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Financial Instruments (Tables)

9 Months Ended

Sep. 27, 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 September 27, 2020 and December 31, 2019.

		September 27, 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		$	267,013			$	—			$	—			$	267,013
Cash equivalents			663,301				14,866				—				678,167
Available-for-sale securities:
U.S. Treasury securities			—				202,766				—				202,766
Commercial paper			—				102,149				—				102,149
Corporate debt securities			—				50,715				—				50,715
Debt mutual funds			6,852				—				—				6,852
U.S. government agency securities			—				4,346				—				4,346
Certificates of deposit and time deposits			—				2,416				—				2,416
Non-U.S. government securities			—				619				—				619
Equity securities:
Mutual funds			26,180				—				—				26,180
		$	963,346			$	377,877			$	—			$	1,341,223
Derivative assets			—				25				—				25
Total		$	963,346			$	377,902			$	—			$	1,341,248
Liabilities
Contingent consideration		$	—			$	—			$	22,531			$	22,531
Derivative liabilities			—				185				—				185
Total		$	—			$	185			$	22,531			$	22,716
Reported as follows:

		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	930,314			$	14,866			$	—			$	945,180
Marketable securities			—				287,789				—				287,789
Long-term marketable securities			33,032				75,222				—				108,254
Prepayments and other current assets			—				25				—				25
Total		$	963,346			$	377,902			$	—			$	1,341,248
Liabilities			.
Other current liabilities		$	—			$	185			$	—			$	185
Long-term contingent consideration			—				—				22,531				22,531
Total		$	—			$	185			$	22,531			$	22,716

		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 nine months ended September 27, 2020 and September 29, 2019 were as follows:

		For the Three Months Ended								For the Nine Months Ended
		September 27,				September 29,				September 27,				September 29,
		2020				2019				2020				2019
		(in thousands)
Balance at beginning of period		$	49,737			$	26,847			$	39,705			$	70,543
Fair value adjustment (a)(b)(c)			(27,206	)			(7,759	)			(7,967	)			(16,460	)
Payments (d)(e)			—				—				(8,852	)			(34,590	)
Foreign currency impact			—				(1,008	)			(355	)			(1,413	)
Balance at end of period		$	22,531			$	18,080			$	22,531			$	18,080

(a) In the three and nine months ended September 27, 2020, the fair value of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide decreased by $27.2 million and $4.4 million, respectively, due to lower forecasted results. Teradyne has received a letter from the sellers of AutoGuide alleging non-compliance with the earn-out provisions of the AutoGuide acquisition agreement. Teradyne disputes the allegations of non-compliance. The ultimate amount of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide may be affected by the outcome of the dispute.

(b) In the nine months ended September 27, 2020, the fair value of contingent consideration for the earn-outs in connection with the acquisition of MiR decreased by $3.5 million due to lower forecasted results.

(c) In the three and nine months ended September 29, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR decreased by $7.8 million and $16.5 million, respectively, primarily due to a decrease in the forecasted revenue, partially offset by impact from the modification of the earn-out structure in the three months ended September 29, 2019.

(d) In the nine months ended September 27, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of MiR.

(e) In the nine months ended September 29, 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.

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		September 27, 2020  Fair Value				Valuation Technique				Unobservable Inputs		Weighted Average
		(in thousands)
Contingent consideration (AutoGuide)		$	22,531				Monte Carlo Simulation			Revenue volatility			17.5	%
										Discount Rate			1.4	%
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 September 27, 2020 and December 31, 2019 were as follows:

		September 27, 2020								December 31, 2019
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Assets
Cash and cash equivalents		$	945,180			$	945,180			$	773,924			$	773,924
Marketable securities			396,043				396,043				241,793				241,793
Derivative assets			25				25				528				528
Liabilities
Contingent consideration			22,531				22,531				39,705				39,705
Derivative liabilities			185				185				203				203
Convertible debt (1)			406,178				1,151,460				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 September 27, 2020:

		September 27, 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		$	201,193			$	1,606			$	(33	)		$	202,766			$	20,611
Commercial paper			102,141				8				—				102,149				500
Corporate debt securities			44,350				6,417				(52	)			50,715				2,207
Debt mutual funds			6,661				191				—				6,852				—
U.S. government agency securities			4,288				60				(2	)			4,346				1,113
Certificates of deposit and time deposits			2,414				2				—				2,416				—
Non-U.S. government securities			619				—				—				619				—
		$	361,666			$	8,284			$	(87	)		$	369,863			$	24,431

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	287,670			$	128			$	(9	)		$	287,789			$	18,953
Long-term marketable securities			73,996				8,156				(78	)			82,074				5,478
		$	361,666			$	8,284			$	(87	)		$	369,863			$	24,431

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 September 27, 2020 were as follows:

		September 27, 2020
		Cost				Fair Market Value
		(in thousands)
Due within one year		$	287,670			$	287,789
Due after 1 year through 5 years			20,790				21,266
Due after 5 years through 10 years			13,021				14,211
Due after 10 years			33,524				39,745
Total		$	355,005			$	363,011

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

The following table summarizes the fair value of derivative instruments as of September 27, 2020 and December 31, 2019:

		Balance Sheet Location		September 27, 2020				December 31, 2019
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Prepayments		$	25			$	528
Foreign exchange contracts		Other current liabilities			(185	)			(203	)
Total derivatives				$	(160	)		$	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 nine months ended September 27, 2020 and September 29, 2019:

		Location of (Gains) Losses		For the Three Months Ended								For the Nine Months Ended
		Recognized in		September 27,				September 29,				September 27,				September 29,
		Statement of Operations		2020				2019				2020				2019
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Other (income) expense, net		$	(551	)		$	3,699			$	3,930			$	7,872

(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 September 27, 2020, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.2 million. For the nine months ended September 27, 2020, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $0.4 million.

(3) For the three months ended September 29, 2019, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.5 million. For the nine months ended September 29, 2019, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $3.4 million.

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