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Financial Instruments

6 Months Ended

Jul. 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 and six months ended July 2, 2023 and July 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 and six months ended July 2, 2023, were $0.1 million and $0.4 million, respectively. Realized gains recorded in the three and six months ended July 3, 2022, were $0.1 million and $0.5 million, respectively. Realized losses recorded in the three and six months ended July 2, 2023, were $0.2 million. Realized losses recorded in the three and six months ended July 3, 2022, were $0.4 million and $0.6 million, respectively. Realized gains and losses are included in other (income) expense, net.

Unrealized gains on equity securities recorded in the three and six months ended July 2, 2023, were $2.6 million and $4.6 million, respectively. No unrealized gains on equity securities were recorded in the three and six months ended July 3, 2022. No unrealized losses on equity securities were recorded in the three and six months ended July 2, 2023. 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. 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 July 2, 2023 and December 31, 2022.

		July 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		$	311,803			$	—			$	—			$	311,803
Cash equivalents			290,548				10,857				—				301,405
Available-for-sale securities:
U.S. Treasury securities			—				52,238				—				52,238
Corporate debt securities			—				51,608				—				51,608
Commercial paper			—				30,882				—				30,882
Debt mutual funds			7,739				—				—				7,739
Certificates of deposit and time deposits			—				6,699				—				6,699
U.S. government agency securities			—				6,475				—				6,475
Non-U.S. government securities			—				544				—				544
Equity securities:
Mutual funds			43,699				—				—				43,699
		$	653,789			$	159,303			$	—			$	813,092
Derivative assets			—				5,819				—				5,819
Total		$	653,789			$	165,122			$	—			$	818,911
Liabilities
Derivative liabilities		$	—			$	994			$	—			$	994
Total		$	—			$	994			$	—			$	994
Reported as follows:
		(Level 1)				(Level 2)				(Level 3)				Total
		(in thousands)
Assets
Cash and cash equivalents		$	602,351			$	10,857			$	—			$	613,208
Marketable securities			—				95,199				—				95,199
Long-term marketable securities			51,438				53,247				—				104,685
Prepayments			—				5,819				—				5,819
Total		$	653,789			$	165,122			$	—			$	818,911
Liabilities			.
Other current liabilities		$	—			$	994			$	—			$	994
Total		$	—			$	994			$	—			$	994

		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
		$	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 July 2, 2023 and December 31, 2022, were as follows:

		July 2, 2023								December 31, 2022
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Assets
Cash and cash equivalents		$	613,208			$	613,208			$	854,773			$	854,773
Marketable securities			199,884				199,884				150,389				150,389
Derivative assets			5,819				5,819				86				86
Liabilities
Derivative liabilities			994				994				4,215				4,215
Convertible debt			32,806				115,778				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 July 2, 2023:

		July 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		$	56,107			$	2			$	(3,871	)		$	52,238			$	42,716
Corporate debt securities			56,680				12				(5,084	)			51,608				50,455
Commercial paper			30,311				581				(10	)			30,882				19,840
Debt mutual funds			8,104				—				(365	)			7,739				3,161
Certificates of deposit and time deposits			6,699				—				—				6,699				—
U.S. government agency securities			6,520				—				(45	)			6,475				6,475
Non-U.S. government securities			544				—				—				544				—
		$	164,965			$	595			$	(9,375	)		$	156,185			$	122,647

Reported as follows:

		Cost				Unrealized Gain				Unrealized (Loss)				Fair Market Value				Fair Market Value of Investments with Unrealized Losses
		(in thousands)
Marketable securities		$	95,482			$	581			$	(864	)		$	95,199			$	68,121
Long-term marketable securities			69,483				14				(8,511	)			60,986				54,526
		$	164,965			$	595			$	(9,375	)		$	156,185			$	122,647

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 July 2, 2023, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $63.8 million and $58.8 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 July 2, 2023 and December 31, 2022 were not other than temporary.

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

		July 2, 2023
		Cost				Fair Market Value
		(in thousands)
Due within one year		$	95,482			$	95,199
Due after 1 year through 5 years			17,131				16,467
Due after 5 years through 10 years			6,012				5,559
Due after 10 years			38,236				31,221
Total		$	156,861			$	148,446

Contractual maturities of investments in available-for-sale securities held at July 2, 2023, exclude debt mutual funds with a fair market value of $7.7 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 July 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:

		Net Notional Value
		July 2, 2023				December 31, 2022
		(in millions)
Currency Hedged (Buy/Sell)
U.S. dollar/Japanese yen		$	66.3			$	37.1
U.S. dollar/Taiwan dollar			22.3				29.2
U.S. dollar/Korean won			8.1				6.4
U.S. dollar/British pound sterling			0.9				1.2
Euro/U.S. dollar			24.5				38.4
Singapore dollar/U.S. dollar			22.0				34
Philippine peso/U.S. dollar			2.5				2.7
Chinese yuan/U.S. dollar			1.8				2.2
Danish krone/U.S. dollar			0.6				—
Total		$	149.0			$	150.7

The fair value of the outstanding contracts was a gain of $1.1 million and a loss of $0.9 million, respectively, at July 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 July 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:

		Net Notional Value
		July 2, 2023				December 31, 2022
		(in millions)
Currency Hedged (Buy/Sell)
Japanese yen/U.S. dollar		$	52.8			$	23.4
Taiwan dollar/U.S. dollar			—				5.5
U.S. dollar/Japanese yen			—				61.2
U.S. dollar/Taiwan dollar			—				10.9
Total		$	52.8			$	101.0

The fair value of the outstanding cash flow hedge contracts was a gain of $3.7 million and a loss of $3.2 million at July 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 July 2, 2023 and December 31, 2022:

		Balance Sheet Location		July 2, 2023				December 31, 2022
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		Prepayments		$	2,138			$	86
Foreign exchange forward contracts		Other current liabilities			(994	)			(990	)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts		Prepayments			3,681				—
Foreign exchange option contracts		Other current liabilities			—				(3,225	)
Total derivatives				$	4,825			$	(4,129	)

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

				For the Three Months Ended								For the Six Months Ended
		Location of (Gains) Losses Recognized in Statement of Operations		July 2, 2023				July 3, 2022				July 2, 2023				July 3, 2022
				(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		Other (income) expense, net		$	(4,040	)		$	(1,703	)		$	(2,781	)		$	(3,455	)
Derivatives designated as hedging instruments:
Foreign exchange option contracts		Revenue			414				—				1,952				—
Total Derivatives				$	(3,626	)		$	(1,703	)		$	(829	)		$	(3,455	)

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 and six months ended July 2, 2023, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $6.7 million and $7.0 million, respectively. For the three and six months ended July 3, 2022, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $3.7 million and $8.0 million, respectively.

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

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
-Topic 820
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482106/820-10-50-2

+ Details

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