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Financial Instruments

3 Months Ended

Mar. 31, 2024

G. FINANCIAL INSTRUMENTS

Cash Equivalents

Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.

Marketable Securities

Teradyne’s equity and debt mutual funds are classified as Level 1 and available-for-sale debt securities are classified as Level 2. The vast majority of Level 2 securities are fixed income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.

During the three months ended March 31, 2024 and April 2, 2023, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in the three months ended March 31, 2024 and April 2, 2023, were $1.0 million and $0.3 million, respectively. Realized losses recorded in the three months ended March 31, 2024 and April 2, 2023, were $0.2 million and $0.1 million, respectively. Realized gains and losses are included in other (income) expense, net.

Unrealized gains on equity securities recorded in the three months ended March 31, 2024 and April 2, 2023 were $2.6 million and $2.0 million, respectively. Unrealized gains and losses on equity securities are included in other (income) expense, net.

Unrealized gains and losses on available-for-sale debt securities are included in accumulated other comprehensive income (loss) on the balance sheet.

The cost of securities sold is based on average cost.

The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.


	March 31, 2024
	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	$	278,229	$	—	$	—	$	278,229
Cash equivalents		428,675		499		—		429,174
Available-for-sale securities:
U.S. Treasury securities		—		40,068		—		40,068
Corporate debt securities		—		35,845		—		35,845
Certificates of deposit and time deposits		—		21,706		—		21,706
Debt mutual funds		10,007		—		—		10,007
U.S. government agency securities		—		3,863		—		3,863
Commercial paper		—		1,689		—		1,689
Non-U.S. government securities		—		798		—		798
Equity securities:
Mutual funds		49,229		—		—		49,229
	$	766,140	$	104,468	$	—	$	870,608
Derivative assets		—		4,251		—		4,251
Total	$	766,140	$	108,719	$	—	$	874,859
Liabilities
Derivative liabilities		—		936		—	$	936
Total	$	—	$	936	$	—	$	936

Reported as follows:
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	706,904	$	499	$	—	$	707,403
Marketable securities		—		41,300		—		41,300
Long-term marketable securities		59,236		62,669		—		121,905
Prepayments		—		4,251		—		4,251
Total	$	766,140	$	108,719	$	—	$	874,859
Liabilities
Other current liabilities	$	—	$	936	$	—	$	936
Total	$	—	$	936	$	—	$	936


	December 31, 2023
	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	$	298,156	$	—	$	—	$	298,156
Cash equivalents		453,298		6,117		—		459,415
Available-for-sale securities:
Corporate debt securities		—		52,734		—		52,734
U.S. Treasury securities		—		41,808		—		41,808
Certificates of deposit and time deposits		—		21,772		—		21,772
Debt mutual funds		8,773		—		—		8,773
U.S. government agency securities		—		4,892		—		4,892
Commercial paper		—		1,667		—		1,667
Non-U.S. government securities		—		810		—		810
Equity securities:
Mutual Funds		47,132		—		—		47,132
	$	807,359	$	129,800	$	—	$	937,159
Derivative assets		—		18,746		—		18,746
Total	$	807,359	$	148,546	$	—	$	955,905
Liabilities
Derivative liabilities		—		2,545		—		2,545
Total	$	—	$	2,545	$	—	$	2,545

Reported as follows:
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	751,454	$	6,117	$	—	$	757,571
Marketable securities		—		62,154		—		62,154
Long-term marketable securities		55,905		61,529		—		117,434
Prepayments		—		18,746		—		18,746
Total	$	807,359	$	148,546	$	—	$	955,905
Liabilities
Other current liabilities	$	—	$	2,545	$	—	$	2,545
Total	$	—	$	2,545	$	—	$	2,545

The carrying amounts and fair values of Teradyne’s financial instruments at March 31, 2024 and December 31, 2023, were as follows:


	March 31, 2024				December 31, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	707,403	$	707,403	$	757,571	$	757,571
Marketable securities		163,205		163,205		179,588		179,588
Derivative assets		4,251		4,251		18,746		18,746
Liabilities
Derivative liabilities		936		936		2,545		2,545

The fair values of accounts receivable, net and accounts payable approximate the carrying value due to the short-term nature of these instruments.

The following table summarizes the composition of available-for-sale marketable securities at March 31, 2024:


	March 31, 2024
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Corporate debt securities	$	39,946	$	89	$	(4,190	)	$	35,845	$	31,461
U.S. Treasury securities		44,519		1		(4,452	)		40,068		38,914
Certificates of deposit and time deposits		21,706		—		—			21,706		—
Debt mutual funds		10,363		—		(356	)		10,007		3,303
U.S. government agency securities		3,883		—		(20	)		3,863		3,863
Commercial paper		1,670		19		—			1,689		—
Non-U.S. government securities		798		—		—			798		—
	$	122,885	$	109	$	(9,018	)	$	113,976	$	77,541

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	41,308	$	19	$	(27	)	$	41,300	$	17,657
Long-term marketable securities		81,577		90		(8,991	)		72,676		59,884
	$	122,885	$	109	$	(9,018	)	$	113,976	$	77,541

The following table summarizes the composition of available-for-sale marketable securities at December 31, 2023:


	December 31, 2023
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Corporate debt securities	$	56,458	$	201	$	(3,925	)	$	52,734	$	44,263
U.S. Treasury securities		45,725		14		(3,931	)		41,808		35,080
Certificates of deposit and time deposits		21,772		—		—			21,772		—
Debt mutual funds		9,081		—		(308	)		8,773		3,303
U.S. government agency securities		4,898		—		(6	)		4,892		4,892
Commercial paper		1,633		34		—			1,667		—
Non-U.S. government securities		810		—		—			810		—
	$	140,377	$	249	$	(8,170	)	$	132,456	$	87,538

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	62,385	$	36	$	(267	)		62,154	$	34,844
Long-term marketable securities		77,992		213		(7,903	)		70,302		52,694
	$	140,377	$	249	$	(8,170	)	$	132,456	$	87,538

As of March 31, 2024, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $36.2 million and $41.4 million, respectively. As of December 31, 2023, the fair market value of investments with unrealized losses for less than one year and greater than one year totaled $22.3 million and $65.2 million, respectively.

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 March 31, 2024 and December 31, 2023 were not other than temporary.

The contractual maturities of investments in available-for-sale securities held at March 31, 2024, were as follows:


	March 31, 2024
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	41,308	$	41,300
Due after 1 year through 5 years		26,360		25,819
Due after 5 years through 10 years		7,760		7,405
Due after 10 years		37,094		29,445
Total	$	112,522	$	103,969

Contractual maturities of investments in available-for-sale securities held at March 31, 2024, exclude debt mutual funds with a fair market value of $10.0 million as they do not have a contractual maturity date.

Derivatives

Teradyne conducts business in various foreign countries, with certain transactions denominated in local currencies. As a result, Teradyne is exposed to risks relating to changes in foreign currency exchange rates. Teradyne’s foreign currency risk management objective is to minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, and changes in its cash inflows attributable to the forecasted cash flows from certain foreign currency denominated revenues.

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.

Teradyne also enters into foreign currency forward and option contracts designated as cash flow hedges to hedge the risk of changes in its cash inflows attributable to changes in foreign currency exchange rates. The cash flow hedges have maturities of less than six months and mature in the period of revenue recognition for certain products and services in backlog and forecasted to be recognized in a future period. Teradyne evaluates cash flow hedges for effectiveness at inception based on the critical terms match method. The hedges are not expected to incur any ineffectiveness however a quarterly qualitative assessment of effectiveness is done to determine if the critical terms match method remains appropriate to use. The change in fair value of the contracts is recorded in accumulated other comprehensive income (loss) and reclassified to earnings at maturity date.

Teradyne does not use derivative financial instruments for speculative purposes.

At March 31, 2024 and December 31, 2023, 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:


	Net Notional Value
	March 31, 2024		December 31, 2023
	(in millions)
Currency Hedged (Buy/Sell)
U.S. dollar/Japanese yen	$	57.5	$	11.0
U.S. dollar/Danish krone		28.4		36.0
U.S. dollar/Taiwan dollar		20.1		42.7
U.S. dollar/Korean won		6.6		7.2
U.S. dollar/British pound sterling		1.0		1.5
Euro/U.S. dollar		25.8		25.3
Singapore dollar/U.S. dollar		17.6		16.6
Philippine peso/U.S. dollar		9.9		10.1
Chinese yuan/U.S. dollar		0.6		1.0
Danish krone/U.S. dollar		0.6		0.7
Total	$	168.1	$	152.1

The fair value of the outstanding contracts was a net loss of $0.1 million and a net loss of $1.8 million at March 31, 2024 and December 31, 2023, respectively.

Unrealized 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.

At March 31, 2024 and December 31, 2023, Teradyne had the following cash flow hedge contracts to buy and sell non-U.S. currencies for U.S. dollars with the following notional amounts:


	Net Notional Value
	March 31, 2024		December 31, 2023
	(in millions)
Currency Hedged (Buy/Sell)
U.S. dollar/Japanese yen	$	—	$	35.5
Total	$	—	$	35.5

There were no outstanding cash flow hedge contracts at March 31, 2024. The fair value of the outstanding cash flow hedge contracts was a gain of $0.6 million at December 31, 2023.

Unrealized gains and losses on foreign currency cash flow hedge contracts are included in accumulated other comprehensive income (loss). At maturity, the gains or losses associated with cash flow hedge contracts are recorded to revenue.

On November 7, 2023, in connection with our agreement to acquire 10% investment in Technoprobe S.p.A we purchased a call option to buy 481.0 million Euros. The expiration date of the option is April 26, 2024. On April 12, 2024, Teradyne entered into a forward to buy 481.0 million Euros expiring on May 23, 2024. At March 31, 2024 and December 31, 2023, the fair value of the outstanding contract was $3.4 million and $17.4 million, respectively. For the three months ended March 31, 2024, an unrealized loss of $13.9 million was recorded in other (income) expense, net.

The following table summarizes the fair value of derivative instruments as of March 31, 2024 and December 31, 2023:


	Balance Sheet Location	March 31, 2024			December 31, 2023
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	$	805		$	733
Foreign exchange option contracts	Other current assets		3,446			17,364
Foreign exchange forward contracts	Other current liabilities		(936	)		(2,545	)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Other current assets		—			648
Total derivatives		$	3,315		$	16,200

The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three months ended March 31, 2024 and April 2, 2023:


		For the Three Months Ended
	Location of (Gains) Losses Recognized in Statement of Operations	March 31, 2024			April 2, 2023
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts (1)	Other (income) expense, net	$	(1,699	)	$	1,259
Foreign exchange option contracts	Other (income) expense, net		13,918			—
Derivatives designated as hedging instruments:
Foreign exchange forward and option contracts	Revenue		(2,280	)		1,538
Total Derivatives		$	9,939		$	2,797

(1)

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 three months ended March 31, 2024 and April 2, 2023, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.7 million and $0.4 million, respectively.

See Note H: “Debt” regarding derivatives related to the convertible senior notes.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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