SEC Filing - National Instruments

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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: March 31, 2020 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: 0-25426

NATIONAL INSTRUMENTS CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		74-1871327
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
11500 North MoPac Expressway		78759
Austin,
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 class	Trading symbol(s)	Name of exchange on which registered
Common Stock, $0.01 par value	NATI	Nasdaq Stock Market

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. (Check one):



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.



Class	Outstanding at April 27, 2020
Common Stock - $0.01 par value	130,595,074

NATIONAL INSTRUMENTS CORPORATION

INDEX



PART I. FINANCIAL INFORMATION		Page No.

Item 1	Financial Statements:

	Consolidated Balance Sheets
	March 31, 2020 (unaudited) and December 31, 2019	3

	Consolidated Statements of Income
	(unaudited) for the three months ended March 31, 2020 and 2019	4

	Consolidated Statements of Comprehensive Income
	(unaudited) for the three months ended March 31, 2020 and 2019	5

	Consolidated Statements of Cash Flows
	(unaudited) for the three months ended March 31, 2020 and 2019	6

	Consolidated Statement of Stockholders' Equity	7
	(unaudited) for the three months ended March 31, 2020 and 2019

	Notes to Consolidated Financial Statements	8

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4	Controls and Procedures	42


PART II. OTHER INFORMATION

Item 1	Legal Proceedings	42

Item 1A	Risk Factors	42

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 5	Other Information	44

Item 6	Exhibits	45

	Signatures and Certifications	46

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



	March 31,			December 31,
	2020			2019
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	254,441		$	194,616
Short-term investments	329,573			237,983
Accounts receivable, net	213,015			248,872
Inventories, net	208,493			200,410
Prepaid expenses and other current assets	64,972			65,477
Total current assets	1,070,494			947,358
Property and equipment, net	245,166			243,717
Goodwill	253,191			262,242
Intangible assets, net	76,308			84,083
Operating lease right-of-use assets	66,245			70,407
Other long-term assets	51,461			44,082
Total assets	$	1,762,865		$	1,651,889
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$	50,259		$	52,192
Accrued compensation	38,808			47,732
Deferred revenue - current	117,598			131,445
Operating lease liabilities - current	13,942			13,431
Other taxes payable	33,064			40,607
Other current liabilities	60,065			20,716
Total current liabilities	313,736			306,123
Deferred income taxes	12,475			14,065
Liability for uncertain income tax positions	6,756			6,652
Income taxes payable - non-current	69,151			69,151
Deferred revenue - non-current	32,853			33,480
Operating lease liabilities - non-current	36,429			40,650
Other long-term liabilities	11,348			5,418
Total liabilities	482,748			475,539
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; 130,595,203 shares and 130,504,535 shares issued and outstanding, respectively	1,306			1,305
Additional paid-in capital	973,354			953,578
Retained earnings	335,876			242,537
Accumulated other comprehensive loss	(30,419		)	(21,070		)
Total stockholders’ equity	1,280,117			1,176,350
Total liabilities and stockholders’ equity	$	1,762,865		$	1,651,889

The accompanying notes are an integral part of the financial statements.

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)



	Three Months Ended
	March 31,
	2020			2019

Net sales:
Product	$	273,978		$	277,702
Software maintenance	35,403			33,372
Total net sales	309,381			311,074

Cost of sales:
Product	82,071			74,188
Software maintenance	1,690			1,887
Total cost of sales	83,761			76,075

Gross profit	225,620			234,999

Operating expenses:
Sales and marketing	115,746			117,551
Research and development	71,621			66,166
General and administrative	26,180			27,883
Total operating expenses	213,547			211,600
Gain on sale of business	159,753			—
Operating income	171,826			23,399

Other income:
Interest income	2,299			2,234
Net foreign exchange (loss) gain	(505		)	366
Other loss, net	(1,234		)	(24		)
Income before income taxes	172,386			25,975
Provision for income taxes	39,731			2,755

Net income	$	132,655		$	23,220

Basic earnings per share	$	1.02		0.18

Weighted average shares outstanding - basic	130,613			132,252

Diluted earnings per share	$	1.01		$	0.17

Weighted average shares outstanding - diluted	131,357			133,367

Dividends declared per share	$	0.26		$	0.25

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

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



	Three Months Ended
	March 31,
	2020			2019

Net income	$	132,655		$	23,220
Other comprehensive income (loss), before tax and net of reclassification adjustments:
Foreign currency translation adjustment	(5,913		)	(3,067		)
Unrealized (loss) gain on securities available-for-sale	(2,788		)	1,175
Unrealized (loss) gain on derivative instruments	(575		)	1,212
Other comprehensive loss, before tax	(9,276		)	(680		)
Tax expense related to items of other comprehensive income	73			210
Other comprehensive loss, net of tax	(9,349		)	(890		)
Comprehensive income	$	123,306		$	22,330

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

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended
	March 31,
	2020			2019
Cash flow from operating activities:
Net income	$	132,655		$	23,220
Adjustments to reconcile net income to net cash provided by operating activities:
Disposal gain on sale of business	(159,753		)	—
Depreciation and amortization	19,265			18,012
Stock-based compensation	12,104			11,034
Tax benefit from deferred income taxes	(1,599		)	(1,650		)
Changes in operating assets and liabilities, net of divestitures	40,948			(8,469		)
Net cash provided by operating activities	43,620			42,147

Cash flow from investing activities:
Capital expenditures	(12,816		)	(10,936		)
Proceeds from sale of business, net of cash divested	158,973			—
Capitalization of internally developed software	(1,915		)	(2,279		)
Additions to other intangibles	(112		)	(106		)
Payments to acquire equity-method investments	—			(9,784		)
Purchases of short-term investments	(206,331		)	(60,094		)
Sales and maturities of short-term investments	111,827			81,151
Net cash provided by (used in) investing activities	49,626			(2,048		)

Cash flow from financing activities:
Proceeds from issuance of common stock	8,991			9,213
Repurchase of common stock	(6,526		)	(46,404		)
Dividends paid	(33,997		)	(33,110		)
Net cash used in financing activities	(31,532		)	(70,301		)

Effect of exchange rate changes on cash	(1,889		)	(418		)

Net change in cash and cash equivalents	59,825			(30,620		)
Cash and cash equivalents at beginning of period	194,616			259,386
Cash and cash equivalents at end of period	$	254,441		$	228,766

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

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)



	March 31, 2020
	Common Stock Shares		Common Stock Amount			Additional-Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
Balance at December 31, 2019	130,504,535		$	1,305		$	953,578		$	242,537		$	(21,070	)	$	1,176,350
Net income	—		—			—			132,655			—			132,655
Other comprehensive loss, net of tax	—		—			—			—			(9,349		)	(9,349		)
Issuance of common stock under employee plans, including tax benefits	255,541		3			8,988			—			—			8,991
Stock-based compensation	—		—			11,993			—			—			11,993
Repurchase of common stock	(164,873	)	(2		)	(1,205		)	(5,319		)	—			(6,526		)
Dividends paid (1)	—		—			—			(33,997		)	—			(33,997		)
Balance at March 31, 2020	130,595,203		$	1,306		$	973,354		$	335,876		$	(30,419	)	$	1,280,117



	March 31, 2019
	Common Stock Shares		Common Stock Amount			Additional-Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
Balance at December 31, 2018	132,655,941		$	1,327		$	897,544		$	356,418		$	(16,931	)	$	1,238,358
Net income	—		—			—			23,220			—			23,220
Other comprehensive loss, net of tax	—		—			—			—			(890		)	(890		)
Issuance of common stock under employee plans, including tax benefits	245,330		2			9,211			—			—			9,213
Stock-based compensation	—		—			10,866			—			—			10,866
Repurchase of common stock	(1,035,098	)	(10		)	(7,019		)	(39,375		)	—			(46,404		)
Dividends paid (1)	—		—			—			(33,110		)	—			(33,110		)
Balance at March 31, 2019	131,866,173		1,319			910,602			307,153			(17,821		)	1,201,253

(1) Cash dividends declared per share of common stock were $0.26 and $0.25 for the three months ended March 31, 2020 and 2019, respectively.

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

NATIONAL INSTRUMENTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of presentation

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, included in our annual report on Form 10-K, filed with the Securities and Exchange Commission (the "SEC"). In our opinion, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary to present fairly our financial position at March 31, 2020 and December 31, 2019, the results of our operations and comprehensive income for the three months ended March 31, 2020 and 2019, the cash flows for the three months ended March 31, 2020 and 2019, and the statement of stockholders' equity for the three months ended March 31, 2020 and 2019. Our operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

Recently Adopted Accounting Pronouncements

Current Expected Credit Losses ("CECL")

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. We adopted the new standard on January 1, 2020 and the impact of the adoption was not material to our consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors. We will continue to actively monitor the impact of the recent coronavirus (COVID-19) pandemic on expected credit losses.

Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which clarifies the accounting for implementation costs in cloud computing arrangements. The new standard aligns the treatment of implementation costs incurred by customers in cloud computing arrangements that are service contracts with the treatment of similar costs incurred to develop or obtain internal-use software. Under the new standard, implementation costs are deferred and presented in the same financial statement caption on the condensed consolidated balance sheet as a prepayment of related arrangement fees. The deferred costs are recognized over the term of the arrangement in the same financial statement caption in the condensed consolidated income statement as the related fees of the arrangement. We adopted the new standard on January 1, 2020. The new standard did not have a material impact on our consolidated financial statements and related disclosures.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. We adopted the new standard on January 1, 2020. The new standard did not have a material impact on our consolidated financial statements and related disclosures.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments in this ASU also improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. An entity is permitted to early adopt the guidance, and we early adopted ASU 2019-12 as of January 1, 2020. The adoption did not have a material impact on our consolidated financial statements and related disclosures.

Summary of Significant Accounting Policies

As discussed above, we adopted the new expected credit loss standard as of January 1, 2020. There were no other significant changes in our accounting policies during the three months ended March 31, 2020 compared to the significant accounting policies described in our 2019 Form 10-K.

Divestitures

AWR

On January 15, 2020, we completed the sale of our AWR Corporation subsidiary ("AWR") for approximately $161 million, subject to final working capital adjustments. We recognized a gain of approximately $160 million on the sale. The gain is included within "Gain on sale of business" in the consolidated statements of income, which also included approximately $1 million of transaction costs.

The divestiture of AWR resulted in the derecognition of the following assets and liabilities (in thousands):



Cash	1,027
Accounts receivable, net	7,233
Prepaid and other current assets	283
Goodwill	7,221
Other non-current assets	556
Total assets	16,320

Deferred revenue	15,296
Other current liabilities	940
Cumulative translation adjustment	(660	)
Total liabilities and stockholders' equity	15,576

Total assets divested, net (including cash)	744

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 restricted stock units ("RSUs"), is computed using the treasury stock method.

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three months ended March 31, 2020 and 2019, are as follows:



	Three Months Ended March 31,
	(In thousands)
	(Unaudited)
	2020	2019
Weighted average shares outstanding-basic	130,613	132,252
Plus: Common share equivalents
RSUs	744	1,115
Weighted average shares outstanding-diluted	131,357	133,367

RSU awards to acquire 182,000 shares and 67,100 shares for the three months ended March 31, 2020 and 2019, respectively, were excluded in the computations of diluted EPS because the effect of including the stock 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) and geographic region based on the billing location of the customer. The geographic regions that are tracked are the Americas (United States, Canada, and Latin America), EMEIA (Europe, Middle East, India, and Africa) and APAC (Australia, New Zealand, Southeast Asia, China, South Korea and Japan). We operate as one operating segment.

Total net sales based on the disaggregation criteria described above are as follows:



			Three Months Ended March 31,
(In thousands)			(Unaudited)
	2020					2019

Net sales:	Point-in-Time⁽¹⁾		Over Time	Total		Point-in-Time⁽¹⁾		Over Time	Total
Americas	$	105,299	19,718	$	125,017	$	99,681	22,974	$	122,655
EMEIA	71,103		19,590	90,693		79,122		19,685	98,807
APAC	83,908		9,763	93,671		81,450		8,162	89,612
Total net sales⁽¹⁾	$	260,310	49,071	$	309,381	$	260,253	50,821	$	311,074
(1): Net sales contains hedging gains and losses, which do not represent revenues recognized from customers. See Note 5 - Derivative instruments and hedging activities for more information on the impact of our hedging activities on our results of operations

Information about Contract Balances

Amounts collected 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, such as invoicing at the beginning of a subscription term with a portion of the revenue recognized ratably over the contract period, or to provide customers with financing, such as multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.

Changes in deferred revenue, current and non-current, during the three months ended March 31, 2020 were as follows:



	Amount
	(In thousands)
Deferred Revenue at December 31, 2019	$	164,925
Deferral of revenue billed in current period, net of recognition	47,978
Recognition of revenue deferred in prior periods	(44,870		)
Divestiture of AWR subsidiary	(15,296		)
Foreign currency translation impact	(2,286		)
Balance as of March 31, 2020 (unaudited)	$	150,451

For the three months ended March 31, 2020, 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 "accounts receivable, net" on the 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 three months ended March 31, 2020, amounts recognized 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 $60.3 million as of March 31, 2020. Because we typically invoice customers at contract inception, this amount is included in our current and non-current deferred revenue balances. As of March 31, 2020, we expect to recognize approximately 38% of the revenue related to these unsatisfied performance obligations during the remainder of 2020, 35% during 2021, and 27% 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 consolidated balance sheets.

Note 3 – Short-term investments

The following tables summarize unrealized gains and losses related to our short-term investments designated as available-for-sale debt securities:



	As of March 31, 2020
(In thousands)	(Unaudited)
			Gross		Gross
	Adjusted Cost		Unrealized Gain		Unrealized Loss			Fair Value
Corporate bonds	$	331,801	$	143	$	(2,371	)	$	329,573
Total Short-term investments	$	331,801	$	143	$	(2,371	)	$	329,573



(In thousands)	As of December 31, 2019
			Gross		Gross
	Adjusted Cost		Unrealized Gain		Unrealized Loss			Fair Value
Corporate bonds	$	237,423	$	628	$	(68	)	$	237,983
Total Short-term investments	$	237,423	$	628	$	(68	)	$	237,983

The following tables summarize the contractual maturities of our short-term investments designated as available-for-sale debt securities:



	As of March 31, 2020
(In thousands)	(Unaudited)
	Adjusted Cost		Fair Value
Due in less than 1 year	$	246,602	$	245,943
Due in 1 to 5 years	85,199		83,630
Total available-for-sale debt securities	$	331,801	$	329,573

Due in less than 1 year	Adjusted Cost		Fair Value
Corporate bonds	$	246,602	$	245,943
Total available-for-sale debt securities	$	246,602	$	245,943

Due in 1 to 5 years	Adjusted Cost		Fair Value
Corporate bonds	$	85,199	$	83,630
Total available-for-sale debt securities	$	85,199	$	83,630

Equity-Method Investments

The carrying value of our equity method investments was $16 million as of March 31, 2020. Our proportionate share of the income from equity-method investments was not material for the periods presented.

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)
Description	March 31, 2020			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents available for sale:
Money Market Funds	$	114,082		$	114,082	$	—		$	—
Corporate bonds	$	29,970		$	—	$	29,970		$	—
Short-term investments available for sale:
Corporate bonds	329,573			—		329,573			—
Derivatives	18,553			—		18,553
Total Assets	$	492,178		$	114,082	$	378,096		$	—

Liabilities
Derivatives	$	(13,130	)	$	—	$	(13,130	)	$	—
Total Liabilities	$	(13,130	)	$	—	$	(13,130	)	$	—



(In thousands)	Fair Value Measurements at Reporting Date Using
Description	December 31, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents available for sale:
Money Market Funds	$	87,397		$	87,397	$	—		$	—
Corporate notes and bonds	9,962			—		9,962			—
Short-term investments available for sale:
Corporate bonds	237,983			—		237,983			—
Derivatives	8,209			—		8,209			—
Total Assets	$	343,551		$	87,397	$	256,154		$	—

Liabilities
Derivatives	$	(2,872	)	$	—	$	(2,872	)	$	—
Total Liabilities	$	(2,872	)	$	—	$	(2,872	)	$	—

We value our available-for-sale short-term investments based on pricing from third party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. We classify all of our fixed income available-for-sale securities as having Level 2 inputs. 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. We believe all of these sources reflect the credit risk associated with each of our available-for-sale short-term investments. Short-term investments available-for-sale consists of debt securities issued by states of the U.S. and political subdivisions of the U.S., corporate debt securities and debt securities issued by U.S. government organizations and agencies. All of our short-term investments available-for-sale have contractual maturities of less than 60 months.

Our derivatives consist of foreign currency forward contracts. Our foreign currency forward contracts 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 three months ended March 31, 2020. There were no transfers in or out of Level 1 or Level 2 during the three months ended March 31, 2020.

As of March 31, 2020, our short-term investments did not include any foreign sovereign debt. The majority of our short-term investments that are located outside of the U.S. are denominated in the U.S. dollar with the exception of $4 million U.S. dollar equivalent of corporate bonds that are denominated in Euro.

We did not have any items that were measured at fair value on a nonrecurring basis at March 31, 2020 and December 31, 2019. The carrying value of net accounts receivable, accounts payable, and long-term debt contained in the 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 operations in approximately 45 countries. Sales outside of the Americas accounted for approximately 60% and 61% of our net sales during the three months ended March 31, 2020 and 2019, 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.

We maintain a foreign currency risk management strategy that uses derivative instruments (foreign currency forward contracts) to help protect our earnings and cash flows from fluctuations caused by the volatility in currency exchange rates. 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.

The vast majority of our foreign sales are denominated in the customers’ local currency. We purchase foreign currency forward contracts as hedges of forecasted sales 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 resulting from such sales or firm commitments will be adversely affected by changes in exchange rates. We also purchase foreign currency forward contracts as hedges of forecasted expenses that are denominated in foreign currencies. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash outflows resulting from foreign currency operating and cost of sales expenses 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 protect against the reduction in value caused by a fluctuation 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 dollar strengthens 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 purchase 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, Chinese yuan, and Korean won) and limit the duration of these contracts to 40 months or less.

For 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. Hedge effectiveness of foreign currency forwards designated as cash flow hedges are 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 March 31, 2020		As of December 31,
	(Unaudited)		2019
Chinese yuan	50,402		$	32,970
Euro	220,749		130,122
Japanese yen	82,611		53,527
Hungarian forint	107,395		95,228
British pound	14,616		13,988
Malaysian ringgit	33,552		32,725
Korean won	23,746		24,728
Total forward contracts notional amount	$	533,071	$	383,288

The contracts in the foregoing table had contractual maturities of 39 months or less and 36 months or less at March 31, 2020 and December 31, 2019, respectively.

At March 31, 2020, we expect to reclassify $9.9 million of gains on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $(2.4) million of losses on derivative instruments from accumulated OCI to cost of sales during the next twelve months when the cost of sales are incurred and $(3.4) 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 March 31, 2020. Actual results may vary materially as a result of changes in the corresponding exchange rates subsequent to this date.

The gains and losses recognized in earnings due to hedge ineffectiveness were not material for the three months ended March 31, 2020, and 2019 and are included as a component of net income under the line item "net foreign exchange loss."

Other Derivatives

Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated net receivable or net payable positions 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 “net foreign exchange gain (loss).” As of March 31, 2020 and December 31, 2019, we held foreign currency forward contracts that were not designated as hedging instruments with a notional amount of $59 million and $41 million, respectively.

The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, respectively.



	Asset Derivatives
	March 31, 2020			December 31, 2019
(In thousands)	(Unaudited)

	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts - ST forwards	Prepaid expenses and other current assets	$	10,027	Prepaid expenses and other current assets	$	7,039

Foreign exchange contracts - LT forwards	Other long-term assets	7,520		Other long-term assets	970
Total derivatives designated as hedging instruments		$	17,547		$	8,009

Derivatives not designated as hedging instruments

Foreign exchange contracts - ST forwards	Prepaid expenses and other current assets	$	1,006	Prepaid expenses and other current assets	$	200
Total derivatives not designated as hedging instruments		$	1,006		$	200

Total derivatives		$	18,553		$	8,209



	Liability Derivatives
	March 31, 2020				December 31, 2019
(In thousands)	(Unaudited)				December 31, 2019
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts - ST forwards	Other current liabilities	$	(5,922	)	Other current liabilities	$	(2,089	)

Foreign exchange contracts - LT forwards	Other long-term liabilities	(6,541		)	Other long-term liabilities	(351		)
Total derivatives designated as hedging instruments		$	(12,463	)		$	(2,440	)

Derivatives not designated as hedging instruments

Foreign exchange contracts - ST forwards	Other current liabilities	$	(667	)	Other current liabilities	$	(432	)
Total derivatives not designated as hedging instruments		$	(667	)		$	(432	)

Total derivatives		$	(13,130	)		$	(2,872	)

The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the three-months ended March 31, 2020 and 2019, respectively:



March 31, 2020
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging Relationship	Gain or (Loss) Recognized in OCI on Derivative			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Gain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards	$	10,856		Net sales	$	2,534

Foreign exchange contracts - forwards	(6,760		)	Cost of sales	(519		)

Foreign exchange contracts - forwards	(4,671		)	Operating expenses	(445		)
Total	$	(575	)		$	1,570



March 31, 2019
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging Relationship	Gain or (Loss) Recognized in OCI on Derivative		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Gain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards	$	1,800	Net sales	$	1,745