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Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

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 June 30, 2019 and December 31, 2018.

		June 30, 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		$	235,370			$	—			$	—			$	235,370
Cash equivalents			223,150				36,587				—				259,737
Available-for-sale securities:
U.S. Treasury securities			—				190,322				—				190,322
Commercial paper			—				154,910				—				154,910
Corporate debt securities			—				94,431				—				94,431
Certificates of deposit and time deposits			—				19,723				—				19,723
U.S. government agency securities			—				9,838				—				9,838
Debt mutual funds			3,299				—				—				3,299
Non-U.S. government securities			—				388				—				388
Equity securities:
Mutual funds			26,317				—				—				26,317
		$	488,136			$	506,199			$	—			$	994,335
Derivative assets			—				34				—				34
Total		$	488,136			$	506,233			$	—			$	994,369
Liabilities
Contingent consideration		$	—			$	—			$	26,847			$	26,847
Derivative liabilities			—				324				—				324
Total		$	—			$	324			$	26,847			$	27,171

Reported as follows:

		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	458,520			$	36,587			$	—			$	495,107
Marketable securities			—				400,227				—				400,227
Long-term marketable securities			29,616				69,385				—				99,001
Prepayments			—				34				—				34
Total		$	488,136			$	506,233			$	—			$	994,369
Liabilities				.
Other current liabilities		$	—			$	324			$	—			$	324
Contingent consideration			—				—				11,753				11,753
Long-term contingent consideration			—				—				15,094				15,094
Total		$	—			$	324			$	26,847			$	27,171

		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

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 June 30, 2019 and July 1, 2018 were as follows:

		For the Three Months Ended								For the Six Months Ended
		June 30, 2019				July 1, 2018				June 30, 2019				July 1, 2018
		(in thousands)
Balance at beginning of period		$	38,313			$	15,581			$	70,543			$	45,102
Fair value adjustment (a)			(11,672	)			(3,500	)			(8,701	)			(8,468	)
Foreign currency impact			206				(2,566	)			(405	)			(2,566	)
Payments (b)			—				—				(34,590	)			(24,553	)
Acquisition of MiR			—				51,399				—				51,399
Balance at end of period		$	26,847			$	60,914			$	26,847			$	60,914

(a) In the three and six months ended June 30, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $11.7 million and $8.7 million, respectively, primarily due to a decrease in the forecasted revenue. In the three and six months ended July 1, 2018, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots A/S (“Universal Robots”) was decreased by $3.5 million and $8.5 million, respectively, primarily due to a decrease in forecasted revenue.

(b) In the six months ended June 30, 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, respectively. In the six months ended July 1, 2018, Teradyne paid $24.6 million of contingent consideration for the earn-out in connection with the acquisition of Universal Robots.

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

June 30, 2019 Fair Value

Valuation Technique

Unobservable Inputs

Weighted Average

(in thousands)

Contingent consideration (MiR)

$

26,847

Monte Carlo Simulation

Revenue volatility

19.0%

Discount rate

0.2%

Schedule of Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of Teradyne’s financial instruments at June 30, 2019 and December 31, 2018 were as follows:

		June 30, 2019								December 31, 2018
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Assets
Cash and cash equivalents		$	495,107			$	495,107			$	926,752			$	926,752
Marketable securities			499,228				499,228				277,827				277,827
Derivative assets			34				34				79				79
Liabilities
Contingent consideration			26,847				26,847				70,543				70,543
Derivative liabilities			324				324				514				514
Convertible debt (1)			387,243				747,213				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.

Schedule of Available-for-Sale Marketable Securities

The following table summarizes the composition of available-for-sale marketable securities at June 30, 2019:

		June 30, 2019
		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		$	189,927			$	668			$	(273	)		$	190,322			$	18,195
Commercial paper			154,903				9				(2	)			154,910				10,322
Corporate debt securities			91,553				3,035				(157	)			94,431				4,581
Certificates of deposit and time deposits			19,717				6				—				19,723				2,232
U.S. government agency securities			9,829				15				(6	)			9,838				2,947
Debt mutual funds			3,187				112				—				3,299				—
Non-U.S. government securities			388				—				—				388				—
		$	469,504			$	3,845			$	(438	)		$	472,911			$	38,277

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	399,852			$	391			$	(16	)		$	400,227			$	21,708
Long-term marketable securities			69,652				3,454				(422	)			72,684				16,569
		$	469,504			$	3,845			$	(438	)		$	472,911			$	38,277

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 Market Value				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 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

Contractual Maturities of Investments Held

The contractual maturities of investments in available-for-sale securities held at June 30, 2019 were as follows:

		June 30, 2019
		Cost				Fair Market Value
		(in thousands)
Due within one year		$	399,852			$	400,227
Due after 1 year through 5 years			12,304				12,411
Due after 5 years through 10 years			14,101				14,156
Due after 10 years			40,060				42,818
Total		$	466,317			$	469,612

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

The following table summarizes the fair value of derivative instruments as of June 30, 2019 and December 31, 2018:

		Balance Sheet Location				June 30, 2019				December 31, 2018
						(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts – derivative assets			Prepayments			$	34			$	79
Foreign exchange contracts – derivative liabilities			Other current liabilities				(324	)			(514	)
Total derivatives						$	(290	)		$	(435	)

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 for the three and six months ended June 30, 2019 and July 1, 2018.

 

		Location of Losses (Gains) Recognized in Statement of Operations		For the Three Months Ended								For the Six Months Ended
				June 30, 2019				July 1, 2018				June 30, 2019				July 1, 2018
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Other (income) expense, net		$	239			$	1,826			$	4,173			$	3,401

(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 June 30, 2019, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.3 million. For the six months ended June 30, 2019, net gains from the remeasurement of monetary assets and liabilities denominated in 
foreign currencies were $1.9 million.

(3) For the three and six months ended July 1, 2018, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.9 million and $2.5 million, respectively.

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