Financial Instruments

12 Months Ended

Dec. 31, 2021

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 recognizes the changes in fair value of equity securities directly in earnings. Teradyne’s available-for-sale debt securities are classified as Level 2, and equity and debt mutual funds are classified as Level 1. 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, 2021 and 2020, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in 2021, 2020, and 2019 were $3.1 million, $4.6 million, and $1.3 million, respectively. No realized losses were recorded in 2021. Realized losses recorded in 2020 and 2019 were $0.3 million and $0.2 million, respectively. Realized gains and losses are included in other (income) expense, net.

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

	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

	December 31, 2020
	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	$	443,166	$	—	$	—	$	443,166
Cash equivalents		347,768		123,187		—		470,955
Available for sale securities:
U.S. Treasury securities		—		258,304		—		258,304
Commercial paper		—		254,413		—		254,413
Corporate debt securities		—		83,615		—		83,615
Debt mutual funds		8,565		—		—		8,565
U.S. government agency securities		—		4,339		—		4,339
Certificates of deposit and time deposits		—		979		—		979
Non-U.S. government securities		—		625		—		625
Equity securities:
Mutual funds		29,420		—		—		29,420
Total	$	828,919	$	725,462	$	—	$	1,554,381
Derivative assets		—		95		—		95
Total	$	828,919	$	725,557	$	—	$	1,554,476
Liabilities
Contingent consideration	$	—	$	—	$	7,227	$	7,227
Derivative liabilities		—		504		—		504
Total	$	—	$	504	$	7,227	$	7,731

Reported as follows:

	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	790,934	$	123,187	$	—	$	914,121
Marketable securities		—		522,280		—		522,280
Long-term marketable securities		37,985		79,995		—		117,980
Prepayments		—		95		—		95
Total	$	828,919	$	725,557	$	—	$	1,554,476
Liabilities
Other current liabilities	$	—	$	504	$	—	$	504
Long-term contingent consideration		—		—		7,227		7,227
Total	$	—	$	504	$	7,227	$	7,731

Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2021 and 2020 were as follows:

	Contingent Consideration
	(in thousands)
Balance at December 31, 2019	$	39,705
Foreign currency impact		(355	)
Payments (1)		(8,852	)
Fair value adjustment (2)		(23,271	)
Balance at December 31, 2020		7,227
Foreign currency impact		—
Payments		—
Fair value adjustment (3)		(7,227	)
Balance at December 31, 2021	$	—

(1) During the year ended December 31, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of Mobile Industrial Robots (“MiR”).

(2) During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was decreased by $19.7 million primarily due to a decrease in forecasted revenues and earnings before interest and taxes. During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $3.5 million primarily due to a decrease in forecasted revenues.

(3) 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. As of December 31, 2021, the maximum amount of contingent consideration that could be paid in connection with the acquisition of AutoGuide is $87.7 million. The remaining earn-out period ends on December 31, 2022. The sellers of AutoGuide have filed an arbitration claim against Teradyne related to allegations of non-compliance with the earn-out obligations.

The carrying amounts and fair values of Teradyne’s financial instruments at December 31, 2021 and 2020 were as follows:

	December 31, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	1,122,199	$	1,122,199	$	914,121	$	914,121
Marketable securities		378,089		378,089		640,260		640,260
Derivative assets		92		92		95		95
Liabilities
Contingent consideration		—		—		7,227		7,227
Derivative liabilities		118		118		504		504
Convertible debt (1)		108,426		604,648		410,111		1,739,553

(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, 2021 and 2020:

	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

	December 31, 2020
	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	$	257,132	$	1,330	$	(158	)	$	258,304	$	17,243
Commercial paper		254,404		10		(1	)		254,413		12,173
Corporate debt securities		76,129		7,539		(53	)		83,615		39,896
Debt mutual funds		8,413		152		—			8,565		—
U.S. government agency securities		4,294		46		(1	)		4,339		1,106
Certificates of deposit and time deposits		979		—		—			979		—
Non-U.S. government securities		625		—		—			625		—
	$	601,976	$	9,077	$	(213	)	$	610,840	$	70,418

Reported as follows:

	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	522,228	$	92	$	(40	)	$	522,280	$	61,806
Long-term marketable securities		79,748		8,985		(173	)		88,560		8,612
	$	601,976	$	9,077	$	(213	)	$	610,840	$	70,418

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.

As of December 31, 2020, the fair market value of investments with unrealized losses less than one year totaled $70.4 million.

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, 2021 and 2020, were not other than temporary.

The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2021 were as follows:

	Cost		Fair Value
	(in thousands)
Due within one year	$	244,213	$	244,231
Due after 1 year through 5 years		41,459		41,377
Due after 5 years through 10 years		6,085		6,434
Due after 10 years		34,392		38,823
Total	$	326,149	$	330,865

Contractual maturities of investments in available-for-sale marketable securities held at December 31, 2021 exclude debt mutual funds with the fair market value of $8.0 million as they do not have a contractual maturity date.

Derivatives

Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.

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 the monetary assets and liabilities denominated in foreign currencies.

At December 31, 2021 and 2020, 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, 2021								December 31, 2020
	Buy Position			Sell Position		Net Total			Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(31.4	)	$	—	$	(31.4	)	$	(14.1	)	$	—	$	(14.1	)
Taiwan Dollar		(35.1	)		—		(35.1	)		(27.9	)		—		(27.9	)
Korean Won		(4.2	)		—		(4.2	)		(5.3	)		—		(5.3	)
British Pound Sterling		(1.8	)		—		(1.8	)		(1.0	)		—		(1.0	)
Singapore Dollar		—			61.9		61.9			—			52.3		52.3
Euro		—			44.9		44.9			—			43.9		43.9
Philippine Peso		—			3.9		3.9			—			5.0		5.0
Chinese Yuan		—			2.8		2.8			—			3.4		3.4
Total	$	(72.5	)	$	113.5	$	41.0		$	(48.3	)	$	104.6	$	56.3

The fair value of the outstanding contracts was a loss of $0.1 million and $0.4 million, respectively, at December 31, 2021 and 2020.

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.

The following table summarizes the fair value of derivative instruments as of December 31, 2021 and 2020:

	Balance Sheet Location		December 31, 2021			December 31, 2020
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Prepayments	$	92		$	95
Foreign exchange contracts		Other current liabilities		(118	)		(504	)
Total derivatives			$	(26	)	$	(409	)

The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2021, 2020, and 2019.

	Location of Losses Recognized in Statement of Operations	December 31, 2021		December 31, 2020		December 31, 2019
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	6,488	$	3,515	$	5,960

(1) The table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies.

(2) For the year ended December 31, 2021 net gains from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.1 million.

(3) For the year ended December 31, 2020, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.6 million.

(4) For the year ended December 31, 2019 net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 million.

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, 2021. As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, LTD, accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021.