The accompanying notes, together with the Notes to Consolidated Financial Statements included in
Teradynes
The accompanying notes, together with the Notes to Consolidated Financial Statements included in
Teradynes
The accompanying notes, together with the Notes to Consolidated Financial Statements included in
Teradynes
The accompanying notes, together with the Notes to Consolidated Financial Statements included in
Teradynes
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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:
|
|
|
semiconductor test (Semiconductor Test) systems;
|
|
|
|
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);
|
|
|
|
industrial automation (Industrial Automation) products; and
|
|
|
|
wireless test (Wireless Test) systems.
|
B. ACCOUNTING POLICIES
Basis of Presentation
The
consolidated interim financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These interim financial statements are unaudited and reflect
all normal recurring adjustments that are, in the opinion of management, necessary for the fair statement of such interim financial statements. Certain prior year amounts were reclassified to conform to the current year presentation. The
December 31, 2016 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in
Teradynes Annual Report on Form
10-K,
filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2017, for the year ended December 31, 2016.
Preparation of Financial Statements and Use of Estimates
The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in
the financial statements. Actual results may differ significantly from these estimates.
Stock-Based Compensation
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting.
Teradyne adopted this ASU in the first quarter of 2017. This ASU changes how
Teradyne accounts 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.
Adoption of this ASU required recognition of a cumulative effect adjustment to retained earnings for any prior year excess tax benefits or tax
deficiencies not previously recorded. The cumulative effect adjustment of $39 million was recorded as an increase to retained earnings and deferred tax assets.
This ASU also required a change in how Teradyne recognizes the excess tax benefits or tax deficiencies related to stock-based compensation.
Prior to adopting ASU
2016-09,
these excess tax benefits or tax deficiencies were credited or charged to additional
paid-in
capital in Teradynes consolidated
balance sheets. In accordance with ASU
2016-09,
starting in first quarter of 2017, these excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current
income tax provision in Teradynes consolidated statements of operations.
5
ASU
2016-09
requires companies to adopt the amendment
related to accounting for excess tax benefits or tax deficiencies on a prospective basis. For the three months ended April 2, 2017, Teradyne recognized a discrete tax benefit of $5.2 million related to net excess tax benefit.
In addition, under ASU
2016-09,
all excess tax benefits related to share-based payments are reported
as cash flows from operating activities. Previously, excess tax benefits from share-based payments arrangements were reported as cash flows from financing activities. The classification amendment was applied prospectively. This ASU also clarifies
that all cash payments made to taxing authorities on the employees behalf for withheld shares should be presented as financing activities on the statement of cash flows. Previously, Teradyne reported cash payments made to taxing authorities as
operating activities on the statement of cash flows. This change was applied retrospectively.
Upon adoption of ASU
2016-09,
Teradyne made an accounting policy election to continue accounting for forfeitures by applying an estimated forfeiture rate.
Contingencies and Litigation
Teradyne may be subject to certain legal proceedings, lawsuits and other claims as discussed in Note P. Teradyne accrues for a loss
contingency, including legal proceedings, lawsuits, pending claims and other legal matters, when the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range
of amounts, and no amount in the range constitutes a better estimate than any other amount, Teradyne accrues the amount at the low end of the range. Teradyne adjusts the accruals from time to time as additional information is received, but the loss
incurred may be significantly greater than or less than the amount accrued. Loss contingencies are disclosed when they are material and there is at least a reasonable possibility that a loss has been incurred. Attorney fees related to legal matters
are expensed as incurred.
C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On March 10, 2017, the FASB issued ASU
2017-07,
CompensationRetirement
Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. This ASU provides guidance on presentation of net periodic pension cost and net periodic postretirement
benefit cost. The new standard requires the service cost component to be presented in the same line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost such as interest
cost, amortization of prior service cost, and actuarial gains or losses, are required to be presented separately outside of income or loss from operations. The presentation of service cost should be applied retrospectively. The guidance is effective
for fiscal years beginning after December 15, 2017. Early adoption is permitted. This guidance will impact the presentation of Teradynes consolidated financial statements. Current presentation of service cost components is consistent with
the requirements of the new standard. Upon adoption of the new standard, Teradyne will present interest cost, amortization of prior service cost, and actuarial gains or losses within other (income) expense, net.
On January 26, 2017, the FASB issued ASU
2017-04,
Intangibles Goodwill 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.
In October 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.
6
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 statements of operation. The new standard is effective for annual periods beginning after December 15, 2018 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 our 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 beginning after December 15, 2017. Teradyne is currently evaluating the impact of this ASU on its financial position and results
of operations.
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 is in the process of assessing the impact of this ASU, including identification of changes to policies, processes and controls and the
presentation necessary to meet the additional disclosure requirements. Teradyne has selected the modified retrospective transition method. Teradyne is still conducting its assessment and will continue to evaluate the impact of this ASU on its
financial position and results of operations.
D. INVENTORIES
Inventories, net consisted of the following at April 2, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
April 2,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Raw material
|
|
$
|
62,373
|
|
|
$
|
58,530
|
|
Work-in-process
|
|
|
22,511
|
|
|
|
22,946
|
|
Finished goods
|
|
|
118,394
|
|
|
|
54,482
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
203,278
|
|
|
$
|
135,958
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves for the periods ending April 2, 2017 and December 31, 2016 were
$115.2 million and $116.0 million, respectively.
E. FINANCIAL INSTRUMENTS
Cash Equivalents
Teradyne considers all
highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.
Marketable Securities
Teradyne 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. As of
April 2, 2017, Teradynes investments in debt and equity securities were classified as
available-for-sale
and recorded at their fair market value.
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:
|
|
|
The length of time and the extent to which the market value has been less than cost;
|
7
|
|
|
The financial condition and near-term prospects of the issuer; and
|
|
|
|
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.
|
Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques
during the three months ended April 2, 2017 and April 3, 2016. 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. 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 is
considered a Level 2 input; or
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.
Teradynes
available-for-sale
debt and equity securities are classified as Level 1 and Level 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. 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 the three months
ended April 2, 2017 and April 3, 2016 were $0.3 million and $0.2 million, respectively. Realized losses recorded in the three months ended April 2, 2017 and April 3, 2016 were $0.2 million and $0.2 million,
respectively. 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 three months ended April 2, 2017 and April 3, 2016, 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 April 2, 2017 and December 31, 2016.
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2017
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
202,925
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
202,925
|
|
Cash equivalents
|
|
|
115,578
|
|
|
|
6,243
|
|
|
|
|
|
|
|
121,821
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
|
|
|
|
854,547
|
|
|
|
|
|
|
|
854,547
|
|
Commercial paper
|
|
|
|
|
|
|
121,065
|
|
|
|
|
|
|
|
121,065
|
|
Corporate debt securities
|
|
|
|
|
|
|
89,731
|
|
|
|
|
|
|
|
89,731
|
|
Certificates of deposit and time deposits
|
|
|
|
|
|
|
50,578
|
|
|
|
|
|
|
|
50,578
|
|
U.S. government agency securities
|
|
|
|
|
|
|
21,149
|
|
|
|
|
|
|
|
21,149
|
|
Equity and debt mutual funds
|
|
|
19,986
|
|
|
|
|
|
|
|
|
|
|
|
19,986
|
|
Non-U.S.
government securities
|
|
|
|
|
|
|
583
|
|
|
|
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
338,489
|
|
|
$
|
1,143,896
|
|
|
$
|
|
|
|
$
|
1,482,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
338,489
|
|
|
$
|
1,144,041
|
|
|
$
|
|
|
|
$
|
1,482,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,916
|
|
|
$
|
37,916
|
|
Derivative liabilities
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
37,916
|
|
|
$
|
38,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
318,503
|
|
|
$
|
6,243
|
|
|
$
|
|
|
|
$
|
324,746
|
|
Marketable securities
|
|
|
|
|
|
|
895,578
|
|
|
|
|
|
|
|
895,578
|
|
Long-term marketable securities
|
|
|
19,986
|
|
|
|
242,075
|
|
|
|
|
|
|
|
262,061
|
|
Prepayments
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
338,489
|
|
|
$
|
1,144,041
|
|
|
$
|
|
|
|
$
|
1,482,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
|
|
|
$
|
107
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
21,711
|
|
|
|
21,711
|
|
Long-term contingent consideration
|
|
|
|
|
|
|
|
|
|
|
16,205
|
|
|
|
16,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
37,916
|
|
|
$
|
38,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
214,722
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
214,722
|
|
Cash equivalents
|
|
|
37,458
|
|
|
|
55,704
|
|
|
|
|
|
|
|
93,162
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
|
|
|
|
900,038
|
|
|
|
|
|
|
|
900,038
|
|
Commercial paper
|
|
|
|
|
|
|
161,630
|
|
|
|
|
|
|
|
161,630
|
|
Corporate debt securities
|
|
|
|
|
|
|
100,153
|
|
|
|
|
|
|
|
100,153
|
|
Certificates of deposit and time deposits
|
|
|
|
|
|
|
82,133
|
|
|
|
|
|
|
|
82,133
|
|
U.S. government agency securities
|
|
|
|
|
|
|
42,014
|
|
|
|
|
|
|
|
42,014
|
|
Equity and debt mutual funds
|
|
|
18,171
|
|
|
|
|
|
|
|
|
|
|
|
18,171
|
|
Non-U.S.
government securities
|
|
|
|
|
|
|
728
|
|
|
|
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270,351
|
|
|
$
|
1,342,400
|
|
|
$
|
|
|
|
$
|
1,612,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270,351
|
|
|
$
|
1,342,401
|
|
|
$
|
|
|
|
$
|
1,612,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,332
|
|
|
$
|
38,332
|
|
Derivative liabilities
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
131
|
|
|
$
|
38,332
|
|
|
$
|
38,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
252,180
|
|
|
$
|
55,704
|
|
|
$
|
|
|
|
$
|
307,884
|
|
Marketable securities
|
|
|
|
|
|
|
871,024
|
|
|
|
|
|
|
|
871,024
|
|
Long-term marketable securities
|
|
|
18,171
|
|
|
|
415,672
|
|
|
|
|
|
|
|
433,843
|
|
Prepayments
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
270,351
|
|
|
$
|
1,342,401
|
|
|
$
|
|
|
|
$
|
1,612,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
|
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
131
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
1,050
|
|
|
|
1,050
|
|
Long-term contingent consideration
|
|
|
|
|
|
|
|
|
|
|
37,282
|
|
|
|
37,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
131
|
|
|
$
|
38,332
|
|
|
$
|
38,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Changes in the fair value of Level 3 contingent consideration for the three months ended
April 2, 2017 and April 3, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
38,332
|
|
|
$
|
37,436
|
|
Payments (a)
|
|
|
(1,050
|
)
|
|
|
(15,000
|
)
|
Fair value adjustment (b)
|
|
|
634
|
|
|
|
1,173
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
37,916
|
|
|
$
|
23,609
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In the three months ended April 2, 2017, Teradyne paid $1.1 million of the AIT contingent consideration. In the three months ended April 3, 2016 based on Universal Robots calendar year 2015 EBITDA
results, Teradyne paid $15.0 million or 100% of the eligible EBITDA contingent consideration amount.
|
(b)
|
In the three months ended April 2, 2017 and April 3, 2016, the fair value of contingent consideration for the
earn-out
in connection with the acquisition of Universal
Robots was increased by $0.6 million and $1.2 million, respectively, primarily due to a decrease in the discount rate.
|
The following table provides quantitative information associated with the fair value measurement of Teradynes Level 3 financial
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability
|
|
April 2, 2017
Fair Value
|
|
|
Valuation
Technique
|
|
Unobservable Inputs
|
|
Weighted
Average
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Contingent consideration
(Universal Robots)
|
|
$
|
21,711
|
|
|
Monte Carlo
Simulation
|
|
Revenues for the period July 1, 2015December 31,
2017 volatility
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
2.8
|
%
|
|
|
$
|
16,205
|
|
|
Monte Carlo
Simulation
|
|
Revenues for the period July 1, 2015December 31,
2018 volatility
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
2.8
|
%
|
As of April 2, 2017, the significant unobservable inputs used in the Monte Carlo simulation to fair value
the Universal Robots contingent consideration include forecasted revenue, 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
Universal Robots revenue earn-outs is $25.0 million.
The carrying amounts and fair values of Teradynes financial instruments
at April 2, 2017 and December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2,
2017
|
|
|
December 31,
2016
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
324,746
|
|
|
$
|
324,746
|
|
|
$
|
307,884
|
|
|
$
|
307,884
|
|
Marketable securities
|
|
|
1,157,639
|
|
|
|
1,157,639
|
|
|
|
1,304,867
|
|
|
|
1,304,867
|
|
Derivative assets
|
|
|
145
|
|
|
|
145
|
|
|
|
1
|
|
|
|
1
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
37,916
|
|
|
|
37,916
|
|
|
|
38,332
|
|
|
|
38,332
|
|
Derivative liabilities
|
|
|
107
|
|
|
|
107
|
|
|
|
131
|
|
|
|
131
|
|
Convertible debt (1)
|
|
|
355,937
|
|
|
|
534,750
|
|
|
|
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 value due to the short-term nature of these
instruments.
11
The following tables summarize the composition of
available-for-sale
marketable securities at April 2, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2017
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
Gain
|
|
|
Unrealized
(Loss)
|
|
|
Fair Market
Value
|
|
|
Fair Market
Value of
Investments
with Unrealized
Losses
|
|
|
|
(in thousands)
|
|
U.S. Treasury securities
|
|
$
|
856,714
|
|
|
$
|
37
|
|
|
$
|
(2,204
|
)
|
|
$
|
854,547
|
|
|
$
|
846,287
|
|
Commercial paper
|
|
|
121,073
|
|
|
|
7
|
|
|
|
(15
|
)
|
|
|
121,065
|
|
|
|
76,050
|
|
Corporate debt securities
|
|
|
89,164
|
|
|
|
1,151
|
|
|
|
(584
|
)
|
|
|
89,731
|
|
|
|
56,678
|
|
Certificates of deposit and time deposits
|
|
|
50,541
|
|
|
|
37
|
|
|
|
|
|
|
|
50,578
|
|
|
|
|
|
U.S. government agency securities
|
|
|
21,174
|
|
|
|
8
|
|
|
|
(33
|
)
|
|
|
21,149
|
|
|
|
10,024
|
|
Equity and debt mutual funds
|
|
|
17,472
|
|
|
|
2,546
|
|
|
|
(32
|
)
|
|
|
19,986
|
|
|
|
1,415
|
|
Non-U.S.
government securities
|
|
|
578
|
|
|
|
5
|
|
|
|
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,156,716
|
|
|
$
|
3,791
|
|
|
$
|
(2,868
|
)
|
|
$
|
1,157,639
|
|
|
$
|
990,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
Gain
|
|
|
Unrealized
(Loss)
|
|
|
Fair Market
Value
|
|
|
Fair Market
Value of
Investments
with Unrealized
Losses
|
|
|
|
(in thousands)
|
|
Marketable securities
|
|
$
|
896,345
|
|
|
$
|
56
|
|
|
$
|
(823
|
)
|
|
$
|
895,578
|
|
|
$
|
774,974
|
|
Long-term marketable securities
|
|
|
260,371
|
|
|
|
3,735
|
|
|
|
(2,045
|
)
|
|
|
262,061
|
|
|
|
215,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,156,716
|
|
|
$
|
3,791
|
|
|
$
|
(2,868
|
)
|
|
$
|
1,157,639
|
|
|
$
|
990,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
Gain
|
|
|
Unrealized
(Loss)
|
|
|
Fair Market
Value
|
|
|
Fair Market
Value of
Investments
with Unrealized
Losses
|
|
|
|
(in thousands)
|
|
U.S. Treasury securities
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 2, 2017, the fair market value of investments with unrealized losses totaled
$990.5 million. Of this value, $2.2 million had unrealized losses of $0.2 million for greater than one year and $988.3 million had unrealized losses of $2.6 million for less than one year.
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 for greater than one year and $730.1 million had unrealized losses of $2.5 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 April 2, 2017 and December 31, 2016, were temporary.
The contractual maturities of investments held at April 2, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
April 2,
2017
|
|
|
|
Cost
|
|
|
Fair Market
Value
|
|
|
|
(in thousands)
|
|
Due within one year
|
|
$
|
896,345
|
|
|
$
|
895,578
|
|
Due after 1 year through 5 years
|
|
|
190,557
|
|
|
|
190,252
|
|
Due after 5 years through 10 years
|
|
|
12,270
|
|
|
|
11,812
|
|
Due after 10 years
|
|
|
40,072
|
|
|
|
40,011
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,139,244
|
|
|
$
|
1,137,653
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities of investments held at April 2, 2017 exclude equity and debt mutual funds as they
do not have contractual maturity dates.
13
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 fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or
speculative purposes.
To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and
liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of monetary assets and
liabilities denominated in foreign currencies.
The notional amount of foreign currency forward contracts at April 2, 2017 and
December 31, 2016 was $89.2 million and $83.9 million, respectively. The fair value of the outstanding contracts was $0.0 million at April 2, 2017 and a loss of $0.1 million at December 31, 2016.
For the three months ended April 2, 2017 and April 3, 2016, Teradyne recorded net realized losses related to foreign currency
forward contracts hedging net monetary assets and liabilities of $1.0 million and $3.3 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 at April 2, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
|
April 2,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
(in thousands)
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts assets
|
|
|
Prepayments
|
|
|
$
|
145
|
|
|
$
|
1
|
|
Foreign exchange contracts liabilities
|
|
|
Other current liabilities
|
|
|
|
(107
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
38
|
|
|
$
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect of derivative instruments recognized in the statement of operations
during the three months ended April 2, 2017 and April 3, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Losses
|
|
For the Three Months
Ended
|
|
|
|
Recognized in
|
|
April 2,
|
|
|
April 3,
|
|
|
|
Statements of Operations
|
|
2017
|
|
|
2016
|
|
|
|
|
|
(in thousands)
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other (income) expense, net
|
|
$
|
1,011
|
|
|
$
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
$
|
1,011
|
|
|
$
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
The table does not reflect the corresponding gains and losses from the remeasurement of monetary assets and liabilities denominated in foreign
currencies. For the three months ended April 2, 2017 and April 3, 2016, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.5 million and $3.4 million, respectively.
14
F. DEBT
Convertible Senior Notes
On
December 12, 2016, Teradyne completed a private offering of $460.0 million convertible senior unsecured notes (the Notes). 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 semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2017.
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, 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 anti-dilution adjustments, approximately 14.4 million shares of Teradynes common stock.
The convertible note hedge is considered indexed to Teradynes stock as the terms of the Note Hedge Transactions do not contain an
exercise contingency 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.
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 anti-dilution 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.
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.
Teradynes effective annual interest rate on the Notes is 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 over the seven year term of the Notes. As of April 2, 2017, unamortized debt issuance costs were
$6.9 million.
15
The notes are classified as long-term debt in the consolidated balance sheets at April 2,
2017 and December 31, 2016. The below tables represent the key components of Teradynes convertible senior notes:
|
|
|
|
|
|
|
|
|
|
|
April 2,
2017
|
|
|
December 31,
2016
|
|
|
|
(in thousands)
|
|
Debt Principal
|
|
$
|
460,000
|
|
|
$
|
460,000
|
|
Unamortized discount
|
|
|
104,063
|
|
|
|
107,331
|
|
|
|
|
|
|
|
|
|
|
Net Carrying amount of convertible debt
|
|
$
|
355,937
|
|
|
$
|
352,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2, 2017
|
|
|
|
(in thousands)
|
|
Contractual interest expense on the coupon
|
|
$
|
1,438
|
|
Amortization of the discount component and debt issue fees recognized as interest expense
|
|
|
3,268
|
|
|
|
|
|
|
Total interest expense on the convertible debt
|
|
$
|
4,706
|
|
|
|
|
|
|
As of April 2, 2017, the remaining unamortized discount was $104.1 million, which will be amortized
over 6.8 years using the effective interest rate method. The carrying amount of the equity component was $100.8 million. As of April 2, 2017, the conversion rate was equal to the initial conversion price of approximately $31.84 per share
and the
if-converted
value of the Notes was $449.3 million.
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 statement of operations. As of May 12, 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 May 12, 2017, 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.
16
G. PREPAYMENTS
Prepayments consist of the following and are included in prepayments on the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
April 2,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Contract manufacturer and supplier prepayments
|
|
$
|
83,398
|
|
|
$
|
84,473
|
|
Prepaid maintenance and other services
|
|
|
7,210
|
|
|
|
7,676
|
|
Prepaid taxes
|
|
|
3,326
|
|
|
|
4,664
|
|
Other prepayments
|
|
|
13,053
|
|
|
|
11,641
|
|
|
|
|
|
|
|
|
|
|
Total prepayments
|
|
$
|
106,987
|
|
|
$
|
108,454
|
|
|
|
|
|
|
|
|
|
|
H. DEFERRED REVENUE AND CUSTOMER ADVANCES
Deferred revenue and customer advances consist of the following and are included in short and long-term deferred revenue and customer advances
on the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
April 2,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Extended warranty
|
|
$
|
44,053
|
|
|
$
|
46,753
|
|
Equipment maintenance and training
|
|
|
41,995
|
|
|
|
39,037
|
|
Customer advances, undelivered elements and other
|
|
|
18,729
|
|
|
|
22,151
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenue and customer advances
|
|
$
|
104,777
|
|
|
$
|
107,941
|
|
|
|
|
|
|
|
|
|
|
I. PRODUCT WARRANTY
Teradyne generally provides a
one-year
warranty on its products, commencing upon installation,
acceptance, delivery 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 warranty balance
below is included in other accrued liabilities on the balance sheet.
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
7,203
|
|
|
$
|
6,925
|
|
Accruals for warranties issued during the period
|
|
|
3,021
|
|
|
|
3,490
|
|
Adjustments related to
pre-existing
warranties
|
|
|
(471
|
)
|
|
|
243
|
|
Settlements made during the period
|
|
|
(2,699
|
)
|
|
|
(3,162
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
7,054
|
|
|
$
|
7,496
|
|
|
|
|
|
|
|
|
|
|
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 extended warranty balance below is included in short and long-term deferred revenue and customer advances on the balance sheet.
17
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Balance at beginning of period
|
|
$
|
46,753
|
|
|
$
|
46,499
|
|
Deferral of new extended warranty revenue
|
|
|
6,125
|
|
|
|
6,827
|
|
Recognition of extended warranty deferred revenue
|
|
|
(8,825
|
)
|
|
|
(7,211
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
44,053
|
|
|
$
|
46,115
|
|
|
|
|
|
|
|
|
|
|
J. STOCK-BASED COMPENSATION
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 2016 and 2017, Teradynes three-year TSR performance is 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
2017 and 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) as a percent of
Teradynes revenue.
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 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.
18
During the three months ended April 2, 2017 and April 3, 2016, Teradyne granted
0.1 million and 0.1 million TSR PRSUs, respectively, with a grant date fair value of $35.66 and $20.29, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
|
1.5
|
%
|
|
|
1.0
|
%
|
Teradyne volatility-historical
|
|
|
26.6
|
%
|
|
|
27.0
|
%
|
NYSE Composite Index volatility-historical
|
|
|
13.4
|
%
|
|
|
13.1
|
%
|
Dividend yield
|
|
|
1.0
|
%
|
|
|
1.2
|
%
|
Expected volatility was based on the historical volatility of Teradynes stock and the NYSE Composite
Index for the 2017 and 2016 grant 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 was based upon an estimated annual dividend
amount of $0.28 per share for 2017 grants and $0.24 per share for 2016 grants, divided by Teradynes stock price on the grant date of $28.56 for the 2017 grant and $19.43 for the 2016 grant.
During the three months ended April 2, 2017 and April 3, 2016, Teradyne granted 0.1 million and 0.1 million, respectively
of PBIT PRSUs with a grant date fair value of $27.72 and $18.71, respectively.
During the three months ended April 2, 2017, Teradyne
granted 0.8 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $27.86 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair
value of $7.13.
During the three months ended April 3, 2016, Teradyne granted 1.2 million of service-based restricted stock
unit awards to employees at a weighted average grant date fair value of $18.83 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $5.30.
Restricted stock unit awards granted to employees vest in equal annual installments over four years. Stock options vest in equal annual
installments over four years and have a term of seven years from the date of grant.
The fair value of stock options was estimated using
the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
Expected life (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
|
1.4
|
%
|
Volatility-historical
|
|
|
27.8
|
%
|
|
|
32.9
|
%
|
Dividend yield
|
|
|
1.0
|
%
|
|
|
1.2
|
%
|
Teradyne determined the stock options expected life based upon historical exercise data for executive
officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free 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 $0.28 per share for 2017 grants and $0.24 per share for 2016 grants, divided by Teradynes stock price on the grant date, of $28.56
for the 2017 grant and $19.43 for the 2016 grant.
19
K. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Changes in accumulated other comprehensive (loss) income, which is presented net of tax, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unrealized
Gains
(Losses) on
Marketable
Securities
|
|
|
Retirement
Plans Prior
Service
Credit
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Three Months Ended April 2, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016, net of tax of $0, $209,
$(778)
|
|
$
|
(21,921
|
)
|
|
$
|
(60
|
)
|
|
$
|
1,767
|
|
|
$
|
(20,214
|
)
|
Other comprehensive income before reclassifications, net of tax
of $0, $420, $0
|
|
|
8,963
|
|
|
|
513
|
|
|
|
|
|
|
|
9,476
|
|
Amounts reclassified from accumulated other comprehensive income, net of
tax of $0, $(64), $(38)
|
|
|
|
|
|
|
(95
|
)
|
|
|
(68
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
(loss), net of tax of $0, $356, $(38)
|
|
|
8,963
|
|
|
|
418
|
|
|
|
(68
|
)
|
|
|
9,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 2, 2017, net of tax of $0, $565, $(816)
|
|
$
|
(12,958
|
)
|
|
$
|
358
|
|
|
$
|
1,699
|
|
|
$
|
(10,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrealized
Gains
(Losses) on
Marketable
Securities
|
|
|
Retirement
Plans Prior
Service
Credit
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Three Months Ended April 3, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015, net of tax of $0,
$(459), $(622)
|
|
$
|
(8,759
|
)
|
|
$
|
(1,414
|
)
|
|
$
|
2,029
|
|
|
$
|
(8,144
|
)
|
Other comprehensive income before reclassifications, net of tax of $0, $1,253, $0
|
|
|
10,271
|
|
|
|
3,071
|
|
|
|
|
|
|
|
13,342
|
|
Amounts reclassified from accumulated other comprehensive income, net of
tax of $0, $11, $(46)
|
|
|
|
|
|
|
(83
|
)
|
|
|
(80
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss), net of tax of $0, $1,264, $(46)
|
|
|
10,271
|
|
|
|
2,988
|
|
|
|
(80
|
)
|
|
|
13,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as April 3, 2016, net of tax of $0, $805, $(668)
|
|
$
|
1,512
|
|
|
$
|
1,574
|
|
|
$
|
1,949
|
|
|
$
|
5,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications out of accumulated other comprehensive (loss) income to the statement of operations for the
three months ended April 2, 2017 and April 3, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive (Loss) Income
Components
|
|
For the Three Months
Ended
|
|
|
Affected Line Item
in the Statements
of Operations
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Available-for-sale
marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains, net of tax of $64, $(11)
|
|
$
|
95
|
|
|
$
|
83
|
|
|
|
Interest income
|
|
Defined benefit pension and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service benefit, net of tax of $38, $46
|
|
|
68
|
|
|
|
80
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications, net of tax of $102, $35
|
|
$
|
163
|
|
|
$
|
163
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The amortization of prior service credit is included in the computation of net periodic pension cost and postretirement benefit; see Note O: Retirement Plans.
|
20
L. 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 impaired when the net book value of a reporting unit exceeds its estimated fair value.
The changes in the carrying amount of goodwill by reportable segments for the three months ended April 2, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Automation
|
|
|
System
Test
|
|
|
Wireless
Test
|
|
|
Semiconductor
Test
|
|
|
Total
|
|
|
|
(in thousands)
|
|
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
|
|
Foreign currency translation adjustment
|
|
|
6,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 2, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
211,573
|
|
|
|
158,699
|
|
|
|
361,819
|
|
|
|
260,540
|
|
|
|
992,631
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(148,183
|
)
|
|
|
(353,843
|
)
|
|
|
(260,540
|
)
|
|
|
(762,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
211,573
|
|
|
$
|
10,516
|
|
|
$
|
7,976
|
|
|
$
|
|
|
|
$
|
230,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Amortizable intangible assets
consist of the following and are included in intangible assets, net on the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2017
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative
Foreign
Currency
Translation
Adjustment
|
|
|
Net
Carrying
Amount
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
270,877
|
|
|
$
|
(211,065
|
)
|
|
$
|
(3,292
|
)
|
|
$
|
56,520
|
|
Customer relationships
|
|
|
92,741
|
|
|
|
(79,114
|
)
|
|
|
(348
|
)
|
|
|
13,279
|
|
Tradenames and trademarks
|
|
|
50,100
|
|
|
|
(24,331
|
)
|
|
|
(845
|
)
|
|
|
24,924
|
|
Non-compete
agreement
|
|
|
320
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
120
|
|
Customer backlog
|
|
|
170
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
414,208
|
|
|
$
|
(314,880
|
)
|
|
$
|
(4,485
|
)
|
|
$
|
94,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Cumulative
Foreign
Currency
Translation
Adjustment
|
|
|
Net
Carrying
Amount
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
270,877
|
|
|
$
|
(206,376
|
)
|
|
$
|
(5,093
|
)
|
|
$
|
59,408
|
|
Customer relationships
|
|
|
92,741
|
|
|
|
(76,707
|
)
|
|
|
(538
|
)
|
|
|
15,496
|
|
Tradenames and trademarks
|
|
|
50,100
|
|
|
|
(23,435
|
)
|
|
|
(1,308
|
)
|
|
|
25,357
|
|
Non-compete
agreement
|
|
|
320
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
140
|
|
Customer backlog
|
|
|
170
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
414,208
|
|
|
$
|
(306,868
|
)
|
|
$
|
(6,939
|
)
|
|
$
|
100,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intangible asset amortization expense was $8.0 million and $20.0 million, respectively,
for the three months ended April 2, 2017 and April 3, 2016.
Estimated intangible asset amortization expense for each of the
five succeeding fiscal years is as follows:
|
|
|
|
|
Year
|
|
Amortization Expense
|
|
|
|
(in thousands)
|
|
2017 (remainder)
|
|
|
21,621
|
|
2018
|
|
|
27,475
|
|
2019
|
|
|
23,622
|
|
2020
|
|
|
10,325
|
|
2021
|
|
|
3,504
|
|
Thereafter
|
|
|
8,296
|
|
M. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except per share amounts)
|
|
Net income for basic and diluted net income per share
|
|
$
|
85,221
|
|
|
$
|
49,986
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares-basic
|
|
|
200,005
|
|
|
|
204,271
|
|
Effect of dilutive potential common shares:
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
|
1,533
|
|
|
|
965
|
|
Stock options
|
|
|
390
|
|
|
|
487
|
|
Employee stock purchase plan
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
1,931
|
|
|
|
1,461
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares-diluted
|
|
|
201,936
|
|
|
|
205,732
|
|
|
|
|
|
|
|
|
|
|
Net income per common share-basic
|
|
$
|
0.43
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
Net income per common share-diluted
|
|
$
|
0.42
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
The computation of diluted net income per common share for the three months ended April 2, 2017 excludes
the effect of the potential exercise of stock options to purchase approximately 0.1 million shares because the effect would have been anti-dilutive.
The computation of diluted net income per common share for the three months ended April 3, 2016 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.
22
N. RESTRUCTURING AND OTHER
During the three months ended April 2, 2017, Teradyne recorded $1.9 million of restructuring charges of which $1.3 million was
for a lease impairment of a Wireless Test facility in Sunnyvale, CA and $0.6 million was for employee severance charges. The Sunnyvale, CA lease expires in 2020. The accrual for the future lease payments liability is reflected in other accrued
liabilities and is expected to be paid over the term of the lease.
During the three months ended April 2, 2017 and April 3,
2016, Teradyne recorded $0.6 million and $1.2 million, respectively, of other charges for the increase in the fair value of the Universal Robots contingent consideration liability.
During the three months ended April 3, 2016, Teradyne recorded $0.4 million of employee severance charges.
O. 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. The pension asset or liability represents a difference between the fair value of the pension plans assets and the projected benefit obligation.
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 these 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 (IRC), as well as unfunded qualified foreign plans.
In the three months ended April 2, 2017, Teradyne contributed $0.6 million to the U.S. supplemental executive defined benefit
pension plan and $0.2 million to certain qualified plans for
non-U.S.
subsidiaries.
For the
three months ended April 2, 2017 and April 3, 2016, Teradynes net periodic pension cost (income) was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2, 2017
|
|
|
April 3, 2016
|
|
|
|
United
States
|
|
|
Foreign
|
|
|
United
States
|
|
|
Foreign
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
560
|
|
|
$
|
185
|
|
|
$
|
576
|
|
|
$
|
207
|
|
Interest cost
|
|
|
3,312
|
|
|
|
163
|
|
|
|
3,414
|
|
|
|
206
|
|
Expected return on plan assets
|
|
|
(3,000
|
)
|
|
|
(6
|
)
|
|
|
(3,443
|
)
|
|
|
(5
|
)
|
Amortization of prior service cost
|
|
|
18
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
(1,193
|
)
|
|
|
|
|
Settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic pension cost (income)
|
|
$
|
890
|
|
|
$
|
342
|
|
|
$
|
(622
|
)
|
|
$
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefit Plan
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.
23
For the three months ended April 2, 2017 and April 3, 2016, Teradynes net
periodic postretirement income was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
10
|
|
|
$
|
10
|
|
Interest cost
|
|
|
50
|
|
|
|
56
|
|
Amortization of prior service benefit
|
|
|
(124
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
Total net periodic post-retirement benefit
|
|
$
|
(64
|
)
|
|
$
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
P. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As of April 2, 2017, Teradyne had entered into purchase commitments for certain components and materials. The purchase commitments covered
by the agreements aggregate to approximately $292.0 million, of which $281.7 million is for less than one year.
Legal
Claims
Teradyne is subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Teradynes results of operations, financial condition or cash flows.
Q. INCOME TAXES
The effective tax rate
for the three months ended April 2, 2017 and April 3, 2016 was 7.4% and 12.6%, respectively.
The decrease in the effective tax
rate from the three months ended April 3, 2016 to the three months ended April 2, 2017 resulted from an increase in the discrete benefit from stock based compensation, a projected shift in the geographic distribution of income which
decreased income subject to taxation in the U.S. relative to lower tax rate jurisdictions and a decrease in the discrete benefit from
non-taxable
foreign exchange gains.
The effective tax rates for the three months ended April 2, 2017 and April 3, 2016 differed from the expected federal statutory rate
of 35% primarily because of the favorable effect of statutory rates applicable to income earned outside the United States.
The tax rate
for the three months ended April 2, 2017 and April 3, 2016 was also reduced by the benefit from U.S. research and development tax credits, partially offset by additions to the uncertain tax positions for transfer pricing, both of which are
included in the projected annual effective tax rate.
Discrete tax benefits recorded in the three months ended April 2, 2017 amounted
to $7.0 million of which $5.5 million resulted from stock based compensation, $0.7 million related to U.S. research and development tax credits and $0.8 million from other discrete tax benefits. The $5.5 million of discrete
benefit from stock based compensation included $5.2 million of excess tax benefits recognized pursuant to ASU
No. 2016-09
Improvements to Employee Share-Based Payment Accounting.
Discrete tax benefits recorded in the three months ended April 3, 2016 amounted to $2.5 million of which $1.2 million
resulted from
non-taxable
foreign exchange gains, $0.9 million related to marketable securities and $0.4 million from other discrete tax benefits.
On a quarterly basis, Teradyne evaluates the realizability of the deferred tax assets by jurisdiction and assesses the need for a valuation
allowance. As of April 2, 2017, Teradyne believes that it will ultimately realize the deferred tax assets recorded on the condensed consolidated balance sheet. However, should Teradyne believe that it is
more-likely-than-not
that the deferred tax assets would not be realized, the tax provision would increase in the period in which Teradyne determined that the realizability was not likely. Teradyne considers
the probability of future taxable income and historical profitability, among other factors, in assessing the realizability of the deferred tax assets.
24
As of April 2, 2017 and December 31, 2016, Teradyne had $40.7 million and
$39.0 million, respectively, of reserves for uncertain tax positions. The $1.7 million net increase in reserves for uncertain tax positions is primarily composed of additions related to transfer pricing exposures and U.S. research and
development tax credits.
As of April 2, 2017, Teradyne estimates that it is reasonably possible that the balance of uncertain tax
positions 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 comprised primarily of reserves relating to U.S. research and development credits.
Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of April 2, 2017 and December 31,
2016, $0.3 million and $0.4 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the three months ended April 2, 2017, a benefit of $0.1 million was recorded for interest and penalties
related to income tax items. For the three months ended April 3, 2016, an expense of $0.3 million was recorded for interest and penalties related to income tax items.
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 due to the tax holiday for the three months ended April 2, 2017 was $4.7 million, or $0.02 per diluted share. The tax savings due to the tax holiday for
the three months ended April 3, 2016 was $2.6 million, or $0.01 per diluted share. The tax holiday is scheduled to expire on December 31, 2020.
R. SEGMENT 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 based on several factors, of which the primary
financial measure is business segment income (loss) before income taxes. The accounting policies of the business segments in effect are described in Note B: Accounting Policies in Teradynes Annual Report on Form
10-K
for the year ended December 31, 2016.
Segment information for the three months ended
April 2, 2017 and April 3, 2016 is as follows:
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|
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|
Semiconductor
Test
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|
System
Test
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|
Industrial
Automation
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|
|
Wireless
Test
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|
|
Corporate
and
Eliminations
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|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Three Months Ended April 2, 2017
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
355,528
|
|
|
$
|
39,845
|
|
|
$
|
36,272
|
|
|
$
|
25,268
|
|
|
$
|
|
|
|
$
|
456,913
|
|
Income (loss) before income taxes (1)(2)
|
|
|
97,966
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|
|
|
(2,759
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)
|
|
|
(2,571
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)
|
|
|
1,532
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|
|
|
(2,152
|
)
|
|
|
92,016
|
|
Total assets (3)
|
|
|
740,334
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|
|
106,754
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|
|
|
331,016
|
|
|
|
61,356
|
|
|
|
1,602,820
|
|
|
|
2,842,280
|
|
Three Months Ended April 3, 2016
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|
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|
|
|
|
|
|
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|
|
Revenues
|
|
$
|
340,264
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|
|
$
|
53,670
|
|
|
$
|
16,746
|
|
|
$
|
20,314
|
|
|
$
|
|
|
|
$
|
430,994
|
|
Income (loss) before income taxes (1)(2)
|
|
|
73,254
|
|
|
|
9,492
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|
|
|
(7,168
|
)
|
|
|
(20,140
|
)
|
|
|
1,754
|
|
|
|
57,192
|
|
Total assets (3)
|
|
|
664,555
|
|
|
|
90,695
|
|
|
|
350,589
|
|
|
|
408,466
|
|
|
|
1,034,669
|
|
|
|
2,548,974
|
|
(1)
|
Interest income, interest expense, contingent consideration adjustments, pension and post retirement plans actuarial gains and other income (expense) are included in Corporate and Eliminations.
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(2)
|
Included in the income (loss) before income taxes for each of the segments are charges and credits related to inventory and other.
|
(3)
|
Total business assets are directly attributable to each business. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets.
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25
Included in the Semiconductor Test segment are charges and credits in the following line items in
the statements of operations:
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|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Cost of revenuesinventory charge
|
|
$
|
1,319
|
|
|
$
|
3,685
|
|
Restructuring and other
|
|
|
(265
|
)
|
|
|
414
|
|
Included in the System Test segment are charges in the following line item in the statements of operations:
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|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Cost of revenuesinventory charge
|
|
$
|
885
|
|
|
$
|
|
|
Included in the Industrial Automation segment are charges in the following line item in the statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Restructuring and other
|
|
$
|
624
|
|
|
$
|
|
|
Included in the Wireless Test segment are charges in the following line items in the statements of operations:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Restructuring and otherlease impairment
|
|
$
|
1,313
|
|
|
$
|
|
|
Cost of revenuesinventory charge
|
|
|
522
|
|
|
|
605
|
|
Included in Corporate and Eliminations are charges in the following line items in the statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
|
|
April 2,
|
|
|
April 3,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Restructuring and otherUniversal Robots contingent consideration adjustment
|
|
$
|
634
|
|
|
$
|
1,173
|
|
Restructuring and other
|
|
|
205
|
|
|
|
|
|
S. SHAREHOLDERS EQUITY
Stock Repurchase Program
In December 2016, the Board of Directors approved a $500 million share repurchase authorization which commenced on January 1, 2017.
Teradyne intends to repurchase at least $200 million in 2017. During the three months ended April 2, 2017, Teradyne repurchased 1.3 million shares of common stock for $37.7 million at an average price of $29.38 per share.
26
During the three months ended April 3, 2016, Teradyne repurchased 1.5 million shares of
common stock for $28.0 million at an average price of $18.81 per share.
The total price includes commissions and is recorded as a
reduction to retained earnings.
Dividend
Holders of Teradynes common stock are entitled to receive dividends when they are declared by Teradynes Board of Directors.
In January 2017, Teradynes Board of Directors declared a quarterly cash dividend of $0.07 per share. Dividend payments for the three
months ended April 2, 2017 were $14.0 million.
In January 2016, Teradynes Board of Directors declared a quarterly cash
dividend of $0.06 per share. Dividend payments for the three months ended April 3, 2016 were $12.3 million.
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.
27