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Financial Instruments | 12 Months Ended
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Dec. 31, 2014
Financial Instruments | 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. Marketable Securities Teradyne’s available-for-sale fixed income securities are classified as Level 2. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities. There were no realized losses recorded in 2014, 2013 and 2012. Realized gains recorded in 2014, 2013 and 2012 were $2.4 million, $1.0 million and $1.4 million, respectively. Realized gains are included in interest income. Unrealized gains and losses are included in accumulated other comprehensive income (loss). The cost of securities sold is based on the specific identification method. During the years ended December 31, 2014 and 2013, there were no transfers in or out of Level 1, Level 2 or Level 3 financial instruments. The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2014 and 2013.
|  | December 31, 2014 |
|  | Quoted Prices in Active Markets for Identical Instruments (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
|  | (in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 111,471 |  |  | $ | — |  |  | $ | — |  |  | $ | 111,471 |
Cash equivalents |  |  | 160,218 |  |  |  | 22,567 |  |  |  | — |  |  |  | 182,785 |
Available for sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  |  | — |  |  |  | 402,154 |  |  |  | — |  |  |  | 402,154 |
U.S. government agency securities |  |  | — |  |  |  | 258,502 |  |  |  | — |  |  |  | 258,502 |
Corporate debt securities |  |  | — |  |  |  | 141,467 |  |  |  | — |  |  |  | 141,467 |
Commercial paper |  |  | — |  |  |  | 140,638 |  |  |  | — |  |  |  | 140,638 |
Certificates of deposit and time deposits |  |  | — |  |  |  | 49,036 |  |  |  | — |  |  |  | 49,036 |
Equity and debt mutual funds |  |  | 12,333 |  |  |  | — |  |  |  | — |  |  |  | 12,333 |
Non-U.S. government securities |  |  | — |  |  |  | 446 |  |  |  | — |  |  |  | 446 |
Total |  | $ | 284,022 |  |  | $ | 1,014,810 |  |  | $ | — |  |  | $ | 1,298,832 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | — |  |  | $ | — |  |  | $ | 3,350 |  |  | $ | 3,350 |
Derivatives |  |  | — |  |  |  | 149 |  |  |  | — |  |  |  | 149 |
Total |  | $ | — |  |  | $ | 149 |  |  | $ | 3,350 |  |  | $ | 3,499 |
Reported as follows:
|  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
|  | (in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 271,689 |  |  | $ | 22,567 |  |  | $ | — |  |  | $ | 294,256 |
Marketable securities |  |  | — |  |  |  | 533,787 |  |  |  | — |  |  |  | 533,787 |
Long-term marketable securities |  |  | 12,333 |  |  |  | 458,456 |  |  |  | — |  |  |  | 470,789 |
|  | $ | 284,022 |  |  | $ | 1,014,810 |  |  | $ | — |  |  | $ | 1,298,832 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current liabilities |  | $ | — |  |  | $ | 149 |  |  | $ | 1,750 |  |  | $ | 1,899 |
Long-term other accrued liabilities |  |  | — |  |  |  | — |  |  |  | 1,600 |  |  |  | 1,600 |
|  | $ | — |  |  | $ | 149 |  |  | $ | 3,350 |  |  |  | 3,499 |
|  | December 31, 2013 |
|  | Quoted Prices in Active Markets for Identical Instruments (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
|  | (in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 117,242 |  |  | $ | — |  |  | $ | — |  |  | $ | 117,242 |
Cash equivalents |  |  | 165,865 |  |  |  | 58,531 |  |  |  | — |  |  |  | 224,396 |
Available for sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  |  | — |  |  |  | 467,895 |  |  |  | — |  |  |  | 467,895 |
U.S. government agency securities |  |  | — |  |  |  | 202,588 |  |  |  | — |  |  |  | 202,588 |
Commercial paper |  |  | — |  |  |  | 105,598 |  |  |  | — |  |  |  | 105,598 |
Corporate debt securities |  |  | — |  |  |  | 65,387 |  |  |  | — |  |  |  | 65,387 |
Equity and debt mutual funds |  |  | 13,156 |  |  |  | — |  |  |  | — |  |  |  | 13,156 |
Certificates of deposit and time deposits |  |  | — |  |  |  | 3,258 |  |  |  | — |  |  |  | 3,258 |
Non-U.S. government securities |  |  | — |  |  |  | 78 |  |  |  | — |  |  |  | 78 |
Total |  |  | 296,263 |  |  |  | 903,335 |  |  |  | — |  |  |  | 1,199,598 |
Derivatives |  |  | — |  |  |  | 153 |  |  |  | — |  |  |  | 153 |
Total |  | $ | 296,263 |  |  | $ | 903,488 |  |  | $ | — |  |  | $ | 1,199,751 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | — |  |  | $ | — |  |  | $ | 2,230 |  |  | $ | 2,230 |
Total |  | $ | — |  |  | $ | — |  |  | $ | 2,230 |  |  | $ | 2,230 |
Reported as follows:
|  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
|  | (in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 283,107 |  |  | $ | 58,531 |  |  | $ | — |  |  | $ | 341,638 |
Marketable securities |  |  | — |  |  |  | 586,882 |  |  |  | — |  |  |  | 586,882 |
Long-term marketable securities |  |  | 13,156 |  |  |  | 257,922 |  |  |  | — |  |  |  | 271,078 |
Other current assets |  |  | — |  |  |  | 153 |  |  |  | — |  |  |  | 153 |
|  | $ | 296,263 |  |  | $ | 903,488 |  |  | $ | — |  |  | $ | 1,199,751 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term other accrued liabilities |  | $ | — |  |  | $ | — |  |  | $ | 2,230 |  |  | $ | 2,230 |
|  | $ | — |  |  | $ | — |  |  | $ | 2,230 |  |  | $ | 2,230 |
Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2014 and 2013 were as follows:
|  | Contingent Consideration |
|  | (in thousands) |
Balance at December 31, 2012 |  | $ | 388 |
Acquisition of ZTEC |  |  | 2,230 |
Payments |  |  | (388 | )
Balance at December 31, 2013 |  |  | 2,230 |
Fair value adjustment |  |  | (630 | )
Acquisition of AIT |  |  | 1,750 |
Balance at December 31, 2014 |  | $ | 3,350 |
The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instrument:
Liability |  | December 31, 2014 Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Weighted Average
|  | (in thousands) |  |  |  |  |  |
Contingent consideration (ZTEC) |  | $1,600 |  | Income approach- discounted cash flow |  | Revenue earn-out-probability for calendar year 2015 revenue. |  | 0%
|  |  |  | Customer orders-probability of achievement during earn out period (acquisition date through December 31, 2015) |  | 40%
|  |  |  |  |  | Discount rate for revenue earn-out |  | N/A
|  |  |  |  |  | Discount rate for customer orders |  | 5.2%
The significant unobservable inputs used in the fair value measurement of contingent consideration are the probabilities of successful achievement of calendar year 2015 revenue, customer orders, and a discount rate. Increases or decreases in the revenue and customer order probabilities and the period in which results will be achieved would result in a higher or lower fair value measurement. The carrying amounts and fair values of financial instruments at December 31, 2014 and 2013 were as follows:
|  | December 31, 2014 |  |  | December 31, 2013 |
|  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
|  | (in thousands) |
Cash and cash equivalents |  | $ | 294,256 |  |  | $ | 294,256 |  |  | $ | 341,638 |  |  | $ | 341,638 |
Marketable securities |  |  | 1,004,576 |  |  |  | 1,004,576 |  |  |  | 857,960 |  |  |  | 857,960 |
Convertible debt (1) |  |  | — |  |  |  | — |  |  |  | 185,708 |  |  |  | 611,433 |
Japan loan |  |  | — |  |  |  | — |  |  |  | 955 |  |  |  | 955 |
(1) | The carrying value represented the bifurcated debt component only, while the fair value was based on quoted market prices for the convertible note which included the equity conversion feature.
The fair values of accounts receivable, net and accounts payable approximate the carrying amount due to the short term nature of these instruments. The following tables summarize the composition of available for sale marketable securities at December 31, 2014 and 2013:
|  | December 31, 2014 |
|  | Available-for-Sale |  |  | Fair Market Value of Investments with Unrealized Losses |
|  | Cost |  |  | Unrealized Gain |  |  | Unrealized (Loss) |  |  | Fair Market Value |  |
|  | (in thousands) |
U.S. Treasury securities |  | $ | 402,197 |  |  | $ | 362 |  |  | $ | (405 | ) |  | $ | 402,154 |  |  | $ | 317,771 |
U.S. government agency securities |  |  | 258,452 |  |  |  | 135 |  |  |  | (85 | ) |  |  | 258,502 |  |  |  | 104,642 |
Corporate debt securities |  |  | 139,374 |  |  |  | 2,414 |  |  |  | (321 | ) |  |  | 141,467 |  |  |  | 96,998 |
Commercial paper |  |  | 140,616 |  |  |  | 26 |  |  |  | (4 | ) |  |  | 140,638 |  |  |  | 41,747 |
Certificates of deposit and time deposits |  |  | 49,048 |  |  |  | 11 |  |  |  | (23 | ) |  |  | 49,036 |  |  |  | 20,684 |
Equity and debt mutual funds |  |  | 10,492 |  |  |  | 1,870 |  |  |  | (29 | ) |  |  | 12,333 |  |  |  | 1,234 |
Non-U.S. government securities |  |  | 446 |  |  |  | — |  |  |  | — |  |  |  | 446 |  |  |  | — |
|  | $ | 1,000,625 |  |  | $ | 4,818 |  |  | $ | (867 | ) |  | $ | 1,004,576 |  |  | $ | 583,076 |
Reported as follows:
|  | Cost |  |  | Unrealized Gain |  |  | Unrealized (Loss) |  |  | Fair Market Value |  |  | Fair Market Value of Investments with Unrealized Losses |
|  | (in thousands) |
Marketable securities |  | $ | 533,833 |  |  | $ | 99 |  |  | $ | (145 | ) |  | $ | 533,787 |  |  | $ | 240,234 |
Long-term marketable securities |  |  | 466,792 |  |  |  | 4,719 |  |  |  | (722 | ) |  |  | 470,789 |  |  |  | 342,842 |
|  | $ | 1,000,625 |  |  | $ | 4,818 |  |  | $ | (867 | ) |  | $ | 1,004,576 |  |  | $ | 583,076 |
|  | December 31, 2013 |
|  | Available-for-Sale |  |  | Fair Market Value of Investments with Unrealized Losses |
|  | Cost |  |  | Unrealized Gain |  |  | Unrealized (Loss) |  |  | Fair Market Value |  |
|  | (in thousands) |
U.S. Treasury securities |  | $ | 468,084 |  |  | $ | 94 |  |  | $ | (283 | ) |  | $ | 467,895 |  |  | $ | 108,212 |
U.S. government agency securities |  |  | 202,573 |  |  |  | 75 |  |  |  | (60 | ) |  |  | 202,588 |  |  |  | 84,498 |
Commercial paper |  |  | 105,583 |  |  |  | 16 |  |  |  | (1 | ) |  |  | 105,598 |  |  |  | 7,993 |
Corporate debt securities |  |  | 65,747 |  |  |  | 762 |  |  |  | (1,122 | ) |  |  | 65,387 |  |  |  | 40,355 |
Equity and debt mutual funds |  |  | 10,463 |  |  |  | 2,742 |  |  |  | (49 | ) |  |  | 13,156 |  |  |  | 702 |
Certificates of deposit and time deposits |  |  | 3,258 |  |  |  | — |  |  |  | — |  |  |  | 3,258 |  |  |  | — |
Non-U.S. government securities |  |  | 78 |  |  |  | — |  |  |  | — |  |  |  | 78 |  |  |  | — |
|  | $ | 855,786 |  |  | $ | 3,689 |  |  | $ | (1,515 | ) |  | $ | 857,960 |  |  | $ | 241,760 |
Reported as follows:
|  | Cost |  |  | Unrealized Gain |  |  | Unrealized (Loss) |  |  | Fair Market Value |  |  | Fair Market Value of Investments with Unrealized Losses |
|  | (in thousands) |
Marketable securities |  | $ | 586,818 |  |  | $ | 85 |  |  | $ | (21 | ) |  | $ | 586,882 |  |  | $ | 137,670 |
Long-term marketable securities |  |  | 268,968 |  |  |  | 3,604 |  |  |  | (1,494 | ) |  |  | 271,078 |  |  |  | 104,090 |
|  | $ | 855,786 |  |  | $ | 3,689 |  |  | $ | (1,515 | ) |  | $ | 857,960 |  |  | $ | 241,760 |
As of December 31, 2014, the fair market value of investments with unrealized losses totaled $583.1 million. Of this value, $2.3 million had unrealized losses for greater than one year and $580.8 million had unrealized losses for less than one year. As of December 31, 2013, the fair market value of investments with unrealized losses totaled $241.8 million. Of this value, $0.9 million had unrealized losses for greater than one year and $240.9 million had unrealized losses for less than one year. Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments, at December 31, 2014 and 2013, were temporary. The contractual maturities of investments held at December 31, 2014 were as follows:
|  | Cost |  |  | Fair Value |
|  | (in thousands) |
Due within one year |  | $ | 533,833 |  |  | $ | 533,787 |
Due after 1 year through 5 years |  |  | 418,732 |  |  |  | 418,363 |
Due after 5 years through 10 years |  |  | 5,735 |  |  |  | 5,924 |
Due after 10 years |  |  | 31,833 |  |  |  | 34,169 |
Total |  | $ | 990,133 |  |  | $ | 992,243 |
Contractual maturities of investments held at December 31, 2014, exclude equity and debt mutual funds as they do not have a contractual maturity date. Assets of Teradyne measured at fair value on a non-recurring basis as of December 31, 2014 are summarized as follows:
|  |  |  |  | Fair Value Measurements at Reporting Period |  |  |  |
|  | December 31, 2014 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Other Unobservable Inputs (Level 3) |  |  | Total Losses |
|  | (in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  | $ | 273,438 |  |  | $ | — |  |  | $ | — |  |  | $ | 273,438 |  |  | $ | 98,897 |
Definite lived intangible assets |  |  | 158,237 |  |  |  | — |  |  |  | — |  |  |  | 158,237 |  |  |  | — |
Long-lived assets held and used |  |  | 10,189 |  |  |  | — |  |  |  | 10,189 |  |  |  | — |  |  |  | — |
|  | $ | 441,864 |  |  | $ | — |  |  | $ | 10,189 |  |  | $ | 431,675 |  |  | $ | 98,897 |
In accordance with the provisions of ASC 350-10, “Intangibles- Goodwill and Other,” goodwill with a carrying amount of $372.3 million was written down to its implied fair value of $273.4 million, resulting in an impairment charge of $98.9 million in the fourth quarter of 2014. See Note I: “Goodwill and Intangibles” regarding goodwill impairment. 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 currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes. To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of the monetary assets and liabilities denominated in foreign currencies. At December 31, 2014 and 2013, Teradyne had the following contracts to buy and sell non-U.S. currencies for U.S. dollars and other non-U.S. currencies with the following notional amounts:
|  | December 31, 2014 |  |  | December 31, 2013 |
|  | Buy Position |  |  | Sell Position |  |  | Net Total |  |  | Buy Position |  |  | Sell Position |  |  | Net Total |
|  | (in millions) |
Japanese Yen |  | $ | — |  |  | $ | 19.7 |  |  | $ | 19.7 |  |  | $ | — |  |  | $ | 32.6 |  |  | $ | 32.6 |
Taiwan Dollar |  |  | (0.9 | ) |  |  | 5.7 |  |  |  | 4.8 |  |  |  | — |  |  |  | 4.0 |  |  |  | 4.0 |
British Pound Sterling |  |  | — |  |  |  | 11.7 |  |  |  | 11.7 |  |  |  | — |  |  |  | 6.9 |  |  |  | 6.9 |
Korean Won |  |  | — |  |  |  | 4.4 |  |  |  | 4.4 |  |  |  | — |  |  |  | 5.8 |  |  |  | 5.8 |
Euro |  |  | (30.6 | ) |  |  | — |  |  |  | (30.6 | ) |  |  | (24.8 | ) |  |  | 0.7 |  |  |  | (24.1 | )
Total |  | $ | (31.5 | ) |  | $ | 41.5 |  |  | $ | 10.0 |  |  | $ | (24.8 | ) |  | $ | 50.0 |  |  | $ | 25.2 |
The fair value of the outstanding contracts was a loss of $0.1 million at December 31, 2014 and a gain of $0.2 million at December 31, 2013. In 2014, Teradyne recorded net realized losses of $0.2 million related to foreign currency forward contracts hedging net monetary position. In 2013 and 2012, Teradyne recorded net realized gains of $5.9 million and $4.0 million, respectively, related to foreign currency forward contracts hedging net monetary positions. Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net. The following table summarizes the fair value of derivative instruments as of December 31, 2014 and 2013:
|  | Balance Sheet Location |  | December 31, 2014 |  |  | December 31, 2013 |
|  |  |  | (in thousands) |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Other current liabilities |  | $ | 149 |  |  | $ | — |
Foreign exchange contracts |  | Other current assets |  |  | — |  |  |  | 153 |
Total derivatives |  |  |  | $ | 149 |  |  | $ | 153 |
The following table summarizes the effect of derivative instruments in the statement of operations recognized for the years ended December 31, 2014, 2013 and 2012. The table does not reflect the corresponding losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. For the years ended December 31, 2014, 2013, and 2012, losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $0.9 million, $6.9 million, and $4.5 million, respectively.
|  | Location of Losses (Gains) Recognized in Statement of Operations |  | December 31, 2014 |  |  | December 31, 2013 |  |  | December 31, 2012 |
|  |  |  | (in thousands) |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Other (income) expense, net |  | $ | 237 |  |  | $ | (5,933 | ) |  | $ | (3,974 | )
Total derivatives |  |  |  | $ | 237 |  |  | $ | (5,933 | ) |  | $ | (3,974 | )
See Note G: “Debt” regarding derivatives related to the convertible senior notes. Concentration of Credit Risk Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Teradyne’s cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradyne’s fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward 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. Equity Interest On November 1, 2013, in connection with the acquisition of Empirix, Inc. by Thoma Bravo LLC, Teradyne sold its equity interest in Empirix, Inc., a private company, and received cash proceeds of $34.2 million which was recorded as other income. An additional $4.8 million of cash proceeds that was held in escrow for 15 months, for potential indemnifications to the buyer, was paid to Teradyne in February 2015 and it will be recorded as other income in the first quarter of 2015.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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