Financial Instruments and Derivatives (Tables)

6 Months Ended

Jul. 03, 2016

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 July 3, 2016 and December 31, 2015.

	July 3, 2016
	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	$	196,155	$	—	$	—	$	196,155
Cash equivalents		125,314		59,626		—		184,940
Available-for-sale securities:
U.S. Treasury securities		—		475,631		—		475,631
Corporate debt securities		—		143,598		—		143,598
Commercial paper		—		32,978		—		32,978
Certificates of deposit and time deposits		—		27,974		—		27,974
U.S. government agency securities		—		27,218		—		27,218
Equity and debt mutual funds		16,674		—		—		16,674
Non-U.S. government securities		—		626		—		626
Total		338,143		767,651		—		1,105,794
Derivative assets		—		5		—		5
Total	$	338,143	$	767,656	$	—	$	1,105,799
Liabilities
Contingent consideration	$	—	$	—	$	24,914	$	24,914
Derivative liabilities		—		93		—		93
Total	$	—	$	93	$	24,914	$	25,007

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	321,469	$	59,626	$	—	$	381,095
Marketable securities		—		442,154		—		442,154
Long-term marketable securities		16,674		265,871		—		282,545
Prepayments		—		5		—		5
	$	338,143	$	767,656	$	—	$	1,105,799
Liabilities		.
Other accrued liabilities	$	—	$	93	$	—	$	93
Contingent consideration		—		—		1,050		1,050
Long-term contingent consideration		—		—		23,864		23,864
	$	—	$	93	$	24,914	$	25,007

	December 31, 2015
	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	$	213,336	$	—	$	—	$	213,336
Cash equivalents		49,241		2,128		—		51,369
Available for sale securities:
U.S. Treasury securities		—		419,958		—		419,958
Corporate debt securities		—		161,634		—		161,634
U.S. government agency securities		—		83,952		—		83,952
Certificates of deposit and time deposits		—		43,394		—		43,394
Commercial paper		—		20,308		—		20,308
Equity and debt mutual funds		13,954		—		—		13,954
Non-U.S. government securities		—		424		—		424
Total	$	276,531	$	731,798	$	—	$	1,008,329
Derivative assets		—		109		—		109
Total	$	276,531	$	731,907	$	—	$	1,008,438
Liabilities
Contingent consideration	$	—	$	—	$	37,436	$	37,436
Derivative liabilities		—		146		—		146
Total	$	—	$	146	$	37,436	$	37,582

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	262,577	$	2,128	$	—	$	264,705
Marketable securities		—		477,696		—		477,696
Long-term marketable securities		13,954		251,974		—		265,928
Prepayments		—		109		—		109
	$	276,531	$	731,907	$	—	$	1,008,438
Liabilities
Other accrued liabilities	$	—	$	146	$	—	$	146
Contingent consideration		—		—		15,500		15,500
Long-term contingent consideration		—		—		21,936		21,936
	$	—	$	146	$	37,436	$	37,582

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 July 3, 2016 and July 5, 2015 were as follows:

	For the Three Months Ended					For the Six Months Ended
	July 3, 2016		July 5, 2015			July 3, 2016			July 5, 2015
	(in thousands)
Balance at beginning of period	$	23,609	$	3,350		$	37,436		$	3,350
Acquisition of Universal Robots		—		33,845			—			33,845
Payments (a)		—		—			(15,000	)		—
Fair value adjustment (b)(c)(d)		1,305		(1,600	)		2,478			(1,600	)
Balance at end of period	$	24,914	$	35,595		$	24,914		$	35,595

(a) In the six months ended July 3, 2016, based on Universal Robots’ calendar year 2015 EBITDA results, Teradyne paid $15 million or 100% of the eligible EBITDA contingent consideration amount.

(b) In the three and six months ended July 3, 2016, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was increased by $0.8 million and $1.9 million, respectively, primarily due to a decrease in the discount rate.

(c) In the three and six months ended July 3, 2016, the fair value of contingent consideration for the earn-out in connection with the acquisition of Avionics Interface Technology, LLC (“AIT”) was increased by $0.6 million due to an increase in forecasted revenue.

(d) In the three and six months ended July 5, 2015, the fair value measurement of the contingent consideration for the earn-out in connection with the acquisition of ZTEC Instruments, Inc. (“ZTEC”) was reduced to $0 because Teradyne and the Securityholder Representative, on behalf of the ZTEC securityholders, agreed to terminate the earn-out prior to the end of the December 31, 2015 earn-out period, with no payout in connection with the resolution of indemnity claims asserted by both Teradyne and the Securityholder Representative.

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	July 3, 2016 Fair Value		Valuation Technique		Unobservable Inputs	Weighted Average
	(in thousands)
Contingent consideration (Universal Robots)		$16,922		Monte Carlo Simulation	Revenue for the period July 1, 2015—December 31, 2017 volatility		15.6%
					Discount Rate		4.0%
		$6,942		Monte Carlo Simulation	Revenue for the period July 1, 2015—December 31, 2018 volatility		15.6%
					Discount Rate		4.0%
Contingent consideration (AIT)		$1,050		Income approach- discounted cash flow	Revenue for calendar year 2016 probability Discount Rate		100% 4.0%

Schedule of Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of Teradyne’s financial instruments at July 3, 2016 and December 31, 2015 were as follows:

	July 3, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	381,095	$	381,095	$	264,705	$	264,705
Marketable securities		724,699		724,699		743,624		743,624
Derivative assets		5		5		109		109
Liabilities
Contingent consideration		24,914		24,914		37,436		37,436
Derivative liabilities		93		93		146		146

Schedule of Available-for-Sale Marketable Securities

The following tables summarize the composition of available-for-sale marketable securities at July 3, 2016 and December 31, 2015:

	July 3, 2016
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value
	(in thousands)
U.S. Treasury securities	$	473,958	$	1,684	$	(11	)	$	475,631	$	118,777
Corporate debt securities		140,995		3,060		(457	)		143,598		40,862
Commercial paper		32,959		19		—			32,978		—
Certificates of deposit and time deposits		27,958		16		—			27,974		—
U.S. government agency securities		27,151		67		—			27,218		2,421
Equity and debt mutual funds		15,278		1,424		(28	)		16,674		937
Non-U.S. government securities		610		16		—			626		—
	$	718,909	$	6,286	$	(496	)	$	724,699	$	162,997

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	441,840	$	336	$	(22	)	$	442,154	$	89,416
Long-term marketable securities		277,069		5,950		(474	)		282,545		73,581
	$	718,909	$	6,286	$	(496	)	$	724,699	$	162,997

	December 31, 2015
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value
	(in thousands)
U.S. Treasury securities	$	421,060	$	65	$	(1,167	)	$	419,958	$	379,434
Corporate debt securities		163,297		902		(2,565	)		161,634		145,373
U.S. government agency securities		84,032		42		(122	)		83,952		55,120
Certificates of deposit and time deposits		43,391		6		(3	)		43,394		10,527
Commercial paper		20,298		11		(1	)		20,308		8,646
Equity and debt mutual funds		12,996		1,119		(161	)		13,954		2,560
Non-U.S. government securities		424		—		—			424		—
	$	745,498	$	2,145	$	(4,019	)	$	743,624	$	601,660

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	478,306	$	38	$	(648	)	$	477,696	$	374,785
Long-term marketable securities		267,192		2,107		(3,371	)		265,928		226,875
	$	745,498	$	2,145	$	(4,019	)	$	743,624	$	601,660

Contractual Maturities of Investments Held

The contractual maturities of investments held at July 3, 2016 were as follows:

	July 3, 2016
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	441,840	$	442,154
Due after 1 year through 5 years		218,350		218,769
Due after 5 years through 10 years		4,699		4,962
Due after 10 years		38,742		42,140
Total	$	703,631	$	708,025

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

The following table summarizes the fair value of derivative instruments at July 3, 2016 and December 31, 2015:

	Balance Sheet Location		July 3, 2016			December 31, 2015
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts assets		Prepayments	$	5		$	109
Foreign exchange contracts liabilities		Other current liabilities		(93	)		(146	)
Total derivatives			$	(88	)	$	(37	)

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 during the three and six months ended July 3, 2016 and July 5, 2015.

	Location of (Gains) Losses Recognized in Statement of Operations		For the Three Months Ended					For the Six Months Ended
			July 3, 2016		July 5, 2015			July 3, 2016		July 5, 2015
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Other (income) expense, net	$	6,901	$	(1,547	)	$	10,199	$	1,878
Total Derivatives			$	6,901	$	(1,547	)	$	10,199	$	1,878