XML 37 R16.htm IDEA: XBRL DOCUMENT

Financial Instruments

12 Months Ended

Dec. 31, 2018

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

Effective January 1, 2018, Teradyne adopted ASU

2016-01,

“

Financial Instruments—Overall (Subtopic

825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities,

” using the modified retrospective approach. This guidance requires that changes in fair value of equity securities be accounted for directly in earnings. Prior to 2018, the changes in fair value of equity securities were recorded in accumulated other comprehensive income (loss) on the balance sheet.

Teradyne’s available-for-sale debt securities are classified as Level 2 and equity securities are classified as Level 1. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income securities 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.

During the years ended December 31, 2018 and 2017, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in 2018, 2017, and 2016 were $4.0 million, $1.1 million, and $1.6 million, respectively. Realized losses recorded in 2018, 2017, and 2016 were $1.6 million, $0.3 million, and $0.5 million, respectively. Realized gains are included in interest income and realized losses are included in interest expense. Unrealized gains and losses on

available-for-sale

debt securities are included in accumulated other comprehensive income (loss) on the balance sheet.

Unrealized gains related to equity securities are included in interest income and unrealized losses are included in interest expense. Unrealized losses related to equity securities recognized in 2018 were $6.0 million.

The cost of securities sold is based on the specific identification method.

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, 2018 and 2017:


	December 31, 2018
	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	$	312,512	$	—	$	—	$	312,512
Cash equivalents		253,525		360,715		—		614,240
Available for sale securities:
U.S. Treasury securities		—		109,721		—		109,721
Commercial paper		—		86,117		—		86,117
Corporate debt securities		—		40,020		—		40,020
U.S. government agency securities		—		9,611		—		9,611
Certificates of deposit and time deposits		—		7,604		—		7,604
Debt mutual funds		3,187		—		—		3,187
Non-U.S. government securities		—		376		—		376
Equity securities:
Mutual funds		21,191		—		—		21,191
		590,415		614,164		—		1,204,579
Derivative assets		—		79		—		79
Total	$	590,415	$	614,243	$	—	$	1,204,658
Liabilities
Contingent consideration	$	—	$	—	$	70,543	$	70,543
Derivative liabilities		—		514		—		514
Total	$	—	$	514	$	70,543	$	71,057

Reported as follows:


	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	566,037	$	360,715	$	—	$	926,752
Marketable securities		—		190,096		—		190,096
Long-term marketable securities		24,378		63,353		—		87,731
Prepayments		—		79		—		79
Total	$	590,415	$	614,243	$	—	$	1,204,658
Liabilities
Other current liabilities	$	—	$	514	$	—	$	514
Contingent consideration		—		—		34,865		34,865
Long-term contingent consideration		—		—		35,678		35,678
Total	$	—	$	514	$	70,543	$	71,057

	December 31, 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	$	197,955	$	—	$	—	$	197,955
Cash equivalents		206,335		25,553		—		231,888
Available for sale securities:
U.S. Treasury securities		—		855,795		—		855,795
Commercial paper		—		282,840		—		282,840
Certificates of deposit and time deposits		—		167,342		—		167,342
Corporate debt securities		—		133,186		—		133,186
Equity and debt mutual funds		23,430		—		—		23,430
U.S. government agency securities		—		10,726		—		10,726
Non-U.S. government securities		—		586		—		586
		427,720		1,476,028		—		1,903,748
Derivative assets		—		389		—		389
Total	$	427,720	$	1,476,417	$	—	$	1,904,137
Liabilities
Contingent consideration	$	—	$	—	$	45,102	$	45,102
Derivative liabilities		—		446		—		446
Total	$	—	$	446	$	45,102	$	45,548

Reported as follows:


	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	404,290	$	25,553	$	—	$	429,843
Marketable securities		—		1,347,979		—		1,347,979
Long-term marketable securities		23,430		102,496		—		125,926
Prepayments		—		389		—		389
	$	427,720	$	1,476,417	$	—	$	1,904,137
Liabilities
Other current liabilities	$	—	$	446	$	—	$	446
Contingent consideration		—		—		24,497		24,497
Long-term contingent consideration		—		—		20,605		20,605
	$	—	$	446	$	45,102	$	45,548

Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2018 and 2017 were as follows:


	Contingent Consideration
	(in thousands)
Balance at December 31, 2016	$	38,332
Payments (1)		(1,050	)
Fair value adjustment (2)		7,820
Balance at December 31, 2017		45,102
Acquisition of MiR		52,547
Foreign currency impact		(3,540	)
Payments (3)		(24,553	)
Fair value adjustment (4)		987
Balance at December 31, 2018	$	70,543

(1)	During the year ended December 31, 2017, Teradyne paid $1.1 million of contingent consideration for the earn-out in connection with the acquisition of Avionics Interface Technologies, LLC (“AIT”).

(2)	During the year ended December 31, 2017, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was increased by $7.8 million primarily due to an increase in forecasted revenues and decrease in discount rate.

(3)	During the year ended December 31, 2018, Teradyne paid $24.6 million of contingent consideration for the earn-out in connection with the acquisition of Universal Robots.

(4)

During the year ended December 31, 2018, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was increased by $

17.7

million primarily due to an increase in forecasted revenues. During the year ended December 31, 2018, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was decreased by $

16.7

million primarily due to a decrease in forecasted revenues.

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

Liability	December 31, 2018 Fair Value			Valuation Technique		Unobservable Inputs	Weighted Average
	(in thousands)
Contingent consideration (MiR)	$	66,672	(1)		Monte Carlo simulation	Revenue volatility		18.0	%
						Discount rate		1.1	%

Contingent consideration (Universal Robots)	$	3,871	(1)

(1)	Contingent consideration related to MiR and Universal Robots acquisitions of $31.0 million and $3.9 million, respectively, is expected to be paid in March 2019.

As of December 31, 2018, the significant unobservable inputs used in the Monte Carlo simulation to fair value the MiR contingent consideration include forecasted revenues, revenue volatility, earnings before interest and taxes and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement. As of December 31, 2018, the maximum amount of contingent consideration that could be paid in connection with the acquisition of MiR is $115 million. The

earn-out

periods end on December 31, 2018, December 31, 2019, and December 31, 2020.

The carrying amounts and fair values of Teradyne’s financial instruments at December 31, 2018 and 2017 were as follows:

	December 31, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	926,752	$	926,752	$	429,843	$	429,843
Marketable securities		277,827		277,827		1,473,905		1,473,905
Derivative assets		79		79		389		389
Liabilities
Contingent consideration		70,543		70,543		45,102		45,102
Derivative liabilities		514		514		446		446
Convertible debt (1)		379,981		547,113		365,987		659,525

(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.

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, 2018 and 2017:


	December 31, 2018
	Available-for-Sale									Fair Market
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Value of Investments with Unrealized Losses
	(in thousands)
U.S. Treasury securities	$	110,969	$	112	$	(1,360	)	$	109,721	$	75,040
Commercial paper		86,130		13		(26	)		86,117		85,094
Corporate debt securities		41,133		432		(1,545	)		40,020		24,767
U.S. government agency securities		9,646		1		(36	)		9,611		7,077
Certificates of deposit and time deposits		7,604		—		—			7,604		—
Debt mutual funds		3,153		34		—			3,187		—
Non-U.S. government securities		376		—		—			376		—
	$	259,011	$	592	$	(2,967	)	$	256,636	$	191,978

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	190,100	$	88	$	(92	)	$	190,096	$	140,262
Long-term marketable securities		68,911		504		(2,875	)		66,540		51,716
	$	259,011	$	592	$	(2,967	)	$	256,636	$	191,978


	December 31, 2017
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
U.S. Treasury securities	$	858,258	$	72	$	(2,535	)	$	855,795	$	850,163
Commercial paper		283,009		18		(187	)		282,840		258,933
Certificates of deposit and time deposits		167,523		6		(187	)		167,342		138,340
Corporate debt securities		131,179		2,380		(373	)		133,186		91,010
Equity and debt mutual funds		19,403		4,102		(75	)		23,430		1,723
U.S. government agency securities		10,775		—		(49	)		10,726		10,727
Non-U.S. government securities		582		4		—			586		—
	$	1,470,729	$	6,582	$	(3,406	)	$	1,473,905	$	1,350,896

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	1,349,970	$	38	$	(2,029	)	$	1,347,979	$	1,288,844
Long-term marketable securities		120,759		6,544		(1,377	)		125,926		62,052
	$	1,470,729	$	6,582	$	(3,406	)	$	1,473,905	$	1,350,896

As of December 31, 2018, the fair market value of investments with unrealized losses totaled $192.0 million. Of this value, $28.5 million had unrealized losses of $1.6 million greater than one year and $163.5 million had unrealized losses of $1.4 million for less than one year.

As of December 31, 2017, the fair market value of investments with unrealized losses totaled $1,350.9 million. Of this value, $141.0 million had unrealized losses of $1.2 million greater than one year and $1,209.9 million had unrealized losses of $2.2 million 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, 2018 and 2017, were temporary.

The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2018 were as follows:


	Cost		Fair Value
	(in thousands)
Due within one year	$	190,100	$	190,096
Due after 1 year through 5 years		9,199		9,144
Due after 5 years through 10 years		14,081		13,405
Due after 10 years		42,478		40,804
Total	$	255,858	$	253,449

Contractual maturities of investments is available-for-sale marketable securities held at December 31, 2018 exclude $

3.2 million of debt mutual funds as they do not have a contractual maturity date.

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, 2018 and 2017, 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, 2018								December 31, 2017
	Buy Position			Sell Position		Net Total			Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(35.0	)	$	—	$	(35.0	)	$	(35.7	)	$	—	$	(35.7	)
Taiwan Dollar		(11.2	)		—		(11.2	)		(9.9	)		—		(9.9	)
Korean Won		(9.6	)		—		(9.6	)		(8.9	)		—		(8.9	)
British Pound Sterling		(1.4	)		—		(1.4	)		(1.4	)		—		(1.4	)
Euro		—			82.2		82.2			—			27.4		27.4
Singapore Dollar		—			15.7		15.7			—			33.5		33.5
Philippine Peso		—			5.2		5.2			—			—		—
Chinese Yuan		—			2.8		2.8			—			—		—
Total	$	(57.2	)	$	105.9	$	48.7		$	(55.9	)	$	60.9	$	5.0

The fair value of the outstanding contracts was a loss of $0.4 million and $0.1 million, respectively, at December 31, 2018 and 2017.

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, 2018 and 2017:


	Balance Sheet Location	December 31, 2018			December 31, 2017
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Prepayments	$	79		$	389
Foreign exchange contracts	Other current liabilities		(514	)		(446	)
Total derivatives		$	(435	)	$	(57	)

The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2018, 2017, and 2016.


	Location of (Gains) Losses Recognized in Statement of Operations	2018		2017			2016
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	7,257	$	(1,133	)	$	8,671

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

(2)	For the years ended December 31, 2018 and 2016, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.4 million and $8.0 million, respectively.

(3)	For the year ended December 31, 2017, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.9 million.

See Note H: “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. There were no customers who accounted for more than 10% of Teradyne’s accounts receivable balance as of December 31, 2018 and December 31, 2017.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details