Financial Instruments (Tables)

6 Months Ended

Jul. 02, 2017

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 2, 2017 and December 31, 2016.

	July 2, 2017
	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	$	295,337	$	—	$	—	$	295,337
Cash equivalents		179,293		123,719		—		303,012
Available-for-sale securities:
U.S. Treasury securities		—		812,477		—		812,477
Commercial paper		—		73,275		—		73,275
Corporate debt securities		—		64,453		—		64,453
U.S. government agency securities		—		28,121		—		28,121
Certificates of deposit and time deposits		—		22,253		—		22,253
Equity and debt mutual funds		20,675		—		—		20,675
Non-U.S. government securities		—		585		—		585
Total	$	495,305	$	1,124,883	$	—	$	1,620,188
Derivative assets		—		23		—		23
Total	$	495,305	$	1,124,906	$	—	$	1,620,211
Liabilities
Contingent consideration	$	—	$	—	$	39,415	$	39,415
Derivative liabilities		—		304		—		304
Total	$	—	$	304	$	39,415	$	39,719

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	474,630	$	123,719	$	—	$	598,349
Marketable securities		—		809,338		—		809,338
Long-term marketable securities		20,675		191,826		—		212,501
Prepayments		—		23		—		23
	$	495,305	$	1,124,906	$	—	$	1,620,211
Liabilities		.
Other current liabilities	$	—	$	304	$	—	$	304
Contingent consideration		—		—		22,432		22,432
Long-term contingent consideration		—		—		16,983		16,983
	$	—	$	304	$	39,415	$	39,719

	December 31, 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	$	214,722	$	—	$	—	$	214,722
Cash equivalents		37,458		55,704		—		93,162
Available for sale securities:
U.S. Treasury securities		—		900,038		—		900,038
Commercial paper		—		161,630		—		161,630
Corporate debt securities		—		100,153		—		100,153
Certificates of deposit and time deposits		—		82,133		—		82,133
U.S. government agency securities		—		42,014		—		42,014
Equity and debt mutual funds		18,171		—		—		18,171
Non-U.S. government securities		—		728		—		728
Total	$	270,351	$	1,342,400	$	—	$	1,612,751
Derivative assets		—		1		—		1
Total	$	270,351	$	1,342,401	$	—	$	1,612,752
Liabilities
Contingent consideration	$	—	$	—	$	38,332	$	38,332
Derivative liabilities		—		131		—		131
Total	$	—	$	131	$	38,332	$	38,463

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	252,180	$	55,704	$	—	$	307,884
Marketable securities		—		871,024		—		871,024
Long-term marketable securities		18,171		415,672		—		433,843
Prepayments		—		1		—		1
	$	270,351	$	1,342,401	$	—	$	1,612,752
Liabilities
Other accrued liabilities	$	—	$	131	$	—	$	131
Contingent consideration		—		—		1,050		1,050
Long-term contingent consideration		—		—		37,282		37,282
	$	—	$	131	$	38,332	$	38,463

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 2, 2017 and July 3, 2016 were as follows:

	For the Three Months Ended				For the Six Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017			July 3, 2016
	(in thousands)
Balance at beginning of period	$	37,916	$	23,609	$	38,332		$	37,436
Payments (a)		—		—		(1,050	)		(15,000	)
Fair value adjustment (b)(c)		1,499		1,305		2,133			2,478
Balance at end of period	$	39,415	$	24,914	$	39,415		$	24,914

(a) In the six months ended July 2, 2017, Teradyne paid $1.1 million of contingent consideration for the earn-out in connection with the acquisition of Avionics Interface Technology, LLC (“AIT”). In the six months ended July 3, 2016, based on Universal Robot’s calendar year 2015 EBITA results, Teradyne paid $15.0 million or 100% of the eligible EBITA contingent consideration amount in connection with the acquisition of Universal Robots.

(b) In the three and six months ended July, 2, 2017, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots was increased by $1.5 million and $2.1 million, respectively, primarily due to a decrease in the discount rate. 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 acquisition of AIT was increased by $0.6 million due to an increase in 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	July 2, 2017 Fair Value	Valuation Technique	Unobservable Inputs	Weighted Average
	(in thousands)
Contingent consideration (Universal Robots)	$22,432	Monte Carlo Simulation	Revenue for the period July 1, 2015— December 31, 2017 volatility		12.8	%
			Discount Rate		2.9	%
	$16,983	Monte Carlo Simulation	Revenue for the period July 1, 2015— December 31, 2018 volatility		12.8	%
			Discount Rate		2.9	%

Schedule of Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of Teradyne’s financial instruments at July 2, 2017 and December 31, 2016 were as follows:

	July 2, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	598,349	$	598,349	$	307,884	$	307,884
Marketable securities		1,021,839		1,021,839		1,304,867		1,304,867
Derivative assets		23		23		1		1
Liabilities
Contingent consideration		39,415		39,415		38,332		38,332
Derivative liabilities		304		304		131		131
Convertible debt (1)		359,245		526,976		352,669		486,754

(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 tables summarize the composition of available-for-sale marketable securities at July 2, 2017 and December 31, 2016:

	July 2, 2017
	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	$	814,699	$	69	$	(2,291	)	$	812,477	$	808,057
Commercial paper		73,291		—		(16	)		73,275		65,401
Corporate debt securities		62,766		1,954		(267	)		64,453		33,059
U.S. government agency securities		28,135		7		(21	)		28,121		20,800
Certificates of deposit and time deposits		22,245		8		—			22,253		—
Equity and debt mutual funds		17,570		3,122		(17	)		20,675		1,371
Non-U.S. government securities		578		7		—			585		—
	$	1,019,284	$	5,167	$	(2,612	)	$	1,021,839	$	928,688

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	810,544	$	15	$	(1,221	)	$	809,338	$	770,963
Long-term marketable securities		208,740		5,152		(1,391	)		212,501		157,725
	$	1,019,284	$	5,167	$	(2,612	)	$	1,021,839	$	928,688

	December 31, 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	$	901,975	$	97	$	(2,034	)	$	900,038	$	572,284
Commercial paper		161,672		24		(66	)		161,630		84,034
Corporate debt securities		99,708		1,065		(620	)		100,153		53,642
Certificates of deposit and time deposits		82,080		54		(1	)		82,133		7,760
U.S. government agency securities		42,026		7		(19	)		42,014		13,461
Equity and debt mutual funds		16,505		1,724		(58	)		18,171		1,661
Non-U.S. government securities		745		6		(23	)		728		137
	$	1,304,711	$	2,977	$	(2,821	)	$	1,304,867	$	732,979

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	871,321	$	134	$	(431	)	$	871,024	$	423,128
Long-term marketable securities		433,390		2,843		(2,390	)		433,843		309,851
	$	1,304,711	$	2,977	$	(2,821	)	$	1,304,867	$	732,979

Contractual Maturities of Investments Held

The contractual maturities of investments held at July 2, 2017 were as follows:

	July 2, 2017
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	810,544	$	809,338
Due after 1 year through 5 years		139,051		138,811
Due after 5 years through 10 years		14,062		13,731
Due after 10 years		38,057		39,284
Total	$	1,001,714	$	1,001,164

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

The following table summarizes the fair value of derivative instruments at July 2, 2017 and December 31, 2016:

	Balance Sheet Location		July 2, 2017			December 31, 2016
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts assets		Prepayments	$	23		$	1
Foreign exchange contracts liabilities		Other current liabilities		(304	)		(131	)
Total derivatives			$	(281	)	$	(130	)

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 2, 2017 and July 3, 2016.

	Location of (Gains) Losses Recognized in Statement of Operations		For the Three Months Ended					For the Six Months Ended
			July 2, 2017			July 3, 2016		July 2, 2017			July 3, 2016
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Other (income) expense, net	$	(1,586	)	$	6,901	$	(575	)	$	10,199
Total Derivatives			$	(1,586	)	$	6,901	$	(575	)	$	10,199