Financial Instruments |
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Financial Instruments | G. 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’s available-for-sale debt securities are classified as Level 2 and equity securities 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 three and six months ended June 30, 2019 and July 1, 2018, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments. Realized gains recorded in the three and six months ended June 30, 2019 were $0.1 million and $0.2 million, respectively. Realized losses recorded in the six months ended June 30, 2019 were $0.1 million. Realized gains recorded in the three and six months ended July 1, 2018 were $0.1 million and $0.4 million, respectively. Realized losses recorded in the six months ended July 1, 2018 were $1.5 million. Realized gains are included in interest income and realized losses are included in interest expense. Unrealized gains on equity securities recorded in the three and six months ended June 30, 2019 were $0.9 million and $3.7 million, respectively. Unrealized gains on equity securities recorded in the three and six months ended July 1, 2018 were $0.4 million. Unrealized gains on equity securities are included in interest income and unrealized losses are included in interest expense. 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 specific identification 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 June 30, 2019 and December 31, 2018.
Reported as follows:
Reported as follows:
Changes in the fair value of Level 3 contingent consideration for the three and six months ended June 30, 2019 and July 1, 2018 were as follows:
The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instruments:
As of June 30, 2019, the significant unobservable inputs used in the Monte Carlo simulation to fair value the MiR 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 June 30, 2019, the maximum amount of contingent consideration that could be paid in connection with the acquisition of MiR is $84.1 million. The remaining earn-out periods end on December 31, 2019 and December 31, 2020.The carrying amounts and fair values of Teradyne’s financial instruments at June 30, 2019 and December 31, 2018 were as follows:
The fair values of accounts receivable, net and accounts payable approximate the carrying value due to the short-term nature of these instruments. The following table summarizes the composition of
available-for-sale marketable securities at June 30, 2019:
Reported as follows:
The following table summarizes the composition of
available-for-sale marketable securities at December 31, 2018:
Reported as follows:
As of June 30, 2019, the fair market value of investments in available-for-sale securities with unrealized losses totaled $38.3 million. Of this value, $22.7 million had unrealized losses of $0.4 million for greater than one year and $15.6 million had unrealized losses of $0.1 million for less than one year.As of December 31, 2018, the fair market value of investments with unrealized losses totaled $192.0 million. Of this value, $28.5 million had unrealized losses of $1.6 million greater than one year and $163.5 million had unrealized losses of $1.4 million for less than one year. 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 June 30, 2019 and December 31, 2018 were temporary. The contractual maturities of investments in
available-for-sale securities held at June 30, 2019 were as follows:
Contractual maturities of investments in available-for-sale securities held at June 30, 2019 exclude $3.3 million of debt mutual funds 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 monetary assets and liabilities denominated in foreign currencies. The notional amount of foreign currency forward contracts at June 30, 2019 and December 31, 2018 was $143.3 million and $163.1 million, respectively. 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 June 30, 2019 and December 31, 2018:
The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three and six months ended June 30, 2019 and July 1, 2018.
See Note I: “Debt” regarding derivatives related to the convertible senior notes. |