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Financial Instruments (Tables)

9 Months Ended

Oct. 01, 2017

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 October 1, 2017 and December 31, 2016.

		October 1, 2017
		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		$	213,664			$	—			$	—			$	213,664
Cash equivalents			166,803				38,210				—				205,013
Available-for-sale securities:
U.S. Treasury securities			—				942,250				—				942,250
Commercial paper			—				194,948				—				194,948
Corporate debt securities			—				118,487				—				118,487
Certificates of deposit and time deposits			—				95,469				—				95,469
U.S. government agency securities			—				55,938				—				55,938
Equity and debt mutual funds			22,104				—				—				22,104
Non-U.S. government securities			—				577				—				577
			402,571				1,445,879				—				1,848,450
Derivative assets			—				157				—				157
Total		$	402,571			$	1,446,036			$	—			$	1,848,607
Liabilities
Contingent consideration		$	—			$	—			$	39,129			$	39,129
Derivative liabilities			—				190				—				190
Total		$	—			$	190			$	39,129			$	39,319

Reported as follows:

		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	380,467			$	38,210			$	—			$	418,677
Marketable securities			—				1,217,830				—				1,217,830
Long-term marketable securities			22,104				189,839				—				211,943
Prepayments			—				157				—				157
Total		$	402,571			$	1,446,036			$	—			$	1,848,607
Liabilities			.
Other current liabilities		$	—			$	190			$	—			$	190
Contingent consideration			—				—				21,818				21,818
Long-term contingent consideration			—				—				17,311				17,311
Total		$	—			$	190			$	39,129			$	39,319

		December 31, 2016
		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		$	214,722			$	—			$	—			$	214,722
Cash equivalents			37,458				55,704				—				93,162
Available for sale securities:
U.S. Treasury securities			—				902,800				—				902,800
Commercial paper			—				161,630				—				161,630
Corporate debt securities			—				100,153				—				100,153
Certificates of deposit and time deposits			—				82,133				—				82,133
U.S. government agency securities			—				39,252				—				39,252
Equity and debt mutual funds			18,171				—				—				18,171
Non-U.S. government securities			—				728				—				728
			270,351				1,342,400				—				1,612,751
Derivative assets			—				1				—				1
Total		$	270,351			$	1,342,401			$	—			$	1,612,752
Liabilities
Contingent consideration		$	—			$	—			$	38,332			$	38,332
Derivative liabilities			—				131				—				131
Total		$	—			$	131			$	38,332			$	38,463

Reported as follows:

		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	252,180			$	55,704			$	—			$	307,884
Marketable securities			—				871,024				—				871,024
Long-term marketable securities			18,171				415,672				—				433,843
Prepayments			—				1				—				1
Total		$	270,351			$	1,342,401			$	—			$	1,612,752
Liabilities
Other accrued liabilities		$	—			$	131			$	—			$	131
Contingent consideration			—				—				1,050				1,050
Long-term contingent consideration			—				—				37,282				37,282
Total		$	—			$	131			$	38,332			$	38,463

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 nine months ended October 1, 2017 and October 2, 2016 were as follows:

		For the Three Months Ended								For the Nine Months Ended
		October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
		(in thousands)
Balance at beginning of period		$	39,415			$	24,914			$	38,332			$	37,436
Payments (a)			—				—				(1,050	)			(15,000	)
Fair value adjustment (b)(c)			(286	)			7,973				1,847				10,451
Balance at end of period		$	39,129			$	32,887			$	39,129			$	32,887

(a) In the nine months ended October 1, 2017, Teradyne paid $1.1 million of contingent consideration for the earn-out in connection with the acquisition of Avionics Interface Technology, LLC (“AIT”). In the nine months ended October 2, 2016, based on Universal Robots’ calendar year 2015 EBITDA results, Teradyne paid $15.0 million or 100% of the eligible EBITDA contingent consideration amount in connection with the acquisition of Universal Robots.

(b) In the nine months ended October 1, 2017, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was increased by $1.8 million due to an increase in forecasted revenue. In the three and nine months ended October 2, 2016, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was increased by $8.0 million and $9.9 million, respectively, primarily due to an increase in forecasted revenue and a decrease in the discount rate.

(c) In the nine months ended October 2, 2016, the fair value of contingent consideration for the earn-out in connection with the acquisition of AIT was increased by $0.6 million due to an increase in forecasted revenue.

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		October 1, 2017 Fair Value				Valuation Technique				Unobservable Inputs						Weighted Average
		(in thousands)
Contingent consideration (Universal Robots)			$21,818				Monte Carlo Simulation			Revenue for the period July 1, 2015—December 31, 2017 volatility							11.5	%
										Discount rate							2.6	%
				$17,311				Monte Carlo Simulation			Revenue for the period July 1, 2015—December 31, 2018 volatility							11.5	%
										Discount rate							2.6	%

Schedule of Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of Teradyne’s financial instruments at October 1, 2017 and December 31, 2016 were as follows:

		October 1, 2017								December 31, 2016
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Assets
Cash and cash equivalents		$	418,677			$	418,677			$	307,884			$	307,884
Marketable securities			1,429,773				1,429,773				1,304,867				1,304,867
Derivative assets			157				157				1				1
Liabilities
Contingent consideration			39,129				39,129				38,332				38,332
Derivative liabilities			190				190				131				131
Convertible debt (1)			362,595				613,238				352,669				486,754

(1) The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion features.

Schedule of Available-for-Sale Marketable Securities

The following tables summarize the composition of available-for-sale marketable securities at October 1, 2017 and December 31, 2016:

		October 1, 2017
		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		$	944,120			$	64			$	(1,934	)		$	942,250			$	936,195
Commercial paper			194,985				11				(48	)			194,948				140,562
Corporate debt securities			116,687				2,046				(246	)			118,487				79,119
Certificates of deposit and time deposits			95,447				29				(7	)			95,469				33,238
U.S. government agency securities			55,936				20				(18	)			55,938				52,997
Equity and debt mutual funds			18,202				3,923				(21	)			22,104				1,529
Non-U.S. government securities			570				7				—				577				—
Total		$	1,425,947			$	6,100			$	(2,274	)		$	1,429,773			$	1,243,640

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	1,218,752			$	65			$	(987	)		$	1,217,830			$	1,088,881
Long-term marketable securities			207,195				6,035				(1,287	)			211,943				154,759
Total		$	1,425,947			$	6,100			$	(2,274	)		$	1,429,773			$	1,243,640

		December 31, 2016
		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		$	904,737			$	97			$	(2,034	)		$	902,800			$	572,284
Commercial paper			161,672				24				(66	)			161,630				84,034
Corporate debt securities			99,708				1,065				(620	)			100,153				53,642
Certificates of deposit and time deposits			82,080				54				(1	)			82,133				7,760
U.S. government agency securities			39,264				7				(19	)			39,252				13,461
Equity and debt mutual funds			16,505				1,724				(58	)			18,171				1,661
Non-U.S. government securities			745				6				(23	)			728				137
Total		$	1,304,711			$	2,977			$	(2,821	)		$	1,304,867			$	732,979

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	871,321			$	134			$	(431	)		$	871,024			$	423,128
Long-term marketable securities			433,390				2,843				(2,390	)			433,843				309,851
Total		$	1,304,711			$	2,977			$	(2,821	)		$	1,304,867			$	732,979

Contractual Maturities of Investments Held

The contractual maturities of investments held at October 1, 2017 were as follows:

		October 1, 2017
		Cost				Fair Market Value
		(in thousands)
Due within one year		$	1,218,752			$	1,217,830
Due after 1 year through 5 years			136,081				135,889
Due after 5 years through 10 years			14,129				13,818
Due after 10 years			38,783				40,132
Total		$	1,407,745			$	1,407,669

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

The following table summarizes the fair value of derivative instruments at October 1, 2017 and December 31, 2016:

		Balance Sheet Location				October 1, 2017				December 31, 2016
						(in thousands)
Derivatives not designated as hedging instruments:
Foreign currency forward contracts assets			Prepayments			$	157			$	1
Foreign currency forward contracts liabilities			Other current liabilities				(190	)			(131	)
Total						$	(33	)		$	(130	)

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 nine months ended October 1, 2017 and October 2, 2016.

		Location of (Gains) Losses Recognized in Statement of Operations		For the Three Months Ended								For the Nine Months Ended
				October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
											(in thousands)
Derivatives not designated as hedging instruments:
Foreign currency forward contracts		Other (income) expense, net		$	(939	)		$	941			$	(1,514	)		$	11,140
Total				$	(939	)		$	941			$	(1,514	)		$	11,140

(1) The table does not reflect the corresponding gains and losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies.

(2) For the three and nine months ended October 1, 2017, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.4 million and $2.3 million, respectively.

(3) For the three and nine months ended October 2, 2016, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.9 million and $12.2 million, respectively.

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