Financial Instruments

6 Months Ended

Jul. 03, 2022

Financial Instruments

G. FINANCIAL INSTRUMENTS

Cash Equivalents

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

Marketable Securities

Teradyne’s equity and debt mutual funds are classified as Level 1 and available-for-sale debt securities are classified as Level 2. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.

During the three and six months ended July 3, 2022 and July 4, 2021, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in the three and six months ended July 3, 2022 were $0.1 million and $0.5 million, respectively. Realized gains recorded in the three and six months ended July 4, 2021 were $0.9 million and $2.0 million, respectively. Realized losses recorded in the three and six months ended July 3, 2022 were $0.4 million and $0.6 million, respectively. No realized losses were recorded in the three and six months ended July 4, 2021. Realized gains and losses are included in other (income) expense, net.

Unrealized losses on equity securities recorded in the three and six months ended July 3, 2022 were $6.6 million and $8.8 million, respectively. No unrealized gains on equity securities were recorded in the three and six months ended July 3, 2022. Unrealized gains on equity securities recorded in the three and six months ended July 4, 2021 were $2.0 million and $3.3 million, respectively. Unrealized losses on equity securities recorded in the three and six months ended July 4, 2021 were $0.7 million. 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).

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 July 3, 2022 and December 31, 2021.

	July 3, 2022
	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	$	447,312	$	—	$	—	$	447,312
Cash equivalents		95,068		29,643		—		124,711
Available-for-sale securities:
Commercial paper		—		150,443		—		150,443
U.S. Treasury securities		—		73,100		—		73,100
Corporate debt securities		—		49,344		—		49,344
Debt mutual funds		6,514		—		—		6,514
U.S. government agency securities		—		4,693		—		4,693
Certificates of deposit and time deposits		—		1,261		—		1,261
Non-U.S. government securities		—		546		—		546
Equity securities:
Mutual funds		35,944		—		—		35,944
	$	584,838	$	309,030	$	—	$	893,868
Derivative assets		—		103		—		103
Total	$	584,838	$	309,133	$	—	$	893,971
Liabilities
Derivative liabilities	$	—	$	233	$	—	$	233
Total	$	—	$	233	$	—	$	233

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	542,380	$	29,643	$	—	$	572,023
Marketable securities		—		209,846		—		209,846
Long-term marketable securities		42,458		69,541		—		111,999
Prepayments and other current assets		—		103		—		103
Total	$	584,838	$	309,133	$	—	$	893,971
Liabilities		.
Other current liabilities	$	—	$	233	$	—	$	233
Total	$	—	$	233	$	—	$	233

	December 31, 2021
	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	$	628,740	$	—	$	—	$	628,740
Cash equivalents		412,212		81,247		—		493,459
Available-for-sale securities:								—
Commercial paper		—		189,620		—		189,620
U.S. Treasury securities		—		77,789		—		77,789
Corporate debt securities		—		56,901		—		56,901
Debt mutual funds		7,971		—		—		7,971
U.S. government agency securities		—		4,610		—		4,610
Certificates of deposit and time deposits		—		1,356		—		1,356
Non-U.S. government securities		—		589		—		589
Equity securities:
Mutual Funds		39,253		—		—		39,253
	$	1,088,176	$	412,112	$	—	$	1,500,288
Derivative assets		—		92		—		92
Total	$	1,088,176	$	412,204	$	—	$	1,500,380
Liabilities
Derivative liabilities		—		118		—		118
Total	$	—	$	118	$	—	$	118

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	1,040,952	$	81,247	$	—	$	1,122,199
Marketable securities		—		244,231		—		244,231
Long-term marketable securities		47,224		86,634		—		133,858
Prepayments and other current assets		—		92		—		92
Total	$	1,088,176	$	412,204	$	—	$	1,500,380
Liabilities
Other current liabilities	$	—	$	118	$	—	$	118
Total	$	—	$	118	$	—	$	118

Changes in the fair value of Level 3 contingent consideration for the six months ended July 3, 2022, and July 4, 2021 were as follows:

	For the Three Months Ended				For the Six Months Ended
	July 3,		July 4,		July 3,		July 4,
	2022		2021		2022		2021
	(in thousands)
Balance at beginning of period	$	—	$	—	$	—	$	7,227
Fair value adjustment (a)		—		—		—		(7,227	)
Balance at end of period	$	—	$	—	$	—	$	—

(a) In the six months ended July 4, 2021, the fair value of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide was reduced to zero, which resulted in a benefit of $7.2 million, primarily due to a decrease in forecasted revenues and earnings before interest and taxes.

On March 25, 2022, the arbitration claim filed by Industrial Automation LLC, sellers of AutoGuide, against Teradyne alleging non-compliance with the earn-out provisions of the Membership Interests Purchase Agreement, dated as of October 18, 2019, among Industrial Automation LLC, Teradyne and AutoGuide was settled for $26.7 million. As a result, Teradyne has no remaining earn-out obligations.

The carrying amounts and fair values of Teradyne’s financial instruments at July 3, 2022 and December 31, 2021 were as follows:

	July 3, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	572,023	$	572,023	$	1,122,199	$	1,122,199
Marketable securities		321,845		321,845		378,089		378,089
Derivative assets		103		103		92		92
Liabilities
Derivative liabilities		233		233		118		118
Convertible debt		74,428		233,339		108,426		604,648

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 July 3, 2022:

	July 3, 2022
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Commercial paper	$	150,695	$	8	$	(260	)	$	150,443	$	137,162
U.S. Treasury securities		75,962		42		(2,904	)		73,100		71,861
Corporate debt securities		53,274		147		(4,077	)		49,344		46,289
Debt mutual funds		6,783		—		(269	)		6,514		3,245
U.S. government agency securities		4,786		—		(93	)		4,693		4,693
Certificates of deposit and time deposits		1,261		—		—			1,261		—
Non-U.S. government securities		546		—		—			546		—
	$	293,307	$	197	$	(7,603	)	$	285,901	$	263,250

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	210,598	$	8	$	(760	)	$	209,846	$	195,003
Long-term marketable securities		82,709		189		(6,843	)		76,055		68,247
	$	293,307	$	197	$	(7,603	)	$	285,901	$	263,250

The following table summarizes the composition of available-for-sale marketable securities at December 31, 2021:

	December 31, 2021
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Commercial paper	$	189,614	$	15	$	(9	)	$	189,620	$	22,784
U.S. Treasury securities		77,707		551		(470	)		77,789		46,435
Corporate debt securities		52,266		4,863		(227	)		56,901		19,422
Debt mutual funds		7,928		43		—			7,971		—
U.S. government agency securities		4,617		5		(12	)		4,610		3,296
Certificates of deposit and time deposits		1,356		—		—			1,356		—
Non-U.S. government securities		589		—		—			589		—
	$	334,077	$	5,477	$	(718	)	$	338,836	$	91,937

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	244,213	$	64	$	(46	)	$	244,231	$	54,798
Long-term marketable securities		89,864		5,413		(672	)		94,605		37,139
	$	334,077	$	5,477	$	(718	)	$	338,836	$	91,937

As of July 3, 2022, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $252.4 million and $10.9 million, respectively. As of December 31, 2021, the fair market value of investments with unrealized losses for less than one year and greater than one year totaled $85.4 million and $6.5 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 July 3, 2022 and December 31, 2021 were not other than temporary.

The contractual maturities of investments in available-for-sale securities held at July 3, 2022 were as follows:

	July 3, 2022
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	210,598	$	209,846
Due after 1 year through 5 years		32,283		31,069
Due after 5 years through 10 years		5,055		4,736
Due after 10 years		38,588		33,736
Total	$	286,524	$	279,387

Contractual maturities of investments in available-for-sale securities held at July 3, 2022 exclude debt mutual funds with a fair market value of $6.5 million, as they do not have a contractual maturity date.

Derivatives

Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.

To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings and is used to offset the change in value of monetary assets and liabilities denominated in foreign currencies.

At July 3, 2022 and December 31, 2021, 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:

	July 3, 2022								December 31, 2021
	Buy Position			Sell Position		Net Total			Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(32.5	)	$	—	$	(32.5	)	$	(31.4	)	$	—	$	(31.4	)
Taiwan Dollar		(27.2	)		—		(27.2	)		(35.1	)		—		(35.1	)
Korean Won		(3.1	)		—		(3.1	)		(4.2	)		—		(4.2	)
British Pound Sterling		(1.0	)		—		(1.0	)		(1.8	)		—		(1.8	)
Singapore Dollar		—			40.0		40.0			—			61.9		61.9
Euro		—			39.8		39.8			—			44.9		44.9
Philippine Peso		—			3.2		3.2			—			3.9		3.9
Chinese Yuan		—			2.8		2.8			—			2.8		2.8
Total	$	(63.8	)	$	85.8	$	22.0		$	(72.5	)	$	113.5	$	41.0

The fair value of the outstanding contracts was a loss of $0.1 million and $0.1 million, respectively, at July 3, 2022 and December 31, 2021.

Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net.

The following table summarizes the fair value of derivative instruments as of July 3, 2022 and December 31, 2021:

	Balance Sheet Location	July 3, 2022			December 31, 2021
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Prepayments	$	103		$	92
Foreign exchange contracts	Other current liabilities		(233	)		(118	)
Total derivatives		$	(130	)	$	(26	)

The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three and six months ended July 3, 2022 and July 4, 2021:

	Location of (Gains) Losses	For the Three Months Ended					For the Six Months Ended
	Recognized in	July 3,			July 4,		July 3,			July 4,
	Statement of Operations	2022			2021		2022			2021
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	(1,703	)	$	1,531	$	(3,455	)	$	3,650

The above 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 and six months ended July 3, 2022, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $3.7 million and $8.0 million, respectively. For the three and six months ended July 4, 2021, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $0.1 million and $0.3 million, respectively.

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