Financial Instruments and Derivatives (Tables)

6 Months Ended

Jul. 05, 2015

Schedule of Fair Value of Financial Assets and Liabilities Measured on Recurring Basis

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 July 5, 2015 and December 31, 2014.


	July 5, 2015
	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	$	154,396	$	—	$	—	$	154,396
Cash equivalents		145,256		1,033		—		146,289
Available-for-sale securities:
U.S. Treasury securities		—		281,522		—		281,522
U.S. government agency securities		—		183,768		—		183,768
Corporate debt securities		—		122,696		—		122,696
Certificates of deposit and time deposits		—		76,876		—		76,876
Commercial paper		—		48,446		—		48,446
Equity and debt mutual funds		14,174		—		—		14,174
Non-U.S. government securities		—		440		—		440

Total	$	313,826	$	714,781	$	—	$	1,028,607

Liabilities
Contingent consideration	$	—	$	—	$	35,595	$	35,595
Derivatives		—		87		—		87

Total	$	—	$	87	$	35,595	$	35,682

Reported as follows:


	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	299,652	$	1,033	$	—	$	300,685
Marketable securities		—		452,040		—		452,040
Long-term marketable securities		14,174		261,708		—		275,882

	$	313,826	$	714,781	$	—	$	1,028,607

Liabilities
Other current liabilities	$	—	$	87	$	—	$	87
Contingent consideration		—		—		15,092		15,092
Long-term contingent consideration		—		—		20,503		20,503

	$	—	$	87	$	35,595	$	35,682


	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	$	—	$	149
Contingent consideration		—		—		895		895
Long-term contingent consideration		—		—		2,455		2,455

	$	—	$	149	$	3,350	$	3,499

Schedule of Changes in Fair Value of Level 3 Contingent Consideration

Changes in the fair value of Level 3 contingent consideration for the three and six months ended July 5, 2015 and June 29, 2014 were as follows:


	For the Three Months Ended					For the Six Months Ended
	July 5, 2015			June 29, 2014		July 5, 2015			June 29, 2014
	(in thousands)
Balance at beginning of period	$	3,350		$	2,230	$	3,350		$	2,230
Acquisition of Universal Robots		33,845			—		33,845			—
Fair value adjustment(a)		(1,600	)		—		(1,600	)		—

Balance at end of period	$	35,595		$	2,230	$	35,595		$	2,230

(a)

The fair value measurement of the contingent consideration for the earn-out in connection with the acquisition of ZTEC Instruments, Inc. was reduced to $0 because Teradyne and the Securityholder Representative, on behalf of the ZTEC securityholders, agreed to terminate the earn out prior to the end of the December 31, 2015 earn-out period, with no payout in connection with the resolution of indemnity claims asserted by both Teradyne and the Securityholder Representative.

Quantitative Information Associated With Fair Value Measurement of Level 3 Financial Instrument

The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instruments:


Liability	July 5, 2015 Fair Value	Valuation Technique	Unobservable Inputs	Weighted Average
	(in thousands)
Contingent consideration (Universal Robots)	$33,845	Income approach- discounted cash flow	EBITDA earn-out for calendar year 2015 probability		99	%
			Discount rate		6.0	%
			Revenue earn-out for period July 1, 2015—December 31, 2017 probability		72	%
			Discount rate		8.0	%
			Revenue earn-out for period July 1, 2015—December 31, 2018 probability		29	%
			Discount rate		10.0	%

Contingent consideration (AIT)	$1,750	Income approach- discounted cash flow	Revenue earn-out for calendar years 2015 and 2016 probability		90	%
Contingent consideration (AIT)	$1,750	Income approach- discounted cash flow	Discount rate		4.7	%

Schedule of Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of Teradyne’s financial instruments at July 5, 2015 and December 31, 2014 were as follows:


	July 5, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	300,685	$	300,685	$	294,256	$	294,256
Marketable securities		727,922		727,922		1,004,576		1,004,576
Contingent consideration		35,595		35,595		3,350		3,350
Liabilities
Derivatives	$	87	$	87	$	149	$	149

Schedule of Available-for-Sale Marketable Securities

The following tables summarize the composition of available-for-sale marketable securities at July 5, 2015 and December 31, 2014:


	July 5, 2015
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
U.S. Treasury securities	$	281,963	$	221	$	(662	)	$	281,522	$	21,403
U.S. government agency securities		183,601		170		(3	)		183,768		10,341
Corporate debt securities		123,176		1,021		(1,501	)		122,696		61,348
Certificates of deposit and time deposits		76,849		32		(5	)		76,876		11,009
Commercial paper		48,438		10		(2	)		48,446		13,233
Equity and debt mutual funds		12,083		2,118		(27	)		14,174		1,074
Non-U.S. government securities		440		—		—			440		—

	$	726,550	$	3,572	$	(2,200	)	$	727,922	$	118,408

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	451,854	$	196	$	(10	)	$	452,040	$	53,028
Long-term marketable securities		274,696		3,376		(2,190	)		275,882		65,380

	$	726,550	$	3,572	$	(2,200	)	$	727,922	$	118,408


	December 31, 2014
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(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

Contractual Maturities of Investments Held

The contractual maturities of investments held at July 5, 2015 were as follows:


	July 5, 2015
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	451,854	$	452,040
Due after 1 year through 5 years		218,798		219,045
Due after 5 years through 10 years		6,481		6,512
Due after 10 years		37,334		36,151

Total	$	714,467	$	713,748

Schedule of Derivative Instruments in Statement of Financial Position at Fair Value

The following table summarizes the fair value of derivative instruments at July 5, 2015 and December 31, 2014:


	Balance Sheet Location	July 5, 2015		December 31, 2014
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current liabilities	$	87	$	149

Total derivatives		$	87	$	149

Schedule of Effect of Derivative Instruments on Statement of Operations Recognized

The following table summarizes the effect of derivative instruments recognized in the statement of operations during the three and six months ended July 5, 2015 and June 29, 2014. The table does not reflect the corresponding gains and losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies. For the three months ended July 5, 2015, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.1 million. For the six months ended July 5, 2015, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.2 million. For the three and six months ended June 29, 2014, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $0.7 million and $1.3 million, respectively.


	Location of (Gains) Losses Recognized in Statement of Operations	For the Three Months Ended					For the Six Months Ended
		July 5, 2015			June 29, 2014		July 5, 2015		June 29, 2014
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	(1,547	)	$	1,122	$	1,878	$	1,869

Total Derivatives		$	(1,547	)	$	1,122	$	1,878	$	1,869

- Definition

Tabular disclosure of available-for-sale securities which includes, but is not limited to, changes in the cost basis and fair value, fair value and gross unrealized gain (loss), fair values by type of security, contractual maturity and classification, amortized cost basis, contracts to acquire securities to be accounted for as available-for-sale, debt maturities, transfers to trading, change in net unrealized holding gain (loss) net of tax, continuous unrealized loss position fair value, aggregate losses qualitative disclosures, other than temporary impairment (OTTI) losses or other disclosures related to available for sale securities.

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