Company Quick10K Filing
National Instruments
Price41.94 EPS1
Shares133 P/E54
MCap5,573 P/FCF37
Net Debt-223 EBIT126
TEV5,351 TEV/EBIT42
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-05-03
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8-K 2020-10-30
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8-K 2018-04-26
8-K 2018-01-30

NATI 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue
Note 3 - Investments
Note 4 - Fair Value Measurements
Note 5 - Derivative Instruments and Hedging Activities
Note 6 - Inventories, Net
Note 7 - Intangible Assets and Goodwill, Net
Note 8 - Leases
Note 9 - Income Taxes
Note 10 - Comprehensive Income
Note 11 - Authorized Shares of Common and Preferred Stock and Stock - Based Compensation Plans
Note 12 - Segment and Geographic Information
Note 13 - Debt
Note 14 - Commitments and Contingencies
Note 15 - Restructuring
Note 16 - Litigation
Note 17 - Acquisitions
Note 18 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 nati-20210331ex31_1.htm
EX-31.2 nati-20210331ex31_2.htm
EX-32.1 nati-20210331ex32_1.htm

National Instruments Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
1.71.41.00.70.30.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.0-0.0-0.1-0.1-0.22012201420172020
Ops, Inv, Fin

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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, 2021
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  
nati-20210331_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 27, 2021
Common Stock, $0.01 par value131,607,036
1    


NATIONAL INSTRUMENTS CORPORATION
  
INDEX  
Page No.
  
 
  
 
March 31, 2021 (unaudited) and December 31, 2020
  
 
(unaudited) for the three months ended March 31, 2021 and 2020
  
 
(unaudited) for the three months ended March 31, 2021 and 2020
  
 
(unaudited) for the three months ended March 31, 2021 and 2020
(unaudited) for the three months ended March 31, 2021 and 2020
  
  
  
  
  
 
  
  
  
  
  
  

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,
20212020
Assets(unaudited) 
Cash and cash equivalents$266,712 $260,232 
Short-term investments32,171 59,923 
Accounts receivable, net241,088 266,869 
Inventories, net197,179 194,012 
Prepaid expenses and other current assets75,674 68,470 
Total current assets812,824 849,506 
Property and equipment, net252,320 254,399 
Goodwill462,646 467,547 
Intangible assets, net159,639 172,719 
Operating lease right-of-use assets61,478 67,674 
Other long-term assets77,059 72,643 
Total assets$1,825,966 $1,884,488 
Liabilities and stockholders' equity  
Accounts payable and accrued expenses$54,686 $51,124 
Accrued compensation58,201 87,068 
Deferred revenue - current128,740 132,151 
Operating lease liabilities - current14,751 15,801 
Other taxes payable35,836 48,129 
Debt, current5,000 5,000 
Other current liabilities42,221 42,578 
Total current liabilities339,435 381,851 
Deferred income taxes25,050 25,288 
Liability for uncertain income tax positions10,933 10,868 
Income taxes payable - non-current61,622 61,623 
Deferred revenue - non-current35,065 36,335 
Operating lease liabilities - non-current31,644 35,854 
Debt, non-current90,991 92,036 
Other long-term liabilities9,717 15,762 
Total liabilities604,457 659,617 
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; 131,607,036 shares and 131,246,615 shares issued and outstanding, respectively 
1,316 1,312 
Additional paid-in capital1,059,018 1,033,284 
Retained earnings180,063 211,101 
Accumulated other comprehensive loss(18,888)(20,826)
Total stockholders’ equity1,221,509 1,224,871 
Total liabilities and stockholders' equity$1,825,966 $1,884,488 

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,
20212020
  
Net sales:  
Product$295,092 $273,978 
Software maintenance40,090 35,403 
Total net sales335,182 309,381 
  
Cost of sales:  
Product91,657 82,071 
Software maintenance3,757 1,690 
Total cost of sales95,414 83,761 
  
Gross profit239,768 225,620 
  
Operating expenses:  
Sales and marketing116,783 115,746 
Research and development80,086 71,621 
General and administrative33,358 26,180 
Total operating expenses230,227 213,547 
Gain on sale of business/assets 159,753 
Operating income9,541 171,826 
  
Other (expense) income(5,070)560 
Income before income taxes4,471 172,386 
(Benefit) provision for income taxes(24)39,731 
  
Net income$4,495 $132,655 
  
Basic earnings per share$0.03 1.02 
  
Weighted average shares outstanding - basic131,483 130,613 
  
Diluted earnings per share$0.03 $1.01 
  
Weighted average shares outstanding - diluted132,717 131,357 
  
Dividends declared per share$0.27 $0.26 
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,
20212020
  
Net income$4,495 $132,655 
Other comprehensive income (loss), before tax and net of reclassification adjustments:  
Foreign currency translation adjustment(7,195)(5,913)
Unrealized loss on securities available-for-sale(88)(2,788)
Unrealized gain (loss) on derivative instruments11,981 (575)
Other comprehensive income (loss), before tax4,698 (9,276)
Tax expense related to items of other comprehensive income2,760 73 
Other comprehensive income (loss), net of tax1,938 (9,349)
Comprehensive income$6,433 $123,306 

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,
20212020
Cash flow from operating activities:  
Net income$4,495 $132,655 
Adjustments to reconcile net income to net cash provided by operating activities:  
Disposal gain on sale of business/assets (159,753)
Depreciation and amortization23,872 19,265 
Stock-based compensation17,189 12,104 
Loss from equity-method investees4,173 1,025 
Deferred income taxes(3,746)(1,599)
Changes in operating assets and liabilities, net of divestitures(16,142)39,923 
Net cash provided by operating activities29,841 43,620 
  
Cash flow from investing activities:  
Capital expenditures(8,488)(12,816)
Proceeds from sale of business, net of cash divested 158,973 
Capitalization of internally developed software(226)(1,915)
Additions to other intangibles(1,018)(112)
Payments to acquire equity-method investments(11,539) 
Purchases of short-term investments (206,331)
Sales and maturities of short-term investments27,664 111,827 
Net cash provided by investing activities6,393 49,626 
  
Cash flow from financing activities:  
Payments on term loan(1,250) 
Proceeds from issuance of common stock8,565 8,991 
Repurchase of common stock (6,526)
Dividends paid(35,533)(33,997)
Net cash used in financing activities(28,218)(31,532)
  
Effect of exchange rate changes on cash(1,536)(1,889)
  
Net change in cash and cash equivalents6,480 59,825 
Cash and cash equivalents at beginning of period260,232 194,616 
Cash and cash equivalents at end of period$266,712 $254,441 
 
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)
(unaudited)

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 

March 31, 2020
Common Stock SharesCommon Stock AmountAdditional-Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income/(Loss)Total Stockholders' Equity
Balance at December 31, 2019130,504,535 $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 plans255,541 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, 2020130,595,203 $1,306 $973,354 $335,876 $(30,419)$1,280,117 

(1) Cash dividends declared per share of common stock were $0.27 and $0.26 for the three months ended March 31, 2021 and 2020, 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 year ended December 31, 2020, included in our annual report on Form 10-K (the "2020 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, 2021 and December 31, 2020, the results of our operations and comprehensive income for the three months ended March 31, 2021 and 2020, the cash flows for the three months ended March 31, 2021 and 2020, and the statement of stockholders' equity for the three months ended March 31, 2021 and 2020. Our operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

Reclassifications

As further discussed below, certain prior period amounts have been reclassified to conform to the current period presentation. The reclassifications had no impact on our previously reported net income or cash flows:

Before the second quarter of 2020, we included net sales attributable to our operations in India within the EMEIA region in Note 2 - Revenue of Notes to Consolidated Financial Statements. In the second quarter of 2020, we began including these amounts within the APAC (Australia, India, New Zealand, Southeast Asia, China, South Korea and Japan) geographic region, to reflect recent changes within our organizational structure. We have recast historical comparative information to conform to the March 31, 2021 presentation. Refer to Note 2 - Revenue of Notes to Consolidated Financial Statements for our revenue disaggregated by geographic region which now include the Americas (United States, Canada and Latin America), EMEA (Europe, Middle East, and Africa) and APAC.

Before the second quarter of 2020, we presented “Interest income, ” "Net foreign exchange gain (loss), " and "Other income (loss)" separately on the consolidated statements of income. In the second quarter of 2020, we began presenting these amounts within “Other (expense) income” in the consolidated statements of income for all periods presented. Refer to "Other (expense) income" in Note 1 - Basis of Presentation of Notes to Consolidated Financial Statements for additional information on the amounts that comprise "Other (expense) income".

Recently Adopted Accounting Pronouncements

Clarification of Equity Method Transition

In January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” which clarifies the interaction of the accounting for equity investments under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We adopted ASU 2020-01 on January 1, 2021, and the new standard did not have a material impact on our consolidated financial statements and related disclosures.


8    


Recently Issued Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848)," which provides optional expedients for contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") or another rate expected to be discontinued at the end of 2021 due to reference rate reform. The update is effective immediately and may be applied prospectively to contracts and other transactions entered into or evaluated on or before December 31, 2022. We are currently evaluating the impact on our consolidated financial position, results of operations, and cash flows.

Summary of Significant Accounting Policies

There were no significant changes in our accounting policies during the three months ended March 31, 2021 compared to the significant accounting policies described in our 2020 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/assets" 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, net7,233 
Prepaid and other current assets283 
Goodwill7,221 
Other non-current assets556 
Total assets$16,320 
Deferred revenue$15,296 
Other current liabilities940 
Cumulative translation adjustment(660)
Total liabilities and stockholders' equity$15,576 
Total assets divested, net (including cash)$744 


9    


Other (Expense) Income

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

Three Months Ended March 31,
(Unaudited)
20212020
Interest income$161 $2,299 
Interest expense(704)(76)
Loss from equity-method investments (4,173)(1,025)
Net foreign exchange loss(559)(505)
Other205 (133)
Other (expense) income, net$(5,070)$560 

Other Current Liabilities

Other current liabilities on our consolidated balance sheet includes the following amounts (in thousands):
As of March 31, 2021As of December 31,
(unaudited)2020
Income taxes payable - current$14,255 $13,720 
Hedge payable - current8,553 13,031 
Other19,413 15,827 
Total$42,221 $42,578 

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, 2021 and 2020, are as follows:
Three Months Ended March 31,
(In thousands)
(Unaudited)
20212020
Weighted average shares outstanding-basic131,483 130,613 
Plus: Common share equivalents  
RSUs1,234 744 
Weighted average shares outstanding-diluted132,717 131,357 
  
Shares issuable upon vesting of RSU awards for the three months ended March 31, 2021 and 2020 of 567,000 shares and 182,000 shares, respectively, were excluded in the computations of diluted EPS because the effect of including the RSU awards would have been anti-dilutive.
10    


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. Before the second quarter of 2020, we included net sales attributable to our operations in India within the EMEIA region. In the second quarter of 2020, we began including these amounts within the APAC geographic region, to reflect recent changes within our organizational structure. We have recast historical comparative information to conform to the March 31, 2021 presentation. The geographic regions are now presented as the Americas, EMEA and APAC to reflect this change.

Total net sales based on the disaggregation criteria described above are as follows:
Three Months Ended March 31,
(In thousands)(Unaudited)
20212020
Net sales:
Point-in-Time(1)
Over TimeTotal
Point-in-Time(1)
Over TimeTotal
Americas$104,586 $22,147 $126,733 $105,299 $19,718 $125,017 
EMEA64,237 21,285 85,522 67,822 18,907 86,729 
APAC112,630 10,297 122,927 87,189 10,446 97,635 
Total net sales(1)
$281,453 $53,729 $335,182 $260,310 $49,071 $309,381 
(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

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, 2021 were as follows:
Amount
(In thousands)
Deferred Revenue at December 31, 2020$168,486 
   Deferral of revenue billed in current period, net of recognition50,032 
   Recognition of revenue deferred in prior periods(51,525)
   Foreign currency translation impact(3,188)
Balance as of March 31, 2021 (unaudited)$163,805 

11    


For the three months ended March 31, 2021, 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, 2021 and December 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 $61.7 million as of March 31, 2021. 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, 2021, we expect to recognize approximately 38% of the revenue related to these unsatisfied performance obligations during the remainder of 2021, 35% during 2022, 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 – 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, 2021
(In thousands)(Unaudited)
 GrossGross 
Adjusted CostUnrealized GainUnrealized LossFair Value
Corporate bonds$32,097 $74 $ $32,171 
Total Short-term investments$32,097 $74 $ $32,171 

(In thousands)As of December 31, 2020
 GrossGross 
Adjusted CostUnrealized GainUnrealized LossFair Value
Corporate bonds$59,761 $163 $(1)$59,923 
Total Short-term investments$59,761 $163 $(1)$59,923 

12    


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

As of March 31, 2021
(Unaudited)
(In thousands)Adjusted CostFair Value
Due in less than 1 year$32,097 $32,171 
Total available-for-sale debt securities$32,097 $32,171 
  
Due in less than 1 yearAdjusted CostFair Value
Corporate bonds$32,097 $32,171 
Total available-for-sale debt securities$32,097 $32,171 

Equity-Method Investments

The carrying value of our equity method investments was $34 million and $25 million as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, we determined there was an other than temporary impairment for one of our equity-method investments, based on revised forecasts. We recorded a $3.5 million impairment loss related to this 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, 2021 and 2020.

        
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   
13    



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, 2021Quoted 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$146,560 $146,560 $ $ 
Short-term investments available for sale:    
Corporate notes and bonds32,171  32,171  
Derivatives7,712  7,712 
Total Assets 
$186,443 $146,560 $39,883 $ 
    
Liabilities    
Derivatives$(11,126)$ $(11,126)$ 
Total Liabilities 
$(11,126)$ $(11,126)$ 

(In thousands)Fair Value Measurements at Reporting Date Using
DescriptionDecember 31, 2020Quoted 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$145,466 $145,466 $ $ 
Short-term investments available for sale:    
Corporate notes and bonds59,923  59,923  
Derivatives6,124  6,124  
Total Assets 
$211,513 $145,466 $66,047 $ 
    
Liabilities    
Derivatives$(19,359)$ $(19,359)$ 
Total Liabilities 
$(19,359)$ $(19,359)$ 

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.  
  
14    


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, 2021. There were no transfers in or out of Level 1 or Level 2 during the three months ended March 31, 2021.  
  
As of March 31, 2021, our short-term investments did not include any foreign sovereign debt. All of our short-term investments that are located outside of the U.S. are denominated in the U.S. dollar.
  
We did not have any items that were measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020. 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 62% and 60% of our net sales during the three months ended March 31, 2021 and 2020, 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.  

15    


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, 2021As of December 31,
(Unaudited)2020
Chinese yuan$52,702 $45,553 
Euro187,833 219,115 
Japanese yen61,908 73,399 
Hungarian forint