Financial Instruments

3 Months Ended

Apr. 02, 2023

Financial Instruments

F. 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 months ended April 2, 2023 and April 3, 2022, 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 April 2, 2023 and April 3, 2022 were $0.3 million and $0.4 million, respectively. Realized losses recorded in the three months ended April 2, 2023 and April 3, 2022 were $0.1 million and $0.2 million, respectively. Realized gains and losses are included in other (income) expense, net.

Unrealized gains on equity securities recorded in the three months ended April 2, 2023 were $2.0 million. Unrealized losses on equity securities recorded in the three months ended April 3, 2022 were $2.2 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) 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 April 2, 2023 and December 31, 2022.

	April 2, 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	$	244,542	$	—	$	—	$	244,542
Cash equivalents		252,374		152,292		—		404,666
Available-for-sale securities:
U.S. Treasury securities		—		52,168		—		52,168
Corporate debt securities		—		51,369		—		51,369
Commercial paper		—		47,548		—		47,548
U.S. government agency securities		—		7,394		—		7,394
Debt mutual funds		6,800		—		—		6,800
Certificates of deposit and time deposits		—		1,754		—		1,754
Non-U.S. government securities		—		554		—		554
Equity securities:
Mutual funds		42,246		—		—		42,246
Total	$	545,962	$	313,079	$	—	$	859,041
Liabilities
Derivative liabilities	$	—	$	1,980	$	—	$	1,980
Total	$	—	$	1,980	$	—	$	1,980

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	496,916	$	152,292	$	—	$	649,208
Marketable securities		—		92,895		—		92,895
Long-term marketable securities		49,046		67,892		—		116,938
Total	$	545,962	$	313,079	$	—	$	859,041
Liabilities
Other current liabilities	$	—	$	1,980	$	—	$	1,980
Total	$	—	$	1,980	$	—	$	1,980

	December 31, 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	$	632,417	$	—	$	—	$	632,417
Cash equivalents		161,767		60,589		—		222,356
Available for sale securities:
Corporate debt securities		—		50,856		—		50,856
U.S. Treasury securities		—		39,649		—		39,649
Commercial paper		—		7,159		—		7,159
Debt mutual funds		6,580		—		—		6,580
U.S. government agency securities		—		6,352		—		6,352
Certificates of deposit and time deposits		—		1,740		—		1,740
Non-U.S. government securities		—		535		—		535
Equity securities:
Mutual funds		37,518		—		—		37,518
Total	$	838,282	$	166,880	$	—	$	1,005,162
Derivative assets		—		86		—		86
Total	$	838,282	$	166,966	$	—	$	1,005,248
Liabilities
Derivative liabilities	$	—	$	4,215	$	—	$	4,215
Total	$	—	$	4,215	$	—	$	4,215

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	794,184	$	60,589	$	—	$	854,773
Marketable securities		—		39,612		—		39,612
Long-term marketable securities		44,098		66,679		—		110,777
Prepayments		—		86		—		86
Total	$	838,282	$	166,966	$	—	$	1,005,248
Liabilities
Other current liabilities	$	—	$	4,215	$	—	$	4,215
Total	$	—	$	4,215	$	—	$	4,215

The carrying amounts and fair values of Teradyne’s financial instruments at April 2, 2023 and December 31, 2022 were as follows:

	April 2, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	649,208	$	649,208	$	854,773	$	854,773
Marketable securities		209,833		209,833		150,389		150,389
Derivative assets		—		—		86		86
Liabilities
Derivative liabilities		1,980		1,980		4,215		4,215
Convertible debt		35,109		119,586		50,115		139,007

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 April 2, 2023:

	April 2, 2023
	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	$	55,615	$	38	$	(3,485	)	$	52,168	$	49,669
Corporate debt securities		56,040		41		(4,712	)		51,369		49,131
Commercial paper		47,225		337		(14	)		47,548		16,845
U.S. government agency securities		7,427		9		(42	)		7,394		4,419
Debt mutual funds		7,130		—		(330	)		6,800		3,312
Certificates of deposit and time deposits		1,754		—		—			1,754		—
Non-U.S. government securities		554		—		—			554		—
	$	175,745	$	425	$	(8,583	)	$	167,587	$	123,376

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	92,915	$	337	$	(357	)	$	92,895	$	60,438
Long-term marketable securities		82,830		88		(8,226	)		74,692		62,938
	$	175,745	$	425	$	(8,583	)	$	167,587	$	123,376

The following table summarizes the composition of available-for-sale marketable securities at December 31, 2022:

	December 31, 2022
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Corporate debt securities	$	57,006	$	3	$	(6,153	)	$	50,856	$	50,667
U.S. Treasury securities		44,030		—		(4,381	)		39,649		39,649
Commercial paper		7,089		70		—			7,159		—
Debt mutual funds		6,997		—		(417	)		6,580		3,095
U.S. government agency securities		6,442		—		(90	)		6,352		6,352
Certificates of deposit and time deposits		1,740		—		—			1,740		—
Non-U.S. government securities		535		—		—			535		—
	$	123,839	$	73	$	(11,041	)	$	112,871	$	99,763

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	39,950	$	70	$	(408	)	$	39,612	$	30,713
Long-term marketable securities		83,889		3		(10,633	)		73,259		69,050
	$	123,839	$	73	$	(11,041	)	$	112,871	$	99,763

As of April 2, 2023, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $68.4 million and $55.0 million, respectively. As of December 31, 2022, the fair market value of investments with unrealized losses for less than one year and greater than one year totaled $66.3 million and $33.4 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 April 2, 2023 and December 31, 2022 were not other than temporary.

The contractual maturities of investments in available-for-sale securities held at April 2, 2023 were as follows:

	April 2, 2023
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	92,915	$	92,895
Due after 1 year through 5 years		31,721		30,672
Due after 5 years through 10 years		5,022		4,612
Due after 10 years		38,957		32,608
Total	$	168,615	$	160,787

Contractual maturities of investments in available-for-sale securities held at April 2, 2023 exclude debt mutual funds with a fair market value of $6.8 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 April 2, 2023 and December 31, 2022, 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:

	April 2, 2023								December 31, 2022
	Buy Position			Sell Position		Net Total			Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(57.7	)	$	—	$	(57.7	)	$	(37.1	)	$	—	$	(37.1	)
Taiwan Dollar		(38.3	)		—		(38.3	)		(29.2	)		—		(29.2	)
Korean Won		(3.1	)		—		(3.1	)		(6.4	)		—		(6.4	)
British Pound Sterling		(1.2	)		—		(1.2	)		(1.2	)		—		(1.2	)
Singapore Dollar		—			35.7		35.7			—			33.5		33.5
Euro		—			24.3		24.3			—			38.4		38.4
Philippine Peso		—			2.5		2.5			—			2.7		2.7
Chinese Yuan		—			1.9		1.9			—			2.2		2.2
Total	$	(100.3	)	$	64.4	$	(35.9	)	$	(73.9	)	$	76.8	$	2.9

The fair value of the outstanding contracts was a loss of $1.1 million and $0.9 million, respectively, at April 2, 2023 and December 31, 2022.

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 April 2, 2023 and December 31, 2022, 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:

	April 2, 2023							December 31, 2022
	Buy Position			Sell Position		Net Total		Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(13.6	)	$	30.2	$	16.6	$	(23.4	)	$	61.2	$	37.8
Taiwan Dollar		—			—		—		(5.5	)		10.9		5.4
Total	$	(13.6	)	$	30.2	$	16.6	$	(28.9	)	$	72.1	$	43.2

The fair value of the outstanding cash flow hedge contracts was a loss of $0.9 million and $3.2 million at April 2, 2023 and December 31, 2022, respectively.

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.

The following table summarizes the fair value of derivative instruments as of April 2, 2023 and December 31, 2022:

	Balance Sheet Location		April 2, 2023			December 31, 2022
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		Prepayments	$	—		$	86
Foreign exchange forward contracts		Other current liabilities		(1,057	)		(990	)
Derivatives designated as hedging instruments:
Foreign exchange option contracts		Other current liabilities		(923	)		(3,225	)
Total derivatives			$	(1,980	)	$	(4,129	)

The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three months ended April 2, 2023 and April 3, 2022:

			For the Three Months Ended
	Location of Losses (Gains) Recognized in Statement of Operations		April 2, 2023		April 3, 2022
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		Other (income) expense, net	$	1,259	$	(1,752	)
Derivatives designated as hedging instruments:
Foreign exchange option contracts		Revenue		1,538		—
Total Derivatives			$	2,797	$	(1,752	)

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 April 2, 2023 and April 3, 2022 net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $0.4 million, and $4.3 million, respectively.

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