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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, 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  
https://cdn.kscope.io/7a252157ee99dd6c6d20c5937c0529d1-Untitled.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 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 April 24, 2023
Common Stock, $0.01 par value131,498,380
1    


NATIONAL INSTRUMENTS CORPORATION
  
INDEX  
Page No.
  
 
  
 
March 31, 2023 (unaudited) and December 31, 2022
  
 
(unaudited) for the three months ended March 31, 2023 and 2022
  
 
(unaudited) for the three months ended March 31, 2023 and 2022
  
 
(unaudited) for the three months ended March 31, 2023 and 2022
(unaudited) for the three months ended March 31, 2023 and 2022
  
  
  
  
  
 
  
  
  
  
  
  
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,
20232022
Assets(unaudited) 
Cash and cash equivalents$137,672 $139,799 
Accounts receivable, net415,744 445,279 
Inventories, net401,060 388,164 
Prepaid expenses and other current assets117,701 115,677 
Total current assets1,072,177 1,088,919 
Property and equipment, net277,706 265,380 
Goodwill630,879 615,734 
Intangible assets, net208,207 200,850 
Operating lease right-of-use assets67,153 59,176 
Other long-term assets127,737 128,479 
Total assets$2,383,859 $2,358,538 
Liabilities and stockholders' equity  
Accounts payable$50,351 $54,639 
Accrued compensation50,126 71,422 
Deferred revenue - current147,774 137,208 
Operating lease liabilities - current15,507 13,834 
Other taxes payable61,292 67,615 
Debt, current25,000 25,000 
Accrued expenses and other current liabilities169,963 153,157 
Total current liabilities520,013 522,875 
Deferred income taxes4,730 1,676 
Income taxes payable - non-current40,646 40,646 
Deferred revenue - non-current65,263 63,066 
Operating lease liabilities - non-current36,590 30,588 
Debt, non-current490,505 516,637 
Other long-term liabilities31,798 26,926 
Total liabilities1,189,545 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; 131,498,380 shares and 131,004,965 shares issued and outstanding, respectively 
1,315 1,310 
Additional paid-in capital1,231,894 1,207,420 
Retained deficit(4,627)(14,741)
Accumulated other comprehensive loss(34,268)(37,865)
Total stockholders’ equity1,194,314 1,156,124 
Total liabilities and stockholders' equity$2,383,859 $2,358,538 

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,
20232022
  
Net sales:  
Product$400,399 $343,685 
Software maintenance36,426 41,571 
Total net sales436,825 385,256 
  
Cost of sales:  
Product127,556 115,024 
Software maintenance5,151 4,203 
Total cost of sales132,707 119,227 
Gross profit304,118 266,029 
  
Operating expenses:  
Sales and marketing117,342 120,157 
Research and development86,637 82,161 
General and administrative43,214 33,179 
Total operating expenses247,193 235,497 
Operating income56,925 30,532 
Other (expense) income(3,020)33 
Income before income taxes53,905 30,565 
Provision for income taxes6,976 5,329 
Net income$46,929 $25,236 
  
Basic earnings per share$0.36 0.19 
  
Weighted average shares outstanding - basic131,326 132,105 
  
Diluted earnings per share$0.35 $0.19 
  
Weighted average shares outstanding - diluted133,210 133,175 
  
Dividends declared per share$0.28 $0.28 

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,
20232022
  
Net income$46,929 $25,236 
Other comprehensive income, before tax and net of reclassification adjustments:  
Foreign currency translation adjustment4,889 (3,805)
Unrealized (loss) gain on derivative instruments(1,676)1,867 
Other comprehensive income (loss), before tax3,213 (1,938)
Tax (benefit) expense related to items of other comprehensive income(384)425 
Other comprehensive income (loss), net of tax3,597 (2,363)
Comprehensive income$50,526 $22,873 

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,
20232022
Cash flow from operating activities:  
Net income$46,929 $25,236 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization22,240 21,566 
Stock-based compensation15,558 20,128 
Gain from equity-method investments(4,800)(602)
Deferred income taxes(1,944)(3,615)
Changes in operating assets and liabilities, net of acquisitions 20,723 (66,561)
Net cash provided by (used in) operating activities98,706 (3,848)
  
Cash flow from investing activities:  
Acquisitions, net of cash received(22,700)(17,510)
Capital expenditures(21,419)(10,182)
Capitalization of internally developed software(925)(187)
Additions to other intangibles(3,125)(1,274)
Net cash used in investing activities(48,169)(29,153)
  
Cash flow from financing activities:  
Proceeds from revolving credit— 25,000 
Payments on term loan(6,250)— 
Payments on revolving credit(20,000)— 
Proceeds from issuance of common stock8,956 9,244 
Repurchase of common stock— (31,455)
Dividends paid(36,815)(36,976)
Net cash used in financing activities(54,109)(34,187)
  
Effect of exchange rate changes on cash1,445 (1,035)
  
Net change in cash and cash equivalents(2,127)(68,223)
Cash and cash equivalents at beginning of period139,799 211,106 
Cash and cash equivalents at end of period$137,672 $142,883 
 
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, 2023
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained DeficitAccumulated Other Comprehensive Income/(Loss)Total Stockholders' Equity
Balance at December 31, 2022131,004,965 $1,310 $1,207,420 $(14,741)$(37,865)$1,156,124 
Net income— — — 46,929 — 46,929 
Other comprehensive loss, net of tax— — — — 3,597 3,597 
Issuance of common stock under employee plans493,415 5 8,951 — — 8,956 
Stock-based compensation— — 15,523 — — 15,523 
Dividends paid (1)— — — (36,815)— (36,815)
Balance at March 31, 2023131,498,380 $1,315 $1,231,894 $(4,627)$(34,268)$1,194,314 

March 31, 2022
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained Earnings (Deficit)Accumulated 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 income, 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 

(1) Cash dividends declared per share of common stock were $0.28 for the three months ended March 31, 2023 and 2022.

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, 2022, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 21, 2023 (the "2022 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, 2023 and December 31, 2022, the results of our operations and comprehensive income for the three months ended March 31, 2023 and 2022, our cash flows for the three months ended March 31, 2023 and 2022, and our statement of stockholders' equity for the three months ended March 31, 2023 and 2022. Our operating results for the three months ended March 31, 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 ("GAAP").

Summary of Significant Accounting Policies

There were no material changes to our significant accounting policies during the three months ended March 31, 2023 compared to the significant accounting policies described in our 2022 Form 10-K.

Other (Expense) Income

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

Three Months Ended March 31,
(Unaudited)
20232022
Interest income$326 $46 
Interest expense(8,348)(1,292)
Gain from equity-method investments 4,800 602 
Net foreign exchange loss(302)(1,166)
Other504 1,843 
Other (expense) income$(3,020)$33 

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities on our consolidated balance sheet includes the following amounts (in thousands):
As of March 31, 2023
As of December 31,
(unaudited)2022
Income taxes payable - current$85,940 $87,186 
Hedge payable - current10,221 18,117 
Accrued liabilities32,409 26,851 
Other41,393 21,003 
Total$169,963 $153,157 


8    

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 months ended March 31, 2023 and 2022 are as follows (in thousands):
Three Months Ended March 31,
(Unaudited)
20232022
Weighted average shares outstanding-basic131,326 132,105 
Plus: Common share equivalents  
      RSUs & PRSUs1,884 1,070 
Weighted average shares outstanding-diluted133,210 133,175 
  
Shares issuable upon vesting of RSU awards for the three months ended March 31, 2023 and 2022 of 69,400 shares and 442,000 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 primarily 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)
20232022
(In thousands)
Net sales:
Point-in-Time(1)
Over TimeTotal
Point-in-Time(1)
Over TimeTotal
Americas$152,342 $25,644 $177,986 $132,988 $26,222 $159,210 
EMEA94,696 17,484 112,180 79,241 21,129 100,370 
APAC135,649 11,010 146,659 114,995 10,681 125,676 
Total net sales(1)
$382,687 $54,138 $436,825 $327,224 $58,032 $385,256 
(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. 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. Our recent acquisitions described in Note 17 - Acquisition of Notes to Consolidated Financial Statements are presented within the "Transportation" industry grouping below. 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 March 31,
(In thousands)(Unaudited)
Industry Grouping20232022
Portfolio$135,910 $124,703 
Semiconductor & Electronics113,757 104,026 
Aerospace, Defense & Government113,114 94,503 
Transportation74,044 62,024 
Total net sales$436,825 $385,256 



10    

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 three months ended March 31, 2023 were as follows:
Amount
(In thousands)
Deferred Revenue at December 31, 2022$200,274 
   Deferral of revenue billed in current period, net of recognition56,935 
   Recognition of revenue deferred in prior periods(45,765)
   Foreign currency translation impact1,593 
Balance as of March 31, 2023 (unaudited)$213,037 

For the three months ended March 31, 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 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, 2023 and December 31, 2022, the amounts recognized 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 $118 million as of March 31, 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 March 31, 2023, we expect to recognize approximately 35% of the revenue related to these unsatisfied performance obligations during the remainder of 2023, 38% during 2024, 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 $28 million and $29 million as of March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023 and 2022, net sales to our equity-method investees were approximately $0.5 million and $1.5 million, respectively and purchases from our equity-method investees were not material.

Refer to Note 17 - Acquisitions of Notes to Consolidated Financial Statements for additional discussion on a step acquisition of one of our existing equity-method investments, 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)
DescriptionMarch 31, 2023Level 1Level 2Level 3
Assets    
Derivatives (interest rate swaps)1,954 1,954 
Derivatives (foreign exchange contracts)8,449 — 8,449 
Total Assets 
$10,403 $— $10,403 $— 
    
Liabilities    
Derivatives (interest rate swaps)$(2,634)$(2,634)
Derivatives (foreign exchange contracts)$(10,221)$— $(10,221)$— 
Total Liabilities 
$(12,855)$— $(12,855)$— 

12    

(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 three months ended March 31, 2023. There were no transfers in or out of Level 1 or Level 2 during the three months ended March 31, 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 March 31, 2023 and December 31, 2022.
  
We did not have any items that were measured at fair value on a nonrecurring basis at March 31, 2023 and December 31, 2022. 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% of our net sales during the three months ended March 31, 2023 and 2022. 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.   
  
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.
 
13    

 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 March 31, 2023
As of December 31,
(Unaudited)2022
Chinese yuan$109,576 $73,419 
Euro136,422 109,091 
Japanese yen29,444 21,285 
Hungarian forint13,799 19,529 
British pound17,993 13,929 
Malaysian ringgit5,997 8,856 
Korean won22,076 14,048 
Total forward contracts notional amount$335,307 $260,157 
  
The contracts in the foregoing table had contractual maturities of 21 months or less and 12 months or less at March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023, we expect to reclassify $0.7 million of gains on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $1.2 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 $0.9 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, 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 consolidated balance sheets at March 31, 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 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.
14    


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) income.” As of March 31, 2023 and December 31, 2022, we held foreign currency forward contracts that were not designated as hedging instruments with a notional amount of $266 million and $282 million, respectively.   
The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets at March 31, 2023 and December 31, 2022, respectively.   
Asset Derivatives
March 31, 2023December 31, 2022
(Unaudited) 
   
(In thousands)Balance Sheet LocationFair ValueFair Value
Derivatives designated as hedging instruments   
Foreign exchange contracts - ST forwardsPrepaid expenses and other current assets$5,760 $8,968 
Interest rate contracts - ST forwardsPrepaid expenses and other current assets1,954 2,299 
Foreign exchange contracts - LT forwardsOther long-term assets470 — 
Total derivatives designated as hedging instruments $8,184 $11,267 
Derivatives not designated as hedging instruments   
Foreign exchange contracts - ST forwardsPrepaid expenses and other current assets$2,219 $1,057 
Total derivatives not designated as hedging instruments $2,219 $1,057 
Total derivatives $10,403 $12,324 
15    

   
Liability Derivatives
March 31, 2023December 31, 2022
(Unaudited)
(In thousands)Balance Sheet LocationFair ValueFair Value
Derivatives designated as hedging instruments   
Foreign exchange contracts - ST forwardsAccrued expenses and other current liabilities$(7,175)$(9,940)
Foreign exchange contracts - LT forwardsOther long-term liabilities— (196)
Interest rate contracts - LT forwardsOther long-term liabilities(2,634)(1,013)
Total derivatives designated as hedging instruments $(9,809)$(11,149)
   
Derivatives not designated as hedging instruments   
Foreign exchange contracts - ST forwardsOther current liabilities$(3,046)$(8,177)
Total derivatives not designated as hedging instruments $(3,046)$(8,177)
   
Total derivatives $(12,855)$(19,326)
16    

The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the three-months ended March 31, 2023 and 2022, respectively:
March 31, 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$(1,729)Net sales$2,244 
   
Foreign exchange contracts - forwards1,143 Cost of sales(560)
   
Foreign exchange contracts - forwards 876 Operating expenses(328)
Interest rate swap contracts - forwards(1,966)Other (expense) income527 
Total$(1,676) $1,883 
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 Income Gain 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 - forwards4 Operating expenses(239)
Total$1,867  $1,173 
(In thousands)   
Derivatives not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in IncomeAmount of Gain (Loss) Recognized in Income
 March 31, 2023March 31, 2022
 (Unaudited)(Unaudited)
Foreign exchange contracts - forwardsOther (expense) income$(856)(803)
Total $(856)$(803)


17    

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

March 31, 2023December 31,
(In thousands)(Unaudited)2022
  
Raw materials  $280,246 $273,311 
Work-in-process13,629 14,968 
Finished goods129,606 119,302 
Total$423,481 $407,581 
Less: Inventory reserve$(22,421)$(19,417)
Total$401,060 $388,164 

Note 7 – Intangible assets, net and goodwill  
  
Intangible assets at March 31, 2023 and December 31, 2022 were as follows:

March 31, 2023 
(In thousands)(Unaudited)December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Capitalized software development costs$14,216 $(10,560)$3,656 $18,810 $(15,321)$3,489 
Acquired technology177,521 (60,929)116,592 167,686 (54,351)113,335 
Customer relationships96,935 (29,150)67,785 98,827 (33,514)65,313 
Patents37,395 (31,756)5,639 37,240 (31,368)5,872 
Other29,516 (14,981)14,535