Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2014

I. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Teradyne performs its annual goodwill impairment test as required under the provisions of ASC 350-10, “Intangibles—Goodwill and Other” on December 31 of each fiscal year unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value.

Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step, Teradyne determines the fair value of a reporting unit using a discounted cash flow (“DCF”) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal forecasts and external market forecasts. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its carrying amount of goodwill to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, whereby the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

As a result of decreased projected demand attributable to an estimated smaller future wireless test market due to reuse of wireless test equipment, price competition and different testing techniques, Teradyne determined that for its Wireless Test reporting unit, the carrying amount of its net assets exceeded its respective fair value, indicating that a potential impairment existed. After completing the second step of the goodwill impairment test, Teradyne recorded a $98.9 million goodwill impairment charge in the fourth quarter of 2014.

The fourth quarter 2014 goodwill impairment test of Teradyne’s Defense/Aerospace reporting unit, which is included in Teradyne’s System Test reportable segment, did not identify any goodwill impairment.

Teradyne performed step one of the two step impairment test for 2013 and 2012. No goodwill impairment was identified in 2013 and 2012.

The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2014 and 2013 are as follows:


	Semiconductor Test			System Test			Wireless Test			Total
	(in thousands)
Balance at December 31, 2012:
Goodwill	$	260,540		$	148,183		$	349,272		$	757,995
Accumulated impairment losses		(260,540	)		(148,183	)		—			(408,723	)

		—			—			349,272			349,272
ZTEC acquisition		—			—			12,520			12,520

Balance at December 31, 2013:
Goodwill		260,540			148,183			361,792			770,515
Accumulated impairment losses		(260,540	)		(148,183	)		—			(408,723	)

		—			—			361,792			361,792
ZTEC adjustment		—			—			27			27
AIT acquisition		—			10,516			—			10,516

Balance at December 31, 2014:
Goodwill		260,540			158,699			361,819			781,058
Accumulated impairment losses		(260,540	)		(148,183	)		(98,897	)		(507,620	)

	$	—		$	10,516		$	262,922		$	273,438

Intangible Assets

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


	December 31, 2014
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
	(in thousands)
Developed technology	$	345,513	$	224,059	$	121,454		6.2 years
Customer relationships		146,635		93,998		52,637		7.7 years
Tradenames and trademarks		30,414		14,205		16,209		9.0 years
Non-competes		320		20		300		4.0 years
Customer backlog		170		170		—		0.0 years

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


	December 31, 2013
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
	(in thousands)
Developed technology	$	342,933	$	174,563	$	168,370		6.2 years
Customer relationships		141,497		76,963		64,534		8.0 years
Tradenames and trademarks		30,034		10,647		19,387		9.1 years
Customer backlog		1,000		1,000		—		0.4 years

Total intangible assets	$	515,464	$	263,173	$	252,291		6.9 years

During the year ended December 31, 2014, Teradyne recorded intangible assets in the amount of $9.1 million related to its AIT acquisition.

During the year ended December 31, 2013, Teradyne recorded intangible assets in the amount of $4.9 million related to its ZTEC acquisition.

Aggregate intangible assets amortization expense for the years ended December 31, 2014, 2013 and 2012 was $70.8 million, $72.4 million, and $73.5 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:


Year	Amortization Expense
	(in thousands)
2015	$	55,231
2016		55,231
2017		49,046
2018		24,405
2019		4,889

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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