock-based compensation awards expected to vest. The cumulative effect of the initial adoption of SFAS 123R was not material.

Prior to the adoption of SFAS 123R, we recognized stock-based compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25 (“APB 25”). In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. We have applied provisions of SAB 107 in our adoption of SFAS 123R. See “Note B: Accounting Policies” and “Note O: Stock Based Compensation” in Notes to Consolidated Financial Statements for a further discussion on stock-based compensation.

On May 26, 2005, our Board of Directors approved the accelerated vesting of certain outstanding, unvested “out of the money” stock options awarded to employees, officers and other eligible participants under Teradyne’s various stock option plans in effect at that time. The stock options that were accelerated had exercise prices that were in excess of $13.26, the closing price of our common stock on the New York Stock Exchange on May 26, 2005 and ranged in exercise price from $13.73 to $41.37 per share. As a result of the vesting acceleration, options to purchase approximately 7.6 million shares became exercisable immediately and we reduced the compensation expense we otherwise would have been required to record under SFAS 123R by approximately $48.6 million in the aggregate on a pre-tax basis over fiscal years 2006, 2007 and 2008.

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Income Taxes

On a quarterly basis, we evaluate the realizability of our deferred tax assets by jurisdiction and assess the need for a valuation allowance. As a result of its review undertaken at December 31, 2002, we concluded under applicable accounting criteria that it was more likely than not that our deferred tax assets would not be realized and established a valuation allowance in several jurisdictions, most notably the United States. Due to the continued uncertainty of realization, we maintained our valuation allowance at December 31, 2005 and 2006. We do not expect to significantly reduce our valuation allowance until sufficient positive evidence exists, including sustained profitability, that realization is more likely than not.

Goodwill, Intangible and Long-Lived Assets

We assess the impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner that we use the acquired asset and significant negative industry or economic trends. When we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate commensurate with the associated risks. We assess goodwill for impairment at least annually in the fourth quarter, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. If the book value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess.

SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED

STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2006		2005		2004
Percentage of net revenue:
Net Revenue:
Products	81.7	%	80.1	%	83.2	%
Service	18.3		19.9		16.8
Total net revenue	100.0		100.0		100.0
Cost of revenues:
Cost of products	40.3		47.3		42.3
Cost of service	11.7		14.4		10.8
Total cost of revenue	52.0		61.7		53.1
Gross profit	48.0		38.3		46.9
Operating Expenses:
Engineering and development	15.2		20.8		17.8
Selling and administrative	21.0		23.5		18.0
Restructuring and other, net	(2.5	)	1.6		0.1
Total operating expenses	33.7		45.9		35.9
Net interest and other income	2.4		0.2		—
Income (loss) from continuing operations before income taxes	16.7		(7.4	)	11.0
Provision (benefit) for income taxes	2.0		(1.8	)	1.6
Income (loss) from continuing operations	14.7	%	(5.6	)%	9.4	%

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Results of Operations

Discontinued Operations

On October 10, 2005, we announced that we had reached a definitive agreement to sell our Connection Systems segment to Amphenol Corporation for $390.0 million in cash (subject to a post-closing net asset value adjustment). On November 30, 2005 the sale was completed for an adjusted purchase price of $384.7 million.

Connection Systems had revenues for the eleven month period ended November 30, 2005 of $331.0 million and for the year ended December 31, 2004 of $381.7 million. Net loss from discontinued operations for the year ended December 31, 2006 was $3.9 million, relating to a change in estimate to tax expenses from the sale of Connection Systems. Under applicable accounting guidance, there is an offsetting tax benefit recorded in continuing operations for the same amount. This tax provision results from the finalization of the 2005 U.S. tax return. Net income of the discontinued operations through the date of sale in 2005 was $14.2 million, and for the year ended December 31, 2004 was $32.6 million. In 2005, we recorded a gain on the sale of Connection Systems of $137.0 million, net of a tax provision of $31.0 million.

In accordance with SFAS 144, we are reporting Connection Systems as a discontinued operation in the consolidated financial statements for all periods presented throughout this Annual Report on Form 10-K. Unless indicated otherwise, the discussion and amounts provided in this “Results of Operations” section and elsewhere in this Form 10-K relate to continuing operations only.

Bookings

Our net orders for our three reportable segments for 2006, 2005 and 2004 are as follows:

	2006		2005		2004		2005-2006 Percent Change		2004-2005 Percent Change
	(in millions except percent change)
Semiconductor Test Systems	$	1,012.6	$	880.4	$	1,036.4	15	%	(15	)%
Assembly Test Systems		175.4		161.4		162.1	9		—
Other Test Systems		106.4		128.8		107.6	(17	)	20
	$	1,294.4	$	1,170.6	$	1,306.1	11	%	(10	)%

The Semiconductor Test Systems’ increase of 15% in orders from 2005 to 2006 was attributed to increased demand across a wide range of markets, as customers invested in system-on-a-chip (“SOC”) test equipment, principally in the first half of 2006. The FLEX family of testers has moved into mainstream production and, along with the J-750 platform, contributed to almost all of the growth experienced. We also saw a customer shift in orders from period to period with subcontractors making up a larger percentage of orders. The 15% decrease in Semiconductor Test Systems bookings from 2004 to 2005 was driven by less demand from our Subcon customers, primarily in the first half of 2005. The second half of 2005 showed a 50% increase over the first half. Although total Semiconductor Test Systems bookings declined from 2004 to 2005, FLEX bookings increased over 100% during this period.

The Assembly Test Systems’ increase of 9% in orders from 2005 to 2006 was primarily driven by demand in the Mil/Aero business due to the cyclical nature of the Mil/Aero program buys. Orders in the Assembly Test Systems segment were flat from 2004 to 2005.

The decrease in Other Test Systems’ orders of 17% from 2005 to 2006 resulted from a decrease in Broadband Test Systems, offset only slightly by an increase in Diagnostic Solutions. The Other Test Systems bookings increase from 2004 to 2005 was due primarily to a large project booked in the second half of 2005 by a major customer in our Diagnostic Solutions business.

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Our order cancellations and backlog adjustments for our three reportable segments for the last three years are as follows:

	2006		2005		2004
	(in millions)
Semiconductor Test Systems	$	3.3	$	15.2	$	10.5
Assembly Test Systems		0.5		—		0.2
Other Test Systems		1.6		—		—
	$	5.4	$	15.2	$	10.7

Semiconductor Test Systems experienced $15.2 million of cancellations and backlog adjustments in 2005. Approximately 70% of this amount was related to cancellations, while the remainder was a backlog adjustment related to management’s estimate of what may be canceled in future periods.

Our net bookings by region as a percentage of total net bookings are as follows:

	2006		2005		2004
United States	28	%	25	%	23	%
South East Asia	21		24		20
Europe	15		17		17
Singapore	12		13		14
Japan	12		9		6
Taiwan	11		10		19
Rest of the World	1		2		1
	100	%	100	%	100	%

For the past three years, our backlog of unfilled orders for our three reportable segments is as follows:

	2006		2005		2004
	(in millions)
Semiconductor Test Systems	$	212.4	$	289.7	$	224.1
Assembly Test Systems		81.5		70.1		63.8
Other Test Systems		44.9		62.4		38.8
	$	338.8	$	422.2	$	326.7

Customers may delay delivery of products or cancel orders suddenly and without significant notice, subject to possible cancellation penalties. In 2006, 2005, and 2004 there were no significant cancellation penalties received. Due to possible changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily indicative of the actual sales for any succeeding period. Delays in delivery schedules and/or cancellations of backlog during any particular period could have a material adverse effect on our business, financial condition, and results of operations.

Revenue

Our net revenue for our three reportable segments for 2006, 2005 and 2004 is as follows:

	2006		2005		2004		2005-2006 Percent Change		2004-2005 Percent Change
	(in millions except percent change)
Semiconductor Test Systems	$	1,088.9	$	814.2	$	1,146.3	34	%	(29	)%
Assembly Test Systems		164.0		155.1		155.2	6		—
Other Test Systems		123.9		105.9		108.7	17		(3	)
	$	1,376.8	$	1,075.2	$	1,410.2	28	%	(24	)%

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Semiconductor Test Systems’ revenue increase of 34% from 2005 to 2006 can be attributed to increased demand across a wide range of markets, as customers invested in SOC test equipment. Almost the entire increase is in our FLEX family and J750 products and is distributed across all regions. The increase is partially offset by a decrease of certain non-FLEX test systems. The reduction in bookings at our Subcon customers in the Semiconductor Test Systems segment in the second half of 2004 drove the decrease in revenue in the first half of 2005. The bookings reduction was primarily the result of lower utilization of our testers at our Subcon customers.

The Assembly Test Systems increase of 6% from 2005 to 2006 in revenue was primarily driven by the in-circuit commercial test systems market. Revenue in the Assembly Test Systems segment was relatively flat from 2004 to 2005.

The increase in Other Test Systems’ revenue resulted from a strong increase in Diagnostic Solutions sales due primarily to the Vehicle Measurement Module product line, offset by a decrease in Broadband Test Systems sales. Other Test Systems revenue was relatively flat from 2004 to 2005.

Our three reportable segments accounted for the following percentages of consolidated net revenue for each of the last three years:

	2006		2005		2004
Semiconductor Test Systems	79	%	76	%	81	%
Assembly Test Systems	12		14		11
Other Test Systems	9		10		8
	100	%	100	%	100	%

Our net revenue by region as a percentage of total revenue is as follows:

	2006		2005		2004
United States	23	%	22	%	21	%
South East Asia	24		24		19
Europe	15		17		16
Taiwan	14		12		19
Japan	12		9		6
Singapore	10		13		16
Rest of the World	2		3		3
	100	%	100	%	100	%

Our product and service revenue breakout for the past three years is as follows:

	2006		2005		2004		2005-2006 Percent Change		2004-2005 Percent Change
	(in millions except percent change)
Product Revenue	$	1,124.6	$	861.6	$	1,173.2	31	%	(27	)%
Service Revenue		252.2		213.6		237.0	18		(10	)
	$	1,376.8	$	1,075.2	$	1,410.2	28	%	(24	)%

Service revenue is derived from the servicing of our installed base of products and includes maintenance contracts, repairs, extended warranties, parts sales and applications support.

In the past three years, no single customer accounted for more than 10% of consolidated net revenue. In 2006, 2005, and 2004, our three largest customers in the aggregate accounted for 18%, 18% and 21% of consolidated net revenue, respectively.

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Gross Margin

	2006			2005			2004			2005-2006 Point Change	2004-2005 Point Change
	(dollars in millions)
Gross Margin	$	660.4		$	411.8		$	660.9
Percent of Total Revenue		48.0	%		38.3	%		46.9	%	9.7	(8.6	)

The increase in gross margin of approximately 10 points from 2005 to 2006 was the result of several factors. An increase in Semiconductor Test Systems sales volume contributed 4 points; a shift in product mix within Semiconductor Test Systems contributed 2 points; an improvement in service margins, primarily within Semiconductor Test Systems, contributed 2 points; the remaining 2 point increase was due to lower inventory provisions in 2006, as we recorded a $38.5 million charge for non-FLEX products in the Semiconductor Test Systems segment in 2005, compared to an $8.0 million charge for non-FLEX products in 2006.

The decrease in gross margin from 2004 to 2005 was the result of several factors. A reduction in Semiconductor Test Systems sales volume contributed 4 points; a $38.5 million inventory provision recorded in Semiconductor Test Systems for the write-down of excess non-FLEX inventory contributed 3.5 points; and a shift in product mix within Semiconductor Test contributed 1.5 points. These decreases were offset in part by lower variable employee compensation which contributed 1 point.

The breakout of product and service gross margin is as follows:

	2006			2005			2004			2005-2006 Point Change	2004-2005 Point Change
	(dollars in millions)
Product Gross Margin	$	569.3		$	352.7		$	576.0
Percent of Product Revenue		50.6	%		40.9	%		49.1	%	9.7	(8.2	)
	2006			2005			2004			2005-2006 Point Change	2004-2005 Point Change
	(dollars in millions)
Service Gross Margin	$	91.1		$	59.1		$	84.9
Percent of Service Revenue		36.1	%		27.7	%		35.8	%	8.4	(8.1	)

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 four quarters, is written-down to estimated net realizable value. These write-offs and write-downs consist of raw materials and components. Sales of previously reserved inventory items result in recovery of the related inventory provision, which is recorded in cost of revenues. During the years ended December 31, 2006, 2005 and 2004, we sold inventory that was previously reserved which had a favorable gross margin impact of $2.8 million, $1.5 million and $1.3 million, respectively.

During the year ended December 31, 2006, we recorded inventory provisions in cost of revenues of $14.7 million of which $11.7 million was for excess inventory and $3.0 million was for obsolete inventory. Of the $14.7 million of total excess and obsolete provisions recorded, $11.5 million related to Semiconductor Test Systems (including an $8.0 million provision for the write-down of excess non-FLEX inventory), $0.7 million related to Assembly Test Division and $2.5 million related to Other Test Systems.

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During the year ended December 31, 2005, we recorded inventory provisions of $49.3 million in cost of revenues of which $36.9 million was for excess inventory and $12.4 million was for obsolete inventory. Of the $49.3 million of total excess and obsolete provisions recorded, $45.6 million related to Semiconductor Test Systems (including a $38.5 million provision for the write-down of excess non-FLEX inventory), $2.9 million related to Assembly Test Systems and $0.8 million related to Other Test Systems.

During the year ended December 31, 2004, we recorded inventory provisions of $9.7 million in cost of revenues of which $3.5 million was for excess inventory and $6.2 million was for obsolete inventory. Of the $9.7 million of total excess and obsolete provisions recorded, $6.2 million related to Semiconductor Test Systems, $3.0 million related to Assembly Test Systems and $0.5 million related to Other Test Systems.

We scrapped $30.9 million, $34.3 million, and $42.1 million of inventory which had been previously written-down or written-off during the years ended December 31, 2006, 2005 and 2004, respectively. We have no set timeline for scrapping the remaining inventory.

As of December 31, 2006 and 2005, we had inventory reserves for amounts which have been written-down or written-off of $139.3 million and $158.4 million, respectively. Of the reserves at December 31, 2006, $13.0 million, $48.8 million, $5.3 million, and $72.2 million relate to inventory provisions recorded in 2006, 2005, 2004, and prior to 2004, respectively.

Engineering and Development

	2006			2005			2004			2005-2006 Change			2004-2005 Change
	(dollars in millions)
Engineering and Development	$	208.7		$	223.0		$	250.0		$	(14.3	)	$	(27.0	)
Percent of Total Revenue		15.2	%		20.8	%		17.8	%

During 2006 and 2005, we reduced our levels of investment in engineering and development spending. More than 80% of our total engineering and development expenses are incurred by the Semiconductor Test Systems segment, where a new test platform requires up to three years for development and costs between $150 and $250 million. During 2005, Semiconductor Test Systems completed its UltraFLEX platform development and shifted its focus to increasing the instrumentation set on its FLEX Test Platform (UltraFLEX and FLEX) which requires lower levels of engineering and development expenditures. During 2004, Semiconductor Test Systems reduced the number of platforms under major development, which increased the resources for continued engineering on selective platforms.

The decrease of $14.3 million in engineering and development spending from 2005 to 2006 consists of the following amounts:

• $26.1 million decrease due to a reduction in headcount primarily in the U.S., offset partially by an increase in engineering and development in low cost regions; and

• $6.5 million decrease due to the completion of certain portions of the FLEX Test Platform engineering work.

These decreases were partially offset by the following:

• $10.9 million increase due to higher variable employee compensation; and

• $7.4 million increase due to stock based compensation.

The decrease of $27.0 million in engineering and development spending from 2004 to 2005 consists of the following amounts:

• $21.6 million decrease due to the completion of certain portions of the FLEX Test Platform engineering work;

• $3.5 million decrease due to variable employee compensation; and

• $1.9 million decrease in depreciation and facility costs as a result of facility closures and lower capital spending.

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Selling and Administrative

	2006			2005			2004			2005-2006 Change		2004-2005 Change
	(dollars in millions)
Selling and Administrative	$	289.0		$	252.8		$	254.4		$	36.2	$	(1.6	)
Percent of Total Revenue		21.0	%		23.5	%		18.0	%

The increase in selling and administrative spending of $36.2 million from 2005 to 2006 consists of the following:

• $19.7 million increase due to higher variable employee compensation;

• $14.1 million increase due to transitional expenses, including the consolidation of facilities in Massachusetts and costs associated with the outsourcing of certain information technology functions; and

• $12.0 million increase due to stock based compensation.

These increase were partially offset by the following:

• $8.3 million decrease due to a reduction in headcount; and

• $1.3 million decrease in foreign exchange expense.

The decrease in selling and administrative spending of $1.6 million from 2004 to 2005 is due primarily to an $8.7 million decrease in variable compensation, offset by a $5.5 million increase in sales support spending for the FLEX platform and a $1.6 million increase in salaries and fringe benefits due to salary increases.

Restructuring and Other, Net

In response to a downturn in the industry, we initiated restructuring activities in 2002 across all segments to reduce costs and redundancies, principally through headcount reductions and facility consolidations. Further actions were initiated in 2003, to a lesser extent in 2004, 2005 and in 2006. Additionally, in 2005 and 2006, as part of our facility consolidation, we began selling certain real estate. The tables below represent activity related to these actions. The remaining accrual for severance and benefits is reflected in the accrued employees’ compensation and withholdings account on the balance sheet. The remaining accrual for lease payments on vacated facilities is reflected in the other accrued liabilities account and the other long-term accrued liabilities account and is expected to be paid out over the lease terms, the latest of which expires in 2012. We expect to pay out approximately $2.4 million against the lease accruals over the next twelve months. Our future lease commitments are net of expected sublease income of $12.7 million as of December 31, 2006. We have subleased approximately 15% of our unoccupied space as of December 31, 2006 and are actively attempting to sublease the remaining space.

2006 Activities

	Gain on Sale of Land and Buildings			Severance and Benefits			Facility Related			Long-Lived Asset Impairment			Total
	(in thousands)
2006 (gain) provision	$	(39,098	)	$	6,218		$	1,153		$	50		$	(31,677	)
Cash receipts (payments)		39,098			(4,353	)		(528	)		—			34,217
Asset write-downs		—			—			—			(50	)		(50	)
Balance at December 31, 2006	$	—		$	1,865		$	625		$	—		$	2,490

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During the year ended December 31, 2006, we recorded the following activity related to the 2006 restructuring activities:

• $39.1 million gain on the sale of real estate, including $35.8 million for two Semiconductor Test Systems facilities in Boston, MA, $1.5 million for a Semiconductor Test Systems parking facility in Boston, MA, $1.3 million for a Semiconductor Test Systems facility in San Jose, CA and $0.5 million for buildings in Nashua, NH;

• $6.2 million of severance charges related to 220 people across all segments; and

• $1.2 million of facility related charges for the exit of Semiconductor Test Systems facilities in Newbury Park, CA and Waltham, MA.

The restructuring actions taken during the year ended December 31, 2006 are expected to generate quarterly cost savings of approximately $2.4 million across all segments.

2005 Activities

	Severance and Benefits			Gain on Sale of Land and Buildings			Long-Lived Asset Impairment			Facility Related			Other Charges			Total
	(in thousands)
2005 provision (gain)	$	21,254		$	(15,329	)	$	8,331		$	2,276		$	4,247		$	20,779
Cash (payments) receipts		(11,439	)		15,329			—			(546	)		(3,718	)		(374	)
Asset write-downs		—			—			(8,331	)		—			—			(8,331	)
Balance at December 31, 2005	$	9,815		$	—		$	—		$	1,730		$	529		$	12,074
2006 (reversals) provision	$	(50	)	$	—		$	—		$	555		$	—		$	505
Cash payments		(8,766	)		—			—			(406	)		(529	)		(9,701	)
Balance at December 31, 2006	$	999			—			—		$	1,879		$	—			2,878

During the year ended December 31, 2005 and subsequently, we recorded the following activity related to the 2005 restructuring activities:

• $21.3 million for severance and related benefits for 526 people terminated across all segments;

• $15.3 million in gains, including $13.2 million in Semiconductor Test Systems for the sale of land in Japan and a building in Agoura Hills, CA, and $2.1 million at Corporate for the sale of a building in North Reading, MA;

• $8.3 million charge, for certain long-lived assets held for sale, as the estimated fair value was less than the carrying value of the assets primarily related to a building held for sale in North Reading, MA, at Corporate which was subsequently sold;

• $2.3 million charge in 2005 and an additional $0.6 million in 2006 related to the exit of an Assembly Test Systems facility in Poway, CA; and

• $4.2 million charge consisting of $3.1 million of divestiture-related fees at Corporate and $1.1 million for a lease obligation for unused software licenses in the Semiconductor Test Systems segment.

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2004 Activities

	Severance and Benefits			Long-Lived Asset Impairment			Facility Related			Total
	(in thousands)
2004 provision	$	3,296		$	650		$	448		$	4,394
Cash payments		(1,584	)		—			(21	)		(1,605	)
Asset write-downs		—			(650	)		—			(650	)
Balance at December 31, 2004	$	1,712		$	—		$	427		$	2,139
2005 provision		—			—			308			308
Cash payments		(1,611	)		—			(275	)		(1,886	)
Balance at December 31, 2005	$	101		$	—		$	460		$	561
Cash payments		(101	)		—			(284	)		(385	)
Balance at December 31, 2006	$	—		$	—		$	176		$	176

During the year ended December 31, 2004 and subsequently, we recorded the following activity related to the 2004 restructuring activities:

• $3.3 million for severance and related benefits for 140 people terminated across all segments and in all functional areas;

• $0.7 million for long-lived assets impaired in an Assembly Test Systems facility in Westford, MA as a result of exiting the facility; and

• $0.4 million in 2004 and an additional $0.3 million in 2005 related to the lease obligations of a vacated Assembly Test Systems facility in Westford, MA.

Pre-2004 Activities

	Severance and Benefits			Loss on Sale of Product Lines			Facility Related			Total
	(in thousands)
Balance at December 31, 2003	$	6,972		$	—		$	27,275		$	34,247
2004 (reversal) provision		(1,705	)		(1,875	)		397			(3,183	)
Cash (payments) receipts		(4,900	)		2,755			(7,448	)		(9,593	)
Asset write-downs		—			(880	)		—			(880	)
Balance at December 31, 2004	$	367		$	—		$	20,224		$	20,591
2005 (reversal) provision		—			(4,068	)		625			(3,443	)
Cash (payments) receipts		(167	)		4,068			(5,978	)		(2,077	)
Balance at December 31, 2005	$	200		$	—		$	14,871		$	15,071
2006 reversal		—			(406	)		(2,529	)		(2,935	)
Cash (payments) receipts		(16	)		406			(4,793	)		(4,403	)
Balance at December 31, 2006	$	184		$	—		$	7,549		$	7,733

During the year ended December 31, 2004 and subsequently, we recorded the following related to the pre-2004 restructuring activities:

• A reversal in 2004 of $1.7 million related to severance and related benefits;

29

• In Assembly Test System there was $1.9 million in reversals in 2004 from earnout payments received from the product line divestitures, $4.1 million in reversals in 2005 and $0.4 million in reversals in 2006 from earnout payments received from divestitures;

• Additional provisions of $0.4 million in 2004 and $0.6 million in 2005 related to changes in estimates of sublease income in Assembly Test Systems; and

• $2.5 million in 2006 of facility related credits of which $2.2 million consists of revised estimates of losses due to changes in the assumed amount and timing of sublease income on an Assembly Test Systems facility and $0.3 million credit related to exited leases in the Corporate segment.

Interest Income and Expense

	2006			2005			2004			2005-2006 Change		2004-2005 Change
	(in millions)
Interest income	$	44.6		$	17.8		$	15.4		$	26.8	$	2.4
Interest expense	$	(11.1	)	$	(16.2	)	$	(18.8	)	$	5.1	$	2.6

The increase in interest income from 2005 to 2006 was primarily attributable to higher cash balances primarily from the proceeds received from the divestiture of Connection Systems. The increase in interest income from 2004 to 2005 was primarily attributable to an increase in interest rates.

The decrease in interest expense from 2005 to 2006 was due primarily to the repayment of our 3.75% Senior Convertible Notes (the “Notes”) in the fourth quarter of 2006 and repurchases made earlier in the year. The decrease in interest expense from 2004 to 2005 was due primarily to the repurchase of $20.0 million and $71.5 million of our Notes in the first and fourth quarters of 2005, respectively.

Other Income and Expense, Net

Other income and expense, net, for the years ended December 31, 2006, 2005, and 2004 includes the following:

Income (expense)	2006		2005		2004
	(in thousands)
Gain on sale of investment (1)	$	—	$	—	$	2,584
Collection of loan (2)		—		—		585
Other than temporary impairment of common stock investment		—		—		(267	)
Fair value adjustment on warrants		—		—		(366	)
Total	$	—	$	—	$	2,536

(1) Gain on sale of an investment in common stock.

(2) The loan had previously been valued at zero due to its uncertainty of collection.

Income (Loss) from Continuing Operations before Income Taxes

	2006		2005			2004			2005-2006 Change			2004-2005 Change
	(in millions)
Semiconductor Test Systems	$	183.1	$	(88.6	)	$	158.8		$	271.7		$	(247.4	)
Assembly Test Systems		10.2		8.4			(5.9	)		1.8			14.3
Other Test Systems		6.2		8.7			2.7			(2.5	)		6.0
Corporate		30.9		(8.6	)		(1.1	)		39.5			(7.5	)
Total	$	230.4	$	(80.1	)	$	154.5		$	310.5		$	(234.6	)

30

The change to an income position from 2005 to 2006 was mainly attributable to increased sales in the Semiconductor Test Systems segment and to a lesser extent gains on the sale of real estate primarily in the Semiconductor Test Systems segment and additional interest income, net in corporate of $32.0 million. The change to a loss position from 2004 to 2005 was mainly attributable to decreased sales in the Semiconductor Test Systems segment.

Income Taxes

During 2006, the income tax expense from continuing operations totaled $27.8 million. The expense relates primarily to a tax provision for foreign taxes offset by benefits from a $6.0 million credit related to U.S. pension funding and the settlement of a California income tax audit for 1998 through 2000.

For the year ended December 31, 2005, there was a tax benefit from continuing operations that totaled $19.7 million. Under generally accepted accounting principles (“GAAP”), a benefit for $29.2 million was recognized for losses relating to 2005 continuing operations, as a result of the sale of Connection Systems. There was an equal and offsetting tax provision in the gain on sale of Connection System in discontinued operations. The remaining portion of the net tax benefit includes a tax provision that related primarily to foreign taxes. For the year ended December 31, 2004, tax expense relates primarily to a tax provision for foreign taxes and also included an IRS settlement related to the closing out of tax years 1999 through 2001.

Contractual Obligations

The following table reflects our contractual obligations as of December 31, 2006:

Payments Due by Period	Purchase Obligations		Non-cancelable Lease Commitments (1)		Pension Funding (2)		Total
	(in thousands)
2007	$	74,434	$	14,155	$	19,832	$	108,421
2008		—		9,616		1,832		11,448
2009		—		8,195		560		8,755
2010		—		7,432		560		7,992
2011		—		5,557		560		6,117
Beyond 2011		—		2,108		—		2,108
Total	$	74,434	$	47,063	$	23,344	$	144,841

(1) Minimum payments have not been reduced by minimum sublease income of $10.4 million due in the future under non-cancelable subleases.

(2) Pension funding does not represent contractual obligation but represents management’s funding intentions.

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Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities balance increased $16.9 million in 2006 from 2005, to $944.6 million. Cash activity for 2006, 2005 and 2004 was as follows (in millions):

	2006			2005			2004			2005-2006 Change			2004-2005 Change
Cash provided by operating activities:
Net income from continuing operations, adjusted for non cash items	$	281.7		$	37.2		$	241.6		$	244.5		$	(204.4	)
Change in operating assets and liabilities, net of product lines and businesses sold and acquired		172.2			(53.8	)		(23.7	)		226.0			(30.1	)
Cash (used for) provided by discontinued operations		(3.9	)		30.9			36.9			(34.8	)		(6.0	)
Total cash provided by operating activities	$	450.0		$	14.3		$	254.8		$	435.7		$	(240.5	)
Cash provided by (used for) investing activities for continuing operations		196.2			(185.2	)		(283.1	)		381.4			97.9
Cash provided by (used for) investing activities of discontinued operations		—			366.4			(9.8	)		(366.4	)		376.2
Total cash provided by (used for) investing activities	$	196.2		$	181.2		$	(292.9	)	$	15.0		$	474.1
Total cash (used for) provided by financing activities	$	(418.9	)	$	(63.9	)	$	18.8		$	(355.0	)	$	(82.7	)
Total	$	227.3		$	131.6		$	(19.3	)	$	95.7		$	150.9

Changes in operating assets and liabilities, net of product lines and businesses sold and acquired, provided cash of $172.2 million in 2006 primarily due to a decrease of accounts receivable balances of $73.3 million resulting mostly from the decrease in sales volume in the fourth quarter of 2006 compared to the fourth quarter of 2005 and to a lesser extent a decrease in days sales outstanding, based on annualized fourth quarter net revenues, from 61 days in 2005 to 55 days in 2006. Additionally, there was a decrease in inventory of $78.5 million due to shorter final cycle times with our FLEX products, and an increase of $32.8 million in accrued income taxes due to higher foreign taxes in 2006. The increase of cash flow from changes in accounts receivable, inventory and accrued taxes was partially offset by retirement plan contributions of $30.2 million of which $20.0 million was a contribution to our U.S. Qualified Pension Plan. Changes in operating assets and liabilities used cash of $53.8 million in 2005 primarily due to an increase in accounts receivable of $63.0 million and retirement plan contributions of $40.1 million, partially offset by a $70.5 million decrease in inventory. Changes in operating assets and liabilities used cash of $23.7 million in 2004 primarily due to retirement plan contributions of $38.8 million.

Investing activities consist of purchases, sales and maturities of marketable securities, proceeds from the sale of businesses, proceeds from asset disposals, proceeds from the sale of product lines, cash paid for assets and purchases of capital assets. Capital expenditures were $110.4 million in 2006, $113.5 million in 2005 and $154.6 million in 2004. Capital expenditures decreased by $41.1 million in 2005 compared to 2004, primarily due to a decrease of internally manufactured systems for use in marketing and engineering activities in the Semiconductor Test Systems segment of approximately $20.2 million. Additions of internally manufactured systems peaked in 2004, due to the introduction of the FLEX Test Platform. The remainder of the decrease was attributable to lower purchases of manufacturing and engineering equipment across Teradyne. Proceeds from asset disposals were $84.6 million and $34.0 million in 2006 and 2005, respectively and consist of sales of real estate. Investing activities of the discontinued operation provided $366.4 million of cash in 2005. In November of 2005, we sold Connection Systems to Amphenol Corporation for net proceeds of $384.7 million.

Financing activities include issuance of our common stock, repurchases of Teradyne’s common stock as well as repayments of debt. During 2006, 2005 and 2004, repayments of long-term debt used cash of $304.6 million, $98.7 million and $11.5 million, respectively. Upon maturity, we paid off the outstanding balance of our

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outstanding Notes, approximately $261 million aggregate principal, in the fourth quarter of 2006. We repurchased portions of our outstanding Notes in the first and third quarters of 2006, in the first and fourth quarters of 2005 and the third quarter of 2004. During 2006, 2005 and 2004, issuances of common stock under stock option and stock purchase plans generated $23.3 million, $34.7 million and $30.3 million, respectively.

In July 2006, our Board of Directors authorized a stock repurchase program. Under the program, we may spend up to an aggregate of $400 million to repurchase shares of our common stock in open market purchases, in privately negotiated transactions or through other appropriate means through July 2008. Shares are to be repurchased at our discretion, subject to market conditions and other factors. During 2006, we repurchased 10.6 million shares of common stock for $137.6 million for an average price of $12.96. Subsequently, we have repurchased 0.2 million shares of common stock for $2.4 million through February 28, 2007.

On October 24, 2001, we issued $400 million principal amount of the Notes in a private placement and received net proceeds of $389 million. The Notes were convertible at the option of the holders at a rate which was equivalent to a conversion price of approximately $26.00 per share, which was equal to a conversion rate of approximately 38.4615 shares of common stock per $1,000 principal amount of Notes. We made annual interest payments of $15 million, paid semi-annually, on the Notes commencing on April 15, 2002.

On August 18, 2004, our Board of Directors authorized us to repurchase up to $100 million of the outstanding Notes in open market purchases at negotiated prices below 101.50% of the principal amount. The Board subsequently amended its authorization on October 21, 2005 to authorize repurchases through open market purchases, privately negotiated transaction, auctions, by redemption pursuant to the terms of the governing indenture or other means as determined by our CEO or CFO, at prices below 100.75% of the principal amount. The $100 million authorization for repurchase was fully utilized by management during the third quarter of 2004 and the first and fourth quarters of 2005 to repurchase $8.5 million, $20.0 million and $71.5 million of the Notes, respectively. The decision to repurchase a portion of the Notes was based on the fair market value of the Notes being below the return we would earn on high grade investment securities. On January 26, 2006, management was given further authorization by our Board to repurchase up to the full $300 million of the principal amount that remained outstanding under the Notes through open market purchases, privately negotiated transactions and auctions for a price not to exceed 100% of the principal amount plus any accrued but unpaid interest thereon. During 2006, we repurchased Notes of $15.0 million in the first quarter, $24.0 million in the third quarter, and we repaid the remaining $261 million in the fourth quarter of 2006.

On February 22, 2007, we announced the signing of a definitive agreement with MOSAID Technologies, Inc. of Ottawa, Canada to acquire enabling test technology for a purchase price of $17 million. The transaction is expected to close in March 2007.

We believe our cash, cash equivalents and marketable securities balance of $944.6 million will be sufficient to meet working capital and expenditure needs for at least the foreseeable future. Inflation has not had a significant long-term impact on earnings.

Retirement Plans

We adopted the funded status recognition provision of SFAS 158 effective December 31, 2006. This standard amends SFAS 87, 88, 106, and 132(R). SFAS 158 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 as defined by SFAS 158. The pension asset or liability represents the difference between the fair value of the pension plan’s assets and the projected benefit obligation as of December 31. For other postretirement benefit plans, the liability is the difference between the fair value of the plan’s assets and the

accumulated postretirement benefit obligation as of December 31.

Our pension expense, which includes the U.S. Qualified Pension Plan, certain Qualified Plans for non-U.S. subsidiaries and a Supplemental Executive Defined Benefit Plan, was approximately $11.9 million for the year

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ended December 31, 2006. The largest portion of our 2006 pension expense was $4.1 million for our U.S. Qualified Pension Plan, which is calculated based upon a number of actuarial assumptions, including an expected return on plan assets for our U.S. Qualified Pension Plan assets of 7.5%. In developing the expected return on plan assets assumption, we evaluated input from our investment manager and pension consultants, including their review of asset class return expectations. Based on this review, we believe that 7.5% was an appropriate rate to use for fiscal 2006. We will continue to evaluate its expected return on plan assets at least annually, and will adjust these returns as necessary.

The current asset allocation for our U.S. Qualified Pension Plan is 49.3% invested in equity securities and 50.7% invested in fixed income securities, which is in accordance with the plan’s asset allocation requirements. Our actual asset allocation as of December 31, 2006 was virtually identical to the plan’s asset allocation model. Our investment manager regularly reviews our actual asset allocation and periodically rebalances the portfolio to ensure alignment with our targeted allocations.

We base our determination of pension expense or income on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return on assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As of December 31, 2006, under the U.S. Qualified Pension Plan, we had cumulative gains of approximately $11.3 million, which remain to be recognized in the calculation of the market-related value of assets. The discount rate that we utilized for determining future pension obligations for the U.S. Qualified Pension Plan is based on the Citigroup Pension Liability Index (formerly Salomon Brothers Pension Liability Index), which was at 5.9% at December 31, 2006, up from 5.55% at December 31, 2005. As a result, we selected 6.0% for its December 31, 2006 discount rate, which was up from 5.5% as of December 31, 2005. The duration of the Citigroup Pension Liability Index at December 31, 2006 was 15.9 years, which approximates the duration of the portfolio of pension liabilities. We estimate that our pension expense for the U.S. Qualified Pension Plan will be approximately $1.0 million in 2007. The pension expense estimate for 2007 is based on a 6.0% discount rate. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the employee population participating in our pension plans. As of December 31, 2006, we had unrecognized pension losses of $59.4 million, of which $44.4 million is for the U.S. Plan.

We performed a sensitivity analysis, which expresses the estimated U.S. Qualified Pension Plan pension expense that would have resulted for the year ended December 31, 2006, if we changed either the discount rate or the expected return on plan assets.

	Discount Rate
Return on Plan Assets	4.5%		5.5%		6.5%
	(in millions)
6.50%	$	8.9	$	6.1	$	3.6
7.50%		6.9		4.1		1.5
8.50%		4.8		2.0		(0.5	)

Our funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of equity and fixed income securities. The value of our U.S. Qualified Pension Plan assets has increased from $208.2 million at December 31, 2005 to $249.0 million at December 31, 2006. Our contributions and investment performance have eliminated the deficit of our U.S. Qualified Pension Plan, net of benefit obligations, of $20.2 million at December 31, 2005 and created a surplus of $31.5 million at December 31, 2006. During 2006, we contributed $20.0 million to the U.S. Qualified Pension Plan. Based upon the plan’s funded status as of December 31, 2006 we do not expect to make any contributions in 2007 to this plan.

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Equity Compensation Plans

In addition to our 1996 Employee Stock Purchase Plan discussed in “Note O: Stock Based Compensation” in Notes to Consolidated Financial Statements, we have the 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”) under which equity securities are authorized for issuance. The 2006 Equity Plan was approved by stockholders on May 25, 2006. The 2006 Equity Plan replaces our 1996 Non-Employee Director Stock Option Plan, our 1997 Employee Stock Option Plan, and our 1991 Employee Stock Option Plan, each of which were terminated upon the shareholders approval of the 2006 Equity Plan. We may not issue any additional option grants or awards under the terminated plans, but the options and awards previously granted and currently outstanding under these plans will remain in effect until the earlier of the date of their exercise, vesting or expiration.

The following table presents information about these plans as of December 31, 2006 (share numbers in thousands):

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (1))
Equity plans approved by shareholders	4,014	(1)	$	19.42	13,169	(3)
Equity plans not approved by shareholders (4)	15,941	(2)	$	20.34	—
Total	19,955		$	20.16	13,169

(1) Includes 98,000 shares of restricted stock units that are not included in the calculation of the weighted average exercise price.

(2) Includes 1,030,000 shares of restricted stock units that are not included in the calculation of the weighted average exercise price.

(3) Consists of 11,901,000 securities available for issuance under the 2006 Equity Plan and 1,268,000 of securities available for issuance under the Employee Stock Purchase Plan.

(4) In connection with the acquisition of GenRad, Inc. in October 2001 (the “Acquisition”), we assumed the outstanding options granted under the GenRad, Inc. 1991 Equity Incentive Plan, the GenRad, Inc. 1991 Directors’ Stock Option Plan and the GenRad, Inc. 1997 Non-Qualified Employee Stock Option Plan (collectively, the “GenRad Plans”). Upon the consummation of the Acquisition, these options became exercisable for shares of our common stock based on an exchange ratio of 0.1733 shares of our common stock for each share of GenRad’s common stock. No additional options will be granted pursuant to the GenRad Plans. As of December 31, 2006, there were outstanding options exercisable for an aggregate of 184 shares of our common stock pursuant to the GenRad Plans, with a weighted average exercise price of $70.66 per share.

The purpose of the 2006 Equity Plan is to motivate employees, officers, directors, consultants and advisors by providing equity ownership and compensation opportunities in Teradyne. The aggregate number of shares available under the 2006 Equity Plan is 12,000,000 shares of our common stock. The 2006 Equity Plan authorizes the grant of stock-based awards in the form of (1) non-qualified and incentive stock options, (2) stock appreciation rights, (3) restricted stock awards and restricted stock unit awards, (4) phantom stock, and (5) other stock-based awards. Awards may be tied to time-based vesting schedules and/or performance-based vesting measured by reference to performance criteria chosen by the Compensation Committee of the Board of Directors, which administers the 2006 Equity Plan. Awards may be made to any employee, officer, consultant and advisor of Teradyne and our subsidiaries, as well as, to our directors. The maximum number of shares of stock-based awards that may be granted to one participant during any one fiscal year is 2,000,000 shares of common stock. The 2006 Equity Plan will expire on May 24, 2016.

As mentioned above, our 1997 Employee Stock Option Plan (the “1997 Plan”) was terminated on May 25, 2006, when we adopted our 2006 Equity Plan. Our 1997 Plan was not approved by our shareholders. The 1997

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Plan allowed us to issue options and stock awards (including restricted stock and restricted stock units) to our employees, consultants and directors and also to issue deferred stock units to directors. The Compensation Committee of our Board of Directors administered the 1997 Plan and specified at the time of grant of an award, the pertinent terms of such award, including, if such award is an option, whether it was an incentive stock option or non-qualified stock option, the exercise price and vesting provisions. Under the 1997 Plan, as of December 31, 2006, there were outstanding options exercisable for an aggregate of 14,911,000 shares, outstanding restricted stock units which can convert into an aggregate of 1,030,000 shares, and 20,774 shares reserved for issuance pursuant to outstanding director deferred stock units. Most of the outstanding options issued under the 1997 Plan vest in equal installments over two or four years and have a maximum term of either five or seven years. The restricted stock units issued under the 1997 Plan vest in equal installments over two years.

As of December 31, 2006 total unrecognized compensation costs related to non-vested awards and options totaled $15.7 million, and is expected to be recognized over a weighted average period of 0.9 years.

Performance Graph

The following graph compares the change in our cumulative total shareholder return in our common stock with the Standard & Poor’s 500 Index and the S&P Information Technology 500 Index. The comparison assumes $100.00 was invested on December 31, 2001 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.

	2001		2002		2003		2004		2005		2006
Teradyne, Inc.	$	100.00	$	43.17	$	84.44	$	56.64	$	48.34	$	49.64
S&P 500 Index	$	100.00	$	77.95	$	100.27	$	111.15	$	116.60	$	134.97
S&P Information Technology 500 Index	$	100.00	$	62.60	$	92.16	$	94.51	$	95.46	$	103.44

(1) This graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any other filing under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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(2) The stock price performance shown on the graph is not necessarily indicative of future price performance. Information used on the graph was obtained from Hewitt Associates, a source believed to be reliable, but we are not responsible for any errors or omissions in such information.

Related Party Transactions

In January of 2006, Paul Tufano, a member of our Board of Directors, became Executive Vice President and Chief Financial Officer of Solectron Corporation. In the ordinary course of business, we have for the last ten years purchased printed circuit board assemblies from Solectron and has also sold in-circuit testers to Solectron. In the years ended December 31, 2006, 2005 and 2004, we purchased $229.9 million, $153.1 million and $141.5 million of printed circuit board assemblies from Solectron, respectively. Sales of in-circuit testers to Solectron for the years ended December 31, 2006, 2005 and 2004 were $5.7 million, $5.7 million and $2.2. million, respectively. As of December 31, 2006 and 2005, $7.0 million and $7.2 million, respectively, was included in accounts payable and $1.3 million and $1.9 million, respectively, was included in accounts receivable, representing amounts due to/from Solectron. We believe that these purchases and sales were made on terms and conditions that were fair and not less favorable to us than could have been obtained from unaffiliated third parties. We expect to continue our relationship with Solectron in 2007 in similar terms.

Recently Issued Accounting Pronouncements

In December 2004, the FASB issued SFAS 123R. In annual periods beginning after June 15, 2005, SFAS 123R would eliminate the ability to account for equity-based compensation using the intrinsic value-based method under APB 25. SFAS 123R requires companies to record in their Statements of Operations equity-based compensation expense for stock compensation awards based on the fair value of the equity instrument at the time of grant. We adopted SFAS 123R beginning in the first quarter of 2006, as required, using the “Modified Prospective” method, and did not restate prior periods.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 modifies the accounting for abnormal inventory costs, and the manner in which companies allocate fixed overhead expenses to inventory. SFAS 151 is effective for inventory costs incurred during annual periods beginning after June 15, 2005. We implemented SFAS 151 beginning in the first quarter of 2006 and it did not have a material impact on our financial position or results of operations.

In June 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN No. 48 will not have a material impact on our financial positions or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and other Postretirement Benefit Plans, an amendment of FASB statements No. 87, 88, 106, and 132(R)” (SFAS 158), which requires companies to recognize the funded status of their defined benefit pension and other postretirement benefit plans on the balance sheet. The funded status is calculated as the difference between the fair value of the plan’s asset and the benefit obligation of the plan, which results in the recognition of a net liability or net asset. For a pension plans, the benefit obligation is a projected benefit obligation ( the “PBO”); for other postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation (the “APBO”). The projected benefit obligation ( the “PBO”) represents actuarial present value of vested and non-vested benefits attributed to the plan through the pension benefit formula for service rendered to that date based on employees’ future salary levels. The accumulated postretirement benefit obligation (the “APBO”) represents

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an actuarial present value of benefits attributed to employee service that has been rendered to date. Additionally, SFAS 158 requires that any pension or post retirement benefit related unrecognized gains/losses, prior service costs/credits, and net transition assets/obligations expected to be recognized as part of net periodic benefit cost in future periods, be recorded within other comprehensive income/(loss). Upon adoption of SFAS 158 on December 31, 2006, the impact of recording our unrecognized losses, prior service costs and net transition obligations was a decrease to shareholders’ equity of $64.6 million.

In September 2006, the Staff of the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of determining whether the current year’s financial statements are materially misstated. SAB 108 is effective for fiscal years ended December 31, 2006. The adoption of SAB 108 did not have a material impact on our financial positions or results of operations.

Item 7A: Quantitative and Qualitative Disclosures About Market Risks

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash investments, forward currency contracts and accounts receivable. We maintain cash and marketable securities investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated AA or higher, which have minimal credit risk. We place forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. We perform ongoing credit evaluations of our customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable.

Exchange Rate Risk Management

We regularly enter into foreign currency forward contracts to hedge the value of our net monetary assets in the European Euro, Great Britain Pound, Japanese Yen and the Taiwan Dollar. These foreign currency forward contracts have maturities of less than one year. These contracts are used to reduce our risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. In addition, we periodically hedge anticipated cash flow transactions with foreign currency forward contracts. The gains and losses on these contracts are deferred and recognized in the same period as the hedged transaction is recognized in income. We do not engage in currency speculation.

We performed a sensitivity analysis assuming a hypothetical 10% fluctuation in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of December 31, 2006 and 2005, the analysis indicated that these hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows.

Interest Rate Risk Management

We are exposed to potential loss due to changes in interest rates. The principal interest rate exposure is to changes in domestic interest rates. Investments with interest rate risk include short and long-term marketable securities.

In order to estimate the potential loss due to interest rate risk, a 10% fluctuation in interest rates was assumed. Market risk for the short and long-term marketable securities was estimated as the potential change in the fair value resulting from a hypothetical change in interest rates for securities contained in the investment portfolio. On these bases, the potential change in fair value from changes in interest rates is $2.6 million and $1.3 million as of December 31, 2006 and 2005, respectively.

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Item 8: Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Teradyne, Inc. (the “Company”):

We have completed integrated audits of Teradyne, Inc.’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Teradyne and its subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note C to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006 and the manner in which it accounts for defined benefit pension and other postretirement plans effective December 31, 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts

March 1, 2007

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TERADYNE, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2006 and 2005

	2006			2005
	(in thousands, except per share information)
ASSETS
Current assets:
Cash and cash equivalents	$	568,025		$	340,699
Marketable securities		47,766			354,042
Accounts receivable, less allowance for doubtful accounts of $4,962 and $4,926 in 2006 and 2005, respectively		158,939			232,462
Inventories
Parts		9,154			37,028
Assemblies in process		83,916			105,678
		93,070			142,706
Prepayments and other current assets		21,610			25,033
Total current assets		889,410			1,094,942
Property, plant and equipment:
Land		26,092			36,996
Buildings and improvements		202,522			267,157
Machinery and equipment		648,957			735,526
Construction in progress		5,476			19,191
Total		883,047			1,058,870
Less: Accumulated depreciation		516,698			637,584
Net property, plant and equipment		366,349			421,286
Marketable securities		328,827			232,952
Goodwill		69,147			69,147
Intangible and other assets		35,819			35,537
Retirement plans assets		31,503			5,868
Total assets	$	1,721,055		$	1,859,732
LIABILITIES
Current liabilities:
Notes payable—banks	$	—		$	2,547
Current portion of long-term debt		—			300,282
Accounts payable		40,082			48,012
Accrued employees’ compensation and withholdings		87,975			81,670
Deferred revenue and customer advances		46,471			31,477
Other accrued liabilities		49,136			48,273
Accrued income taxes		36,052			3,234
Total current liabilities		259,716			515,495
Retirement plans liabilities		81,121			80,224
Long-term other accrued liabilities		19,031			19,528
Other long-term debt		—			1,819
Total liabilities		359,868			617,066
Commitments and contingencies (Note J)
SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized, 188,952 and 197,011 shares issued and outstanding at December 31, 2006 and 2005, respectively		23,619			24,626
Additional paid-in capital		1,179,015			1,221,990
Deferred compensation		—			(22,104	)
Accumulated other comprehensive loss		(66,309	)		(78,348	)
Retained earnings		224,862			96,502
Total shareholders’ equity		1,361,187			1,242,666
Total liabilities and shareholders’ equity	$	1,721,055		$	1,859,732

The accompanying notes are an integral part of the consolidated financial statements.

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TERADYNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2006			2005			2004
	(in thousands, except per share amounts)
Net revenue:
Products	$	1,124,640		$	861,616		$	1,173,189
Services		252,178			213,616			237,033
Total net revenue		1,376,818			1,075,232			1,410,222
Cost of revenues:
Cost of products		555,349			508,936			597,165
Cost of services		161,037			154,528			152,177
Total cost of revenue		716,386			663,464			749,342
Gross profit		660,432			411,768			660,880
Operating expenses:
Engineering and development		208,702			223,015			249,966
Selling and administrative		289,006			252,807			254,406
Restructuring and other, net		(34,107	)		17,644			1,211
Total operating expenses		463,601			493,466			505,583
Income (loss) from operations		196,831			(81,698	)		155,297
Interest income		44,624			17,790			15,387
Interest expense		(11,060	)		(16,229	)		(18,752	)
Other income and expense, net		—			—			2,536
Income (loss) from continuing operations before income taxes		230,395			(80,137	)		154,468
Provision (benefit) for income taxes		27,752			(19,680	)		21,849
Income (loss) from continuing operations		202,643			(60,457	)		132,619
(Loss) income from discontinued operations (net of income tax provision of $3,886, $1,320 and $888 in 2006, 2005 and 2004, respectively; Note E)		(3,886	)		14,152			32,618
Gain on disposal of discontinued operations (net of income tax provision of $0, $30,979 and $0; Note E)		—			136,953			—
Net income	$	198,757		$	90,648		$	165,237
Net income (loss) per common share from continuing operations:
Basic	$	1.04		$	(0.31	)	$	0.68
Diluted	$	1.03		$	(0.31	)	$	0.67
Net income per common share:
Basic	$	1.02		$	0.46		$	0.85
Diluted	$	1.01		$	0.46		$	0.84
Shares used in net income (loss) per common share—basic		194,729			196,283			194,048
Shares used in net income (loss) per common share—diluted		204,414			196,283			197,432

The accompanying notes are an integral part of the consolidated financial statements.

42

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 31, 2006, 2005 and 2004

	Shares				Common Stock Par Value			Additional Paid-in Capital			Deferred Compen- sation			Treasury Stock			Accumulated Other Compre- hensive Loss			Retained Earnings			Total Shareholders’ Equity			Compre- hensive Income (Loss)
	Issued		Reacquired
	(in thousands)
Balance, December 31, 2003	218,628		26,655		$	27,329		$	1,294,661		$	—		$	(557,057	)	$	(51,846	)	$	236,483		$	949,570
Issuance of stock to employees under benefit plans	2,316					289			29,962															30,251
Return of escrowed shares			36												(2,027	)								(2,027	)
Conversion of treasury stock to unissued shares	(26,691	)	(26,691	)		(3,336	)		(159,882	)					559,084						(395,866	)		—
Comprehensive income:
Net income																					165,237			165,237		$	165,237
Foreign currency translation adjustment																		813						813			813
Reclassification adjustment for gain on marketable securities included in net income net of applicable tax of $0																		(2,404	)					(2,404	)		(2,404	)
Unrealized loss on cash flow hedge																		(275	)					(275	)		(275	)
Unrealized losses on investments, net of applicable tax of $0																		(5,339	)					(5,339	)		(5,339	)
Increase in additional minimum pension liability, net of applicable tax of $0																		(2,262	)					(2,262	)		(2,262	)
Total comprehensive income																										$	155,770
Balance, December 31, 2004	194,253		—		$	24,282		$	1,164,741			—		$	—		$	(61,313	)	$	5,854		$	1,133,564
Issuance of stock to employees under benefit plans	2,758					344			57,249			(22,866	)											34,727
Amortization of unearned compensation												762												762
Comprehensive income:
Net income																					90,648			90,648		$	90,648
Foreign currency translation adjustment																		(1,218	)					(1,218	)		(1,218	)
Unrealized loss on cash flow hedge																		305						305			305
Unrealized losses on investments, net of applicable tax of $0																		(5,111	)					(5,111	)		(5,111	)
Increase in additional minimum pension liability, net of applicable tax of $1,712																		(11,011	)					(11,011	)		(11,011	)
Total comprehensive income																										$	73,613
Balance, December 31, 2005	197,011		—		$	24,626		$	1,221,990		$	(22,104	)	$	—		$	(78,348	)	$	96,502		$	1,242,666
Issuance of stock to employees under benefit plans, net of shares withheld for payroll tax of $2,635	2,551					319			20,318															20,637
Stock-based compensation expense									2,547			22,104												24,651
Repurchase of stock	(10,610	)				(1,326	)		(65,840	)											(70,397	)		(137,563	)
Comprehensive income:
Net income																					198,757			198,757		$	198,757
Foreign currency translation adjustment																		2,723						2,723			2,723
Unrealized loss on cash flow hedge																		(30	)					(30	)		(30	)
Unrealized losses on investments, net of applicable tax of $0																		2,807						2,807			2,807
Decrease in additional minimum pension liability, net of applicable tax of $8,057																		71,164						71,164			71,164
Adjustment to initially apply SFAS 158, net of applicable tax of $2,827																		(64,625	)					(64,625	)		—
Total comprehensive income																										$	275,421
Balance, December 31, 2006	188,952		—		$	23,619		$	1,179,015		$	—		$	—		$	(66,309	)	$	224,862		$	1,361,187

The accompanying notes are an integral part of the consolidated financial statements.

43

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2006			2005			2004
	(in thousands)
Cash flows from operating activities:
Net income	$	198,757		$	90,648		$	165,237
Less: (Loss) income from discontinued operations		(3,886	)		14,152			32,618
Less: Gain on disposal of discontinued operations (Note E)		—			136,953			—
Income (loss) from continuing operations		202,643			(60,457	)		132,619
Adjustments to reconcile income (loss) from continuing operations to net cash provided (used for) by operating activities:
Depreciation		68,693			85,270			94,403
Amortization		4,847			5,898			5,729
Stock-based compensation		24,651			762			—
Impairment of long-lived assets		50			8,331			650
Gain on sale of land and building		(39,098	)		(15,329	)		—
Gain on sale of product lines		(406	)		(4,068	)		(1,362	)
Provision for doubtful accounts		200			278			—
Provision for inventory obsolescence		14,651			49,285			9,699
Deferred income tax credit		(4,185	)		(30,955	)		(365	)
Tax credit related to pension funding		6,026			—			—
Other non-cash items, net		3,757			(1,842	)		260
Changes in operating assets and liabilities, net of businesses and product lines sold and acquired:
Accounts receivable		73,323			(63,031	)		12,127
Inventories		78,467			70,477			(5,476	)
Other assets		6,556			3,359			2,813
Accounts payable, deferred revenue and accruals		11,211			(14,275	)		1,329
Retirement plan contributions		(30,232	)		(40,091	)		(38,820	)
Accrued income taxes		32,818			(10,181	)		4,362
Net cash provided by (used for) continuing operations		453,972			(16,569	)		217,968
Net cash (used for) provided by discontinued operations		(3,886	)		30,891			36,860
Net cash provided by operating activities		450,086			14,322			254,828
Cash flows from investing activities:
Investments in property, plant and equipment		(110,417	)		(113,474	)		(154,558	)
Proceeds from sale of land and building		84,617			34,014			—
Proceeds from sale of product lines		406			4,068			1,259
Purchases of available-for-sale marketable securities		(396,922	)		(402,911	)		(367,037	)
Proceeds from sales and maturities of available-for-sale marketable securities		618,495			293,060			237,249
Net cash provided by (used for) continuing operations		196,179			(185,243	)		(283,087	)
Net cash provided by (used for) discontinued operations		—			366,418			(9,822	)
Net cash provided by (used by) investing activities		196,179			181,175			(292,909	)
Cash flows from financing activities:
Payments of long-term debt and notes payable		(304,648	)		(98,672	)		(11,467	)
Repurchase of common stock		(137,563	)		—			—
Issuance of common stock under stock option and stock purchase plans		23,272			34,727			30,251
Net cash (used for) provided by financing activities		(418,939	)		(63,945	)		18,784
Increase (decrease) in cash and cash equivalents		227,326			131,552			(19,297	)
Cash and cash equivalents at beginning of year		340,699			209,147			228,444
Cash and cash equivalents at end of year	$	568,025		$	340,699		$	209,147
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest	$	12,469		$	15,037		$	16,658
Income taxes paid	$	6,763		$	17,748		$	13,963

The accompanying notes are an integral part of the consolidated financial statements.

44

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. THE COMPANY

Teradyne, Inc. is a leading global supplier of automatic test equipment.

Teradyne’s automatic test equipment products include:

• semiconductor test systems (“Semiconductor Test Systems”);

• circuit-board test and inspection systems and Mil/Aero test instrumentation and systems (“Assembly Test Systems”);

• automotive diagnostic and test systems (“Diagnostic Solutions”); and

• voice and broadband access network test systems (“Broadband Test Systems”).

Broadband Test Systems and Diagnostic Solutions have been combined into “Other Test Systems” for purposes of Teradyne’s segment reporting.

B. ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years’ amounts were reclassified to conform to the current year presentation.

In November 2005, the company sold Teradyne Connection Systems, its interconnection systems product and services division. The results of operations of Connection Systems as well as balance sheet amounts pertaining to this business have been classified as discontinued operations in the consolidated financial statements (see “Note E: Discontinued Operations”).

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, doubtful accounts, income taxes, pensions, warranties, and loss contingencies. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

Revenue Recognition

In accordance with the guidance provided by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, “Revenue Recognition,” Teradyne recognizes revenue when there is persuasive evidence 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 of the related receivable is reasonably assured. Title and risk of loss generally pass to Teradyne’s customers upon shipment. In circumstances where either title or risk of loss pass upon destination, acceptance or cash payment, Teradyne defers revenue recognition until such events occur.

45

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

For equipment that includes software that is incidental to the product, revenue is recognized upon shipment 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, or in the case of new products, revenue is deferred until customer acceptance has been received.

For multiple element arrangements, Teradyne defers the greater of the fair value of any undelivered elements of the contract or the portion of the sales price which is not payable until the undelivered elements are delivered. For a delivered item to be considered a separate unit, the delivered item must have value to the customer on a standalone basis, there must be objective and reliable evidence of fair value of the undelivered items in the arrangement and the delivery or performance of the undelivered item must be considered probable and substantially in the control of Teradyne. Teradyne also defers the portion of the sales price that is not due until acceptance, which represents deferred profit. Fair value is the price charged when the element is sold separately. 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 to fifteen days of product shipment and is completed within one to two days thereafter. Training services are optional and do not affect the customer’s ability to use the product. Teradyne defers revenue for the fair value of installation and training. Extended warranties constitute warranty obligations beyond one year and Teradyne defers revenue in accordance with FASB Technical Bulletin 90-1.

Teradyne’s products are generally subject to warranty and related costs of the warranty are provided for in cost of revenue when product revenue is recognized. Teradyne classifies shipping and handling costs in cost of revenue. Service revenue is recognized over the contractual period or as the services are performed.

Teradyne generally does not provide its customers with contractual rights of return for any of its products.

For transactions involving the sale of software which is not incidental to the product, revenue is recognized in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 97-2”). Teradyne recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. In instances where an arrangement contains multiple elements, revenue is deferred related to the undelivered elements to the extent that vendor-specific objective evidence of fair value (“VSOE”) exists for such elements. In instances where VSOE does not exist for one or more of the undelivered elements of an arrangement, all revenue related to the arrangement is deferred until all elements have been delivered. VSOE is the price charged when the element is sold separately. Revenue for the separate elements is only recognized where the functionality of the undelivered element is not essential to the delivered element.

For certain contracts eligible for contract accounting under SOP No. 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts,” revenue is recognized using the percentage-of- completion accounting method based upon the percentage of incurred costs to estimated total costs. These arrangements require significant production, modification or customization. In all cases, changes to total estimated costs and anticipated losses, if any, are recognized in the period in which they are determined. With respect to contract change orders, claims or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. Such amounts are only included in the contract value when they can be

46

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

reliably estimated and realization is reasonably assured, generally upon receipt of a customer approved change order. As of December 31, 2006 and 2005, Teradyne had $16.9 million and $24.3 million in unbilled amounts on long-term contracts included in accounts receivable, respectively. These amounts will be billed on a milestone basis in accordance with contractual terms.

Inventories

Inventories, which include materials, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventory for net realizable value. Teradyne records a provision for both excess and obsolete inventory when such writedowns or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets. Leasehold improvements and major renewals are capitalized and included in property, plant and equipment accounts while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related allowances for depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations.

Teradyne provides for depreciation of its assets principally on the straight line method with the cost of the assets being charged to expense over their useful lives as follows:

Buildings	40 years
Building improvements	5 to 10 years
Leasehold improvements	3 to 10 years
Furniture and fixtures	10 years
Test systems manufactured internally	6 years
Machinery and equipment	3 to 5 years
Software	3 to 5 years

Test systems manufactured internally are used by Teradyne for customer evaluations and manufacturing and support of its customers. Teradyne depreciates the test systems manufactured internally over a six-year life to cost of revenues and selling and administrative expenses. Teradyne often sells internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally manufactured test systems sold in the years ended December 31, 2006, 2005 and 2004 was $40.0 million, $47.6 million and $43.4 million, respectively.

Goodwill, Intangible and Long-Lived Assets

Teradyne accounts for its goodwill and intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth quarter, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. If the

47

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

book value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess.

In accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. The cash flow estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time.

Engineering and Development Costs

Teradyne’s products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees, building costs, depreciation, and tooling costs.

Advertising Costs

Teradyne expenses all advertising costs as incurred. Advertising costs were $2.7 million, $2.4 million and $3.1 million in 2006, 2005 and 2004, respectively.

Product Warranty

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

	Balance
	(in thousands)
Balance at December 31, 2004	$	12,447
Accruals for warranties issued during the period		12,627
Settlements made during the period		(14,578	)
Balance at December 31, 2005	$	10,496
Accruals for warranties issued during the period		19,563
Settlements made during the period		(17,162	)
Balance at December 31, 2006	$	12,897

48

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

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

	Balance
	(in thousands)
Balance at December 31, 2004	$	4,090
Deferral of new extended warranty revenue		3,743
Recognition of extended warranty deferred revenue		(2,237	)
Balance at December 31, 2005	$	5,596
Deferral of new extended warranty revenue		5,777
Recognition of extended warranty deferred revenue		(3,023	)
Balance at December 31, 2006	$	8,350

Stock Compensation Plans and Employee Stock Purchase Plan

Equity Plans and Employee Stock Purchase Plan

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

Teradyne grants stock options to purchase its common stock at 100% of the fair market value on the grant date. Generally stock options vest in equal installments over four years from the grant date and have a maximum term of seven years. Options granted to non-employee directors on or after February 5, 2001 are immediately vested, fully exercisable and have a maximum term of either five or seven years.

Restricted stock unit awards granted to employees prior to 2006 (excluding executive officers) vest over a two year period, with 50% vesting on each of the first and the second anniversaries of the grant date. Restricted stock unit awards granted to employees in 2006 (excluding executive officers) vest in equal annual installments over four years. Restricted stock unit awards granted to non-employee directors vest after a one year period, with 100% of the award vesting on the first anniversary of the grant date. Restricted stock unit awards granted to executive officers in January 2006, including the CEO, will vest over two years, with 50% of the award subject to time-based vesting and up to 50% of the award subject to performance-based vesting. The percentage level of performance satisfied for performance-based grants will be assessed on or near the first anniversary of the grant date and, in turn, that percentage level will determine the number of performance-based restricted stock units available for vesting over the two-year vesting period; portions of the performance-based grants not available for vesting will be forfeited. Restricted stock units do not have common stock voting rights, and the shares underlying the restricted stock units are not considered issued and outstanding until they become vested. Teradyne expenses the cost of the restricted stock unit awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse.

Under the ESPP, eligible employees (including executive officers) may purchase shares of common stock through regular payroll deductions of up to 10% of their eligible compensation. The price paid for the common stock is equal to 85% of the lower of the fair market value of Teradyne’s common stock on the first business day and the last business day of the purchase period. There are two six-month purchase periods in each fiscal year.

Effective January 1, 2006, Teradyne adopted the fair value recognition provision of Financial Accounting Standards No. 123 (revised 2004) “Share Based Payment” (“SFAS 123R”), using the modified prospective

49

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

transition method and therefore has not restated results for prior periods. Under this transition method, stock based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, and is calculated based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 “Accounting for Stock Based Compensation” (“SFAS 123”). Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with SFAS 123R. As required by SFAS 123R, Teradyne has made an estimate of expected forfeitures and is recognizing compensation costs only for those stock-based compensation awards expected to vest.

Prior to the adoption of SFAS 123R, Teradyne accounted for its equity incentive plans and employee stock purchase plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations (“APB 25”). In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. Teradyne has applied provisions of SAB 107 in its adoption of SFAS 123R. The cumulative effect of the initial adoption of SFAS 123R was not material.

The pro-forma table below reflects the effect of recording stock-based compensation for the years ended December 31, 2005 and 2004 had Teradyne applied the fair value recognition provisions of SFAS 123:

	2005			2004
	(in millions, except per share amounts)
(Loss) income from continuing operations as reported	$	(60.5	)	$	132.6
Add: Stock-based compensation included in (loss) income		0.8			—
Deduct: Total stock-based employee compensation expense determined under fair value method (no tax effects included )		(90.3	)		(82.7	)
Pro forma (loss) income from continuing operations	$	(150.0	)	$	49.9
(Loss) income from continuing operations per common share—basic as reported	$	(0.31	)	$	0.68
(Loss) income from continuing operations per common share—diluted as reported	$	(0.31	)	$	0.67
(Loss) income from continuing operations per common share—basic pro forma	$	(0.76	)	$	0.26
(Loss) income from continuing operations per common share—diluted pro forma	$	(0.76	)	$	0.25
Net income as reported	$	90.6		$	165.2
Add: Stock-based compensation included in income		0.8			—
Deduct: Total stock-based employee compensation expense determined under fair value method (no tax effects included)		(99.7	)		(91.8	)
Pro forma net (loss) income	$	(8.3	)	$	73.4
Net income per common share—basic as reported	$	0.46		$	0.85
Net income per common share—diluted as reported	$	0.46		$	0.84
Net (loss) income per common share—basic pro forma	$	(0.04	)	$	0.38
Net (loss) income per common share—diluted pro forma	$	(0.04	)	$	0.37

On May 26, 2005, the Board of Directors approved the accelerated vesting of certain outstanding, unvested “out of the money” stock options awarded to employees, officers and other eligible participants under Teradyne’s various stock option plans. The stock options that were accelerated had exercise prices that were in excess of

50

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

$13.26, the closing price of Teradyne’s common stock on the New York Stock Exchange on May 26, 2005 and ranged in exercise price from $13.73 to $41.37 per share. As a result of the vesting acceleration, options to purchase approximately 7.6 million shares became exercisable immediately and Teradyne reduced the compensation expense it otherwise would have been required to record under SFAS 123R by approximately $48.6 million on a pre-tax basis over fiscal years 2006, 2007 and 2008.

The effect within the Statement of Operations of recording stock-based compensation for the year ended December 31, 2006 was as follows:

	For the Year Ended December 31, 2006 (in thousands)
Cost of revenue	$	4,684
Engineering and development		7,642
Selling and administrative		12,325
Stock-based compensation		24,651
Income tax benefit		(443	)
Total stock-based compensation expense after income taxes	$	24,208

The impact on both basic and diluted earnings per share for the year ended December 31, 2006 was $0.12 per share.

Valuation Assumptions

There were no options granted in 2006. The weighted average grant fair value for options granted during 2005 and 2004 was $6.86 and $14.30 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2005		2004
Expected life (years)	4.4		4.5
Interest rate	3.9	%	3.1	%
Volatility	53.4	%	65.5	%
Dividend yield	0.0	%	0.0	%

The weighted-average fair value of employee stock purchase rights granted in the first six months of 2006, the last six months of 2006, 2005 and 2004 was $3.81, $3.48, $3.11 and $5.52, respectively. The fair value of the employees’ purchase rights was estimated using the Black-Scholes option-pricing model with the following assumptions for 2006, 2005 and 2004, respectively:

	2006		2005		2004
Expected life (years)	0.5		0.5		1.0
Interest rate	4.9	%	3.9	%	1.3	%
Volatility	34.4	%	36.7	%	43.0	%
Dividend yield	0.0	%	0.0	%	0.0	%

As of December 31, 2006, there were 1.3 million shares available for grant under the ESPP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

Restricted Stock Unit and Stock Option Activity:

Restricted stock unit activity and weighted-average grant date fair value information for the year ended December 31, 2006 follows:

	Number of Shares (in thousands)		Weighted-Average Grant Date Fair Value
Non-vested January 1, 2006	1,465		$	15.58
Awards granted	482			16.53
Awards vested	(680	)		15.58
Awards forfeited	(139	)		15.62
Non-vested at December 31, 2006	1,128		$	16.00

As of December 31, 2006, there was $12.9 million unrecognized stock-based compensation expense related to non-vested restricted stock units. That cost is expected to be recognized over the weighted-average period of 0.95 years. In December 2006 Teradyne issued 0.7 million shares of common stock to employees that received December 2005 restricted stock unit awards. The weighted average grant date fair value of the restricted stock units was $15.58.

Stock options activity and weighted-average grant date fair value information for the year ended December 31, 2006 follows:

	Number of Shares (in thousands)		Weighted-Average Grant Date Fair Value
Outstanding at January 1	22,950		$	20.73
Options granted	—			—
Options exercised	(729	)		12.15
Options forfeited	(130	)		12.99
Options cancelled	(3,080	)		23.44
Options at December 31	19,011		$	20.66

As of December 31, 2006, there was $2.8 million unrecognized stock-based compensation related to non-vested stock options. That cost is expected to be recognized over the weighted-average period of 0.49 years.

Related Party Transactions

In January of 2006, Paul Tufano, a member of Teradyne’s Board of Directors, became Executive Vice President and Chief Financial Officer of Solectron Corporation. In the ordinary course of business, Teradyne purchases printed circuit board assemblies from Solectron and sells in-circuit testers to Solectron. In the years ended December 31, 2006, 2005 and 2004, Teradyne purchased $229.9 million, $153.1 million and $141.5 million of printed circuit board assemblies from Solectron, respectively. Sales of in-circuit testers to Solectron for the years ended December 31, 2006, 2005 and 2004 were $5.7 million, $5.7 million and $2.2 million, respectively. As of December 31, 2006 and 2005, $7.0 million and $7.2 million, respectively, was included in accounts payable and $1.3 million and $1.9 million, respectively, was included in accounts receivable, representing amounts due to/from Solectron.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

Investments in Other Companies

Teradyne holds minority interests in public and private companies having operations or technology in areas within its strategic focus. These investments are included in other long-term assets and include investments accounted for at cost and under the equity method of accounting. Under the equity method of accounting, which generally applies to investments that represent a 20 to 50 percent ownership of the equity securities of the investees, Teradyne’s proportionate share of the earnings or losses of the investees is included in other income and expense. Teradyne records an impairment charge when it believes an investment has experienced a decline in value that is other-than-temporary. At December 31, 2006 and 2005, these investments have a carrying value of zero.

Income Taxes

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. U.S. income taxes are not provided for on the earnings of non-U.S. subsidiaries, which are expected to be reinvested indefinitely in operations outside the U.S. For intra-period tax allocations, we first utilize non-equity related tax attributes, such as net operating loss and credit carryforwards, and then utilize equity-related tax attributes.

Translation of Non-U.S. Currencies

The functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for Diagnostic Systems for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are re-measured on a quarterly basis into the subsidiaries 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 subsidiaries functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from re-measurement are included in operations and were immaterial for the years ended December 31, 2006, 2005 and 2004. For Diagnostic Systems, 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 loss.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Except where the result would be antidilutive to income before continuing operations, diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus common stock equivalents, if applicable.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The volatility of the industries that Teradyne serves can cause certain of its customers to experience shortages of cash flows, which

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. ACCOUNTING POLICIES—(Continued)

can impact their ability to make required payments. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer’s current payment history, the customer’s current financial statements and other information regarding the customer’s credit worthiness. Account balances are charged off against the allowance when it is determined the receivable will not be recovered.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss), unrealized pension gains and losses, unrealized gains and losses on certain investments in debt, equity and derivative securities and cumulative translation adjustments.

Common Stock

Effective July 1, 2004, the Massachusetts Business Corporation Act was revised to eliminate the use of treasury shares by Massachusetts corporations. As a result, all of Teradyne’s treasury shares were automatically converted to unissued shares on July 1, 2004. In 2005, Teradyne determined that the retirement originally recorded as a reduction in paid in capital was more appropriately classified as a reduction in retained earnings. Teradyne has reclassified the related amount as such in the statement of stockholders’ equity.

C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS 123R. In annual periods beginning after June 15, 2005, SFAS 123R would eliminate the ability to account for equity-based compensation using the intrinsic value-based method under APB 25. SFAS 123R requires companies to record in their Statements of Operations equity-based compensation expense for stock compensation awards based on the fair value of the equity instrument at the time of grant. Teradyne adopted SFAS 123R beginning in the first quarter of 2006, as required, using the “Modified Prospective” method, and did not restate prior periods. See also “Note B: Accounting Policies” and “Note O: Stock Based Compensation.”

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 modifies the accounting for abnormal inventory costs, and the manner in which companies allocate fixed overhead expenses to inventory. SFAS 151 is effective for inventory costs incurred during annual periods beginning after June 15, 2005. Teradyne implemented SFAS 151 beginning in the first quarter of 2006 and it did not have a material impact on its financial position or results of operations.

In June 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN No. 48 will not have a material impact on Teradyne’s financial positions or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and other Postretirement Benefit Plans, an amendment of FASB statements No. 87, 88, 106, and 132(R)” (SFAS 158), which requires companies to recognize the funded status of their defined benefit pension and other postretirement benefit plans on the balance sheet. The funded status is calculated as the difference between the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS—(Continued)

fair value of the plan’s asset and the benefit obligation of the plan, which results in the recognition of a net liability or net asset. For a pension plans, the benefit obligation is a projected benefit obligation ( the “PBO”); for other postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation (the “APBO”). The projected benefit obligation ( the “PBO”) represents actuarial present value of vested and non-vested benefits attributed to the plan through the pension benefit formula for service rendered to that date based on employees’ future salary levels. The accumulated postretirement benefit obligation (the “APBO”) represents an actuarial present value of benefits attributed to employee service that has been rendered to date. Additionally, SFAS 158 requires that any pension or post retirement benefit related unrecognized gains/losses, prior service costs/credits, and net transition assets/obligations expected to be recognized as part of net periodic benefit cost in future periods, be recorded within other comprehensive income/(loss). Upon adoption of SFAS 158 on December 31, 2006, the impact of recording Teradyne’s unrecognized losses, prior service costs and net transition obligations was a decrease to shareholders’ equity of $64.6 million. See also “Note N: Retirement Plans.”

In September 2006, the Staff of the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of determining whether the current year’s financial statements are materially misstated. SAB 108 is effective for fiscal years ended December 31, 2006. The adoption of SAB 108 did not have a material impact on Teradyne’s financial positions or results of operations.

D. RISKS AND UNCERTAINTIES

Certain Factors That May Affect Future Results

Teradyne’s future results of operations involve a number of risks and uncertainties. These factors include, but are not limited to the following:

• Teradyne is subject to intense competition;

• Teradyne’s business is dependent on the current and anticipated market for electronics, which historically has been highly cyclical;

• Teradyne’s operating results are likely to fluctuate significantly;

• Teradyne is subject to risks of operating internationally;

• If Teradyne fails to develop new technologies to adapt to its customers’ needs and if its customers fail to accept its new products, its revenues will be adversely affected;

• If Teradyne’s suppliers do not meet product or delivery requirements, it could have reduced revenues and earnings;

• Teradyne’s operations may be adversely impacted if its outsourced service providers fail to perform;

• Teradyne has significant guarantees and indemnification obligations;

• Teradyne has taken measures to ensure that it is prepared to address slowdowns in the market for its products, which could have long-term negative effects on its business or impact its ability to adequately address a rapid increase in customer demand;

• Teradyne may incur significant liabilities if it fails to comply with environmental regulations;

• Teradyne currently is and in the future may be subject to litigation that could have an adverse effect on its business;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

D. RISKS AND UNCERTAINTIES—(Continued)

• If Teradyne is unable to protect its intellectual property, it may lose a valuable asset or may incur costly litigation to protect its rights;

• Teradyne’s business may suffer if it is unable to attract and retain key employees;

• Teradyne may incur higher tax rates than it expects;

• Teradyne’s business is impacted by worldwide economic cycles, which are difficult to predict;

• acts of war, terrorist attacks and the threat of domestic and international terrorist attacks may adversely impact Teradyne’s business;

• provisions of Teradyne’s charter and by-laws and Massachusetts law make a takeover of Teradyne more difficult; and

• Teradyne may acquire new businesses or form strategic alliances in the future, and it may not realize the benefits of such acquisitions.

E. DISCONTINUED OPERATIONS

In November, 2005, Teradyne sold its Connection Systems segment to Amphenol Corporation for $390.0 million in cash, subject to a post-closing net asset value adjustment. As a result of the post-closing adjustment process, the final purchase price was $384.7 million. This resulted in a net gain on disposal after tax of $137.0 million. Teradyne sold this operating segment to focus on its core test businesses. The financial information for this segment was reclassified to discontinued operations for all periods presented. Connection Systems had net revenues for the eleven months ended November 30, 2005 of $331.0 million and $381.7 million for the year ended December 31, 2004. Net loss of the discontinued operations was $3.9 million for the year ended December 31, 2006, relating to a change in estimate to tax expenses from the sale of Connection Systems. Under applicable accounting guidance, there is an offsetting tax benefit recorded in continuing operations for the same amount. This tax provision results from the finalization of the 2005 U.S. tax return. Net income of the discontinued operations through the date of sale in 2005 was $14.2 million, and for the year ended December 31, 2004 was $32.6 million.

F. FINANCIAL INSTRUMENTS

Cash Equivalents

Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. Included in cash and cash equivalents are time deposits of $88.7 million and $70.0 million for the years ended December 31, 2006 and 2005, respectively.

Marketable Securities

Teradyne classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and periodically re-evaluates such classification. There were no securities classified as trading at December 31, 2006 or 2005. Securities are classified as held-to-maturity when Teradyne has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost with corresponding premiums or discounts amortized over the life of the investment to interest income. Securities classified as available-for-sale are reported at fair value. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. For the years ended December 31, 2006, 2005, and 2004, Teradyne recorded realized gains of $0.1 million, $0.5 million, and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

F. FINANCIAL INSTRUMENTS—(Continued)

$0.7 million, respectively, on the sale of its marketable securities. For the years ended December 31, 2006, 2005, and 2004, Teradyne recorded realized losses of $0.3 million, $0.8 million, and $0.1 million, respectively, on the sale of its marketable securities. Unrealized gains and losses are included in accumulated other comprehensive income (loss). The cost of securities sold is based on the specific identification method.

Short-term marketable securities mature in less than one year. Long-term marketable securities have maturities of one to five years. At December 31, 2006 and 2005 these investments are reported as follows:

	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
2006
Short-term marketable securities:
U.S. Treasury and government agency securities	$	14,684	$	—	$	(115	)	$	14,569	$	14,569
Corporate debt securities		33,437		—		(240	)		33,197		25,159
	$	48,121	$	—	$	(355	)	$	47,766	$	39,728
Long-term marketable securities:
U.S. Treasury and government agency securities	$	57,442	$	—	$	(1,653	)	$	55,789	$	55,789
Corporate debt securities		275,546		91		(2,599	)		273,038		164,600
	$	332,988	$	91	$	(4,252	)	$	328,827	$	220,389
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
2005
Short-term marketable securities:
U.S. Treasury and government agency securities	$	54,307	$	86	$	(222	)	$	54,171	$	38,000
Corporate debt securities		297,840		2,175		(144	)		299,871		87,204
	$	352,147	$	2,261	$	(366	)	$	354,042	$	125,204
Long-term marketable securities:
U.S. Treasury and government agency securities	$	76,422	$	32	$	(1,563	)	$	74,891	$	69,856
Corporate debt securities		160,326		141		(2,406	)		158,061		132,128
	$	236,748	$	173	$	(3,969	)	$	232,952	$	201,984

As of December 31, 2006 there are $188.7 million of investments that have had an unrealized loss for greater than one year and $71.4 million have had an unrealized loss for less than one year. Teradyne has determined the losses on these investments are temporary in nature, and therefore should not be impaired, as the unrealized losses result from changes in interest rates.

Other

As of December 31, 2005, the estimated fair value of Teradyne’s convertible notes was approximately $297.0 million compared to the carrying value of $300.0 million. The estimated fair value of the convertible notes is based on the quoted market prices of the convertible notes on December 31, 2005.

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TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

F. FINANCIAL INSTRUMENTS—(Continued)

Fair values for Teradyne’s non-convertible debt were determined based on interest rates that are currently available to Teradyne for the issuance of debt with similar terms and remaining maturities for debt issues and approximate carrying values.

For all other balance sheet financial instruments, the carrying amount approximates fair value.

Derivatives

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 denominated net monetary assets and anticipated cash flows. The terms of currency instruments used for hedging purposes are consistent with the timing of the transactions being hedged. 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 net monetary assets 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 fair value of the net monetary assets denominated in foreign currencies.

To minimize the effect of exchange rate fluctuations associated with the future cash flows of revenue contracts denominated in a foreign currency, Teradyne enters into foreign currency forward contracts. These foreign currency forward contracts are designated as cash flow hedges and are carried on Teradyne’s balance sheet at fair value with the effective portion of the contracts’ gains or losses included in accumulated other comprehensive income (loss) and subsequently recognized in earnings in the same period the hedged transaction occurs. These forward contracts generally expire within 24 months.

At December 31, 2006 and 2005, Teradyne had the following forward currency contracts to buy and sell non-U.S. currencies for U.S. dollars with the following notional amounts:

	December 31, 2006								December 31, 2005
	Buy Position			Sell Position		Net Total			Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(6.5	)	$	27.8	$	21.3		$	—		$	19.1	$	19.1
Taiwan Dollar		—			5.6		5.6			—			5.4		5.4
British Pound Sterling		(29.6	)		14.0		(15.6	)		(4.4	)		4.2		(0.2	)
European Euro		(18.3	)		14.8		(3.5	)		(9.2	)		8.5		(0.7	)
Total	$	(54.4	)	$	62.2	$	7.8		$	(13.6	)	$	37.2	$	23.6

The fair value of the outstanding contracts at December 31, 2006 and 2005 was a gain of $0.7 million and a loss of $0.5 million, respectively. In 2006, Teradyne recorded net realized gains of $2.2 million related to foreign currency forward contracts hedging net monetary positions. In 2005, Teradyne recorded net realized losses of $0.5 million related to foreign currency forward contracts hedging net monetary positions. In 2004, Teradyne recorded net realized losses of $1.9 million related to forward contracts hedging net monetary positions. Both the contract gains and losses on the items being hedged are included in selling and administrative expenses.

During 2006 and 2005 there were no gains or losses from cash flow hedges due to ineffectiveness. During 2004 there were losses of $0.1 million on cash flow hedges due to ineffectiveness which was included in selling and administrative expense.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

F. FINANCIAL INSTRUMENTS—(Continued)

The effective portion of derivative gains and losses related to cash flow hedges are included in accumulated other comprehensive loss and are reclassified into earnings when the forecasted transaction occurs. During fiscal 2006, $0.1 million of losses were reclassified to revenue. During fiscal 2005, $0.2 million of gains were reclassified to revenue. No cash flow hedges were derecognized or discontinued during fiscal 2006 and 2005.

At December 31, 2003, Teradyne held warrants to purchase 0.3 million shares of common stock of LogicVision, Inc., a public technology company, at an exercise price of $4.86 per share. During 2004, the warrants expired. In accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” Teradyne recorded a loss of $0.4 million in other income and expense for the changes in fair value of the warrants for the year ended December 31, 2004.

Concentration of Credit Risk

Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of marketable securities, forward currency contracts and accounts receivable. Teradyne maintains cash investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated AA or higher, which have minimal credit risk. Teradyne places forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable.

G. DEBT

Long-term debt at December 31, 2006 and 2005 consisted of the following:

	2006		2005
	(in thousands)
Convertible senior notes	$	—	$	300,000
Other long-term debt		—		2,101
Total		—		302,101
Less current maturities		—		300,282
	$	—	$	1,819

Convertible Senior Notes

In 2001, Teradyne issued $400 million principal amount of 3.75% Convertible Senior Notes due 2006 (the “Notes”) in a private placement and received net proceeds of $389 million. The Notes were convertible at the option of the holders at a rate which is equivalent to a conversion price of approximately $26.00 per share, which is equal to a conversion rate of approximately 38.4615 shares of common stock per $1,000 principal amount of Notes.

Teradyne began making annual interest payments of up to $15 million, paid semi-annually, on the Notes on April 15, 2002. The Notes were senior unsecured obligations of Teradyne that ranked equally with Teradyne’s existing and future unsecured and unsubordinated indebtedness. The price Teradyne was required to pay was 100% of the principal amount of the Notes to be repurchased, together with interest accrued but unpaid to, but

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

G. DEBT—(Continued)

excluding, the repurchase date. At Teradyne’s option and subject to the satisfaction of certain conditions, instead of paying the repurchase price in cash, it may pay the repurchase price in common stock valued at 95% of the average of the closing prices of common stock for the five trading days immediately preceding and including the third trading day prior to the repurchase date. During 2004 and the first quarter of 2005, Teradyne repurchased $8.5 million and $20.0 million, respectively, of the outstanding principal amount of the Notes pursuant to the August 18, 2004 Board of Directors authorization given to management to repurchase up to $100 million of the outstanding Notes in open market purchases at negotiated prices below 101.50% of the principal amount. During the fourth quarter of 2005, Teradyne repurchased $71.5 million of the Notes through several privately negotiated transactions, at a weighted average price of 99.11% of the principal amount of the Notes. These repurchases were made pursuant to the Board of Directors’ authorization given to management on August 18, 2004 and as amended on October 21, 2005, and represent the remaining amount authorized for repurchase. Teradyne incurred no gain or loss during the year ended December 31, 2006 and 2005 as a result of these transactions. This debt was paid in its entirety during 2006.

Notes Payable - Banks

There was no outstanding notes payable balance as of December 31, 2006. The outstanding notes payable balance as of December 31, 2005 was $2.5 million. The weighted average interest rates on notes payable outstanding in Japan as of December 31, 2005 was 1.4%.

H. ACCUMULATED OTHER COMPREHENSIVE LOSS

At December 31, 2006 and 2005, the accumulated other comprehensive loss balances were:

	2006			2005
	(in thousands)
Retirement plans net loss, net of tax	$	(62,516	)	$	—
Retirement plans prior service cost, net of tax		(2,561	)		—
Retirement plans net transition asset, net of tax		57			—
Unrealized loss on investments		(4,175	)		(6,982	)
Foreign currency translation adjustments		2,886			163
Minimum pension liability		—			(71,559	)
Unrealized gain on cash flow hedge		—			30
Total accumulated other comprehensive loss	$	(66,309	)	$	(78,348	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

I. GOODWILL AND INTANGIBLE ASSETS

Intangible Assets

Amortizable intangible assets consist of the following and are included in intangible and other assets on the balance sheets:

	December 31, 2006
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
	(in thousands)
Completed technology	$	19,193	$	13,281	$	5,912	7.5 years
Service and software maintenance contracts and customer relationships		4,779		3,078		1,701	8.0 years
Tradenames and trademarks		3,800		2,454		1,346	8.0 years
Total intangible assets	$	27,772	$	18,813	$	8,959	7.7 years

	December 31, 2005
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
	(in thousands)
Completed technology	$	19,193	$	10,712	$	8,481	7.5 years
Service and software maintenance contracts and customer relationships		4,779		2,478		2,301	8.0 years
Tradenames and trademarks		3,800		1,979		1,821	8.0 years
Total intangible assets	$	27,772	$	15,169	$	12,603	7.7 years

Aggregate amortization expense was $3.6 million in each of the years ended December 31, 2006, 2005 and 2004. Estimated amortization expense for each of the five succeeding fiscal years is as follows:

Year	Amount
	(in thousands)
2007	$	3,529
2008		2,962
2009		2,468
2010		—
2011		—

Goodwill

Teradyne has identified goodwill in its Assembly Test Systems reportable segment with a carrying amount of $69.1 million at December 31, 2006 and 2005.

SFAS 142 provides that goodwill of a reporting unit be tested for impairment on an annual basis and between annual tests in certain circumstances including a significant adverse change in the business outlook. Teradyne’s annual impairment test is performed in the fourth quarter of each fiscal year. Teradyne tested the Assembly Test Systems reporting unit for impairment during its annual test and concluded that there was no impairment of goodwill as of December 31, 2006, 2005 and 2004.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

J. COMMITMENTS AND CONTINGENCIES

Lease Commitments

Rental expense for the years ended December 31, 2006, 2005 and 2004 was $22.6 million, $23.6 million and $24.2 million, respectively.

Teradyne leases portions of its office and operating facilities under various operating lease arrangements. The following table reflects Teradyne’s non-cancelable operating lease commitments:

	Non-cancelable Lease Commitments*
	(in thousands)
2007	$	14,155
2008		9,616
2009		8,195
2010		7,432
2011		5,557
Beyond 2011		2,108
Total	$	47,063

* Minimum payments have not been reduced by minimum sublease income of $10.4 million due in the future under non-cancelable subleases.

Legal Claims

On September 5, 2001, after Teradyne’s August 2000 acquisition of Herco Technology Corp. and Perception Laminates, Inc., the former owners of those companies filed a complaint against Teradyne and two of its then executive officers in the Federal District Court in San Diego, California, asserting securities fraud and breach of contract related to the acquisition. Pursuant to motions filed by Teradyne and by the plaintiffs, the District Court dismissed certain of the plaintiffs’ claims, granted partial summary judgment against them with respect to their breach of contract claim and denied their motion for reconsideration. The only claim that remained before the District Court from the original complaint related to an allegation of fraud in connection with the setting of the transaction price. On December 27, 2004, the plaintiffs voluntarily stipulated to the dismissal with prejudice of their remaining claim in the District Court, without having received any payment or other consideration from Teradyne. On February 2, 2005, the plaintiffs filed a notice of appeal from the District Court’s prior orders. The appeal is now pending before the U.S. Court of Appeals for the Ninth Circuit.

In 2001, Teradyne was designated as a “potentially responsible party” (“PRP”) at a clean-up site in Los Angeles, California. This claim arose out of its acquisition of Perception Laminates in August 2000. Prior to that date, Perception Laminates had itself acquired certain assets of Alco Industries Inc. under an asset purchase agreement in 1992. Neither Teradyne nor Perception Laminates have ever conducted any operations at the Los Angeles site. Teradyne has asked the State of California to drop the PRP designation, but California has not yet agreed to do so.

In 2006, Teradyne received a general notice letter from the U.S. Environmental Protection Agency (“EPA”) which informed Teradyne that the EPA believes it is a de minimis PRP with respect to the Casmalia Disposal Site in California. Teradyne is currently waiting for further details from the EPA regarding the terms of the de minimis settlement offer that it expects to receive.

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J. COMMITMENTS AND CONTINGENCIES—(Continued)

Teradyne believes that it has meritorious defenses against the above unsettled claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of the unsettled claims or to provide possible ranges of losses that may arise, Teradyne believes the losses associated with all of these actions will not have a material adverse effect on its consolidated financial position or liquidity, but could possibly be material to its consolidated results of operations of any one period.

In addition, Teradyne is subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Although there can be no assurance, there are no such matters pending that Teradyne expects to be material with respect to its business, financial position or results of operations.

Guarantees and Indemnification Obligations

Teradyne provides an indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in such capacity. Teradyne has entered into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ bylaws and charter. As a matter of practice, Teradyne has maintained directors and officer liability insurance coverage including coverage for directors and officers of acquired companies. Two former executive officers of Teradyne are named defendants in a securities case pending in the U.S. Court of Appeals for the Ninth Circuit. Each of these former executive officers has invoked the indemnification provisions described herein and insurance claims have been submitted to and are being processed by Teradyne’s director and officer liability insurance provider.

Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Teradyne’s products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability and environmental claims relating to the use of Teradyne’s products and services or resulting from the acts or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the performance of its products in addition to the warranty described below.

As a matter of ordinary business course, Teradyne warrants that its products, including software products, will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have a one year duration commencing from installation. A provision is recorded upon revenue recognition to cost of revenue for estimated warranty expense upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, it is deferred and recognized on a straight line basis over the contract period. Related costs are expensed as incurred. As of December 31, 2006 and 2005, Teradyne had a product warranty accrual of $12.9 million and $10.5 million, respectively in other accrued liabilities and revenue deferrals related to extended warranties of $8.4 million and $5.6 million, respectively in deferred revenue.

In addition, and in the ordinary course of business, Teradyne provides minimum purchase guarantees to certain of its vendors to ensure continuity of supply against the market demand. Although some of these

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J. COMMITMENTS AND CONTINGENCIES—(Continued)

guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of the guarantees do not. Therefore, as the market demand decreases, Teradyne re-evaluates these guarantees and determines what charges, if any, should be recorded.

With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition.

As a matter of ordinary business course, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors, and lease commitments to landlords.

Based on historical experience and information known as of December 31, 2006, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations as of December 31, 2006 because the amount would be immaterial.

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K. NET INCOME (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income (loss) from continuing operations and net income (loss) per common share:

	2006			2005			2004
	(in thousands, except per share amounts)
Net income (loss) from continuing operations	$	202,643		$	(60,457	)	$	132,619
(Loss) income from discontinued operations		(3,886	)		14,152			32,618
Gain on disposal of discontinued operations, net		—			136,953			—
Net income for basic net income per share		198,757			90,648			165,237
Income impact of assumed conversion of convertible debentures		8,346			—			—
Net income for diluted net income per share	$	207,103		$	90,648		$	165,237
Shares used income (loss) from continuing operations per common share—basic		194,729			196,283			194,048
Incremental shares from assumed conversion of convertible debentures		8,546			—			—
Employee and director stock options		699			—			3,273
Restricted stock units		382			—			—
Employee stock purchase rights		58			—			111
Dilutive potential common shares		9,685			—			3,384
Shares used in income (loss) from continuing operations per common share—diluted		204,414			196,283			197,432
Net income (loss) per common share—basic
Continuing operations	$	1.04		$	(0.31	)	$	0.68
Discontinued operations		(0.02	)		0.77			0.17
	$	1.02		$	0.46		$	0.85
Net income (loss) per common share—diluted
Continuing operations	$	1.03		$	(0.31	)	$	0.67
Discontinued operations		(0.02	)		0.77			0.17
	$	1.01		$	0.46		$	0.84

The computation of diluted net income per common share for the year ended December 31, 2006 and 2004 excludes the effect of the potential exercise of options to purchase approximately 15.3 million and 21.8 million shares, respectively, because the exercise price of the option was greater than the average market price of the common shares, as the effect would have been ant-dilutive. The effect of Teradyne’s outstanding convertible notes on diluted net income per share for the year ended December 31, 2006 was calculated using the “if converted” method as required by SFAS No. 128, “Earnings per Share.” In using the “if converted” method, $8.3 million of interest expense related to the convertible notes for the year ended December 31, 2006, net of tax and profit sharing expenses, was added back to net income to arrive at diluted net income. Accordingly, 8.5 million incremental shares from the assumed conversion of the convertible debt are added to shares when calculating diluted net income per common share for the year ended December 31, 2006.

The computation of diluted net loss per common share for the year ended December 31, 2005 excludes the effect of the potential exercise of all options because the effect would have been anti-dilutive. Diluted (loss) income per common share for the years ended December 31, 2005 and 2004 also excludes 11.5 million shares and 15.1 million shares, respectively, related to Teradyne’s convertible notes outstanding because the effect would have been anti-dilutive.

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L. RESTRUCTURING AND OTHER, NET

In response to a downturn in the industry, Teradyne initiated restructuring activities in 2002 across all segments to reduce costs and redundancies, principally through headcount reductions and facility consolidations. Further actions were initiated in 2003, to a lesser extent in 2004, 2005 and in 2006. The tables below represent activity related to these actions. The remaining accrual for severance and benefits is reflected in accrued employee compensation and withholdings. The remaining accrual for lease payments on vacated facilities is reflected in other accrued liabilities and other long-term accrued liabilities and is expected to be paid out over the lease terms, the latest of which expires in 2012. Teradyne expects to pay out approximately $2.4 million against the lease accruals over the next twelve months. Teradyne’s future lease commitments are net of expected sublease income of $12.7 million as of December 31, 2006.

2006 Activities

	Gain on Sale of land And Buildings			Severance and Benefits			Facility Related			Long-Lived Asset Impairment			Total
	(in thousands)
2006 (gain) provision	$	(39,098	)	$	6,218		$	1,153		$	50		$	(31,677	)
Cash receipts (payments)		39,098			(4,353	)		(528	)		—			34,217
Asset write-downs		—			—			—			(50	)		(50	)
Balance at December 31, 2006	$	—		$	1,865		$	625		$	—		$	2,490

During the year ended December 31, 2006, Teradyne recorded the following activity related to the 2006 restructuring activities:

• $39.1 million gain on the sale of real estate, including $35.8 million for two Semiconductor Test Systems facilities in Boston, MA, $1.5 million for a Semiconductor Test Systems parking facility in Boston, MA, $1.3 million for a Semiconductor Test Systems facility in San Jose, CA and $0.5 million for buildings in Nashua, NH;

• $6.2 million of severance and related benefits for 220 people across all segments; and

• $1.2 million of facility related charges for the exit of Semiconductor Test Systems facilities in Newbury Park, CA and Waltham, MA.

2005 Activities

	Severance and Benefits			Gain on Sale of Land and Buildings			Long-Lived Asset Impairment			Facility Related			Other Charges			Total
	(in thousands)
2005 provision (gain)	$	21,254		$	(15,329	)	$	8,331		$	2,276		$	4,247		$	20,779
Cash (payments) receipts		(11,439	)		15,329			—			(546	)		(3,718	)		(374	)
Asset write-downs		—			—			(8,331	)		—			—			(8,331	)
Balance at December 31, 2005	$	9,815		$	—		$	—		$	1,730		$	529		$	12,074
2006 (reversals) provision	$	(50	)	$	—		$	—		$	555		$	—		$	505
Cash payments		(8,766	)		—			—			(406	)		(529	)		(9,701	)
Balance at December 31, 2006	$	999			—			—		$	1,879		$	—			2,878

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L. RESTRUCTURING AND OTHER, NET—(Continued)

During the year ended December 31, 2005, and subsequently, Teradyne recorded the following activity related to the 2005 restructuring activities:

• $21.3 million for severance and related benefits for 526 people terminated across all segments;

• $15.3 million in gains, including $13.2 million in Semiconductor Test Systems for the sale of land in Japan and a building in Agoura Hills, CA, and $2.1 million at Corporate for the sale of a building in North Reading, MA;

• $8.3 million charge, for certain long-lived assets held for sale, as the estimated fair value was less than the carrying value of the assets primarily related to a building held for sale in North Reading, MA, at Corporate which was subsequently sold;

• $2.3 million charge in 2005 and an additional $0.6 million in 2006 related to the exit of an Assembly Test Systems facility in Poway, CA; and

• $4.2 million charge consisting of $3.1 million of divestiture-related fees at Corporate and $1.1 million for a lease obligation for unused software licenses in the Semiconductor Test Systems segment.

2004 Activities

	Severance and Benefits			Long-Lived Asset Impairment			Facility Related			Total
	(in thousands)
2004 provision	$	3,296		$	650		$	448		$	4,394
Cash payments		(1,584	)		—			(21	)		(1,605	)
Asset write-downs		—			(650	)		—			(650	)
Balance at December 31, 2004	$	1,712		$	—		$	427		$	2,139
2005 provision		—			—			308			308
Cash payments		(1,611	)		—			(275	)		(1,886	)
Balance at December 31, 2005	$	101		$	—		$	460		$	561
Cash payments		(101	)		—			(284	)		(385	)
Balance at December 31, 2006	$	—		$	—		$	176		$	176

During the year ended December 31, 2004 and subsequently, Teradyne recorded the following activity related to the 2004 restructuring activities:

• $3.3 million for severance and related benefits for 140 people terminated across all segments and in all functional areas;

• $0.7 million for long-lived assets impaired in an Assembly Test Systems facility in Westford, MA as a result of exiting the facility; and

• $0.4 million in 2004 and an additional $0.3 million in 2005 related to the lease obligations of a vacated Assembly Test Systems facility in Westford, MA.

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L. RESTRUCTURING AND OTHER, NET—(Continued)

Pre-2004 Activities

	Severance and Benefits			Loss on Sale of Product Lines			Facility Related			Total
	(in thousands)
Balance at December 31, 2003	$	6,972		$	—		$	27,275		$	34,247
2004 (reversal) provision		(1,705	)		(1,875	)		397			(3,183	)
Cash (payments) receipts		(4,900	)		2,755			(7,448	)		(9,593	)
Asset write-downs		—			(880	)		—			(880	)
Balance at December 31, 2004	$	367		$	—		$	20,224		$	20,591
2005 (reversal) provision		—			(4,068	)		625			(3,443	)
Cash (payments) receipts		(167	)		4,068			(5,978	)		(2,077	)
Balance at December 31, 2005	$	200		$	—		$	14,871		$	15,071
2006 reversal		—			(406	)		(2,529	)		(2,935	)
Cash (payments) receipts		(16	)		406			(4,793	)		(4,403	)
Balance at December 31, 2006	$	184		$	—		$	7,549		$	7,733

During the year ended December 31, 2004 and subsequently, Teradyne recorded the following related to the pre-2004 restructuring activities:

• A reversal in 2004 of $1.7 million related to severance and related benefits;

• In Assembly Test System there was $1.9 million in reversals in 2004 from earnout payments received from the product line divestitures, $4.1 million in reversals in 2005 and $0.4 million in reversals in 2006 from earnout payments received from divestitures;

• Additional provisions of $0.4 million in 2004 and $0.6 million in 2005 related to changes in estimates of sublease income in Assembly Test Systems; and

• $2.5 million in 2006 of facility related credits of which $2.2 million consists of revised estimates of losses due to changes in the assumed amount and timing of sublease income on an Assembly Test Systems facility and $0.3 million credit related to exited leases in the Corporate segment.

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M. OTHER INCOME AND EXPENSE, NET

Other income and expense, net for the years ended December 31, 2006, 2005 and 2004 includes the following:

Income/(expense)	2006		2005		2004
	(in thousands)
Gain on sale of investment (1)	$	—	$	—	$	2,584
Collection of loan (2)		—		—		585
Other than temporary impairment of common stock investment		—		—		(267	)
Fair value adjustment on warrants		—		—		(366	)
Total	$	—	$	—	$	2,536

(1) Gain on sale of an investment in common stock.

(2) The loan had previously been valued at zero due to its uncertainty of collection.

N. RETIREMENT PLANS

Teradyne adopted the funded status recognition provision of SFAS 158 effective December 31, 2006. This standard amends SFAS 87, 88, 106, and 132(R). SFAS 158 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 as defined by SFAS 158. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation as of December 31. For other postretirement benefit plans, the liability is the difference between the fair value of the plan’s assets and the accumulated postretirement benefit obligation as of December 31. The following table illustrates the effect on the individual financial statement line items of applying this standard for the year ended December 31, 2006 (in thousands):

	Before Application of SFAS 158			Adjustment for Application of SFAS 158			After Application of SFAS 158
Long term pension assets	$	2,366		$	29,137		$	31,503
Current pension liabilities		—			(1,459	)		(1,459	)
Long term pension liabilities		40,450			(91,406	)		(50,956	)
Other comprehensive loss, net of tax		395			64,625			65,020
Deferred tax asset		234			2,593			2,827
Current post-retirement benefit liabilities		—			(2,970	)		(2,970	)
Long term post-retirement benefit liabilities		(20,718	)		(520	)		(21,238	)

Defined Benefit Pension Plans

Teradyne has defined benefit pension plans covering a majority 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 the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of equity and fixed income 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 (the “IRC”), as well as unfunded foreign plans.

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N. RETIREMENT PLANS—(Continued)

Teradyne uses a December 31 measurement date for all of its plans. The December 31 balances of these defined benefit pension plan assets and obligations are shown below:

	2006			2005
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	304,069		$	266,695
Service cost		7,042			7,196
Interest cost		15,723			14,937
Actuarial (gain) loss		(24,159	)		26,653
Benefits paid		(9,113	)		(9,794	)
Curtailment		—			(1,350	)
Other		—			3,903
Non U.S. currency movement		4,295			(4,171	)
End of year		297,857			304,069
Change in plan assets:
Fair value of plan assets:
Beginning of year		225,097			179,219
Company contributions		30,232			40,091
Plan participants’ contributions		63			62
Actual return		29,240			15,963
Benefits paid		(9,113	)		(9,794	)
Special termination benefits		—			591
Other		—			450
Non U.S. currency movement		1,426			(1,485	)
End of year		276,945			225,097
Funded status		(20,912	)		(78,972	)
Unrecognized prior service cost					5,868
Unrecognized net transition obligation					(3	)
Unrecognized net actuarial loss					100,360
Net amount recognized					27,253

The following table provides amounts recognized in the statement of financial position as of December 31:

	2006			2005
	(in thousands)
Long term pension asset	$	31,503		$	5,868
Current pension liabilities		(1,459	)		—
Long term pension liabilities		(50,956	)		(57,106	)
Accumulated other comprehensive loss		—			78,491
	$	(20,912	)	$	27,253

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N. RETIREMENT PLANS—(Continued)

The following table provides amounts recognized in accumulated other comprehensive loss as of December 31:

	2006
	(in thousands)
Net loss	$	59,433
Prior service cost		5,024
Net transition asset		(89	)
Total recognized in other comprehensive loss before tax		64,368
Deferred tax asset		(2,827	)
Total recognized in other comprehensive loss, net of tax	$	61,541

The estimated portion of net loss and prior service cost remaining in accumulated other comprehensive loss that is expected to be recognized as a component of net periodic benefit cost in 2007 is $3.0 million, and $0.9 million respectively.

The accumulated benefit obligation for all defined pension plans was $272.6 million and $278.9 million at December 31, 2006 and 2005, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets:

	2006		2005
	(in millions)
Projected benefit obligation	$	51.8	$	304.1
Accumulated benefit obligation	$	40.3	$	278.9
Fair value of plan assets	$	0.7	$	225.1

Expense

For the years ended December 31, 2006, 2005 and 2004, Teradyne’s net pension benefit costs were comprised of:

	2006			2005			2004
	(in thousands)
Components of Net Periodic Benefit Cost:
Service cost	$	7,042		$	7,196		$	6,581
Interest cost		15,723			14,937			13,883
Expected return on plan assets		(17,694	)		(14,789	)		(12,959	)
Amortization of:
Net transition obligation		66			130			86
Prior service cost		844			1,061			879
Net loss		5,900			4,989			3,293
Curtailment cost		—			2,154			—
Total expense	$	11,881		$	15,678		$	11,763

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N. RETIREMENT PLANS—(Continued)

Weighted Average Assumptions to Determine Net Periodic Benefit Cost

	United States Plan						Foreign Plans
	2006		2005		2004		2006		2005		2004
Discount rate	5.5	%	5.75	%	6.0	%	4.1	%	4.4	%	5.0	%
Expected return on plan assets	7.5		7.5		8.0		4.0		4.4		4.9
Salary progression rate	4.0		4.0		4.0		3.5		3.3		3.2

Weighted Average Assumptions to Determine Benefit Obligations

	United States Plan						Foreign Plans
	2006		2005		2004		2006		2005		2004
Discount rate	6.0	%	5.5	%	5.75	%	4.0	%	4.1	%	4.4	%
Salary progression rate	4.0		4.0		4.0		3.5		3.4		2.8

In developing the expected return on plan assets assumption, Teradyne evaluated input from its investment manager and pension consultants, including their review of asset class return expectations. Based on this review, Teradyne believes that 7.5% was an appropriate rate to use for fiscal 2006 for the U.S. Qualified Pension Plan.

Teradyne bases its determination of pension expense or income on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return on assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As of December 31, 2006, under the U.S. Qualified Pension Plan, Teradyne had cumulative gains of approximately $11.3 million, which remain to be recognized in the calculation of the market-related value of assets. The discount rate that Teradyne utilized for determining future pension obligations for the U.S. Qualified Pension Plan is based on the Citigroup Pension Liability Index (formerly Salomon Brothers Pension Liability Index), which was at 5.9% at December 31, 2006, up from 5.55% at December 31, 2005. As a result, Teradyne selected 6.0% for its December 31, 2006 discount rate, which was up from 5.5% as of December 31, 2005.

Plan Assets

Teradyne’s weighted average asset allocation at December 31, 2006 and 2005, by asset category is as follows:

	United States Plan				Foreign Plans
	2006		2005		2006		2005
Equity Securities	49.3	%	48.4	%	55.9	%	72.9	%
Debt Securities	50.7		51.6		38.6		10.6
Other	—		—		5.5		16.5
Total	100.0	%	100.0	%	100.0	%	100.0	%

Teradyne employs a total return investment approach for its pension plan assets whereby a mix of equities and fixed income investments are used to ensure the preservation of capital and to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio contains a diversified blend of equity and fixed

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N. RETIREMENT PLANS—(Continued)

income investments. The investment portfolio will not at any time have a direct investment in Teradyne stock. It may have an indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock.

The target asset allocation and index for each asset category for the U.S. Qualified Pension Plan, per policy, for the portfolio is as follows:

Asset Category:	Policy Index:	Target
Equity (Large cap)	S&P 500 Stock Index	22	%
Equity (Small cap)	Russell 2000 Index	10
International Equity	MSCI EAFE Index (Net Dividends) and MSCI Emerging Markets Free Index	15
Passive Fixed Income	Lehman Aggregate Bond Index	33
High-Yield Fixed Income	Lehman Brothers High Yield Very Liquid Index	10
Real Assets	Real Asset Custom Index	10

Teradyne’s investment manager regularly reviews Teradyne’s actual asset allocation and periodically rebalances Teradyne’s portfolio to ensure alignment to the targeted allocation.

The investment return objectives are to achieve a rate of return, which exceeds the rate of inflation, as measured by the Consumer Price Index, by 3% per year, and to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified above.

The manager’s investment performance is reviewed at least annually. Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices, the Policy Index, other similarly managed portfolios and the Consumer Price Index.

The assets of Teradyne’s foreign pension plans are invested in funds which seek to combine long-term growth potential offered through equity exposure with the relative security provided by equity, bonds and cash.

Contributions

Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2006, 2005 and 2004, Teradyne contributed $30.2 million, $40.1 million and $38.8 million to the plans, respectively. Based upon the plan’s funded status as of December 31, 2006, Teradyne does not expect to make any contributions in 2007 to this plan.

73

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

N. RETIREMENT PLANS—(Continued)

Expected Future Benefits Payments

The following benefit payments, which reflect future service, as appropriate, are expected to be paid as follows:

	United States		Foreign
	(in thousands)
2007	$	9,085	$	1,750
2008		9,849		1,867
2009		10,325		1,734
2010		11,141		1,735
2011		11,886		2,053
2012-2016		75,915		15,514

Post-Retirement Benefit Plans

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, and 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 (including executive officers) could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

Teradyne uses a December 31 measurement date for its plan. The December 31 balances of the post retirement assets and obligations are shown below:

	2006			2005
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	31,328		$	34,402
Service cost		255			500
Interest cost		1,404			1,684
Curtailment		—			(1,709	)
Actuarial gain		(5,824	)		(610	)
Benefits paid		(2,955	)		(2,939	)
Plan amendment		—			—
End of year	$	24,208		$	31,328
Change in plan assets:
Fair value of plan assets:
Beginning of year	$	—		$	—
Company contributions		2,955			2,939
Benefits paid		(2,955	)		(2,939	)
End of year	$	—		$	—
Funded status	$	(24,208	)	$	(31,328	)
Unrecognized prior service cost					(2,698	)
Unrecognized net actuarial loss					12,327
Net amount recognized					(21,699	)

74

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

N. RETIREMENT PLANS—(Continued)

The following table provides amounts recognized in long-term other accrued liabilities in the statement of financial position as of December 31:

	2006			2005
	(in thousands)
Current post retirement benefit liability	$	(2,970	)	$	—
Long term post retirement benefit liability		(21,238	)		(21,699	)
	$	(24,208	)	$	(21,699	)

The following table provides amounts recognized in accumulated other comprehensive loss as of December 31:

	2006
	(in thousands)
Net loss	$	5,942
Prior service cost		(2,463	)
Total other comprehensive loss, net of tax		3,479

Expense

For the years ended December 31, 2006, 2005 and 2004, Teradyne’s net post retirement benefit costs were comprised of:

	2006			2005			2004
	(in thousands)
Components of Net Periodic Benefit Cost:
Service cost	$	255		$	500		$	1,293
Interest cost		1,404			1,684			2,008
Amortization of:
Net transition obligation		—			—			239
Prior service cost		(234	)		(288	)		(101	)
Net loss		550			905			539
Curtailment cost		—			(822	)		—
Total expense	$	1,975		$	1,979		$	3,978

Weighted Average Assumptions to Determine Net Periodic Benefit Cost

	2006		2005		2004
Discount rate	5.5	%	5.75	%	6.0	%
Initial Health Care Cost Trend Rate	10.0		10.0		9.0
Ultimate Health Care Cost Trend Rate	5.0		5.0		5.0
Year in which Ultimate Health Care Cost Trend Rate is reached	2011		2010		2008

75

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

N. RETIREMENT PLANS—(Continued)

Weighted Average Assumptions to Determine Benefit Obligation

	2006		2005		2004
Discount rate	6.0	%	5.5	%	5.75	%
Initial Medical Trend	10.0		10.0		10.0
Ultimate Health Care Trend	5.0		5.0		5.0
Medical cost trend rate decrease to ultimate rate in year	2014		2011		2010

Assumed health care trend rates could have a significant effect on the amounts reported for health care plans. A one percentage point change in the assumed health care cost trend rates for the year ended December 31, 2006 would have the following effects:

	1 Percentage Point Increase		1 Percentage Point Decrease
	(in thousands)
Effect on total service and interest cost components	$	235	$	(220	)
Effect on postretirement benefit obligations	$	2,770	$	(2,601	)

Expected Future Benefits Payments

The following benefit payments, which reflect future service, as appropriate, are expected to be paid:

	Benefits
	(in thousands)
2007	$	2,970
2008		2,940
2009		2,822
2010		2,642
2011		2,383
2012-2016		9,105

O. STOCK BASED COMPENSATION

Stock Compensation Plans

Under its stock compensation plans Teradyne grants options to purchase common stock at 100% of the fair market value on the date of grant. Options granted to employees prior to September 2001 vest in equal installments over four years and have a maximum term of five years. Beginning in September 2001, options granted to employees vest in equal installments over four years and have a maximum term of seven years. In addition, in 2001, Teradyne made a one-time option grant to all employees that vested over two years and has a term of seven years. Options granted to non-employee directors prior to February 5, 2001 vest in equal installments over four years and have a maximum term of five years. Options granted to non-employee directors on or after February 5, 2001 are immediately vested, fully exercisable and have a maximum term of either five or seven years. In December of 2005, Teradyne issued its first restricted stock unit award to employees which vest equally over two years. The weighted-average grant-date fair value of the restricted stock units was $15.58.

76

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

O. STOCK BASED COMPENSATION—(Continued)

Stock compensation plan activity for the years 2006, 2005 and 2004 follows:

	2006		2005		2004
	(in thousands)
Restricted Stock Units:
Non-vested at January 1	1,465		—		—
Awarded	482		1,467		—
Vested	(680	)	—		—
Forfeited	(139	)	(2	)	—
Non-vested at December 31	1,128		1,465		—
	2006		2005		2004
	(in thousands)
Stock Options:
Outstanding at January 1	22,950		31,017		29,923
Options granted	—		544		7,017
Options exercised	(729	)	(509	)	(677	)
Options forfeited	(130	)	(925	)	(1,019	)
Options cancelled	(3,080	)	(7,177	)	(4,227	)
Outstanding at December 31	19,011		22,950		31,017
Vested and expected to vest at December 31	18,986		22,950		31,017
Exercisable at December 31	18,007		20,886		18,271

Total shares available for the years 2006, 2005 and 2004:

	2006		2005		2004
	(in thousands)
Shares available:
Available for grant at January 1	25,723		19,630		21,401
Option grants	—		(544	)	(7,017	)
Restricted stock unit awards	(482	)	(1,467	)	—
Options cancellations/forfeitures	3,080		8,102		5,246
Restricted stock unit forfeitures	139		2		—
Adjustment to shares available	(16,559	)	—		—
Available for grant at December 31	11,901		25,723		19,630

In May 2006, the 1991 Employee Stock Option Plan, the 1996 Non-Employee Director Stock Option Plan and the 1997 Employee Stock Option Plan were terminated and the 2006 Equity and Cash Compensation Incentive Plan was approved by Teradyne’s shareholders. As a result, the number of shares available for future issuance was reduced by 16,559,000 shares from the terminated plans.

77

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

O. STOCK BASED COMPENSATION—(Continued)

Weighted-average restricted stock unit award date fair value information for the years 2006, 2005 and 2004 follows:

	2006		2005		2004
	(in thousands)
Non-vested at January 1	$	15.58	$	—	$	—
Awarded		16.53		15.58		—
Vested		15.58		—		—
Forfeited		15.62		15.58		—
Non-vested at December 31	$	16.00	$	15.58	$	—

Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2006, 2005 and 2004 follows:

	2006		2005		2004
	(in thousands)
Vested	$	10,241		—	—
Outstanding	$	16,149	$	24,452	—
Expected to vest	$	15,393	$	22,730	—

Restricted stock units weighted average contractual terms (in years) information at December 31, for the years 2006 and 2005 follows:

	2006	2005	2004
Outstanding	0.95	1.43	—
Expected to vest	0.92	1.42	—

Weighted average stock options exercise price information for the years 2006, 2005 and 2004 follows:

	2006		2005		2004
Outstanding at January 1	$	20.73	$	22.72	$	23.11
Options granted		—		14.43		26.15
Options exercised		12.15		11.64		16.47
Options forfeited		12.99		15.73		19.96
Options canceled		23.44		28.53		30.33
Outstanding at December 31		20.66		20.73		22.72
Exercisable at December 31		21.15		21.60		24.50

78

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

O. STOCK BASED COMPENSATION—(Continued)

Stock option aggregate intrinsic value information for the years ended December 31, 2006, 2005 and 2004 follows:

	2006		2005		2004
	(in thousands)
Exercised	$	2,969	$	1,774	$	4,925
Outstanding	$	10,412	$	24,341	$	31,385
Vested and expected to vest	$	10,365	$	24,341	$	31,385
Exercisable	$	7,952	$	14,466	$	11,468

Stock options weighted average contractual terms (in years) information at December 31, for the years 2006, 2005 and 2004 follows:

	2006	2005	2004
Outstanding	3.0	3.9	4.2
Vested and Expected to vest	3.0	3.9	4.2
Exercisable	2.9	3.9	3.3

Significant option groups outstanding at December 31, 2006 and related weighted average price and remaining contractual life information follows:

	Options Outstanding				Options Exercisable
Range Of Exercise Prices	Weighted- Average Remaining Contractual Life (Years)	Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Exercise Price
	(options in thousands)
$    9.42–$17.40	3.52	4,422	$	12.10	3,419	$	12.14
$  17.40–$20.27	2.61	4,034		17.52	4,033		17.52
$  21.65–$26.73	2.02	5,449		21.89	5,449		21.89
$26.73–$166.98	3.73	5,106		29.25	5,106		29.25
Total	2.96	19,011	$	20.66	18,007	$	21.15

Employee Stock Purchase Plan

Under the Teradyne 1996 Employee Stock Purchase Plan, eligible employees (including executive officers) may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation. Under the plan, the price paid for the common stock is equal to 85% of the lower of the fair market value of Teradyne’s common stock on the first business day and the last business day of the purchase period. On November 9, 2004, the Board of Directors approved a plan amendment which replaced the existing twelve (12) month purchase period with two six (6) month purchase periods, effective January 1, 2005. In July 2006, 0.6 million shares of common stock were issued to employees who participated in the plan during the first half of 2006, at the weighted average price of $11.87 per share, and in January 2007, Teradyne issued 0.6 million shares of common stock to employees who participated in the plan during the second half of 2006, at the weighted average price of $11.99 per share.

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TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

P. SAVINGS PLAN

Teradyne sponsors an employee retirement Savings Plan covering substantially all U.S. employees. Under Teradyne’s savings plan, employees may contribute up to 20% of their compensation (subject to Internal Revenue Service limitations). Teradyne annually matches employee contributions up to 6% of such compensation at rates ranging from 50% to 100% for employees in the defined benefit plan. For all other employees, Teradyne annually matches up to 5% of such compensation at rates ranging from 100% to 150%. Teradyne’s contributions vest 25% per year for the first four years of employment, and contributions for those employees with four years of service vest immediately. Teradyne also has established an unfunded Supplemental Savings Plan to provide savings benefits in excess of those allowed by ERISA and the IRC. The provisions of this plan are the same as the Savings Plan. Under Teradyne’s savings plans, amounts charged to operations were $10.7 million in 2006, $9.1 million in 2005 and $11.5 million in 2004.

Q. STOCKHOLDER RIGHTS PLAN

Teradyne’s Board of Directors adopted a stockholders rights plan on November 11, 2000, under which a dividend of one common stock purchase right was declared for and attached to each outstanding share of Teradyne’s common stock held by stockholders of record as of November 27, 2000. Following approval from its Board of Directors, Teradyne accelerated the expiration of its rights plan from November 27, 2010 to February 8, 2007. Accordingly, the rights plan and all rights thereunder terminated on February 8, 2007.

R. INCOME TAXES

The components of income (loss) from continuing operations before income taxes and the provision for (benefit from) income taxes of continuing operations as shown in the consolidated statements of operations are as follows:

	2006			2005			2004
	(in thousands)
Income (loss) from continuing operations before income taxes:
United States	$	251,174		$	(84,763	)	$	95,915
Non U.S.		(20,779	)		4,626			58,553
	$	230,395		$	(80,137	)	$	154,468
(Benefit) provision for income taxes from continuing operations:
Current:
U.S. Federal	$	(6,320	)	$	951		$	8,163
Non U.S.		36,299			8,831			13,237
State		1,958			1,493			814
		31,937			11,275			22,214
Deferred:
U.S. Federal		—			(29,200	)		—
Non U.S.		(4,185	)		(1,755	)		(365	)
State		—			—			—
		(4,185	)		(30,955	)		(365	)
Total (benefit) provision for income taxes from continuing operations:	$	27,752		$	(19,680	)	$	21,849

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TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

R. INCOME TAXES—(Continued)

During 2006, the income tax expense from continuing operations totaled $27.8 million. This amount relates primarily to a tax provision for foreign taxes as well as benefits related to a one-time credit related to pension funding and settlement of the California income tax audit for 1998 through 2000.

For the year ended December 31, 2005, there was a tax benefit from continuing operations that totaled $19.7 million. Under generally accepted accounting principles (“GAAP”), a benefit of $29.2 million was recognized for losses relating to 2005 continuing operations. There was an equal and offsetting tax provision in the gain on sale of Connection Systems included in discontinued operations. The remaining portion of the net tax benefit includes a tax provision that related primarily to foreign taxes. For the year ended December 31, 2004, tax expense relates primarily to a tax provision for foreign taxes and also includes an IRS settlement related to the close of tax years 1999 through 2001.

The 2005 U.S. federal deferred benefit of $29.2 million represents losses recognized for current year operations, as a result of the gain on the sale of Connection Systems. There was an equal and offsetting tax provision in the gain on the sale of Connection Systems included in discontinued operations.

The total income tax provision (benefit) for the years ended December 31, 2006, 2005 and 2004 is as follows:

	2006		2005			2004
	(in thousands)
Continuing operations	$	27,752	$	(19,680	)	$	21,849
Discontinued operations		3,886		32,299			888
Total income tax provision	$	31,638	$	12,619		$	22,737

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TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

R. INCOME TAXES—(Continued)

Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2006 and 2005 are as follows:

	2006			2005
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	164,061		$	231,971
Tax credits		48,751			32,836
Inventory valuations		54,779			41,290
Accruals		7,980			12,133
Research and development		71,624			82,022
Pension liability		12,356			15,647
Vacation accrual		7,707			8,166
Equity compensation		4,494			—
Other		526			1,313
Gross deferred tax assets		372,278			425,378
Less: valuation allowance		(351,656	)		(407,895	)
Total deferred tax assets	$	20,622		$	17,483
Deferred tax liabilities:
Excess of tax over book depreciation		(7,919	)		(11,203	)
Amortization		(2,733	)		(1,585	)
Other		—			—
Total deferred tax liabilities		(10,652	)		(12,788	)
Net deferred assets	$	9,970		$	4,695

At December 31, 2006 Teradyne had operating loss carryforwards that expire in the following years:

	U.S. Federal Operating Loss Carryforwards		State Net Operating Loss Carryforwards		Foreign Net Operating Loss Carryforwards
	(in thousands)
2007	$	5,669	$	83,601	$	1,256
2008		3,319		15,800		1,485
2009		4,774		—		—
2010		511		36,801		—
2011		—		1,191		—
2012		—		—		16
2013		—		—		—
2014		—		—		—
2020		50,982		—		—
2021		—		—		—
2022		183,564		—		—
2023		181,294		—		—
Non-expiring		—		—		68,648
Total	$	430,113	$	137,393	$	71,405

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TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

R. INCOME TAXES—(Continued)

Of the U.S. Federal operating loss carryforwards, $22.8 million relates to the acquisition of GenRad, Inc. in 2001. The GenRad losses are limited in the amount that can be used as a result of “change in ownership” rules as defined in the Internal Revenue Code of 1986.

Teradyne has approximately $48.8 million of tax credit carry forwards. Business tax credits of approximately $13.1 million expire in the years 2012 through 2020. Teradyne has foreign tax credits of approximately $8.4 million expiring 2012 through 2016 and alternative minimum tax credits of approximately $13.7 million, which do not expire. In addition, there are state tax credits of $20.9 million which expire beginning 2007.

During 2006, Teradyne’s valuation allowance decreased by $40 million primarily as a result of the utilization of net operating loss carryforwards against current year taxable income. During 2005, Teradyne’s valuation allowance decreased by $12.9 million primarily as a result of the utilization of net operating losses against the gain on sale of Connection Systems. Due to the continued uncertainty of realization, Teradyne maintained its valuation allowance at December 31, 2005 and 2006, Teradyne does not expect to significantly reduce its valuation allowance until sufficient positive evidence exists, including sustained profitability, that realization is more likely than not. It is at least reasonably possible that a material adjustment will occur to the valuation allowance within one year. The valuation allowance includes $43.9 million for net deferred tax assets resulting from minimum pension liabilities and other direct charges or credits to equity.

A reconciliation of the effective tax rate for the years 2006, 2005 and 2004 follows:

	2006		2005		2004
U.S. statutory federal tax rate	35.0	%	(35.0	)%	35.0	%
State income taxes, net of federal tax benefit	0.9		1.9		0.5
Foreign taxes	17.4		5.3		(2.2	)
Export sales corporation	(0.8	)	(16.9	)	1.9
Federal income tax audit	(0.1	)	2.5		2.2
Valuation allowance	(38.5	)	18.4		(26.2	)
Pension	(2.6	)	—		—
Other, net	0.8		(0.8	)	2.9
	12.1	%	(24.6	)%	14.1	%

As of December 31, 2006, a deferred tax liability has not been established for approximately $247.9 million of cumulative undistributed earnings of non-U.S. subsidiaries, as Teradyne plans to keep these amounts permanently reinvested. Beginning in 2003, Teradyne received tax incentives to conduct business in the People’s Republic of China. These tax incentives resulted in income tax savings of $1.3 million, $0.9 million and $1.6 million for the years ended December 31, 2006, 2005 and 2004, respectively. The tax incentive period lapses at the end of 2007. Beginning in 2006, Teradyne received from Singapore tax incentives for earnings from investments and related activity that began in that country in 2005. These incentives extend through 2013 and resulted in $2.0 million in tax savings during 2006.

83

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

S. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

Teradyne has three reportable segments and four operating segments with Diagnostic Test Systems and Broadband Test Systems combined as Other Test Systems. The three reportable segments are the design, manufacturing and marketing of Semiconductor Test Systems, Assembly Test Systems and Other Test Systems. These reportable segments were determined based upon the information reviewed and used by the chief operating decision maker.

Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The accounting policies of the business segments are the same as those described in “Note B: Accounting Policies.” Variable compensation, which was previously recorded at Corporate, has been allocated to each reportable segment. During 2006, 2005 and 2004 no individual customer accounted for more than 10% of consolidated net revenue.

	Semiconductor Test Systems Segment			Assembly Test Systems Segment			Other Test Systems Segment		Corporate And Eliminations			Consolidated
	(in thousands)
2006
Net revenue	$	1,088,918		$	164,018		$	123,882	$	—		$	1,376,818
Income from continuing operations before taxes (1)(2)		183,126			10,207			6,129		30,933			230,395
Total assets (3)		490,319			182,471			85,589		962,676			1,721,055
Property additions (4)		97,463			3,716			1,703		7,535			110,417
Depreciation and amortization expense (4)		57,376			5,877			1,711		8,576			73,540
2005
Net revenue	$	814,221		$	155,097		$	105,914	$	—		$	1,075,232
(Loss) income from continuing operations before taxes (1)(2)		(88,614	)		8,369			8,707		(8,599	)		(80,137	)
Total assets (3)		639,532			194,492			61,922		963,786			1,859,732
Property additions (4)		103,085			2,782			2,694		4,913			113,474
Depreciation and amortization expense (4)		72,926			6,209			2,243		9,790			91,168
2004
Net revenue	$	1,146,303		$	155,166		$	108,753	$	—		$	1,410,222
Income (loss) from continuing operations before taxes (1)(2)		158,814			(5,903	)		2,647		(1,090	)		154,468
Total assets—continuing operations (3)		731,862			159,908			65,021		729,762			1,686,553
Property additions (4)		140,189			2,083			2,088		10,198			154,558
Depreciation and amortization expense (4)		77,845			6,968			2,496		12,823			100,132

(1) Net interest income is included in Corporate and Eliminations.

(2) Included in income (loss) before taxes for the following segments are charges and credits that include restructuring and other, net, real estate gains, accelerated depreciation, impairment of goodwill, investments, inventory provision recovery and inventory writedowns.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

S. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION—(Continued)

(3) Total business assets are directly attributable to each business. Corporate assets consist of cash and cash equivalents, marketable securities, unallocated fixed assets of support divisions and common facilities and certain other assets.

(4) Corporate property additions and depreciation and amortization expense include items attributable to the unallocated fixed assets of support divisions and common facilities.

Included in the Semiconductor Test Systems segment are charges and credits in the following accounts:

	For the Year Ended December 31,
	2006			2005		2004
	(in thousands)
Cost of revenues—inventory charge	$	11,479		$	44,344	$	5,212
Restructuring and other, net		(35,733	)		6,114		337
Selling and administrative—accelerated depreciation		—			—		66
Total	$	(24,254	)	$	50,458	$	5,615

Included in the Assembly Test Systems segment are charges and credits in the following accounts:

	For the Year Ended December 31,
	2006			2005		2004
	(in thousands)
Cost of revenues—inventory charge	$	695		$	2,913	$	2,671
Restructuring and other, net		(1,123	)		2,179		(411	)
Total	$	(428	)	$	5,092	$	2,260

Included in the Other Test Systems segment are charges and credits in the following accounts:

	For the Year Ended December 31,
	2006		2005		2004
	(in thousands)
Cost of revenues—inventory charge	$	2,477	$	539	$	494
Restructuring and other, net		2,308		290		289
Total	$	4,785	$	829	$	783

Included in the Corporate and Eliminations segment are charges and credits in the following accounts:

	For the Year Ended December 31,
	2006		2005		2004
	(in thousands)
Restructuring and other, net charge	$	441	$	9,061	$	996
Other income and expense, net		—		—		(2,536	)
Total	$	441	$	9,061	$	(1,540	)

85

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

S. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION—(Continued)

Information as to Teradyne’s revenue in different geographical areas is as follows:

	2006		2005		2004
	(in thousands)
Revenue to unaffiliated customers (1):
United States	$	321,844	$	241,657	$	290,763
South East Asia		325,600		253,620		274,466
Europe		207,040		177,727		231,864
Taiwan		190,232		133,286		265,834
Japan		164,680		97,140		82,755
Singapore		142,800		142,807		229,129
Rest of the World		24,622		28,995		35,411
	$	1,376,818	$	1,075,232	$	1,410,222

(1) Revenues are attributable to geographic areas based on location of customer site.

Long-lived assets located outside the United States are less than 10% of total assets.

T. STOCK REPURCHASE PROGRAM

In July 2006, Teradyne’s Board of Directors authorized a stock repurchase program. Under the program, the Company may spend up to an aggregate of $400 million to repurchase shares of its common stock in open market purchases, in privately negotiated transactions or through other appropriate means over the next two years. Shares are to be repurchased at the Company’s discretion, subject to market conditions and other factors. During the year ended December 31, 2006, the Company repurchased 10.6 million shares of common stock for $137.6 million at an average price of $12.96. Subsequently, the Company has repurchased 0.2 million shares of common stock for $2.4 million through February 28, 2007.

U. SUBSEQUENT EVENT

On February 22, 2007, Teradyne announced the signing of a definitive agreement with MOSAID Technologies, Inc. of Ottawa, Canada to acquire enabling test technology for a purchase price of $17 million. The transaction is expected to close in March 2007.

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SUPPLEMENTARY INFORMATION

(Unaudited)

The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradyne’s last eight quarters. In management’s opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of Teradyne and the notes thereto included elsewhere herein.

	2006
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
	(1)			(2)			(3)			(4)
	(in thousands, except per share amounts)
Net Revenue:
Products	$	299,897		$	329,139		$	295,396		$	200,208
Services		63,017			62,496			63,726			62,939
Total net revenue		362,914			391,635			359,122			263,147
Cost of revenue:
Cost of products		151,983			159,123			144,050			100,193
Cost of services		40,293			39,453			39,781			41,510
Total cost of revenue		192,276			198,576			183,831			141,703
Gross profit		170,638			193,059			175,291			121,444
Operating expenses:
Engineering and development		52,194			53,581			53,289			49,638
Selling and administrative		72,185			75,587			71,774			69,460
Restructuring and other, net		(1,097	)		(19,702	)		(15,118	)		1,810
Total operating expenses		123,282			109,466			109,945			120,908
Income from operations		47,356			83,593			65,346			536
Interest income		9,483			11,659			12,453			11,029
Interest expense		(3,371	)		(3,470	)		(3,518	)		(701	)
Income from continuing operations before income taxes		53,468			91,782			74,281			10,864
Provision (benefit) for income taxes		8,555			9,377			9,830			(10	)
Income from continuing operations	$	44,913		$	82,405		$	64,451		$	10,874
Loss from discontinued operations (net of income tax provision of $0, $0, $3,886 and $0, respectively)		—			—			(3,886	)		—
Net income	$	44,913		$	82,405		$	60,565		$	10,874
Income from continuing operations per common share—basic	$	0.23		$	0.42		$	0.33		$	0.06
Income from continuing operations per common share—diluted	$	0.23		$	0.40		$	0.33		$	0.06
Net income per common share—basic	$	0.23		$	0.42		$	0.31		$	0.06
Net income per common share—diluted	$	0.23		$	0.40		$	0.31		$	0.06

(1) Restructuring and other, net includes $2.1 million for facility related net credit consisting of revised estimates of losses due to changes in the assumed amount and timing of sublease income for two Assembly Test Systems facilities that has been exited prior to the end of the lease term, $1.1 million charge for the exit of a Semiconductor Test facility in Newbury Park, CA, $0.2 million credit for earn-out payments received in the Assembly Test Systems segment and $0.1 million charge for a software lease obligation in the Semiconductor Test Systems segment.

87

(2) Restructuring and other, net includes $21.7 million gain on the sale of real estate, including $21.2 million for a Semiconductor Test facility in Boston, MA and $0.5 million for buildings in Nashua, NH, $2.4 million of severance charges related to headcount reductions across all segments, $0.3 million of credits related to exited leases in the Corporate segment, $0.2 million credit for earn-out payments received in the Assembly Test segment, and $0.1 million of facility related charges for the exit of Semiconductor Test facility in Waltham, MA.

(3) Restructuring and other, net includes $16.6 million gain on the sale of real estate, including $15.3 million for a Semiconductor Test facility in Boston, MA and $1.3 million for a Semiconductor Test facility in San Jose, CA, $1.0 million of severance charges related to headcount reductions across all segments, and $0.5 million of net facility related charges consisting of revised estimates of losses due to changes in the assumed amount and timing of sublease income on an Assembly Test Systems facility in Westford, MA.

(4) Restructuring and other, net includes $0.8 million gain on the sale of real estate for a Semiconductor Test parking facility in Boston, MA and $2.6 million for severance charges related to headcount reductions across all segments.

88

	2005
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
	(1)			(2)			(3)			(4)
	(in thousands, except per share amounts)
Net Revenue:
Products	$	160,839		$	175,644		$	237,864		$	287,269
Services		49,518			50,507			55,709			57,882
Total net revenue		210,357			226,151			293,573			345,151
Cost of revenue:
Cost of products		94,940			103,387			165,209			145,400
Cost of services		37,747			37,993			39,208			39,580
Total cost of revenue		132,687			141,380			204,417			184,980
Gross profit		77,670			84,771			89,156			160,171
Operating expenses:
Engineering and development		61,379			58,167			53,699			49,770
Selling and administrative		64,317			64,879			62,639			60,972
Restructuring and other, net		6,358			7,883			13,796			(10,393	)
Total operating expenses		132,054			130,929			130,134			100,349
(Loss) income from operations		(54,384	)		(46,158	)		(40,978	)		59,822
Interest income		4,405			3,841			3,972			5,572
Interest expense		(4,434	)		(4,153	)		(4,059	)		(3,583	)
(Loss) income from continuing operations before income taxes		(54,413	)		(46,470	)		(41,065	)		61,811
Provision (benefit) for income taxes		1,038			4,308			2,788			(27,814	)
(Loss) income from continuing operations	$	(55,451	)	$	(50,778	)	$	(43,853	)	$	89,625
Income (loss) from discontinued operations (net of income tax provision of $462, $357, $239 and $262, respectively)		2,879			5,314			8,475			(2,516	)
Gain on disposal of discontinued operations (net of income tax provision of $0, $0, $0, and $30,979)		—			—			—			136,953
Net (loss) income	$	(52,572	)	$	(45,464	)	$	(35,378	)	$	224,062
(Loss) income from continuing operations per common share—basic	$	(0.28	)	$	(0.26	)	$	(0.22	)	$	0.46
(Loss) income from continuing operations per common share—diluted	$	(0.28	)	$	(0.26	)	$	(0.22	)	$	0.44
Net (loss) /income per common share—basic	$	(0.27	)	$	(0.23	)	$	(0.18	)	$	1.14
Net (loss) /income per common share—diluted	$	(0.27	)	$	(0.23	)	$	(0.18	)	$	1.07

(1) Restructuring and other, net includes severance and related benefits charges of $4.0 million, an increase in revised estimated losses on leased facilities of $2.3 million, long-lived asset impairment of $0.5 million and a $0.4 million reversal of other charges for amounts earned under agreements related to the sale of product lines in prior periods.

(2) Restructuring and other, net includes long-lived asset impairment of $8.7 million, gain on sale of real estate of $4.4 million, severance and related benefits charges of $2.6 million, divestiture related fees of $1.5 million and a $0.5 million reversal of other charges for amounts earned under agreements related to the sale of product lines in prior periods.

89

(3) Restructuring and other, net includes severance and related benefits charges of $11.9 million, divestiture related fees of $1.6 million, an $0.8 million charge for a software lease obligation in Semiconductor Test Systems and a $0.5 million reversal of other charges for amounts earned under agreements related to the sale of product lines in prior periods. Cost of products includes an inventory provision of $38.5 million for the writedown of excess non-FLEX inventory.

(4) Restructuring and other, net includes a gain on sale of real estate of $10.9 million, severance and related benefits charges of $2.9 million, a $2.8 million reversal of other charges for amounts earned under agreements related to the sale of product lines in prior periods, a $0.2 million charge for a software lease obligation in Semiconductor Test Systems and a $0.2 million charge for corporate projects.

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Item 9: Changes in and disagreements with accountants on accounting and financial disclosure

None.

Item 9A: Controls and procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, our management, with the participation of our CEO and CFO, 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 CEO and CFO 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 by us 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 CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our independent registered public accounting firm, PricewaterhouseCoopers LLP, audited management’s assessment and independently assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. PricewaterhouseCoopers has issued as attestation report which is included under Item 8 of this Annual Report.

Inherent Limitations on Effectiveness of Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B: Other Information

On March 1, 2007, we entered into new change of control agreements with our Chief Executive Officer and each of our other executive officers. The new agreements replace existing change of control agreements which provided for the acceleration of stock options and a tax gross-up payment if the individual’s employment was terminated by Teradyne without “Cause” or the individual terminated his or her employment for “Good Reason” (each as defined in the agreement) within two years of a defined change of control event. The new agreements are intended to encourage retention of our senior executive team in the event of a threatened or

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pending change of control, to diminish the inevitable distraction of the executive by virtue of the personal uncertainties and risks created by a threatened or pending change of control, to provide compensation and benefits which are competitive with those of other corporations in our industry, and to provide consistent treatment among the executive officers of the benefits afforded during certain events.

Under the new agreements, in the event any of our executive officers is terminated without ”Cause” or the executive officer terminates his or her employment with us for ”Good Reason” (each as defined in the agreement) within two years of a defined change of control of Teradyne, such officer will receive certain payments and/or benefits including the following:

• Immediate vesting of all equity awards (for performance-based awards the vesting would be calculated at the target level);

• Cash awards calculated at the target level and pro-rated up to the date of termination;

• Salary continuation for two years based on the executive’s annual model compensation at the time of termination;

• Health, dental and vision plan insurance coverage for two years; and

• Tax gross-up payments in the amount necessary, so that the net amount retained by the executive officer (after reduction for (i) any excise tax and (ii) any federal, state, or local tax on the tax gross-up payment) is equal to the amount of the payments under the agreement other than the tax gross-up payment.

Our Chief Executive Officer’s change in control agreement does not contain the provisions for salary and health, dental and vision plan insurance continuation because such payments and benefits are already provided for in his existing Agreement Regarding Termination Benefits.

Copies of Mr. Bradley’s agreement and the form of agreement for the other executive officers are attached as Exhibits 10.25 and 10.26 to this Annual Report on Form 10-K.

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PART III

Item 10: Directors, Executive Officers and Corporate Governance.

Certain information relating to our directors and executive officers, committee information, reports and charters, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 24, 2007. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 1: Business—Our Executive Officers.”

Item 11: Executive Compensation.

Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 24, 2007. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein.

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 24, 2007. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Equity Compensation Plans.”

Item 13: Certain Relationships and Related Transactions, and Director Independence.

Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 24, 2007. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein.

Item 14: Principal Accountant Fees and Services.

Certain information relating to audit fees and other of Teradyne’s independent registered public accounting firm is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 24, 2007. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Audit Committee Report included in such proxy statement is specifically not incorporated herein.

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PART IV

Item 15: Exhibits and Financial Statement Schedules.

15(a)(1) Financial Statements

The following consolidated financial statements are included in Item 8:

Report of Independent Registered Public Accounting Firm	39
Balance Sheets as of December 31, 2006 and 2005	41
Statements of Operations for the years ended December 31, 2006, 2005 and 2004	42
Statements of Shareholders’ Equity and Comprehensive Loss for the years ended December 31, 2006, 2005 and 2004	43
Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004	44

15(a)(2) Financial Statement Schedules

The following consolidated financial statement schedule is included in Item 15(c):

Schedule II—Valuation and Qualifying Accounts

Schedules other than those listed above have been omitted since they are either not required or information is otherwise included.

15(a)(3) Listing Of Exhibits

The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index.

15(c) Financial Statement Schedules

TERADYNE, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Column A	Column B		Column C		Column D		Column E
			Additions
Description	Balance at Beginning of Period		Charged to Cost and Expenses		Deductions		Balance at End of Period
	(in thousands)
Valuation reserve deducted in the balance sheet from the asset to which it applies:
Accounts receivable:
2006 Allowance for doubtful accounts	$	4,926	$	200	$	164	$	4,962
2005 Allowance for doubtful accounts	$	5,026	$	278	$	378	$	4,926
2004 Allowance for doubtful accounts	$	5,257	$	—	$	231	$	5,026
Column A	Column B		Column C		Column D		Column E
			Additions
Description	Balance at Beginning of Period		Charged to Cost and Expenses		Deductions		Balance at End of Period
	(in thousands)
Valuation reserve deducted in the balance sheet from the asset to which it applies:
Inventory:
2006 Inventory reserve	$	158,440	$	14,651	$	33,756	$	139,335
2005 Inventory reserve	$	144,947	$	49,285	$	35,792	$	158,440
2004 Inventory reserve	$	178,664	$	9,699	$	43,416	$	144,947

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EXHIBIT INDEX

The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission and are referred to and incorporated by reference to such filings.

Exhibit No.	Description	SEC Document Reference
3.1	Restated Articles of Organization of Teradyne, as amended	Exhibit 3.01 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2000.
3.2	Amended and Restated By-laws of Teradyne (as amended on January 22, 2007).	Filed herewith.
10.1	Supplemental Executive Retirement Plan (restated on May 25, 2006)*	Exhibit 10.3 to Teradyne’s Current Report on Form 8-K filed on May 31, 2006.
10.2	1991 Employee Stock Option Plan, as amended and restated including Amendment dated January 23, 2007	Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended June 2, 2002 and Amendment filed herewith
10.3	1996 Employee Stock Purchase Plan, as amended and restated*	Filed herewith
10.4	1996 Non-Employee Director Stock Option Plan, as amended and restated, including Amendment dated January 23, 2007*	Exhibit 10.24 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended 2004 and Amendment filed herewith
10.5	1997 Employee Stock Option Plan, as amended and restated, including Amendment dated January 23, 2007*	Exhibit 10.2 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 and Amendment filed herewith.
10.6	Form of Option Agreement relating to the 1991 Employee Stock Option Plan, as amended*	Exhibit 10.46 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2004.
10.7	Form of Option Agreement relating to the 1996 Non-Employee Director Stock Option Plan, as amended*	Exhibit 10.48 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2004.
10.8	Form of Option Agreement relating to the 1997 Employee Stock Option Plan, as amended*	Exhibit 10.47 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2004.
10.9	Form of Restricted Stock Unit Agreement for Executive Officers relating to the 1997 Employee Stock Option Plan, as amended*	Exhibit 10.1 to Teradyne’s Current Report on Form 8-K filed January 30, 2006.
10.10	Form of Restricted Stock Unit Agreement for Directors relating to the 1997 Employee Stock Option Plan, as amended*	Exhibit 10.2 to Teradyne’s Current Report on Form 8-K filed January 30, 2006.
10.11	Variable Compensation Plan for 2006*	Exhibit 99.1 to Teradyne’s Current Report on Form 8-K filed January 30, 2006.
10.12	2006 Equity and Cash Compensation Incentive Plan, as amended*	Filed herewith.

95

Exhibit No.	Description	SEC Document Reference
10.13	Form of Restricted Unit Agreement for Executive Officers relating to 2006 Equity and Cash Compensation Plan, as amended*	Filed herewith.
10.14	Form of Restricted Unit Agreement for Directors relating to 2006 Equity and Cash Compensation Plan, as amended*	Exhibit 10.1 to Teradyne’s Current Report on Form 8-K filed October 4, 2006.
10.15	Form of Restricted Unit Agreement for Employees relating to 2006 Equity and Cash compensation Plan, as amended	Filed herewith.
10.16	Deferral Plan for Non-Employee Directors (Restated on May 25, 2006)	Exhibit 10.2 to Teradyne’s Current Report on Form 8-K filed May 31, 2006.
10.17	Supplemental Savings Plan (amended and restated on May 25, 2006).*	Exhibit 10.4 to Teradyne’s Current Report on Form 8-K filed May 31, 2006.
10.18	Employment Agreement dated May 3, 2004 between Teradyne and Eileen Casal*	Exhibit 10.35 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2004.
10.19	Employment Agreement dated May 7, 2004 between Teradyne and Mark Jagiela*	Exhibit 10.37 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2004.
10.20	Employment Agreement dated July 30, 2004 between Teradyne and Michael A. Bradley*	Exhibit 10.38 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2004.
10.21	Employment Agreement dated August 9, 2004 between Teradyne and Gregory R. Beecher*	Exhibit 10.40 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2004.
10.22	Employment Agreement dated August 9, 2004 between Teradyne and Jeffrey R. Hotchkiss*	Exhibit 10.41 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2004.
10.23	Agreement Regarding Termination Benefits between Teradyne and Michael A. Bradley*	Exhibit 10.45 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2004.
10.24	Form of Indemnification Agreement*	Filed herewith.
10.25	Executive Officer Change in Control Agreement dated March 1, 2007 between Teradyne and Michael A. Bradley*	Filed herewith.
10.26	Form of Executive Officer Change in Control Agreement*	Filed herewith.
14.1	Standards of Business Conduct, as amended.	Filed herewith.
21.1	Subsidiaries of Teradyne	Filed herewith.
23.1	Consent of PricewaterhouseCoopers LLP	Filed herewith.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

96

Exhibit No.	Description	SEC Document Reference
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith.

* Indicates management contracts or compensatory plans

97

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 this 01 day of March, 2007.

TERADYNE, INC.
By:	/s/    GREGORY R. BEECHER
	Gregory R. Beecher,
	Vice President, Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    PATRICIA S. WOLPERT         Patricia S. Wolpert	Chair of the Board	March 1, 2007
/s/    MICHAEL A. BRADLEY         Michael A. Bradley	President and Chief Executive Officer (Principal Executive Officer)	March 1, 2007
/s/    GREGORY R. BEECHER         Gregory R. Beecher	Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)	March 1, 2007
/s/    DANIEL D. TEMPESTA         Daniel D. Tempesta	Corporate Controller, Principal Accounting Officer	March 1, 2007
/s/    JAMES W. BAGLEY         James W. Bagley	Director	March 1, 2007
/s/    ALBERT CARNESALE         Albert Carnesale	Director	March 1, 2007
/s/    EDWIN J. GILLIS         Edwin J. Gillis	Director	March 1, 2007
/s/    VINCENT M. O’REILLY         Vincent M. O’Reilly	Director	March 1, 2007
/s/    PAUL J. TUFANO         Paul J. Tufano	Director	March 1, 2007
/s/    ROY A. VALLEE         Roy A. Vallee	Director	March 1, 2007

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EX-3.2

Exhibit 3.2

[ANNOTATED]

****************

AMENDED AND RESTATED

BY-LAWS

OF

TERADYNE, INC.

(Amended and Restated as of July 1, 2004 and further amended as of January 22, 2007)

****************

ARTICLE I

Name, Location, Seal and Fiscal Year

1. Name. The name of the corporation is Teradyne, Inc.

2. Location. The corporation may have an office and transact business in Boston, Massachusetts, and at such other place or places as the Board of Directors or stockholders may appoint.

3. Seal. The seal of the corporation shall bear the name of the corporation, the word Massachusetts, the year of incorporation and such other device or inscription as the Board of Directors may determine. The form of the seal may be changed by the Board of Directors.

4. Fiscal Year. The fiscal year of the corporation shall, unless otherwise determined by the Board of Directors, begin on January 1 and end on December 31.

ARTICLE II

Stockholders

1. Annual Meeting. The annual meeting of stockholders shall be held on such date and at such time and place (within the United States) as may be fixed by the Board of Directors from time to time. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, the Articles of Organization or these By-Laws, may be specified by the Directors, the Chief Executive Officer or the President. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu thereof, and any action taken at such meeting shall have the same effect as if taken at the annual meeting.

Except as provided in Article III, Section 2, the only business which may be conducted at any such meeting of the stockholders shall (a) have been specified in the written notice of meeting (or any supplement thereto) given by or at the direction of the Directors, the Chief Executive Officer or the President, (b) have otherwise been properly brought before the meeting by or at the direction of the Directors, the Chief Executive Officer or the President, or (c) have otherwise been properly brought before the meeting by or on behalf of any stockholder who shall have been a stockholder of record on the record date for such meeting and who shall continue to be entitled to vote thereat. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than fifty (50) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder’s notice to the Secretary shall set forth as to each matter

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the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of capital stock of the corporation held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice by the stockholder, and (iv) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Proxy Rules”).

Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the meeting except in accordance with the procedures set forth in this Article II, provided, however, that nothing in this Article II shall be deemed to preclude discussion by any stockholder of any business properly brought before the meeting.

The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article II, and if he should so determine, he shall so declare to the meeting and that business shall be disregarded. [Section 1 restated March 13, 1991, May 23, 1996 and July 1, 2004.]

2. Special Meetings. Special meetings of stockholders may be called by the Chief Executive Officer, the President or by the Directors. A special meeting shall be called by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of one or more stockholders who hold at least 66-2/3% in interest of the capital stock entitled to vote at a meeting (or such lesser percentage in interest as shall be the maximum percentage permitted under Massachusetts law). The call for the meeting shall state the date, hour and place and the purposes of the meeting. [Section 2 restated September 14, 1989, May 23, 1996 and July 1, 2004.]

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3. Place of Meetings. All meetings of stockholders shall be held at the principal office of the corporation unless a different place (within the United States) is fixed by the Directors, the Chief Executive Officer or the President and stated in the notice of the meeting. [Section 3 restated May 23, 1996.]

4. Notice of Meetings. A written notice of every meeting of stockholders, stating the place, date and hour thereof, and the purpose for which the meeting is to be held, shall be given by the Secretary or by the person calling the meeting at least seven days before the meeting or such longer period as required by law to each stockholder entitled to vote thereat and to each stockholder who by law, the Articles of Organization or these By-Laws is entitled to such notice, by (i) leaving such notice with him or at his residence or usual place of business, (ii) mailing it postage prepaid and addressed to such stockholder at his address as it appears upon the books of the corporation or (iii) sending such notice via electronic mail to the stockholder’s electronic mail address as it appears upon the books of the corporation. No notice need be given to any stockholder if a written waiver of notice, executed before or after the meeting by the stockholder or his attorney thereunto authorized, is filed with the records of the meeting. [Section 4 restated July 1, 2004.]

5. Quorum. The holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting shall constitute a quorum, but a lesser number may adjourn any meeting from time to time without further notice; except that if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class a quorum shall consist of the holders of a majority in interest of the stock of that class issued, outstanding and entitled to vote.

6. Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held by him of record according to the records of the corporation unless otherwise provided by the Articles of Organization. Stockholders may vote in person or by written proxy. Proxies shall be filed with the Secretary of the meeting, or of any adjournment thereof, before being voted. No proxy dated more than eleven months before the meeting named therein shall be

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valid and no proxy shall be valid after the final adjournment of such meeting. Notwithstanding the provisions of the preceding sentence, a proxy coupled with an interest sufficient in law to support an irrevocable power, including, without limitation, an interest in shares or in the corporation generally, may be made irrevocable if it so provides, need not specify the meeting to which it relates, and shall be valid and enforceable until the interest terminates, or for such shorter period as may be specified in the proxy. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. [Section 6 restated July 1, 2004.]

7. Action at Meeting. When a quorum is present, the holders of a majority of the stock present or represented and voting on a matter, (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) except where a larger vote is required by law, the Articles of Organization or these By-Laws, shall decide any matter to be voted on by the stockholders. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The corporation shall not directly or indirectly vote any share of its stock, provided, however, that notwithstanding the foregoing, the corporation may vote shares of its own stock held by it, directly or indirectly, in a fiduciary capacity. [Section 7 restated July 1, 2004.]

8. Procedure for Meeting. The Secretary, who may call on any officer or officers of the corporation for assistance, shall make all necessary and appropriate arrangements for the meetings of the stockholders, receive all proxies, and ascertain and report by certificate to each meeting of the stockholders the number of shares present in person or by proxy and entitled to

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vote at such meeting. In the absence of the Secretary, an Assistant Secretary shall perform said duties. The certificate of the Secretary or an Assistant Secretary as to the regularity of such proxies and as to the number of shares present in person or by proxy and entitled to vote at such meeting shall be received as prima facie evidence of the number of shares which are present in person and by proxy and entitled to vote, for the purpose of establishing the presence of a quorum at such meeting, for the purpose of organizing such meeting, and for all other purposes. [Section 8 restated July 1, 2004.]

9. Inspectors. At each meeting of the stockholders, (i) the proxies shall be received and taken in charge by three inspectors, (ii) where voting is to be by ballot on any question, the polls shall be opened and closed and the ballots shall be taken in charge by such inspectors, and (iii) all questions touching the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by such three inspectors or a majority thereof. Such inspectors may be appointed by the Board of Directors before such meeting, or, if no such appointment shall have been made, then by the presiding officer at such meeting. In the event for any reason any of the inspectors previously appointed shall fail to attend such meeting, or being present will not or cannot act in such capacity, then an inspector or inspectors in place of such inspector or inspectors failing to attend or not acting shall be appointed by the presiding officer.

ARTICLE III

Directors

1. Powers. The business of the corporation shall be managed by a Board of Directors who may exercise all the powers of the corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

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2. Nomination and Election. The Board of Directors shall consist of not less than three (3) nor more than fifteen (15) persons. The number of the Board of Directors for each year shall be fixed by vote of a majority of the Directors then in office. Until the 2008 annual meeting of stockholders, the Board of Directors shall be classified with respect to the time for which they severally hold office, as provided in Section 8.06 of Chapter 156D of the Massachusetts General Laws, into three classes, as nearly equal in number as possible, the term of office of those of the first class (“Class I Directors”) to continue until the 1990 annual meeting of stockholders and until their successors are duly elected and qualified, the term of office of those of the second class (“Class II Directors”) to continue until the 1991 annual meeting of stockholders and until their successors are duly elected and qualified, and the term of those of the third class (“Class III Directors”) to continue until the 1992 annual meeting of stockholders and until their successors are duly elected and qualified. The terms of all directors in office immediately prior to the opening of the polls for the 2008 annual meeting of stockholders shall expire at the time of the opening of the polls for the 2008 annual meeting of stockholders. At the 2008 annual meeting of stockholders and at each succeeding annual meeting of stockholders, each director shall be elected to hold office for a term continuing until the next annual meeting of stockholders and until his or her successor shall have been duly elected and qualified. [Section 2 amended January 22, 2007.]

Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors at the annual meeting may be made at the annual meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Article III. Nominations, other than those made by or at the direction of the Board of Directors or the nominating committee of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at

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the principal executive offices of the corporation not less than fifty (50) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days’ notice of prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder’s notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the citizenship of the person, (iv) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, and (v) any other information relating to the person that is required to be disclosed in solicitations of proxies for election of directors pursuant to the Proxy Rules; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice, (iii) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iv) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder, (v) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the Proxy Rules and (vi) the consent of each nominee to serve as a Director of the corporation if so elected. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as Director.

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Additionally, any stockholder may suggest candidates for consideration by the nominating committee of the Board of Directors by submitting the candidate’s name, experience and other relevant information to the nominating committee of the Board of Directors. The nominating committee of the Board of Directors will review any candidate recommended to it and will notify the stockholder who made such recommendation of its conclusion with respect to the candidate. If the nominating committee determines that such candidate is qualified and eligible to be a nominee, it shall so notify the Board of Directors. .

No person shall be eligible for election as a Director unless nominated in accordance with the procedures set forth herein. [Section 2 restated January 28, 1997 and July 1, 2004.]

3. Vacancies. Vacancies and newly created directorships, whether resulting from an increase in the size of the Board of Directors, from the death, resignation, disqualification or removal of a Director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. Any Director elected in accordance with the preceding sentence shall hold office for the remainder of the full term in which the vacancy occurred or the new directorship was created and until such Director’s successor shall have been elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. [Section 3 restated March 13, 1991 and amended on January 22, 2007.]

4. Enlargement of the Board. The number of the Board of Directors may be increased and one or more additional Directors elected by vote of a majority of the Directors then in office. [Section 4 restated March 13, 1991.]

5. Resignation. Any Director may resign by delivering his written resignation to the corporation at its principal office or to the Chief Executive Officer, President, Secretary or Assistant Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. [Section 5 restated March 13, 1991, May 23, 1996 and July 1, 2004.]

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6. Removal. Any Director may be removed from office only (a) for cause as defined in Section 8.06(f)(2) of Chapter 156D of the Massachusetts General Laws and by the affirmative vote of a majority of the shares of the corporation outstanding and entitled to vote in the election of Directors or (b) for cause by vote of a majority of the Directors then in office. [Section 6 restated July 1, 2004.]

7. Meetings. Regular meetings of the Directors may be held without call or notice at such places and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice at the same place as the annual meeting of stockholders, or the special meeting held in lieu thereof, following such meeting of stockholders.

Special meetings of the Directors may be held at any time and place designated in a call by the Chief Executive Officer, President, Treasurer or two or more Directors. [Section 7 restated May 23, 1996.]

8. Notice of Meetings. Notice of all special meetings of the Directors shall be given to each Director by the Secretary or Assistant Secretary, or in the case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by telegram sent to his business or home address at least forty-eight hours in advance of the meeting or by written notice mailed to his business or home address at least seventy-two hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors’ meeting need not specify the purposes of the meeting. [Section 8 restated July 1, 2004.]

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9. Quorum. At any meeting of the Directors, a majority of the Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice.

10. Action at Meeting. At any meeting of the Directors at which a quorum is present, the vote of a majority of those present, unless a different vote is specified by law, the Articles of Organization or these By-Laws, shall be sufficient to decide such matter.

11. Action by Consent. Any action by the Directors may be taken without a meeting if a written consent thereto is signed by all of the Directors and filed with the records of the Directors’ meetings. Such consents shall be treated as a vote of the Directors for all purposes.

12. Committees. The Directors may, by vote of a majority of the Directors then in office, elect from their number an executive or other committees and may by like vote delegate thereto some or all of their powers except those which by law, the Articles of Organization or these By-Laws they are prohibited from delegating. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors.

ARTICLE IV

Officers

1. Enumeration. The officers of the corporation shall consist of a President, a Treasurer, a Secretary, and such other officers, including a Chief Executive, one or more Vice-Presidents, Assistant Treasurers, Assistant Secretaries as the Directors may determine. [Section 1 restated May 23, 1996 and July 1, 2004.]

2. Election. The President, Treasurer and Secretary shall be elected annually by the Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Directors at such meeting or at any other meeting. [Section 2 restated July 1, 2004].

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3. Qualification. The President (and if so appointed by the Board of Directors, the Chief Executive Officer) may, but need not, be a Director. No officer need be a stockholder. Any one or more officers may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. [Section 3 restated May 23, 1996.]

4. Tenure. Except as otherwise provided by law, the Articles of Organization or these By-Laws, the President, Treasurer and Secretary shall each hold office until the first meeting of the Directors following the annual meeting of stockholders and thereafter until a successor is chosen and qualified; and all other officers shall hold office until the first meeting of the Directors following the annual meeting of stockholders, unless a shorter term is specified in the vote choosing or appointing them. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. [Section 4 restated July 1, 2004.]

5. Removal. The Directors may remove any officer with or without cause by vote of a majority of the entire number of Directors then in office; provided, that an officer may be removed for cause only after a reasonable notice and opportunity to be heard by the Board of Directors prior to action thereof.

6. President, Chief Executive Officer and Vice-President. If a Chief Executive Officer has been appointed by the Board of Directors, he shall be the chief executive officer of the corporation and shall, subject to the direction of the Directors, have general supervision and control of its business. If the Board of Directors has not appointed a Chief Executive Officer, the President shall be the chief executive officer of the corporation and shall, subject to the direction of the Directors, have general supervision and control of its business. Unless otherwise provided by the Directors, the President (or if at any time there exists a Chief Executive Officer, the Chief Executive Officer) shall preside, when present, at all meetings of stockholders and of the Directors. [Section 6 restated May 23, 1996.]

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Any Vice-President (and the President, if at any time there is a Chief Executive Officer) shall have such powers as the Directors may from time to time designate.

7. Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Directors, have general charge of the financial affairs of the corporation and shall cause to be kept accurate books of account. He shall have custody of all funds, securities, and valuable documents of the corporation, except as the Directors may otherwise provide.

Any Assistant Treasurer shall have such powers as the Directors may from time to time designate.

8. Secretary and Assistant Secretaries. The Secretary shall keep a record of the meetings of stockholders. Unless a Transfer Agent is appointed, the Secretary shall keep or cause to be kept in Massachusetts, at the principal office of the corporation, the stock and transfer records of the corporation, in which are contained the names and the record addresses of all stockholders and the amount of stock held by each.

The Secretary shall keep a record of the meetings of the Directors.

Any Assistant Secretary shall have such powers as the Directors may from time to time designate. In the absence of the Secretary from any meeting of stockholders, an Assistant Secretary if one be elected, and otherwise a Temporary Secretary designated by the person presiding at the meeting, shall perform the duties of the Secretary. [Section 8 restated July 1, 2004.]

9. Other Powers and Duties. Each officer shall, subject to these By-Laws, have in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as the Directors may from time to time designate.

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ARTICLE V

Capital Stock

1. Issuance of Stock. The Board of Directors shall have the power to issue from time to time shares of the capital stock of the corporation for such consideration, in such installments, and upon such terms as the Directors may determine in accordance with the law, the Articles of Organization or these By-Laws.

2. Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the Chief Executive Officer, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, but when a certificate is countersigned by a Transfer Agent or a Registrar other than a Director, officer or employee of the corporation, such signatures may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue.

Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, these By-Laws or any agreement to which the corporation is a party, shall have the restriction noted conspicuously on the certificate and shall also set forth on the face or back either the full text of the restriction or a statement of the existence of such restriction and a statement that the corporation will furnish a copy to the holder of such certificate upon written request and without charge. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge.

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3. Transfers. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its Transfer Agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the corporation or its Transfer Agent may reasonably require. Except as may be otherwise required by law, the Articles of Organization or these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereof, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws.

It shall be the duty of each stockholder to notify the corporation or its Transfer Agent of his post office address.

4. Transfer Agent and Registrar. The Directors shall have power to appoint one or more Transfer Agents and Registrars for the transfer and registration of certificates of stock of any class, and may require that stock certificates shall be countersigned and registered by one or more of such Transfer Agents and Registrars. The resolutions adopted by the Board of Directors, appointing and conferring the powers, rights, duties and obligations of the Transfer Agent or Registrar, or both, shall allocate and delimit the power to make original issue and transfer of the capital stock of the corporation, shall specify whether stockholders shall give notice of changes of their addresses to the Transfer Agent or the Registrar, and shall allocate and impose the duty of maintaining the original stock ledgers or transfer books, or both, of the corporation, and of disclosing the names of the stockholders, the number of shares held by each, by kinds and classes, and the address of each stockholder as it appears upon the records of the corporation. Stockholders shall be responsible for notifying the Transfer Agent or Registrar, as the case may

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be, in writing, of any changes in their addresses from time to time, and failure so to do will relieve the corporation, its stockholders, officers, Directors, Transfer Agent and Registrar, of liability for failure to direct notices, dividends, or other documents or property to an address other than the one appearing upon the records of the Transfer Agent or Registrar, as the case may be, who is the agent specified in such a resolution as the agent to receive notices of changes of address.

5. Lost, Stolen or Destroyed Certificates. The corporation may issue a new certificate for shares of stock in the place of any certificate theretofore issued and alleged to have been lost, stolen or destroyed, but the Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to furnish affidavit as to such loss, theft or destruction, and to give a bond in such form and substance, and with such surety or sureties, with fixed or open penalty, as it may direct, to indemnify the corporation and the Transfer Agent or Registrar against any claim that may be made on account of the alleged loss, theft or destruction of such certificate.

6. Record Date. The Directors may fix in advance a time of not more than seventy days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the making of any distribution to stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date the Directors may for any of such purposes close the transfer books for all or any part of such period. [Section 6 restated July 1, 2004.]

7. Reacquisition of Stock. Shares of stock previously issued which have been reacquired by the corporation, may be restored to the status of authorized but unissued shares by vote of the Board of Directors, without amendment of the Articles of Organization.

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ARTICLE VI

Protection of Directors and Officers

1. Contracts and Transactions with Interested Directors and Officers. If the corporation enters into contracts or other transactions with one or more of its Directors and officers or with any corporation, partnership, association, trust, or other organization with which any of its Directors or officers are directly or indirectly connected, such contracts or transactions shall not be invalidated or in any way affected by the fact that any such Director or officer has or may have any interest therein which is or might be adverse to the interests of the corporation, even though the vote or votes of the Director or Directors having such interest shall have been necessary to obligate the corporation under or in such contract or transaction, nor shall any such Director or officer, corporation, partnership, association, trust or other organization be liable to account to this corporation for any profit realized by him or such corporation, partnership, association, or trust or other organization from or through any such transaction or contract by reason of the fact that he or such corporation, partnership, association, trust or other organization with which such Director or officer is directly or indirectly connected was interested in such transaction or contract; provided, however, that in every such case the fact of such interest and all material matters concerning same shall be disclosed to other Directors or stockholders authorizing such contract or transaction.

2. Indemnification. (a) Each Director, officer, employee and other agent of the corporation, and any person who, at the request of the corporation, serves as a director, officer, employee or other agent of another organization in which the corporation directly or indirectly owns shares or of which it is a creditor shall be indemnified by the corporation against any cost, expense (including attorneys’ fees), judgment, liability and/or amount paid in settlement reasonably incurred by or imposed upon him in connection with any action, suit or proceeding (including any proceeding before any administrative or legislative body or agency), which he

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may be made a party to or otherwise involved with or with which he shall be threatened, by reason of his being, or related to his status as, a Director, officer, employee or other agent of the corporation or of any other organization in which the corporation directly or indirectly owns shares or of which the corporation is a creditor, which other organization he serves or has served as director, officer, employee or other agent at the request of the corporation (whether or not he continues to be an officer, Director, employee or other agent of the corporation or such other organization at the time such action, suit or proceeding is brought or threatened), unless such indemnification is prohibited by the Massachusetts Business Corporation Act. The foregoing right of indemnification shall be in addition to any rights to which any such person may otherwise be entitled and shall inure to the benefit of the executors or administrators of each such person. The corporation may pay the expenses incurred by any such person in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit, or proceeding, upon receipt of an undertaking by such person to repay such payment if it is determined that such person is not entitled to indemnification hereunder. This section shall be subject to amendment or repeal only by action of the stockholders.

(b) The Board of Directors may, without stockholder approval, authorize the corporation to enter into agreements, including any amendments or modifications thereto, with any of its Directors, officers or other persons described in paragraph (a) above providing for indemnification of such persons to the maximum extent permitted under applicable law and the corporation’s Articles of Organization and By-Laws. [Section 2(b) added May 8, 1987 and restated July 1, 2004.]

ARTICLE VII

Miscellaneous Provisions

1. Execution of Instruments. All deeds, leases, transactions, contracts, bonds, notes and other obligations authorized to be executed by an officer of the corporation in its behalf shall be signed by the Chief Executive Officer, the President or the Treasurer except as the Directors may generally or in particular cases otherwise determine. [Section 1 restated May 23, 1996.]

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2. Voting of Securities. Except as the Directors may otherwise designate, the Chief Executive Officer, the President or Treasurer may waive notice of, and appoint any person or persons to act as proxy or attorney in fact for this corporation (with or without power of substitution) at any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. [Section 2 restated May 23, 1996.]

3. Corporate Records. The original, or attested copies, of the Articles of Organization, By-Laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the corporation, or at an office of its Transfer Agent or of the Secretary. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. [Section 3 restated July 1, 2004.]

4. Articles of Organization. All references in these By-Laws to the Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation, as amended and in effect from time to time.

5. Amendments. These By-Laws may be amended or repealed in whole or in part at any annual or special meeting of the stockholders by a vote of a majority of the stock present and entitled to vote, provided notice of the proposed amendment or repeal shall have been given in the notice of such meeting. In addition, the Directors may amend or repeal these By-Laws in whole or in part, except with respect to any provision thereof which by law, the Articles of Organization or these By-Laws requires action by the stockholders. Any By-Law adopted by the

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Directors may be amended or repealed by the stockholders in the manner hereinabove in this Article set forth. Not later than the time of giving notice of the meeting of stockholders next following the amending or repealing by the Directors of any By-Law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending these By-Laws. [Section 5 restated March 13, 1991.]

6. The provisions of Chapter 110D of the Massachusetts General Laws as in effect from time to time shall not apply to control share acquisitions of the corporation. [Section 6 added July 14, 1988.]

Amended and Restated November 12, 1986

Amended May 8, 1987

Amended July 14, 1988

Amended September 14, 1989

Amended and Restated March 13, 1991

Amended and Restated May 23, 1996

Amended and Restated January 28, 1997

Amended and Restated effective July 1, 2004 (approved by the Board of Directors May 27, 2004)

Amended January 22, 2007.

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EX-10.2

Exhibit 10.2

TERADYNE, INC.

Amendment

To

1991 Employee Stock Option Plan

This Amendment to the 1991 Employee Stock Option Plan (the “Plan”), of Teradyne, Inc., a Massachusetts corporation (the “Company”), is adopted by resolution of the Board of Directors of the Company (the “Board”) pursuant to a meeting of the Board dated as of January 22-23, 2007 and effective as of January 23, 2007 (the “Effective Date”). Paragraph 6.D Determination of Fair Market Value of the Plan is hereby deleted in its entirety and replaced with the following as of the Effective Date:

“D. Determination of Fair Market Value. If, at the time an Option is granted under the Plan, the Company’s Common Stock is publicly traded, “fair market value” shall be determined as of the date of such Option is granted and shall mean (i) the closing price (on that date) of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not then traded on a national securities exchange. However, if the Common Stock is not publicly traded at the time an Option is granted under the Plan, “fair market value” shall be deemed to be the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm’s length.”

EX-10.3

Exhibit 10.3

TERADYNE, INC.

1996 EMPLOYEE STOCK PURCHASE PLAN

(as amended as of January 23, 2007)

Article 1 - Purpose.

This 1996 Employee Stock Purchase Plan (the “Plan”) is intended to encourage stock ownership by all eligible employees of Teradyne, Inc. (the “Company”), a Massachusetts corporation, and its participating subsidiaries (as defined in Article 17) so that they may share in the growth of the Company by acquiring or increasing their proprietary interest in the Company. The Plan is designed to encourage eligible employees to remain in the employ of the Company and its participating subsidiaries. The Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the “Code”).

Article 2 - Administration of the Plan.

The Plan may be administered by a committee appointed by the Board of Directors of the Company (the “Committee”). The Committee shall consist of not less than two members of the Company’s Board of Directors. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee may select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee.

The interpretation and construction by the Committee of any provisions of the Plan or of any option granted under it shall be final, unless otherwise determined by the Board of Directors. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best, provided that any such rules and regulations shall be applied on a uniform basis to all employees under the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it.

In the event the Board of Directors fails to appoint or refrains from appointing a Committee, the Board of Directors shall have all power and authority to administer the Plan. In such event, the word “Committee” wherever used herein shall be deemed to mean the Board of Directors.

Article 3 - Eligible Employees.

No option may be granted to any person serving as a member of the Committee at the time of grant. Subject to the foregoing limitation, all employees of the Company or any of its participating subsidiaries on United States payroll who are employees of the Company or any of its participating subsidiaries on or before the first day of any Payment Period (as defined in Article 5), and whose customary employment is not less than twenty hours per week and more than five months in any calendar year shall be eligible to receive options under the Plan to purchase common stock of the Company, par value $.125 per share (“Common Stock”). All eligible employees shall have the same rights and privileges hereunder. Persons who elect to enter the Plan in accordance with Article 7 and who are eligible employees on the first business day of any Payment Period (as defined in Article 5) shall receive their options as of such day. Persons who elect to enter the Plan in accordance with Article 7 and who become eligible employees after any date on which options are granted under the Plan shall be granted options on the first business day of the next succeeding Payment Period on which options are granted to eligible employees under the Plan. In no event, however, may an employee be granted an option if such employee, immediately after the option was granted, would be treated as owning stock possessing five percent or more

of the total combined voting power or value of all classes of stock of the Company or of any parent corporation or subsidiary corporation, as the terms “parent corporation” and “subsidiary corporation” are defined in Section 424(e) and (f) of the Code. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee.

Article 4 - Stock Subject to the Plan.

The stock subject to the options under the Plan shall be authorized but unissued Common Stock, or shares of Common Stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is 15,400,000, subject to adjustment as provided in Article 12. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available under the Plan.

Article 5 - Payment Periods and Stock Options.

For the duration of the Plan, a Payment Period shall be defined as each six-month period commencing on the first day of January and ending on the last day of June and commencing on the first day of July and ending on the last day of December of each calendar year. Notwithstanding the foregoing, the first Payment Period during which payroll deductions will be accumulated under the Plan shall commence on July 1, 1996 and shall end on December 31, 1996.

On the first business day of each Payment Period, the Company will grant to each eligible employee who is then a participant in the Plan an option to purchase on the last day of such Payment Period, at the Option Price hereinafter provided for, a maximum number of shares (limited in accordance with this Article 5 and Article 8) on condition that such employee remains eligible to participate in the Plan throughout the remainder of such Payment Period. The participant shall be entitled to exercise the option so granted only to the extent of the participant’s accumulated payroll deductions on the last day of such Payment Period. The Option Price per share for each Payment Period shall be the lesser of (i) 85% of the fair market value of the Common Stock on the first business day of the Payment Period and (ii) 85% of the fair market value of the Common Stock on the last business day of the Payment Period, in either event rounded up to the nearest cent. The foregoing limitation on the number of shares subject to option and the Option Price shall be subject to adjustment as provided in Article 12.

For purposes of the Plan, the term “fair market value” on any date means (i) the closing price (on that date) of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on a national securities exchange; or (iii) if the Common Stock is not publicly traded, the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm’s length.

For purposes of the Plan, the term “business day” means a day on which there is trading on The Nasdaq Stock Market or the aforementioned national securities exchange, whichever is applicable pursuant to the preceding paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or legal holiday in Massachusetts.

Notwithstanding any other provision herein, no employee shall be granted an option which permits the employee’s right to purchase stock under the Plan, and under all other Section 423(b) employee stock purchase plans of the Company and any parent or subsidiary corporations, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined on the date or dates that options on such stock were granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If the

participant’s accumulated payroll deductions on the last day of the Payment Period would otherwise enable the participant to purchase Common Stock in excess of the Section 423(b)(8) $25,000 limitation described in this paragraph, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the shares actually purchased shall be promptly refunded to the participant by the Company, without interest.

Article 6 - Exercise of Option.

Each eligible employee who continues to be a participant in the Plan on the last day of a Payment Period shall be deemed to have exercised his or her option on such date and shall be deemed to have purchased from the Company such number of full shares of Common Stock reserved for the purpose of the Plan as the participant’s accumulated payroll deductions on such date will pay for at the Option Price, subject to the Section 423(b)(8) $25,000 limitation described in Article 5. If the individual is not a participant on the last day of a Payment Period, then he or she shall not be entitled to exercise his or her option. Only full shares of Common Stock may be purchased under the Plan. Unused payroll deductions remaining in a participant’s account at the end of a Payment Period solely by reason of the inability to purchase a fractional share (and for no other reason) shall be refunded.

Article 7 - Authorization for Entering the Plan.

An employee may elect to enter the Plan by filling out, signing and delivering to the Company an authorization:

A. Stating the percentage to be deducted from the employee’s pay;

B. Authorizing the purchase of stock for the employee in each Payment Period in accordance with the terms of the Plan; and

C. Specifying the exact name or names in which stock purchased for the employee is to be issued as provided under Article 11 hereof.

Such authorization must be received by the Company on or before the first day of the next succeeding Payment Period.

Unless a participant files a new authorization or withdraws from the Plan, the deductions and purchases under the authorization the participant has on file under the Plan will continue from one Payment Period to succeeding Payment Periods as long as the Plan remains in effect.

The Company will accumulate and hold for each participant’s account the amounts deducted from his or her pay. No interest will be paid on these amounts.

Article 8 - Maximum Amount of Payroll Deductions.

An employee may authorize payroll deductions in an amount (expressed as a whole percentage) not less than two percent (2%) but not more than ten percent (10%) of the employee’s cash compensation.

Article 9 - Change in Payroll Deductions.

Deductions may not be increased during a Payment Period. Deductions may be decreased during a Payment Period, provided that an employee may not decrease his deduction more than once during any Payment Period.

Article 10 - Withdrawal from the Plan.

A participant may withdraw from the Plan (in whole but not in part) at any time prior to the last day of a Payment Period by delivering a withdrawal notice to the Company.

To re-enter the Plan, an employee who has previously withdrawn must file a new authorization on or before the first day of the next Payment Period in which he or she wishes to participate. The employee’s re-entry into the Plan becomes effective at the beginning of such Payment Period, provided that he or she is an eligible employee on the first business day of the Payment Period.

Article 11 - Issuance of Stock.

Certificates for stock issued to participants shall be delivered as soon as practicable after each Payment Period by the Company’s transfer agent.

Stock purchased under the Plan shall be issued only in the name of the participant, or if the participant’s authorization so specifies, in the name of the participant and another person of legal age as joint tenants with rights of survivorship.

Article 12 - Adjustments.

Upon the happening of any of the following described events, a participant’s rights under options granted under the Plan shall be adjusted as hereinafter provided:

A. In the event that the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a reorganization, split-up, liquidation, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company, each participant shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Common Stock or amount of other securities of the Company as were exchangeable for the number of shares of Common Stock that such participant would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange; and

B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to options hereunder, each participant upon exercising such an option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which the participant is exercising his or her option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as is equal to the number of shares thereof and the amount of cash in lieu of fractional shares, respectively, which the participant would have received if the participant had been the holder of the shares as to which the participant is exercising his or her option at all times between the date of the granting of such option and the date of its exercise.

Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Article 4 hereof which are subject to options which have been or may be granted under the Plan and the limitations set forth in the second paragraph of Article 5 shall also be appropriately adjusted to reflect the events specified in paragraphs A and B above. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B shall be made only after the Committee, based on advice of counsel for the Company, determines whether such adjustments would constitute a “modification” (as that term is defined in Section 424 of the Code). If the Committee determines that such adjustments would constitute a modification, it may refrain from making such adjustments.

If the Company is to be consolidated with or acquired by another entity in a merger, a sale of all or substantially all of the Company’s assets or otherwise (an “Acquisition”), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”) shall, with respect to options then outstanding under the Plan, either (i) make appropriate provision for the continuation of such options by arranging for the substitution on an equitable basis for the shares then subject to such options either (a) the consideration payable with respect to the outstanding shares of the Common Stock in connection with the Acquisition, (b) shares of stock of the successor corporation, or a

parent or subsidiary of such corporation, or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not exceed the fair market value of the shares of Common Stock subject to such options immediately preceding the Acquisition; or (ii) terminate each participant’s options in exchange for a cash payment equal to the excess of the fair market value on the date of the Acquisition of the number of shares of Common Stock that the participant’s accumulated payroll deductions as of the date of the Acquisition could purchase, at an option price determined with reference only to the first business day of the applicable Payment Period and subject to Code Section 423(b)(8) and fractional-share limitations on the amount of stock a participant would be entitled to purchase over the aggregate option price to such participant thereof.

The Committee or Successor Board shall determine the adjustments to be made under this Article 12, and its determination shall be conclusive.

Article 13 - No Transfer or Assignment of Employee’s Rights.

An option granted under the Plan may not be transferred or assigned, otherwise than by will or by the laws of descent and distribution. Any option granted under the Plan may be exercised, during the participant’s lifetime, only by the participant.

Article 14 - Termination of Employee’s Rights.

Whenever a participant ceases to be an eligible employee because of retirement, voluntary or involuntary termination, resignation, layoff, discharge, death or for any other reason, his or her rights under the Plan shall immediately terminate, and the Company shall promptly refund, without interest, the entire balance of his or her payroll deduction account under the Plan; provided, however, that if an employee is laid off during the last three months of any Payment Period, he shall nevertheless be deemed to be a participant in the Plan on the last day of the Payment Period. Notwithstanding the foregoing, eligible employment shall be treated as continuing intact while a participant is on military leave, sick leave or other bona fide leave of absence, for up to 90 days, or, if such leave is longer than 90 days, for so long as the participant’s right to re-employment is guaranteed either by statute or by written contract. Notwithstanding any other provision herein, if a participant’s employment is terminated by reason of retirement, and the date of such termination occurs after the date that is 3 months prior to the last day of the Payment Period, such participant’s rights under the Plan are not immediately terminated, and if the participant has not withdrawn from the Plan, such participant’s options shall be deemed to have been exercised on the last day of the Payment Period in accordance with the terms of the Plan.

Article 15 - Termination and Amendments to Plan.

The Plan may be terminated at any time by the Company’s Board of Directors but such termination shall not affect options then outstanding under the Plan. If at any time shares of stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among participants in proportion to the amount of payroll deductions accumulated on behalf of each participant that would otherwise be used to purchase stock, and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase stock will be refunded, without interest.

The Committee or the Board of Directors may from time to time adopt amendments to the Plan provided that, without the approval of the shareholders of the Company, no amendment may (i) increase the number of shares that may be issued under the Plan; (ii) change the class of employees eligible to receive options under the Plan, if such action would be treated as the adoption of a new plan for purposes of Code Section 423(b) and the regulations thereunder; or (iii) cause Rule 16b-3 under the Securities Exchange Act of 1934 to become inapplicable to the Plan.

Article 16 - Limits on Sale of Stock Purchased under the Plan.

The Plan is intended to provide shares of Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of his or her own affairs. An employee may, therefore, sell stock purchased under the Plan at any time the employee chooses, subject to compliance with any applicable federal or state securities laws and subject to any restrictions imposed under Article 21 to ensure that tax withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.

Article 17 - Participating Subsidiaries.

The term “participating subsidiary” shall mean any present or future subsidiary of the Company, as that term is defined in Section 424(f) of the Code, that is designated from time to time by the Board of Directors to participate in the Plan. The Board of Directors shall have the power to make such designation before or after the Plan is approved by the shareholders.

Article 18 - Optionees Not Shareholders.

Neither the granting of an option to an employee nor the deductions from his or her pay shall constitute such employee a stockholder of the shares covered by an option until such shares have been actually purchased by the employee.

Article 19 - Application of Funds.

The proceeds received by the Company from the sale of Common Stock pursuant to options granted under the Plan will be used for general corporate purposes.

Article 20 - Notice to Company of Disqualifying Disposition.

By electing to participate in the Plan, each participant agrees to notify the Company in writing immediately after the participant transfers Common Stock acquired under the Plan, if such transfer occurs within two years after the first business day of the Payment Period in which such Common Stock was acquired. Each participant further agrees to provide any information about such a transfer as may be requested by the Company or any subsidiary corporation in order to assist it in complying with the tax laws. Such dispositions generally are treated as “disqualifying dispositions” under Sections 421 and 424 of the Code, which have certain tax consequences to participants and to the Company and its participating subsidiaries.

Article 21 - Withholding of Additional Income Taxes.

By electing to participate in the Plan, each participant acknowledges that the Company and its participating subsidiaries are required to withhold taxes with respect to the amounts deducted from the participant’s compensation and accumulated for the benefit of the participant under the Plan, and each participant agrees that the Company and its participating subsidiaries may deduct additional amounts from the participant’s compensation, when amounts are added to the participant’s account, used to purchase Common Stock or refunded, in order to satisfy such withholding obligations. Each participant further acknowledges that when Common Stock is purchased under the Plan the Company and its participating subsidiaries may be required to withhold taxes with respect to all or a portion of the difference between the fair market value of the Common Stock purchased and its purchase price, and each participant agrees that such taxes may be withheld from compensation otherwise payable to such participant. It is intended that tax withholding will be accomplished in such a manner that the full amount of payroll deductions elected by the participant under Article 7 will be used to purchase Common Stock. However, if amounts sufficient to satisfy applicable tax withholding obligations have not been withheld from compensation otherwise payable to any participant, then, notwithstanding any other provision of the Plan, the Company may withhold such taxes from the participant’s accumulated payroll deductions and apply the net amount to the purchase of Common Stock, unless the participant pays to the Company, prior to the exercise date, an amount sufficient to satisfy such withholding obligations. Each participant further acknowledges that the

Company and its participating subsidiaries may be required to withhold taxes in connection with the disposition of stock acquired under the Plan and agrees that the Company or any participating subsidiary may take whatever action it considers appropriate to satisfy such withholding requirements, including deducting from compensation otherwise payable to such participant an amount sufficient to satisfy such withholding requirements or conditioning any disposition of Common Stock by the participant upon the payment to the Company or such subsidiary of an amount sufficient to satisfy such withholding requirements.

Article 22 - Governmental Regulations.

The Company’s obligation to sell and deliver shares of Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares.

Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to identify shares of Common Stock issued under the Plan on its stock ownership records and send tax information statements to employees and former employees who transfer title to such shares.

Article 23 - Governing Law.

The validity and construction of the Plan shall be governed by the laws of Massachusetts, without giving effect to the principles of conflicts of law thereof.

Article 24 - Approval of Board of Directors and Stockholders of the Company.

The Plan was adopted by the Board of Directors on March 19, 1996 and on such date the Board of Directors resolved that the Plan was to be submitted to the shareholders of the Company for approval at the next meeting of shareholders. The plan was subsequently approved by the shareholders.

EX-10.4

Exhibit 10.4

TERADYNE, INC.

Amendment

To

1996 Non-Employee Director Stock Option Plan

This Amendment to the 1996 Non-Employee Director Stock Option Plan (the “Plan”), of Teradyne, Inc., a Massachusetts corporation (the “Company”), is adopted by resolution of the Board of Directors of the Company (the “Board”) pursuant to a meeting of the Board dated as of January 22-23, 2007 and effective as of January 23, 2007 (the “Effective Date”). Paragraph 5. Option Price of the Plan is hereby deleted in its entirety and replaced with the following as of the Effective Date:

“5. Option Price. The purchase price of the stock covered by an option granted pursuant to this Plan shall be 100% of the fair market value of such shares on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of paragraph 10 of this Plan. For purposes of this Plan, if, at the time an option is granted under the Plan, the Company’s Common Stock is publicly traded, “fair market value” shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such option is granted and shall mean (i) the closing price (on that date) of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not traded on a national securities exchange.”

EX-10.5

Exhibit 10.5

TERADYNE, INC.

Amendment

To

1997 Employee Stock Option Plan

This Amendment to the 1997 Employee Stock Option Plan (the “Plan”), of Teradyne, Inc., a Massachusetts corporation (the “Company”), is adopted by resolution of the Board of Directors of the Company (the “Board”) pursuant to a meeting of the Board dated as of January 22-23, 2007 and effective as of January 23, 2007 (the “Effective Date”). Paragraph 6.D. Determination of Fair Market Value of the Plan is hereby deleted in its entirety and replaced with the following as of the Effective Date:

“D. Determination of Fair Market Value. If, at the time an Option is granted under the Plan, the Company’s Common Stock is publicly traded, “fair market value” shall be determined as of the date of grant or, if the prices or quotes discussed in this sentence are unavailable for such date, the last business day for which such prices or quotes are available prior to the date of grant and shall mean (i) the closing price (on that date) of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not then traded on a national securities exchange. If the Common Stock is not publicly traded at the time an Option is granted under the Plan, “fair market value” shall mean the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm’s length.”

EX-10.12

Exhibit 10.12

TERADYNE, INC.

2006 EQUITY AND CASH COMPENSATION INCENTIVE PLAN

(as amended as of January 23, 2007)

1. Purpose and Eligibility.

The purpose of this 2006 Equity and Cash Compensation Incentive Plan (the “Plan”) of Teradyne, Inc. is to provide equity ownership and compensation opportunities in the Company (each an “Award”) to employees, officers, directors, consultants and advisors of the Company and its Subsidiaries, all of whom are eligible to receive Awards under the Plan.¹ Any person to whom an Award has been granted under the Plan is called a “Participant.” Additional definitions are contained in Section 14(a).

2. Administration.

a. Administration by Committee of Independent Members of the Board of Directors. The Plan will be administered by a committee (the “Committee”) composed solely of members of the Board of Directors of the Company that are “independent,” as defined pursuant to Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, and as proscribed under Rule 303A.02 of the New York Stock Exchange (“NYSE”) Listed Company Manual, or any amendment, supplement or modification thereto; provided, however, that at any time and on any one or more occasions the Board may itself exercise any of the powers and responsibilities assigned the Committee under the Plan and when so acting shall have the benefit of all of the provisions of the Plan pertaining to the Committee’s exercise of its authorities hereunder. The Committee, in its sole discretion, shall have the authority to grant Awards, to adopt, amend and repeal rules relating to the Plan, to interpret and correct the provisions of the Plan and any Award, and, subject to the limitations of the Plan, to modify and amend any Award. All decisions by the Committee shall be final and binding on all interested persons. Neither the Company nor any member of the Committee shall be liable for any action or determination relating to the Plan.

b. Delegation to Executive Officers. To the extent permitted by applicable law, the Committee may delegate to one or more executive officers of the Company the power to grant Awards and exercise such other powers under the Plan as the Committee may determine; provided, however, that the Committee shall fix the maximum number of Awards to be granted and the maximum number of shares issuable to any one Participant pursuant to Awards granted by such executive officer or officers. The Committee may, by a resolution adopted by the Committee, authorize one or more executive officers of the Company to do one or both of the following: (i) designate employees of the Company or of any of its subsidiaries to be recipients of Awards and (ii) determine the number, type and terms of such Awards to be received by such employees, subject to the limitations of the Plan; provided, however, that, in each case, the resolution so authorizing such officer or officers shall specify the maximum number and type of Awards such officer or officers may so award. The Committee may not authorize an officer to designate himself or herself as a recipient of any such Awards or to grant Awards to other executive officers of the Company.

3. Stock Available for Awards.

a. Number of Shares. Subject to adjustment under Section 3(c), the aggregate number of shares (the “Authorized Shares”) of the Company’s common stock, $0.125 par value per share (the “Common Stock”), that may be issued pursuant to the Plan shall be 12,000,000 shares of Common Stock. If any Award expires, is terminated, surrendered, forfeited, expires unexercised, is settled in cash in lieu of Common Stock or is exchanged for other Awards, in whole or in part, the unissued Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares. Notwithstanding anything to the contrary in this Plan, the foregoing limitations shall be subject to adjustment under Section 3(c), but only to the extent that such adjustment will not affect the status of any Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code.

1 Upon shareholder approval of the Plan, the Plan will replace the Teradyne’s 1991 Employee Stock Option Plan, 1996 Non-Employee Director Stock Option Plan and 1997 Employee Stock Option Plan. Beginning in 2007, it will also replace Teradyne’s Variable Compensation Plan.

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b. Per-Participant Limit. Subject to adjustment under Section 3(c), no Participant may be granted stock-based Awards during any one fiscal year to purchase more than 2,000,000 shares of Common Stock.

c. Adjustment to Common Stock. In the event of any stock split, stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off, split-up, or other similar change in capitalization or event, (i) the number and class of securities available for Awards under the Plan and the per-Participant share limit, (ii) the number and class of securities, vesting schedule and exercise price per share subject to each outstanding stock-based Award, (iii) the repurchase price per security subject to repurchase, and (iv) the terms of each other outstanding stock-based Award shall be adjusted by the Company (or substituted Awards may be made) to the extent the Committee shall determine, in good faith, that such an adjustment (or substitution) is appropriate. If Section 11(f)(i) applies for any event, this Section 3(c) shall not be applicable.

d. Fractional Shares. No fractional shares shall be issued under the Plan and the Participant shall, at the Committee’s discretion, receive either cash in lieu of such fractional shares or a full share for each fractional share.

4. Stock Options.

a. General. The Committee may grant options to purchase Common Stock (each, an “Option”) and determine the terms and conditions of each Option, including, but not limited to (i) the number of shares subject to such Option or a formula for determining such, (ii) subject to Section 4(e) hereof, the exercise price of the Options and the means of payment for the shares, (iii) the Performance Criteria (as defined in Section 11(d)), if any, and level of achievement of such Performance Criteria that shall determine the number of shares or Options granted, issued, retainable and/or vested, (iv) the terms and conditions of the grant, issuance and/or forfeiture of the shares or Options, and (v) such further terms and conditions as may be determined from time to time by the Committee, in each case not inconsistent with this Plan.

b. Incentive Stock Options. An Option that the Committee intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall be granted only to employees of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Committee and the Company shall have no liability if an Option or any part thereof that is intended to be an Incentive Stock Option does not qualify as such.

c. Nonstatutory Stock Options. An Option or any part thereof that does not qualify as an Incentive Stock Option is referred to herein as a “Nonstatutory Stock Option.”

d. Dollar Limitation. For so long as the Code shall so provide, Options granted to any employee under the Plan (and any other plans of the Company) which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such Options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate Fair Market Value (as defined in Section 14 and determined as of the respective date or dates of grant) of more than $100,000 (or such other limit as may be provided by the Code). To the extent that any such Incentive Stock Options exceed the $100,000 limitation (or such other limit as may be provided by the Code), such Options shall be Nonstatutory Stock Options.

e. Exercise Price. The Committee shall establish the exercise price (or determine the method by which the exercise price shall be established) at the time each Option is granted and specify the exercise price in the applicable Option agreement, provided, that the exercise price per share specified in the agreement relating to each Option granted under the Plan shall not be less than the Fair Market Value per share of Common Stock on the date of such grant. In the case of an Incentive Stock Option to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, the price per share specified in the agreement relating to such Incentive

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Stock Option shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the date of grant (or such other limit as may be provided by the Code). For purposes of determining stock ownership under this subsection, the rules of Section 424(d) of the Code shall apply. Subject to Section 3(c), an Option may not be amended subsequent to its issuance to reduce the price at which it is exercisable unless such amendment is approved by the Company’s shareholders.

f. Duration of Options. Each Option shall be exercisable at such times and subject to such terms, conditions and expiration as the Committee may specify in the applicable Option agreement; provided, that no Option shall be exercisable for a period of time greater than ten (10) years from the date of grant of such Option; provided, further, that Incentive Stock Options granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company shall be exercisable for a maximum of five (5) years from the date of grant of such Option (or such other limit as may be provided by the Code). For purposes of determining stock ownership under this subsection, the rules of Section 424(d) of the Code shall apply.

g. Vesting of Options. Subject to Section 11(f) and Section 11(j) and except as provided in Section 13, at the time of the grant of an Option, the Committee shall establish a vesting date or vesting dates with respect to the shares of Common Stock covered by such Options. The Committee may establish vesting dates based upon the passage of time and/or the satisfaction of Performance Criteria or other conditions as deemed appropriate by the Committee.

h. Exercise of Option. Options may be exercised only by delivery to the Company at its principal office address or to such transfer agent as the Company shall designate of a written notice of exercise specifying the number of shares as to which such Option is being exercised, signed by the proper person, or by notification of the Company-designated third party commercial provider (the “Third Party Commercial Provider”), in accordance with the procedures approved by the Company and to which the holder of the Option shall have ongoing access by means of accessing such person’s account maintained with the Third Party Commercial Provider, together with payment in full as specified in Section 4(i) for the number of shares for which the Option is exercised.

i. Payment Upon Exercise. Common Stock purchased upon the exercise of an Option shall be paid for by one or any combination of the following forms of payment:

(i) in United States dollars in cash or by check payable to order of the Company or by fund transfer from the Option holder’s account maintained with the Third Party Commercial Provider;

(ii) at the discretion of the Committee, through delivery of shares of Common Stock having a Fair Market Value equal as of the date of the exercise to the cash exercise price of the Option, provided, that such shares were not acquired by the Participant in the prior six months;

(iii) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Option and an authorization to the Third Party Commercial Provider to pay that amount to the Company, which sale shall be at the Participant’s direction at the time of exercise; or

(iv) at the discretion of the Committee, by any combination of (i), (ii), or (iii) above.

If the Committee exercises its discretion to permit payment of the exercise price of an Incentive Stock Option by means of the methods set forth in clauses (ii), (iii) or (iv) of the preceding sentence, such discretion shall be exercised in writing in the instrument evidencing the Award of the Incentive Stock Option.

j. Notice to Company of Disqualifying Disposition. By accepting an Incentive Stock Option granted under the Plan, each optionee agrees to notify the Company in writing immediately after such optionee makes a disqualifying disposition of any stock acquired pursuant to the exercise of the Incentive Stock Options. A “disqualifying disposition” is generally any disposition occurring on or before the later of (a) the date two years following the date the Incentive Stock Option was granted or (b) the date one year following the date the Incentive Stock Option was exercised.

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k. Issuances of Securities. Except as provided in Section 3(c) or as otherwise expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company.

5. Stock Appreciation Rights

a. General. A Stock Appreciation Right (a “SAR”) is an Award entitling the holder, upon exercise, to receive an amount in cash or Common Stock, or a combination thereof (such form to be determined by the Committee), determined solely by reference to appreciation, from and after the date of grant, in the Fair Market Value of a share of Common Stock. The date as of which such appreciation or other measure is determined shall be the exercise date of the SAR Award.

b. Grants. SARs may be granted in tandem with, or independently of, Options granted under the Plan.

(1) Tandem Awards. When SARs are expressly granted in tandem with Options: (i) the SARs will be exercisable only at such time or times, and to the extent, that the related Option is exercisable, and will be exercisable in accordance with the procedure required for exercise of the related Option; (ii) the SARs will terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a SAR granted with respect to less than the full number of shares covered by an Option will not be terminated until and only to the extent that the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the SAR; (iii) the Option will terminate and no longer be exercisable upon the exercise of the related SAR; and (iv) the SAR will be transferable only with the related Option.

(2) Independent Stock Appreciation Rights. A SAR not expressly granted in tandem with an Option will become exercisable at such time or times, and on such conditions, as the Committee may specify in the SAR Award.

c. Terms and Conditions. The Committee shall determine all terms and conditions of a SAR Award, including, but not limited to (i) the number of shares subject to such SAR Award or a formula for determining such, (ii) the Performance Criteria, if any, and level of achievement of such Performance Criteria that shall determine the number of shares granted, issued, retainable and/or vested or the amount of cash payable, (iii) the terms and conditions on the grant, issuance and/or forfeiture of the shares, and (iv) such further terms and conditions as may be determined from time to time by the Committee, in each case not inconsistent with this Plan.

d. Vesting of SAR Awards. Subject to Section 11(f) and Section 11(j), at the time of the grant of a SAR Award, the Committee shall establish a vesting date or vesting dates with respect to such SAR Award, provided that SARs awarded in tandem with Options shall be subject to the same vesting date or vesting dates established by the Committee pursuant to Section 4(g) for such related Options and shall be exercisable only to the extent that such related Option shall then be exercisable. The Committee may establish vesting dates based upon the passage of time and/or the satisfaction of Performance Criteria or other conditions as deemed appropriate by the Committee.

6. Restricted Stock.

a. Grants. The Committee may grant Awards entitling recipients to acquire shares of Common Stock, subject to (i) delivery to the Company by the Participant of cash, a check or other sufficient legal consideration in an amount at least equal to the par value of the shares purchased, (ii) the right of the Company to repurchase or reacquire all or part of such shares at their issue price or other stated or formula price from the Participant in the event that conditions specified by the Committee in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Committee for such Award (each, a “Restricted Stock Award”), and (iii) Section 6(b).

b. Terms and Conditions. A Participant that is the holder of a Restricted Stock Award, whether vested or unvested, shall be entitled to enjoy all shareholder rights with respect to the shares of Common Stock

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underlying such Restricted Stock Award, including the right to receive dividends and vote such shares. Subject to Section 6(c), the Committee shall determine all terms and conditions of any such Restricted Stock Award, including, but not limited to (i) the number of shares subject to such Restricted Stock Award or a formula for determining such, (ii) the purchase price of the shares, if any, and the means of payment for the shares, (iii) the Performance Criteria, if any, and level of achievement of such Performance Criteria that shall determine the number of shares granted, issued, retainable and/or vested, (iv) the terms and conditions on the grant, issuance and/or forfeiture of the shares, and (v) such further terms and conditions as may be determined from time to time by the Committee, in each case not inconsistent with this Plan. At the Committee’s election, shares of Common Stock issued in respect of a Restricted Stock Award may be (i) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapses, or (ii) evidenced by a stock certificate that may bear a legend indicating that the ownership of the shares of Common Stock represented by such certificate is subject to the restrictions, terms and conditions of this Plan and the Restricted Stock Award. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant. All certificates registered in the name of the Participant shall, unless otherwise determined by the Committee, be deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). After the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or, if the Participant has died, to the beneficiary designated by the Participant, in a manner determined by the Committee, to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant’s estate.

c. Vesting of Restricted Stock. Subject to Section 11(f) and Section 11(j), at the time of the grant of a Restricted Stock Award, the Committee shall establish a vesting date or vesting dates with respect to the shares of Common Stock covered by such Restricted Stock Award, which vesting dates may be based upon the passage of time and/or the satisfaction of Performance Criteria or other conditions as deemed appropriate by the Committee; provided, that all Restricted Stock Awards, other than Awards granted under Section 11(l), shall have a minimum vesting period of no less than one (1) year for Restricted Stock Awards granted subject to Performance Criteria and no less than three (3) years for all other Restricted Stock Awards.

7. Restricted Stock Unit.

a. Grants. The Committee may grant Awards entitling recipients to acquire shares of Common Stock in the future, with the future delivery of the Common Stock subject to a risk of forfeiture or other restrictions that will lapse upon the satisfaction of one or more specified conditions (each, a “Restricted Stock Unit”).

b. Terms and Conditions. Subject to Section 7(c), the Committee shall determine all terms and conditions of any such Restricted Stock Unit, including, but not limited to (i) the number of shares subject to such Restricted Stock Unit or a formula for determining such, (ii) the purchase price of the shares, if any, and the means of payment for the shares, (iii) the Performance Criteria, if any, and level of achievement of such Performance Criteria that shall determine the number of shares granted, issued, retainable and/or vested, (iv) the terms and conditions on the grant, issuance and/or forfeiture of the shares, and (v) such further terms and conditions as may be determined from time to time by the Committee, in each case not inconsistent with this Plan. A Participant may not vote the shares represented by a Restricted Stock Unit. A Restricted Stock Unit may be settled in cash or Common Stock, as determined by the Committee, with the amount of the cash payment based on the Fair Market Value of the shares of Common Stock at the time of vesting. Any such settlements may be subject to such conditions, restrictions and contingencies as the Committee shall establish.

c. Vesting of Restricted Stock Unit. Subject to Section 11(f) and Section 11(j), at the time of the grant of a Restricted Stock Unit, the Committee shall establish a vesting date or vesting dates with respect to the shares of Common Stock covered by such Restricted Stock Unit, which vesting dates may be based upon the passage of time and/or the satisfaction of Performance Criteria or other conditions as deemed appropriate by the Committee; provided, that all Awards of Restricted Stock Units, other than Awards

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granted under Section 11(l), shall have a minimum vesting period of no less than one (1) year for Restricted Stock Units granted subject to Performance Criteria and no less than three (3) years for all other Restricted Stock Units.

8. Phantom Stock.

a. General. The Committee may grant Awards entitling recipients to receive, in cash or shares, the Fair Market Value of shares of Common Stock (“Phantom Stock”) upon the satisfaction of one or more specified conditions.

b. Terms and Conditions. Subject to Section 8(c), the Committee shall determine the terms and conditions of a Phantom Stock Award, including, but not limited to (i) the number of shares subject to or represented by such Phantom Stock Award or a formula for determining such, (ii) the purchase price of the shares, if any, and the means of payment for the shares, (iii) the Performance Criteria, if any, and level of achievement of such Performance Criteria that shall determine the number of shares granted, issued, retainable and/or vested or the amount of cash payable, (iv) the terms and conditions on the grant, issuance and/or forfeiture of the shares or Phantom Stock Award, and (v) such further terms and conditions as may be determined from time to time by the Committee, in each case not inconsistent with this Plan. A Participant may not vote the shares represented by a Phantom Stock Award. Any settlements of Phantom Stock Awards may be subject to such conditions, restrictions and contingencies as the Committee shall establish.

c. Vesting of Phantom Stock. Subject to Section 11(f) and Section 11(j), at the time of the grant of a Phantom Stock Award, the Committee shall establish a vesting date or vesting dates with respect to such Phantom Stock Award. The Committee may establish vesting dates based upon the passage of time and/or the satisfaction of Performance Criteria or other conditions as deemed appropriate by the Committee.

9. Other Stock-Based Awards.

The Committee shall have the right to grant other Awards based upon the Common Stock and having such terms and conditions as the Committee may determine, including, without limitation, the grant of shares based upon certain conditions and/or Performance Criteria, the grant of securities convertible into Common Stock and the grant of stock units. The Committee shall determine the terms and conditions of any such Awards, including, but not limited to (i) the number of shares subject to such Award or a formula for determining such, (ii) the purchase price of the shares, if any, and the means of payment for the shares, (iii) the Performance Criteria, if any, and level of achievement of such Performance Criteria that shall determine the number of shares granted, issued, retainable and/or vested, (iv) the terms and conditions on the grant, issuance and/or forfeiture of the shares or Award, and (v) such further terms and conditions as may be determined from time to time by the Committee, in each case not inconsistent with this Plan. Subject to Section 11(f) and Section 11(j), at the time of the grant of an Award under this Section 9, the Committee shall establish a vesting date or vesting dates with respect to such Award, which vesting date may be based upon the passage of time and/or the satisfaction of Performance Criteria or other conditions as deemed appropriate by the Committee; provided, that all Full Value Awards granted under this Section 9, other than Full Value Awards granted under Section 11(l) herein, shall have a minimum vesting period of no less than one (1) year for Full Value Awards subject to Performance Criteria and no less than three (3) years for all other Full Value Awards granted hereunder.

10. Cash Awards.

a. Grants. The Committee may grant cash awards (each, a “Cash Award”), either alone, in addition to, or in tandem with other Awards granted under the Plan.

b. Terms and Conditions. The Committee shall determine the terms and conditions of any such Cash Award. From time to time, the Committee shall establish administrative rules and procedures governing the administration of Cash Awards.

c. Variable Compensation Awards. A Cash Award that the Committee intends to be a “Variable Compensation Award” subject to Section 162(m) of the Code, provides a variable compensation payment

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each year to the Company’s executive officers and certain eligible senior employees each year based on certain Performance Criteria that may include, among other criteria, overall corporate and/or individual business group’s or division’s performance during the prior fiscal year, as determined by the Committee. Variable Compensation Awards are calculated based on a percentage of the Participant’s base annual salary (“Variable Compensation Factor”) and start at 10% for new Participants. At greater levels of responsibility, the Variable Compensation Factor may be up to 200% of base annual salary. Variable Compensation Factors are reviewed annually, and in connection with the review, the Committee may increase the Variable Compensation Factor beyond 200%, but the Committee may not authorize a Variable Compensation payout based on Performance Criteria in excess of 200%. A newly hired executive officer or employee, who is approved for eligibility for Variable Compensation Awards, will be eligible to receive a Variable Compensation Award for their first year of employment, pro-rated from the date of hire. The Committee may rely upon the recommendation of the Company’s senior management in granting Variable Compensation Awards to eligible Participants who do not constitute executive officers of the Company, including as to the amount and terms of any such Awards and the satisfaction of Performance Criteria.

11. General Provisions Applicable to Awards.

a. Transferability of Awards. Except as the Committee may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant, provided, however, that Nonstatutory Stock Options may be transferred to a grantor-retained annuity trust or a similar estate-planning vehicle in which the trust is bound by all provisions of the Option which are applicable to the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees of such an Option.

b. Documentation. Each Award granted under the Plan, with the exception of Cash Awards, shall be evidenced by a written Award agreement in such form as the Committee shall from time to time approve. Award agreements shall comply with the terms and conditions of the Plan and may contain such other provisions not inconsistent with the terms and conditions of the Plan as the Committee shall deem advisable. In the case of an Incentive Stock Option, the Award agreement shall contain, or refer to, such provisions relating to exercise and other matters as are required of “incentive stock options” under the Code. Award agreements may be evidenced by an electronic transmission (including an e-mail or reference to a website or other URL) sent to the Participant through the Company’s normal process for communicating electronically with its employees. As a condition to receiving an Award, the Committee may require the Participant to affirmatively accept the Award and agree to the terms and conditions set forth in the Award agreement by physically and/or electronically executing the Award agreement or by otherwise physically and/or electronically acknowledging such acceptance and agreement. With or without such affirmative acceptance, however, the Committee may prescribe conditions (including the exercise or attempted exercise of any benefit conferred by the Award) under which the proposed Participant may be deemed to have accepted the Award and agreed to the terms and conditions set forth in the Award agreement.

c. Committee Discretion. The terms of each type of Award need not be identical, and the Committee need not treat Participants uniformly.

d. Performance Criteria. For purposes of this Plan, the term “Performance Criteria” shall mean any one or more of the following performance criteria, applied to either the Company as a whole or to a division, business unit or Subsidiary, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee in the Award: cash flow; earnings per share; earnings before interest, taxes and amortization; return on equity; total shareholder return; share price performance; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; operating margin or profit margin; return on operating revenue; return on invested capital; market segment share; product release schedules; new product innovation; product cost reduction; brand recognition/acceptance; product ship targets; process improvement results; verification of business strategy and/or business plan; improvement of strategic

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position; adaptation to changes in the marketplace or environment; or customer satisfaction. If the Award so provides, the Committee may appropriately evaluate achievement against Performance Criteria to take into account any of the following events that occurs during a performance period: asset write-downs; litigation or claim judgments or settlements; the effect of changes in tax law; accounting principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs and any extraordinary non-recurring charges or other events. The Committee may prescribe the foregoing criteria either individually or in combination. The Committee’s determination of the achievement of any Performance Criteria shall be conclusive. The minimum vesting period for all Full Value Awards granting shares of Common Stock subject to Performance Criteria, other than Full Value Awards granted under Section 11(l) herein, shall be no less than one (1) year.

e. Termination of Status. Except as otherwise specified herein, the Committee shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award under such circumstances, subject to applicable law and the provisions of the Code.

f. Acquisition or Liquidation of the Company.

(i) Consequences of an Acquisition. If the Company is to be consolidated with or acquired by another entity in a merger or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such event shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or successor entity, or in the event of a sale of all or substantially all of the Company’s assets or otherwise (each, an “Acquisition”), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Committee”), shall, as to outstanding Awards, either (A) make appropriate provision for the continuation of such Awards by substituting on an equitable basis for the shares then subject to such Awards either (1) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition, (2) shares of stock of the surviving or successor corporation or (3) such other securities as the Committee or the Successor Committee deems appropriate, the Fair Market Value of which shall not materially exceed the Fair Market Value of the shares of Common Stock subject to such Awards immediately preceding the Acquisition; or (B) upon written notice to the Participants, provide that all Awards must be exercised, to the extent then exercisable or to be exercisable as a result of the Acquisition, within a specified number of days of the date of such notice, at the end of which period the Awards shall terminate; or (C) terminate all Awards in exchange for a cash payment equal to the excess, if any, of the Fair Market Value of the shares subject to such Awards (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the exercise price thereof, if any; or (D) in the case of Awards that may be settled in whole or in part in cash, provide for equitable treatment of such Awards.

(ii) Substitution of Awards Upon Certain Events. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Committee may grant Awards under the Plan in substitution for stock and stock-based awards issued by such entity or an affiliate thereof. The substitute Awards shall be granted on such terms and conditions as the Committee considers appropriate in the circumstances.

(iii) Liquidation or Dissolution. In the event of the proposed liquidation or dissolution of the Company, each Award, except for Cash Awards already earned, to the extent not then exercised or vested, will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee.

g. Withholding. Each Participant shall pay to the Company, or make provisions satisfactory to the Company for payment, of any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax withholding obligation. The Committee may allow Participants to satisfy such tax withholding obligations in whole or in part by transferring shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.

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h. Amendment of Awards. The Committee may amend, modify or terminate any outstanding Award including, but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, the vesting provisions (subject to the minimum vesting requirements set forth herein), Performance Criteria, or level of achievement of Performance Criteria, and converting an Incentive Stock Option to a Nonstatutory Stock Option; provided that, except as otherwise provided in Section 11(f)(i), the Participant’s consent to such action shall be required unless the Committee determines that the action, taking into account any related action, would not materially and adversely affect the Participant; provided, further, that subject to Section 3(c), an Option may not be amended subsequent to its issuance either to reduce the price at which such previously issued Option is exercisable or to extend the period of time for which such previously-issued Option shall be exercisable beyond ten (10) years unless such amendment is approved by the Company’s shareholders. Furthermore, no Option shall be canceled and replaced with Options having a lower exercise price unless such cancellation and exchange is approved by the Company’s shareholders.

i. Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations, and (iv) the Participant has paid to the Company, or made provisions satisfactory to the Company for payment of, any taxes required by law to be withheld in connection with the Award.

j. Acceleration. The Committee may at any time provide (i) that any Option shall become immediately exercisable in full or in part, (ii) that Awards that may be settled in whole or in part in cash may become immediately exercisable in full or in part, and (iii) in connection with the disability, death or retirement of a Participant or in connection with an event contemplated by Section 11(f)(i), (A) that any Restricted Stock Award or Restricted Stock Unit shall become exercisable in full or in part or shall be free of some or all restrictions or the risk of forfeiture or (B) that any other Full Value Award shall become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be. The Committee may take the actions contemplated by the preceding sentence despite the fact that such actions may (x) cause the application of Sections 280G and 4999 of the Code if an event contemplated by Section 11(f)(i) occurs, or (y) disqualify all or part of an Option as an Incentive Stock Option. In the event of the acceleration of the exercisability of one or more outstanding Options, including pursuant to Section 11(f)(i), the Committee may provide, as a condition of accelerated exercisability of any or all such Options, that the Common Stock or other substituted consideration, including cash, as to which exercisability has been accelerated shall be restricted and subject to forfeiture back to the Company at the election of the Company at the cost thereof upon termination of employment or other relationship, with the timing and other terms of the vesting of such restricted Common Stock or other consideration being not less favorable to the Participant than the timing and other terms of the superseded vesting schedule of the related Option.

k. Option or SAR Award Exchange. The Committee may, from time to time, upon obtaining shareholder approval therefor, undertake an exchange program under which employees deemed eligible by the Committee may elect to surrender for cancellation then existing Awards under the Plan or outstanding, unexercised options previously granted under the Company’s 1991 Employee Stock Option Plan, 1997 Employee Stock Option Plan and 1996 Non-Employee Director Stock Option Plan, that have, at the time, an exercise price at or above a level determined by the Board of Directors or the Committee in exchange for cash and/or another Award under the Plan, the form of such consideration to be determined by the Committee.

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l. Exception to Minimum Vesting Periods. The Committee may grant up to 5% of the maximum, aggregate shares of Common Stock authorized for issuance hereunder in the form of Restricted Stock Awards, Restricted Stock Units and other Awards based upon Common Stock that do not comply with the minimum vesting periods set forth in Sections 6(c), 7(c), 9 and 13.

m. Compliance with Section 409A. Any other provision of the Plan or any Award to the contrary notwithstanding, the Plan and every Award hereunder shall be construed, administered and enforced as necessary to comply with applicable requirements of Section 409A of the Code and the Treasury and IRS rulings and regulations issued thereunder, so that no Participant shall (without such Participant’s express written consent) incur any of the additional tax or interest liabilities of Section 409A(a)(B) of the Code with respect to any Award. The Plan and each Award are hereby modified and limited as necessary to comply with applicable requirements of Section 409A.

12. Foreign Jurisdictions.

To the extent that the Committee determines that the material terms set by the Committee or imposed by the Plan preclude the achievement of the material purposes of the Plan in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those terms and provide for such other terms and conditions as the Committee determines to be necessary, appropriate or desirable to accommodate differences in local law, policy or custom or to facilitate administration of the Plan. The Committee may adopt or approve sub-plans, appendices or supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary, appropriate or desirable for such purpose, without thereby affecting the terms of the Plan as in effect for any other purpose. The special terms and any appendices, supplements, amendments, restatements or alternative versions, however, shall not include any provisions that are inconsistent with the terms of the Plan as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the shareholders. The Committee shall also have the authority and discretion to delegate the foregoing powers to appropriate officers of the Company.

13. Grant of Awards to Non-Employee Directors.

Each person who is a member of the Board of Directors and who is not an employee of the Company (each, a “Non-Employee Director”) shall be automatically granted Awards having a Fair Market Value or exerciseable for shares having a Fair Market Value, as the case may be, on the day of such grant as follows:

a. on the date such Non-Employee Director is first elected to the Board of Directors, equal to $150,000 ; and

b. on the first Monday in February in each year, equal to $100,000.

Awards granted under this Section 13 may be any of the following: Restricted Stock Units, Restricted Stock, Nonstatutory Stock Options, SARs, or cash, or a combination of the foregoing. Awards granted under the Plan shall be in addition to the annual Board and Committee cash retainers paid by the Company to the Non-Employee Directors. The type of Awards granted under this Section 13 shall be determined, in each instance, at the Committee’s discretion (subject to the foregoing limitations). The number of shares, if any, covered by Awards granted under this Section 13 shall be subject to adjustment in accordance with the provisions of Section 3(c) of this Plan. Subject to Section 11(f) and Section 11(j), an Award of Restricted Stock or Restricted Stock Units granted pursuant to this Section 13 shall have a minimum vesting period of no less than one (1) year for Restricted Stock or Restricted Stock Units granted subject to Performance Criteria and no less than three (3) years for all other Restricted Stock or Restricted Stock Units granted, unless such Award is granted under Section 11(l), and shall expire on the date which is ten (10) years after the date of grant of such Award. Any Options, SARs or other cash Awards granted pursuant to this Section 13 may, at the Committee’s discretion, be immediately exercisable in their entirety on the date of grant.

14. Miscellaneous.

a. Definitions.

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(i) “Company” for purposes of eligibility under the Plan, shall include Teradyne, Inc. and any present or future subsidiary corporations of Teradyne, Inc., as defined in Section 424(f) of the Code (a “Subsidiary”), and any present or future parent corporation of Teradyne, Inc., as defined in Section 424(e) of the Code. For purposes of Awards other than Incentive Stock Options, the term “Company” shall include any other entity in which the Company has a direct or indirect significant interest, as determined by the Committee in its sole discretion.

(ii) “Code” means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.

(iii) “Employee” for purposes of eligibility under the Plan shall include a person to whom an offer of employment has been extended by the Company and who has actually commenced employment with the Company, whether full or part-time status.

(iv) “Fair Market Value” of the Company’s Common Stock on any date means (i) the closing price (on that date) of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not then traded on a national securities exchange; or (iii) if the Common Stock is not publicly traded, the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm’s length; provided, that, in all events the Fair Market Value shall represent the Committee’s good faith determination of the fair market value of the Common Stock. The Committee’s determination shall be conclusive as to the Fair Market Value of the Common Stock.

(v) “Full Value Awards” means Restricted Stock, Restricted Stock Units and Awards other than (a) Options or (b) SARs or (c) Cash Awards or (d) other stock-based Awards for which the Participant pays the intrinsic value (whether directly or by forgoing a right to receive a cash payment from the Company).

b. Legal Consideration for Issuance of Shares. Unless otherwise determined by the Committee, in the case of Awards of Restricted Stock, Restricted Stock Units, or Awards that are settled in whole or in part with shares of Common Stock, to the extent such Awards do not otherwise require the payment by the Participant of cash consideration that exceeds the par value of the shares of Common Stock received in connection therewith, the services rendered or to be rendered by the Participant shall satisfy the legal requirement of payment of par value for such shares of Common Stock.

c. No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan.

d. No Rights As Shareholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a shareholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder thereof.

e. Effective Date and Term of Plan. The Plan shall become effective on the date on which it is approved by the shareholders of the Company (the “Effective Date”). No Awards shall be granted under the Plan after the completion of ten (10) years from the Effective Date, but Awards previously granted may extend beyond that date.

f. Amendment of Plan. The Committee may amend this Plan at any time, provided that any material amendment to the Plan will not be effective unless approved by the Company’s shareholders. For this purpose, a material amendment is any amendment that would (i) other than pursuant to Section 3(c), materially increase either the aggregate number of shares of Common Stock available for issuance under the Plan; or the maximum number of shares of Common Stock issuable in one fiscal year to a Participant;

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(ii) expand or limit the class of persons eligible to receive Awards or otherwise participate in the Plan; (iii) subject to Section 3(c), reduce the price at which a previously-issued Option is exercisable or extend the period of time for which a previously-issued Option shall be exercisable beyond ten (10) years; (iv) subject to Section 11(f) and Section 11(j), amend the minimum vesting provisions of Full Value Awards; or (v) require shareholder approval pursuant to the requirements of the NYSE and/or any other exchange on which the Company is then listed or pursuant to applicable law.

g. Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of The Commonwealth of Massachusetts, exclusive of reference to rules and principles of conflicts of law.

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EX-10.13

Exhibit 10.13

TERADYNE, INC. 2006 EQUITY AND CASH COMPENSATION INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT GRANT AND TERMS

Name	Employee ID:
Division:
Supervisor:
Location:

In granting restricted stock units, Teradyne seeks to provide employees with incentive to help drive the company’s future success and to share in the economic benefits of that success. We all look forward to your contributions to that effort.

In recognition of your contributions to Teradyne, you have been granted an award consisting of the right to receive [            ] shares of Teradyne common stock that will vest over time (“Time Based Shares”) and up to a maximum of [            ] shares of Teradyne common stock (“Maximum Performance Based Shares”), which final number of shares shall be determined based on certain Performance Criteria (“Actual Performance Based Shares”) that will also vest over time. This grant was approved effective                  , 200x (the “Effective Date”).

This award is subject to the Restricted Stock Unit Terms attached hereto and the terms of the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). The shares covered by this award will be delivered over time and pursuant to certain Performance Criteria as described in and subject to the vesting conditions of the Restricted Stock Unit Terms.

The Plan prospectus, consisting of a “Participant Information” document that summarizes the Plan and the complete Plan, is available on “In-Site,” Teradyne’s internal Web site. To access the information, go to http://www.corp.teradyne.com/InSite/benefits/stockOptions.html and click the “Stock plan documents” link.

Please note that printed versions of the Plan prospectus documents are available to you, at no charge, upon request to James P. Dawson, Teradyne, Inc., 700 Riverpark Drive, North Reading, MA 01864, (978) 370-2112.

TERADYNE, INC.

Eileen Casal

V.P., General Counsel and Secretary

(2007 RSU)

Grant #XX

RESTRICTED STOCK UNIT TERMS

This award is governed by and subject to Teradyne’s 2006 Equity and Cash Compensation Incentive Plan (the “Plan”), which, together with the following provisions, controls the meaning of terms and the rights of the recipient. Capitalized and defined terms used and not defined below will have the meaning set forth in the Plan. In the event of any inconsistencies or differences between the Plan and these terms, the Plan shall prevail.

1. Award Grant, Vesting and Transfer

(a) Payment of par value. Teradyne hereby grants to the recipient the right to receive that number of shares of Teradyne common stock as is set forth on the Notice of Restricted Stock Unit Grant attached hereto. When the underlying shares of Teradyne common stock are issued to the recipient, par value will be deemed paid by the recipient for each share by past services rendered by the recipient.

(b) This award vests yearly on the anniversary of the Effective Date. None of this grant will be vested on the Effective Date. The grant will vest over four years, beginning on the first anniversary of the Effective Date. The “Time Based Shares” shall vest simply over a four (4) year period as described below. The actual number of “Performance Based Shares” that will vest over a four year period is uncertain at the time of the grant but is expected to be determined near the one year anniversary of the grant based on certain Performance Criteria and a determination of the Performance Award Percentage, as described below.

(i) Time Based Shares: 25% of the total grant of Time Based Shares will vest on the first and each of the three subsequent anniversaries of the Effective Date until 100% of the total Time Based Shares grant is fully vested on the fourth anniversary of the Effective Date.

(ii) Performance Based Shares: 25% of the Actual Performance Based Shares granted will vest on the first and each of the three subsequent anniversaries of the Effective Date. The Performance Award Percentage is a percentage ranging from 0-100% determined by the Committee (as defined below) or the Teradyne Board of Directors using criteria similar to that which is used by the Committee or Teradyne Board of Directors to determine the variable compensation payout. The Performance Award Percentage shall be as determined near the first anniversary of the Effective Date and multiplied against the Maximum Performance Based Shares granted to derive the number of Actual Performance Based Shares which will vest over the four year period .

The portion of the grant subject to vesting on each anniversary of the Effective Date that does not vest on such date will be forfeited. Subject to the terms of the Plan, the committee appointed by Teradyne’s Board of Directors to administer the Plan (the “Committee”) shall have the right to accelerate the date that any installment of this award becomes vested in the event of disability, death, retirement or upon the acquisition of control of Teradyne by another entity.

(c) This award will not vest further after termination of employment or other business relationship except in limited certain circumstances. This award will not vest after the recipient’s employment or other business relationship ends, regardless of the reason, provided, however, that if the recipient’s employment or other business relationship with Teradyne ends on account of disability, that portion of this award which would have vested under the applicable rule stated in (b) above shall continue to vest for a period of thirty (30) months following his or her termination of employment or business relationship on account of disability..

Employment or another business relationship shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness or military obligations) provided that the period of such leave does not exceed 90 days or, in the case of an employee, if longer, any period during which the employee’s right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment or other business relationship, provided that such written approval contractually obligates the Company to continue the employment or other business relationship of the recipient after the approved period of absence.

(d) No rights as stockholder; Issuance. The recipient shall not have any right in, to or with respect to any shares which may be covered by this award (including but not limited to the right to vote or to receive dividends) until the award is settled by issuance of shares to the recipient. All vested shares issued in respect of this award will be transferred or issued to the recipient (or his or her estate, in the event of his or her death) promptly after the date they vest but in any

event within 2 ¹/2 months following the calendar year in which they become vested (or any earlier date, after vesting, required to avoid characterization as non-qualified deferred compensation under Section 409A of the Code). Teradyne will not be required to transfer or issue any vested shares until arrangements satisfactory to it have been made to address any income, withholding and employment tax requirements which might arise by reason of the vesting and transfer or issuance of shares.

(e) This award may not be assigned or transferred. Other than as provided in Section 11(a) of the Plan, this award is not assignable or transferable (except by will or the laws of descent and distribution).

2. Capital Changes and Business Succession.

Section 3(c) of the Plan, contains provisions for adjusting (or substituting) the number, vesting schedule, exercise, price and other terms of outstanding stock-based Awards under the Plan if a recapitalization, stock split, merger, or other specified event occurs, and a Committee of the Board of Directors determines that an adjustment (or substitution) is appropriate. In that event, the recipient of the award will be notified of the adjustment (or substitution), if any.

3. Employment or Business Relationship.

Granting this award does not imply any right of continued employment or business relationship by the Company or a Related Corporation, and does not affect the right of the recipient or the Company or a Related Corporation to terminate employment or a business relationship at any time.

4. Stock Registration.

Shares to be issued under this award are currently registered under the Securities Act of 1933, as amended. If such registration is not in effect at the time of vesting, the recipient will be required to represent to the Company that he or she is acquiring such shares as an investment and not with a view to the sale of those shares.

5. Term.

This Agreement will terminate on                     , 20xx.

EX-10.15

Exhibit 10.15

TERADYNE, INC. 2006 EQUITY AND CASH COMPENSATION INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT GRANT AND TERMS

Name	Employee ID:
Division: Supervisor: Location:

In granting restricted stock units, Teradyne seeks to provide employees with incentive to help drive the company’s future success and to share in the economic benefits of that success. We all look forward to your contributions to that effort.

You have been granted an award consisting of the right to receive up to XX shares of Teradyne common stock. This grant was approved effective                          , 200     (the “Effective Date”).

This award is subject to the Restricted Stock Unit Terms attached hereto and the terms of the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). The shares covered by this award will be delivered over time as described in and subject to the vesting conditions of the Restricted Stock Unit Terms.

The Plan prospectus, consisting of a “Participant Information” document that summarizes the Plan and the complete Plan, is available on “In-Site,” Teradyne’s internal Web site. To access the information, go to http://www.corp.teradyne.com/InSite/benefits/stockOptions.html and click the “Stock plan documents” link.

Please note that printed versions of the Plan prospectus documents are available to you, at no charge, upon request to Victor Ramirez, Teradyne, Inc., 600 Riverpark Drive, North Reading, MA 01864, (978) 370-2787.

TERADYNE, INC

Eileen Casal

V.P., General Counsel and Secretary

(2006 RSU)

Grant #XX

Employee (2006 Plan)

RESTRICTED STOCK UNIT TERMS

This award is governed by and subject to Teradyne’s 2006 Equity and Cash Compensation Incentive Plan (the “Plan”), which, together with the following provisions controls the meaning of terms and the rights of the recipient. Capitalized and defined terms used and not defined below will have the meaning set forth in the Plan. In the event of any inconsistencies or differences between the Plan and these terms, the Plan shall prevail.

1. Award Grant, Vesting and Transfer

(a) Payment of par value. Teradyne hereby grants to the recipient the right to receive that number of shares of Teradyne common stock as is set forth on the Notice of Restricted Stock Unit Grant attached hereto. When the underlying shares of Teradyne common stock are issued to the recipient, par value will be deemed paid by the recipient for each share by past services rendered by the recipient.

(b) This award vests yearly on the anniversary of the Effective Date. None of this grant will be vested on the Effective Date. 25% of the total grant will vest on the first and each of the three subsequent anniversaries of the Effective Date until the total grant is fully vested on the fourth anniversary of the Effective Date. The committee appointed by Teradyne’s Board of Directors to administer the Plan (the “Committee”) shall have the right to accelerate the date that any installment of this award becomes vested in the event of disability, death, retirement or upon the acquisition of control of Teradyne by another entity.

(c) This award will not vest further after termination of employment or other business relationship except in limited certain circumstances. This award will not vest after the recipient’s employment or other business relationship ends, regardless of the reason, provided, however, that if the recipient’s employment or other business relationship with Teradyne ends on account of disability, that portion of this award which would have vested under the applicable rule stated in (b) above shall continue to vest for a period of thirty (30) months following his or her termination of employment or business relationship on account of disability.

Employment or another business relationship shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness or military obligations) provided that the period of such leave does not exceed 90 days or, in the case of an employee, if longer, any period during which the employee’s right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment or other business relationship, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment or other business relationship of the recipient after the approved period of absence.

(d) No rights as stockholder; Issuance. The recipient shall not have any right in, to or with respect to any shares which may be covered by this award (including but not limited to the right to vote or to receive dividends) until the award is settled by issuance of shares to the recipient. All vested shares issued in respect of this award will be transferred or issued to the recipient (or his or her estate, in the event of his or her death) promptly after the date they vest but in any event within 2 ¹/2 months following the calendar year in which they become vested (or any earlier date, after vesting, required to avoid characterization as non-qualified deferred compensation under Section 409A of the Code). Teradyne will not be required to transfer or issue any vested shares until arrangements satisfactory to it have been made to address any income, withholding and employment tax requirements which might arise by reason of the vesting and transfer or issuance of shares.

(e) This award may not be assigned or transferred. Other than as provided in Section 11(a) of the Plan, this award is not assignable or transferable (except by will or the laws of descent and distribution).

2. Capital Changes and Business Succession. Section 3(c) of the Plan contains provisions for adjusting (or substituting) the number, vesting schedule, exercise price and other terms of outstanding stock-based Awards granted under the Plan if a recapitalization, stock split, merger, or other specified event occurs and a Committee of the Board of Directors determines that an adjustment (or substitution) is appropriate. In that event, the recipient of the award will be notified of the adjustment (or substitution), if any.

Employee (2006 Plan)

3. Employment or Business Relationship. Granting this award does not imply any right of continued employment or business relationship by the Company or a Related Corporation, and does not affect the right of the recipient or the Company or a Related Corporation to terminate employment or a business relationship at any time.

4. Stock Registration. Shares to be issued under this award are currently registered under the Securities Act of 1933, as amended. If such registration is not in effect at the time of vesting, the recipient will be required to represent to the Company that he or she is acquiring such shares as an investment and not with a view to the sale of those shares.

5. Term. This Agreement will terminate on                          , 20    .

EX-10.24

Exhibit 10.24

INDEMNIFICATION AGREEMENT

This Agreement is made and entered into this «Date» (the “Agreement”), by and between Teradyne, Inc., a Massachusetts corporation (the “Company”, which term shall include any one or more of its subsidiaries where appropriate), and «Name» (“Indemnitee”). Certain capitalized terms are used in this Agreement as specifically defined in Section 7.

In consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. Services by Indemnitee. Indemnitee agrees to serve or continue to serve as a director or executive officer of the Company for so long as he is duly elected or appointed or until his written resignation.

2. Indemnification and Advances.

2.1 The Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within fifteen days after the receipt by the Company of a request therefor, accompanied or preceded by reasonable evidence of such Expenses and by an undertaking to repay all Expenses advanced to the extent Indemnitee shall be adjudicated, or determined pursuant to Section 3.2 or 3.3, to be not entitled to indemnification therefor (which undertaking shall be accepted by the Company without reference to Indemnitee’s financial ability to repay any such advances).

2.2 Except as specifically provided in Sections 3.1, 3.2 and 3.3, within 60 days after receipt of a request therefor the Company shall indemnify Indemnitee to the full extent permitted by law against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any Proceeding or any claim, issue or matter therein. A request for indemnification must be accompanied by reasonable evidence of the amount for which indemnification is requested, and must indicate a choice of Independent Counsel, if any, to make any determination pursuant to Section 3.3.

2.3 Notwithstanding any other provision of this Agreement, Indemnitee shall be indemnified against all Expenses attributable to any Proceeding (or any claim, issue or matter relating thereto) which was adjudicated or determined by a court of competent jurisdiction, on the merits or otherwise, in Indemnitee’s favor or which was terminated by dismissal or withdrawal; with or without prejudice.

3. Exceptions.

3.1 No indemnification shall be provided hereunder with respect to any claim, issue or matter to the extent that Indemnitee has been adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the Company (or, in the case of service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan).

3.2 If a Change of Control has not occurred, no indemnification shall be provided hereunder to the extent that, within 60 days of the receipt by the Company of a request for indemnification, Indemnitee has been determined (after investigation) by (a) the Board of Directors of the Company by majority vote of a quorum of Disinterested Directors, or (b) if such a quorum is not “obtainable, or if directed by majority vote of a quorum of Disinterested Directors, Independent Counsel (selected by majority vote of the Disinterested Directors or, if none, by majority vote of the Board of Directors) in a written opinion, not to have acted in good faith in the reasonable belief that his action was in the best interest of the Company (or, in the case of service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan).

3.3 If a Change in Control has occurred, no indemnification shall be provided hereunder to the extent that, within 60 days of the receipt by the Company of a request for indemnification, Indemnitee has been determined (after investigation) by (a) the Independent Counsel specified by Indemnitee in the request for indemnification or (b) if no such specification is made, by a person, persons or entity who would be entitled to make such a determination pursuant to Section 3.2 if a Change in Control had not occurred, not to have acted in good faith in the reasonable belief that his action was in the best interest of the Company (or, in the case of service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan). A person, persons or entity making a determination pursuant to this Section 3.3 shall presume that Indemnitee acted so as to be entitled to indemnification, and the Company shall have the burden of proof in overcoming that presumption.

3.4 Indemnitee shall cooperate with any person, persons or entity making an investigation pursuant to Section 3.2 or 3.3 to the extent reasonably requested. Any costs or expenses (including attorneys fees and disbursements) incurred by Indemnitee in so cooperating shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification), and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

4. Remedies of Indemnitee.

4.1 In the event that (i) a determination is made that Indemnitee is not entitled to indemnification under this Agreement, (ii) a required advancement of Expenses is not timely made or (iii) payment of any required indemnification is not timely made within the 60 day period prescribed in Sections 3.2 and 3.3, Indemnitee shall be entitled to an adjudication in an appropriate court of the Commonwealth of Massachusetts, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association, and judgment upon any arbitration award may be entered in any court having jurisdiction. Indemnitee shall

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commence a proceeding seeking such an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

4.2 In the event that a determination shall have been made pursuant to this Agreement that Indemnitee is not entitled to indemnification, any such judicial proceeding or arbitration shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of such adverse determination. If a Change of Control shall have occurred, in any such judicial proceeding or arbitration the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, notwithstanding such adverse determination.

4.3 The Company shall be precluded from asserting in any judicial proceeding or arbitration that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

4.4 In the event that Indemnitee seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses) actually and reasonably incurred by him in such judicial adjudication or arbitration, if he prevails therein or if such recovery is ordered by the court or the arbitrator. If it shall be determined in such judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately pro-rated.

5. Security. To the extent requested by the Indemnitee and approved by the Company’s Board of Directors, the Company may at any time and from time to time provide security to the Indemnitee for the Company’s obligations hereunder through an irrevocable bank letter of credit, funded trust or other collateral. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of Indemnitee.

6. Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors or executive officers of the Company (or fiduciaries of any other enterprise), Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director or executive officer (or fiduciary) under such policy or policies, whether or not Indemnitee is still a director or executive officer of the Company. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

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7. Definitions.

7.1 “Change in Control” means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any “Person” (as such term is used in Section 13(d) of the Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

7.2 “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

7.3 “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, appearing as a witness in, preparing to prosecute or defend or appear as a witness in, or investigating a Proceeding.

7.4 “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in any action to determine Indemnitee’s rights under this Agreement.

7.5 “Proceeding” means any pending, threatened or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative in which Indemnitee is or may be involved as a witness or defendant by reason of being, having been or having agreed to become a director or executive officer of the Company or, at the request of the Company, being, having been or having agreed to become a director, officer or fiduciary of any other entity or enterprise, except such a proceeding initiated by Indemnitee.

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8. General.

8.1 The rights provided by this Agreement shall not be exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s certificate of incorporation or by laws, any other agreement, a vote of stockholders or a resolution of directors, or otherwise.

8.2 This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall have ceased to serve as a director or executive officer of the Company or fiduciary of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) the final termination of all pending Proceedings in respect of which Indemnitee is granted rights hereunder and of any proceeding commenced by Indemnitee relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators.

8.3 In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

8.4 If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

8.5 No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

8.6 Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder; provided, however, that the failure to give any such notice shall not disqualify the Indemnitee from indemnification hereunder.

8.7 All notices, requests, demands and other communications hereunder shall be in writing and shall have been duly given if (i) actually received, or (ii) mailed by certified or registered mail, postage prepaid, on the third business day after the date on which it is so mailed.

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8.8 This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Massachusetts.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

Attest:	TERADYNE, INC.
By:	By:
	INDEMNITEE
	«Name»
	«Address1»
	«Address2»

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EX-10.25

Exhibit 10.25

EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT

EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 1st day of March, 2007, by and between Teradyne, Inc., a Massachusetts corporation (“Teradyne”), and the undersigned executive officer of Teradyne (“Employee”).

WITNESSETH:

WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne;

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows:

1. Entitlements Upon a Termination Event. During the Term, if within twenty-four (24) months following a Change in Control or in contemplation of a Change in Control there is a Termination Event, Employee shall be entitled to the rights, payments and other benefits set forth below:

(a) Treatment of Awards. Equity Awards that are not subject to Performance Criteria shall be governed by Section 1(b) below, and Cash Awards and Equity Awards that are subject to Performance Criteria shall be governed by Section 1(c) below. The parties hereto acknowledge that, except as otherwise provided herein, the terms of this Agreement are intended to modify the terms of Employee’s existing Cash Award and Equity Award agreements and to be a supplement to Cash Award and Equity Award agreements granted on or subsequent to the date hereof.

(b) Acceleration of Equity Awards. All of Employee’s unvested or unexercisable Equity Awards or Equity Awards subject to restrictions on transfer imposed by Teradyne or repurchase rights in favor of Teradyne, as applicable, granted prior to, on, or after the date hereof (but only (I) such Equity Awards as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Equity Awards as have been assumed by an acquiring company at the time of a Change in Control or such new cash and equity awards that have been substituted by an acquiring company for Equity Awards existing at the time of a Change in Control, each pursuant to the terms of any Teradyne incentive plan) shall automatically become fully vested, exercisable or free of restrictions on transfer imposed by Teradyne or repurchase rights in favor of Teradyne, as applicable, as of the date of such Termination Event, and all Equity Awards granted on or after the date hereof shall, to the extent applicable, remain exercisable for the remainder of the generally applicable term of such Equity Award.

(c) Satisfaction of Performance Criteria. All of Employee’s Cash Awards and Equity Awards that are subject to Performance Criteria shall be settled and paid in the following

manner: Employee shall be deemed to have satisfied the necessary percentage of the Performance Criteria to which such Cash Awards and Equity Awards are subject as of the date of the Termination Event, that will provide employee with the target level of such Cash Awards and Equity Awards; and Employee shall be entitled to receive that portion of each Cash Award and Equity Award payable, at the target level. For purposes of the Cash Awards, the payment shall be multiplied by a fraction, the numerator of which shall be the number of calendar months that have passed during the period in which the Performance Criteria are to be measured (treating the month in which the Termination Event occurs as a full calendar month) and the denominator of which shall be the total number of calendar months in such period. For purposes of this Agreement, “target level” is that percentage of the Performance Criteria established at the beginning of each calendar year in order for the Employee to achieve Model Compensation. Unless otherwise required under Section 1(d) below, such Cash Awards and Equity Awards shall be paid to Employee or the restrictions on transfer removed not later than 10 days following the Termination Event.

(d) Deferred Compensation. Notwithstanding any other provision of this Agreement, if the Employee is a “key employee” as defined in Section 416(i) of the Code without regard to paragraph 5 thereof, all payments, benefits, or removal of restrictions on the transfer of equity under this Agreement with respect to separation from service that constitute compensation deferred under a nonqualified deferred compensation plan as defined in Section 409A of the Code to which such key employee would otherwise be entitled during the first six months following the date of separation from service shall be made on the first day of the seventh month after the date of separation from service (or, if earlier, the date of death of the Employee).

(e) Release. Notwithstanding any other provision of this Agreement to the contrary, no payment or benefit otherwise provided for under or by virtue of the foregoing provisions of this Agreement shall be paid or otherwise made available unless and until Teradyne shall have first received from Employee a valid, binding and irrevocable general release, in the form of Attachment A to this Agreement; provided that Teradyne shall be permitted to defer any payment and any benefit provided for in this Agreement, whether pursuant to Section 1(e), 1(d) or otherwise, until the tenth day after the later of its receipt of such release and the time at which the release has become valid, binding and irrevocable. Employee shall promptly sign such release upon a Termination Event subsequent to a Change in Control. Teradyne agrees to provide Employee an estimate relating to payments to be made under this Agreement upon Employee’s written request.

(f) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

“Cash Awards” shall mean any cash-based bonus, cash incentive or other cash awards provided by Teradyne to Employee pursuant to incentive plans that Teradyne maintains, including but not limited to its 2006 Equity and Cash Compensation Incentive Plan.

“Cause” shall mean conduct involving one or more of the following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment as established by the Teradyne Board of Directors from time to time and communicated to the Employee; (ii) Employee’s disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne, each in connection with Employee’s employment by Teradyne; (iii)

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Employee’s deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect material loss, damage or injury to Teradyne; (iv) the intentional unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; (v) the commission by Employee of an act which constitutes unfair competition with Teradyne; or (vi) the conviction of, or the entry of a plea of guilty or nolo contendere by the Employee, to any crime involving moral turpitude or any felony.

A “Change in Control” shall be deemed to have occurred upon the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the capital stock of Teradyne outstanding immediately prior to such transaction constitutes less than a majority of the combined voting power of the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne’s assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections occurring within a three-year period; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne’s outstanding voting securities, other than (A) as a result of a consolidation, reorganization, recapitalization, merger or plan of share exchange following which the capital stock of Teradyne outstanding immediately prior to such transaction constitutes at least a majority of combined voting power of the then-outstanding securities of the combined corporation or person immediately after such transaction, (B) by any trustee or other fiduciary holding securities under an employee benefit plan of Teradyne, or (C) by a person temporarily acquiring beneficial ownership in its capacity as an underwriter (as defined pursuant to Section 2(a)(11) of the Securities Act of 1933, as amended) in connection with a public offering of Teradyne securities.

“Disability” shall mean an illness, injury or other incapacitating condition as a result of which the Employee is absent from full time performance of his duties with Teradyne or is unable to perform his duties and responsibilities for a period of sixty (60) consecutive days during the Term of the Agreement or a period or periods aggregating to more than ninety (90) days in any consecutive six (6) month period but shall not include death.

“Equity Awards” shall mean the equity ownership, participation or appreciation opportunities provided by Teradyne to Employee pursuant to incentive plans that Teradyne maintains, including but not limited to its 2006 Equity and Cash Compensation Incentive Plan, the Teradyne, Inc. 1991 Employee Stock Option Plan and the Teradyne, Inc. 1997 Employee Stock Option Plan, and any stock options, restricted stock units, restricted stock, stock appreciation rights, phantom stock and other stock-based awards granted thereunder.

“Good Reason” shall mean any one or more of the following: (i) any material reduction of Employee’s responsibilities (other than for Cause or as a result of death or Disability) as they shall exist on the date of the consummation of the Change in Control; (ii) any material reduction in Employee’s Model Compensation as in effect on the date of the

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consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee’s benefit package from the value of Employee’s benefit package on the date of the consummation of the Change in Control; or (iv) a requirement that Employee be based at an office that is greater than 50 miles from the location of Employee’s office immediately prior to the Change in Control except for required travel on Teradyne’s business to an extent substantially consistent with the business travel obligations which Employee undertook on behalf of Teradyne prior to the date of the consummation of the Change in Control. In the event of a Termination Event in contemplation of a Change in Control, the applicable baseline measurement date shall be six months prior to such Termination Event and not the date of the consummation of the Change in Control.

“Model Compensation” shall mean Employee’s annual “Model Compensation” as determined by Teradyne’s Compensation Committee or Board of Directors, which consists of (i) a fixed monthly salary and (ii) a target annual variable amount.

“Performance Criteria” shall have the meaning ascribed to that term in the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan.

“Termination Event” shall mean (i) any termination of Employee by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason; provided, that it shall not be a Termination Event merely because Employee ceases to be employed by Teradyne and becomes employed by a new employer involved in the Change in Control provided that such new employer shall be bound by this Agreement as if it were Teradyne hereunder with respect to Employee. It is expressly understood that no Termination Event shall be deemed to have occurred merely because, upon the occurrence of a Change in Control, Employee ceases to be employed by Teradyne and does not become employed by a successor to Teradyne after the Change in Control if the successor makes an offer to employ Employee on terms and conditions which, if imposed by Teradyne, would not give Employee a basis on which to terminate employment for Good Reason.

(g) Termination in Contemplation of a Change in Control. For purposes of this Agreement, including without limitation, this Section 1, a Termination Event occurring “in contemplation of a Change in Control” means a Termination Event occurring within 3 months prior to an actual Change in Control at the request or direction of a person who enters or has entered into an agreement the consummation of which would cause a Change in Control or who conditions the entry into such an agreement on the Employee’s termination whether or not such person actually enters into such an agreement. A termination by the Employee for Good Reason shall constitute a Termination Event in contemplation of a Change in Control if the actions constituting Good Reason were taken at the request or direction of a person who has entered into an agreement the consummation of which would cause a Change in Control.

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2. (a) Parachute Payment Gross-Up. If any Payments (as hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment.

(b) Definitions. For purposes of this Section 2, the following terms shall have the following meanings:

(i) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(ii) “Excise Tax” shall mean the tax imposed by Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors.

(iii) “Gross-Up Payment” shall mean, with respect to Payments to Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors.

(1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee’s residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax.

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(3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments.

(iv) “Payment” shall mean, with respect to Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) Employee shall be a Payment if an Excise Tax is imposed on Employee with respect to such payment or benefit.

3. No Obligation of Employment. Employee understands that the employment relationship between Employee and Teradyne will be “at will” and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without “Cause” at any time, including in contemplation of a Change in Control. Following any Change in Control, Teradyne may also terminate Employee with or without “Cause” at any time subject to Employee’s rights and Teradyne’s obligations specified in this Agreement.

4. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts.

5. Severability. In case any one or more of the provisions contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law.

6. Waivers and Modifications. This Agreement may be modified, and the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

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7. Assignment. (a) Teradyne shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Teradyne expressly to assume and agree to perform under the terms of this Agreement in the same manner and to the same extent that Teradyne and its affiliates would be required to perform it if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event Teradyne (as constituted prior to such succession) shall have no further obligation under or with respect to this Agreement. Failure of Teradyne to obtain such assumption and agreement with respect to Employee prior to the effectiveness of any such succession shall be a breach of the terms of this Agreement with respect to Employee and shall entitle Employee to compensation from Teradyne (as constituted prior to such succession) in the same amount and on the same terms as Employee would be entitled to hereunder were Employee’s employment terminated for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of the Termination Event. As used in this Agreement, “Teradyne” shall mean Teradyne as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees (or is otherwise required) to perform this Agreement. Nothing in this Section 7(a) shall be deemed to cause any event or condition which would otherwise constitute a Change in Control not to constitute a Change in Control.

(b) Notwithstanding Section 7(a), Teradyne shall remain liable to Employee upon a Termination Event after a Change in Control if Employee is not offered continuing employment by a successor to Teradyne or is offered continuing employment by a successor to Teradyne only on a basis which would constitute Good Reason for termination of employment hereunder.

(c) This Agreement, and Employee’s and Teradyne’s rights and obligations hereunder, may not be assigned by Employee or, except as provided in Section 7(a), Teradyne, respectively; any purported assignment by Employee or Teradyne in violation hereof shall be null and void.

(d) The terms of this Agreement shall inure to the benefit of and be enforceable by the personal or legal representatives, executors, administrators, permitted successors, heirs, distributees, devisees and legatees of Employee. If Employee shall die while an amount would still be payable to Employee hereunder if they had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee’s devisee, legatee or other designee or, if there is no such designee, Employee’s estate.

8. Entire Agreement. This Agreement constitutes the entire understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof including but not limited to the Executive Officer Change in Control Agreement entered into on October 19, 2001 between Teradyne and Employee; provided, however, that Employee’s existing Cash Award and Equity Award agreements, as modified hereby, shall remain in effect and provided further that the Agreement Regarding Termination Benefits entered into on September 3, 2004 between Teradyne and Employee shall not be modified by this Agreement but shall remain in full force and effect in accordance with its own terms. This Agreement shall not limit any right of Employee to receive any payments or benefits under an employee benefit or Employee compensation plan of Teradyne, initially adopted as of or after the date hereof, which are expressly contingent thereunder upon the occurrence of a Change in

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Control (including, but not limited to, the acceleration of any rights or benefits thereunder); provided that in no event shall Employee be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Employee under any severance or similar plan or policy of Teradyne, and in any such case Employee shall only be entitled to receive the greater of the two payments.

9. Notices. All notices hereunder shall be in writing and shall be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows:

If to Teradyne, to:	Teradyne, Inc.
	700 Riverpark Drive
	MS NR700-2-3 (Legal Department)
	North Reading, MA 01864
	Attention: General Counsel

If to Employee, at Employee’s address set forth on the signature page hereto.

10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

11. Section Headings. The descriptive section headings herein have been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof.

12. Term. The term of this Agreement (the “Term”) shall commence upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that Employee for any reason ceases to be an employee of Teradyne (other than a Termination Event in contemplation of a Change in Control), and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason).

13. Expenses. All reasonable legal fees and expenses incurred in a legal proceeding by Employee in seeking to obtain or enforce any right or benefit provided by this Agreement against a successor to Teradyne shall be the responsibility of and paid for by the successor to Teradyne (but not Teradyne as constituted prior to such succession). Such payments are to be made within twenty (20) days after Employee’s request for payment accompanied with such evidence of fees and expenses incurred as Teradyne’s successor reasonably may require; provided that if Employee institutes a proceeding and the judge or other decision-maker presiding over the proceeding affirmatively finds that Employee has failed to prevail substantially, Employee shall pay Employee’s own costs and expenses (and, if applicable, return any amounts theretofore paid on Employee's behalf under this Section 13).

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14. Payments. Any payments hereunder shall be made out of the general assets of Teradyne. The Employee shall have the status of general unsecured creditor of Teradyne, and this Agreement constitutes a mere promise by Teradyne to make payments under this Agreement in the future as and to the extent provided herein. Unless otherwise determined by Teradyne in an applicable plan or arrangement, no amounts payable hereunder upon a Termination Event shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of Teradyne for the benefit of its employees. Teradyne shall be entitled to withhold from any payments or deemed payments any amount of tax withholding required by law.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

TERADYNE, INC.
By:	/s/    ROY A. VALLEE
Name:	Roy A. Vallee
Title:	Chair of Compensation Committee

EMPLOYEE
	/s/    MICHAEL A. BRADLEY
Name:	Michael A. Bradley
Address:

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ATTACHMENT A

Release

In consideration of the payments and benefits described in the Executive Officer Change in Control Agreement dated [                         , 2007] between me and Teradyne, Inc. (the “Company”), all of which I acknowledge I would not otherwise be entitled to receive, I hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its successors and assigns and their respective officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and employees (each in their individual and corporate capacities) (hereinafter, the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature which I ever had or now have against the Released Parties arising out of my employment with and/or termination or separation from the Company or relating to my relationship as an officer or in any other capacity for the Company, including, but not limited to, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C., §12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., and the Massachusetts Fair Employment Practices Act., M.G.L. c.151B, §1 et seq., all as amended; all claims arising out of the Fair Credit Reporting Act, 15 U.S.C. §1681 et seq., the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1001 et seq., the Massachusetts Civil Rights Act, M.G.L. c.12 §§11H and 11I, the Massachusetts Equal Rights Act, M.G.L. c.93, §102 and M.G.L. c.214, §1C, the Massachusetts Labor and Industries Act, M.G.L. c.149, §1 et seq., the Massachusetts Privacy Act, M.G.L. c. 214, §1B, and the Massachusetts Maternity Leave Act, M.G.L. c. 149, §105(d), all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including but not limited to claims to stock or stock options; and any claim or damage arising out of my employment with, termination or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that notwithstanding the foregoing, the Company agrees and hereby acknowledges that this Release Agreement is not intended to and does not (i) apply to any claims Executive may bring to enforce the terms of the Executive Officer Change in Control Agreement, (ii) release the Company of any obligation it may have pursuant to a written agreement, the Company’s articles of organization or bylaws, or as mandated by statute to indemnify me as an officer of the Company; and (iii) release the Company of any obligation to provide and/or pay benefits to me or my estate, conservator or designated beneficiary(ies) under and in accordance with the terms of any applicable Company benefit plan and/or program; provided further, that nothing in this Release Agreement prevents me from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that I acknowledge that I may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).

Waiver of Rights and Claims Under the Age Discrimination in Employment Act of 1967: Since I am 40 years of age or older, I have been informed that I have or may have specific rights and/or claims under the Age Discrimination in Employment Act of 1967 (ADEA) and I agree that:

in consideration for the payments and benefits described in the Executive Officer Change in Control Agreement, which I am not otherwise entitled to receive, I specifically and voluntarily waive such rights and/or claims under the ADEA I might have against the Released Parties to the extent such rights and/or claims arose prior to the date this Release Agreement was executed;

I understand that rights or claims under the ADEA which may arise after the date this Release Agreement is executed are not waived by me;

I was advised that I have at least 21 days within which to consider the terms of this Release Agreement and to consult with or seek advice from an attorney of my choice or any other person of your choosing prior to executing this Release Agreement;

I have carefully read and fully understand all of the provisions of this Release Agreement, and I knowingly and voluntarily agree to all of the terms set forth in this Release Agreement; and

in entering into this Release Agreement I am not relying on any representation, promise or inducement made by the Company or its attorneys with the exception of those promises described in this document.

Period for Review and Consideration of Agreement:

I acknowledge that I was informed and understand that I have twenty-one (21) days to review this Release Agreement and consider its terms before signing it.

The 21-day review period will not be affected or extended by any revisions, whether material or immaterial, that might be made to this Agreement.

Accord and Satisfaction: The amounts set forth in the Executive Officer Change in Control Agreement shall be complete and unconditional payment, settlement, accord and/or satisfaction with respect to all obligations and liabilities of the Released Parties to me, including, without limitation, all claims for back wages, salary, vacation pay, draws, incentive pay, bonuses, cash awards, equity awards, commissions, severance pay, reimbursement of expenses, any and all other forms of compensation or benefits, attorney’s fees, or other costs or sums.

Revocation Period: I may revoke this Release Agreement at any time during the seven-day period immediately following my execution hereof. As a result, this Release Agreement shall not become effective or enforceable and the Company shall have no obligation to make any payments or provide any benefits described herein until the seven-day revocation period has expired.

Name:	Date
Witness	Date

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IF YOU DO NOT WISH TO USE THE 21-

DAY PERIOD,

PLEASE CAREFULLY REVIEW AND SIGN

THIS DOCUMENT

I,                                         , acknowledge that I was informed and understand that I have 21 days within which to consider the attached Release Agreement, have been advised of my right to consult with an attorney regarding such Agreement and have considered carefully every provision of the Agreement, and that after having engaged in those actions, I prefer to and have requested that I enter into the Agreement prior to the expiration of the 21 day period.

Dated:
	Name:
Dated:
	Witness

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EX-10.26

Exhibit 10.26

FORM OF

EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT

EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this      day of             , 200  , by and between Teradyne, Inc., a Massachusetts corporation (“Teradyne”), and the undersigned executive officer of Teradyne (“Employee”).

WITNESSETH:

WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne;

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows:

1. Entitlements Upon a Termination Event. During the Term, if within twenty-four (24) months following a Change in Control or in contemplation of a Change in Control there is a Termination Event, Employee shall be entitled to the rights, payments and other benefits set forth below:

(a) Treatment of Awards. Equity Awards that are not subject to Performance Criteria shall be governed by Section 1(b) below, and Cash Awards and Equity Awards that are subject to Performance Criteria shall be governed by Section 1(c) below. The parties hereto acknowledge that, except as otherwise provided herein, the terms of this Agreement are intended to modify the terms of Employee’s existing Cash Award and Equity Award agreements and to be a supplement to Cash Award and Equity Award agreements granted on or subsequent to the date hereof.

(b) Acceleration of Equity Awards. All of Employee’s unvested or unexercisable Equity Awards or Equity Awards subject to restrictions on transfer imposed by Teradyne or repurchase rights in favor of Teradyne, as applicable, granted prior to, on, or after the date hereof (but only (I) such Equity Awards as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Equity Awards as have been assumed by an acquiring company at the time of a Change in Control or such new cash and equity awards that have been substituted by an acquiring company for Equity Awards existing at the time of a Change in Control, each pursuant to the terms of any Teradyne incentive plan) shall automatically become fully vested, exercisable or free of restrictions on transfer imposed by Teradyne or repurchase rights in favor of Teradyne, as applicable, as of the date of such Termination Event, and all Equity Awards granted on or after the date hereof shall, to the extent applicable, remain exercisable for the remainder of the generally applicable term of such Equity Award.

(c) Satisfaction of Performance Criteria. All of Employee’s Cash Awards and Equity Awards that are subject to Performance Criteria shall be settled and paid in the following manner: Employee shall be deemed to have satisfied the necessary percentage of the Performance Criteria to which such Cash Awards and Equity Awards are subject as of the date of the Termination Event, that will provide Employee with the target level of such Cash Awards and Equity Awards; and Employee shall be entitled to receive that portion of each Cash Award and Equity Award payable, at the target level. For purposes of the Cash Awards, the payment shall be multiplied by a fraction, the numerator of which shall be the number of calendar months that have passed during the period in which the Performance Criteria are to be measured (treating the month in which the Termination Event occurs as a full calendar month) and the denominator of which shall be the total number of calendar months in such period. For purposes of this Agreement, “target level” is that percentage of the Performance Criteria established at the beginning of the calendar year in order for the Employee to achieve model compensation. Unless otherwise required under Section 1(e) below, such Cash Awards and Equity Awards shall be paid to Employee or the restrictions on transfer removed not later than 10 days following the Termination Event.

(d) Salary Continuation. Unless otherwise required under Section 1 (e) below, Teradyne shall pay Employee a monthly amount equal to 1/12^th of Employee’s current annual Model Compensation as of the Termination Event for a period of 24 months following the date of the Termination Event. In the event a Termination Event constitutes termination for Good Reason on account of a material reduction in Model Compensation, the payment obligation pursuant to this Section 1(d) shall be calculated without giving effect to any such reductions in Model Compensation. All such continued payments shall be made in accordance with Teradyne’s customary pay practices.

(e) Deferred Compensation. Notwithstanding any other provision of this Agreement, if the Employee is a “key employee” as defined in Section 416(i) of the Code without regard to paragraph 5 thereof, all payments, benefits, or removal of restrictions on the transfer of equity under this Agreement with respect to separation from service that constitute compensation deferred under a nonqualified deferred compensation plan as defined in Section 409A of the Code to which such key employee would otherwise be entitled during the first six months following the date of separation from service shall be made on the first day of the seventh month after the date of separation from service (or, if earlier, the date of death of the Employee).

(f) Benefit Continuation. During the twenty-four (24) month salary continuation period described in Section 1(d) above, Teradyne shall arrange or provide for continued health, dental and vision insurance plan coverage for the Employee at the same levels of coverage in existence prior to the Termination Event subject to Teradyne and Employee each contributing to the applicable insurance premium payments on the same basis and in the same proportions as in existence at the date of the Termination Event. If the Employee is not eligible for continued health, dental and vision insurance plan coverage for any portion of the twenty-four (24) month period defined herein, Teradyne shall provide or reimburse Employee for comparable individual insurance and, if such provision or reimbursement constitutes taxable income to the Employee, such additional amount as is necessary to place the Employee in substantially the same after tax position as he was while an employee of Teradyne with respect to such insurance plan coverages. All other benefits, including but not limited to flex/vacation time accrual, short and long term disability insurance, life insurance, contributions (including company matches) into savings plan and “savings plan plus”, profit sharing payments and participation in the Employee stock purchase plan shall cease as of the date of the Termination Event.

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(g) Release. Notwithstanding any other provision of this Agreement to the contrary, no payment or benefit otherwise provided for under or by virtue of the foregoing provisions of this Agreement shall be paid or otherwise made available unless and until Teradyne shall have first received from Employee a valid, binding and irrevocable general release, in the form of Attachment A to this Agreement; provided that Teradyne shall be permitted to defer any payment and any benefit provided for in this Agreement, whether pursuant to Section 1(e), 1(f) or otherwise, until the tenth day after the later of its receipt of such release and the time at which the release has become valid, binding and irrevocable. Employee shall promptly sign such release upon a Termination Event subsequent to a Change in Control. Teradyne agrees to provide Employee an estimate relating to payments to be made under this Agreement upon Employee’s written request.

(h) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

“Cash Awards” shall mean any cash-based bonus, cash incentive or other cash awards provided by Teradyne to Employee pursuant to incentive plans that Teradyne maintains, including but not limited to its 2006 Equity and Cash Compensation Incentive Plan.

“Cause” shall mean conduct involving one or more of the following: (i) the substantial and continuing failure of Employee to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee’s disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne, each in connection with Employee’s employment by Teradyne; (iii) Employee’s deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect material loss, damage or injury to Teradyne; (iv) the intentional unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; (v) the commission by Employee of an act which constitutes unfair competition with Teradyne; or (vi) the conviction of, or the entry of a plea of guilty or nolo contendere by the Employee, to any crime involving moral turpitude or any felony. In the event that the Company determines that Cause may exist pursuant to clauses (i), (iii) and (v) above, the Company shall give Employee written notice of the facts constituting such Cause and Employee shall have 30 days following receipt of such notice to remedy such Cause.

A “Change in Control” shall be deemed to have occurred upon the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the capital stock of Teradyne outstanding immediately prior to such transaction constitutes less than a majority of the combined voting power of the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne’s assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections occurring within a three-year period; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2)

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of the Securities Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne’s outstanding voting securities, other than (A) as a result of a consolidation, reorganization, recapitalization, merger or plan of share exchange following which the capital stock of Teradyne outstanding immediately prior to such transaction constitutes at least a majority of the combined voting power of the then-outstanding securities of the combined corporation or person immediately after such transaction, (B) by any trustee or other fiduciary holding securities under an employee benefit plan of Teradyne, or (C) by a person temporarily acquiring beneficial ownership in its capacity as an underwriter (as defined pursuant to Section 2(a)(11) of the Securities Act of 1933, as amended) in connection with a public offering of Teradyne’s securities.

“Equity Awards” shall mean the equity ownership, participation or appreciation opportunities provided by Teradyne to Employee pursuant to incentive plans that Teradyne maintains, including but not limited to its 2006 Equity and Cash Compensation Incentive Plan, the Teradyne, Inc. 1991 Employee Stock Option Plan and the Teradyne, Inc. 1997 Employee Stock Option Plan, and any stock options, restricted stock units, restricted stock, stock appreciation rights, phantom stock and other stock-based awards granted thereunder.

“Good Reason” shall mean any one or more of the following: (i) any material reduction of Employee’s responsibilities (other than for Cause or as a result of death or disability) as they shall exist on the date of the consummation of the Change in Control; (ii) any material reduction in Employee’s Model Compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee’s benefit package from the value of Employee’s benefit package on the date of the consummation of the Change in Control; or (iv) a requirement that Employee be based at an office that is greater than 50 miles from the location of Employee’s office immediately prior to the Change in Control except for required travel on Teradyne’s business to an extent substantially consistent with the business travel obligations which Employee undertook on behalf of Teradyne prior to the date of the consummation of the Change in Control. In the event of a Termination Event in contemplation of a Change of Control, the applicable baseline measurement date shall be six months prior to such Termination Event and not the date of the consummation of the Change in Control.

“Model Compensation” shall mean Employee’s annual “Model Compensation” as determined by Teradyne’s Compensation Committee or Board of Directors, which consists of (i) a fixed monthly salary and (ii) a target annual variable amount.

“Performance Criteria” shall have the meaning ascribed to that term in the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan.

“Termination Event” shall mean (i) any termination of Employee by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason; provided, that it

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shall not be a Termination Event merely because Employee ceases to be employed by Teradyne and becomes employed by a successor to Teradyne involved in the Change in Control that assumes or is otherwise bound by this Agreement as provided in Section 7(a). It is expressly understood that no Termination Event shall be deemed to have occurred merely because, upon the occurrence of a Change in Control, Employee ceases to be employed by Teradyne and does not become employed by a successor to Teradyne after the Change in Control if the successor makes an offer to employ Employee on terms and conditions which, if imposed by Teradyne, would not give Employee a basis on which to terminate employment for Good Reason.

(i) Termination in Contemplation of a Change in Control. For purposes of this Agreement, including without limitation, this Section 1, a Termination Event occurring “in contemplation of a Change in Control” means a Termination Event occurring within 3 months prior to an actual Change in Control at the request or direction of a person who enters or has entered into an agreement the consummation of which would cause a Change in Control or who conditions entry into such an agreement on the Employee’s termination whether or not such person actually enters into such an agreement. A termination by the Employee for Good Reason shall constitute a Termination Event in contemplation of a Change in Control if the actions constituting Good Reason were taken at the request or direction of a person who has entered into an agreement the consummation of which would cause a Change in Control.

2. (a) Parachute Payment Gross-Up. If any Payments (as hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment.

(b) Definitions. For purposes of this Section 2, the following terms shall have the following meanings:

(i) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(ii) “Excise Tax” shall mean the tax imposed by Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors.

(iii) “Gross-Up Payment” shall mean, with respect to Payments to Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors.

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(1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee’s residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax.

(3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments.

(iv) “Payment” shall mean, with respect to Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) Employee shall be a Payment if an Excise Tax is imposed on Employee with respect to such payment or benefit.

3. No Obligation of Employment. Employee understands that the employment relationship between Employee and Teradyne will be “at will” and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without “Cause” at any time, including in contemplation of a Change in Control. Following any Change in Control, Teradyne may also terminate Employee with or without “Cause” at any time subject to Employee’s rights and Teradyne’s obligations specified in this Agreement.

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4. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts.

5. Severability. In case any one or more of the provisions contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law.

6. Waivers and Modifications. This Agreement may be modified, and the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

7. Assignment. (a) Teradyne shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Teradyne expressly to assume and agree to perform under the terms of this Agreement in the same manner and to the same extent that Teradyne and its affiliates would be required to perform it if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event Teradyne (as constituted prior to such succession) shall have no further obligation under or with respect to this Agreement. Failure of Teradyne to obtain such assumption and agreement with respect to Employee prior to the effectiveness of any such succession shall be a breach of the terms of this Agreement with respect to Employee and shall entitle Employee to compensation from Teradyne (as constituted prior to such succession) in the same amount and on the same terms as Employee would be entitled to hereunder were Employee’s employment terminated for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of the Termination Event. As used in this Agreement, “Teradyne” shall mean Teradyne as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees (or is otherwise required) to perform this Agreement. Nothing in this Section 7(a) shall be deemed to cause any event or condition which would otherwise constitute a Change in Control not to constitute a Change in Control.

(b) Notwithstanding Section 7(a), Teradyne shall remain liable to Employee upon a Termination Event after a Change in Control if Employee is not offered continuing employment by a successor to Teradyne or is offered continuing employment by a successor to Teradyne only on a basis which would constitute Good Reason for termination of employment hereunder.

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(c) This Agreement, and Employee’s and Teradyne’s rights and obligations hereunder, may not be assigned by Employee or, except as provided in Section 7(a), Teradyne, respectively; any purported assignment by Employee or Teradyne in violation hereof shall be null and void.

(d) The terms of this Agreement shall inure to the benefit of and be enforceable by the personal or legal representatives, executors, administrators, permitted successors, heirs, distributees, devisees and legatees of Employee. If Employee shall die while an amount would still be payable to Employee hereunder if they had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee’s devisee, legatee or other designee or, if there is no such designee, Employee’s estate.

8. Entire Agreement. This Agreement constitutes the entire understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof including but not limited to the Executive Officer Change in Control Agreement entered into on [insert date] between Teradyne and Employee; provided, however, that Employee’s existing Cash Award and Equity Award agreements, as modified hereby, shall remain in effect. This Agreement shall not limit any right of Employee to receive any payments or benefits under an employee benefit or Employee compensation plan of Teradyne, initially adopted as of or after the date hereof, which are expressly contingent thereunder upon the occurrence of a Change in Control (including, but not limited to, the acceleration of any rights or benefits thereunder); provided that in no event shall Employee be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Employee under any severance or similar plan or policy of Teradyne, and in any such case Employee shall only be entitled to receive the greater of the two payments.

9. Notices. All notices hereunder shall be in writing and shall be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows:

If to Teradyne, to:	Teradyne, Inc.
	700 Riverpark Drive
	MS NR700-2-3 (Legal Department)
	North Reading, MA 01864
	Attention: General Counsel

If to Employee, at Employee’s address set forth on the signature page hereto.

10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

11. Section Headings. The descriptive section headings herein have been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof.

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12. Term. The term of this Agreement (the “Term”) shall commence upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that Employee for any reason ceases to be an employee of Teradyne (other than a Termination Event in contemplation of a Change in Control) and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason).

13. Expenses. All reasonable legal fees and expenses incurred in a legal proceeding by Employee in seeking to obtain or enforce any right or benefit provided by this Agreement against a successor to Teradyne shall be the responsibility of and paid for by the successor to Teradyne (but not Teradyne as constituted prior to such succession). Such payments are to be made within twenty (20) days after Employee’s request for payment accompanied with such evidence of fees and expenses incurred as Teradyne’s successor reasonably may require; provided that if Employee institutes a proceeding and the judge or other decision-maker presiding over the proceeding affirmatively finds that Employee has failed to prevail substantially, Employee shall pay Employee’s own costs and expenses (and, if applicable, return any amounts theretofore paid on Employee's behalf under this Section 13).

14. Payments. Any payments hereunder shall be made out of the general assets of Teradyne. The Employee shall have the status of general unsecured creditor of Teradyne, and this Agreement constitutes a mere promise by Teradyne to make payments under this Agreement in the future as and to the extent provided herein. Unless otherwise determined by Teradyne in an applicable plan or arrangement, no amounts payable hereunder upon a Termination Event shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of Teradyne for the benefit of its employees. Teradyne shall be entitled to withhold from any payments or deemed payments any amount of tax withholding required by law.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

TERADYNE, INC.

By:

Name:

Title:

EMPLOYEE

Name:

Address:

ATTACHMENT A

Release

In consideration of the payments and benefits described in the Executive Officer Change in Control Agreement dated [                 , 2007] between me and Teradyne, Inc. (the “Company”), all of which I acknowledge I would not otherwise be entitled to receive, I hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its successors and assigns and their respective officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and employees (each in their individual and corporate capacities) (hereinafter, the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature which I ever had or now have against the Released Parties arising out of my employment with and/or termination or separation from the Company or relating to my relationship as an officer or in any other capacity for the Company, including, but not limited to, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C., §12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., and the Massachusetts Fair Employment Practices Act., M.G.L. c.151B, §1 et seq., all as amended; all claims arising out of the Fair Credit Reporting Act, 15 U.S.C. §1681 et seq., the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1001 et seq., the Massachusetts Civil Rights Act, M.G.L. c.12 §§11H and 11I, the Massachusetts Equal Rights Act, M.G.L. c.93, §102 and M.G.L. c.214, §1C, the Massachusetts Labor and Industries Act, M.G.L. c.149, §1 et seq., the Massachusetts Privacy Act, M.G.L. c. 214, §1B, and the Massachusetts Maternity Leave Act, M.G.L. c. 149, §105(d), all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including but not limited to claims to stock or stock options; and any claim or damage arising out of my employment with, termination or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that notwithstanding the foregoing, the Company agrees and hereby acknowledges that this Release Agreement is not intended to and does not (i) apply to any claims Executive may bring to enforce the terms of the Executive Officer Change in Control Agreement, (ii) release the Company of any obligation it may have pursuant to a written agreement, the Company’s articles of organization or bylaws, or as mandated by statute to indemnify me as an officer of the Company; and (iii) release the Company of any obligation to provide and/or pay benefits to me or my estate, conservator or designated beneficiary(ies) under and in accordance with the terms of any applicable Company benefit plan and/or program; provided further, that nothing in this Release Agreement prevents me from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that I acknowledge that I may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).

Waiver of Rights and Claims Under the Age Discrimination in Employment Act of 1967: Since I am 40 years of age or older, I have been informed that I have or may have specific rights and/or claims under the Age Discrimination in Employment Act of 1967 (ADEA) and I agree that:

in consideration for the payments and benefits described in the Executive Officer Change in Control Agreement, which I am not otherwise entitled to receive, I specifically and voluntarily waive such rights and/or claims under the ADEA I might have against the Released Parties to the extent such rights and/or claims arose prior to the date this Release Agreement was executed;

I understand that rights or claims under the ADEA which may arise after the date this Release Agreement is executed are not waived by me;

I was advised that I have at least 21 days within which to consider the terms of this Release Agreement and to consult with or seek advice from an attorney of my choice or any other person of your choosing prior to executing this Release Agreement;

I have carefully read and fully understand all of the provisions of this Release Agreement, and I knowingly and voluntarily agree to all of the terms set forth in this Release Agreement; and

in entering into this Release Agreement I am not relying on any representation, promise or inducement made by the Company or its attorneys with the exception of those promises described in this document.

Period for Review and Consideration of Agreement:

I acknowledge that I was informed and understand that I have twenty-one (21) days to review this Release Agreement and consider its terms before signing it.

The 21-day review period will not be affected or extended by any revisions, whether material or immaterial, that might be made to this Agreement.

Accord and Satisfaction: The amounts set forth in the Executive Officer Change in Control Agreement shall be complete and unconditional payment, settlement, accord and/or satisfaction with respect to all obligations and liabilities of the Released Parties to me, including, without limitation, all claims for back wages, salary, vacation pay, draws, incentive pay, bonuses, cash awards, equity awards, commissions, severance pay, reimbursement of expenses, any and all other forms of compensation or benefits, attorney’s fees, or other costs or sums.

Revocation Period: I may revoke this Release Agreement at any time during the seven-day period immediately following my execution hereof. As a result, this Release Agreement shall not become effective or enforceable and the Company shall have no obligation to make any payments or provide any benefits described herein until the seven-day revocation period has expired.

Name:	Date
Witness	Date

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IF YOU DO NOT WISH TO USE THE 21-

DAY PERIOD,

PLEASE CAREFULLY REVIEW AND SIGN

THIS DOCUMENT

I,                                         , acknowledge that I was informed and understand that I have 21 days within which to consider the attached Release Agreement, have been advised of my right to consult with an attorney regarding such Agreement and have considered carefully every provision of the Agreement, and that after having engaged in those actions, I prefer to and have requested that I enter into the Agreement prior to the expiration of the 21 day period.

Dated:
	Name:
Dated:
	Witness

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EX-14.1

Exhibit 14.1

Exhibit 14.1 TERADYNE’S

MAKING

STANDARDS OF

THE RIGHT

BUSINESS

CHOICES

CONDUCT

Dear Members of the Teradyne Community:

This is our latest edition of “Making the Right Choices — Teradyne’s Standards of Business Conduct and Ethics.” It reflects our commitment to honest and ethical business practices and provides standards and guidelines of conduct for Teradyne employees, officers and directors, and for others doing business with the company, such as customers and suppliers. It applies to all Teradyne companies and all members of the Teradyne community on a worldwide basis. To be successful over the long term, a business must be built on a foundation of honesty and integrity. This principle has guided us throughout our history, and we remain committed to it.We want to do the right thing, both because it is right and because it makes good business sense. In a nutshell, this means that we all must act honestly and with integrity in all of our dealings. This means being respectful of others and accountable and responsible in our actions.

You should use these guidelines as a resource to help you make better decisions as you are faced with difficult issues. Of course, these guidelines cannot cover every situation, and when in doubt, you should seek advice from others in the company, and as always, continue to apply common sense. These standards are to promote behavior within the Teradyne community that reflects high standards of integrity and compliance with all applicable laws, rules and regulations.

Any person who feels that our conduct does not meet the guidelines set forth in this booklet should contact his or her manager, any other manager or corporate officer, or a member of the Human Resources or Legal Departments. You also may provide information on a confidential basis to the Legal Department at the following address:

Teradyne, Inc.	e-mail: ethics_office@teradyne.com
Legal Department, Confidential	Hotline: 1-800-224-8113
600 Riverpark Drive
North Reading, MA 01864

Remember, integrity and ethical behavior are hallmarks of Teradyne’s corporate culture and business conduct. They are vital to Teradyne’s continued success and growth. Ultimately, we must all assume personal responsibility for ensuring that the company’s practices and reputation for integrity and ethical behavior remains intact.

[GRAPHIC APPEARS HERE]

Mike Bradley

CEO and President

December 15, 2006

Table of Contents

Making the Right Choices for Teradyne
Conflict of Interest Situations	3
Outside Business Ventures	3
Financial Interests in Other Companies	3
Gratuities from Third Parties	3
Bribery	4
Handling Company Information	4
Using Company Property	4
Inventions and Patents	4
Civic and Political Contributions	5
Import and Export	5
Compliance with Laws, Rules and Regulations and Teradyne Policies and Procedures	5
Conclusion	5
Making the Right Choices in the Workplace
Environmental, Health, and Safety	6
Equal Employment Opportunity	6
Direct Supervision of Relatives or Friends	6
Inappropriate Conduct	6
Use of Electronic Communications Resources	7
Making the Right Choices with Customers
Relations with Our Customers	8
Confidential or Proprietary Information	8
Government Procurement	8
Sales Commission Agreements	8
Making the Right Choices with Competitors
Conduct Involving Competitors	9
Antitrust Laws	9
Trade Associations	9
Confidential Material	9
Being Truthful in Selling Products
Making the Right Choices with Suppliers	9
Conduct Involving Suppliers	10
Discount	10
Using Copyrighted or Licensed Material	10
Making the Right Choices with Shareholders
Inside Information	11
Another Company’s Inside Information	11
Short Sales	11
Non-Trading Period	11
Trading by Family Members	11
Who to Contact If You Have Questions About Stock Trades	11
Enforcement	11
Making the Right Choices in Reporting
Business Transactions Accuracy of Books and Records and Public Reports and Document Retention	12
Concerns Regarding Accounting, Accounting Controls or Auditing Matters	12
Dealings with Independent Auditors	12
Waivers, Reporting and Compliance Procedures and Dissemination and Amendment
Waivers of These Standards of Business Conduct	13
Reporting and Compliance Procedures	13
Dissemination and Amendment	13

M A K I N G

T H E

R I G H T

C H O I C E S

For Teradyne

This section provides an overview of an employee’s, officer’s and director’s obligations to Teradyne. If you are an employee, the company expects Teradyne to be the primary focus of your business and professional endeavors. The company expects you to use discretion and good judgment in responding to the variety of situations that may arise in the course of your employment or affiliation with Teradyne and that in all instances you will comply with applicable laws, rules and regulations.

Conflict of Interest Situations

You must avoid situations where your loyalties may be divided between Teradyne’s interests and your own. You must also consider how the situation appears to others —inside and outside of Teradyne. A conflict of interest occurs when your personal interest is at odds with the interests of Teradyne. A conflict of interest can arise whenever you take action or have an interest that prevents you from performing your Teradyne duties and responsibilities honestly, objectively and effectively. Whenever you recognize a potential conflict, it is important to discuss the situation with your manager or Teradyne’s Legal Department prior to taking any action. Officers must disclose any actual or apparent conflict to Teradyne’s General Counsel and directors must disclose any actual or apparent conflict to Teradyne’s Audit Committee. The following sections discuss some situations where a conflict of interest may arise.

Outside Business Ventures

At Teradyne you may not work for or receive payment for services from any competitor, supplier, customer or distributor of Teradyne unless it is approved in advance by your manager. Any outside activity must be strictly separated from Teradyne employment and should not impact your job performance at Teradyne.

Financial Interests in Other Companies

Teradyne employees must not have, or permit any close relative to have, a financial interest in a customer, supplier, competitor, distributor or other organization that would create a conflict of interest or compromise your loyalty to Teradyne.

Whether an investment in these other companies creates the appearance of divided loyalties depends on several factors, such as (1) the size of the investment relative to your total assets; (2) the position you hold with Teradyne and your ability to influence Teradyne decisions that affect your personal interests; and (3) any work you do at or for Teradyne that intersects with that investment. The best practice is to consider these factors, use good judgment and ask your manager or Teradyne’s Legal Department if you have questions. Conflict-of-interest standards also apply to you with respect to your family and close personal friends. If any of them is employed by or has a significant financial interest in a customer, supplier, competitor or distributor, you must be alert to the potential conflict for you and Teradyne, and you should inform your manager or Teradyne’s Legal Department.

Gratuities from Third Parties

You and your immediate family must not solicit or accept gifts when you believe that the gifts have been offered because of your Teradyne position or in the expectation that the gift will influence your decisions or actions or obligate you to do business with the giver. You should accept only those gifts that are nominal in value and that are more in the nature of advertising (calendars or coffee cups, for example). Occasional business meals and other meetings can serve a useful business purpose and can advance Teradyne’s interests, though Teradyne should pay the bill as often as the other party does. Entertainment that is lavish or frequent could appear to influence one’s business judgment on Teradyne’s behalf. For example, occasionally accepting offers to attend sporting events or concerts could be acceptable. Accepting tickets to a World Series game would not be acceptable. Company employees who receive a gift or entertainment worth more than $100 should report the matter to their manager. You must exercise good business judgment and make sure you do nothing that would (a) compromise your objectivity or (b) embarrass Teradyne, your colleagues or yourself.

Unless prohibited by the customer’s own policies, you may pay for a customer’s meal and entertainment or invite a customer to a sporting event or outing, provided the expenses of doing so are reasonable. It is permissible to give a customer a gift of nominal value on special occasions, as long as the gift does not seek, and does not create the appearance of seeking, special favors. The giving of any gift to a customer must also comply with the customer’s code of conduct.

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M A K I N G

T H E

R I G H T

C H O I C E S

For Teradyne

In rare circumstances, local custom may call for an exchange of gifts having more than nominal value. Giving or receiving such gifts should be done only on behalf of Teradyne and with prior approval from an officer of the company. If you receive a gift under these circumstances, discuss the matter immediately with your manager.

Bribery

Offering or accepting a bribe is against Teradyne’s policies and is illegal. Any payment or gift that is given or promised, directly or indirectly, to a foreign governmental official designed to influence that person’s acts or decisions is improper and could subject you and Teradyne to substantial criminal liability for violation of the US Foreign Corrupt Practices Act and similar foreign laws. Additionally, it is improper and illegal for you or Teradyne, to directly or indirectly provide or pay for any meal, travel, entertainment or lodging of any US or foreign governmental personnel with the intent of influencing government personnel. Giving anything of value to government personnel could subject both you and Teradyne to civil and criminal penalties.

You should not solicit or accept any cash gift. If a customer or supplier gives you cash, return the cash and promptly inform your manager or Teradyne’s Legal Department.

If you become aware of or suspect any questionable business practices, you should immediately contact your manager, Teradyne’s Internal Audit Group or Legal Department.

Handling Company Information

Information is one of Teradyne’s most valuable assets. Given our open environment, and the increasing use of electronic communications, we are each regularly in possession of valuable company information as we perform our normal day-to-day jobs. We all have a responsibility to safeguard company information and prevent it from being inappropriately disclosed or used.

You must not disclose any confidential information regarding Teradyne’s business, technology, know-how, financial performance or prospects, customers, suppliers, employees, or activities to any person unless that person’s responsibilities at Teradyne create a need to know it. This obligation extends to intellectual property and trade secrets, including confidential or private technical, financial, and business information generated by us or received from others in the Teradyne community. It also includes confidential information entrusted to us by customers, suppliers and other third parties. We have the same duty to safeguard their confidential information that we have concerning Teradyne’s confidential information.

You should take steps to avoid inadvertent disclosure of company confidential or proprietary information. Generally, you should not discuss confidential company matters with outsiders, including family and friends, and you should not discuss such information in public places, such as elevators, restaurants and airplanes. Also, as a precautionary practice in order to avoid inadvertent disclosure of information that can be damaging to the company, you should avoid discussing or posting any information pertaining to Teradyne or its customers, suppliers or distributors on electronic or Internet based message boards or chat rooms. Additionally, employees and visitors to company offices are prohibited from using photographic devices, including digital phone cameras at company sites without express permission from company management. Also, it is important to remember not to answer any requests for any information, proprietary or otherwise, from outside Teradyne, to participate in interviews or to make any commitments on behalf of the company unless you are specifically authorized to do so.

You also must observe government rules and regulations relating to the safeguarding of classified information obtained through work between Teradyne and the government.

Using Company Property

All Teradyne related documents in tangible or electronic form in your possession or control, no matter where they are located, are company property. You are not allowed to use such documents for your own benefit or provide them to others for use unrelated to company business, during and after your employment or affiliation with the company. Any taking, downloading or other prohibited use or disclosure of Teradyne documents constitutes theft of Teradyne property and also may be a misappropriation of Teradyne’s trade secrets. (See also, “Use of Electronic Communication Resources” discussed below).

Inventions and Patents

Intellectual property, such as inventions and ideas, represent valuable assets of the company and should be treated as confidential. It is important to identify and protect these assets to ensure a competitive advantage exists for Teradyne products and services. You should report inventions, innovations and patentable ideas relating to any Teradyne business immediately to your manager and the company’s Legal Department. Invention disclosure forms are available from the Legal Department or at http://eit.corp.Teradyne.com/gaa/treasury/ legal/legal.html. Teradyne respects the intellectual property rights of others and expects others to respect our intellectual property rights at all times. If you suspect an infringement, misuse or misappropriation of a Teradyne or third party intellectual property right, you should immediately contact the Legal Department.

Civic and Political Contributions

Teradyne sometimes makes contributions to civic and charitable organizations. Suggestions for such contributions may be sent to your division manager or to the Vice President of Corporate Relations.

Teradyne funds or assets may not be used for political contributions. No one at the company is authorized to solicit or require any political contribution. Personal political contributions are not reimbursed by Teradyne.

Import and Export

Teradyne is an international manufacturer with a global supply and customer base. Imports and exports are made to destinations inside and outside the United States. Failure to comply with U.S. or foreign governmental import and export laws and regulations could seriously impact Teradyne’s ability to serve its customers, disrupt its supply chain and result in financial and criminal penalties. If you are involved with the import or export of materials, you must be familiar with the relevant laws and regulations and comply with them. Import and export laws can be complex, so when in doubt, seek expertise within your group, or contact Teradyne’s Corporate Compliance Group at importexport@teradyne.com.

Compliance with Laws, Rules and Regulations and Teradyne Policies and Procedures

All members of the Teradyne community, including employees, officers, directors and others doing business with Teradyne, such as customers and vendors, are expected to comply with all applicable laws, rules and regulations and to use good judgment and common sense in doing so. You should ask for advice prior to taking any action if you are uncertain about what to do.

You are also expected to act in accordance with Teradyne policies and procedures, such as these Standards of Business Conduct.

If you become aware of a violation of any law, rule or regulation by Teradyne or a member of the Teradyne community in their business conduct, you should promptly report the matter to your manager or to Teradyne’s Legal Department. The Company will not discharge, demote, suspend, threaten, harass, discriminate or retaliate against anyone, who in good faith, reports a suspected violation.

Conclusion

While this section describes several company policies, specific positions at Teradyne and particular situations may be subject to additional requirements. The company has the responsibility for educating employees, officers and directors and providing guidance in those cases. It is your responsibility to learn those requirements and follow them.

M A K I N G

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R I G H T

C H O I C E S

In the Workplace

Teradyne expects employees to conduct themselves as mature, responsible, and respectful individuals in all their dealings with co-workers. Maintaining a safe and productive workplace is a shared responsibility for all employees.

Environmental, Health, and Safety

Teradyne is committed to promoting, creating, and maintaining a safe and healthy workplace and to improving the environmental quality of our operations and surrounding communities. This effort begins with providing a safe physical plant and a working environment that promotes hazard-free working conditions. It also includes a commitment to minimize the environmental impact of our operations, products and services where possible.

We are committed to taking appropriate precautions to prevent injury and illness in the workplace and to providing safeguards, training and information on potential risks, including those involved in handling hazardous chemicals. Certain manufacturing functions at Teradyne are also subject to stringent government requirements for operations and record keeping. Employees who violate those requirements may face direct governmental sanctions. Teradyne’s Environmental Safety and Compliance Group provides support and assistance in this area to help prevent injuries and ensure a safe workplace environment.

Teradyne products are designed and manufactured to be safe through the use of appropriate safeguards, warning labels, and documentation as required by Teradyne Product Safety Guidelines. Our Product Safety Group is a resource for safety issues concerning our products.

We all share the responsibility for maintaining a safe workplace. For many employees this involves making decisions involving environmental, health and safety issues every day. These decisions should be made with full knowledge of and compliance with all environmental, health and safety laws and regulations. You should report any unsafe conditions and any environmental, health or safety issues or concerns to your manager or your local safety committee.

Equal Employment Opportunity

Teradyne will not discriminate in the employment of any person due to race, religion, color, sex, national origin, age, disability, veteran status, military service or application for military service, sexual orientation or any other category protected under applicable federal, state or foreign law. This applies to all personnel actions including hiring, promotions, terminations, transfers, compensation, and benefits. Equal opportunities are provided for all employees, and all employees are encouraged to advance within the company. For more detailed information regarding Teradyne’s commitment to equal employment opportunity and the prohibition on harassment and discrimination in the workplace, please contact your Human Resource Representative.

Direct Supervision of Relatives or Friends

Supervisors make decisions regarding opportunities for advancement, working conditions, or other matters affecting the employees who report to them. For that reason, Teradyne prohibits employees from directly supervising a relative or someone with whom they have a close personal relationship.

Inappropriate Conduct

All members of the Teradyne community are expected to treat each other with dignity and respect. We recognize that disagreements arise in daily dealings with others. Most of those disagreements can be and are handled appropriately and without incident. However, there are certain acts of misconduct that the company simply will not tolerate, such as: any type of harassment, discrimination, physical violence, unlawful actions, retaliation against co-workers, theft, gambling, and working under the influence of alcoholic beverages or illegal drugs. Such conduct may result in disciplinary action including immediate termination.

Use of Electronic

Communications Resources

Teradyne provides employees tools and equipment to be used as resources in doing their jobs. Equipment such as telephones, networked computers, and Internet access lines are capable of being used for personal phone calls, e-mails, etc. Reasonable personal use is permitted on a limited basis, but the equipment and access lines remain the property of Teradyne and should be used primarily for Teradyne business. Information residing in the equipment or on the network is also the property of Teradyne and accordingly, Teradyne retains the right to access, monitor, search, review or block any files, emails, Internet usage, information and messages on these resources at any time, for any business purpose and without prior notice.

You should have no expectation of privacy in any information stored on or sent via Teradyne’s computer networks. You must not assume the information that you send over computer networks is private or confidential. Also, Teradyne equipment is subject to standard maintenance and audits, such as automatic monitoring of Internet usage, as well as reasonable cause searches without notice.

Teradyne does not allow improper or inappropriate use of Teradyne information resources. Use is inappropriate, for example, when it detracts from your job performance or ties up excessive bandwidth or data storage. Use is improper when it contains or constitutes harassing, abusive, graphic, obscene or illegal materials or behavior, such as accessing pornography, circulating hate mail, attempting to gain unauthorized access to a Teradyne system, network or database or downloading copyrighted music, movies or other works without permission of the copyright owner.

Those who violate any of these policies are subject to discipline including termination.

M A K I N G

T H E

R I G H T

C H O I C E S

With Customers

Teradyne’s reputation as an ethical company is one of our most important assets. The manner, methods and style with which we do business with our customers determines our ability to retain that image. Consequently, all commercial dealings must be above board and conducted with the highest ethical standards. This section provides a general overview of the standards and rules that Teradyne employees should follow when dealing with customers.

Relations with Our Customers

It is Teradyne’s policy to treat our customers in an open and honest manner. In our relationship with customers, there are certain business practices that are prohibited:

1. As a general matter, you may not restrict the dealings of our customers by, for instance, requiring them to purchase equipment only from us or restricting them for purchasing the equipment of any given competitor.

2. Some of our customers are also suppliers or potential suppliers. The two relationships are distinct and should be treated independently. You may not hold the purchase of our products as a precondition of business for our suppliers.

3. Similarly, you may not engage in “tie-in” agreements. A tie-in agreement is an arrangement in which a customer is required to buy unwanted products or services in order to obtain a unique, distinct or highly desirable product or service which the customer wants. You may offer our customers package pricing for groups or products and services that are purchased together, (unless one of the products cannot be bought separately and is highly desirable or unique), promotional pricing and other customary discounts and promotion offers in the ordinary course of business.

4. Improper methods of competition or deceptive practices are prohibited by U.S. and foreign laws. Examples of such practices are:

• Marketing used equipment as new.

• Making false or deceptive comparisons with other products.

• Misrepresenting Teradyne’s trademark or patent rights.

This list does not include all the practices that would be deemed improper, but it should give you a general sense of the concerns in this area. At Teradyne, we adhere to all laws, rules and regulations on trade practices.

Confidential or Proprietary Information

In the normal course of business, we often share proprietary or confidential information with customers or receive confidential information from customers. This kind of information should be offered, accepted, or exchanged only after a written nondisclosure agreement covering the information to be disclosed has been signed by both parties. We recognize and honor our obligations to protect the confidential and proprietary information we receive. If a questionable situation arises with respect to confidential or proprietary information, you should immediately bring it to the attention of your supervisor and, if necessary, senior management and Teradyne’s Legal Department.

Government Procurement

Teradyne’s standards for business integrity are no different when the customer is the government, but the interpretation of those standards may be subject to special rules. If you are involved in government procurement and have questions regarding standards of conduct as they apply to a transaction with a government office or agency, please contact Teradyne’s Legal Department prior to taking any action.

Sales Commission Agreements

Teradyne establishes commission and fee arrangements only in writing and only with firms serving as bona fide commercial sales representatives, agents or consultants. Any commission or fees paid must be reasonable, consistent with the applicable written agreement, policy or plan and consistent with normal practices for our industry. Teradyne never makes payments in cash.

M A K I N G

T H E

R I G H T

C H O I C E S

With Competitors

It’s just as important to act in an ethical and honest manner with our competitors as with our customers, suppliers and any other group. The choices an employee makes in these situations should be consistent with the guidelines described in this section.

Conduct Involving Competitors

You should be cautious when taking actions that in any way involve direct interaction with Teradyne’s competitors. As a general rule in evaluating potentially unethical conduct, you should ask yourself these questions: “If a competitor acted in a similar way against us, would we consider it improper? If we did something in cooperation with a competitor, would our customer consider it improper?” The guidelines below cover some typical problems; however, in any specific instance you should consult Teradyne’s Legal Department.

Antitrust Laws

You should not engage in discussions or share information with competitors regarding pricing. As a general rule, you need to be careful not to share business, or technical information that is confidential or proprietary to Teradyne with others outside Teradyne and especially with competitors.

Any agreement with one or more competitors regarding prices, terms of sale (e.g., credit, discounts, trade-ins), production volume, or market allocation (an agreement to divide up customers, types of products, geographic areas, or technology) is illegal. Boycotts, where two or more competitors agree not to deal with a particular customer or supplier, are also illegal. Informal understandings are as serious as formal documents. Exchanges of information between competitors must be treated carefully, since they could be interpreted as “signals” for anticompetitive conduct.

A distributor who purchases products from Teradyne and resells them for its own account is a customer and potentially a competitor. For that reason, there are special rules governing this type of relationship. For example, it is illegal in most countries to dictate the distributor’s price for reselling the product. Any arrangement with a distributor must be documented in writing and reviewed in advance by division management and Teradyne’s Legal Department.

Trade Associations

Trade associations and professional groups are legitimate and useful business forums. However, they pose a risk if topics discussed or agreements reached may be deemed anticompetitive. If you believe that topics or agreements discussed are or could be interpreted as anti-competitive, you should refuse to join in any conversation on the topic, leave the meeting if the discussion does not stop immediately and notify Teradyne management. If you have any questions or concerns regarding these issues, you should contact Teradyne’s Legal Department.

Confidential Material

Learning all available public information about competitors is an essential part of the selling process. But the process has limits. You should not accept or transmit any information about competitors where the circumstances lead you to believe it was obtained improperly or illegally. You may not obtain information through improper means, such as industrial espionage or paying a competitor’s employee to disclose confidential information.

If you have knowledge of trade secrets from prior employment with a competitor, that knowledge should not be used or disclosed at or within Teradyne. This obligation does not apply to your general skills and work experience.

Being Truthful in Selling Products

We sell our products on their merits and on the quality we provide as a supplier. Any statement about our products must be substantiated. Any statement about competitive products, quality, services, or the like must be complete and must be based on published or confirmed factual information.

M A K I N G

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C H O I C E S

With Suppliers

Teradyne bases its purchasing decisions on objective criteria such as price, quality, the financial stability and reputation of the supplier, technical requirements, service, and the overall business relationship with the supplier. As an important part of the Teradyne community, suppliers are critical to our success and deserve to be treated in a respectful and cooperative manner.

Conduct Involving Suppliers

We legally negotiate the best terms and conditions with our suppliers. You should not ask suppliers to restrict the sale of their products to anyone, except when a supplier’s product is based on a Teradyne-owned design or a joint relationship. We do not require a supplier to buy from Teradyne in order to obtain our business. Conversely, we do not buy from suppliers simply because they purchase our products.

Close relationships with suppliers will often require Teradyne to share confidential information. Teradyne’s standard purchase orders and purchase agreements require suppliers to respect Teradyne’s confidential and proprietary information. You should not accept confidential or proprietary information from a supplier unless a written agreement governing use and disclosure has been signed. Contact the Teradyne Legal Department for procedures to create or review confidentiality agreements.

It is our responsibility to inform suppliers of all relevant sections of these Standards of Business Conduct including our policy against accepting gratuities described under the section “Gratuities from Third Parties” so that unintentional violations can be prevented. Please make sure you communicate the relevant policies to suppliers if you interact with them in the course of your employment.

Discounts

You should never misuse Teradyne’s buying power for personal gain. All discounts for products and services that might be offered by a supplier must be openly and readily available to all employees. You should not, for instance, get a discount on building materials for your home because you have used a certain Teradyne supplier.

Using Copyrighted or Licensed Material

It is our policy to comply with copyright laws and licensing agreements for all material obtained from third parties, such as software, open source code, user and maintenance manuals, documentation and design schematics. Downloading copyrighted material from a Teradyne network or an outside network is not allowed unless we have the appropriate license.

M A K I N G

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R I G H T

C H O I C E S

With Shareholders

Shareholders are an integral part of the Teradyne community. Shareholders are like customers, but their investment is in Teradyne itself. Employees, officers and directors must not use their position and access to information unfairly against the interests of the investment community.

Inside Information

Shareholders share in Teradyne’s success, similar to others in the Teradyne community. They are entitled to accurate, timely financial and other information about the company and to know that trading in Teradyne’s stock is conducted with integrity and fairness.

If you have information about Teradyne that is both material and non-public, also called “material inside information,” it is illegal for you to trade in Teradyne stock, engage in any action to take advantage of such information, disclose such information to others, or recommend to others that they buy or sell Teradyne stock.

Information is “material” if it would influence a reasonable person to buy or sell stock or to refrain from buying or selling stock. Examples include: undisclosed booking or earnings information; trends in orders, sales or profitability; impending announcements of major new products; acquisitions or equity investments; and important project, product, or litigation developments.

Information is “non-public” if it has not been the subject of a Teradyne press release or a filing with the U.S. Securities and Exchange Commission (“SEC”) or is not generally known outside Teradyne.

If you possess material inside information about Teradyne, you must wait to trade Teradyne stock until a reasonable time, usually 24 hours, after public disclosure of that information. Trading in Teradyne stock includes buying or selling any type of Teradyne security in the open market. These include exchange-traded options and other derivative securities, as well as common stock.

Certain material inside information that is related to Teradyne’s business may not affect the stock price, but may affect the stock price of another company or the value of other investments. This type of inside information would include a planned investment in another company by Teradyne or the award of a significant contract by Teradyne to a supplier. It would also include information regarding orders, contracts or products of another company. You may not use this material inside information to gain a personal financial benefit.

Teradyne’s Vice President of Investor Relations is the proper contact for shareholders, financial analysts, and others seeking information about the company’s finances and business. All requests from these groups should be directed to the Vice President of Investor Relations. You may obtain a copy of the full text of Teradyne’s insider trading policy by contacting Teradyne’s Legal Department.

Another Company’s Inside Information

If you learn material inside information about another company while performing your Teradyne duties, you also may be considered an insider of that company and are subject to the same trading restrictions in that company’s stock.

Short Sales

Officers and directors are prohibited, by U.S. securities law, from making short sales of Teradyne securities.

All employees should be aware that short sales and derivative transactions, such as buying or selling put and call options, carry the potential of placing their personal financial interests in conflict with the interests of Teradyne and its shareholders. Employees should therefore carefully evaluate the risks before entering into such a transaction.

Non-Trading Period

Directors, officers, and certain other employees of the company who have regular access to sensitive financial information are prohibited from buying or selling the company’s securities during the company’s official non-trading period, also called “blackout period,” as published by the Legal Department.

Trading by Family Members

The restrictions on trading described above apply not only to you, but also to your spouse, minor children, other persons living in your home or who are your dependents, and any other person or entity who holds stock over which you do or may have some control. Insiders responsible for compliance by such persons should review the company policy and the prohibitions on insider trading with them.

Who to Contact If You Have Questions About Stock Trades

If you are uncertain about the constraints on your purchase or sale of any Teradyne securities or the securities of any other company that you are familiar with by virtue of your relationship with Teradyne, you should consult with Teradyne’s General Counsel before making any such purchase or sale.

Enforcement

If you violate insider trading laws, you and Teradyne may be subject to serious and substantial civil and criminal penalties. Those found guilty of insider trading under the U.S. Insider Trading Sanctions Act of 1984 can be fined up to three times the profit gained or loss avoided by use of material inside information.

These laws apply to all members of the Teradyne community throughout the world. The U.S. SEC enforces insider trading laws and is aggressive in monitoring and prosecuting insider trading violations even where high-profile employees or significant profits are not involved. Violations of insider trading laws and this policy by an employee may also result in disciplinary action, including termination of employment.

M A K I N G

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R I G H T

C H O I C E S

In Reporting Business Transactions

Teradyne employees are obligated to report honestly and accurately all business transactions and must report concerns regarding questionable accounting, auditing and internal control matters.

Accuracy of Books and Records and Public Reports and Document Retention

Employees must honestly and accurately report all business transactions. You are responsible for the accuracy of your business records, reports and accounts and you should retain records in accordance with Teradyne’s legal obligations.

All Teradyne books, records and accounts must be kept and maintained in accordance with all applicable laws, regulations and standards and must accurately reflect the true nature of the transactions they record. In addition, Teradyne’s financial statements must conform to U.S. generally accepted accounting principles (U.S. GAAP) and Teradyne’s accounting policies. No undisclosed or unrecorded account or fund may be established for any purpose. No false or misleading entries may be made in Teradyne’s books or records for any reason, and no disbursement of corporate funds or other corporate property may be made without adequate supporting documentation. For example, all employees must keep and maintain truthful, accurate and complete expense reports. All sales employees must keep and maintain truthful, accurate and complete paperwork relating to sales transactions.

As a public company, Teradyne must file reports and documents with the U.S. SEC and make other public communications. These filings and communications must provide accurate, complete and timely information, including our financial results and financial condition. As an employee or officer of the company, you must fully meet your responsibilities to ensure that Teradyne’s financial reports and records comply with all applicable laws, generally accepted accounting principles and Teradyne policies. If you are a member of Teradyne’s Finance and Accounting Department or are otherwise involved with Teradyne’s financial reporting, these responsibilities are especially important.

Concerns Regarding Accounting, Accounting Controls or Auditing Matters

Concerns regarding accounting, accounting controls or auditing matters may be reported to the Audit Committee of Teradyne’s Board of Directors on a confidential basis in any one of the following ways: (i) by mail to Audit Committee, c/o Teradyne, Inc., 600 Riverpark Drive, North Reading, MA 01864; (ii) by telephone hotline at 1-800-224-8113; or (iii) by e-mail to AuditCommittee@teradyne.com.

Reports submitted by regular mail to the Audit Committee or by telephone to the above hotline number may be made on an anonymous basis. You may also submit your concerns to Teradyne’s Chief Executive Officer, Chief Financial Officer, Vice President of Human Resources or General Counsel or any individual member of the Audit Committee of Teradyne’s Board of Directors. Even if you submit concerns other than anonymously, the company will use its best efforts to protect your privacy and confidentiality. You will not be penalized or retaliated against for reporting a concern (unless you knowingly and willfully make a false report).

Dealings with Independent Auditors

Employees, officers and directors must not, directly, indirectly, or by omission, make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or examination of Teradyne’s financial statements or the preparation or filing of any document or report with any U.S. regulatory agency such as the SEC. No employee shall, directly or indirectly, take any action to coerce, manipulate, mislead or fraudulently influence any independent public or certified public accountant engaged in the performance of an audit or review of Teradyne’s financial statements.

Waivers, Reporting and Compliance Procedures and Dissemination and Amendment

This section describes the procedures for seeking a waiver from these Standards of Business Conduct, your duty to report violations and to whom you should make that report, the process for ensuring that employees are familiar with these standards and where the standards themselves can be accessed electronically.

Waivers of These Standards of Business Conduct

The policies contained in these Standards of Business Conduct must be followed unless a special exception is granted. Special exceptions will be granted only if a compelling reason exists. If you are an employee and you believe that an exception to any of these policies is appropriate, you should first contact your manager. If your manager agrees that an exception is appropriate, the approval of Teradyne’s General Counsel must be sought.

Only the Board of Directors may waive any provision of these Standards of Business Conduct with respect to company officers and directors. A request for any such waiver should be submitted in writing to the Board of Directors, or a committee of the Board of Directors designated for this purpose. The Board of Directors will promptly disclose to investors, by means of a posting on Teradyne’s website, any waiver granted to an officer or a director, including the justification for the waiver.

Teradyne’s General Counsel will maintain a record of all requests for exceptions to any of these policies and the disposition of such requests.

Reporting and Compliance Procedures

Every employee, officer and director should ask questions, seek guidance, report suspected violations and express concerns regarding compliance with these Standards of Business Conduct. If you know or believe that another employee or representative of Teradyne has engaged or is engaging in Teradyne-related conduct that violates applicable law or these Standards of Business Conduct, you should report the situation to your manager or to Teradyne’s General Counsel, as described below. You may report such conduct openly or anonymously without fear of retaliation.

Teradyne will not discriminate or retaliate against any person who reports suspected violations (unless it is determined that the report was made with knowledge that it was false) or who cooperates in any investigation or inquiry regarding possible violations. Any supervisor who receives a report of a violation of the policies described in these Standards of Business Conduct must immediately inform Teradyne’s General Counsel.

You may report violations on a confidential or anonymous basis, by contacting Teradyne’s Ethics Office at: 600 Riverpark Drive, North Reading, Massachusetts, 01864, Attention: Ethics Office. In addition, Teradyne has established a toll-free telephone number (1-800-224-8113) where you can leave a recorded message about any violation or suspected violation of these Standards of Business Conduct. While Teradyne prefers that you identify yourself when reporting violations to enable us to follow up with you (if necessary), you may leave messages anonymously if you wish.

Failure to comply with these standards may result in disciplinary action including, but not limited to, reprimands, warnings, discharge and restitution. Certain violations of these Standards of Business Conduct may require Teradyne to refer the matter to appropriate governmental or regulatory authorities for investigation or prosecution. Moreover, any supervisor who directs or approves any violation of these standards, or who has knowledge of a violation and does not immediately report it, also will be subject to disciplinary action, including possible discharge.

Dissemination and Amendment

These Standards of Business Conduct will be distributed to each new Teradyne employee, officer and director upon commencement of his or her relationship with Teradyne. Current employees holding managerial, financial or other sensitive positions with Teradyne and directors will be required to certify on an annual basis, that they: (1) are familiar with such standards and have not violated any provision thereof; (2) are not aware of any violation of the standards by anyone else; (3) will comply with such standards; and (4) will report to Teradyne’s General Counsel any actual or suspected violation of these Standards of Business Conduct of which they become aware. Teradyne reserves the right to amend, alter or terminate these standards at any time for any reason without prior notice. The most current version of these Standards of Business Conduct can be found on Teradyne’s Legal Department Intranet Website under “Ethics – Teradyne Business Conduct Standards” or at https://directlink.corp.teradyne.com/ MyCompany/standards. asp. These Standards of Business Conduct may also be obtained on Teradyne’s external website (www.teradyne.com) by clicking on the “Investor” link and then clicking on the “Corporate Governance” link and finally clicking on the “Code of Conduct” link.

TERADYNE

DTeradyne, Inc.
600 Riverpark Drive
North Reading, MA 01864
978-370-2700
www.teradyne.com	December 2006

EX-21.1

Exhibit 21.1

Present Subsidiaries

Entity Name:	State or Jurisdiction Of Incorporation	Percentage of Voting Securities Owned
Teradyne Benelux, Inc.	Delaware	100	%
Teradyne Canada Limited	Canada	100	%
Teradyne (Shanghai) Co., Ltd	Peoples Republic of China	100	%
Teradyne de Costa Rica S.A.	Costa Rica	100	%
Teradyne Diagnostic Solutions Holdings Ltd.	United Kingdom	100	%
Teradyne Diagnostic Solutions Ltd.	United Kingdom	100	%
Teradyne Diagnostic Solutions Inc.	Delaware	100	%*
Teradyne Diagnostic Solutions GmbH	Germany	100	%*
Teradyne GmbH	Germany	100	%
Teradyne Holdings Limited	United Kingdom	100	%
Teradyne Limited	United Kingdom	100	%*
Teradyne Assembly Holdings Ltd.	United Kingdom	100	%*
Teradyne Assembly Limited	United Kingdom	100	%*
Aegis Properties Limited	United Kingdom	100	%*
Teradyne Hong Kong Ltd.	Delaware	100	%
Teradyne Italia SrL	Italy	100	%
Teradyne Japan Ltd.	Delaware	100	%
Teradyne K.K.	Japan	100	%*
Teradyne Asia Pte., Ltd.	Singapore	100	%
Teradyne Korea Ltd.	Delaware	100	%
Teradyne Malaysia, Ltd	Delaware	100	%
Teradyne de Mexico S.A. de C.V.	Mexico	100	%
Teradyne Netherlands Ltd.	Delaware	100	%
Teradyne Philippines Limited	Delaware	100	%
Teradyne STD Korea Ltd.	Korea	100	%
Teradyne SAS	France	100	%
Teradyne Taiwan Ltd.	Delaware	100	%
Teradyne Thailand Ltd.	Delaware	100	%
GenRad, Inc.	Massachusetts	100	%
GenRad A.B.	Sweden	100	%*
GenRad Holdings Limited	United Kingdom	100	%*
GenRad Europe Limited	United Kingdom	100	%*
Mitron Europe Limited	United Kingdom	100	%*
Herco Technology Corp.	California	100	%
P.L.S.T., Inc. (f/k/a Perception Laminates, Inc.)	California	100	%
Teradyne (Sweden) AB	Sweden	100	%

* Indirect subsidiaries whose voting securities are 100% controlled by Teradyne, Inc.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-75632 and 333-47564) and Form S-8 (Nos. 333-134519; 333-116632; 333-101983; 333-73700; 333-68074; 333-56373; 333-32547; 333-26045; 333-07177; 033-64683; 033-55123; and 33-42352) of Teradyne, Inc. of our report dated March 1, 2007 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 1, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Michael A. Bradley, certify that:

1. I have reviewed this annual report on Form 10-K of Teradyne, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2007

By:	/S/    MICHAEL A. BRADLEY
	Michael A. Bradley
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

I, Gregory R. Beecher, certify that:

1. I have reviewed this annual report on Form 10-K of Teradyne, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2007

By:	/s/    GREGORY R. BEECHER
	Gregory R. Beecher
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Teradyne, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael A. Bradley, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    MICHAEL A. BRADLEY        

Michael A. Bradley

Chief Executive Officer

March 1, 2007

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Teradyne, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory R. Beecher, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    GREGORY R. BEECHER        

Gregory R. Beecher

Chief Financial Officer

March 1, 2007