NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
Teradyne, Inc. (Teradyne) is a leading global supplier of automation equipment for test and industrial
applications. Teradyne designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial,
computing, communications, and aerospace and defense industries. Teradynes industrial automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality, increase manufacturing
efficiency and decrease manufacturing costs. Teradynes automatic test equipment and industrial automation products and services include:
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semiconductor test (Semiconductor Test) systems;
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defense/aerospace (Defense/Aerospace) test instrumentation and systems, storage test (Storage Test) systems, and circuit-board
test and inspection (Production Board Test) systems (collectively these products represent System Test);
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industrial automation (Industrial Automation) products; and
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wireless test (Wireless Test) systems.
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On June 11, 2015, Teradyne acquired Universal Robots A/S (Universal Robots) for approximately $284 million of cash plus up to an additional $65 million of cash if certain
performance targets are met extending through 2018. Universal Robots is the leading supplier of collaborative robots which are
low-cost,
easy-to-deploy
and
simple-to-program
robots that work side by side with production
workers. Universal Robots is a separate operating and reportable segment, Industrial Automation.
B. ACCOUNTING
POLICIES
The consolidated financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All
significant intercompany balances and transactions are eliminated. Certain prior years amounts were reclassified to conform to the current year presentation.
Preparation of Financial Statements and Use of Estimates
The preparation
of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an
on-going
basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, accounts receivable, income taxes, deferred tax assets and
liabilities, pensions, warranties, and loss contingencies. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.
Revenue Recognition
Teradyne recognizes revenues, including revenues from
distributors, when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is
reasonably assured. Title and risk of loss generally pass to Teradynes customers upon shipment or at delivery destination point. In circumstances where either title or risk of loss pass upon destination, acceptance or cash payment, Teradyne
defers revenue
50
recognition until such events occur except when title transfer is tied to cash payment outside the United States. Outside the United States, Teradyne recognizes revenue upon shipment or at
delivery destination point, even if Teradyne retains a form of title to products delivered to customers, provided the sole purpose is to enable Teradyne to recover the products in the event of customer payment default and the arrangement does not
prohibit the customers use or resale of the product in the ordinary course of business.
Teradynes equipment has
non-software
and software components that function together to deliver the equipments essential functionality. Revenue is recognized upon shipment or at delivery destination point, provided that customer
acceptance criteria can be demonstrated prior to shipment. Certain contracts require Teradyne to perform tests of the product to ensure that performance meets the published product specifications or customer requested specifications, which are
generally conducted prior to shipment. Where the criteria cannot be demonstrated prior to shipment, revenue is deferred until customer acceptance has been received. Teradyne also defers the portion of the sales price that is not due until
acceptance, which represents deferred profit.
For multiple element arrangements, Teradyne allocates revenue to all
deliverables based on their relative selling prices. In such circumstances, a hierarchy is used to determine the selling price for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of selling price
(VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best estimate of the selling price (BESP). For a delivered item to be considered a separate unit the delivered item must have value to
the customer on a standalone basis and the delivery or performance of the undelivered item must be considered probable and substantially in Teradynes control.
Teradynes post-shipment obligations include installation, training services,
one-year
standard warranties, and extended warranties. Installation does not
alter the product capabilities, does not require specialized skills or tools and can be performed by the customers or other vendors. Installation is typically provided within five days of product shipment and is completed within one to two days
thereafter. Training services are optional and do not affect the customers ability to use the product. Teradyne defers revenue for the selling price of installation and training. Extended warranties constitute warranty obligations beyond one
year and Teradyne defers revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
605-20,
Separately Priced Extended
Warranty and Product Maintenance Contracts
and ASC
605-25,
Revenue Recognition Multiple-Element Arrangements.
Service revenue is recognized over the contractual period or as
services are performed.
Teradynes products are generally subject to warranty and related costs of the warranty are
provided for in cost of revenues when product revenue is recognized. Teradyne classifies shipping and handling costs in cost of revenue. Teradyne does not provide its customers with contractual rights of return for any of its products.
As of December 31, 2016 and 2015, deferred revenue and customer advances consisted of the following and are included in the short
and long-term deferred revenue and customer advances:
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2016
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2015
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(in thousands)
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Extended warranty
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$
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46,753
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$
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46,499
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Equipment maintenance and training
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39,037
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30,616
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Customer advances, undelivered elements and other
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22,151
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34,157
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Total deferred revenue and customer advances
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$
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107,941
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$
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111,272
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Product Warranty
Teradyne generally provides a
one-year
warranty on its products, commencing upon installation, acceptance or shipment. A provision is recorded upon revenue
recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The balance below is included in other accrued liabilities:
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Amount
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(in thousands)
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Balance at December 31, 2013
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$
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6,660
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Accruals for warranties issued during the period
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15,406
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Accruals related to
pre-existing
warranties
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(2,008
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)
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Settlements made during the period
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(11,116
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)
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Balance at December 31, 2014
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8,942
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Acquisition
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409
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Accruals for warranties issued during the period
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11,539
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Accruals related to
pre-existing
warranties
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(3,159
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)
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Settlements made during the period
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(10,806
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)
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Balance at December 31, 2015
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6,925
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Accruals for warranties issued during the period
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14,291
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Accruals related to
pre-existing
warranties
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(1,354
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)
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Settlements made during the period
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(12,659
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)
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Balance at December 31, 2016
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$
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7,203
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When Teradyne receives revenue for extended warranties, beyond one year, it is deferred and recognized on
a straight-line basis over the contract period. Related costs are expensed as incurred. The balance below is included in short and long-term deferred revenue and customer advances:
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Amount
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(in thousands)
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Balance at December 31, 2013
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$
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34,909
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Deferral of new extended warranty revenue
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29,519
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Recognition of extended warranty deferred revenue
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(21,128
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)
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Balance at December 31, 2014
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43,300
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Acquisition
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870
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Deferral of new extended warranty revenue
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28,549
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Recognition of extended warranty deferred revenue
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(26,220
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)
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Balance at December 31, 2015
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46,499
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Deferral of new extended warranty revenue
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27,182
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Recognition of extended warranty deferred revenue
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(26,928
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)
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Balance at December 31, 2016
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$
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46,753
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Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The volatility of the industries that Teradyne
serves can cause certain of its customers to experience shortages of cash flows, which can impact their ability to make required payments. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customers recent payment history, the customers current financial statements and other information
regarding the customers credit worthiness. Account balances are written off against the allowance when it is determined the receivable will not be recovered.
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Inventories
Inventories are stated at the lower of cost
(first-in,
first-out
basis) or net realizable value. On a quarterly basis,
Teradyne uses consistent methodologies to evaluate all inventories for net realizable value. Teradyne records a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process.
The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses.
Investments
Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC
320-10,
InvestmentsDebt and Equity Securities
. ASC
320-10
requires that certain debt and equity securities be classified into one of three categories;
trading,
available-for-sale
or
held-to-maturity
securities. On a quarterly basis,
Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include:
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The length of time and the extent to which the market value has been less than cost;
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The financial condition and near-term prospects of the issuer; and
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The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
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As defined in ASC
820-10,
Fair Value Measurements and
Disclosures,
fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Teradyne uses the market and income approach techniques to value
its financial instruments and there were no changes in valuation techniques during the years ended December 31, 2016, 2015 and 2014.
ASC 820-10
requires that assets and liabilities carried at fair
value be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for
identical assets as of the reporting date.
Level 2: Inputs other than Level 1, that are observable either directly
or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing. Matrix pricing is a mathematical technique used to value securities by relying on the securities
relationship to other benchmark quoted prices, and therefore is considered a Level 2 input.
Level 3: Unobservable
inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradynes own data.
In accordance with ASC
820-10,
Teradyne measures its debt and equity investments at fair value. Teradynes debt and equity investments are primarily classified
within Level 1 and 2. Acquisition-related contingent consideration is classified within Level 3. Teradyne determines the fair value of acquisition-related contingent consideration using a Monte Carlo simulation model. Assumptions utilized
in the model include forecasted revenues, revenues volatility and discount rate.
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Prepayments
Prepayments consist of the following and are included in prepayments on the balance sheet:
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2016
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2015
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(in thousands)
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Contract manufacturer prepayments
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$
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77,017
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$
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66,283
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Prepaid maintenance and other services
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7,676
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8,481
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Prepaid taxes
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4,664
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3,781
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Other prepayments
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19,097
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12,974
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Total prepayments
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$
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108,454
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$
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91,519
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Retirement and Postretirement Plans
Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the
plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each
year or upon any interim remeasurement of the plans.
Goodwill, Intangible and Long-Lived Assets
Teradyne accounts for goodwill and intangible assets in accordance with ASC
350-10,
Intangibles-Goodwill and Other.
Intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth
quarter, as of December 31, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. In accordance with ASC
350-10,
Teradyne
has the option to perform a qualitative assessment to determine whether it is
more-likely-than-not
that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the
case, Teradyne is required to perform the
two-step
goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines
that it is
more-likely-than-not
that the fair value of the reporting unit is greater than its carrying amounts, the
two-step
goodwill impairment test is not required.
In accordance with ASC
360-10,
Impairment or Disposal of Long-Lived
Assets,
Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no
longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted
cash flow analysis. The cash flow estimates used to determine the impairment, if any, contain managements best estimates using appropriate assumptions and projections at that time.
Property, Plant and Equipment
Property, plant and equipment are stated at
cost and depreciated over the estimated useful lives of the assets. Leasehold improvements and major renewals are capitalized and included in property, plant and equipment accounts while expenditures for maintenance and repairs and minor renewals
are charged to expense. When assets are retired, the assets and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations.
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Teradyne provides for depreciation of its assets principally on the straight-line method
with the cost of the assets being charged to expense over their useful lives as follows:
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Buildings
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40 years
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Building improvements
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5 to 10 years
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Leasehold improvements
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Lesser of lease term or 10 years
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Furniture and fixtures
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10 years
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Test systems manufactured internally
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6 years
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Machinery and equipment
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3 to 5 years
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Software
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3 to 5 years
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Test systems manufactured internally are used by Teradyne for customer evaluations and manufacturing and
support of its customers. Teradyne depreciates the test systems manufactured internally over a
six-year
life to cost of revenues, engineering and development, and selling and administrative expenses. Teradyne
often sells internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally
manufactured test systems sold in the years ended December 31, 2016, 2015 and 2014 was $11.4 million, $50.7 million and $9.7 million, respectively.
Engineering and Development Costs
Teradynes products are highly
technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred
subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been
short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees, including
non-recurring
engineering charges related to product design, allocated facility costs, depreciation, and tooling costs.
Stock Compensation Plans and Employee Stock Purchase Plan
Stock-based
compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC
718-10,
Compensation-Stock Compensation
. As required by ASC
718-10,
Teradyne has made an estimate of expected forfeitures and is recognizing compensation costs only for those stock-based compensation awards expected to vest.
Under its stock compensation plans, Teradyne has granted stock options, restricted stock units and performance-based restricted stock
units, and employees are eligible to purchase Teradynes common stock through its Employee Stock Purchase Plan (ESPP).
Income Taxes
Deferred
tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Teradyne performed the required assessment of positive and negative
evidence regarding the realization of the net deferred tax assets in accordance with ASC 740,
Accounting for Income Taxes.
This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of
projected future taxable income and
tax-planning
strategies. Although realization is not assured, based on its assessment, Teradyne concluded that it is more likely than not that such assets, net of the
existing valuation allowance, will be realized. U.S. income taxes are not
55
provided for on the earnings of
non-U.S.
subsidiaries which are expected to be reinvested indefinitely in operations outside the U.S. For intra-period tax
allocations, Teradyne first utilizes
non-equity
related tax attributes, such as net operating losses and credit carryforwards and then equity-related tax attributes. Teradyne uses the
with-and-without
method for calculating excess stock compensation deductions and does not take into account any indirect impacts of excess stock compensation deductions on its
research and development tax credits, domestic production activities deduction, and other differences between financial reporting and tax reporting.
Advertising Costs
Teradyne expenses all advertising costs as incurred.
Advertising costs were $6.4 million, $3.3 million and $1.9 million in 2016, 2015 and 2014, respectively.
Translation of
Non-U.S.
Currencies
The functional currency for all subsidiaries is the U.S. dollar,
except for the Industrial Automation segment for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange
rates in effect at the end of the period. All foreign currency denominated
non-monetary
assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange
gains and losses resulting from remeasurement are included in other (income) expense, net. For Industrial Automation, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenue and
expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss).
Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For the years ended
December 31, 2016 and 2015, gains from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $8.0 million and $2.5 million, respectively. For the year ended December 31, 2014, losses from
the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $0.9 million.
These
amounts do not reflect the corresponding gains (losses) from foreign exchange contracts. See Note G: Financial Instruments regarding foreign exchange contracts.
Net Income (Loss) per Common Share
Basic net (loss) income per common
share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Except where the result would be antidilutive, diluted net (loss) income per common share is calculated by dividing net
(loss) income by the sum of the weighted average number of common shares plus common stock equivalents, if applicable.
For
the year ended December 31, 2014, dilutive potential common shares included incremental shares from the assumed conversion of the convertible notes and the convertible notes hedge warrant shares. Incremental shares from the assumed conversion
of the convertible notes were calculated using the difference between the average Teradyne stock price for the period and the conversion price of $5.48, multiplied by 34.7 million shares. The result of this calculation, representing the total
intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period. Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the
warrant price of $7.67, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period. Teradynes call option for
34.7 million shares at an exercise price of $5.48 was not used in the GAAP earnings per share calculation as its effect was anti-dilutive.
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In 2014, Teradyne settled its conversion spread (i.e., the intrinsic value of the embedded
option feature contained in the convertible debt) in shares. Teradyne accounted for its conversion spread using the treasury stock method. Teradyne determined that it had the ability and intent to settle the principal amount of the convertible debt
in cash; accordingly, the principal amount was excluded from the determination of diluted earnings per share.
With respect to
its convertible debt issued in 2016, Teradyne has determined that it has the ability and intent to settle the principal of the convertible debt in cash; accordingly, the principal amount is excluded from the determination of diluted earnings per
share. As a result, Teradyne is accounting for the conversion spread using the treasury stock method.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income, unrealized pension and postretirement prior service costs and benefits,
unrealized gains and losses on investments in debt and equity marketable securities and foreign currency translation adjustment.
C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On January 26, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2017-04,
IntangiblesGoodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.
The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.
Goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will
continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same
one-step
impairment test will be applied to goodwill at all reporting
units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective in
2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. Teradyne is currently evaluating the impact of this ASU on its financial position, results of operations and statements of cash flows.
On October 24, 2016, the FASB issued ASU
2016-16,
Accounting for Income Taxes:
Intra-Entity Asset Transfers of Assets Other than Inventory
.
Under current Generally Accepted Accounting Principles (GAAP), the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold
to a third party or otherwise recovered through use. The new guidance requires recognition of the tax expense from the sale of the asset in the sellers tax jurisdiction when the transfer occurs, even though the
pre-tax
effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyers jurisdiction would also be recognized at the time of the transfer. The new guidance
does not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. The new
guidance will be effective in fiscal years beginning after December 15, 2017. Early adoption is permitted. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in
retained earnings as of the beginning of the period of adoption. Teradyne does not expect this ASU to have a material impact on its financial position, results of operations and statements of cash flows.
On March 31, 2016, the FASB issued ASU
2016-09,
Compensation-Stock Compensation
(Topic 718): Improvements to Employee
Share-Based Payment Accounting.
This ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as classification in the statements of cash flows. This pronouncement is effective for annual periods beginning after December 15, 2016. Early adoption is permitted. Adoption of the new guidance
will require recognition of excess tax benefits and tax deficiencies in
57
the consolidated statements of operations on a prospective basis, with a cumulative effect adjustment to retained earnings for any prior year excess tax benefits or tax deficiencies not
previously recorded. Teradyne expects the cumulative effect adjustment to increase retained earnings and deferred tax assets by approximately $39 million. In the years ended December 31, 2016, 2015 and 2014, Teradyne recorded excess tax
benefits of $6.1 million, $4.6 million, and $0.2 million, respectively, as a component of additional
paid-in
capital. In accordance with this ASU, amounts for future periods related to the
difference between the fair value of a restricted stock unit (RSU) on the grant date and the fair value on the vest date will be recorded as a discrete benefit or expense to the current income tax provision in the period in which the RSU
vests. A majority of the future amounts will be recorded during the first quarter consistent with the vesting of a majority of Teradynes RSU grants.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842).
The guidance in this ASU supersedes the lease recognition requirements in
Accounting Standards Codification (ASC) Topic 840,
Leases.
The new standard establishes a
right-of-use
(ROU) model that
requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the consolidated statements of operations. The new standard is effective for annual periods beginning after December 15, 2018, including interim periods within those years, with early adoption permitted. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Teradyne is currently evaluating the impact of
this ASU on its financial position and results of operations.
In January 2016, the FASB issued ASU
2016-01,
Financial InstrumentsOverall (Subtopic
825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
.
This ASU
provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises accounting related to equity investments and the presentation of certain fair value changes for financial
liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not result in consolidation and are not accounted for under the equity method. Changes in the fair value of
these equity securities will be recognized directly in net income. This pronouncement is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Teradyne is currently evaluating the impact of this
ASU on its financial position and results of operations.
In November 2015, the FASB issued ASU
2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
.
ASU
2015-17
simplifies the presentation of deferred income
taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the balance sheet. The new guidance requires that all deferred tax liabilities and assets be classified as
noncurrent in the balance sheet. This ASU is effective for annual periods beginning after December 15, 2016, and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. Teradyne early
adopted this ASU prospectively in the first quarter of 2016.
In April, 2015, the FASB issued ASU
2015-03,
Simplifying the Presentation of Debt Issuance Costs,
which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the
associated debt liability, consistent with the presentation for debt discount. ASU
2015-03
does not specifically address requirements for the presentation or subsequent measurement of debt issuance costs
related to
line-of-credit
arrangements. On August 8, 2015, the FASB issued ASU
2015-15,
InterestImputation of
Interest (Subtopic
835-30)
clarifying that debt issuance costs related to
line-of-credit
arrangements could be
presented as an asset and amortized over the term of the
line-of-credit
arrangement, regardless of whether there are any outstanding borrowings on the
line-of-credit
arrangement. Teradyne adopted this ASU in the first quarter of 2016. Adoption of this ASU did not have a material impact on Teradynes financial position
and results of operations.
In August 2014, the FASB issued ASU
2014-15,
Presentation of Financial StatementsGoing Concern (Subtopic
205-40).
ASU
2014-15
provides guidance on managements responsibility in
evaluating whether there
58
is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for annual periods ending after
December 15, 2016. Teradyne does not expect this ASU to have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers (Topic
606),
which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle
of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or
services. In August 2015, FASB issued ASU
2015-14,
which deferred the effective date of the new revenue standard by one year. For Teradyne, the standard will be effective in the first quarter of 2018. The two
permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of
applying the standard would be recognized at the date of initial application. Teradyne has selected a modified retrospective transition method. Teradyne is currently evaluating the impact of this ASU on its financial position and results of
operations.
D. ACQUISITIONS
Business
Universal Robots
On June 11, 2015, Teradyne acquired all of the outstanding equity of Universal Robots A/S (Universal Robots) located in
Odense, Denmark. Universal Robots is the leading supplier of collaborative robots which are
low-cost,
easy-to-deploy
and
simple-to-program
robots that work side by side with production workers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Universal
Robots is a separate operating and reportable segment, Industrial Automation. The total purchase price of $315.4 million consisted of $283.8 million of cash paid and $31.6 million of contingent consideration, measured at fair value.
The contingent consideration was valued using a Monte Carlo simulation based on the following key inputs: (1) forecasted revenue (2) forecasted EBITDA (3) revenue volatility (4) EBITDA volatility; and (5) discount rate. The
contingent consideration is payable upon the achievement of certain thresholds and targets for earnings before income taxes, depreciation and amortization (EBITDA) for calendar year 2015, revenue for the period from July 1, 2015 to
December 31, 2017 and revenue for the period from July 1, 2015 to December 31, 2018. The maximum amount of contingent consideration that could be paid is $65 million. Based on Universal Robots calendar 2015 EBITDA results,
Teradyne paid $15 million or 100% of the eligible EBITDA contingent consideration amount in the first quarter of 2016. The maximum payment for each of the two remaining Universal Robots earn-outs is $25.0 million.
The Universal Robots acquisition was accounted for as a business combination and, accordingly, the results have been included in
Teradynes consolidated results of operations from the date of acquisition. The allocation of the total purchase price to Universal Robots net tangible liabilities and identifiable intangible assets was based on their estimated fair
values as of the acquisition date. The excess of the purchase price over the identifiable intangible assets and net tangible liabilities in the amount of $221.1 million was allocated to goodwill, which is not deductible for tax purposes.
59
The following table represents the final allocation of the purchase price:
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
(in thousands)
|
|
Goodwill
|
|
$
|
221,128
|
|
Intangible assets
|
|
|
121,590
|
|
Tangible assets acquired and liabilities assumed:
|
|
|
|
|
Current assets
|
|
|
10,853
|
|
Non-current
assets
|
|
|
3,415
|
|
Accounts payable and current liabilities
|
|
|
(11,976
|
)
|
Long-term deferred tax liabilities
|
|
|
(26,653
|
)
|
Long-term other liabilities
|
|
|
(2,920
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
315,437
|
|
|
|
|
|
|
Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired
intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Estimated Useful
Life
|
|
|
|
(in thousands)
|
|
|
(in years)
|
|
Developed technology
|
|
$
|
89,240
|
|
|
|
4.9
|
|
Trademarks and tradenames
|
|
|
22,920
|
|
|
|
10.0
|
|
Customer relationships
|
|
|
9,430
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
121,590
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
For the period from June 12, 2015 to December 31, 2015, Universal Robots contributed
$41.9 million of revenues and had a $7.6 million loss before income taxes.
The following unaudited pro forma
information gives effect to the acquisition of Universal Robots as if the acquisition occurred on January 1, 2014. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in
effect for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
(in thousands, except per
share amounts)
|
|
Revenue
|
|
$
|
1,657,626
|
|
|
$
|
1,686,689
|
|
Net income
|
|
$
|
199,784
|
|
|
$
|
61,078
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.94
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.94
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
Pro forma results for the year ended December 31, 2015 were adjusted to exclude $1.6 million of
non-recurring
expense related to the fair value adjustment to acquisition-date inventory and $1.0 million of acquisition related costs incurred in 2015.
Pro forma results for the year ended December 31, 2014 were adjusted to include $1.6 million of
non-recurring
expense related to the fair value adjustment to acquisition-date inventory and $1.0 million of acquisition related costs.
60
Avionics Interface Technologies, LLC.
On October 31, 2014, Teradyne acquired all of the assets and liabilities of Avionics Interface Technologies, LLC (AIT)
located in Omaha, Nebraska and Dayton, Ohio. AIT is a supplier of equipment for testing
state-of-the-art
data communication
buses. The acquisition of AIT complements Teradynes Defense/Aerospace line of bus test instrumentation for commercial and defense avionics systems. AIT is included in Teradynes System Test segment.
The total purchase price of $21.2 million consisted of $19.4 million of cash paid to acquire AITs assets and liabilities
and $1.8 million in fair value of contingent consideration payable upon the achievement of certain revenue and gross margin targets in 2015 and 2016. The total amount of contingent consideration paid was $1.1 million, which was paid in
January 2017.
The valuation of the contingent consideration utilized the following assumptions: (1) probability of
meeting each target; (2) expected timing of meeting each target; and (3) discount rate reflecting the risk associated with the expected payments. The probabilities and timing for each target were estimated based on a review of the
historical and projected results. A discount rate of 4.7 percent was selected based on the cost of debt for the business. A significant portion of the risk in achieving the contingent consideration was captured in the probabilities assigned to
meeting each target.
The AIT acquisition was accounted for as a business combination and, accordingly, the results have been
included in Teradynes consolidated results of operations from the date of acquisition. The allocation of the total purchase price of AITs net tangible and identifiable intangible assets was based on their estimated fair values as of the
acquisition date. The excess of the purchase price over the identifiable intangible and net tangible assets in the amount of $10.5 million was allocated to goodwill, which is deductible for tax purposes.
The following represents the final allocation of the purchase price:
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
(in thousands)
|
|
Goodwill
|
|
$
|
10,516
|
|
Intangible assets
|
|
|
9,080
|
|
Tangible assets acquired and liabilities assumed:
|
|
|
|
|
Current assets
|
|
|
2,452
|
|
Non-current
assets
|
|
|
359
|
|
Accounts payable and current liabilities
|
|
|
(1,164
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
21,243
|
|
|
|
|
|
|
Teradyne estimated the fair value of intangible assets using the income approach. Acquired intangible
assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Estimated Useful
Life
|
|
|
|
(in thousands)
|
|
|
(in years)
|
|
Customer relationships
|
|
$
|
5,630
|
|
|
|
5.0
|
|
Developed technology
|
|
|
2,580
|
|
|
|
4.8
|
|
Trademarks and tradenames
|
|
|
380
|
|
|
|
5.0
|
|
Non-compete
agreement
|
|
|
320
|
|
|
|
4.0
|
|
Customer order backlog
|
|
|
170
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
9,080
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
61
For the period from October 31, 2014 to December 31, 2014, AIT contributed
$0.6 million of revenues and had a $0.8 million loss before income taxes.
The following unaudited pro forma
information gives effect to the acquisition of AIT as if the acquisition occurred on January 1, 2013. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the
periods presented:
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
2014
|
|
|
|
(in thousands, except per
share amounts)
|
|
Revenues
|
|
$
|
1,655,038
|
|
Net income
|
|
$
|
82,169
|
|
Income per common share:
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.37
|
|
|
|
|
|
|
E. INVENTORIES
Inventories, net consisted of the following at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Raw material
|
|
$
|
58,530
|
|
|
$
|
73,117
|
|
Work-in-process
|
|
|
22,946
|
|
|
|
32,825
|
|
Finished goods
|
|
|
54,482
|
|
|
|
47,646
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135,958
|
|
|
$
|
153,588
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves for the years ended December 31, 2016 and 2015 were $116.0 million and
$119.4 million, respectively.
F. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consisted of the following at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Land
|
|
$
|
16,561
|
|
|
$
|
16,561
|
|
Buildings
|
|
|
98,031
|
|
|
|
108,797
|
|
Machinery and equipment
|
|
|
601,835
|
|
|
|
595,445
|
|
Furniture and fixtures, and software
|
|
|
82,897
|
|
|
|
82,612
|
|
Leasehold improvements
|
|
|
46,612
|
|
|
|
43,328
|
|
Construction in progress
|
|
|
3,032
|
|
|
|
2,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848,968
|
|
|
|
849,373
|
|
Less: accumulated depreciation
|
|
|
595,147
|
|
|
|
575,959
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
253,821
|
|
|
$
|
273,414
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment for the years ended December 31, 2016, 2015 and 2014
was $64.8 million, $68.2 million and $73.4 million, respectively. As of December 31, 2016 and 2015, the gross book value included in machinery and equipment for internally manufactured test systems being leased by customers was
$19.4 million and $20.4 million, respectively. As of December 31, 2016 and 2015, the accumulated depreciation on these test systems was $10.5 million and $8.5 million, respectively.
62
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
Teradynes
available-for-sale
securities are classified as Level 1 and Level 2. 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.
Realized gains recorded in 2016, 2015 and 2014 were $1.6 million, $1.7 million and $2.4 million, respectively. Realized losses recorded in 2016 and 2015 were $0.5 million and
$0.4 million, respectively. There were no realized losses recorded in 2014. Realized gains are included in interest income, and realized losses are included in interest expense. Unrealized gains and losses are included in accumulated other
comprehensive income (loss). The cost of securities sold is based on the specific identification method.
During the years
ended December 31, 2016 and 2015, there were no transfers in or out of Level 1, Level 2 or Level 3 financial instruments.
The following table sets forth by fair value hierarchy Teradynes financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
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 current liabilities
|
|
$
|
|
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
131
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
1,050
|
|
|
|
1,050
|
|
Long-term contingent consideration
|
|
|
|
|
|
|
|
|
|
|
37,282
|
|
|
|
37,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
131
|
|
|
$
|
38,332
|
|
|
$
|
38,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
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 current liabilities
|
|
$
|
|
|
|
$
|
146
|
|
|
$
|
|
|
|
$
|
146
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
15,500
|
|
|
|
15,500
|
|
Long-term contingent consideration
|
|
|
|
|
|
|
|
|
|
|
21,936
|
|
|
|
21,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
146
|
|
|
$
|
37,436
|
|
|
$
|
37,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of Level 3 contingent consideration for the years ended December 31,
2016 and 2015 were as follows:
|
|
|
|
|
|
|
Contingent Consideration
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2014
|
|
$
|
3,350
|
|
Acquisition of Universal Robots
|
|
|
31,597
|
|
Fair value adjustment of Universal Robots (1)
|
|
|
5,339
|
|
Fair value adjustment of AIT (2)
|
|
|
(1,250
|
)
|
Fair value adjustment of ZTEC (3)
|
|
|
(1,600
|
)
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
37,436
|
|
Payments (4)
|
|
|
(15,000
|
)
|
Fair value adjustment of AIT (5)
|
|
|
550
|
|
Fair value adjustment of Universal Robots (5)
|
|
|
15,346
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
38,332
|
|
|
|
|
|
|
(1)
|
During the year ended December 31, 2015, the fair value of contingent consideration for the
earn-out
in connection with the
acquisition of Universal Robots was increased by $5.3 million primarily due to an increase in forecasted revenues.
|
(2)
|
During the year ended December 31, 2015, the fair value of contingent consideration for the
earn-out
in connection with the
acquisition of AIT was reduced by $1.3 million due to a decrease in the forecasted revenues.
|
(3)
|
During the year ended December 31, 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 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.
|
(4)
|
During the year ended December 31, 2016, based on Universal Robots calendar year 2015 EBITDA results, Teradyne paid $15 million or 100% of the eligible
EBITDA contingent consideration amount.
|
(5)
|
During the year ended December 31, 2016, the fair value of contingent consideration for the
earn-out
in connection with the
acquisition of Universal Robots was increased by $15.3 million primarily due to an increase in forecasted revenues and a decrease in the discount rate. During the year ended 2016, the fair value of contingent consideration for the
earn-out
in connection with the acquisition of AIT was increased by $0.6 million due to an increase in forecasted revenues. The AIT contingent consideration in the amount of $1.1 million was paid in
January 2017.
|
65
The following table provides quantitative information associated with the fair value
measurement of Teradynes Level 3 financial instrument:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability
|
|
December 31,
2016
Fair Value
|
|
|
Valuation
Technique
|
|
Unobservable Inputs
|
|
Weighted
Average
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Contingent consideration
(Universal Robots)
|
|
$
|
21,301
|
|
|
Monte Carlo
simulation
|
|
Revenues for the period July 1, 2015December 31, 2017 volatility
|
|
|
10.8%
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
3.3%
|
|
|
|
$15,981
|
|
|
Monte Carlo
simulation
|
|
Revenues for the period July 1, 2015December 31, 2018 volatility
|
|
|
10.8%
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
3.3%
|
|
|
|
|
|
|
Contingent consideration (AIT)
|
|
$
|
1,050(1)
|
|
|
|
|
|
|
|
|
|
(1)
|
Teradyne paid this amount in January 2017.
|
As of December 31, 2016, the significant unobservable inputs used in the Monte Carlo simulation to fair value the Universal Robots contingent consideration include forecasted revenues, revenue
volatility and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement. The maximum payment for each of the two remaining Universal Robots earn-outs is $25.0 million.
The carrying amounts and fair values of financial instruments at December 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
307,884
|
|
|
$
|
307,884
|
|
|
$
|
264,705
|
|
|
$
|
264,705
|
|
Marketable securities
|
|
|
1,304,867
|
|
|
|
1,304,867
|
|
|
|
743,624
|
|
|
|
743,624
|
|
Derivative assets
|
|
|
1
|
|
|
|
1
|
|
|
|
109
|
|
|
|
109
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
38,332
|
|
|
|
38,332
|
|
|
|
37,436
|
|
|
|
37,436
|
|
Derivative liabilities
|
|
|
131
|
|
|
|
131
|
|
|
|
146
|
|
|
|
146
|
|
Convertible debt (1)
|
|
|
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.
|
The fair values of accounts receivable, net and accounts payable approximate the
carrying amount due to the short term nature of these instruments.
66
The following tables summarize the composition of available for sale marketable securities
at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
As of December 31, 2016, the fair market value of investments with unrealized losses
totaled $733.0 million. Of this value, $2.9 million had unrealized losses of $0.3 million greater than one year and $730.1 million had unrealized losses of $2.5 million for less than one year.
As of December 31, 2015, the fair market value of investments with unrealized losses totaled $601.7 million. Of this value,
$0.9 million had unrealized losses of $0.5 million greater than one year and $600.8 million had unrealized losses of $3.6 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 December 31, 2016 and 2015, were temporary.
The contractual maturities of investments held at
December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Due within one year
|
|
$
|
871,321
|
|
|
$
|
871,024
|
|
Due after 1 year through 5 years
|
|
|
365,873
|
|
|
|
365,451
|
|
Due after 5 years through 10 years
|
|
|
12,839
|
|
|
|
12,309
|
|
Due after 10 years
|
|
|
38,173
|
|
|
|
37,912
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,288,206
|
|
|
$
|
1,286,696
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities of investments held at December 31, 2016, exclude $18 million of equity
and debt mutual funds as they do not have a contractual maturity date.
The following table sets forth by fair value hierarchy
Teradynes
non-financial
assets that were measured at fair value on a
non-recurring
basis as of July 3, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2016
|
|
|
|
|
|
|
Quoted Prices
in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Other
Unobservable
Inputs
(Level 3))
|
|
|
Total
|
|
|
Total Losses
|
|
|
|
(in thousands)
|
|
Goodwill (1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,976
|
|
|
$
|
7,976
|
|
|
$
|
254,946
|
|
Definite lived intangible assets (2)
|
|
|
|
|
|
|
|
|
|
|
5,750
|
|
|
|
5,750
|
|
|
|
83,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,726
|
|
|
$
|
13,726
|
|
|
$
|
338,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In accordance with the provisions of ASC
350-20,
Goodwill
goodwill in the Wireless Test reporting unit with a
carrying amount of $262.9 million was written down in the second quarter of 2016 to its implied fair value of $8.0 million, resulting in an impairment charge of $254.9 million. See Note J: Goodwill and Intangible Assets
regarding goodwill impairment.
|
(2)
|
In accordance with the provisions of ASC
360-10,
Property, Plant and Equipment,
definite lived intangible
assets in the Wireless Test reporting unit with a carrying amount of $89.2 million were written down in the second quarter of 2016 to their implied fair value of $5.8 million, resulting in an impairment charge of $83.3 million. See
Note J: Goodwill and Intangible Assets regarding definite lived intangible assets impairment.
|
Derivatives
Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies.
The purpose of Teradynes foreign currency management is to minimize the effect of exchange rate
68
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 the monetary assets and liabilities denominated
in foreign currencies.
At December 31, 2016 and 2015, Teradyne had the following contracts to buy and sell
non-U.S.
currencies for U.S. dollars and other
non-U.S.
currencies with the following notional amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Buy
Position
|
|
|
Sell
Position
|
|
|
Net
Total
|
|
|
Buy
Position
|
|
|
Sell
Position
|
|
|
Net
Total
|
|
|
|
(in millions)
|
|
Japanese Yen
|
|
$
|
(17.7
|
)
|
|
$
|
|
|
|
$
|
(17.7
|
)
|
|
$
|
(51.9
|
)
|
|
$
|
|
|
|
$
|
(51.9
|
)
|
Korean Won
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
(8.8
|
)
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
(5.5
|
)
|
Taiwan Dollar
|
|
|
(6.9
|
)
|
|
|
|
|
|
|
(6.9
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(5.0
|
)
|
British Pound Sterling
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
(9.5
|
)
|
Euro
|
|
|
|
|
|
|
25.2
|
|
|
|
25.2
|
|
|
|
|
|
|
|
27.2
|
|
|
|
27.2
|
|
Singapore Dollar
|
|
|
|
|
|
|
24.0
|
|
|
|
24.0
|
|
|
|
|
|
|
|
15.0
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(34.7
|
)
|
|
$
|
49.2
|
|
|
$
|
14.5
|
|
|
$
|
(71.9
|
)
|
|
$
|
42.2
|
|
|
$
|
(29.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the outstanding contracts was a loss of $0.1 million and $0.0 million, at
December 31, 2016 and 2015, respectively.
In 2016, 2015 and 2014, Teradyne recorded net realized losses related to
foreign currency forward contracts hedging net monetary assets and liabilities of $8.7 million, $3.0 million and $0.2 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 December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
December
31,
2016
|
|
|
December
31,
2015
|
|
|
|
|
|
(in thousands)
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepayments
|
|
$
|
1
|
|
|
$
|
109
|
|
Foreign exchange contracts
|
|
Other current liabilities
|
|
|
(131
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
(130
|
)
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
69
The following table summarizes the effect of derivative instruments in statements of
operations recognized for the years ended December 31, 2016, 2015 and 2014. The table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. For the
years ended December 31, 2016 and 2015, gains from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $8.0 million and $2.5 million, respectively. For the year ended December 31, 2014,
losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $0.9 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Losses
Recognized in
Statements
of Operations
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
|
|
(in thousands)
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other (income) expense, net
|
|
$
|
8,671
|
|
|
$
|
3,047
|
|
|
$
|
237
|
|
See Note H: Debt regarding derivatives related to the convertible senior notes.
Concentration of Credit Risk
Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts
receivable. Teradynes cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradynes fixed income
available-for-sale
marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward
contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers.
Teradyne performs ongoing credit evaluations of its customers financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. There were no customers who accounted for
more than 10% of Teradynes accounts receivable balance as of December 31, 2016. One customer accounted for more than 10% of Teradynes accounts receivable balance as of December 31, 2015.
Equity Interest
On
November 1, 2013, in connection with the acquisition of Empirix, Inc. by Thoma Bravo LLC, Teradyne sold its equity interest in Empirix, Inc., a private company, and received cash proceeds of $34.2 million which was recorded as a gain in
other (income) expense, net in the fourth quarter of 2013. An additional $5.4 million of cash proceeds that was held in escrow for 15 months, for potential indemnifications to the buyer, was paid to Teradyne in February 2015 and it was recorded
as a gain in other (income) expense, net in the first quarter of 2015.
H. DEBT
Convertible Senior Notes
On December 12, 2016, Teradyne completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible
senior unsecured notes (the Notes) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $450.8 million, $33.0 million of which was used to pay the net cost of the convertible note hedge
transactions and $50.1 million of which was used to repurchase 2.0 million shares of Teradynes common stock under its existing stock repurchase program from purchasers of the Notes in privately negotiated transactions effected
through one of the initial purchasers or its affiliates conducted concurrently with the pricing of the Note offering. The Notes will mature on December 15, 2023, unless earlier repurchased or converted. The Notes bear interest from
December 12, 2016 at a rate of 1.25% per year payable
70
semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2017. The Notes will be convertible at the option of the noteholders at any time prior to the
close of business on the business day immediately preceding September 15, 2023, only under the following circumstances: (1) during any calendar quarter beginning after March 31, 2017 (and only during such calendar quarter), if the
closing sale price of the Teradynes common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater
than 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the
Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Teradynes common stock and the conversion rate on each such trading day; and
(3) upon the occurrence of specified corporate events. On or after September 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time,
regardless of the foregoing circumstances. Teradyne may satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradynes election. The conversion
rate for the Notes will initially be 31.4102 shares per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $31.84 per share of Teradynes common stock. The conversion rate is subject to adjustment under
certain circumstances.
Concurrent with the offering of the Notes, Teradyne entered into convertible note hedge transactions
(the Note Hedge Transactions) with the initial purchasers or their affiliates (the Option Counterparties). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the common
stock that underlie the Notes, with a strike price equal to the initial conversion price of the Notes of $31.84. The Note Hedge Transactions cover, subject to customary antidilution adjustments, approximately 14.4 million shares of
Teradynes common stock.
Separately and concurrent with the pricing of the Notes, Teradyne entered into warrant
transactions with the Option Counterparties (the Warrant Transactions) in which it sold
net-share-settled
(or, at its election subject to certain conditions, cash-settled) warrants to the Option
Counterparties. The Warrant Transactions cover, subject to customary antidilution adjustments, approximately 14.4 million shares of common stock. The strike price of the warrants will initially be $39.95 per share (subject to adjustment). The
Warrant Transactions could have a dilutive effect to Teradynes common stock to the extent that the market price per share of Teradynes common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike
price of the warrants.
The Note Hedge Transactions are expected to reduce the potential dilution to Teradynes common
stock upon any conversion of the Notes. However, the Warrant Transactions could separately have a dilutive effect to the extent that the market value per share of Teradynes common stock exceeds the applicable strike price of the warrant. The
net cost of the Note Hedge Transactions, after being partially offset by the proceeds from the sale of the warrants, was approximately $33.0 million.
In connection with establishing their initial hedge of these convertible note hedge and warrant transactions, the Option Counterparties have entered into various derivative transactions with respect to
Teradynes common stock and/or purchased shares of Teradynes common stock or other securities, including the Notes, concurrent with, or shortly after, the pricing of the Notes. In addition, the Option Counterparties may modify their hedge
positions by entering into or unwinding various derivative transactions with respect to Teradynes common stock or by selling Teradynes common stock or other securities, including the Notes, in secondary market transactions (and may do so
during any observation period related to the conversion of the Notes). These activities could adversely affect the value of Teradynes common stock and the Notes.
Teradyne considered the guidance of ASC
815-40,
Derivatives and HedgingContracts in Entitys Own Equity,
and concluded that the
convertible note hedge is both indexed to Teradynes stock and should be classified in stockholders equity in its statements of financial position. The convertible note hedge is considered indexed to Teradynes stock as the terms of
the Note Hedge Transactions do not contain an exercise contingency
71
and the settlement amount equals the difference between the fair value of a fixed number of Teradynes shares and a fixed strike price. Because the only variable that can affect the
settlement amount is Teradynes stock price, which is an input to the fair value of a
fixed-for-fixed
option contract, the convertible note hedge is considered
indexed to Teradynes stock.
Teradyne assessed whether the convertible note hedge should be classified as equity under
ASC
815-40.
In the Note Hedge Transactions contract the settlement terms permit net cash settlement or net share settlement, at the option of Teradyne. Therefore, the criteria as set forth in ASC
815-40
were evaluated by Teradyne. In reviewing the criteria, Teradyne noted the following: (1) the convertible note hedge does not require Teradyne to issue shares; (2) there is no requirement to net cash
settle the convertible note hedge for failure to make timely filings with the SEC; (3) in the case of termination, the convertible note hedge is settled in the same consideration as the holders of the underlying stock; (4) the counterparty
does not have rights that rank higher than those of a shareholder of the stock underlying the convertible note hedge; and (5) there is no requirement to post collateral. Based on its analysis of those criteria, Teradyne concluded that the
convertible note hedge should be recorded in equity and no further adjustment should be made in future periods to adjust the value of the convertible note hedge.
Teradyne analyzed the Warrant Transactions under ASC
815-40,
Derivatives and HedgingContracts in Entitys Own Equity,
and other
relevant literature, and determined that it met the criteria for classification as an equity transaction and is considered indexed to Teradynes stock. As a result, Teradyne recorded the proceeds from the warrants as an increase to additional
paid-in
capital. Teradyne does not recognize subsequent changes in fair value of the warrants in its financial statements.
The provisions of ASC
470-20,
Debt with Conversion and Other Options,
are applicable to the Notes. ASC
470-20
requires Teradyne to separately account for the liability (debt) and equity (conversion feature) components of the Notes in a manner that reflects Teradynes nonconvertible debt borrowing rate at
the date of issuance when interest cost is recognized in subsequent periods. Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represents a discount to the debt and will be
amortized to interest expense using the effective interest method through December 2023. Accordingly, Teradynes effective annual interest rate on the Notes will be approximately 5.0%. The Notes are classified as long-term debt in the balance
sheet based on their December 15, 2023 maturity date. Debt issuance costs of approximately $7.2 million are being amortized to interest expense using the effective interest method over the seven year term of the Notes. As of
December 31, 2016, debt issuance costs were approximately $7.1 million.
The below tables represents the key
components of Teradynes convertible senior notes:
|
|
|
|
|
|
|
December 31,
2016
|
|
|
|
(in thousands)
|
|
Debt principal
|
|
$
|
460,000
|
|
Unamortized discount including debt issuance cost
|
|
|
107,331
|
|
|
|
|
|
|
Net carrying amount of convertible debt
|
|
$
|
352,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2016
|
|
|
|
(in thousands)
|
|
Contractual interest expense on the coupon
|
|
$
|
303
|
|
Amortization of the discount component and debt issue fees recognized as interest expense
|
|
|
688
|
|
|
|
|
|
|
Total interest expense on the convertible debt
|
|
$
|
991
|
|
|
|
|
|
|
As of December 31, 2016, the unamortized discount was $107.3 million, which will be amortized
over seven years using the effective interest rate method. The carrying amount of the equity component was $100.8 million. As of December 31, 2016, the conversion rate was equal to the initial conversion price of approximately $31.84 per
share.
72
Revolving Credit Facility
On April 27, 2015, Teradyne entered into a Credit Agreement (the Credit Agreement) with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders party thereto. The
Credit Agreement provides for a five-year, senior secured revolving credit facility of up to $350 million (the Credit Facility). The Credit Agreement further provides that, subject to customary conditions, Teradyne may seek to
obtain from existing or new lenders incremental commitments under the Credit Facility in an aggregate principal amount not to exceed $150 million.
Proceeds from the Credit Facility may be used for general corporate purposes and working capital. Teradyne incurred $2.3 million in costs related to the revolving credit facility. These costs are
being amortized over the five-year term of the revolving credit facility and are included in interest expense in the statements of operations. As of March 1, 2017, Teradyne has not borrowed any funds under the Credit Facility.
The interest rates applicable to loans under the Credit Facility are, at Teradynes option, equal to either a base rate plus a
margin ranging from 0.00% to 1.00% per annum or LIBOR plus a margin ranging from 1.00% to 2.00% per annum, based on the Consolidated Leverage Ratio of Teradyne and its Restricted Subsidiaries. In addition, Teradyne will pay a commitment
fee on the unused portion of the commitments under the Credit Facility ranging from 0.125% to 0.350% per annum, based on the then applicable Consolidated Leverage Ratio.
Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the
Credit Facility prior to maturity without premium or penalty, other than customary LIBOR breakage costs.
The Credit Agreement
contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradynes and its Restricted Subsidiaries ability to sell assets, grant liens on assets, incur other
secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal
quarter: a consolidated leverage ratio and an interest coverage ratio. As of December 31, 2016, Teradyne was in compliance with all covenants.
The Credit Facility is guaranteed by certain of Teradynes domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of
certain foreign subsidiaries.
73
I. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in accumulated other comprehensive income (loss), which is presented net of tax, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unrealized
Gains
(Losses) on
Marketable
Securities
|
|
|
Retirement
Plans
Prior
Service
Credit
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2014, net of tax of $1,598, $(453)
|
|
$
|
|
|
|
$
|
2,365
|
|
|
$
|
2,324
|
|
|
$
|
4,689
|
|
Other comprehensive loss before reclassifications, net of tax of $0, $(1,667)
|
|
|
(8,759
|
)
|
|
|
(3,075
|
)
|
|
|
|
|
|
|
(11,834
|
)
|
Amounts reclassified from accumulated other comprehensive income, net of tax of $(390), $(169)
|
|
|
|
|
|
|
(704
|
)
|
|
|
(295
|
)
|
|
|
(999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive loss, net of tax of $0, $(2,057), $(169)
|
|
|
(8,759
|
)
|
|
|
(3,779
|
)
|
|
|
(295
|
)
|
|
|
(12,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015, net of tax of $0, $(459), $(622)
|
|
$
|
(8,759
|
)
|
|
$
|
(1,414
|
)
|
|
$
|
2,029
|
|
|
$
|
(8,144
|
)
|
Other comprehensive (loss) income before reclassifications, net of tax of $0, $923, $34
|
|
|
(13,162
|
)
|
|
|
2,037
|
|
|
|
59
|
|
|
|
(11,125
|
)
|
Amounts reclassified from accumulated other comprehensive income, net of tax of $(255), $(190)
|
|
|
|
|
|
|
(683
|
)
|
|
|
(321
|
)
|
|
|
(945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive (loss) income, net of tax of $0, $668, $(156)
|
|
|
(13,162
|
)
|
|
|
1,354
|
|
|
|
(262
|
)
|
|
|
(12,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016, net of tax of $0, $209, $(778)
|
|
$
|
(21,921
|
)
|
|
$
|
(60
|
)
|
|
$
|
1,767
|
|
|
$
|
(20,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications out of accumulated other comprehensive income to the statements of operations for the
years ended December 31, 2016, 2015 and 2014, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated
Other Comprehensive Income
Components
|
|
For the year ended
|
|
|
Affected Line Item
in the
Statements
of Operations
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Available-for-sale
marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains, net of tax of $255, $390, $645
|
|
$
|
683
|
|
|
$
|
704
|
|
|
$
|
1,433
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit, net of tax of $190, $169, $169
|
|
|
321
|
|
|
|
295
|
|
|
|
295
|
|
|
|
(1)
|
|
Prior service income arising during period, net of tax of $(34), $0, $0
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
295
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications, net of tax of $411, $559, $814
|
|
$
|
945
|
|
|
$
|
999
|
|
|
$
|
1,728
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amortization of prior service credit is included in the computation of net periodic pension cost and postretirement benefit; see Note N: Retirement
Plans.
|
74
J. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Teradyne
performs its annual goodwill impairment test as required under the provisions of ASC
350-10,
IntangiblesGoodwill and Other,
on December 31 of each fiscal year unless interim
indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value.
Teradyne has the option to perform a qualitative assessment (Step zero) to determine whether it is
more-likely-than-not
that the fair value of a
reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform the
two-step
goodwill impairment test to identify potential goodwill impairment and
measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is
more-likely-than-not
that the fair value of the reporting unit is greater than its carrying amounts, the
two-step
goodwill impairment test is not required. When performing the
two-step
process, the first step involves a comparison of the estimated fair value of a reporting unit
to its carrying amount, including goodwill. In performing the first step, Teradyne determines the fair value of a reporting unit using the results derived from an income approach and a market approach. The income approach is estimated through the
discounted cash flow (DCF) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash
flows. Discount rates are based on a weighted average cost of capital (WACC), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is derived from a
group of comparable companies. The cash flows employed in the DCF analysis are derived from internal forecasts and external market forecasts. The market approach estimates the fair value of the reporting unit by utilizing the market comparable
method which is based on revenue and earnings multiples from comparable companies. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test
is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of
the reporting units goodwill with its carrying amount of goodwill to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business
combination, whereby the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination
and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
In the second quarter of 2016, the Wireless Test reporting unit (which is Teradynes Wireless Test operating and
reportable segment) reduced headcount by 11% as a result of a sharp decline in projected demand attributable to an estimated smaller future wireless test market. The decrease in projected demand was due to lower forecasted buying from
Teradynes largest Wireless Test segment customer (who has contributed between 51% and 73% of annual Wireless Test sales since the LitePoint acquisition in 2011 through 2015) as a result of the customers numerous operational efficiencies;
slower smartphone growth rates; and a slowdown of new wireless technology adoption. Teradyne considered the headcount reduction and sharp decline in projected demand to be a triggering event for an interim goodwill impairment test.
Teradyne allocated the fair value of the Wireless Test reporting unit to all of its assets and liabilities (including unrecognized
intangible assets). The net book value of raw materials inventory was estimated as an approximation of current replacement costs. The fair value of finished goods inventory was estimated at the present value of selling price less direct selling
costs and profit on the selling effort. The selling price used in the inventory fair values was based upon the product gross margins included in Teradynes forecast. The fair value of the deferred revenue liability was estimated by assessing
the costs required to service the obligation plus a reasonable profit margin. The fair value for personal property assets, which consisted of furniture and fixtures,
75
machinery and equipment, computer equipment, software and leasehold improvements, was estimated using the replacement cost approach, which approximated carrying value. The fair value of
intangible assets was estimated using the income approach and, in particular, developed technology and trademarks/trade names were valued using the relief-from-royalty method and customer relationships and customer backlog were valued using the
discounted cash flow method. Royalty rates were estimated using rates applicable to wireless testing equipment and other similar technologies. Based upon this allocation, Teradyne determined that the Wireless Test reporting unit goodwill is valued
at $8.0 million and recorded an impairment loss of $254.9 million in the second quarter of 2016.
In the fourth
quarter of 2016, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of the
two-
step impairment test for the Industrial Automation, Wireless Test and Defense/Aerospace
reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2016.
In 2015,
Teradyne performed step one of the
two-step
impairment test for the Wireless Test and Defense/Aerospace reporting units and the step zero assessment for the Industrial Automation reporting unit. In 2015, there
was no impairment.
In 2014, as a result of decreased projected demand attributable to an estimated smaller future wireless
test market due to reuse of wireless test equipment, price competition and different testing techniques, Teradyne determined that for its Wireless Test reporting unit, the carrying amount of its net assets exceeded its respective fair value,
indicating that a potential impairment existed. After completing the second step of the goodwill impairment test, Teradyne recorded a $98.9 million goodwill impairment charge in the fourth quarter of 2014.
The fourth quarter 2014 goodwill impairment test of Teradynes Defense/Aerospace reporting unit, which is included in
Teradynes System Test reportable segment, did not identify any goodwill impairment.
The changes in the carrying amount
of goodwill by reportable segments for the years ended December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Automation
|
|
|
System
Test
|
|
|
Wireless
Test
|
|
|
Semiconductor
Test
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
|
|
|
$
|
158,699
|
|
|
$
|
361,819
|
|
|
$
|
260,540
|
|
|
$
|
781,058
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(148,183
|
)
|
|
|
(98,897
|
)
|
|
|
(260,540
|
)
|
|
|
(507,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,516
|
|
|
|
262,922
|
|
|
|
|
|
|
|
273,438
|
|
Universal Robots acquisition
|
|
|
221,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,128
|
|
Foreign currency translation adjustment
|
|
|
(6,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
214,975
|
|
|
|
158,699
|
|
|
|
361,819
|
|
|
|
260,540
|
|
|
|
996,033
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(148,183
|
)
|
|
|
(98,897
|
)
|
|
|
(260,540
|
)
|
|
|
(507,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,975
|
|
|
|
10,516
|
|
|
|
262,922
|
|
|
|
|
|
|
|
488,413
|
|
Foreign currency translation adjustment
|
|
|
(10,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,124
|
)
|
Goodwill impairment losses
|
|
|
|
|
|
|
|
|
|
|
(254,946
|
)
|
|
|
|
|
|
|
(254,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
204,851
|
|
|
|
158,699
|
|
|
|
361,819
|
|
|
|
260,540
|
|
|
|
985,909
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(148,183
|
)
|
|
|
(353,843
|
)
|
|
|
(260,540
|
)
|
|
|
(762,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
204,851
|
|
|
$
|
10,516
|
|
|
$
|
7,976
|
|
|
$
|
|
|
|
$
|
223,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Intangible Assets
Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives
of these assets are no longer appropriate. As a result of the Wireless Test segment goodwill impairment review in the second quarter of 2016, Teradyne performed an impairment test of the Wireless Test segments intangible and long-lived assets.
The impairment test is based on a comparison of the estimated undiscounted cash flows to the carrying value of the asset group. If undiscounted cash flows for the asset group are less than the carrying amount, the asset group is written down to its
estimated fair value based on a discounted cash flow analysis. The cash flow estimates used to determine the impairment contain managements best estimates using appropriate assumptions and projections at that time. The fair value of intangible
assets was estimated using the income approach and, in particular, developed technology and trademarks/trade names were valued using the relief-from-royalty method and customer relationships were valued using the discounted cash flow method. Royalty
rates were estimated using rates applicable to wireless testing equipment and other similar technologies. As a result of the analysis, Teradyne recorded an $83.3 million impairment charge in the second quarter of 2016 in acquired intangible
assets impairment on the statements of operations, resulting in a remaining intangible assets balance of $5.0 million for the Wireless Test segment.
There were no events or circumstances indicating that the carrying value of intangible and long-lived assets may not be recoverable in 2015. In 2014, as a result of the Wireless Test segment goodwill
impairment charge in the fourth quarter of 2014, Teradyne performed an impairment test of the Wireless Test segments intangible and long-lived assets based on a comparison of the estimated undiscounted cash flows to the recorded value of the
assets and there was no indication of impairment.
Amortizable intangible assets consist of the following and are included in
intangible assets, net on the balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross
Carrying
Amount (1)
|
|
|
Accumulated
Amortization
(1)(2)
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Net
Carrying
Amount
|
|
|
Weighted
Average
Useful Life
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
270,877
|
|
|
$
|
206,376
|
|
|
$
|
(5,093
|
)
|
|
$
|
59,408
|
|
|
|
6.0 years
|
|
Customer relationships
|
|
|
92,741
|
|
|
|
76,707
|
|
|
|
(538
|
)
|
|
|
15,496
|
|
|
|
7.9 years
|
|
Tradenames and trademarks
|
|
|
50,100
|
|
|
|
23,435
|
|
|
|
(1,308
|
)
|
|
|
25,357
|
|
|
|
9.5 years
|
|
Non-compete
agreement
|
|
|
320
|
|
|
|
180
|
|
|
|
|
|
|
|
140
|
|
|
|
4.0 years
|
|
Customer backlog
|
|
|
170
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
0.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
414,208
|
|
|
$
|
306,868
|
|
|
$
|
(6,939
|
)
|
|
$
|
100,401
|
|
|
|
6.8 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During the year ended December 31, 2016, Teradyne recorded an $83.3 million impairment of Wireless Test amortizable intangible assets. The impairment assets
have been eliminated from the gross carrying amount and accumulated amortization.
|
(2)
|
In 2016, $48.1 million of amortizable intangible assets became fully amortized and has been eliminated from the gross carrying amount and accumulated amortization.
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
(1)(2)
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Net
Carrying
Amount
|
|
|
Weighted
Average
Useful Life
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
382,262
|
|
|
$
|
220,346
|
|
|
$
|
(2,444
|
)
|
|
$
|
159,472
|
|
|
|
6.0 years
|
|
Customer relationships
|
|
|
110,602
|
|
|
|
63,722
|
|
|
|
(258
|
)
|
|
|
46,622
|
|
|
|
7.9 years
|
|
Tradenames and trademarks
|
|
|
53,034
|
|
|
|
18,889
|
|
|
|
(628
|
)
|
|
|
33,517
|
|
|
|
9.5 years
|
|
Non-compete
agreement
|
|
|
320
|
|
|
|
100
|
|
|
|
|
|
|
|
220
|
|
|
|
4.0 years
|
|
Customer backlog
|
|
|
170
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
0.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
546,388
|
|
|
$
|
303,227
|
|
|
$
|
(3,330
|
)
|
|
$
|
239,831
|
|
|
|
6.7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During the year ended December 31, 2015, Teradyne recorded intangible assets in the amount of $121.6 million related to its Universal Robots acquisition.
|
(2)
|
During the year ended December 31, 2015, Teradyne wrote off $98.2 million of fully amortized intangible assets.
|
Aggregate intangible assets amortization expense for the years ended December 31, 2016, 2015 and 2014 was $52.6 million,
$69.0 million, and $70.8 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:
|
|
|
|
|
Year
|
|
Amortization Expense
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
28,986
|
|
2018
|
|
|
26,848
|
|
2019
|
|
|
23,037
|
|
2020
|
|
|
10,042
|
|
2021
|
|
|
3,435
|
|
Thereafter
|
|
|
8,053
|
|
K. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As of December 31, 2016, Teradyne had entered
into
non-cancelable
purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $260.7 million, of which $247.9 million is
for less than one year.
Commitments
Teradyne leases certain of its office buildings and other facilities under various operating lease arrangements that include renewal options and escalation clauses for adjusting rent payments to reflect
changes in price indices. Rental expense for leases with fixed escalation clauses is recognized on a straight line basis over the lease term.
Rental expense for the years ended December 31, 2016, 2015 and 2014 was $18.8 million, $15.9 million and $16.0 million, respectively.
78
The following table reflects Teradynes
non-cancelable
operating lease commitments:
|
|
|
|
|
|
|
Non-cancelable
Lease
Commitments
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
16,467
|
|
2018
|
|
|
15,258
|
|
2019
|
|
|
13,733
|
|
2020
|
|
|
9,374
|
|
2021
|
|
|
7,149
|
|
Beyond 2022
|
|
|
10,130
|
|
|
|
|
|
|
Total
|
|
$
|
72,111
|
|
|
|
|
|
|
Legal Claims
Teradyne is subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters.
Teradyne believes that it has meritorious defenses against all pending claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that
may arise, Teradyne believes the potential losses associated with all of these actions are unlikely to have a material adverse effect on its business, financial position or results of operations.
Guarantees and Indemnification Obligations
Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences while the officer, director,
employee, or agent, is or was serving, at Teradynes request in such capacity. Teradyne has entered into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to
or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies
by-laws
and charter. As a matter of
practice, Teradyne has maintained directors and officers liability insurance coverage including coverage for directors and officers of acquired companies.
Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify
the other party against intellectual property infringement claims brought by a third party with respect to Teradynes products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities
they may suffer or incur relating to personal injury, personal property damage, product liability, breach of confidentiality obligations and environmental claims relating to the use of Teradynes products and services or resulting from the acts
or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the delivery and performance of its products in addition to the warranty described below.
As a matter of ordinary business course, Teradyne warrants that its products will substantially perform in accordance with
its standard published specifications in effect at the time of delivery. Most warranties have a
one-year
duration commencing from installation. A provision is recorded upon revenue recognition to cost of
revenue for estimated warranty expense based upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, it is deferred and recognized on a straight line basis over the contract period. Related
costs are expensed as incurred. As of December 31, 2016 and 2015, Teradyne had a product warranty accrual of $7.2 million and $6.9 million, respectively, included in other accrued liabilities, and revenue deferrals related to extended
warranties of $46.8 million and $46.5 million, respectively, included in short and long-term deferred revenue and customer advances.
79
In addition, and in the ordinary course of business, Teradyne provides minimum purchase
guarantees to certain vendors to ensure continuity of supply against the market demand. Although some of these guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of
the guarantees do not. Therefore, as the market demand decreases, Teradyne
re-evaluates
these guarantees and determines what charges, if any, should be recorded.
With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain
representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date
while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition.
As a matter of ordinary course of business, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary
companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors, and lease commitments to landlords.
Based on historical experience and information known as of December 31, 2016 and 2015, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations
because the amount would be immaterial.
L. NET (LOSS) INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands, except per share amounts)
|
|
Net (loss) income for basic and diluted net income per share
|
|
$
|
(43,421
|
)
|
|
$
|
206,477
|
|
|
$
|
81,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares-basic
|
|
|
202,578
|
|
|
|
211,544
|
|
|
|
202,908
|
|
Effect of dilutive potential common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversion of convertible notes (1)
|
|
|
|
|
|
|
|
|
|
|
5,013
|
|
Convertible note hedge warrant shares (2)
|
|
|
|
|
|
|
|
|
|
|
12,562
|
|
Restricted stock units
|
|
|
|
|
|
|
1,130
|
|
|
|
1,092
|
|
Stock options
|
|
|
|
|
|
|
606
|
|
|
|
944
|
|
Employee stock purchase rights
|
|
|
|
|
|
|
41
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
1,777
|
|
|
|
19,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares-diluted
|
|
|
202,578
|
|
|
|
213,321
|
|
|
|
222,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share-basic
|
|
$
|
(0.21
|
)
|
|
$
|
0.98
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share-diluted
|
|
$
|
(0.21
|
)
|
|
$
|
0.97
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Incremental shares from the assumed conversion of the convertible notes was calculated using the difference between the average Teradyne stock price for the period and
the conversion price of $5.48, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.
|
(2)
|
Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $7.67,
multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period. Teradynes call option on its common stock
(convertible note hedge transaction) was excluded from the calculation of diluted shares because the effect was anti-dilutive.
|
80
The computation of diluted net loss per common share for 2016 excludes the effect of the
potential exercise of all outstanding stock options and restricted stock units because Teradyne had a net loss and inclusion would be anti-dilutive.
The computation of diluted net income per common share for 2015 excludes the effect of the potential exercise of stock options to purchase approximately 0.2 million shares because the effect would
have been anti-dilutive.
The computation of diluted net income per common share for 2014 excludes the effect of the potential
exercise of stock options to purchase approximately 0.3 million shares because the effect would have been anti-dilutive.
M. RESTRUCTURING AND OTHER
Other
During the year ended December 31, 2016, Teradyne recorded
$15.9 million of other charges of which $15.3 million was for the increase in the fair value of the Universal Robots contingent consideration liability, $0.6 million for the increase in the fair value of the AIT contingent
consideration liability, $4.2 million for an impairment of fixed assets and $1.2 million for expenses related to an earthquake in Kumamoto, Japan, partially offset by $5.4 million of property insurance recovery related to the Japan
earthquake.
During the year ended December 31, 2015, Teradyne recorded $3.6 million of other charges, of which
$5.3 million was for the increase in the fair value of the Universal Robots contingent consideration liability and $1.0 million for acquisition costs related to Universal Robots, partially offset by a $2.9 million gain from fair value
adjustments to decrease the acquisition contingent consideration liability related to ZTEC, $1.6 million, and AIT, $1.3 million.
During the year ended December 31, 2014, Teradyne recorded a $0.6 million gain from the fair value adjustment to decrease the ZTEC acquisition contingent consideration, partially offset by
$0.4 million of acquisition costs related to AIT.
Restructuring
During the year ended December 31, 2016, Teradyne recorded $6.0 million of severance charges related to headcount reductions of
146 people, of which 102 people were in Wireless Test and 44 people were in Semiconductor Test.
During the year ended
December 31, 2015, Teradyne recorded $1.5 million of severance charges related to headcount reductions of 23 people primarily in System Test and Semiconductor Test.
During the year ended December 31, 2014, Teradyne recorded $1.6 million of severance charges related to headcount reductions of approximately 43 people, primarily in Semiconductor Test and
Wireless Test.
The remaining accrual for severance of $2.1 million is reflected in the accrued employees
compensation and withholdings on the balance sheet and is expected to be paid by June 2017.
N. RETIREMENT PLANS
ASC 715
,
CompensationRetirement Benefits,
requires an employer with defined benefit plans
or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair
value of the pension plans assets and the projected benefit obligation at December 31. Teradyne uses a December 31 measurement date for all of its plans.
81
Defined Benefit Pension Plans
Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain
non-U.S.
subsidiaries. Benefits under these plans are based on employees years of service and compensation. Teradynes funding policy is to make contributions to the plans in accordance with local laws
and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States
to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (ERISA) and the Internal Revenue Code (the IRC), as well as unfunded qualified foreign plans.
The December 31 balances of these defined benefit pension plans assets and obligations are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
|
|
(in thousands)
|
|
Assets and Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
351,117
|
|
|
$
|
62,290
|
|
|
$
|
367,619
|
|
|
$
|
58,210
|
|
Service cost
|
|
|
2,302
|
|
|
|
761
|
|
|
|
2,462
|
|
|
|
1,006
|
|
Interest cost
|
|
|
13,630
|
|
|
|
1,185
|
|
|
|
13,142
|
|
|
|
1,444
|
|
Actuarial gain (loss)
|
|
|
6,053
|
|
|
|
5,621
|
|
|
|
(13,221
|
)
|
|
|
7,498
|
|
Benefits paid
|
|
|
(19,486
|
)
|
|
|
(1,385
|
)
|
|
|
(18,885
|
)
|
|
|
(859
|
)
|
Curtailment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(634
|
)
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Expenses paid
|
|
|
|
|
|
|
(609
|
)
|
|
|
|
|
|
|
|
|
Non-U.S.
currency movement
|
|
|
|
|
|
|
(7,125
|
)
|
|
|
|
|
|
|
(4,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
353,616
|
|
|
|
60,738
|
|
|
|
351,117
|
|
|
|
62,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
298,404
|
|
|
|
28,141
|
|
|
|
316,072
|
|
|
|
29,511
|
|
Company contributions
|
|
|
4,489
|
|
|
|
867
|
|
|
|
10,517
|
|
|
|
808
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Actual return on plan assets
|
|
|
23,897
|
|
|
|
5,142
|
|
|
|
(9,300
|
)
|
|
|
(136
|
)
|
Benefits paid
|
|
|
(19,486
|
)
|
|
|
(1,148
|
)
|
|
|
(18,885
|
)
|
|
|
(859
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses paid
|
|
|
|
|
|
|
(609
|
)
|
|
|
|
|
|
|
(43
|
)
|
Non-U.S.
currency movement
|
|
|
|
|
|
|
(4,822
|
)
|
|
|
|
|
|
|
(1,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
307,304
|
|
|
|
27,571
|
|
|
|
298,404
|
|
|
|
28,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(46,312
|
)
|
|
$
|
(33,167
|
)
|
|
$
|
(52,713
|
)
|
|
$
|
(34,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
The following table provides amounts recorded within the account line items of the
statements of financial position as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
|
|
(in thousands)
|
|
Retirement plans assets
|
|
$
|
7,712
|
|
|
$
|
|
|
|
$
|
636
|
|
|
$
|
|
|
Accrued employees compensation and withholdings
|
|
|
(2,591
|
)
|
|
|
(772
|
)
|
|
|
(2,564
|
)
|
|
|
(695
|
)
|
Retirement plans liabilities
|
|
|
(51,433
|
)
|
|
|
(32,395
|
)
|
|
|
(50,785
|
)
|
|
|
(33,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(46,312
|
)
|
|
$
|
(33,167
|
)
|
|
$
|
(52,713
|
)
|
|
$
|
(34,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides amounts recognized in accumulated other comprehensive income as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
|
|
(in thousands)
|
|
Prior service cost, before tax
|
|
$
|
127
|
|
|
$
|
|
|
|
$
|
224
|
|
|
$
|
|
|
Deferred taxes
|
|
|
514
|
|
|
|
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income, net of tax
|
|
$
|
641
|
|
|
$
|
|
|
|
$
|
703
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated portion of prior service cost remaining in accumulated other comprehensive income that is
expected to be recognized as a component of net periodic pension cost in 2017 is $0.1 million.
The accumulated benefit
obligation for the United States defined benefit pension plans was $342.9 million and $340.1 million at December 31, 2016 and 2015, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was
$56.6 million at December 31, 2016 and 2015.
Information for pension plans with an accumulated benefit obligation
in excess of plan assets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
|
|
(in millions)
|
|
Projected benefit obligation
|
|
$
|
54.0
|
|
|
$
|
34.3
|
|
|
$
|
53.3
|
|
|
$
|
35.2
|
|
Accumulated benefit obligation
|
|
|
48.0
|
|
|
|
30.1
|
|
|
|
47.3
|
|
|
|
29.5
|
|
Fair value of plan assets
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
1.0
|
|
83
Expense
For the years ended December 31, 2016, 2015 and 2014, Teradynes net periodic pension (income) cost was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
United
States
|
|
|
Foreign
|
|
|
United
States
|
|
|
Foreign
|
|
|
United
States
|
|
|
Foreign
|
|
|
|
(in thousands)
|
|
Components of Net Periodic Pension (Income) Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,302
|
|
|
$
|
761
|
|
|
$
|
2,462
|
|
|
$
|
1,006
|
|
|
$
|
2,218
|
|
|
$
|
897
|
|
Interest cost
|
|
|
13,630
|
|
|
|
1,185
|
|
|
|
13,142
|
|
|
|
1,444
|
|
|
|
12,875
|
|
|
|
1,837
|
|
Expected return on plan assets
|
|
|
(13,830
|
)
|
|
|
(443
|
)
|
|
|
(14,517
|
)
|
|
|
(781
|
)
|
|
|
(12,500
|
)
|
|
|
(868
|
)
|
Amortization of prior service cost
|
|
|
96
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
|
(4,013
|
)
|
|
|
815
|
|
|
|
10,596
|
|
|
|
8,415
|
|
|
|
43,168
|
|
|
|
4,651
|
|
Curtailment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic pension (income) cost
|
|
$
|
(1,815
|
)
|
|
$
|
2,318
|
|
|
$
|
11,817
|
|
|
$
|
9,450
|
|
|
$
|
45,896
|
|
|
$
|
6,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of amortization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(96
|
)
|
|
|
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
(96
|
)
|
|
|
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic pension (income) cost and other comprehensive income
|
|
$
|
(1,911
|
)
|
|
$
|
2,318
|
|
|
$
|
11,683
|
|
|
$
|
9,450
|
|
|
$
|
45,761
|
|
|
$
|
6,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
Discount rate
|
|
|
4.0
|
%
|
|
|
2.3
|
%
|
|
|
3.7
|
%
|
|
|
2.6
|
%
|
|
|
4.5
|
%
|
|
|
3.8
|
%
|
Expected return on plan assets
|
|
|
4.8
|
|
|
|
2.0
|
|
|
|
4.8
|
|
|
|
2.6
|
|
|
|
5.0
|
|
|
|
3.4
|
|
Salary progression rate
|
|
|
2.7
|
|
|
|
3.2
|
|
|
|
2.9
|
|
|
|
3.2
|
|
|
|
3.0
|
|
|
|
3.5
|
|
Weighted Average Assumptions to Determine Pension Obligations at December 31 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
Discount rate
|
|
|
3.9
|
%
|
|
|
1.8
|
%
|
|
|
4.0
|
%
|
|
|
2.3
|
%
|
Salary progression rate
|
|
|
2.6
|
|
|
|
2.7
|
|
|
|
2.7
|
|
|
|
3.2
|
|
In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment
manager and pension consultants, including their forecast of asset class return expectations. Teradyne believes that 4.8% was an appropriate rate to use for fiscal 2016 for the U.S. Qualified Pension Plan (U.S. Plan).
Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the
year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of
December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.
84
The discount rate utilized to determine future pension obligations for the U.S. Plan is
based on Citigroup Pension Index adjusted for the plans expected cash flows and was 3.9% at December 31, 2016, down from 4.0% at December 31, 2015.
Plan Assets
As of December 31, 2016, the fair value of
Teradynes pension plans assets totaled $334.9 million of which $307.3 million was related to the U.S. Plan, $26.5 million was related to the U.K. defined benefit pension plan, and $1.1 million was related to the
Taiwan defined benefit pension plan. Substantially all Teradynes pension plans assets are held in individual trusts, which were established for the investment of assets of Teradynes sponsored retirement plans.
The following table provides weighted average pension asset allocation by asset category at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
United States
|
|
|
Foreign
|
|
|
United States
|
|
|
Foreign
|
|
Fixed income securities
|
|
|
88.1
|
%
|
|
|
|
%
|
|
|
88.6
|
%
|
|
|
|
%
|
Equity securities
|
|
|
9.9
|
|
|
|
|
|
|
|
9.8
|
|
|
|
|
|
Other
|
|
|
2.0
|
|
|
|
100.0
|
|
|
|
1.6
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assets of the U.S. Plan are overseen by the Teradyne Fiduciary Committee which is comprised of
members of senior management drawn from appropriate diversified levels of the management team. The Fiduciary Committee is responsible for setting the policy that provides the framework for management of the U.S. Plan assets. In accordance with its
responsibilities, the Fiduciary Committee meets on a regular basis to review the performance of the U.S. Plan assets and compliance with the investment policy. The policy sets forth an investment structure for managing U.S. Plan assets, including
setting the asset allocation ranges, which are expected to provide an appropriate level of overall diversification required to maximize the long-term return on plan assets for a prudent and reasonable level of risk given prevailing market
conditions, total investment return over the long term, and preservation of capital, while maintaining sufficient liquidity to pay the benefits of the U.S. Plan. The investment portfolio will not, at any time, have a direct investment in Teradyne
stock. It may have indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock. In developing the asset allocation ranges, third party asset allocation studies are periodically performed
that consider the current and expected positions of the plan assets and funded status. Based on this study and other appropriate information, the Fiduciary Committee establishes asset allocation ranges taking into account acceptable risk targets and
associated returns. The investment return objectives are to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified below. The managers investment performance is reviewed at least annually.
Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices and the Policy Index.
The target asset allocation and the index for each asset category for the U.S. Plan, per the investment policy, are as follows:
|
|
|
|
|
|
|
Asset Category:
|
|
Policy Index:
|
|
Target
Allocation
|
|
U.S. corporate fixed income
|
|
Barclays U.S. Corporate A or Better Index
|
|
|
76
|
%
|
Global equity
|
|
MSCI World Minimum Volatility Index
|
|
|
10
|
|
U.S. government fixed income
|
|
Barclays U.S. Long Government Bond Index
|
|
|
8
|
|
High yield fixed income
|
|
Barclays U.S. Corporate High Yield 2% Issuer Cap Index
|
|
|
5
|
|
Cash
|
|
Citigroup Three Month U.S. Treasury Bill Index
|
|
|
1
|
|
85
Teradynes U.S. Plan invests primarily in common trust funds. Units held in the common
trust funds are valued at the unit price as reported by the investment manager based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying
investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities.
In the fourth quarter of 2015, the Trustees of the U.K. defined benefit pension plan purchased group annuity insurance contracts. The cash flows from the contracts are intended to match the plans
obligations.
During the years ended December 31, 2016 and 2015, there were no transfers of pension assets in or out of
Level 1, Level 2 or Level 3.
The fair value of pension plan assets by asset category and by level at
December 31, 2016 and December 31, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
United States
|
|
|
Foreign
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
|
|
|
$
|
246,528
|
|
|
$
|
|
|
|
$
|
246,528
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. government securities
|
|
|
|
|
|
|
24,322
|
|
|
|
|
|
|
|
24,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global equity
|
|
|
|
|
|
|
30,360
|
|
|
|
|
|
|
|
30,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group annuity insurance contracts
|
|
|
|
|
|
|
|
|
|
|
3,071
|
|
|
|
3,071
|
|
|
|
|
|
|
|
|
|
|
|
26,385
|
|
|
|
26,385
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
1,124
|
|
Cash and cash equivalents
|
|
|
3,023
|
|
|
|
|
|
|
|
|
|
|
|
3,023
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,023
|
|
|
$
|
301,210
|
|
|
$
|
3,071
|
|
|
$
|
307,304
|
|
|
$
|
62
|
|
|
$
|
1,124
|
|
|
$
|
26,385
|
|
|
$
|
27,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
United States
|
|
|
Foreign
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
|
|
|
$
|
240,695
|
|
|
$
|
|
|
|
$
|
240,695
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. government securities
|
|
|
|
|
|
|
23,761
|
|
|
|
|
|
|
|
23,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global equity
|
|
|
|
|
|
|
29,193
|
|
|
|
|
|
|
|
29,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group annuity insurance contracts
|
|
|
|
|
|
|
|
|
|
|
2,982
|
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
|
|
26,410
|
|
|
|
26,410
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,029
|
|
|
|
|
|
|
|
1,029
|
|
Cash and cash equivalents
|
|
|
1,773
|
|
|
|
|
|
|
|
|
|
|
|
1,773
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,773
|
|
|
$
|
293,649
|
|
|
$
|
2,982
|
|
|
$
|
298,404
|
|
|
$
|
702
|
|
|
$
|
1,029
|
|
|
$
|
26,410
|
|
|
$
|
28,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pension plan assets identified as Level 3 above are related to group annuity insurance contracts
held by the U.K. defined benefit pension plan and the U.S. Plan. The fair value of these assets was calculated using the present value of future pension payments due under the group annuity insurance contracts.
86
Changes in the fair value of Level 3 group annuity insurance contracts for the years
ended December 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
Group Annuity Insurance Contracts
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2014
|
|
$
|
2,990
|
|
Purchases of group annuity insurance contracts
|
|
|
27,313
|
|
Interest and market value adjustments
|
|
|
(825
|
)
|
Benefits paid
|
|
|
(67
|
)
|
Other
|
|
|
(19
|
)
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
29,392
|
|
Purchases of group annuity insurance contracts
|
|
|
709
|
|
Interest and market value adjustments
|
|
|
5,308
|
|
Benefits paid
|
|
|
(611
|
)
|
Other
|
|
|
(634
|
)
|
Non-U.S.
currency movement
|
|
|
(4,708
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
29,456
|
|
|
|
|
|
|
Contributions
Teradynes funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2016, Teradyne contributed
$1.9 million to the U.S. Plan, $2.6 million to the U.S. supplemental executive defined benefit pension plan and $0.9 million to certain qualified plans for
non-U.S.
subsidiaries. During 2015,
Teradyne contributed $8.0 million to the U.S. Plan, $2.5 million to the U.S. supplemental executive defined benefit pension plan and $0.8 million to certain qualified plans for
non-U.S.
subsidiaries. In 2017, contributions to the U.S. supplemental executive defined benefit pension plan, U.S. Plan and certain qualified plans from
non-U.S.
subsidiaries will be approximately $2.6 million,
$1.9 million and $0.8 million, respectively.
Expected Future Pension Benefit Payments
Future benefit payments are expected to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Foreign
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
19,205
|
|
|
$
|
788
|
|
2018
|
|
|
18,568
|
|
|
|
754
|
|
2019
|
|
|
19,046
|
|
|
|
780
|
|
2020
|
|
|
19,768
|
|
|
|
1,054
|
|
2021
|
|
|
20,390
|
|
|
|
882
|
|
2022-2026
|
|
|
111,334
|
|
|
|
5,209
|
|
Postretirement Benefit Plans
In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradynes Welfare Plan, which
includes medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees survivors and are available to all retirees. Substantially all of Teradynes current U.S. employees could become eligible for these
benefits, and the existing benefit obligation relates primarily to those employees.
87
The December 31 balances of the postretirement assets and obligations are shown below:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Assets and Obligations
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
6,030
|
|
|
$
|
7,162
|
|
Service cost
|
|
|
37
|
|
|
|
48
|
|
Interest cost
|
|
|
218
|
|
|
|
237
|
|
Plan amendments
|
|
|
(93
|
)
|
|
|
|
|
Actuarial loss (gain)
|
|
|
5
|
|
|
|
(648
|
)
|
Benefits paid
|
|
|
(687
|
)
|
|
|
(769
|
)
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
5,510
|
|
|
|
6,030
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
687
|
|
|
|
769
|
|
Benefits paid
|
|
|
(687
|
)
|
|
|
(769
|
)
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(5,510
|
)
|
|
$
|
(6,030
|
)
|
|
|
|
|
|
|
|
|
|
The following table provides amounts recorded within the account line items of financial position as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Accrued employees compensation and withholdings
|
|
$
|
(571
|
)
|
|
$
|
(692
|
)
|
Retirement plans liability
|
|
|
(4,939
|
)
|
|
|
(5,338
|
)
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(5,510
|
)
|
|
$
|
(6,030
|
)
|
|
|
|
|
|
|
|
|
|
The following table provides amounts recognized in accumulated other comprehensive income as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Prior service credit, before tax
|
|
$
|
(1,118
|
)
|
|
$
|
(1,632
|
)
|
Deferred taxes
|
|
|
(1,292
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income, net of tax
|
|
$
|
(2,410
|
)
|
|
$
|
(2,732
|
)
|
|
|
|
|
|
|
|
|
|
The estimated portion of prior service credit remaining in accumulated other comprehensive income that is
expected to be recognized as a component of net periodic postretirement benefit income in 2017 is $(0.5) million.
88
Expense
For the years ended December 31, 2016, 2015 and 2014, Teradynes net periodic postretirement benefit income was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Components of Net Periodic Postretirement Benefit Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
37
|
|
|
$
|
48
|
|
|
$
|
59
|
|
Interest cost
|
|
|
218
|
|
|
|
237
|
|
|
|
335
|
|
Amortization of prior service credit
|
|
|
(607
|
)
|
|
|
(598
|
)
|
|
|
(598
|
)
|
Net actuarial loss (gain)
|
|
|
5
|
|
|
|
(648
|
)
|
|
|
(1,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic postretirement benefit income
|
|
|
(347
|
)
|
|
|
(961
|
)
|
|
|
(1,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
Reversal of amortization items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
|
607
|
|
|
|
598
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
514
|
|
|
|
598
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic postretirement cost (income) and other comprehensive income
|
|
$
|
167
|
|
|
$
|
(363
|
)
|
|
$
|
(861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Income as of January 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
3.9
|
%
|
|
|
3.5
|
%
|
|
|
4.1
|
%
|
Initial health care cost trend rate
|
|
|
7.5
|
|
|
|
7.5
|
|
|
|
8.0
|
|
Ultimate health care cost trend rate
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Year in which ultimate health care cost trend rate is reached
|
|
|
2023
|
|
|
|
2022
|
|
|
|
2020
|
|
Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
3.5
|
%
|
Initial medical trend
|
|
|
7.3
|
|
|
|
7.5
|
|
|
|
7.5
|
|
Ultimate health care trend
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Medical cost trend rate decrease to ultimate rate in year
|
|
|
2023
|
|
|
|
2023
|
|
|
|
2022
|
|
Assumed health care trend rates could have a significant effect on the amounts reported for health care
plans. A one percentage point change in the assumed health care cost trend rates for the year ended December 31, 2016 would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
1 Percentage
Point
Increase
|
|
|
1 Percentage
Point
Decrease
|
|
|
|
(in thousands)
|
|
Effect on total service and interest cost components
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
Effect on postretirement benefit obligations
|
|
|
44
|
|
|
|
(42
|
)
|
89
Expected Future Benefit Payments
Future benefit payments are expected to be paid as follows:
|
|
|
|
|
|
|
Benefit Payments
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
571
|
|
2018
|
|
|
529
|
|
2019
|
|
|
456
|
|
2020
|
|
|
409
|
|
2021
|
|
|
367
|
|
2022-2026
|
|
|
1,536
|
|
O. STOCK-BASED COMPENSATION
Stock Compensation Plans
Under Teradynes stock compensation plans,
Teradyne grants stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradynes common stock through its Employee Stock Purchase Plan (ESPP).
Stock options to purchase Teradynes common stock at 100% of the fair market value on the grant date vest in equal annual
installments over four years from the grant date and have a maximum term of seven years.
Time-based restricted stock unit
awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to
non-employee
directors vest after a one year period, with 100% of the award vesting on the
first anniversary of the grant date. Teradyne expenses the cost of the restricted stock unit awards subject to time-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during
which the restrictions lapse.
Commencing in January 2014, Teradyne granted performance-based restricted stock units
(PRSUs) to its executive officers with a performance metric based on relative total shareholder return (TSR). For TSR grants issued in 2014 and 2015, Teradynes three-year TSR performance is measured against the
Philadelphia Semiconductor Index. For TSR grants issued in January 2016, Teradynes three-year TSR performance will be measured against the New York Stock Exchange (NYSE) Composite Index. The final number of TSR PRSUs that vest will
vary based upon the level of performance achieved from 200% to 0% of the target shares. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units
expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the three-year service period. Compensation
expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if at any time
during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted below.
In January 2016, Teradyne granted PRSUs to its executive officers with a performance metric based on three-year cumulative
non-GAAP
profit before interest and tax
(PBIT).
Non-GAAP
PBIT is a financial measure equal to GAAP income from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related
charges or credits; pension actuarial gains and losses;
non-cash
convertible debt interest expense; and other
non-recurring
gains and charges. The final number of PBIT
PRSUs that vest will vary based upon the level of performance achieved from 200% to 0% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over
the three-year service period. Compensation expense is recognized based
90
on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradynes revenue, provided the executive officer remains an employee at the end of the
three-year period subject to the retirement and termination eligibility provisions noted below.
Beginning with PRSUs granted
in January 2014, if the recipients employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least
age sixty and at least ten years of service, then all or a portion of the recipients PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except
as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period.
The TSR PRSUs are valued using a Monte Carlo simulation model. During 2016, 2015 and 2014 Teradyne granted 0.1 million, 0.2 million and 0.1 million TSR PRSUs, respectively, with a grant
date fair value of $20.29, $18.21 and $22.06, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Risk-free interest rate
|
|
|
0.97
|
%
|
|
|
0.77
|
%
|
|
|
0.75
|
%
|
Teradyne volatility-historical
|
|
|
27.0
|
%
|
|
|
28.2
|
%
|
|
|
36.1
|
%
|
NYSE Composite Index volatility-historical
|
|
|
13.1
|
%
|
|
|
|
%
|
|
|
|
%
|
Philadelphia Semiconductor Index volatility-historical
|
|
|
|
%
|
|
|
19.7
|
%
|
|
|
24.6
|
%
|
Dividend yield
|
|
|
1.24
|
%
|
|
|
1.33
|
%
|
|
|
1.25
|
%
|
Expected volatility was based on the historical volatility of Teradynes stock and the NYSE
Composite Index for the 2016 grant and Philadelphia Semiconductor Index for the 2015 and 2014 grants, over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of
grant. Dividend yield for 2016, 2015 and 2014 was based upon an estimated annual dividend amount of $0.24 per share divided by Teradynes stock price on the grant date of $19.43 for the 2016 grants, $18.10 for the 2015 grants, and $19.16 for
the 2014 grants.
Stock Options Valuation Assumptions:
The total number of stock options granted in 2016, 2015 and 2014 were 0.1 million, 0.1 million and 0.1 million,
respectively, at the weighted average grant date fair value of $5.30, $4.43 and $5.49 per share, respectively. The fair value of the stock options at grant date was estimated using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected life (years)
|
|
|
5.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Risk-free interest rate
|
|
|
1.4
|
%
|
|
|
1.1
|
%
|
|
|
1.2
|
%
|
Volatility-historical
|
|
|
32.9
|
%
|
|
|
33.4
|
%
|
|
|
38.8
|
%
|
Dividend yield
|
|
|
1.24
|
%
|
|
|
1.33
|
%
|
|
|
1.25
|
%
|
Teradyne determined the stock options expected life based upon historical exercise data for
executive officers, the age of executives and the terms of the stock option award. Volatility was determined using historical volatility for a period equal to the expected life. The interest rate was determined using the U.S. Treasury yield curve in
effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.24 per share divided by Teradynes stock price on the grant date of $19.43 for the 2016 grants, $18.10 for the 2015 grants, and $19.16 for the
2014 grants.
91
Stock compensation plan activity for the years 2016, 2015 and 2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Restricted Stock Units:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at January 1
|
|
|
4,070
|
|
|
|
4,352
|
|
|
|
4,636
|
|
Awarded
|
|
|
1,471
|
|
|
|
1,681
|
|
|
|
1,870
|
|
Vested
|
|
|
(1,530
|
)
|
|
|
(1,679
|
)
|
|
|
(1,965
|
)
|
Forfeited
|
|
|
(233
|
)
|
|
|
(284
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at December 31
|
|
|
3,778
|
|
|
|
4,070
|
|
|
|
4,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
|
1,121
|
|
|
|
1,507
|
|
|
|
2,706
|
|
Granted
|
|
|
130
|
|
|
|
132
|
|
|
|
89
|
|
Exercised
|
|
|
(324
|
)
|
|
|
(518
|
)
|
|
|
(1,248
|
)
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
Expired
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
926
|
|
|
|
1,121
|
|
|
|
1,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31
|
|
|
926
|
|
|
|
1,121
|
|
|
|
1,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
|
598
|
|
|
|
779
|
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares available for the years 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Shares available:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at January 1
|
|
|
10,914
|
|
|
|
12,443
|
|
|
|
14,213
|
|
Options granted
|
|
|
(130
|
)
|
|
|
(132
|
)
|
|
|
(89
|
)
|
Restricted stock units awarded
|
|
|
(1,471
|
)
|
|
|
(1,681
|
)
|
|
|
(1,870
|
)
|
Restricted stock units forfeited
|
|
|
233
|
|
|
|
284
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31
|
|
|
9,546
|
|
|
|
10,914
|
|
|
|
12,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average restricted stock unit award date fair value information for the years 2016, 2015 and
2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Non-vested
at January 1
|
|
$
|
17.46
|
|
|
$
|
17.24
|
|
|
$
|
15.60
|
|
Awarded
|
|
|
18.68
|
|
|
|
17.36
|
|
|
|
18.41
|
|
Vested
|
|
|
17.21
|
|
|
|
16.85
|
|
|
|
14.38
|
|
Forfeited
|
|
|
17.57
|
|
|
|
17.08
|
|
|
|
16.97
|
|
Non-vested
at December 31
|
|
$
|
18.03
|
|
|
$
|
17.46
|
|
|
$
|
17.24
|
|
Restricted stock unit awards aggregate intrinsic value information at December 31 for the years
2016, 2015 and 2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Vested
|
|
$
|
30,008
|
|
|
$
|
32,200
|
|
|
$
|
37,160
|
|
Outstanding
|
|
|
95,952
|
|
|
|
84,129
|
|
|
|
86,113
|
|
Expected to vest
|
|
|
91,871
|
|
|
|
79,611
|
|
|
|
81,582
|
|
92
Restricted stock units weighted average remaining contractual terms (in years) information
at December 31, for the years 2016, 2015 and 2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Outstanding
|
|
|
1.04
|
|
|
|
1.09
|
|
|
|
1.11
|
|
Expected to vest
|
|
|
1.03
|
|
|
|
1.08
|
|
|
|
1.10
|
|
Weighted average stock options exercise price information for the year ended December 31, 2016
follows:
|
|
|
|
|
|
|
2016
|
|
Outstanding at January 1
|
|
$
|
10.21
|
|
Options granted
|
|
|
19.43
|
|
Options exercised
|
|
|
9.06
|
|
Options expired
|
|
|
3.07
|
|
Outstanding at December 31
|
|
|
11.93
|
|
Exercisable at December 31
|
|
|
8.32
|
|
The total cash received from employees as a result of employee stock options exercises during the years
ended December 31, 2016, 2015 and 2014, was $2.9 million, $2.8 million and $6.7 million, respectively. In connection with these exercises, the tax benefit realized by Teradyne for the years ended December 31, 2016, 2015 and
2014, was $0.8 million, $2.1 million and $5.7 million, respectively.
Stock option aggregate intrinsic value
information for the years ended December 31, 2016, 2015 and 2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Exercised
|
|
$
|
3,729
|
|
|
$
|
7,255
|
|
|
$
|
17,847
|
|
Outstanding
|
|
|
12,468
|
|
|
|
11,729
|
|
|
|
17,936
|
|
Vested and expected to vest
|
|
|
12,468
|
|
|
|
11,729
|
|
|
|
17,936
|
|
Exercisable
|
|
|
10,217
|
|
|
|
10,716
|
|
|
|
16,101
|
|
Stock options weighted average remaining contractual terms (in years) information at December 31,
for the years 2016, 2015 and 2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Outstanding
|
|
|
3.9
|
|
|
|
4.2
|
|
|
|
4.5
|
|
Vested and expected to vest
|
|
|
3.9
|
|
|
|
4.2
|
|
|
|
4.5
|
|
Exercisable
|
|
|
3.2
|
|
|
|
3.9
|
|
|
|
4.2
|
|
Significant option groups outstanding at December 31, 2016 and related weighted average price and
remaining contractual life information follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range Of Exercise Prices
|
|
Weighted-
Average
Remaining
Contractual Life
(Years)
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
|
(shares in thousands)
|
|
$1.48 $2.67
|
|
|
3.74
|
|
|
|
294
|
|
|
$
|
2.31
|
|
|
|
294
|
|
|
$
|
2.31
|
|
$3.23 $7.71
|
|
|
1.77
|
|
|
|
75
|
|
|
|
4.26
|
|
|
|
75
|
|
|
|
4.26
|
|
$16.23 $18.10
|
|
|
3.51
|
|
|
|
338
|
|
|
|
17.18
|
|
|
|
185
|
|
|
|
16.87
|
|
$19.16 $19.43
|
|
|
5.26
|
|
|
|
219
|
|
|
|
19.32
|
|
|
|
44
|
|
|
|
19.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
926
|
|
|
|
11.93
|
|
|
|
598
|
|
|
|
8.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
As of December 31, 2016, total unrecognized expense related to
non-vested
restricted stock unit awards and stock options was $40.6 million, and is expected to be recognized over a weighted average period of 2.3 years.
Effective January 31, 2014, Michael Bradley retired as Chief Executive Officer of Teradyne. On January 22, 2014, Teradyne
entered into an agreement (the Retirement Agreement) with Mr. Bradley. Under the Retirement Agreement, Mr. Bradleys unvested restricted stock units and stock options granted prior to his retirement date will continue to
vest in accordance with their terms through January 31, 2017; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. In the Retirement Agreement, Mr. Bradley agreed
to be bound by
non-competition
and
non-solicitation
restrictions through January 31, 2017. In January 2014, Teradyne recorded a
one-time
charge to stock-based compensation expense of $6.6 million related to the Retirement Agreement.
Employee Stock Purchase Plan
Under the Teradyne 1996 Employee Stock
Purchase Plan (ESPP), eligible employees may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation, to a maximum of shares with a fair market value of $25,000 per calendar year, not to
exceed 6,000 shares. Under the plan, the price paid for the common stock is equal to 85% of the stock price on the last business day of the
six-month
purchase period.
In July 2016, 0.5 million shares of common stock were issued to employees who participated in the plan during the first half of
2016, at the price of $16.74 per share. In January 2017, Teradyne issued 0.4 million shares of common stock to employees who participated in the plan during the second half of 2016, at the price of $21.59 per share.
In July 2015, 0.5 million shares of common stock were issued to employees who participated in the plan during the first half of
2015, at the price of $16.40 per share. In January 2016, Teradyne issued 0.5 million shares of common stock to employees who participated in the plan during the second half of 2015, at the price of $17.57 per share.
In July 2014, 0.5 million shares of common stock were issued to employees who participated in the plan during the first half of
2014, at the price of $16.66 per share. In January 2015, Teradyne issued 0.5 million shares of common stock to employees who participated in the plan during the second half of 2014, at the price of $16.82 per share.
As of December 31, 2016, there were 3.9 million shares available for grant under the ESPP.
The effect to income from operations for recording stock-based compensation for the years ended December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Cost of revenues
|
|
$
|
3,153
|
|
|
$
|
3,065
|
|
|
$
|
3,675
|
|
Engineering and development
|
|
|
9,458
|
|
|
|
9,362
|
|
|
|
10,146
|
|
Selling and administrative
|
|
|
18,139
|
|
|
|
18,024
|
|
|
|
26,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,750
|
|
|
|
30,451
|
|
|
|
40,307
|
|
Income tax benefit
|
|
|
(8,752
|
)
|
|
|
(8,528
|
)
|
|
|
(11,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense after income taxes
|
|
$
|
21,998
|
|
|
$
|
21,923
|
|
|
$
|
28,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P. SAVINGS PLAN
Teradyne sponsors a defined contribution employee retirement savings plan (Savings Plan) covering substantially all U.S. employees. Under the Savings Plan, employees may contribute up to 20%
of their
94
compensation (subject to Internal Revenue Service limitations). The Savings Plan provides for a discretionary employer match that is determined each year. In 2016, 2015 and 2014, Teradyne matched
100% of eligible employee contributions up to 4% of their compensation for employees not accruing benefits in the U.S. Qualified Pension Plan. There was no match for employees still actively accruing benefits in the U.S. Qualified Pension Plan.
Teradynes contributions vest 25% per year for the first four years of employment, and contributions for those employees with four years of service vest immediately.
In addition, Teradyne established an unfunded U.S. Supplemental Savings Plan to provide savings benefits in excess of those allowed by Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code. The provisions of this plan are the same as the Savings Plan. Teradyne also established defined contribution savings plans for its foreign employees. Under Teradynes savings plans, amounts charged to the statements of operations
for the years ended December 31, 2016, 2015 and 2014 were $14.5 million, $13.5 million and $12.8 million, respectively.
Q. INCOME TAXES
The components of (loss) income before income taxes and the (benefit) provision for income taxes as shown in the consolidated statements of operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
(Loss) income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(341,018
|
)
|
|
$
|
56,270
|
|
|
$
|
(151,889
|
)
|
Non-U.S.
|
|
|
285,958
|
|
|
|
196,854
|
|
|
|
247,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(55,060
|
)
|
|
$
|
253,124
|
|
|
$
|
95,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
7,750
|
|
|
$
|
16,635
|
|
|
$
|
5,197
|
|
Non-U.S.
|
|
|
41,579
|
|
|
|
35,707
|
|
|
|
28,157
|
|
State
|
|
|
1,968
|
|
|
|
1,429
|
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,297
|
|
|
|
53,771
|
|
|
|
34,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
(51,482
|
)
|
|
|
(574
|
)
|
|
|
(20,449
|
)
|
Non-U.S.
|
|
|
(9,240
|
)
|
|
|
(7,761
|
)
|
|
|
(404
|
)
|
State
|
|
|
(2,214
|
)
|
|
|
1,211
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,936
|
)
|
|
|
(7,124
|
)
|
|
|
(19,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision for income taxes:
|
|
$
|
(11,639
|
)
|
|
$
|
46,647
|
|
|
$
|
14,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit for 2016 totaled $11.6 million. Income tax expense for 2015 and 2014 totaled
$46.6 million and $14.1 million, respectively. The effective tax rate for 2016, 2015 and 2014 was 21.1%, 18.4% and 14.8%, respectively.
The increase in the effective tax rate from 2015 to 2016 resulted from a shift in the geographic distribution of income which decreased income subject to taxation in the U.S. relative to lower tax rate
jurisdictions, reductions in uncertain tax positions resulting from the expiration of statutes and the settlement of an audit, and an increase in
non-taxable
foreign exchange gains. These increases in the
effective tax rate were partially offset by the effect of the
non-deductible
goodwill impairment charge, which reduced the benefit of the loss before income taxes in the U.S.
The increase in the effective tax rate from 2014 to 2015 resulted from a shift in the geographic distribution of income which increased
income subject to taxation in the U.S. relative to lower tax rate jurisdictions and a
95
reduction in the benefit from U.S. research and development tax credits. These increases in the effective tax rate were partially offset by decreases associated with uncertain tax positions and a
non-deductible
goodwill impairment charge.
A reconciliation of the effective tax rate
for the years 2016, 2015 and 2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. statutory federal tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Foreign taxes
|
|
|
127.1
|
|
|
|
(16.5
|
)
|
|
|
(58.1
|
)
|
U.S. research and development credit
|
|
|
15.8
|
|
|
|
(3.0
|
)
|
|
|
(7.9
|
)
|
Domestic production activities deduction
|
|
|
2.3
|
|
|
|
(1.0
|
)
|
|
|
(0.5
|
)
|
State income taxes, net of federal tax benefit
|
|
|
2.3
|
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
Equity compensation
|
|
|
(2.7
|
)
|
|
|
0.6
|
|
|
|
(1.8
|
)
|
Uncertain tax positions
|
|
|
(2.6
|
)
|
|
|
2.2
|
|
|
|
7.9
|
|
Goodwill impairment
|
|
|
(162.1
|
)
|
|
|
|
|
|
|
36.3
|
|
Other, net
|
|
|
6.0
|
|
|
|
0.7
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.1
|
%
|
|
|
18.4
|
%
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the
Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the tax holiday for the years ended December 31, 2016, 2015 and 2014 were $17.0 million or $0.08 per
diluted share, $11.5 million or $0.05 per diluted share and $13.2 million or $0.06 per diluted share, respectively. The tax holiday is scheduled to expire on December 31, 2020.
Significant components of Teradynes deferred tax assets (liabilities) as of December 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax credits
|
|
$
|
57,313
|
|
|
$
|
44,684
|
|
Pension liabilities
|
|
|
31,581
|
|
|
|
31,742
|
|
Inventory valuations
|
|
|
31,227
|
|
|
|
29,445
|
|
Accruals
|
|
|
27,247
|
|
|
|
26,563
|
|
Deferred revenue
|
|
|
12,806
|
|
|
|
10,232
|
|
Equity compensation
|
|
|
9,922
|
|
|
|
9,674
|
|
Vacation accrual
|
|
|
7,874
|
|
|
|
7,354
|
|
Net operating loss carryforwards
|
|
|
5,244
|
|
|
|
7,989
|
|
Other
|
|
|
630
|
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
183,844
|
|
|
|
168,185
|
|
Less: valuation allowance
|
|
|
(48,369
|
)
|
|
|
(43,039
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
135,475
|
|
|
$
|
125,146
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
(22,887
|
)
|
|
$
|
(68,433
|
)
|
Depreciation
|
|
|
(17,117
|
)
|
|
|
(20,541
|
)
|
Marketable securities
|
|
|
(210
|
)
|
|
|
(458
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
(40,214
|
)
|
|
$
|
(89,432
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred assets
|
|
$
|
95,261
|
|
|
$
|
35,714
|
|
|
|
|
|
|
|
|
|
|
During 2016, Teradynes valuation allowance increased by $5.3 million primarily due to the
increase in the deferred tax assets related to state tax credits generated in 2016.
96
As of December 31, 2016 and 2015, Teradyne evaluated the likelihood that it would
realize the deferred income taxes to offset future taxable income and concluded that it is more likely than not that a substantial majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence.
At December 31, 2016 and 2015, Teradyne maintained a valuation allowance for certain deferred tax assets of $48.4 million and $43.0 million, respectively, primarily related to state net operating losses and state tax credit
carryforwards, due to the uncertainty regarding their realization. Adjustments could be required in the future if Teradyne estimates that the amount of deferred tax assets to be realized is more or less than the net amount recorded.
At December 31, 2016, Teradyne had operating loss carryforwards that expire in the following years:
|
|
|
|
|
|
|
|
|
|
|
State
Operating Loss
Carryforwards
|
|
|
Foreign
Operating
Loss
Carryforwards
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
10,245
|
|
|
$
|
|
|
2018
|
|
|
8,562
|
|
|
|
|
|
2019
|
|
|
983
|
|
|
|
|
|
2020
|
|
|
1,248
|
|
|
|
|
|
2021
|
|
|
3,549
|
|
|
|
|
|
2022-2026
|
|
|
18,044
|
|
|
|
|
|
2027-2031
|
|
|
38,498
|
|
|
|
|
|
Beyond 2031
|
|
|
5,464
|
|
|
|
129
|
|
Non-expiring
|
|
|
|
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
86,593
|
|
|
$
|
6,529
|
|
|
|
|
|
|
|
|
|
|
The operating loss carryforwards do not include any excess tax deduction related to stock-based
compensation, which has not been recognized for financial statements purposes.
Teradyne has approximately $134.6 million
of tax credit carryforwards including federal business tax credits of approximately $45.3 million which expire in the years 2017 through 2036, alternative minimum tax credits of approximately $8.7 million which do not expire, and state tax
credits of $80.6 million, of which $47.4 million do not expire and the remainder expires in the years 2017 through 2031.
Teradyne has federal tax credits of $39.1 million, that are attributable to stock-based compensation deductions, which will be recorded as an increase to retained earnings and deferred tax assets
upon adoption, in the first quarter of 2017, of ASU
2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting.
Teradynes gross unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Beginning balance as of January 1
|
|
$
|
36,792
|
|
|
$
|
30,418
|
|
|
$
|
21,203
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax positions for current year
|
|
|
9,766
|
|
|
|
6,626
|
|
|
|
8,414
|
|
Tax positions for prior years
|
|
|
187
|
|
|
|
792
|
|
|
|
3,781
|
|
Reductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of statutes
|
|
|
(3,532
|
)
|
|
|
|
|
|
|
|
|
Settlements with tax authorities
|
|
|
(2,295
|
)
|
|
|
(336
|
)
|
|
|
(500
|
)
|
Tax positions for prior years
|
|
|
(1,960
|
)
|
|
|
(708
|
)
|
|
|
(2,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as of December 31
|
|
$
|
38,958
|
|
|
$
|
36,792
|
|
|
$
|
30,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
Current year and prior year additions include assessment of potential transfer pricing
issues worldwide, federal and state tax credits and incentives, capitalization rules, and domestic production activities deductions. Reductions for tax positions for prior years primarily relate to statute expiration and the settlement tax audits.
Of the $39.0 million of unrecognized tax benefits as of December 31, 2016, $27.6 million would impact the consolidated income tax rate if ultimately recognized. The remaining $11.4 million would impact deferred taxes if
recognized. Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2016 may decrease approximately $0.8 million in the next twelve months, as a result of a lapse of statutes of
limitation. The estimated decrease is composed primarily of reserves relating to the U.S. research and development credits.
Teradyne records all interest and penalties related to income taxes as a component of income tax expense. Accrued interest and penalties
related to income tax items at December 31, 2016 and 2015 amounted to $0.4 million and $0.5 million respectively. For the years ended December 31, 2016, 2015 and 2014, benefit of $0.1 million, benefit of $0.2 million
and expense of $0.2 million respectively, was recorded for interest and penalties related to income tax items.
Teradyne
is subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. As of December 31, 2016, all material state and local income tax matters have been concluded through 2008, all material federal
income tax matters have been concluded through 2012 and all material foreign income tax matters have been concluded through 2009. However, in some jurisdictions, including the United States, operating losses and tax credits may be subject to
adjustment until such time as they are utilized and the year of utilization is closed to adjustment.
As of December 31,
2016, a deferred tax liability has not been established for approximately $1,020 million of cumulative undistributed earnings of
non-U.S.
subsidiaries, which are expected to be reinvested indefinitely in
operations outside the U.S. except for instances where Teradyne can remit such earnings to the U.S. without an associated net tax cost. Determination of the unrecognized deferred tax liability on unremitted earnings is not practicable due to
uncertainty regarding the remittance structure, the mix of earnings and earnings and profit pools in the year of remittance, and overall complexity of the calculation.
R. OPERATING SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
Teradyne has four operating segments (Semiconductor Test, System Test, Industrial Automation, and Wireless Test), which are its reportable segments. The Semiconductor Test segment includes operations
related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for defense/aerospace
instrumentation test, storage test and circuit-board test. The Industrial Automation segment includes operations related to the design, manufacturing and marketing of collaborative robots. The Wireless Test segment includes operations related to the
design, manufacturing and marketing of wireless test products and services. Each operating segment has a segment manager who is directly accountable to and maintains regular contact with Teradynes chief operating decision maker
(Teradynes chief executive officer) to discuss operating activities, financial results, forecasts, and plans for the segment.
Teradyne evaluates performance using several factors, of which the primary financial measure is business segment income (loss) from operations before taxes. The accounting policies of the business
segments are the same as those described in Note B: Accounting Policies.
98
Segment information for the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
Test
|
|
|
System
Test
|
|
|
Industrial
Automation
|
|
|
Wireless
Test
|
|
|
Corporate
And
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,368,169
|
|
|
$
|
189,846
|
|
|
$
|
99,031
|
|
|
$
|
96,204
|
|
|
$
|
|
|
|
$
|
1,753,250
|
|
Income (loss) before taxes (1)(2)
|
|
|
311,939
|
|
|
|
28,916
|
|
|
|
(16,783
|
)
|
|
|
(371,409
|
)
|
|
|
(7,723
|
)
|
|
|
(55,060
|
)
|
Total assets (3)
|
|
|
557,546
|
|
|
|
110,361
|
|
|
|
317,635
|
|
|
|
62,366
|
|
|
|
1,714,585
|
|
|
|
2,762,493
|
|
Property additions
|
|
|
70,543
|
|
|
|
3,788
|
|
|
|
6,755
|
|
|
|
4,186
|
|
|
|
|
|
|
|
85,272
|
|
Depreciation and amortization expense
|
|
|
58,087
|
|
|
|
6,551
|
|
|
|
26,869
|
|
|
|
25,921
|
|
|
|
2,581
|
|
|
|
120,009
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,201,530
|
|
|
$
|
211,584
|
|
|
$
|
41,892
|
|
|
$
|
184,572
|
|
|
$
|
|
|
|
$
|
1,639,578
|
|
Income (loss) before taxes (1)(2)
|
|
|
260,154
|
|
|
|
25,101
|
|
|
|
(7,574
|
)
|
|
|
(13,830
|
)
|
|
|
(10,727
|
)
|
|
|
253,124
|
|
Total assets (3)
|
|
|
610,869
|
|
|
|
102,547
|
|
|
|
344,260
|
|
|
|
427,880
|
|
|
|
1,063,118
|
|
|
|
2,548,674
|
|
Property additions
|
|
|
79,052
|
|
|
|
6,228
|
|
|
|
1,465
|
|
|
|
3,133
|
|
|
|
|
|
|
|
89,878
|
|
Depreciation and amortization expense
|
|
|
64,415
|
|
|
|
4,391
|
|
|
|
14,500
|
|
|
|
53,440
|
|
|
|
4,027
|
|
|
|
140,773
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,300,790
|
|
|
$
|
162,499
|
|
|
$
|
|
|
|
$
|
184,535
|
|
|
$
|
|
|
|
$
|
1,647,824
|
|
Income (loss) before taxes (1)(2)
|
|
|
255,803
|
|
|
|
12,116
|
|
|
|
|
|
|
|
(116,196
|
)
|
|
|
(56,347
|
)
|
|
|
95,376
|
|
Total assets (3)
|
|
|
580,501
|
|
|
|
95,105
|
|
|
|
|
|
|
|
478,974
|
|
|
|
1,383,940
|
|
|
|
2,538,520
|
|
Property additions
|
|
|
159,783
|
|
|
|
5,469
|
|
|
|
|
|
|
|
3,730
|
|
|
|
|
|
|
|
168,982
|
|
Depreciation and amortization expense
|
|
|
84,990
|
|
|
|
5,399
|
|
|
|
|
|
|
|
53,308
|
|
|
|
8,847
|
|
|
|
152,544
|
|
(1)
|
Interest income, interest expense, other (income) expense, net, contingent consideration adjustments and pension and postretirement plans actuarial gains and losses are
included in Corporate and Eliminations.
|
(2)
|
Included in income (loss) before taxes are charges and credits related to restructuring and other, inventory charges, goodwill impairment charges and acquired
intangible assets impairment charge.
|
(3)
|
Total business assets are directly attributable to each business. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets.
|
Included in the Semiconductor Test segment are charges in the following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Cost of revenuesinventory charge
|
|
$
|
9,656
|
|
|
$
|
10,508
|
|
|
$
|
14,389
|
|
Restructuring and other
|
|
|
2,860
|
|
|
|
499
|
|
|
|
490
|
|
Included in the System Test segment are charges in the following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Cost of revenuesinventory charge
|
|
$
|
630
|
|
|
$
|
8,324
|
|
|
$
|
2,125
|
|
Restructuring and other
|
|
|
(49
|
)
|
|
|
1,037
|
|
|
|
742
|
|
99
Included in the Industrial Automation segment are charges in the following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Restructuring and other
|
|
$
|
585
|
|
|
$
|
|
|
|
$
|
|
|
Cost of revenues-inventory
step-up
(1)
|
|
|
|
|
|
|
1,567
|
|
|
|
|
|
(1)
|
Included in the cost of revenues for the year ended December 31, 2015 is the cost for purchase accounting inventory
step-up.
|
Included in the Wireless Test segment are charges in the
following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Goodwill impairment charge
|
|
$
|
254,946
|
|
|
$
|
|
|
|
$
|
98,897
|
|
Acquired intangible assets impairment charge
|
|
|
83,339
|
|
|
|
|
|
|
|
|
|
Cost of revenuesinventory charge
|
|
|
7,207
|
|
|
|
2,500
|
|
|
|
5,679
|
|
Restructuring and other
|
|
|
2,650
|
|
|
|
|
|
|
|
565
|
|
Included in the Corporate and Eliminations segment are charges and credits in the following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Restructuring and otherUniversal Robots contingent consideration adjustment
|
|
$
|
15,346
|
|
|
$
|
5,339
|
|
|
$
|
|
|
Restructuring and otherImpairment of fixed assets and expenses related to Japan Earthquake
|
|
|
5,363
|
|
|
|
|
|
|
|
|
|
Restructuring and otherProperty insurance recovery
|
|
|
(5,363
|
)
|
|
|
|
|
|
|
|
|
Restructuring and otherZTEC contingent consideration adjustment
|
|
|
|
|
|
|
(1,600
|
)
|
|
|
(630
|
)
|
Restructuring and otherAIT contingent consideration adjustment
|
|
|
550
|
|
|
|
(1,250
|
)
|
|
|
|
|
Restructuring and otherAcquisition costs
|
|
|
|
|
|
|
1,104
|
|
|
|
372
|
|
Restructuring and other
|
|
|
|
|
|
|
|
|
|
|
198
|
|
Other (income) expense, netGain from the sale of an equity investment
|
|
|
|
|
|
|
(5,406
|
)
|
|
|
|
|
Selling and administrativeStock based compensation expense (1)
|
|
|
|
|
|
|
|
|
|
|
6,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,896
|
|
|
$
|
(1,813
|
)
|
|
$
|
6,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Expense related to the January 2014 retirement of Teradynes former chief executive officer; see Note O: Stock-Based Compensation.
|
100
Information as to Teradynes revenues by country is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Revenues from customers (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan
|
|
$
|
653,076
|
|
|
$
|
436,389
|
|
|
$
|
495,942
|
|
United States
|
|
|
221,948
|
|
|
|
217,386
|
|
|
|
213,104
|
|
China
|
|
|
174,876
|
|
|
|
264,898
|
|
|
|
292,145
|
|
Korea
|
|
|
147,882
|
|
|
|
120,224
|
|
|
|
145,608
|
|
Japan
|
|
|
135,978
|
|
|
|
128,228
|
|
|
|
63,761
|
|
Europe
|
|
|
117,671
|
|
|
|
111,903
|
|
|
|
111,043
|
|
Malaysia
|
|
|
103,472
|
|
|
|
76,707
|
|
|
|
83,910
|
|
Singapore
|
|
|
73,172
|
|
|
|
105,216
|
|
|
|
119,421
|
|
Philippines
|
|
|
54,705
|
|
|
|
96,103
|
|
|
|
68,662
|
|
Thailand
|
|
|
43,097
|
|
|
|
59,104
|
|
|
|
44,117
|
|
Rest of the World
|
|
|
27,373
|
|
|
|
23,420
|
|
|
|
10,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,753,250
|
|
|
$
|
1,639,578
|
|
|
$
|
1,647,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Revenues attributable to a country are based on location of customer site.
|
In 2016, two customers of Teradynes Semiconductor Test segment each accounted for 12% of total consolidated revenues. In 2015, one customer of Teradynes Semiconductor Test segment accounted
for 13% of total consolidated revenues. In 2014, no single customer accounted for more than 10% of total consolidated revenues. Teradyne estimates product demand driven by a single OEM customer, combining direct sales to that customer with sales to
the customers outsourced semiconductor assembly and test providers (OSATs), accounted for approximately 25%, 23%, and 22% of Teradynes consolidated revenues in 2016, 2015 and 2014, respectively.
Long-lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Foreign(1)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
December 31, 2016
|
|
$
|
189,195
|
|
|
$
|
64,626
|
|
|
$
|
253,821
|
|
December 31, 2015
|
|
$
|
198,424
|
|
|
$
|
74,990
|
|
|
$
|
273,414
|
|
(1)
|
As of December 31, 2016 and 2015, long-lived assets attributable to Singapore were $31.5 million and $39.9 million, respectively.
|
S. STOCK REPURCHASE PROGRAM
In January 2015, the Board of Directors cancelled the November 2010 stock repurchase program and authorized a new stock repurchase program
for up to $500 million of common stock. The cumulative repurchases as of December 31, 2016 totaled 22.5 million shares of common stock for $446 million at an average price per share of $19.87. The total price includes commissions
and is recorded as a reduction to retained earnings.
In December 2016, the Board of Directors approved a new
$500 million share repurchase authorization which commenced on January 1, 2017. Teradyne intends to repurchase at least $200 million in 2017. Teradynes January 2015 stock repurchase program was terminated on December 31,
2016.
T. SUBSEQUENT EVENTS
In January 2017, Teradynes Board of Directors declared a quarterly cash dividend of $0.07 per share to be paid on March 20, 2017 to shareholders of record as of February 24, 2017.
While Teradyne declared a quarterly cash dividend and authorized a share repurchase program, it may reduce or eliminate the
cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of Teradynes Board of Directors which will consider, among other things, Teradynes earnings, capital
requirements and financial condition.
101
SUPPLEMENTARY INFORMATION
(Unaudited)
The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradynes last eight quarters. In managements opinion, this quarterly information
reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in
conjunction with the audited consolidated financial statements of Teradyne and the notes thereto included elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
|
(1)(5)
|
|
|
(2)(5)
|
|
|
(3)(5)
|
|
|
(4)(5)
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
358,139
|
|
|
$
|
456,832
|
|
|
$
|
334,610
|
|
|
$
|
303,667
|
|
Services
|
|
|
72,855
|
|
|
|
74,960
|
|
|
|
75,865
|
|
|
|
76,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
430,994
|
|
|
|
531,792
|
|
|
|
410,475
|
|
|
|
379,989
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products
|
|
|
167,555
|
|
|
|
215,795
|
|
|
|
148,266
|
|
|
|
127,481
|
|
Cost of services
|
|
|
33,107
|
|
|
|
33,127
|
|
|
|
34,850
|
|
|
|
33,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
|
|
|
200,662
|
|
|
|
248,922
|
|
|
|
183,116
|
|
|
|
160,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
230,332
|
|
|
|
282,870
|
|
|
|
227,359
|
|
|
|
219,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
73,464
|
|
|
|
76,109
|
|
|
|
71,400
|
|
|
|
70,052
|
|
Selling and administrative
|
|
|
79,174
|
|
|
|
81,425
|
|
|
|
78,794
|
|
|
|
76,289
|
|
Acquired intangible assets amortization
|
|
|
19,994
|
|
|
|
16,244
|
|
|
|
8,487
|
|
|
|
7,923
|
|
Acquired intangible assets impairment
|
|
|
|
|
|
|
83,339
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
254,946
|
|
|
|
|
|
|
|
|
|
Restructuring and other
|
|
|
1,587
|
|
|
|
2,608
|
|
|
|
12,177
|
|
|
|
5,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
174,219
|
|
|
|
514,671
|
|
|
|
170,858
|
|
|
|
159,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
56,113
|
|
|
|
(231,801
|
)
|
|
|
56,501
|
|
|
|
59,172
|
|
Non-operating
(income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1,642
|
)
|
|
|
(1,666
|
)
|
|
|
(2,892
|
)
|
|
|
(3,095
|
)
|
Interest expense
|
|
|
710
|
|
|
|
691
|
|
|
|
633
|
|
|
|
1,604
|
|
Other (income) expense, net
|
|
|
(147
|
)
|
|
|
(9
|
)
|
|
|
(921
|
)
|
|
|
1,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
57,192
|
|
|
|
(230,817
|
)
|
|
|
59,681
|
|
|
|
58,884
|
|
Income tax provision (benefit)
|
|
|
7,206
|
|
|
|
(7,271
|
)
|
|
|
(4,113
|
)
|
|
|
(7,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
49,986
|
|
|
$
|
(223,546
|
)
|
|
$
|
63,794
|
|
|
$
|
66,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharebasic
|
|
$
|
0.24
|
|
|
$
|
(1.10
|
)
|
|
$
|
0.32
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharediluted
|
|
$
|
0.24
|
|
|
$
|
(1.10
|
)
|
|
$
|
0.31
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared per common share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Restructuring and other includes a $1.2 million fair value adjustment to increase the Universal Robots acquisition contingent consideration.
|
(2)
|
Restructuring and other includes $4.2 million for an impairment of fixed assets, $0.9 million for expenses related to an earthquake in
Kumamoto, Japan, and $1.4 million for the increase in the fair value of
|
102
|
contingent consideration liability of which $0.8 million related to Universal Robots, and $0.6 million related to AIT, partially offset by $5.1 million of property insurance
recovery related to the Japan earthquake.
|
(3)
|
Restructuring and other includes an $8.0 million fair value adjustment to increase the Universal Robots acquisition contingent consideration.
|
(4)
|
Restructuring and other includes a $5.4 million fair value adjustment to increase the Universal Robots acquisition contingent consideration.
|
(5)
|
Teradyne recorded pension and post retirement net actuarial (gains) losses of $(1.2) million, $(0.7) million, $0.7 million and $(2.0) million for the first,
second, third and fourth quarter in 2016, respectively. See Note B: Accounting Policies for a discussion of Teradynes accounting policy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
|
|
|
|
(3)
|
|
|
(4)
|
|
|
(1)(2)
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
272,325
|
|
|
$
|
437,243
|
|
|
$
|
386,488
|
|
|
$
|
244,510
|
|
Services
|
|
|
70,076
|
|
|
|
75,496
|
|
|
|
79,506
|
|
|
|
73,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
342,401
|
|
|
|
512,739
|
|
|
|
465,994
|
|
|
|
318,444
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products
|
|
|
118,996
|
|
|
|
181,491
|
|
|
|
170,963
|
|
|
|
120,322
|
|
Cost of services
|
|
|
30,982
|
|
|
|
32,680
|
|
|
|
36,405
|
|
|
|
32,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
|
|
|
149,978
|
|
|
|
214,171
|
|
|
|
207,368
|
|
|
|
152,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
192,423
|
|
|
|
298,568
|
|
|
|
258,626
|
|
|
|
166,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
71,450
|
|
|
|
75,832
|
|
|
|
74,027
|
|
|
|
70,941
|
|
Selling and administrative
|
|
|
72,041
|
|
|
|
77,073
|
|
|
|
77,481
|
|
|
|
79,718
|
|
Acquired intangible assets amortization
|
|
|
13,808
|
|
|
|
15,258
|
|
|
|
20,053
|
|
|
|
19,911
|
|
Restructuring and other
|
|
|
|
|
|
|
(385
|
)
|
|
|
261
|
|
|
|
5,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
157,299
|
|
|
|
167,778
|
|
|
|
171,822
|
|
|
|
175,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
35,124
|
|
|
|
130,790
|
|
|
|
86,804
|
|
|
|
(9,748
|
)
|
Non-operating
(income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1,816
|
)
|
|
|
(1,674
|
)
|
|
|
(1,708
|
)
|
|
|
(2,017
|
)
|
Interest expense
|
|
|
162
|
|
|
|
444
|
|
|
|
508
|
|
|
|
762
|
|
Other (income) expense, net
|
|
|
(5,660
|
)
|
|
|
(116
|
)
|
|
|
596
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
42,438
|
|
|
|
132,136
|
|
|
|
87,408
|
|
|
|
(8,857
|
)
|
Income tax provision (benefit)
|
|
|
9,651
|
|
|
|
29,257
|
|
|
|
15,955
|
|
|
|
(8,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,787
|
|
|
$
|
102,879
|
|
|
$
|
71,453
|
|
|
$
|
(641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharebasic
|
|
$
|
0.15
|
|
|
$
|
0.48
|
|
|
$
|
0.34
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common sharediluted
|
|
$
|
0.15
|
|
|
$
|
0.48
|
|
|
$
|
0.34
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared per common share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Restructuring and other includes a $5.3 million fair value adjustment to increase the Universal Robots acquisition contingent consideration, and a $(0.3) million
fair value adjustment to decrease the AIT acquisition contingent consideration.
|
(2)
|
In the fourth quarter ended December 31, 2015, Teradyne recorded pension and post retirement net actuarial losses of $17.7 million. See Note B:
Accounting Policies for a discussion of Teradynes accounting policy.
|
103
(3)
|
Restructuring and other includes a $(1.6) million fair value adjustment to decrease the ZTEC acquisition contingent consideration.
|
(4)
|
Restructuring and other includes a $(1.0) million fair value adjustment to decrease the AIT acquisition contingent consideration.
|