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 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 , million and $ million, respectively. Realized gains recorded in the three and six months ended July 3, 2022 , million and $ million, respectively. Realized losses recorded in the three and six months ended July 2, 2023 , million. Realized losses recorded in the three and six months ended July 3, 2022 , million and $ 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 , , Unrealized gains and losses on available-for-sale 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 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 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. — 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 — 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. — 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 , 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 Deriv tive ass ets 5,819 5,819 86 86 Liabilities Deri ative liab ities 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 July 2, 2023 Available-for-Sale Cost Unrealized Gain Unrealized (Loss) Fair 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. 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 December 31, 2022 Available-for-Sale Cost Unrealized Gain Unrealized (Loss) Fair 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. 535 — — 535 — $ 123,839 $ 73 $ (11,041 ) $ 112,871 $ 99,763 Reported as follows: Cost Unrealized Gain Unrealized (Loss) Fair 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 , 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 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. non-U.S. 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 a loss of 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. 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 Location of (Gains) Losses Recognized in Statement of July 2, July 3, July 2, July 3, (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. |