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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, 2022
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  
https://cdn.kscope.io/b59939bf97a76f786f6eeffd8fd8a3f7-nati-20220331_g1.jpg    
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 No.)
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 classTrading symbol(s)Name of exchange on which registered
Common Stock, $0.01 par valueNATINasdaq 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.    
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 April 25, 2022
Common Stock, $0.01 par value131,173,958
1    

NATIONAL INSTRUMENTS CORPORATION
  
INDEX  
Page No.
  
 
  
 
March 31, 2022 (unaudited) and December 31, 2021
  
 
(unaudited) for the three months ended March 31, 2022 and 2021
  
 
(unaudited) for the three months ended March 31, 2022 and 2021
  
 
(unaudited) for the three months ended March 31, 2022 and 2021
(unaudited) for the three months ended March 31, 2022 and 2021
  
  
  
  
  
 
  
  
  
  
  
  

2    

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,
20222021
Assets(unaudited) 
Cash and cash equivalents$142,883 $211,106 
Accounts receivable, net312,939 341,275 
Inventories, net307,892 289,243 
Prepaid expenses and other current assets109,764 89,925 
Total current assets873,478 931,549 
Property and equipment, net253,976 253,668 
Goodwill592,074 575,992 
Intangible assets, net216,292 220,418 
Operating lease right-of-use assets60,931 58,641 
Other long-term assets74,717 74,717 
Total assets$2,071,468 $2,114,985 
Liabilities and stockholders' equity  
Accounts payable and accrued expenses$81,824 $83,218 
Accrued compensation51,461 111,261 
Deferred revenue - current134,640 137,818 
Operating lease liabilities - current13,265 13,137 
Other taxes payable57,600 59,109 
Other current liabilities51,154 40,671 
Total current liabilities389,944 445,214 
Deferred income taxes11,583 14,249 
Income taxes payable - non-current54,195 54,195 
Deferred revenue - non-current35,766 32,822 
Operating lease liabilities - non-current32,584 30,468 
Debt, non-current325,000 300,000 
Other long-term liabilities14,958 14,340 
Total liabilities864,030 891,288 
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; 131,876,464 shares and 132,293,898 shares issued and outstanding, respectively 
1,319 1,323 
Additional paid-in capital1,152,349 1,129,647 
Retained earnings76,264 112,858 
Accumulated other comprehensive loss(22,494)(20,131)
Total stockholders’ equity1,207,438 1,223,697 
Total liabilities and stockholders' equity$2,071,468 $2,114,985 
1

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

3    

NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)  
  
Three Months Ended
March 31,
20222021
  
Net sales:  
Product$343,685 $295,092 
Software maintenance41,571 40,090 
Total net sales385,256 335,182 
  
Cost of sales:  
Product115,024 91,657 
Software maintenance4,203 3,757 
Total cost of sales119,227 95,414 
Gross profit266,029 239,768 
  
Operating expenses:  
Sales and marketing120,157 116,783 
Research and development82,161 80,086 
General and administrative33,179 33,358 
Total operating expenses235,497 230,227 
Operating income30,532 9,541 
Other income (expense)33 (5,070)
Income before income taxes30,565 4,471 
Provision (benefit) for income taxes5,329 (24)
Net income$25,236 $4,495 
  
Basic earnings per share$0.19 0.03 
  
Weighted average shares outstanding - basic132,105 131,483 
  
Diluted earnings per share$0.19 $0.03 
  
Weighted average shares outstanding - diluted133,175 132,717 
  
Dividends declared per share$0.28 $0.27 
The accompanying notes are an integral part of these financial statements. 
4    

NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)  

Three Months Ended
March 31,
20222021
  
Net income$25,236 $4,495 
Other comprehensive income, before tax and net of reclassification adjustments:  
Foreign currency translation adjustment(3,805)(7,195)
Unrealized loss on securities available-for-sale— (88)
Unrealized gain on derivative instruments1,867 11,981 
Other comprehensive (loss) income, before tax(1,938)4,698 
Tax expense related to items of other comprehensive income425 2,760 
Other comprehensive (loss) income, net of tax(2,363)1,938 
Comprehensive income$22,873 $6,433 

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

5    

NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)  

Three Months Ended
March 31,
20222021
Cash flow from operating activities:  
Net income$25,236 $4,495 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization21,566 23,872 
Stock-based compensation20,128 17,189 
(Gain) loss from equity-method investees(602)4,173 
Deferred income taxes(3,615)(3,746)
Changes in operating assets and liabilities, net of acquisitions (66,561)(16,142)
Net cash (used in) provided by operating activities(3,848)29,841 
  
Cash flow from investing activities:  
Acquisitions, net of cash received(17,510)— 
Capital expenditures(10,182)(8,488)
Capitalization of internally developed software(187)(226)
Additions to other intangibles(1,274)(1,018)
Payments to acquire equity-method investments— (11,539)
Sales and maturities of short-term investments— 27,664 
Net cash (used in) provided by investing activities(29,153)6,393 
  
Cash flow from financing activities:  
Proceeds from revolving line of credit25,000 — 
Payments on term loan— (1,250)
Proceeds from issuance of common stock9,244 8,565 
Repurchase of common stock(31,455)— 
Dividends paid(36,976)(35,533)
Net cash used in financing activities(34,187)(28,218)
  
Effect of exchange rate changes on cash(1,035)(1,536)
  
Net change in cash and cash equivalents(68,223)6,480 
Cash and cash equivalents at beginning of period211,106 260,232 
Cash and cash equivalents at end of period$142,883 $266,712 
 
The accompanying notes are an integral part of these financial statements.   

6    


NATIONAL INSTRUMENTS CORPORATION  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data and per share data)
(unaudited)

March 31, 2022
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income/(Loss)Total Stockholders' Equity
Balance at December 31, 2021132,293,898 $1,323 $1,129,647 $112,858 $(20,131)$1,223,697 
Net income— — — 25,236 — 25,236 
Other comprehensive loss, net of tax— — — — (2,363)(2,363)
Issuance of common stock under employee plans354,618 4 9,240 — — 9,244 
Stock-based compensation— — 20,055 — — 20,055 
Repurchase of common stock(772,052)(8)(6,593)(24,854)— (31,455)
Dividends paid (1)— — — (36,976)— (36,976)
Balance at March 31, 2022131,876,464 $1,319 $1,152,349 $76,264 $(22,494)$1,207,438 

March 31, 2021
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income/(Loss)Total Stockholders' Equity
Balance at December 31, 2020131,246,615 $1,312 $1,033,284 $211,101 $(20,826)$1,224,871 
Net income— — — 4,495 — 4,495 
Other comprehensive income, net of tax— — — — 1,938 1,938 
Issuance of common stock under employee plans360,421 4 8,561 — — 8,565 
Stock-based compensation— — 17,173 — — 17,173 
Dividends paid (1)— — — (35,533)— (35,533)
Balance at March 31, 2021131,607,036 $1,316 $1,059,018 $180,063 $(18,888)$1,221,509 

(1) Cash dividends declared per share of common stock were $0.28 and $0.27 for the three months ended March 31, 2022 and 2021, respectively.

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

7    



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 fiscal year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 22, 2022 (the "2021 Form 10-K"). 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, 2022 and December 31, 2021, the results of our operations and comprehensive income for the three months ended March 31, 2022 and 2021, the cash flows for the three months ended March 31, 2022 and 2021, and the statement of stockholders' equity for the three months ended March 31, 2022 and 2021. Our operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-10 (“ASU 2021-10”), Government Assistance, to increase transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. We are currently evaluating the impact of this accounting standard update on our consolidated financial statements and related disclosures.

In November 2021, the FASB issued ASU No. 2021-08—Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts. We early adopted the standard on January 1, 2022. The adoption of this accounting standard update did not have a material effect on our consolidated financial statements and related disclosures.

Summary of Significant Accounting Policies

There were no material changes to our significant accounting policies during the three months ended March 31, 2022 compared to the significant accounting policies described in our 2021 Form 10-K.
8    

Other (Expense) Income

Other (expense) income, net consisted of the following amounts (in thousands):

Three Months Ended March 31,
(Unaudited)
20222021
Interest income$46 $161 
Interest expense(1,292)(704)
Gain (loss) from equity-method investments 602 (4,173)
Net foreign exchange loss(1,166)(559)
Other1,843 205 
Other (expense) income, net$33 $(5,070)

Other Current Liabilities

Other current liabilities on our consolidated balance sheet includes the following amounts (in thousands):
As of March 31, 2022As of December 31,
(unaudited)2021
Income taxes payable - current$19,925 $14,457 
Hedge payable - current7,759 7,091 
Other23,470 19,123 
Total$51,154 $40,671 

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, 2022 and 2021 are as follows (in thousands):
Three Months Ended March 31,
(In thousands)
(Unaudited)
20222021
Weighted average shares outstanding-basic132,105 131,483 
Plus: Common share equivalents  
RSUs1,070 1,234 
Weighted average shares outstanding-diluted133,175 132,717 
  
Shares issuable upon vesting of RSU awards for the three months ended March 31, 2022 and 2021 of 442,000 shares and 567,000 shares, respectively, were excluded in the computations of diluted EPS because the effect of including the RSU awards would have been anti-dilutive.
9    

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 on the billing location of the customer, and customer industry grouping.

Total net sales based on the timing of transfer of goods or services to customers and geographic region are as follows:

Three Months Ended March 31,
(Unaudited)
20222021
(In thousands)
Net sales:
Point-in-Time(1)
Over TimeTotal
Point-in-Time(1)
Over TimeTotal
Americas$132,988 $26,222 $159,210 $104,586 $22,147 $126,733 
EMEA79,241 21,129 100,370 64,237 21,285 85,522 
APAC114,995 10,681 125,676 112,630 10,297 122,927 
Total net sales(1)
$327,224 $58,032 $385,256 $281,453 $53,729 $335,182 
(1): Net sales contains hedging gains and losses, which do not represent revenues recognized from customers.
See Note 5 - Derivative instruments and hedging activities of Notes to 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.

Three Months Ended March 31,
(In thousands)(Unaudited)
Industry Grouping20222021
Portfolio$126,582 $112,352 
Semiconductor & Electronics103,012 98,930 
Aerospace, Defense & Government92,672 76,269 
Transportation62,990 47,631 
Total net sales$385,256 $335,182 


10    

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, 2022 were as follows:
Amount
(In thousands)
Deferred Revenue at December 31, 2021$170,640 
   Deferral of revenue billed in current period, net of recognition52,457 
   Recognition of revenue deferred in prior periods(50,515)
   Foreign currency translation impact(2,175)
Balance as of March 31, 2022 (unaudited)$170,407 

For the three months ended March 31, 2022, 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 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, 2022 and December 31, 2021, 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 $66.4 million as of March 31, 2022. 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 March 31, 2022, we expect to recognize approximately 38% of the revenue related to these unsatisfied performance obligations during the remainder of 2022, 36% during 2023, and 26% 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.


11    

Note 3 – Investments 

Equity-Method Investments

The carrying value of our equity method investments was $32 million and $32 million as of March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022 and 2021, net sales to our equity-method investees were approximately $1.5 million and $0.3 million, respectively and purchases from our equity-method investees were not material.

We recorded a $3.5 million impairment loss related to an equity-method investment during the three months ended March 31, 2021. Our proportionate share of the income/(loss) from equity-method investments and related impairment charges are included within "Other (expense) income". Refer to Note 1 - Basis of Presentation of Notes to Consolidated Financial Statements for additional information on these amounts for the three months ended March 31, 2022 and 2021.

        
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)
DescriptionMarch 31, 2022Level 1Level 2Level 3
Assets    
Cash and cash equivalents available for sale:    
Money Market Funds$2,042 $2,042 $— $— 
Other assets:
Derivatives14,852 — 14,852 
Total Assets 
$16,894 $2,042 $14,852 $— 
    
Liabilities    
Derivatives$(10,118)$— $(10,118)$— 
Total Liabilities 
$(10,118)$— $(10,118)$— 

12    

(In thousands)Fair Value Measurements at Reporting Date Using
DescriptionDecember 31, 2021Level 1Level 2Level 3
Assets    
Cash and cash equivalents available for sale:    
Money Market Funds$101,290 $101,290 $— $— 
Other assets:
Derivatives12,407 — 12,407 — 
Total Assets 
$113,697 $101,290 $12,407 $— 
    
Liabilities    
Derivatives$(9,468)$— $(9,468)$— 
Total Liabilities 
$(9,468)$— $(9,468)$— 

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.

Derivatives include 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, 2022. There were no transfers in or out of Level 1 or Level 2 during the three months ended March 31, 2022.  
  
We did not have any items that were measured at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021. 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 direct operations in approximately 40 countries. Sales outside of the Americas accounted for approximately 59% and 62% of our net sales during the three months ended March 31, 2022 and 2021, 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.
 
13    

The vast majority of our foreign sales are denominated in the customers’ local currency. We use 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 use 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 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 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 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 March 31, 2022As of December 31,
(Unaudited)2021
Chinese yuan$87,871 $99,066 
Euro121,396 145,351 
Japanese yen33,460 43,128 
Hungarian forint46,749 54,939 
British pound23,981 25,947 
Malaysian ringgit24,161 29,624 
Korean won10,923 21,180 
Total forward contracts notional amount$348,541 $419,235 
  
The contracts in the foregoing table had contractual maturities of 21 months or less and 24 months or less at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022, we expect to reclassify $8.1 million of gains on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $1.9 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 $1.4 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, 2022. Actual results may vary materially as a result of changes in the corresponding exchange rates subsequent to this date.  

14    

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) income.” As of March 31, 2022 and December 31, 2021, we held foreign currency forward contracts that were not designated as hedging instruments with a notional amount of $102 million and $94 million, respectively.   
The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets at March 31, 2022 and December 31, 2021, respectively.   
Asset Derivatives
March 31, 2022December 31, 2021
(Unaudited) 
   
(In thousands)Balance Sheet LocationFair ValueFair Value
Derivatives designated as hedging instruments   
Foreign exchange contracts - ST forwardsPrepaid expenses and other current assets$11,386 $8,993 
Foreign exchange contracts - LT forwardsOther long-term assets2,449 2,908 
Total derivatives designated as hedging instruments $13,835 $11,901 
Derivatives not designated as hedging instruments   
Foreign exchange contracts - ST forwardsPrepaid expenses and other current assets$1,017 $506 
Total derivatives not designated as hedging instruments $1,017 $506 
Total derivatives $14,852 $12,407 
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Liability Derivatives
March 31, 2022December 31, 2021
(Unaudited)
(In thousands)Balance Sheet LocationFair ValueFair Value
Derivatives designated as hedging instruments   
Foreign exchange contracts - ST forwardsOther current liabilities$(6,514)$(6,425)
Foreign exchange contracts - LT forwardsOther long-term liabilities(2,354)(2,377)
Total derivatives designated as hedging instruments $(8,868)$(8,802)
   
Derivatives not designated as hedging instruments   
Foreign exchange contracts - ST forwardsOther current liabilities$(1,250)$(666)
Total derivatives not designated as hedging instruments $(1,250)$(666)
   
Total derivatives $(10,118)$(9,468)
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The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the three-months ended March 31, 2022 and 2021, respectively:
March 31, 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$1,884 Net sales$1,739 
   
Foreign exchange contracts - forwards(21)Cost of sales(327)
   
Foreign exchange contracts - forwards 4 Operating expenses(239)
Total$1,867  $1,173 
March 31, 2021
(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 Income Gain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards $16,286 Net sales$(2,026)
   
Foreign exchange contracts - forwards(2,529)Cost of sales(21)
   
Foreign exchange contracts - forwards(1,776)Operating expenses(9)
Total$11,981  $(2,056)
(In thousands)   
Derivatives not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in Income
 March 31, 2022March 31, 2021
 (Unaudited)(Unaudited)
Foreign exchange contracts - forwardsOther (expense) income$(803)(1,601)
Total $(803)$(1,601)


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Note 6 – Inventories, net 
  
Inventories, net consist of the following: 

March 31, 2022December 31,
(In thousands)(Unaudited)2021
  
Raw materials  $196,514 $181,676 
Work-in-process16,247 14,573 
Finished goods95,131 92,994 
Total$307,892 $289,243 

Note 7 – Intangible assets and goodwill, net  
  
Intangible assets at March 31, 2022 and December 31, 2021 are as follows:

March 31, 2022 
(In thousands)(Unaudited)December 31, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Capitalized software development costs$44,554 $(37,262)$7,292 $45,671 $(36,457)$9,214 
Acquired technology151,531 (39,788)111,743 148,155 (34,264)113,891 
Customer relationships96,966 (21,606)75,360 93,931 (19,717)74,214 
Patents36,498 (29,879)6,619 36,217 (29,316)6,901 
Other33,986 (18,708)15,278 32,962 (16,764)16,198 
Total$363,535 $(147,243)$216,292 $356,936 $(136,518)$220,418 

Software development costs capitalized for the three months ended March 31, 2022 and 2021 were $0.2 million and $0.3 million, respectively, and related amortization expenses for the three months ended March 31, 2022 and 2021 were $2.0 million and $7 million, respectively.

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 range from five to ten years. Patents are amortized using the straight-line method over their estimated period of benefit, generally ten to seventeen years. Total intangible assets amortization expenses were $12.4 million and $14.0 million for the three months ended March 31, 2022 and 2021, respectively.


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Goodwill

The carrying amount of goodwill as of March 31, 2022 was as follows:

Amount
(In thousands)
Balance as of December 31, 2021$575,992 
Acquisitions13,516 
Measurement period adjustment5,085 
Foreign currency translation impact(2,519)
Balance as of March 31, 2022 (unaudited)$592,074 

The excess purchase price over the fair value of assets acquired is recorded as goodwill. As businesses are acquired, we assign assets acquired (including goodwill) and liabilities assumed to either our existing reporting unit or a newly identified reporting unit as of the date of the acquisition. In the event a disposal group meets the definition of a business, goodwill is allocated to the disposal group based on the relative fair value of the disposal group to the related reporting unit. As we have one operating segment comprised of components with similar economic characteristics, we allocate goodwill to one reporting unit for goodwill impairment testing. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach based on the market capitalization of the reporting unit. Our annual impairment test is performed in the fourth quarter of each year.

 No impairment of goodwill was identified during the three months ended March 31, 2022 or the twelve months ended December 31, 2021.
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Note 8 – Leases

We have operating leases for corporate offices, automobiles, and certain equipment. Our leases have remaining terms of 1 year to 92 years, some of which may include options to extend the leases for up to 9 years, and some of which may include options to terminate the leases within 1 year. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

Amounts related to finance lease activities and income from leasing activities were not material for the periods presented.

The components of operating lease expense were as follows (unaudited):
(In thousands)March 31, 2022March 31, 2021
Operating Lease Cost (1)$