M. NET INCOME PER COMMON SHARE

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


	2012		2011		2010
	(in thousands, except per share amounts)
Income from continuing operations	$	217,049	$	343,957	$	379,692
Income from discontinued operations		—		1,545		5,128
Gain on disposal of discontinued operations		—		24,371		—

Net income or basic net income per share		217,049		369,873		384,820
Income impact of assumed conversion of convertible notes (1)		—		—		13,203

Net income for diluted net income per share	$	217,049	$	369,873	$	398,023

Weighted average common shares-basic		186,878		184,683		179,924
Effect of dilutive potential common shares:
Incremental shares from assumed conversion of convertible notes (2)		22,367		21,504		30,848
Convertible note hedge warrant shares (3)		17,433		16,224		10,492
Restricted stock units		2,291		3,773		5,001
Stock options		1,213		566		443
Employee stock purchase rights		64		70		99

Dilutive potential common shares		43,368		42,137		46,883

Weighted average commons shares-diluted		230,246		226,820		226,807

Net income per common shares-basic:
Continuing operations	$	1.16	$	1.86	$	2.11
Discontinued operations		—		0.14		0.03

	$	1.16	$	2.00	$	2.14

Net income per common shares-diluted:
Continuing operations	$	0.94	$	1.52	$	1.73
Discontinued operations		—		0.11		0.02

	$	0.94	$	1.63	$	1.75

(1)	Income impact of convertible notes for 2010 represents interest expense that would have not been recorded if the notes converted at the beginning of the period.

(2)

Incremental shares from assumed conversion of the convertible notes for 2012 and 2011 are calculated using the difference between the average Teradyne stock price for the period and the conversion price of $5.48, multiplied by the 34.7 million shares that will be issued upon conversion. The result of this calculation, representing the total intrinsic value of the convertible debt, is divided by the average Teradyne stock price for the period. For 2010, incremental shares from assumed conversion of the convertible notes represent the 34.7 million of shares that will be issued upon conversion.

(3)

Convertible notes hedge warrant shares for 2012, 2011 and 2010 are calculated using the difference between the average Teradyne stock price for the period and the warrant price of $7.67, multiplied by the 34.7 million shares that will be issued upon conversion. The result of this calculation, representing the total intrinsic value of the warrant, is divided by the average Teradyne stock price for the period. Teradyne’s call option on its common stock (convertible note hedge transaction) is excluded from the calculation of diluted shares because the effect would be anti-dilutive. See Note I: “Debt” regarding convertible note hedge transaction.

The computation of diluted net income per common share for 2012 excludes the effect of the potential exercise of stock options to purchase approximately 0.3 million shares and restricted stock units to purchase approximately 0.3 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for 2011 excludes the effect of the potential exercise of stock options to purchase approximately 0.7 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for 2010 excludes the effect of the potential exercise of stock options to purchase approximately 5.3 million shares because the effect would have been anti-dilutive.

With respect to Teradyne’s convertible debt, Teradyne intends to settle its conversion spread (i.e., the intrinsic value of the embedded option feature contained in the convertible debt) in shares. Teradyne accounts for its conversion spread using the treasury stock method. In the fourth quarter of 2010, Teradyne determined that it had the ability and intent to settle the principal amount of the convertible debt in cash, accordingly as of the fourth quarter of 2010, the principal amount has been excluded from the determination of diluted earnings per share.