Financial Instruments and Derivatives (Tables)

9 Months Ended

Oct. 02, 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 October 2, 2016 and December 31, 2015.

	October 2, 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	$	241,687	$	—	$	—	$	241,687
Cash equivalents		55,576		674		—		56,250
Available-for-sale securities:
U.S. Treasury securities		—		676,310		—		676,310
Corporate debt securities		—		117,260		—		117,260
Certificates of deposit and time deposits		—		66,140		—		66,140
Commercial paper		—		52,324		—		52,324
U.S. government agency securities		—		25,802		—		25,802
Equity and debt mutual funds		17,666		—		—		17,666
Non-U.S. government securities		—		750		—		750
Total		314,929		939,260		—		1,254,189
Derivative assets		—		1		—		1
Total	$	314,929	$	939,261	$	—	$	1,254,190
Liabilities
Contingent consideration	$	—	$	—	$	32,887	$	32,887
Derivative liabilities		—		361		—		361
Total	$	—	$	361	$	32,887	$	33,248

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	297,263	$	674	$	—	$	297,937
Marketable securities		—		598,501		—		598,501
Long-term marketable securities		17,666		340,085		—		357,751
Prepayments		—		1		—		1
	$	314,929	$	939,261	$	—	$	1,254,190
Liabilities		.
Other current liabilities	$	—	$	361	$	—	$	361
Contingent consideration		—		—		1,050		1,050
Long-term contingent consideration		—		—		31,837		31,837
	$	—	$	361	$	32,887	$	33,248

	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 nine months ended October 2, 2016 and October 4, 2015 were as follows:

	For the Three Months Ended					For the Nine Months Ended
	October 2, 2016		October 4, 2015			October 2, 2016			October 4, 2015
	(in thousands)
Balance at beginning of period	$	24,914	$	35,595		$	37,436		$	3,350
Acquisition of Universal Robots		—		—			—			33,845
Payments (a)		—		—			(15,000	)		—
Fair value adjustment (b)(c)(d)(e)		7,973		(1,000	)		10,451			(2,600	)
Balance at end of period	$	32,887	$	34,595		$	32,887		$	34,595

(a) In the nine months ended October 2, 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 nine months ended October 2, 2016, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was increased by $8.0 million and $9.9 million, respectively, primarily due to an increase in forecasted revenue and a decrease in the discount rate.

(c) In the nine months ended October 2, 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 nine months ended October 4, 2015, the fair value of contingent consideration for the earn-out in connection with the acquisition of AIT was reduced by $1.0 million due to a decrease in the revenue probabilities.

(e) In the nine months ended October 4, 2015, the fair value measurement of the contingent consideration for the earn-out in connection with the acquisition of ZTEC Instruments, Inc. was reduced by $1.6 million, 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	October 2, 2016 Fair Value	Valuation Technique	Unobservable Inputs	Weighted Average
	(in thousands)
Contingent consideration (Universal Robots)	$19,824	Monte Carlo Simulation	Revenue volatility for the period July 1, 2015—December 31, 2017		10.7%
			Discount Rate		3.2%
	$12,013	Monte Carlo Simulation	Revenue volatility for the period July 1, 2015—December 31, 2018		10.7%
			Discount Rate		3.2%
Contingent consideration (AIT)	$1,050	Income approach- discounted cash flow	Revenue probability for calendar year 2016 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 October 2, 2016 and December 31, 2015 were as follows:

	October 2, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	297,937	$	297,937	$	264,705	$	264,705
Marketable securities		956,252		956,252		743,624		743,624
Derivative assets		1		1		109		109
Liabilities
Contingent consideration		32,887		32,887		37,436		37,436
Derivative liabilities		361		361		146		146

Schedule of Available-for-Sale Marketable Securities

The following tables summarize the composition of available-for-sale marketable securities at October 2, 2016 and December 31, 2015:

	October 2, 2016
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gains		Unrealized (Losses)			Fair Market Value
	(in thousands)
U.S. Treasury securities	$	675,745	$	906	$	(341	)	$	676,310	$	371,188
Corporate debt securities		114,752		2,755		(247	)		117,260		43,552
Certificates of deposit and time deposits		66,115		30		(5	)		66,140		14,402
Commercial paper		52,323		15		(14	)		52,324		25,317
U.S. government agency securities		25,738		64		—			25,802		3,830
Equity and debt mutual funds		15,801		1,870		(5	)		17,666		348
Non-U.S. government securities		756		17		(23	)		750		137
	$	951,230	$	5,657	$	(635	)	$	956,252	$	458,774

Reported as follows:

	Cost		Unrealized Gains		Unrealized (Losses)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	598,416	$	218	$	(133	)	$	598,501	$	273,604
Long-term marketable securities		352,814		5,439		(502	)		357,751		185,170
	$	951,230	$	5,657	$	(635	)	$	956,252	$	458,774

	December 31, 2015
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gains		Unrealized (Losses)			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 Gains		Unrealized (Losses)			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 October 2, 2016 were as follows:

	October 2, 2016
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	598,416	$	598,501
Due after 1 year through 5 years		288,344		288,370
Due after 5 years through 10 years		12,787		13,026
Due after 10 years		35,882		38,689
Total	$	935,429	$	938,586

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

The following table summarizes the fair value of derivative instruments at October 2, 2016 and December 31, 2015:

	Balance Sheet Location		October 2, 2016			December 31, 2015
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts assets		Prepayments	$	1		$	109
Foreign exchange contracts liabilities		Other current liabilities		(361	)		(146	)
Total derivatives			$	(360	)	$	(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 nine months ended October 2, 2016 and October 4, 2015.

	Location of (Gains) Losses Recognized in Statement of Operations		For the Three Months Ended				For the Nine Months Ended
			October 2, 2016		October 4, 2015		October 2, 2016		October 4, 2015
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Other (income) expense, net	$	941	$	677	$	11,140	$	2,555
Total Derivatives			$	941	$	677	$	11,140	$	2,555