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UNITED STATES  
SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549  

FORM 10-Q  
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  
  
For the quarterly period ended: June 30, 2023
or  
 Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  
  
For the transition period from ________________ to ________________    
Commission file number:  000-25426  
    Untitled.jpg
NATIONAL INSTRUMENTS CORPORATION  
(Exact name of registrant as specified in its charter)  
Delaware74-1871327
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
  
11500 North MoPac Expressway 
Austin,78759
Texas
(Address of principal executive offices) (Zip code)
 
Registrant's telephone number, including area code:  (512) 683-0100  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of exchange on which registered
Common Stock, $0.01 par valueNATIThe Nasdaq Stock Market LLC
Preferred Share Purchase RightsN/AThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.    
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No  
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  
ClassOutstanding at July 24, 2023
Common Stock, $0.01 par value132,797,497
1


NATIONAL INSTRUMENTS CORPORATION
INDEX  
Page No.
  
 
  
 
June 30, 2023 (unaudited) and December 31, 2022
  
 
(unaudited) for the three and six months ended June 30, 2023 and 2022
  
 
(unaudited) for the three and six months ended June 30, 2023 and 2022
  
 
(unaudited) for the six months ended June 30, 2023 and 2022
(unaudited) for the three and six months ended June 30, 2023 and 2022
  
  
  
  
  
  
 
  
  
  
  
  
2


PART I - FINANCIAL INFORMATION  

Item 1. Financial Statements
NATIONAL INSTRUMENTS CORPORATION  
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 30,December 31,
20232022
Assets(unaudited) 
Cash and cash equivalents$139,243 $139,799 
Accounts receivable, net389,926 445,279 
Inventories, net401,626 388,164 
Prepaid expenses and other current assets123,949 115,677 
Total current assets1,054,744 1,088,919 
Property and equipment, net283,907 265,380 
Goodwill638,459 615,734 
Intangible assets, net192,904 200,850 
Operating lease right-of-use assets68,062 59,176 
Other long-term assets124,918 128,479 
Total assets$2,362,994 $2,358,538 
Liabilities and stockholders' equity  
Accounts payable$60,514 $54,639 
Accrued compensation49,575 71,422 
Deferred revenue - current158,247 137,208 
Operating lease liabilities - current16,608 13,834 
Other taxes payable55,622 67,615 
Debt, current25,000 25,000 
Accrued expenses and other current liabilities58,833 153,157 
Total current liabilities424,399 522,875 
Deferred income taxes5,983 1,676 
Income tax payable - non-current22,581 40,646 
Deferred revenue - non-current60,094 63,066 
Operating lease liabilities - non-current36,486 30,588 
Debt, non-current564,373 516,637 
Other long-term liabilities31,558 26,926 
Total liabilities1,145,474 1,202,414 
Commitments and contingencies
Stockholders' equity:  
Preferred stock:  par value $0.01;  5,000,000 shares authorized; none issued and outstanding 
  
Common stock:  par value $0.01;  360,000,000 shares authorized; 132,797,497 shares and 131,004,965 shares issued and outstanding, respectively 
1,328 1,310 
Additional paid-in capital1,251,971 1,207,420 
Retained deficit(11,295)(14,741)
Accumulated other comprehensive loss(24,484)(37,865)
Total stockholders’ equity1,217,520 1,156,124 
Total liabilities and stockholders’ equity$2,362,994 $2,358,538 
The accompanying notes are an integral part of the financial statements. 

3


NATIONAL INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)  
  
Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
    
Net sales:    
Product$379,436 $354,805 $779,835 $698,489 
Software maintenance37,368 40,710 73,794 82,281 
Total net sales416,804 395,515 853,629 780,770 
    
Cost of sales:    
Product113,625 123,307 241,181 238,332 
Software maintenance4,862 4,167 10,012 8,370 
Total cost of sales118,487 127,474 251,193 246,702 
    
Gross profit298,317 268,041 602,436 534,068 
    
Operating expenses:    
Sales and marketing123,101 124,908 240,443 245,064 
Research and development83,801 85,589 170,438 167,750 
General and administrative50,504 36,772 93,719 69,949 
Total operating expenses257,406 247,269 504,600 482,763 
Operating income40,911 20,772 97,836 51,305 
    
Other expense(8,500)(3,505)(11,519)(3,473)
Income before income taxes32,411 17,267 86,317 47,832 
Provision for income taxes1,919 4,833 8,896 10,162 
    
Net income$30,492 $12,434 $77,421 $37,670 
    
Basic earnings per share$0.23 $0.09 $0.59 $0.29 
    
Weighted average shares outstanding - basic132,369 131,973 131,850 132,039 
    
Diluted earnings per share$0.23 $0.09 $0.58 $0.28 
    
Weighted average shares outstanding - diluted134,171 132,708 133,693 132,948 
    
Dividends declared per share$0.28 $0.28 $0.56 $0.56 
The accompanying notes are an integral part of these financial statements. 
4


NATIONAL INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)  
Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
    
Net income$30,492 $12,434 $77,421 $37,670 
Other comprehensive income (loss), before tax and net of reclassification adjustments:    
Foreign currency translation adjustment1,227 (9,640)6,116 8,027 
Unrealized gain on derivative instruments10,843 6,161 9,167 (13,446)
Other comprehensive income (loss), before tax12,070 (3,479)15,283 (5,419)
Tax expense related to items of other comprehensive income2,286 1,507 1,902 1,930 
Other comprehensive income (loss), net of tax9,784 (4,986)13,381 (7,349)
Comprehensive income$40,276 $7,448 $90,802 $30,321 
The accompanying notes are an integral part of these financial statements.

5


NATIONAL INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)  
Six Months Ended
June 30,
20232022
Cash flow from operating activities:  
Net income$77,421 $37,670 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization45,541 45,742 
Stock-based compensation30,388 40,804 
Gain from equity-method investees(5,597)(131)
Deferred income taxes2,488 943 
Changes in operating assets and liabilities(75,368)(169,930)
Net cash provided by (used in) operating activities74,873 (44,902)
  
Cash flow from investing activities:  
Acquisitions, net of cash received(23,024)(72,802)
Capital expenditures(35,477)(24,509)
Capitalization of internally developed software(925)(187)
Additions to other intangibles(3,811)(2,478)
Net cash used in investing activities(63,237)(99,976)
 
Cash flow from financing activities:  
Proceeds from revolving line of credit120,000 175,000 
Payments on revolving line of credit(60,000) 
Payments on term loan(12,500) 
Proceeds from issuance of common stock17,377 17,859 
Repurchase of common stock (70,000)
Dividends paid(73,975)(74,034)
Payments for taxes related to net share settlement of equity awards(3,076) 
Net cash (used in) provided by financing activities(12,174)48,825 
  
Effect of exchange rate changes on cash(18)(4,180)
  
Net change in cash and cash equivalents(556)(100,233)
Cash and cash equivalents at beginning of period139,799 211,106 
Cash and cash equivalents at end of period$139,243 $110,873 
 
The accompanying notes are an integral part of these financial statements.   

6



NATIONAL INSTRUMENTS CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data and per share data)
(unaudited)
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at March 31, 2023131,498,380 $1,315 $1,231,894 $(4,627)$(34,268)$1,194,314 
Net income— — — 30,492 — 30,492 
Other comprehensive gain, net of tax— — — — 9,784 9,784 
Issuance of common stock under employee plans1,351,884 14 8,407 — — 8,421 
Payments for taxes related to net share settlement of equity awards(52,767)(1)(3,075)— — (3,076)
Stock-based compensation— — 14,745 — — 14,745 
Dividends paid (1)— — — (37,160)— (37,160)
Balance at June 30, 2023132,797,497 1,328 1,251,971 (11,295)(24,484)1,217,520 
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at December 31, 2022131,004,965 1,310 1,207,420 (14,741)(37,865)1,156,124 
Net income— — — 77,421 — 77,421 
Other comprehensive gain, net of tax— — — — 13,381 13,381 
Issuance of common stock under employee plans1,845,299 19 17,358 — — 17,377 
Payments for taxes related to net share settlement of equity awards(52,767)(1)(3,075)— — (3,076)
Stock-based compensation— — 30,268 — — 30,268 
Dividends paid (1)— — — (73,975)— (73,975)
Balance at June 30, 2023132,797,497 $1,328 $1,251,971 $(11,295)$(24,484)$1,217,520 
(1) Cash dividends declared per share of common stock were $0.28 for the three months ended June 30, 2023, and $0.56 for the six months ended June 30, 2023.
 
The accompanying notes are an integral part of these financial statements. 
7



June 30, 2022
(Unaudited)
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income/(Loss)Total Stockholders' Equity
Balance at March 31, 2022131,876,464 $1,319 $1,152,349 $76,264 $(22,494)$1,207,438 
Net income— — — 12,434 — 12,434 
Other comprehensive loss, net of tax— — — — (4,986)(4,986)
Issuance of common stock under employee plans1,426,756 14 8,601 — — 8,615 
Stock-based compensation— — 20,609 — — 20,609 
Repurchase of common stock(986,876)(10)(8,428)(30,107)— (38,545)
Dividends paid (1)— — — (37,058)— (37,058)
Balance at June 30, 2022132,316,344 1,323 1,173,131 21,533 (27,480)1,168,507 
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at December 31, 2021132,293,898 1,323 1,129,647 112,858 (20,131)1,223,697 
Net income— — — 37,670 — 37,670 
Other comprehensive loss, net of tax— — — — (7,349)(7,349)
Issuance of common stock under employee plans1,781,374 18 17,841 — — 17,859 
Stock-based compensation— — 40,664 — — 40,664 
Repurchase of common stock(1,758,928)(18)(15,021)(54,961)— (70,000)
Dividends paid (1)— — — (74,034)— (74,034)
Balance at June 30, 2022132,316,344 $1,323 $1,173,131 $21,533 $(27,480)$1,168,507 
(1) Cash dividends declared per share of common stock were $0.28 for the three months ended June 30, 2022, and $0.56 for the six months ended June 30, 2022.

The accompanying notes are an integral part of these financial statements.
8





NATIONAL INSTRUMENTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  
  
Note 1 – Basis of presentation  
  
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2022, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 21, 2023 (the "Form 10-K"). In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary to state fairly our financial position at June 30, 2023 and December 31, 2022, the results of our operations and comprehensive income for the three and six months ended June 30, 2023 and 2022, our cash flows for the six months ended June 30, 2023 and 2022 and our statement of stockholders' equity for the three and six months ended June 30, 2023 and 2022. Our operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

Summary of Significant Accounting Policies

There were no material changes to our significant accounting policies during the three and six months ended June 30, 2023 compared to the significant accounting policies described in our 2022 Form 10-K.

Other (Expense) Income

Other (expense) income, net consisted of the following amounts:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)(Unaudited)(Unaudited)
2023202220232022
Interest income$426 $58 $751 $104 
Interest expense(9,741)(2,500)(18,088)(3,792)
Gain (loss) from equity-method investments819 (471)5,597 131 
Net foreign exchange gain (loss)721 (769)420 (1,935)
Other(725)177 (199)2,019 
Other expense, net$(8,500)$(3,505)$(11,519)$(3,473)

Accrued Expenses and Other Current Liabilities
h
Accrued expenses and other current liabilities on our condensed consolidated balance sheet includes the following amounts (in thousands):
As of June 30, 2023As of December 31,
(unaudited)2022
Income taxes payable - current$ $87,186 
Hedge payable - current6,242 18,117 
Accrued liabilities31,779 26,851 
Other20,812 21,003 
Total$58,833 $153,157 
9


Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. The number of common share equivalents, which includes time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PRSUs"), is computed using the treasury stock method. 

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three and six months ended June 30, 2023 and 2022 are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
(Unaudited)(Unaudited)
2023202220232022
Weighted average shares outstanding-basic132,369 131,973 131,850 132,039 
Plus: Common share equivalents    
RSUs & PRSUs1,802 735 1,843 909 
Weighted average shares outstanding-diluted134,171 132,708 133,693 132,948 

Shares issuable upon vesting of RSU awards of 70,300 shares and 2,026,000 shares for the three months ended June 30, 2023 and 2022, respectively, and 68,600 shares and 1,324,000 shares for the six months ended June 30, 2023 and 2022, respectively, were excluded in the computations of diluted EPS because the effect of including the shares issuable upon vesting of RSU awards would have been anti-dilutive.


Note 2 - Revenue

Revenue Recognition

Revenue is recognized upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of our products or services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Disaggregation of Revenues

We disaggregate revenue from contracts with customers based on the timing of transfer of goods or services to customers (point-in-time or over time), geographic region based primarily on the billing location of the customer and customer industry grouping.


10



Total net sales based on the timing of transfer of goods or services to customers and geographic region are as follows:
Three Months Ended June 30,
(Unaudited)
20232022
(In thousands)
Net sales:
Point-in-Time(1)
Over TimeTotal
Point-in-Time(1)
Over TimeTotal
Americas$160,298 $27,210 $187,508 $134,337 $26,080 $160,417 
EMEA93,221 18,731 111,952 76,092 20,591 96,683 
APAC105,833 11,511 117,344 127,858 10,557 138,415 
Total net sales(1)
$359,352 $57,452 $416,804 $338,287 $57,228 $395,515 
(1) Net sales contains hedging gains and losses, which do not represent revenues recognized from customers.
Refer to Note 5 - Derivative instruments and hedging activities of Notes to Condensed Consolidated Financial Statements for more information on the impact of our hedging activities on our results of operations.
Six Months Ended June 30,
(Unaudited)
20232022
(In thousands)
Net sales:
Point-in-Time(1)
Over TimeTotal
Point-in-Time(1)
Over TimeTotal
Americas$312,640 $52,854 $365,494 $267,326 $52,302 $319,628 
EMEA187,918 36,215 224,133 155,331 41,720 197,051 
APAC241,481 22,521 264,002 242,853 21,238 264,091 
Total net sales(1)
$742,039 $111,590 $853,629 $665,510 $115,260 $780,770 
(1) Net sales contains hedging gains and losses, which do not represent revenues recognized from customers.
Refer to Note 5 - Derivative instruments and hedging activities of Notes to Condensed Consolidated Financial Statements for more information on the impact of our hedging activities on our results of operations.

The industry grouping used to disaggregate net sales is determined at the customer account level. Accounts assigned to one of our three industry-specific groupings are either designated as Semiconductor and Electronics, Transportation, or Aerospace, Defense and Government ("ADG"). We are able to leverage the investments in these areas to also serve a broad base of diverse customers in the other industries we serve, which are included in our Portfolio grouping. We periodically review and update the groupings of customers assigned to a particular industry grouping to ensure that our revenue disaggregation aligns with the way we currently manage our business. As part of this process, we reclassified certain customer accounts between industry groups during the first quarter of 2023. The prior period presented below has been recast to conform to the current period presentation.

Three Months Ended June 30,Six Months Ended June 30,
(In thousands)(Unaudited)
Industry Grouping2023202220232022
Portfolio$134,706 $116,216 $270,615 $240,919 
Semiconductor & Electronics91,584 116,370 205,341 220,395 
Aerospace, Defense & Government111,895 99,521 225,010 194,024 
Transportation78,619 63,408 152,663 125,432 
Total net sales$416,804 $395,515 $853,629 $780,770 


11



Information about Contract Balances

Amounts billed in advance of services being provided are accounted for as deferred revenue. Nearly all of our deferred revenue balance is related to extended hardware and software maintenance contracts. Payment terms and conditions vary by contract type, although payment is typically due within 30 to 90 days of contract inception. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing.

Changes in deferred revenue, current and non-current, during the six months ended June 30, 2023 were as follows:

(In thousands)Amount
Balance as of December 31, 2022$200,274 
Deferral of revenue billed in current period, net of recognition88,220 
Recognition of revenue deferred in prior periods(72,909)
Acquisitions/Divestitures 2,414 
Foreign currency translation impact342 
Balance as of June 30, 2023 (unaudited)$218,341 

For the six months ended June 30, 2023, revenue recognized from performance obligations satisfied in prior periods (for example, due to changes in transaction price) was not material. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables which are anticipated to be invoiced in the next twelve months are included in "Other current assets" on the condensed consolidated balance sheet. Based on the nature of our contracts with customers, we do not typically recognize unbilled receivables related to revenues recognized in excess of amounts billed. For the six months ended June 30, 2023 and December 31, 2022, the amounts recorded that were related to unbilled receivables were not material.

Unsatisfied Performance Obligations

Revenue expected to be recognized in any future period related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, was approximately $111 million as of June 30, 2023. Because we typically invoice customers at contract inception, this amount is included in our current and non-current deferred revenue balances and primarily relates to multi-year payments for hardware service and software service offerings. As of June 30, 2023, we expect to recognize approximately 25% of the revenue related to these unsatisfied performance obligations during the remainder of 2023, 43% during 2024, and 32% thereafter.

Assets Recognized from the Costs to Obtain a Contract with a Customer

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Capitalized incremental costs related to initial contracts and renewals are amortized over the same period because the commissions paid on both the initial contract and renewals are commensurate with one another. Total capitalized costs to obtain a contract were not material during the periods presented and are included in other long-term assets on our condensed consolidated balance sheets.


12


Note 3 – Investments

Equity-Method Investments

The carrying value of our equity method investments was $29 million and $29 million as of June 30, 2023 and December 31, 2022, respectively. During the three months ended June 30, 2023 and 2022, net sales to our equity-method investees were approximately $0.3 million and $1.3 million, respectively. During the six months ended June 30, 2023 and 2022, net sales to our equity-method investees were approximately $0.8 million and $2.8 million, respectively. During the three and six months ended June 30, 2023 and 2022, purchases from our equity-method investees were not material.

Our proportionate share of the income/(loss) from equity-method investments is included within "Other expense." Refer to Note 17 - Acquisitions of Notes to Condensed Consolidated Financial Statements for additional discussion on a step acquisition of one of our existing equity-method investments, SET GmbH ("SET"), during the first quarter of 2023.
        
Note 4 – Fair value measurements 

We define fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market that market participants may use when pricing the asset or liability.   
We follow a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value measurement is determined based on the lowest level input that is significant to the fair value measurement. The three values of the fair value hierarchy are the following:   
Level 1 – Quoted prices in active markets for identical assets or liabilities   
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly   
Level 3 – Inputs that are not based on observable market data   
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements at Reporting Date Using
(In thousands)(Unaudited)
DescriptionJune 30, 2023Level 1Level 2Level 3
Assets    
Derivatives (interest rate swaps)4,467  4,467  
Derivatives (foreign exchange contracts)13,410  13,410  
Total Assets 
$17,877 $ $17,877 $ 
    
Liabilities    
Derivatives (foreign exchange contracts)$(6,267)$ $(6,267)$ 
Total Liabilities 
$(6,267)$ $(6,267)$ 
13


(In thousands)Fair Value Measurements at Reporting Date Using
DescriptionDecember 31, 2022Level 1Level 2Level 3
Assets    
Derivatives (interest rate swaps)2,299 2,299 
Derivatives (foreign exchange contracts)10,025  10,025  
Total Assets $12,324 $ $12,324 $ 
    
Liabilities    
Derivatives (interest rate swaps)$(1,013)$ $(1,013)$ 
Derivatives (foreign exchange contracts)$(18,313)$ $(18,313)$ 
Total Liabilities $(19,326)$ $(19,326)$ 

The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques.
  
Derivatives include foreign currency forward and interest rate swap contracts. Our derivatives are valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. We consider counterparty credit risk in the valuation of our derivatives. However, counterparty credit risk did not impact the valuation of our derivatives during the six months ended June 30, 2023. There were no transfers in or out of Level 1 or Level 2 during the six months ended June 30, 2023.

Non-financial assets such as equity-method investments, goodwill, intangible assets, and property, plant and equipment are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. The amounts related to all assets and liabilities required to be measured at fair value on a nonrecurring basis were not material at June 30, 2023 and December 31, 2022.
  
We did not have any items that were measured at fair value on a nonrecurring basis at June 30, 2023 and December 31, 2022. The carrying value of net accounts receivable, accounts payable, and long-term debt contained in the condensed consolidated balance sheets approximates fair value.
 
Note 5 – Derivative instruments and hedging activities  
  
We recognize all of our derivative instruments as either assets or liabilities in our statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

We have direct operations in approximately 40 countries. Sales outside of the Americas accounted for approximately 55% and 59% of our net sales during the three months ended June 30, 2023 and 2022, respectively, and approximately 57% and 59% during the six months ended June 30, 2023 and 2022, respectively. Our activities expose us to a variety of market risks, including the effects of changes in foreign currency exchange rates. These financial risks are monitored and managed by us as an integral part of our overall risk management program.   
  

14


The vast majority of our foreign sales are denominated in the customers' local currency. Movements in foreign currency exchange rates pose a risk to our operations and competitive position, in that exchange rate changes may affect our profitability and cash flow, and the business or pricing strategies of our non-U.S. based competitors. We use foreign currency forward contracts as hedges of forecasted sales and expenses that are denominated in foreign currencies and as hedges of foreign currency denominated financial assets or liabilities. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash inflows or outflows resulting from these transactions will be adversely affected by changes in exchange rates. We designate foreign currency forward contracts as cash flow hedges of forecasted net sales or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts that are not designated as hedging instruments. None of our derivative instruments contain a credit-risk-related contingent feature.
 
 Cash flow hedges  

To help minimize the financial impact of fluctuations in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales over the next one to three years, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted net sales and forecasted expenses denominated in foreign currencies with forward contracts. For forward contracts, when the value of the dollar changes significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the forward contracts designated as hedges. We use foreign currency forward contracts for up to 100% of our forecasted exposures in selected currencies (primarily in Euro, Japanese yen, Hungarian forint, British pound, Malaysian ringgit, Korean won and Chinese yuan) and limit the duration of these contracts to 40 months or less.  

For foreign currency derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative is reported as a component of accumulated other comprehensive income ("OCI") and reclassified into earnings in the same line item (net sales, operating expenses, or cost of sales) associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Cash flows from derivative instruments are classified in the statement of cash flows in the same category as the cash flows from the hedged or economically hedged item, primarily in operating activities. Hedge effectiveness of foreign currency forwards designated as cash flow hedges is measured by comparing the hedging instrument’s cumulative change in fair value from inception to maturity to the forecasted transaction’s terminal value.

We held forward contracts designated as cash flow hedges with the following notional amounts:
(In thousands)US Dollar Equivalent
As of June 30, 2023
As of December 31,
(Unaudited)2022
British pound$16,688 $13,929 
Chinese yuan94,463 73,419 
Euro130,162 109,091 
Hungarian forint8,813 19,529 
Japanese yen28,647 21,285 
Korean won20,298 14,048 
Malaysian ringgit2,941 8,856 
Total forward contracts notional amount$302,012 $260,157 
  
The contracts in the foregoing table had contractual maturities of 18 months or less at June 30, 2023 and 12 months or less at December 31, 2022.  


15


At June 30, 2023, we expected to reclassify $5.0 million of gains on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $0.6 million of losses on derivative instruments from accumulated OCI to cost of sales during the next twelve months when the hedged cost of sales are incurred and $0.5 million of losses on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged operating expenses occur. Expected amounts are based on derivative valuations at June 30, 2023. Actual results may vary materially as a result of changes in the corresponding exchange rates subsequent to this date.

In 2022, we entered into interest rate swap agreements with an aggregate notional value of $300 million and a term of three years. The economic effect of the swap agreements is to mitigate the uncertainty of the cash flows associated with floating-rate interest payments due under our term loan and revolving credit facility (“Credit Facility") by fixing the underlying annual interest rate for a portion of our outstanding debt under the Credit Facility at 3.9%, plus a margin. We have designated these interest rate swap agreements as qualifying hedging instruments and are accounting for these as cash flow hedges pursuant to ASC 815, Derivatives and Hedging.

The fair values of these interest rate swap agreements are included in prepaid expenses and other current assets and other long-term liabilities in our condensed consolidated balance sheets at June 30, 2023 and December 31, 2022. Changes in the fair values of these interest rate swap agreements are reported in accumulated other comprehensive loss in our condensed consolidated balance sheets and an amount is reclassified out of accumulated other comprehensive loss into Other (expense) income in the same period that the corresponding interest expense is recognized.

We do not use any interest rate swap agreements for trading purposes.
  
Other Derivatives  

Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated monetary assets and liabilities to help protect against the change in value caused by a fluctuation in foreign currency exchange rates. We typically attempt to hedge up to 90% of our outstanding foreign denominated net receivables or net payables and typically limit the duration of these foreign currency forward contracts to approximately 90 days or less. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item “Other expense.” As of June 30, 2023 and December 31, 2022, we held foreign currency forward contracts that were not designated as hedging instruments with a notional amount of $341 million and $282 million, respectively.   

16


The following tables present the fair value of derivative instruments on our Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022, respectively.
Asset Derivatives
June 30, 2023December 31, 2022
(In thousands)(Unaudited)
Balance Sheet LocationFair ValueFair Value
Derivatives designated as hedging instruments   
Foreign exchange contracts - ST forwardsPrepaid expenses and other current assets$8,074 $8,968 
Interest rate contracts - ST forwardsPrepaid expenses and other current assets3,411 2,299 
Interest rate contracts - LT forwardsOther long-term assets1,056  
Foreign exchange contracts - LT forwardsOther long-term assets893  
Total derivatives designated as hedging instruments $13,434 $11,267 
Derivatives not designated as hedging instruments   
Foreign exchange contracts - ST forwardsPrepaid expenses and other current assets$4,443 $1,057 
Total derivatives not designated as hedging instruments $4,443 $1,057 
Total derivatives $17,877 $12,324 
   
Liability Derivatives
June 30, 2023December 31, 2022
(In thousands)(Unaudited)
Balance Sheet LocationFair ValueFair Value
Derivatives designated as hedging instruments   
Foreign exchange contracts - ST forwardsAccrued expenses and other current liabilities$(4,202)$(9,940)
Foreign exchange contracts - LT forwardsOther long-term liabilities(25)(196)
Interest rate contracts - LT forwardsOther long-term liabilities (1,013)
Total derivatives designated as hedging instruments $(4,227)$(11,149)
   
Derivatives not designated as hedging instruments   
Foreign exchange contracts - ST forwardsAccrued expenses and other current liabilities$(2,040)$(8,177)
Total derivatives not designated as hedging instruments $(2,040)$(8,177)
   
Total derivatives $(6,267)$(19,326)
17


The following tables present the effect of derivative instruments on our Condensed Consolidated Statements of Income for the three months ended June 30, 2023 and 2022, respectively:
June 30, 2023
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging RelationshipGain or (Loss) Recognized in OCI on Derivative Location of Gain or (Loss) Reclassified from Accumulated OCI into IncomeGain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards$4,682 Net sales$3,646 
   
Foreign exchange contracts - forwards557 Cost of sales(412)
   
Foreign exchange contracts - forwards458 Operating expenses(302)
Interest rate swap contracts - forwards5,146 Other (expense) income802 
Total$10,843  $3,734 

June 30, 2022
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging RelationshipGain or (Loss) Recognized in OCI on DerivativeLocation of Gain or (Loss) Reclassified from Accumulated OCI into IncomeGain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards$10,252 Net sales$5,055 
   
Foreign exchange contracts - forwards(2,446)Cost of sales(860)
   
Foreign exchange contracts - forwards(1,645)Operating expenses(691)
Total$6,161  $3,504 

(In thousands)   
Derivatives not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in Income
 June 30, 2023June 30, 2022
 (Unaudited)(Unaudited)
Foreign exchange contracts - forwardsOther (expense) income$4,176 3,590 
   
Total $4,176 $3,590 
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The following tables present the effect of derivative instruments on our Condensed Consolidated Statements of Income for the six months ended June 30, 2023 and 2022, respectively:
June 30, 2023
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging RelationshipGain or (Loss) Recognized in OCI on DerivativeLocation of Gain or (Loss) Reclassified from Accumulated OCI into IncomeGain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards$2,953 Net sales$5,890 
   
Foreign exchange contracts - forwards1,700 Cost of sales(972)
   
Foreign exchange contracts - forwards1,334 Operating expenses(630)
Interest rate swap contracts - forwards3,180 Other (expense) income1,329 
Total$9,167  $5,617 
June 30, 2022
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging RelationshipGain or (Loss) Recognized in OCI on Derivative Location of Gain or (Loss) Reclassified from Accumulated OCI into IncomeGain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards$12,136 Net sales$6,794 
   
Foreign exchange contracts - forwards(2,467)Cost of sales(1,187)
   
Foreign exchange contracts - forwards(1,642)Operating expenses(931)
Total$8,027  $4,676 
(In thousands)   
Derivatives not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in Income
 June 30, 2023June 30, 2022
 (Unaudited)(Unaudited)
Foreign exchange contracts - forwardsOther (expense) income$3,319 $2,787 
Total $3,319 $2,787 
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Note 6 – Inventories, net 
  
Inventories, net consist of the following: 
June 30, 2023December 31,
(In thousands)(Unaudited)2022
  
Raw materials  $278,308 $273,311 
Work-in-process10,670 14,968 
Finished goods137,661 119,302 
Total$426,639 $407,581 
Less: Inventory reserve$(25,013)$(19,417)
Total$401,626 $388,164 

Note 7 – Intangible assets, net and goodwill 
  
Intangible assets at June 30, 2023 and December 31, 2022 are as follows:
June 30, 2023 
(In thousands)(Unaudited)December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Capitalized software development costs$11,399 $(8,477)$2,922 $18,810 $(15,321)$3,489 
Acquired technology179,519 (68,372)111,147 167,686 (54,351)113,335 
Customer relationships92,778 (32,904)59,874 98,827 (33,514)65,313 
Patents37,627 (32,080)5,547 37,240 (31,368)5,872 
Other25,556 (12,142)13,414 34,078 (21,237)12,841 
Total$346,879 $(153,975)$192,904 $356,641 $(155,791)$200,850 
 
Amortization of capitalized software development costs is computed on an individual product basis for those products available for market and is recognized based on the product’s estimated economic life, which generally range from three to six years. Acquired technology, customer relationships and other intangible assets are amortized over their useful lives, which generally range from five to ten years. Patents are amortized using the straight-line method over their estimated period of benefit, which generally range from ten to seventeen years. Total intangible assets amortization expenses were $13.7 million and $14.8 million for the three months ended June 30, 2023 and 2022, respectively, and $26.4 million and $27.2 million for the six months ended June 30, 2023 and 2022, respectively.

Goodwill
  
The carrying amount of goodwill as of June 30, 2023 was as follows:
(In thousands)Amount
Balance as of December 31, 2022$615,734 
Acquisitions18,651 
Foreign currency translation impact4,074 
Balance as of June 30, 2023 (unaudited)$