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Financial Instruments (Tables)

6 Months Ended

Jun. 28, 2020

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 28, 2020 and December 31, 2019.

		June 28, 2020
		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		$	345,312			$	—			$	—			$	345,312
Cash equivalents			326,347				53,772				—				380,119
Available-for-sale securities:															—
U.S. Treasury securities			—				165,305				—				165,305
Commercial paper			—				63,844				—				63,844
Corporate debt securities			—				63,218				—				63,218
Certificates of deposit and time deposits			—				9,506				—				9,506
Debt mutual funds			6,876				—				—				6,876
U.S. government agency securities			—				4,425				—				4,425
Non-U.S. government securities			—				601				—				601
Equity securities:
Mutual funds			22,984				—				—				22,984
		$	701,519			$	360,671			$	—			$	1,062,190
Derivative assets			—				30				—				30
Total		$	701,519			$	360,701			$	—			$	1,062,220
Liabilities
Contingent consideration		$	—			$	—			$	49,737			$	49,737
Derivative liabilities			—				222				—				222
Total		$	—			$	222			$	49,737			$	49,959
Reported as follows:
		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	671,659			$	53,772			$	—			$	725,431
Marketable securities			—				229,791				—				229,791
Long-term marketable securities			29,860				77,108				—				106,968
Prepayments and other current assets			—				30				—				30
Total		$	701,519			$	360,701			$	—			$	1,062,220
Liabilities			.
Other current liabilities		$	—			$	222			$	—			$	222
Contingent consideration			—				—				16,789				16,789
Long-term contingent consideration			—				—				32,948				32,948
Total		$	—			$	222			$	49,737			$	49,959

		December 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		$	311,975			$	—			$	—				311,975
Cash equivalents			410,285				51,664				—				461,949
Available-for-sale securities:															—
Corporate debt securities			—				97,307				—				97,307
Commercial paper			—				54,149				—				54,149
U.S. Treasury securities			—				42,382				—				42,382
U.S. government agency securities			—				9,952				—				9,952
Debt mutual funds			6,888				—				—				6,888
Certificates of deposit and time deposits			—				4,751				—				4,751
Non-U.S. government securities			—				592				—				592
Equity securities:
Equity mutual funds			25,772				—				—				25,772
		$	754,920			$	260,797			$	—			$	1,015,717
Derivative assets			—				528				—				528
Total		$	754,920			$	261,325			$	—			$	1,016,245
Liabilities
Contingent consideration		$	—			$	—			$	39,705			$	39,705
Derivative liabilities			—				203				—				203
Total		$	—			$	203			$	39,705			$	39,908
Reported as follows:
		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	722,260			$	51,664			$	—			$	773,924
Marketable securities			—				137,303				—				137,303
Long-term marketable securities			32,660				71,830				—				104,490
Prepayments and other current assets			—				528				—				528
Total		$	754,920			$	261,325			$	—			$	1,016,245
Liabilities
Other accrued liabilities		$	—			$	203			$	—			$	203
Contingent consideration			—				—				9,106				9,106
Long-term contingent consideration			—				—				30,599				30,599
Total		$	—			$	203			$	39,705			$	39,908

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 28, 2020 and June 30, 2019 were as follows:

		For the Three Months Ended								For the Six Months Ended
		June 28,				June 30,				June 28,				June 30,
		2020				2019				2020				2019
		(in thousands)
Balance at beginning of period		$	20,472			$	38,313			$	39,705			$	70,543
Foreign currency impact			6				206				(355	)			(405	)
Payments (a)(b)			—				—				(8,852	)			(34,590	)
Fair value adjustment (c)(d)			29,259				(11,672	)			19,239				(8,701	)
Balance at end of period		$	49,737			$	26,847			$	49,737			$	26,847

(a) In the six months ended June 28, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of MiR.

(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 A/S (“Universal Robots”), respectively.

(c) In the three and six months ended June 28, 2020, the fair value of contingent consideration for the earn-outs in connection with the acquisition of MiR decreased by $0.6 million and $3.6 million, respectively, due to lower forecasted results. In the three and six months ended June 28, 2020, the fair value of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide increased by $29.9 million and $22.8 million, respectively, due to higher forecasted results.

(d) 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 decreased by $11.7 million and $8.7 million, respectively, primarily due to a decrease in the 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		June 28, 2020 Fair Value				Valuation Technique		Unobservable Inputs		Weighted Average
		(in thousands)
Contingent consideration (AutoGuide)		$	49,737			Monte Carlo Simulation		Revenue volatility			15.5	%
								Discount Rate			1.8	%
Contingent consideration (MiR)		$	—			Monte Carlo Simulation		Revenue volatility			10.0	%
								Discount Rate			0.8	%

Schedule of Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of Teradyne’s financial instruments at June 28, 2020 and December 31, 2019 were as follows:

		June 28, 2020								December 31, 2019
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Assets
Cash and cash equivalents		$	725,431			$	725,431			$	773,924			$	773,924
Marketable securities			336,759				336,759				241,793				241,793
Derivative assets			30				30				528				528
Liabilities
Contingent consideration			49,737				49,737				39,705				39,705
Derivative liabilities			222				222				203				203
Convertible debt (1)			402,305				1,198,669				394,687				1,010,275

(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 28, 2020:

		June 28, 2020
		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		$	163,586			$	1,734			$	(15	)		$	165,305			$	18,709
Commercial paper			63,774				70				—				63,844				—
Corporate debt securities			56,672				6,682				(136	)			63,218				1,447
Certificates of deposit and time deposits			9,498				8				—				9,506				—
Debt mutual funds			6,686				190				—				6,876				—
U.S. government agency securities			4,353				72				—				4,425				—
Non-U.S. government securities			601				—				—				601				—
		$	305,170			$	8,756			$	(151	)		$	313,775			$	20,156

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	229,471			$	331			$	(11	)		$	229,791			$	17,366
Long-term marketable securities			75,699				8,425				(140	)			83,984				2,790
		$	305,170			$	8,756			$	(151	)		$	313,775			$	20,156

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

		December 31, 2019
		Available-for-Sale
		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Corporate debt securities		$	93,267			$	4,081			$	(41	)		$	97,307			$	2,009
Commercial paper			54,124				26				(1	)			54,149				1,391
U.S. Treasury securities			42,167				431				(216	)			42,382				17,556
U.S. government agency securities			9,942				14				(4	)			9,952				3,043
Debt mutual funds			6,753				135				—				6,888				—
Certificates of deposit and time deposits			4,751				—				—				4,751				—
Non-U.S. government securities			592				—				—				592				—
		$	211,596			$	4,687			$	(262	)		$	216,021			$	23,999

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	137,144			$	160			$	(1	)		$	137,303			$	2,922
Long-term marketable securities			74,452				4,527				(261	)			78,718				21,077
		$	211,596			$	4,687			$	(262	)		$	216,021			$	23,999

Contractual Maturities of Investments Held

The contractual maturities of investments in available-for-sale securities held at June 28, 2020 were as follows:

		June 28, 2020
		Cost				Fair Market Value
		(in thousands)
Due within one year		$	229,471			$	229,791
Due after 1 year through 5 years			21,054				21,587
Due after 5 years through 10 years			13,762				14,974
Due after 10 years			34,197				40,547
Total		$	298,484			$	306,899

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 28, 2020 and December 31, 2019:

		Balance Sheet Location				June 28, 2020				December 31, 2019
						(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts			Prepayments			$	30			$	528
Foreign exchange contracts			Other current liabilities				(222	)			(203	)
Total derivatives						$	(192	)		$	325

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 28, 2020 and June 30, 2019:

Location of (Gains) Losses

For the Three Months Ended

For the Six Months Ended

Recognized in

June 28,

June 30,

June 28,

June 30,

Statement of Operations

2020

2019

2020

2019

(in thousands)

Derivatives not designated as hedging instruments:

Foreign exchange contracts

Other (income) expense, net

$470

$239

$4,481

$4,173

(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 three months ended June 28, 2020, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $0.4 million. For the six months ended June 28, 2020, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 million.

(3) 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.

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

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