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Financial Instruments

12 Months Ended

Dec. 31, 2022

Financial Instruments

H. 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 years ended December 31, 2022 and 2021, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in 2022, 2021, and 2020 were $0.8 million, $3.1 million, and $4.6 million, respectively. Realized losses recorded in 2022 and 2020 were $1.0 million and $0.3 million, respectively. No realized losses were recorded in 2021. Realized gains and losses are included in other (income) expense, net.

Unrealized gains on equity securities recorded during the years ended December 31, 2022, 2021 and 2020 were $1.9 million, $5.1 million and $9.6 million, respectively. Unrealized losses on equity securities recorded during the years ended December 31, 2022, 2021 and 2020 were $11.6 million, $1.8 million and $6.0 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 December 31, 2022 and 2021:

		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

		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
Total		$	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			—				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 years ended December 31, 2022 and 2021 were as follows:

		Contingent Consideration
		(in thousands)
Balance at December 31, 2020		$	7,227
Fair value adjustment (1)			(7,227	)
Balance at December 31, 2021			—
Fair value adjustment			—
Balance at December 31, 2022		$	—

(1) During the year ended December 31, 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 December 31, 2022 and 2021 were as follows:

		December 31, 2022								December 31, 2021
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Assets
Cash and cash equivalents		$	854,773			$	854,773			$	1,122,199			$	1,122,199
Marketable securities			150,389				150,389				378,089				378,089
Derivative assets			86				86				92				92
Liabilities
Derivative liabilities			4,215				4,215				118				118
Convertible debt (1)			50,115				139,007				108,426				604,648

(1) The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion features.

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

The following tables summarize the composition of available-for-sale marketable securities at December 31, 2022 and 2021:

		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

		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 December 31, 2022, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $66.3 million and $33.4 million, respectively.

As of December 31, 2021, the fair market value of investments with unrealized losses 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 December 31, 2022 and 2021, were not other than temporary.

The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2022 were as follows:

		Cost				Fair Value
		(in thousands)
Due within one year		$	39,950			$	39,612
Due after 1 year through 5 years			33,045				31,466
Due after 5 years through 10 years			4,782				4,232
Due after 10 years			39,065				30,981
Total		$	116,842			$	106,291

Contractual maturities of investments in available-for-sale marketable securities held at December 31, 2022 exclude debt mutual funds with the fair market value of $6.6 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 December 31, 2022 and 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:

		December 31, 2022												December 31, 2021
		Buy Position				Sell Position				Net Total				Buy Position				Sell Position				Net Total
		(in millions)
Japanese Yen		$	(37.1	)		$	—			$	(37.1	)		$	(31.4	)		$	—			$	(31.4	)
Taiwan Dollar			(29.2	)			—				(29.2	)			(35.1	)			—				(35.1	)
Korean Won			(6.4	)			—				(6.4	)			(4.2	)			—				(4.2	)
British Pound Sterling			(1.2	)			—				(1.2	)			(1.8	)			—				(1.8	)
Euro			—				38.4				38.4				—				44.9				44.9
Singapore Dollar			—				33.5				33.5				—				61.9				61.9
Philippine Peso			—				2.7				2.7				—				3.9				3.9
Chinese Yuan			—				2.2				2.2				—				2.8				2.8
Total		$	(73.9	)		$	76.8			$	2.9			$	(72.5	)		$	113.5			$	41.0

The fair value of the outstanding contracts was a loss of $0.9 million and $0.1 million, respectively, at December 31, 2022 and 2021.

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 December 31, 2022 and 2021, 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:

		December 31, 2022												December 31, 2021
		Buy Position				Sell Position				Net Total				Buy Position				Sell Position				Net Total
		(in millions)
Japanese Yen		$	(23.4	)		$	61.2			$	37.8			$	—			$	—			$	—
Taiwan Dollar			(5.5	)			10.9				5.4				—				—				—
Total		$	(28.9	)		$	72.1			$	43.2			$	—			$	—			$	—

The fair value of the outstanding cash flow hedge contracts was a loss of $3.2 million at December 31, 2022.

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 December 31, 2022 and 2021:

		Balance Sheet Location				December 31, 2022				December 31, 2021
						(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts			Prepayments			$	86			$	92
Foreign exchange forward contracts			Other current liabilities				(990	)			(118	)
Derivatives designated as hedging instruments:
Foreign exchange option contracts			Other current liabilities				(3,225	)			—
Total derivatives						$	(4,129	)		$	(26	)

The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2022, 2021, and 2020:

		Location of (Gains) Losses Recognized in Statement of Operations		December 31, 2022				December 31, 2021				December 31, 2020
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		Other (income) expense, net		$	(2,482	)		$	6,488			$	3,515
Derivatives designated as hedging instruments:
Foreign exchange option contracts		Revenue			(251	)			—				—
Total derivatives				$	(2,733	)		$	6,488			$	3,515

The table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. For the years ended December 31, 2022, 2021 and 2020, net losses (gains) from remeasurement of monetary assets and liabilities denominated in foreign currencies were $10.8 million, $(2.1) million, and $2.6 million, respectively.

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

Concentration of Credit Risk

Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Teradyne’s cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradyne’s fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. There were no customers who accounted for more than 10% of our accounts receivable balance as of December 31, 2022 and 2021.

X

- 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.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258

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