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Financial Instruments

12 Months Ended

Dec. 31, 2020

Financial Instruments

H.    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 recognizes the changes in fair value of equity securities directly in earnings. Teradyne’s available-for-sale debt securities are classified as Level 2, and equity and debt mutual funds 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, 2020 and 2019, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in 2020, 2019, and 2018 were $4.6 million, $1.3 million, and $4.0 million, respectively. Realized losses recorded in 2020, 2019, and 2018 were $0.3 million, $0.2 million, and $1.6 million, respectively. Realized gains and losses are included in other (income) expense, net.

Unrealized gains on equity securities recorded during the years ended December 31, 2020 and 2019 were $9.6 million and $5.3 million, respectively. Unrealized losses on equity securities recorded during the years ended December 31, 2020 and 2019 were $6.0 million and $0.4 million, respectively. Unrealized gains and losses on equity securities are included in other (income) expense, net. Unrealized gains and losses on available-for-sale debt securities are included in accumulated other comprehensive income (loss) on the balance sheet.

The cost of securities sold is based on the first-in first out 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, 2020 and 2019:

		December 31, 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		$	443,166			$	—			$	—			$	443,166
Cash equivalents			347,768				123,187				—				470,955
Available for sale securities:
U.S. Treasury securities			—				258,304				—				258,304
Commercial paper			—				254,413				—				254,413
Corporate debt securities			—				83,615				—				83,615
Debt mutual funds			8,565				—				—				8,565
U.S. government agency securities			—				4,339				—				4,339
Certificates of deposit and time deposits			—				979				—				979
Non-U.S. government securities			—				625				—				625
Equity securities:
Mutual funds			29,420				—				—				29,420
Total		$	828,919			$	725,462			$	—			$	1,554,381
Derivative assets			—				95				—				95
Total		$	828,919			$	725,557			$	—			$	1,554,476
Liabilities
Contingent consideration		$	—			$	—			$	7,227			$	7,227
Derivative liabilities			—				504				—				504
Total		$	—			$	504			$	7,227			$	7,731

Reported as follows:

		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	790,934			$	123,187			$	—			$	914,121
Marketable securities			—				522,280				—				522,280
Long-term marketable securities			37,985				79,995				—				117,980
Prepayments and other current assets			—				95				—				95
Total		$	828,919			$	725,557			$	—			$	1,554,476
Liabilities
Other current liabilities		$	—			$	504			$	—			$	504
Long-term contingent consideration			—				—				7,227				7,227
Total		$	—			$	504			$	7,227			$	7,731

		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:
Mutual funds			25,772				—				—				25,772
Total		$	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 current liabilities		$	—			$	203			$	—			$	203
Contingent consideration			—				—				9,106				9,106
Long-term contingent consideration			—				—				30,599				30,599
Total		$	—			$	203			$	39,705			$	39,908

Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2020 and 2019 were as follows:

		Contingent Consideration
		(in thousands)
Balance at December 31, 2018		$	70,543
Acquisition of AutoGuide			23,976
Foreign currency impact			(967	)
Payments (1)			(34,590	)
Fair value adjustment (2)			(19,257	)
Balance at December 31, 2019			39,705
Foreign currency impact			(355	)
Payments (3)			(8,852	)
Fair value adjustment (4)			(23,271	)
Balance at December 31, 2020		$	7,227

(1) During the year ended December 31, 2019, Teradyne paid $30.8 million and $3.8 million of contingent consideration for the earn-outs in connection with the acquisitions of MiR and Universal Robots A/S (“Universal Robots”), respectively.

(2) During the year ended December 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $22.2 million primarily due to a decrease in forecasted revenues partially offset by the impact from modification of the earn-out structure. During the year ended December 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was increased by $3.0 million primarily due to an increase in forecasted revenues

(3) During the year ended December 31, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of MiR.

(4) During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was decreased by $19.7 million primarily due to a decrease in forecasted revenues and earnings before interest and taxes. 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 allegation 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. During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $3.5 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, 2020 Fair Value

Valuation Technique

Unobservable Inputs

Weighted Average

(in thousands)

Contingent consideration (AutoGuide)

$

7,227

Monte Carlo simulation

Revenue Volatility

16.5%

Discount Rate

1.0%

As of December 31, 2020, the significant unobservable inputs used in the Monte Carlo simulation to fair value the AutoGuide 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, 2020, the maximum amount of contingent consideration that could be paid in connection with the acquisition of AutoGuide is $100.2 million. No payment was made related to the period ending December 31, 2020. The remaining earn-out periods end on December 31, 2021 and December 31, 2022.

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

		December 31, 2020								December 31, 2019
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Assets
Cash and cash equivalents		$	914,121			$	914,121			$	773,924			$	773,924
Marketable securities			640,260				640,260				241,793				241,793
Derivative assets			95				95				528				528
Liabilities
Contingent consideration			7,227				7,227				39,705				39,705
Derivative liabilities			504				504				203				203
Convertible debt (1)			410,111				1,739,553				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.

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, 2020 and 2019:

		December 31, 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		$	257,132			$	1,330			$	(158	)		$	258,304			$	17,243
Commercial paper			254,404				10				(1	)			254,413				12,173
Corporate debt securities			76,129				7,539				(53	)			83,615				39,896
Debt mutual funds			8,413				152				—				8,565				—
U.S. government agency securities			4,294				46				(1	)			4,339				1,106
Certificates of deposit and time deposits			979				—				—				979				—
Non-U.S. government securities			625				—				—				625				—
		$	601,976			$	9,077			$	(213	)		$	610,840			$	70,418

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	522,228			$	92			$	(40	)		$	522,280			$	61,806
Long-term marketable securities			79,748				8,985				(173	)			88,560				8,612
		$	601,976			$	9,077			$	(213	)		$	610,840			$	70,418

		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

As of December 31, 2020, the fair market value of investments with unrealized losses less than one year totaled $70.4 million.

As of December 31, 2019, the fair market value of investments with unrealized losses less than one year totaled $23.6 million.

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, 2020 and 2019, were not other than temporary.

The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2020 were as follows:

		Cost				Fair Value
		(in thousands)
Due within one year		$	522,228			$	522,280
Due after 1 year through 5 years			24,829				25,245
Due after 5 years through 10 years			13,030				14,183
Due after 10 years			33,476				40,567
Total		$	593,563			$	602,275

Contractual maturities of investments in available-for-sale marketable securities held at December 31, 2020 exclude debt mutual funds with the fair market value of $8.6 million 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, 2020 and 2019, 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, 2020												December 31, 2019
		Buy Position				Sell Position				Net Total				Buy Position				Sell Position				Net Total
		(in millions)
Japanese Yen		$	(14.1	)		$	—			$	(14.1	)		$	(29.3	)		$	—			$	(29.3	)
Taiwan Dollar			(27.9	)			—				(27.9	)			(18.4	)			—				(18.4	)
Korean Won			(5.3	)			—				(5.3	)			(10.7	)			—				(10.7	)
British Pound Sterling			(1.0	)			—				(1.0	)			(3.8	)			—				(3.8	)
Singapore Dollar			—				52.3				52.3				—				25.3				25.3
Euro			—				43.9				43.9				—				47.8				47.8
Philippine Peso			—				5.0				5.0				—				5.2				5.2
Chinese Yuan			—				3.4				3.4				—				4.4				4.4
Total		$	(48.3	)		$	104.6			$	56.3			$	(62.2	)		$	82.7			$	20.5

The fair value of the outstanding contracts was a loss of $0.4 million and a gain of $0.3 million, respectively, at December 31, 2020 and 2019.

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, 2020 and 2019:

		Balance Sheet Location		December 31, 2020				December 31, 2019
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Prepayments		$	95			$	528
Foreign exchange contracts		Other current liabilities			(504	)			(203	)
Total derivatives				$	(409	)		$	325

The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2020, 2019, and 2018.

		Location of (Gains) Losses Recognized in Statement of Operations		December 31, 2020				December 31, 2019				December 31, 2018
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Other (income) expense, net		$	3,515			$	5,960			$	7,386

(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, 2020, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.6 million.

(3) For the year ended December 31, 2019 and 2018, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 million and $2.5 million, respectively.

See Note J: “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. As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, LTD, accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021. There were no customers who accounted for 10% or more of our accounts receivable balance as of December 31, 2019.

X

- 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

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258

+ Details

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