E. ACQUISITIONS

Business

ZTEC Instruments, Inc.

On October 25, 2013, Teradyne completed its acquisition of ZTEC Instruments, Inc. (“ZTEC”) located in Albuquerque, New Mexico. The total purchase price of $17.3 million consisted of $15.1 million of cash paid to acquire the outstanding common and preferred stock of ZTEC and $2.2 million in fair value of contingent consideration payable upon achievement of certain customer order and revenue targets through 2015. The maximum amount of contingent consideration that could be paid is $5.0 million. Based on the projected results for the acquisition, no value was assigned to the revenue component of the contingent consideration.

The valuation of the customer order component of the contingent consideration utilized the following assumptions: (1) probability of meeting each benchmark; (2) expected timing of meeting each benchmark; and (3) discount rate reflecting the risk associated with the expected payments. The probabilities and timing for each benchmark were estimated based on a review of the historical and projected results. A discount rate of 5.2 percent was selected based on the cost of debt for the business, as a significant portion of the risk in achieving the customer order contingent consideration was captured in the probabilities assigned to meeting each benchmark.

ZTEC is a supplier of modular wireless test instruments. The acquisition of ZTEC expands Teradyne’s wireless segment into the design verification test of wireless components and chipsets.

The ZTEC acquisition was accounted for as a purchase business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operation from the date of acquisition. The allocation of the total purchase price of ZTEC net tangible and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The purchase price allocation is preliminary pending the final determination of the fair value of certain acquired assets and assumed liabilities. The excess of the purchase price over the identifiable intangible and net tangible assets in the amount of $12.5 million was allocated to goodwill, which is not deductible for tax purposes.

The following represents the allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	12,520
Intangible assets		4,870
Tangible assets acquired and liabilities assumed:
Cash		79
Other current assets		1,612
Non-current assets		1,757
Accounts payable and current liabilities		(1,811	)
Long-term deferred tax liabilities		(1,719	)

Total purchase price	$	17,308

Teradyne estimated the fair value of intangible assets using the income approach. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. The following table lists these intangible assets and their estimated useful lives at the acquisition date:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	3,500		5.0
Customer relationships		1,370		6.0

Total intangible assets	$	4,870		5.3

For the period from October 25, 2013 to December 31, 2013, ZTEC contributed $0.4 million of revenues and had a $(0.8) million loss from continuing operations before income taxes.

The following unaudited pro forma information gives effect to the acquisition of ZTEC as if the acquisition occurred on January 1, 2012. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented:


	For the Year Ended
	December 31, 2013		December 31, 2012
	(in thousands, except per share amounts)
Revenue	$	1,431,270	$	1,660,758
Net income	$	163,394	$	215,654
Income per common share:
Basic	$	0.86	$	1.15

Diluted	$	0.69	$	0.94

LitePoint Corporation

On October 5, 2011, Teradyne completed its acquisition of LitePoint Corporation (“LitePoint”) located in Sunnyvale, California. The total purchase price of $646.0 million consisted of $572.7 million of cash paid to acquire the outstanding common and preferred stock of LitePoint, $68.9 million in fair value of contingent consideration payable upon achievement of certain revenue targets through 2012 and $4.5 million in fair value of assumed vested stock options, which were converted into stock options to purchase Teradyne’s common stock. The fair value of stock options was estimated using the following weighted average assumptions:


Expected life (years)	6.2
Expected volatility	49.1	%
Risk-free interest rate	1.3	%
Dividend yield	0.0	%

LitePoint designs, develops, and supports advanced wireless test equipment for the development and manufacturing of wireless devices, including smart phones, tablets, notebooks/laptops, personal computer peripherals, and other Wi-Fi, Bluetooth and cellular enabled devices. LitePoint’s IQ product line consists of cellular and connectivity test equipment used by developers and manufacturers of wireless devices and consumer electronics. LitePoint and ZTEC represent Teradyne’s Wireless Test operating and reportable segment.

The LitePoint acquisition was accounted for as a purchase business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operation from the date of acquisition. The allocation of the total purchase price of LitePoint net tangible and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible and net tangible assets in the amount of $349.3 million was allocated to goodwill, which is not deductible for tax purposes. The following represents the allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	349,272
Intangible assets		310,500
Tangible assets acquired and liabilities assumed:
Cash, cash equivalents and short term marketable securities		61,250
Other current assets		75,615
Non-current assets		5,838
Accounts payable and current liabilities		(37,177	)
Long-term deferred tax liabilities		(115,463	)
Other long-term liabilities		(3,788	)

Total purchase price	$	646,047

Teradyne estimated the fair value of intangible assets using the income and cost approach. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. The following table lists these intangible assets and their estimated useful lives at the acquisition date:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	237,100		6.4
Customer relationships		53,700		7.0
Tradenames		19,000		7.0
Customer backlog		700		0.3

Total intangible assets	$	310,500		6.5

For the period from October 5, 2011 to December 31, 2011, LitePoint contributed $28.4 million of revenues and had a $(20.6) million loss from continuing operations before income taxes.

The following unaudited pro forma information gives effect to the acquisition of LitePoint as if the acquisition occurred on January 1, 2011. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented:


	For the Year Ended December 31, 2011
	For the Year Ended December 31, 2011
	(in thousands, except per share amounts)
Revenue	$	1,527,044
Income from continuing operations	$	357,060
Net income	$	382,976
Income from continuing operations per common share:
Basic	$	1.93

Diluted	$	1.56

Net income per common share:
Basic	$	2.07

Diluted	$	1.67