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Financial Instruments

9 Months Ended

Oct. 01, 2023

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 nine months ended October 1, 2023 and October 2, 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 nine months ended October 1, 2023, were $0.1 million and $0.6 million, respectively. Realized gains recorded in the three and nine months ended October 2, 2022, were $0.1 million and $0.6 million, respectively. No realized losses were recorded in the three months ended October 1, 2023. Realized losses recorded in the nine months ended October

1, 2023, were $0.3 million. Realized losses recorded in the three and nine months ended October 2, 2022, were $0.3 million and $0.9 million, respectively. Realized gains and losses are included in other (income) expense, net.

No unrealized gains on equity securities were recorded in the three months ended October 1, 2023. Unrealized gains on equity securities recorded in the nine months ended October 1, 2023 were $4.6 million. No unrealized gains on equity securities were recorded in the three and nine months ended October 2, 2022. Unrealized losses on equity securities were recorded in the three and nine months ended October 1, 2023 were $1.7 million. Unrealized losses on equity securities recorded in the three and nine months ended October 2, 2022, were $2.3 million and $11.1 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 October 1, 2023 and December 31, 2022.


	October 1, 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	$	309,348	$	—	$	—	$	309,348
Cash equivalents		307,160		20,453		—		327,613
Available-for-sale securities:
U.S. Treasury securities		—		58,499		—		58,499
Corporate debt securities		—		50,830		—		50,830
Commercial paper		—		12,454		—		12,454
Debt mutual funds		8,236		—		—		8,236
Certificates of deposit and time deposits		—		6,688		—		6,688
U.S. government agency securities		—		4,774		—		4,774
Equity securities:
Mutual funds		42,000		—		—		42,000
	$	666,744	$	153,698	$	—	$	820,442
Derivative assets		—		5,198		—		5,198
Total	$	666,744	$	158,896	$	—	$	825,640
Liabilities
Derivative liabilities	$	—	$	1,128	$	—	$	1,128
Total	$	—	$	1,128	$	—	$	1,128

Reported as follows:
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	616,508	$	20,453	$	—	$	636,961
Marketable securities		—		79,570		—		79,570
Long-term marketable securities		50,236		53,675		—		103,911
Prepayments		—		5,198		—		5,198
Total	$	666,744	$	158,896	$	—	$	825,640
Liabilities
Other current liabilities	$	—	$	1,128	$	—	$	1,128
Total	$	—	$	1,128	$	—	$	1,128


	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 October 1, 2023 and December 31, 2022, were as follows:


	October 1, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	636,961	$	636,961	$	854,773	$	854,773
Marketable securities		183,481		183,481		150,389		150,389
Derivative assets		5,198		5,198		86		86
Liabilities
Derivative liabilities		1,128		1,128		4,215		4,215
Convertible debt		23,529		74,919		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 October 1, 2023:


	October 1, 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	$	63,773	$	—	$	(5,274	)	$	58,499	$	57,794
Corporate debt securities		57,710		—		(6,880	)		50,830		50,830
Commercial paper		12,411		44		(1	)		12,454		2,988
Debt mutual funds		8,724		—		(488	)		8,236		3,082
Certificates of deposit and time deposits		6,688		—		—			6,688		—
U.S. government agency securities		4,823		—		(49	)		4,774		4,774
	$	154,129	$	44	$	(12,692	)	$	141,481	$	119,468

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	80,145	$	44	$	(619	)	$	79,570	$	62,711
Long-term marketable securities		73,984		—		(12,073	)		61,911		56,757
	$	154,129	$	44	$	(12,692	)	$	141,481	$	119,468

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 October 1, 2023, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $54.3 million and $65.1 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 October 1, 2023 and December 31, 2022 were not other than temporary.

The contractual maturities of investments in available-for-sale securities held at October 1, 2023, were as follows:


	October 1, 2023
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	80,145	$	79,570
Due after 1 year through 5 years		20,012		19,257
Due after 5 years through 10 years		6,858		6,128
Due after 10 years		38,390		28,290
Total	$	145,405	$	133,245

Contractual maturities of investments in available-for-sale securities held at October 1, 2023, exclude debt mutual funds with a fair market value of $8.2 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 October 1, 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
	October 1, 2023		December 31, 2022
	(in millions)
Currency Hedged (Buy/Sell)
U.S. dollar/Japanese yen	$	49.6	$	37.1
U.S. dollar/Taiwan dollar		29.5		29.2
U.S. dollar/Korean won		9.3		6.4
U.S. dollar/British pound sterling		1.2		1.2
Euro/U.S. dollar		22.7		38.4
Singapore dollar/U.S. dollar		13.3		33.5
Philippine peso/U.S. dollar		10.0		2.7
Chinese yuan/U.S. dollar		1.3		2.2
Danish krone/U.S. dollar		0.6		—
Total	$	137.5	$	150.7

The fair value of the outstanding contracts was a net gain of $1.0 million and a net loss of $0.9 million, respectively, at October 1, 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 October 1, 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
	October 1, 2023		December 31, 2022
	(in millions)
Currency Hedged (Buy/Sell)
U.S. dollar/Japanese yen	$	38.6	$	61.2
U.S. dollar/Taiwan dollar		—		10.9
Japanese yen/U.S. dollar		—		23.4
Taiwan dollar/U.S. dollar		—		5.5
Total	$	38.6	$	101.0

The fair value of the outstanding cash flow hedge contracts was a gain of $3.0 million and a loss of $3.2 million at October 1, 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 October 1, 2023 and December 31, 2022:


	Balance Sheet Location	October 1, 2023			December 31, 2022
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepayments	$	2,159		$	86
Foreign exchange forward contracts	Other current liabilities		(1,128	)		(990	)
Derivatives designated as hedging instruments:
Foreign exchange option contracts	Prepayments		3,039			—
Foreign exchange option contracts	Other current liabilities		—			(3,225	)
Total derivatives		$	4,070		$	(4,129	)

The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three and nine months ended October 1, 2023 and October 2, 2022:


		For the Three Months Ended					For the Nine Months Ended
	Location of (Gains) Losses Recognized in Statement of Operations	October 1, 2023			October 2, 2022		October 1, 2023			October 2, 2022
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other (income) expense, net	$	(1,886	)	$	1,246	$	(4,667	)	$	(2,209	)
Derivatives designated as hedging instruments:
Foreign exchange option contracts	Revenue		(3,960	)		—		(2,008	)		—
Total Derivatives		$	(5,846	)	$	1,246	$	(6,675	)	$	(2,209	)

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 nine months ended October 1, 2023, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $5.3 million and $12.3 million, respectively. For the three and nine months ended October 2, 2022, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 million and $9.5 million, respectively.

See Note G: “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.

+ References + Details