XML 28 R16.htm IDEA: XBRL DOCUMENT v3.19.2
Financial Instruments
6 Months Ended
Jun. 30, 2019
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.
 
June 30, 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
  $
235,370
    $
    $
    $
235,370
 
Cash equivalents
   
223,150
     
36,587
     
     
259,737
 
Available-for-sale
securities:
   
     
     
     
 
U.S. Treasury securities
   
     
190,322
     
     
190,322
 
Commercial paper
   
     
154,910
     
     
154,910
 
Corporate debt securities
   
     
94,431
     
     
94,431
 
Certificates of deposit and time deposits
   
     
19,723
     
     
19,723
 
U.S. government agency securities
   
     
9,838
     
     
9,838
 
Debt mutual funds
   
3,299
     
     
     
3,299
 
Non-U.S.
government securities
   
     
388
     
     
388
 
Equity securities:
   
     
     
     
 
Mutual funds
   
26,317
     
     
     
26,317
 
  $
488,136
    $
506,199
    $
    $
994,335
 
Derivative assets
   
     
34
     
     
34
 
                                 
Total
  $
488,136
    $
506,233
    $
    $
994,369
 
                                 
Liabilities
   
     
     
     
 
Contingent consideration
  $
    $
    $
26,847
    $
26,847
 
Derivative liabilities
   
     
324
     
     
324
 
Total
  $
    $
324
    $
26,847
    $
27,171
 
                                 
Reported as follows:
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
 
(in thousands)
 
Assets
   
     
     
     
 
Cash and cash equivalents
  $
458,520
    $
36,587
    $
    $
495,107
 
Marketable securities
   
     
400,227
     
     
400,227
 
Long-term marketable securities
   
29,616
     
69,385
     
     
99,001
 
Prepayments
   
     
34
     
     
34
 
                                 
Total
 
$
488,136
 
 
$
506,233
 
 
$
 
 
$
994,369
 
Liabilities
   
 
   
     
     
 
Other current liabilities
  $
    $
324
    $
    $
324
 
Contingent consideration
   
     
     
11,753
     
11,753
 
Long-term contingent consideration
   
     
     
15,094
     
15,094
 
                                 
Total
  $
    $
324
    $
26,847
    $
27,171
 
                                 
 
 
December 31, 2018
 
 
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
  $
312,512
    $
—  
    $
—  
    $
312,512
 
Cash equivalents
   
253,525
     
360,715
     
—  
     
614,240
 
Available-for-sale
securities:
   
     
     
     
 
U.S. Treasury securities
   
—  
     
109,721
     
—  
     
109,721
 
Commercial paper
   
—  
     
86,117
     
—  
     
86,117
 
Corporate debt securities
   
—  
     
40,020
     
—  
     
40,020
 
U.S. government agency securities
   
—  
     
9,611
     
—  
     
9,611
 
Certificates of deposit and time deposits
   
—  
     
7,604
     
—  
     
7,604
 
Debt mutual funds
   
3,187
     
—  
     
—  
     
3,187
 
Non-U.S.
government securities
   
—  
     
376
     
—  
     
376
 
Equity securities:
   
     
     
     
 
Mutual funds
   
21,191
     
—  
     
—  
     
21,191
 
                                 
  $
590,415
    $
614,164
    $
—  
    $
1,204,579
 
Derivative assets
   
—  
     
79
     
—  
     
79
 
                                 
Total
  $
590,415
    $
614,243
    $
—  
    $
1,204,658
 
                                 
Liabilities
   
     
     
     
 
Contingent consideration
  $
—  
    $
—  
    $
70,543
    $
70,543
 
Derivative liabilities
   
—  
     
514
     
—  
     
514
 
                                 
Total
  $
—  
    $
514
    $
70,543
    $
71,057
 
                                 
Reported as follows:
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
 
(in thousands)
 
Assets
   
     
     
     
 
Cash and cash equivalents
  $
566,037
    $
360,715
    $
—  
    $
926,752
 
Marketable securities
   
—  
     
190,096
     
—  
     
190,096
 
Long-term marketable securities
   
24,378
     
63,353
     
—  
     
87,731
 
Prepayments
   
—  
     
79
     
—  
     
79
 
                                 
Total
  $
590,415
    $
614,243
    $
—  
    $
1,204,658
 
Liabilities
   
     
     
     
 
Other accrued liabilities
  $
—  
    $
514
    $
—  
    $
514
 
Contingent consideration
   
—  
     
—  
     
34,865
     
34,865
 
Long-term contingent consideration
   
—  
     
—  
     
35,678
     
35,678
 
                                 
Total
  $
—  
    $
514
    $
70,543
    $
71,057
 
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:
                                 
 
For the Three Months
Ended
   
For the Six Months
Ended
 
 
June 30,
2019
   
July 1,
2018
   
June 30,
2019
   
July 1,
2018
 
 
(in thousands)
 
Balance at beginning of period
  $
38,313
    $
15,581
    $
70,543
    $
45,102
 
Fair value adjustment (a)
   
(11,672
)    
(3,500
)    
(8,701
)    
(8,468
)
Foreign currency impact
   
206
     
(2,566
)    
(405
)    
(2,566
)
Payments (b)
   
     
—  
     
(34,590
)    
(24,553
)
Acquisition of MiR
   
     
51,399
     
     
51,399
 
                                 
Balance at end of period
  $
26,847
    $
60,914
    $
26,847
    $
60,914
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) In the three and six months ended June 30, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $11.7 million and $8.7 million, respectively, primarily due to a decrease in the forecasted revenue. In the three and six months ended July 1, 2018, the fair value of contingent consideration for the earn-out in connection with the acquisition of Universal Robots A/S (“Universal Robots”) was decreased by $
3.5
 million and $8.5 million, respectively, primarily due to a decrease in forecasted revenue.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) In the six months ended June 30, 2019, Teradyne paid $30.8 million and $3.8 million of contingent consideration for the earn-outs in connection with the acquisition of MiR and Universal Robots, respectively. In the six months ended July 1, 2018, Teradyne paid $24.6 million of contingent consideration for the earn-out in connection with the acquisition of Universal Robots.
 
 
 
 
 
 
 
The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instruments:
                               
Liability                   
 
June 30, 2019
Fair Value
   
Valuation
Technique
   
Unobservable Inputs
 
Weighted
Average
 
 
(in thousands)
   
   
 
 
Contingent consideration
(MiR)
  $
26,847
     
Monte Carlo
Simulation
   
Revenue volatility
   
19.0
%
 
 
   
   
Discount rate
 
0.2%
 
 
 
 
 
 
 
 
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:
                                 
 
June 30, 2019
   
December 31, 2018
 
 
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
 
 
(in thousands)
 
Assets
   
     
     
     
 
Cash and cash equivalents
  $
495,107
    $
495,107
    $
926,752
    $
926,752
 
Marketable securities
   
499,228
     
499,228
     
277,827
     
277,827
 
Derivative assets
   
34
     
34
     
79
     
79
 
Liabilities
   
     
     
     
 
Contingent consideration
   
26,847
     
26,847
     
70,543
     
70,543
 
Derivative liabilities
   
324
     
324
     
514
     
514
 
Convertible debt (1)
   
387,243
     
747,213
     
379,981
     
547,113
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 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:
                                         
 
June 30, 2019
 
 
Available-for-Sale
   
Fair Market
   
 
Cost
   
Unrealized
Gain
   
Unrealized
(Loss)
   
Fair
Market
Value
   
Value of
Investments
with Unrealized
Losses
 
 
(in thousands)
 
U.S. Treasury securities
  $
189,927
    $
668
    $
(273
)   $
190,322
    $
18,195
 
Commercial paper
   
154,903
     
9
     
(2
)    
154,910
     
10,322
 
Corporate debt securities
   
91,553
     
3,035
     
(157
)    
94,431
     
4,581
 
Certificates of deposit and time deposits
   
19,717
     
6
     
     
19,723
     
2,232
 
U.S. government agency securities
   
9,829
     
15
     
(6
)    
9,838
     
2,947
 
Debt mutual funds
   
3,187
     
112
     
     
3,299
     
 
Non-U.S.
government securities
   
388
     
     
     
388
     
 
                                         
  $
469,504
    $
3,845
    $
(438
)   $
472,911
    $
38,277
 
                                         
 
 
 
 
 
 
 
Reported as follows:
                                         
 
Cost
   
Unrealized
Gain
   
Unrealized
(Loss)
   
Fair Market
Value
   
Fair Market
Value of
Investments
with Unrealized
Losses
 
 
(in thousands)
 
Marketable securities
  $
399,852
    $
391
    $
(16
)   $
400,227
    $
21,708
 
Long-term marketable securities
   
69,652
     
3,454
     
(422
)    
72,684
     
16,569
 
                                         
  $
469,504
    $
3,845
    $
(438
)   $
472,911
    $
38,277
 
                                         
 
 
 
 
 
The following table summarizes the composition of
available-for-sale
marketable securities at December 31, 2018:
                                         
 
December 31, 2018
 
 
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
  $
110,969
    $
112
    $
(1,360
)   $
109,721
    $
75,040
 
Commercial paper
   
86,130
     
13
     
(26
)    
86,117
     
85,094
 
Corporate debt securities
   
41,133
     
432
     
(1,545
)    
40,020
     
24,767
 
U.S. government agency securities
   
9,646
     
1
     
(36
)    
9,611
     
7,077
 
Certificates of deposit and time deposits
   
7,604
     
—  
     
—  
     
7,604
     
—  
 
Debt mutual funds
   
3,153
     
34
     
—  
     
3,187
     
—  
 
Non-U.S.
government securities
   
376
     
—  
     
—  
     
376
     
—  
 
                                         
  $
259,011
    $
592
    $
(2,967
)   $
256,636
    $
191,978
 
                                         
 
 
 
 
 
 
 
Reported as follows:
                                         
 
Cost
   
Unrealized
Gain
   
Unrealized
(Loss)
   
Fair
Market
Value
   
Fair Market
Value of
Investments
with Unrealized
Losses
 
 
(in thousands)
 
Marketable securities
  $
190,100
    $
88
    $
(92
)   $
190,096
    $
140,262
 
Long-term marketable securities
   
68,911
     
504
     
(2,875
)    
66,540
     
51,716
 
                                         
  $
259,011
    $
592
    $
(2,967
)   $
256,636
    $
191,978
 
                                         
 
 
 
 
 
 
 
 
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:
                 
 
June 30, 2019
 
 
Cost
   
Fair Market
Value
 
 
(in thousands)
 
Due within one year
  $
399,852
    $
400,227
 
Due after 1 year through 5 years
   
12,304
     
12,411
 
Due after 5 years through 10 years
   
14,101
     
14,156
 
Due after 10 years
   
40,060
     
42,818
 
                 
Total
  $
466,317
    $
469,612
 
                 
 
 
 
 
 
 
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:
                         
 
Balance Sheet
Location
   
June 30,
2019
   
December 31,
2018
 
 
   
(in thousands)
 
Derivatives not designated as hedging instruments:
   
     
     
 
Foreign exchange contracts – derivative assets
   
Prepayments
    $
34
    $
79
 
Foreign exchange contracts – 
derivative liabilities
   
Other current liabilities
     
(324
)    
(514
)
                         
Total derivatives
   
    $
(290
)   $
(435
)
                         
 
 
 
 
 
 
 
 
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.
 
                                     
 
Location of Losses (Gains)
Recognized in
Statement of Operations
 
For the Three Months
Ended
   
For the Six Months
Ended
 
 
June 30,
2019
   
July 1,
2018
   
June 30,
2019
   
July 1,
2018
 
 
 
(in thousands)
 
Derivatives not designated as hedging instruments:
 
 
     
     
     
 
Foreign exchange contracts
 
Other (income) expense, net
 
$
239
    $   
1,826
    $
4,173
    $
3,401
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) The table does not reflect the corresponding gains and losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) For the three months ended June 30, 2019, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.3 million. For the six months ended June 30, 2019, net gains from the remeasurement of monetary assets and liabilities denominated in 
foreign currencies were $1.9 million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) For the three and six months ended July 1, 2018, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.9 million and $2.5 million, respectively.
 
 
 
 
 
 
 
 
See Note I: “Debt” regarding derivatives related to the convertible senior notes.