XML 35 R16.htm IDEA: XBRL DOCUMENT

Financial Instruments

3 Months Ended

Mar. 31, 2019

G. 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 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 three months ended March 31, 2019 and April 1, 2018, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in the three months ended March 31, 2019 and April 1, 2018 were $0.1 million and $0.3 million, respectively. Realized losses recorded in the three months ended March 31, 2019 and April 1, 2018 were $0.1 million and $1.5 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 on equity securities are included in interest income and unrealized losses are included in interest expense. Unrealized gains related to equity securities recognized in the three months ended March 31, 2019 were $2.8 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 March 31, 2019 and December 31, 2018.

	March 31, 2019
	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	$	222,714	$	—	$	—	$	222,714
Cash equivalents		186,520		74,494		—		261,014
Available-for-sale securities:
U.S. Treasury securities		—		191,043		—		191,043
Commercial paper		—		180,604		—		180,604
Corporate debt securities		—		91,244		—		91,244
Certificates of deposit and time deposits		—		11,496		—		11,496
U.S. government agency securities		—		9,629		—		9,629
Debt mutual funds		3,331		—		—		3,331
Non-U.S. government securities		—		378		—		378
Equity securities:
Mutual funds		25,289		—		—		25,289
	$	437,854	$	558,888	$	—	$	996,742
Derivative assets		—		17		—		17
Total	$	437,854	$	558,905	$	—	$	996,759
Liabilities
Contingent consideration	$	—	$	—	$	38,313	$	38,313
Derivative liabilities		—		291		—		291
Total	$	—	$	291	$	38,313	$	38,604

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	409,234	$	74,494	$	—	$	483,728
Marketable securities		—		421,088		—		421,088
Long-term marketable securities		28,620		63,306		—		91,926
Prepayments		—		17		—		17
Total	$	437,854	$	558,905	$	—	$	996,759
Liabilities
Other current liabilities	$	—	$	291	$	—	$	291
Contingent consideration		—		—		22,803		22,803
Long-term contingent consideration		—		—		15,510		15,510
Total	$	—	$	291	$	38,313	$	38,604

	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 accrued liabilities	$	—	$	514	$	—	$	514
Contingent consideration		—		—		34,865		34,865
Long-term contingent consideration		—		—		35,678		35,678
Total	$	—	$	514	$	70,543	$	71,057

Changes in the fair value of Level 3 contingent consideration for the three months ended March 31, 2019 and April 1, 2018 were as follows:

	For the Three Months Ended
	March 31,			April 1,
	2019			2018
	(in thousands)
Balance at beginning of period	$	70,543		$	45,102
Foreign currency impact		(610	)		—
Payments (a)		(34,590	)		(24,553	)
Fair value adjustment (b)		2,970			(4,968	)
Balance at end of period	$	38,313		$	15,581

(a)

In the three months ended March 31, 2019, Teradyne paid $

30.8

million and $3.8 million of contingent consideration for the earn-outs in connection with the acquisition of MiR and Universal Robots A/S (“Universal Robots”), respectively. In the three months ended April 1, 2018, Teradyne paid

24.6

million of contingent consideration for the earn-out in connection with the acquisition of Universal Robots.

(b)

In the three months ended March 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was increased by

3.0

million. In the three months ended April 1, 2018, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was decreased by

5.0

million, primarily due to a decrease in forecasted revenue.

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

Liability

March 31,

2019

Fair

Value

Valuation

Technique

Unobservable Inputs

Weighted

Average

(in thousands)

Contingent consideration (MiR)

38,313

Monte Carlo Simulation

Revenue volatility

17.0

Discount Rate

0.4

As of March 31, 2019, 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 March 31, 2019, the maximum amount of contingent consideration that could be paid in connection with the acquisition of MiR is $83.2 million.

The remaining earn-out periods end on

December 31, 2019 and December 31, 2020.

The carrying amounts and fair values of Teradyne’s financial instruments at March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	483,728	$	483,728	$	926,752	$	926,752
Marketable securities		513,014		513,014		277,827		277,827
Derivative assets		17		17		79		79
Liabilities
Contingent consideration		38,313		38,313		70,543		70,543
Derivative liabilities		291		291		514		514
Convertible debt (1)		383,590		644,575		379,981		547,113

(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 value due to the short-term nature of these instruments.

The following table summarizes the composition of available-for-sale marketable securities at March 31, 2019:

	March 31, 2019
	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	$	191,715	$	144	$	(816	)	$	191,043	$	82,132
Commercial paper		180,610		1		(7	)		180,604		11,237
Corporate debt securities		90,402		1,343		(501	)		91,244		18,150
Certificates of deposit and time deposits		11,497		1		(2	)		11,496		4,419
U.S. government agency securities		9,646		4		(21	)		9,629		4,101
Debt mutual funds		3,255		76		—			3,331		—
Non-U.S. government securities		378		—		—			378		—
	$	487,503	$	1,569	$	(1,347	)	$	487,725	$	120,039

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	421,024	$	126	$	(62	)	$	421,088	$	91,100
Long-term marketable securities		66,479		1,443		(1,285	)		66,637		28,939
	$	487,503	$	1,569	$	(1,347	)	$	487,725	$	120,039

The following table summarizes the composition of available-for-sale marketable securities at December 31, 2018:

	December 31, 2018
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Value Market		Fair Market 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 Value Market		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

As of March 31, 2019, the fair market value of investments in available-for-sale securities with unrealized losses totaled $120.0 million. Of this value, $32.9 million had unrealized losses of $1.3 million for greater than one year and $87.1 million had unrealized losses of $0.1 million for less than one year.

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.

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 March 31, 2019 and December 31, 2018 were temporary.

The contractual maturities of investments in available-for-sale securities held at March 31, 2019 were as follows:

	March 31, 2019
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	421,024	$	421,088
Due after 1 year through 5 years		9,325		9,343
Due after 5 years through 10 years		14,026		13,659
Due after 10 years		39,873		40,304
Total	$	484,248	$	484,394

Contractual maturities of investments in available-for-sale securities held at March 31, 2019 exclude $3.3 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 monetary assets and liabilities denominated in foreign currencies.

The notional amount of foreign currency forward contracts at March 31, 2019 and December 31, 2018 was $148.8 million and $163.1 million, respectively.

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 March 31, 2019 and December 31, 2018:

	Balance Sheet Location	March 31, 2019			December 31, 2018
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Prepayments	$	17		$	79
Foreign exchange contracts	Other current liabilities		(291	)		(514	)
Total derivatives		$	(274	)	$	(435	)

The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three months ended March 31, 2019 and April 1, 2018.

	Location of Losses (Gains)	For the Three Months Ended
	Recognized in	March 31,		April 1,
	Statement of Operations	2019		2018
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	3,934	$	1,575

(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 months ended March 31, 2019 and April 1, 2018, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $ 3.2 million and $ 0.6 million, respectively.

See Note I: “Debt” regarding derivatives related to the convertible senior notes.

- 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