Published: 2023-02-21 00:00:00 ET

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National Instruments Corporation (the "Company," "NI," "we," "us" or "our") is a Delaware corporation. We provide flexible application software and modular, multifunction hardware that users combine with industry-standard computers, networks and third-party devices to create automated test and automated measurement systems. Our software-centric approach helps our customers quickly and cost-effectively design, prototype and deploy custom-defined solutions for their design, control and test application needs. We offer hundreds of products used to create virtual instrumentation systems for general, commercial, industrial and scientific applications. Our products may be used in different environments, and consequently, specific application of our products is determined by the customer and often is not known to us.

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles.

Principles of consolidation

The Consolidated Financial Statements include the accounts of National Instruments Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of estimates

The preparation of our financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Although these estimates are based on management's best knowledge of current events and actions that may impact the company in the future, actual results may be materially different from the estimates.

Reclassifications

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

We have reclassified certain amounts previously presented in "Accounts payable and accrued expense" to "Accrued expenses and other current liabilities" as of December 31, 2021 to conform to current period presentation as follows:

						As of December 31,
(in thousands)						2021
Accounts payable:
As reported						$	83,218
Reclassifications						(24,155)
Adjusted						$	59,063
Accrued expenses and other current liabilities:
As reported						$	40,671
Reclassifications						24,155
Adjusted						$	64,826

Gain on Sale of Business/Assets

Sale of Office Buildings and land

During the three months ended September 30, 2022, we recognized a gain of $33.6 million from the sale of approximately 75-acres of land in Williamson County, Texas and two office buildings in Aachen, Germany. The buildings in Germany were previously used for certain research and development activities that have been relocated to other research and development locations. The disposal gain is presented as “Gain on sale of business/assets” in the Consolidated Statements of Income.

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Divestiture of AWR

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

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.

Nature of Goods and Services

We derive revenues from two primary sources: products and software maintenance.

Product revenues are primarily generated from the sale of off-the-shelf modular test and measurement hardware components and related drivers, and application software licenses. A majority of our hardware products are now bundled with service-type warranties of one year or three years, in addition to optional extended hardware warranties, which typically provide additional service-type coverage for one to three years from the purchase date. During 2022, we accelerated our transition to a subscription model for most of our remaining on-premise application software offerings. Consequently, the vast majority of our software revenue will be derived from subscription (term-based) licenses and software maintenance. The software is delivered before related services are provided and is functional without professional services, updates and technical support. For the remaining portion of software offerings still sold on a perpetual basis with optional software maintenance renewals, we sell our customer support contracts as a percentage of net software purchases to which the support is related. Revenues from offerings related to our hardware and software products such as extended hardware warranties, training, consulting and installation services are not significant and are presented within product revenues, as further discussed below.

Software maintenance revenues consists of post-contract customer support that provides the customer with unspecified upgrades and technical support. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software licenses are estimated based on our established pricing practices and maximize the use of observable inputs. Standalone selling prices of hardware products are typically estimated based on observable transactions when these services are sold on a standalone basis.

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Our typical performance obligations include the following:

Performance Obligation			When performance obligation is typically satisfied			When payment is typically due			How standalone selling price is typically estimated
Product revenue
Modular hardware			When customer obtains control of the product (point-in-time)			Within 30-90 days of shipment			Observable in transactions without multiple performance obligations
Software licenses			When software media is delivered to customer or made available for download electronically, and the applicable license period has begun (point-in-time)			Within 30-90 days of the beginning of license period			Perpetual/Subscription licenses: Value relationships based on (i) the directly observable pricing of the license bundled with software maintenance and (ii) the directly observable pricing of software maintenance renewals, when they are sold on a standalone basis. Enterprise-wide term licenses: Residual method
Service-type hardware warranty			Ratably over the course of the support contract (over time), typically one or three years			Within 30-90 days of the beginning of the contract period			Observable in renewal transactions
Other related support offerings			As work is performed (over time) or course is delivered (point-in-time)			Within 30-90 days of delivery			Observable in transactions without multiple performance obligations
Software maintenance revenue
Software maintenance			Ratably over the course of the support contract (over time)			Within 30-90 days of the beginning of the contract period			Observable in renewal transactions

Significant Judgments

Judgment is required to determine the standalone selling price ("SSP") for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including perpetual and term licenses sold with software maintenance. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount that needs to be allocated based on the relative SSP of the various products and services.

Due to the various benefits from and the nature of our enterprise agreement program, judgment is required to assess the pattern of delivery, including the utilization of certain benefits across our portfolio of customers. Additionally, whether a renewal option represents a distinct performance obligation could significantly impact the timing of revenue recognized.

Our products are generally sold with a right of return which is accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Changes to our estimated variable consideration were not material for the periods presented.

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Contract Balances

Timing of revenue recognition may differ from the timing of payment from customers. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. 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.

    

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 efficient and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a maintenance service term with revenue recognized ratably over the contract period.

Accounts Receivable

Accounts receivable are recorded net of allowance for credit losses of $7.7 million and $7.0 million at December 31, 2022 and 2021, respectively. The allowance for credit losses reflects the best estimate of future losses over the contractual life of outstanding accounts receivable and is determined on the basis of historical bad debts, customer concentrations, customer creditworthiness and current economic trends.

Contract Liabilities

We recognize contract liabilities, presented in our Consolidated Balance Sheet as "Deferred revenue" when we have an obligation to transfer goods or services to a customer for which we have received consideration (or an amount of consideration is due) from the customer. Refer to Note 2 - Revenue of Notes to Consolidated Financial Statements for additional information, including changes in our contract liability during the years ended December 31, 2022 and December 31, 2021.

Refund Liability

A refund liability for estimated sales returns is made by reducing recorded revenue based on historical experience. We analyze historical returns, current economic trends and changes in customer demand of our products when evaluating the adequacy of our sales returns refund liability. Our sales return refund liability was $5.5 million and $3.2 million at December 31, 2022 and 2021, respectively, and is presented within "Other Current Liabilities" on our balance sheet.

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. The net effect of capitalization and amortization of these costs was not material to our results of operating during the periods presented.

Shipping and handling costs

Our shipping and handling costs charged to customers are included in net sales, and the associated expense is recorded in cost of sales.

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Cash and cash equivalents

Cash and cash equivalents include cash and highly liquid investments with maturities of three months or less at the date of acquisition.

Investments

We value our available-for-sale debt instruments 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 debt investments. Short-term investments consist of available-for-sale 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.

Our investments in debt securities are classified as available-for-sale and accordingly are reported at fair value, with unrealized gains and losses reported as other comprehensive income, a component of stockholders’ equity. Investments with maturities beyond one year are classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

We periodically assess our available-for-sale debt securities for impairment and credit losses based on the specific identification method. We record an allowance for credit loss when a decline in fair value is due to credit-related factors. We consider various factors in determining whether an investment is impaired, including the severity of the impairment, changes in underlying credit ratings, forecasted recovery, our intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. When we conclude that a credit-related impairment has occurred, we assess whether we intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery. If either of these two conditions is met, we recognize a charge in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If we do not intend to sell a security and it is not more likely than not that we will be required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss, which is recognized in “Other expense” in our Consolidated Statements of Income, and the amount related to all other factors, which is recorded in accumulated other comprehensive income (loss).

In addition, we from time to time make equity investments in non-publicly traded companies. Equity investments in which we do not have control but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. We record our proportionate share of the net income or loss of our equity method investees, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within "Other expense i" in the Consolidated Statement of Income. Profits or losses related to intra-entity sales with our equity method investees are eliminated until realized by the investor or investee. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them. Equity method goodwill is not amortized or tested for impairment; instead the equity method investment is tested for impairment. We record our interest in the net earnings of our equity method investments based on the most recently available financial statements of the investees. At December 31, 2022, the difference between the carrying amount of our equity-method investments and our share of the underlying equity in net assets of our investments was approximately $21 million. The basis difference is primarily attributable to intangible assets and equity-method goodwill.

The carrying amount of the investment in equity interests is adjusted to reflect our interest in net earnings, dividends received and other-than-temporary impairments. We review the carrying amount for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement of Income.

All other non-marketable equity investments do not have readily determinable fair values and are recorded at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. We periodically review our non-marketable equity investments for other-than-temporary declines in fair value and write-down specific investments to their fair values when we determine that an other-than-temporary decline has occurred. The carrying amounts of non-marketable equity investments that do not have a readily determinable fair value were not material for the periods presented.

We did not record any other-than-temporary impairments on our investment securities during 2022, 2021, and 2020.  

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Inventories, net

Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs, which approximate the first-in first-out (“FIFO”) method. Cost includes the acquisition cost of purchased components, parts and subassemblies, in-bound freight costs, labor and overhead.

Inventory is shown net of adjustment for excess and obsolete inventories of $19.4 million, $18.9 million and $17.0 million at December 31, 2022, 2021 and 2020, respectively.

(In thousands)
Year						Description						Balance at Beginning of Period						Provisions						Write-Offs						Balance at End of Period
2020						Adjustment for excess and obsolete inventories						$	15,489					$	8,163					6,616						$	17,036
2021						Adjustment for excess and obsolete inventories						$	17,036					$	9,986					8,090						$	18,932
2022						Adjustment for excess and obsolete inventories						$	18,932					$	11,089					10,604						$	19,417

Property and equipment, net

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from twenty to forty years for buildings, and three to seven years for purchased internal use software and for equipment which are each included in furniture and equipment.

Intangible assets, net

We capitalize costs related to the development and acquisition of certain software products. Capitalization of costs begins when technological feasibility has been established and ends when the product is available for general release to customers. Technological feasibility for our products is established when the product is available for beta release. Amortization is computed on an individual product basis for those products available for market and is recognized based on the product’s estimated economic life, generally three to six years.

We use the services of outside counsel to search for, document, and apply for patents. Those costs, along with any filing or application fees, are capitalized. Costs related to patents which are abandoned are written off. Once a patent is granted, the patent costs are amortized ratably over the remaining legal life of the patent, generally ten to seventeen years.

Leasehold improvements are amortized over the shorter of the life of the lease or the asset.

Intangible assets with finite useful lives, including developed technology, customer-related intangible assets, patents, trademarks, and backlog are subject to amortization over the expected period of economic benefit to us. We evaluate whether events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts of the intangible assets are amortized over the revised remaining useful life.

Intangible assets related to in-process research and development (“IPR&D”) projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, the associated assets would be deemed long-lived and would then be amortized over their respective estimated useful lives at that point in time. Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter of our fiscal year. In testing indefinite-lived intangible assets for impairment, we may first perform a qualitative assessment of whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, and, if so, we then quantitatively compare the fair value of the indefinite-lived intangible asset to its carrying amount. We determine the fair value of our indefinite-lived intangible assets using a discounted cash flow method.    

Goodwill

We account for business combinations using the acquisition method of accounting and, accordingly, allocate the fair value of acquisition consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The results of operations of the businesses acquired are included in our consolidated statement of income beginning on the date of the acquisition.

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. Goodwill is deductible for tax purposes in certain jurisdictions.

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Impairment Testing

Goodwill and indefinite-lived intangible assets

We review indefinite-lived intangible assets, including goodwill, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The authoritative accounting guidance allows a qualitative approach for testing indefinite-lived intangible assets for impairment. We have one operating segment and one reporting unit for impairment testing of goodwill and indefinite-lived intangible assets. Goodwill and indefinite-lived intangible assets are 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 was performed as of November 30, 2022.  No impairment of goodwill and indefinite-lived intangible assets was identified during 2022, 2021, and 2020.

Long lived assets with definite lives

The carrying values of long-lived assets, including identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to be generated by that asset or asset group compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values and third-party appraisals. It is not possible for us to predict the likelihood of any possible future impairments or, if such an impairment were to occur, the magnitude of any impairment.

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 December 31			As of December 31,
(in thousands)			2022			2021
Income taxes payable - current			$	87,186		$	14,457
Hedge payable - current			18,117			7,091
Deferred social security taxes (under CARES act) - current			—			5,785
Accrued liabilities			26,851			24,155
Other			21,003			13,338
Total			$	153,157		$	64,826

Concentrations of credit risk

At December 31, 2022, we had $140 million in cash and cash equivalents. Our cash and cash equivalent balances are held in numerous financial institutions throughout the world, including substantial amounts held outside of the U.S. The most significant of our operating accounts was our Wells Fargo operating account owned by our entity in the United States which held approximately $38 million or 27% of our total cash and cash equivalents at a bank that carried Aaa1/A+/AA ratings at December 31, 2022.

The following table presents the geographic distribution of our cash, cash equivalents, and short-term investments as of December 31, 2022 (in millions):

			Domestic			International			Total
Cash and Cash Equivalents			$40.7			$99.1			$139.8
			29%			71%

Figures may not sum due to rounding.

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The goal of our investment policy is to manage our investment portfolio to preserve principal and liquidity while maximizing the return on our investment portfolio through the full investment of available funds. We place our cash investments in instruments that meet credit quality standards, as specified in our corporate investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. Our cash equivalents and short-term investments carried ratings from the major credit rating agencies that were in accordance with our corporate investment policy. Our investment policy allows investments in the following: government and federal agency obligations, repurchase agreements (“Repos”), certificates of deposit and time deposits, corporate obligations, medium term notes and deposit notes, commercial paper including asset-backed commercial paper (“ABCP”), puttable bonds, general obligation and revenue bonds, money market funds, taxable commercial paper, corporate notes/bonds, municipal notes, municipal obligations and tax exempt commercial paper. All such instruments must carry minimum ratings of A1/P1/F1, MIG1/VMIG1/SP1 and A2/A/A, as applicable, all of which are considered “investment grade”. Our investment policy for marketable securities requires that all securities mature in five years or less, with a weighted average maturity of no longer than 24 months with at least 10% maturing in 90 days or less. (See Note 3 – Investments of Notes to Consolidated Financial Statements for further discussion and analysis of our investments).

Concentration of credit risk with respect to trade accounts receivable is limited due to our large number of customers and their dispersion across many countries and industries. No single customer accounted for more than 4% of our sales for the years ended December 31, 2022, 2021, and 2020, respectively. The largest trade account receivable from any individual customer at December 31, 2022 was approximately $11.3 million.

Key supplier risk

Our manufacturing processes use large volumes of high-quality components and subassemblies supplied by outside sources. Several of these items are available through sole or limited sources. Supply shortages or quality problems in connection with these key items has recently and may continue to require us to procure items from replacement suppliers, which would cause significant delays in fulfillment of orders and likely result in additional costs. In order to manage this risk, we maintain safety stock of some of these single sourced components and subassemblies and perform regular assessments of a suppliers' performance, grading key suppliers in critical areas such as quality and “on-time” delivery.

Warranty reserve

We offer a standard warranty on most hardware products which is included in the terms of sale of such products. During 2022, we enhanced the service entitlements included with our standard warranty to include technical support and dependable repair and replacement coverage. Standard warranties sold with these additional entitlements are now accounted for as service-type warranties and the revenue allocated to these performance obligations is now recognized over the service duration of one or three years, and the related warranty costs are recognized as incurred. We also offer optional extended warranties on our hardware products for which the related revenue is recognized ratably over the warranty period.

For hardware previously sold with only an assurance-type warranty, a provision is made for estimated future warranty costs at the time of the sale for the estimated costs that may be incurred. Our estimate is based on historical experience and product sales during the period. The warranty reserve for the years ended December 31, 2022, 2021, and 2020 was $1.5 million, $3.2 million and $2.9 million at December 31, 2022, 2021 and 2020, respectively.

Loss contingencies

We accrue for probable losses from contingencies on an undiscounted basis, when such costs are considered probable of being incurred and are reasonably estimable. We periodically evaluate available information, both internal and external, relative to such contingencies and adjust this accrual as necessary. 

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Government Grants

We have received government assistance in the form of non-reimbursable grants for certain operating and capital expenditures in several countries where we operate. We record proceeds from government grants when there is reasonable assurance that we will comply with the relevant conditions of the grant agreement and the grant funds are received. Grants in recognition of specific expenses are recognized in the same period as an offset to those related expenses. Grants related to depreciable assets are recognized over the periods and in the proportions in which depreciation expense on those assets is recognized. Cash receipts related to government grants are presented within operating or investing cash flows, depending on the nature of the grant.

Unrecognized benefits from grants previously received are recorded in "Other current liabilities" and "Other long-term liabilities". The amounts recorded in "Other current liabilities" and "Other long-term liabilities" as of December 31, 2022 were $2.4 million and $6.8 million respectively, primarily related to prior period grants for depreciable assets. Amounts received from new or existing grant arrangements during fiscal year 2022 were not material. The effect of government grants on our results of operations during 2022 were not material.

Other Expense

Other expense consisted of the following amounts:

			Years ended December 31,
(in thousands)			2022			2021			2020
Interest income			$	454		$	375		$	3,899
Interest expense			(16,591)			(3,780)			(1,883)
Loss from equity-method investments			(163)			(5,719)			(2,942)
Net foreign exchange loss			(10,170)			(4,973)			(141)
Other gain (loss)			6,277			(493)			279
Other expense			$	(20,193)		$	(14,590)		$	(788)

The year over year increase within "Other gain(loss)" was primarily related to a $3.4 million insurance recovery related to a pre-acquisition claim liability from one of our prior acquisitions, a $1.3 million tax settlement with an acquisition after the measurement period closed and a $0.8 million liquidation payment.

Advertising expense

We expense costs of advertising as incurred. Advertising expense for the years ended December 31, 2022, 2021, and 2020 was $8 million, $20 million, and $15 million, respectively.

Foreign currency translation

The functional currency for a substantial majority of our international sales operations is the applicable local currency. The assets and liabilities of these operations are translated at the rate of exchange in effect on the balance sheet date and sales and expenses are translated at average rates. The resulting gains or losses from translation are included in a separate component of other comprehensive income. Gains and losses resulting from re-measuring monetary asset and liability accounts that are denominated in a currency other than a subsidiary’s functional currency are included in net foreign exchange gain (loss) and are included in net income.

Hedging Instruments

All of our derivative instruments are recognized on the balance sheet at their fair value. We currently use foreign currency forward contracts to hedge our exposure to material foreign currency denominated receivables and forecasted foreign currency cash flows. We also use interest rate swaps to hedge interest rate exposure under our Credit Facility resulting from variable interest rates associated with our borrowings under such facility.

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On the date the derivative contract is entered into, we designate the derivative as a hedge of the variability of foreign currency exchange rates or interest rates on our cash flows to be received or paid (“cash flow” hedge) or as an economic hedge of our foreign denominated net receivable positions (“other derivatives”). Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are deemed to be highly effective are recorded in other comprehensive income. 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 OCI and reclassified into earnings in the same line item (net sales, cost of sales, operating expenses, or interest expense) associated with the forecasted transaction and in the same period or periods during which the hedged transaction is realized. The gain or loss on the other derivatives as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings under the line item “Net foreign exchange gain (loss)”. We do not enter into derivative contracts for speculative purposes.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions at the inception of the hedge. This process includes linking all derivatives that are designated as cash flow hedges to specific forecasted transactions. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the hedging instruments are highly effective in offsetting changes in cash flows of hedged items.

We prospectively discontinue hedge accounting if (1) it is determined that the derivative is no longer highly effective in offsetting changes in the fair value of a hedged item (forecasted transactions); or (2) the derivative is de-designated as a hedge instrument, because it is unlikely that a forecasted transaction will occur. When hedge accounting is discontinued, the derivative is sold, and the resulting gains and losses are recognized immediately in earnings.

Leases

We identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset. We combine lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) with the non-lease components (e.g., common-area maintenance costs) for our office leases. For our leases of other asset classes that contain both lease components and non-lease components, we allocate the consideration in the contract to each component based on its standalone price.

Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date. For these leases, we record the related asset and obligation at the present value of lease payments. The discount rate used to calculate the present value of the lease payments is typically our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancellable period for which we have the right to use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term. Our remaining lease terms range from approximately 1 year to 91 years, some of which may include options to extend the lease for up to 9 years, and some of which may include options to terminate the leases within 1 year. Such operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the accompanying consolidated balance sheets.

Amounts related to finance lease activities and income from leasing activities were not material for the periods presented. (See Note 9 – Leases of Notes to Consolidated Financial Statements for further information on our lease balances).

Income taxes

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. We account for global intangible low-taxed income ("GILTI") in deferred taxes. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position or our results of operations. In estimating future tax consequences, all expected future events are considered other than enactments of changes in tax laws or rates. We account for uncertainty in income taxes recognized in our financial statements using prescribed recognition thresholds and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on our tax returns. Our policy is to recognize interest and penalties related to income tax matters in income tax expense.

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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”) 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 years ended December 31, 2022, 2021, and 2020 are as follows:

						Years ended December 31,
(In thousands)						2022						2021						2020
Weighted average shares outstanding-basic						131,738						132,311						131,082
Plus: Common share equivalents
RSUs and PRSUs						795						1,251						717
Weighted average shares outstanding-diluted						132,533						133,562						131,799

Stock awards to acquire 245,400 shares, 125,200 shares, and 251,400 shares for the years ended December 31, 2022, 2021, and 2020, respectively, were excluded in the computations of diluted EPS because the effect of including the stock awards would have been anti-dilutive.

Stock-based compensation

Stock-based compensation costs are based on the fair value on the date of grant for all RSUs and on the date of enrollment for the employee stock purchase plan. We recognize compensation expense ratably over the requisite service period of the awards. PRSUs are RSU awards that vest based on a market condition. The market condition currently used is our stockholder return relative to the total stockholder return of the companies included in the Russell 2000 Index at the end of the three-year performance period.

The fair values of RSUs, with service-based vesting conditions, are estimated using their market price on the date of grant. The fair values of rights under employee stock purchase plans are estimated using the Black-Scholes option-pricing model. The fair values of PRSUs are estimated using a Monte Carlo simulation. The determination of fair value of the PRSUs is affected by our stock price and a number of assumptions including the expected volatility, expected dividend yield and the risk-free interest rate. Our expected volatility at the date of grant was based on the historical volatilities of our stock and the companies included in the Russell 2000 Index over the performance period. Refer to Note 12 – Authorized shares of common and preferred stock and stock-based compensation plans of Notes to Consolidated Financial Statements for additional information on our equity-based compensation programs.

Comprehensive income

Our comprehensive income is comprised of net income, foreign currency translation and unrealized gains and losses on forward contracts and securities available-for-sale. Comprehensive income in 2022, 2021, and 2020 was $122 million, $90 million and $144 million, respectively.

Recently Adopted Accounting Pronouncements

Government Grants

In November 2021, the FASB issued ASU No. 2021-10, "Government Assistance (Topic 832)", 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. We prospectively adopted ASU 2021-10 on January 1, 2022. Please refer to Note 1 – Operations and summary of significant accounting policies of Notes to Consolidated Financial Statements for additional information on our accounting for government grants.

Business Combinations

In October 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.

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Recently Issued Accounting Pronouncements

In September 2022, the FASB issued ASU No. 2022-04, "Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." The amendments in this update require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this update do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of this accounting standard update on our annual financial statement disclosures.

Although there are several other accounting pronouncements recently issued by the FASB, we do not expect the adoption of any of these accounting pronouncements to have material impact on our consolidated financial statements.

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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:

												Year Ended December 31,
						2022
(In thousands)
Net sales:						Point-in-Time(1)						Over Time						Total
Americas						$	606,059					$	105,766					$	711,825
EMEA						351,843						78,379						430,222
APAC						472,619						42,309						514,928
Total net sales (1)						$	1,430,521					$	226,454					$	1,656,975

												Year Ended December 31,
						2021
(In thousands)
Net sales:						Point-in-Time(1)						Over Time						Total
Americas						$	503,839					$	93,417					$	597,256
EMEA						285,842						89,782						375,624
APAC						454,684						42,117						496,801
Total net sales (1)						$	1,244,365					$	225,316					$	1,469,681

												Year Ended December 31,
						2020
(In thousands)
Net sales:						Point-in-Time(1)						Over Time						Total
Americas						$	430,779					$	77,669					$	508,448
EMEA						263,473						82,162						345,635
APAC						391,937						40,651						432,588
Total net sales (1)						$	1,086,189					$	200,482					$	1,286,671
(1) Net sales contain 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.

						Years ended December 31,
(In thousands)
Industry Grouping						2022						2021						2020
Semiconductor & Electronics						431,936						389,863						322,709
Transportation						301,793						216,504						170,774
Aerospace, Defense & Government						412,566						378,731						342,143
Portfolio						510,680						484,583						451,045
Total net sales						$	1,656,975					$	1,469,681					$	1,286,671

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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, 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 long-term, during the twelve months ended December 31, 2022 and December 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 recognition			132,374
Recognition of revenue deferred in prior periods			(126,263)
Acquisitions/Divestitures			343
Foreign currency translation impact			(4,300)
Deferred Revenue at December 31, 2021			$	170,640
Deferral of revenue billed in current period, net of recognition			166,973
Recognition of revenue deferred in prior periods			(131,820)
Acquisitions/Divestitures			1,620
Foreign currency translation impact			(7,139)
Deferred Revenue at December 31, 2022			$	200,274

For the twelve months ended December 31, 2022, revenue recognized from performance obligations related to 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 are included in "Other current assets" and "Other long-term 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 year ended December 31, 2022, 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 excluding contracts where revenue is recognized as invoiced, was approximately $115 million as of December 31, 2022. Because we typically invoice customers at contract inception, this amount is included in our current and non-current deferred revenue balance and primarily relates to multi-year payments for hardware service and software service offerings. As of December 31, 2022, we expect to recognize approximately 44% of the revenue related to these unsatisfied performance obligations during 2023, 35% during 2024, and 22% thereafter.

Practical Expedients

As discussed in Note 1 - Operations and summary of significant accounting policies and Note 2 - Revenue of Notes to Consolidated Financial Statements, we have elected the following practical expedients in accordance with the revenue standard:

•We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

•We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

•We do not consider the time value of money for contracts with original durations of one year or less.

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Equity-Method Investments

The carrying value of our equity method investments was $29 million and $32 million as of December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, net sales to our equity-method investees were approximately $6.2 million and $5.3 million, respectively and purchases from our equity-method investees were not material.

During the first quarter of 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. Our proportionate share of the income/loss from equity-method investments is included within "Other expense". Refer to Note 1 - Operations and summary of significant accounting policies of Notes to Consolidated Financial Statements for additional information on these amounts for the year ended December 31, 2022, 2021, and 2020.

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:

(In thousands)						Fair Value Measurements at Reporting Date Using
Description						December 31, 2022						Level 1						Level 2						Level 3
Assets
Other 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)					$	—

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(In thousands)						Fair Value Measurements at Reporting Date Using
Description						December 31, 2021						Level 1						Level 2						Level 3
Assets
Cash and cash equivalents available for sale:
Money Market Funds						$	101,290					$	101,290					$	—					$	—
Other Assets:
Derivatives						12,407						—						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 cash equivalents 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. 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 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 year ended December 31, 2022. There were not any transfers in or out of Level 1 or Level 2 during the year ended December 31, 2022.  

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 December 31, 2022 and December 31, 2021.  

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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 57%, 59% and 60% of our net sales during each of the years ended December 31, 2022, 2021, and 2019, respectively. Our activities expose us to a variety of market risks, including the effects of changes in foreign currency exchange rates. These financial risks are monitored and managed by us as an integral part of our overall risk management program.  

We maintain a foreign currency risk management strategy that uses derivative instruments (foreign currency forward contracts) to help protect our earnings and cash flows from fluctuations caused by the volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to our operations and competitive position since 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 use foreign currency forward contracts as hedges of forecasted sales that are denominated in foreign currencies and as hedges of foreign currency denominated receivables. 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 revenue expenses will be adversely affected by changes in exchange rates.

We designate foreign currency forward contracts as cash flow hedges of forecasted revenues 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 revenue 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 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.  

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We held foreign currency forward contracts with the following notional amounts:

(In thousands)						U.S. Dollar Equivalent
						As of December 31, 2022						As of December 31, 2021
Chinese yuan						$	73,419					$	99,066
Euro						109,091						145,351
Japanese yen						21,285						43,128
Hungarian forint						19,529						54,939
British pound						13,929						25,947
Malaysian ringgit						8,856						29,624
Korean won						$	14,048					$	21,180
Total forward contracts notional amount						$	260,157					$	419,235

The contracts in the foregoing table had contractual maturities of 12 months or less as of December 31, 2022 and 24 months or less as of December 31, 2021.

At December 31, 2022, we expect to reclassify $3.2 million of gains on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $2.4 million of losses on derivative instruments from accumulated OCI to cost of sales when the cost of sales are incurred and $1.8 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 December 31, 2022. Actual results may vary as a result of changes in the corresponding exchange rates subsequent to this date.  

In 2022, we also 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 eliminate some uncertainty of the cash flows associated with floating-rate interest payments due under our Credit Facility by fixing the underlying annual interest rate for a portion of our outstanding debt 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 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 in the same period that corresponding interest expense is recognized.

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

Other Derivatives  

Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated monetary assets and liabilities to help protect against the change in value caused by fluctuations in foreign currency exchange rates. We typically attempt to hedge up to 90% of our outstanding foreign denominated net receivables or net payables for certain currencies and typically limit the duration of these foreign currency forward contracts to approximately 90 days. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item “Other expense.” As of December 31, 2022 and December 31, 2021, we held foreign currency forward contracts that were not designated as hedging instruments with a notional amount of $282 million and $94 million, respectively. 

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The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets and the effect of derivative instruments on our Consolidated Statements of Income.   

    

						Asset Derivatives
												December 31, 2022						December 31, 2021
(In thousands)
						Balance Sheet Location						Fair Value						Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts - ST forwards						Prepaid expenses and other current assets						$	8,968					$	8,993
Interest rate contracts - ST forwards						Prepaid expenses and other current assets						2,299						—
Foreign exchange contracts - LT forwards						Other long-term assets						—						2,908
												$	11,267					$	11,901
Derivatives not designated as hedging instruments
Foreign exchange contracts - ST forwards						Prepaid expenses and other current assets						$	1,057					$	506
												$	1,057					$	506
Total derivatives												$	12,324					$	12,407

   

						Liability Derivatives
												December 31, 2022						December 31, 2021
(In thousands)
						Balance Sheet Location						Fair Value						Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts - ST forwards						Accrued expenses and other current liabilities						$	(9,940)					$	(6,425)
Foreign exchange contracts - LT forwards						Other long-term liabilities						(196)						(2,377)
Interest rate contracts - LT forwards						Other long-term liabilities						(1,013)						—
												$	(11,149)					$	(8,802)
Derivatives not designated as hedging instruments
Foreign exchange contracts - ST forwards						Accrued expenses and other current liabilities						$	(8,177)					$	(666)
												$	(8,177)					$	(666)
Total derivatives												$	(19,326)					$	(9,468)

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The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the years ended December 31, 2022 and 2021, respectively:

December 31, 2022
(In thousands)
Derivatives in Cash Flow Hedging Relationship						Gain or (Loss) Recognized in OCI on Derivative						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income						Gain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards						$	(4,950)					Net sales						$	22,199
Foreign exchange contracts - forwards						346						Cost of sales						(4,124)
Foreign exchange contracts - forwards						243						Operating expenses						(2,956)
Interest rate swap contracts - forwards						1,285						Other expense						112
Total						$	(3,076)											$	15,231

December 31, 2021
(In thousands)
Derivatives in Cash Flow Hedging Relationship						Gain or (Loss) Recognized in OCI on Derivative						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income						Gain or (Loss) Reclassified from Accumulated OCI into Income
Foreign exchange contracts - forwards						$	24,082					Net sales						$	(4,229)
Foreign exchange contracts - forwards						(4,004)						Cost of sales						(452)
Foreign exchange contracts - forwards						(2,808)						Operating expenses						(355)
Total						$	17,270											$	(5,036)

(In thousands)
Derivatives not Designated as Hedging Instruments						Location of Gain (Loss) Recognized in Income						Amount of Gain (Loss) Recognized in Income						Amount of Gain (Loss) Recognized in Income
												December 31, 2022						December 31, 2021
Foreign exchange contracts - forwards						Other expense						$	(719)					$	(4,944)
Total												$	(719)					$	(4,944)

Gains or losses recognized in OCI on our derivatives are reported net of gains or losses reclassified from accumulated OCI into income.

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Inventories, net at December 31, 2022 and December 31, 2021 consist of the following: 

(In thousands)						December 31, 2022						December 31, 2021
Raw materials						$	273,311					$	195,874
Work-in-process						14,968						14,573
Finished goods						119,302						97,728
Total						$	407,581					$	308,175
Less: Inventory reserve						$	19,417					18,932
Total						$	388,164					$	289,243

Property and equipment at December 31, 2022 and December 31, 2021 consist of the following:

(In thousands)						December 31, 2022						December 31, 2021
Land						$	5,753					$	12,390
Buildings						256,073						238,949
Furniture and equipment						474,096						450,889
						735,922						702,228
Accumulated depreciation						(470,542)						(448,560)
Total, net						$	265,380					$	253,668

Depreciation expense for the years ended December 31, 2022, 2021, and 2020, was $37 million, $40 million and $40 million, respectively.

Intangible assets at December 31, 2022 and December 31, 2021 are as follows:

(In thousands)						December 31, 2022																		December 31, 2021
						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Capitalized software development costs						$	18,810					$	(15,321)					$	3,489					$	45,671					$	(36,457)					$	9,214
Acquired technology						167,686						(54,351)						113,335						148,155						(34,264)						113,891
Customer relationships						98,827						(33,514)						65,313						93,931						(19,717)						74,214
Patents						37,240						(31,368)						5,872						36,217						(29,316)						6,901
Other						34,078						(21,237)						12,841						32,962						(16,764)						16,198
Total						$	356,641					$	(155,791)					$	200,850					$	356,936					$	(136,518)					$	220,418

The amounts in the table above are net of fully amortized assets. 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 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 $54 million, $60 million, and $48 million for the years ended December 31, 2022, 2021, and 2020, respectively.

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Capitalized software development costs, customer relationships, acquired technology, patents and other intangible assets had weighted-average remaining useful lives of 1.6 years, 4.4 years, 3.1 years, 5.0 years, and 2.4 years, respectively, as of December 31, 2022. The estimated future amortization expense related to intangible assets as of December 31, 2022 was as follows:

			Amount
			(In thousands)
2023			$	49,374
2024			45,482
2025			40,287
2026			29,195
2027			17,490
Thereafter			19,022
Total			$	200,850

Goodwill

A reconciliation of the beginning and ending carrying amounts of goodwill is as follows:

			Amount
			(In thousands)
Balance as of December 31, 2020			$	467,547
Acquisitions			114,178
Divestiture			1,973
Foreign currency translation impact			(7,706)
Balance as of December 31, 2021			$	575,992
Acquisitions			42,757
Purchase price adjustments			4,243
Foreign currency translation impact			(7,258)
Balance as of December 31, 2022			$	615,734

The components of operating lease expense were as follows:

			Years Ended December 31,
(In thousands)			2022			2021			2020
Operating Lease Cost (a)			22,518			$	21,173		$	21,637
(a) Includes variable and short-term lease costs

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Supplemental cash flow information related to operating leases were as follows:

			Years Ended December 31,
(In thousands)			2022			2021			2020
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating lease liabilities			$	18,216		$	19,087		$	20,005
Supplemental non-cash information:
Operating lease right-of-use assets obtained in exchange for new operating lease obligations			$	18,412		$	8,707		$	12,252

Maturities of lease liabilities as of December 31, 2022 were as follows:

(In thousands)
Years ending December 31,									Operating Leases
2023									$	15,284
2024									12,431
2025									8,702
2026									7,519
2027									2,977
Thereafter									488
Total future minimum lease payments									47,401
Less imputed interest									2,979
Total									$	44,422
						Years Ended December 31,
						2022			2021
Weighted Average Remaining Lease Term (years)
Operating Leases						3.7			4.3
Weighted Average Discount Rate
Operating Leases						4.0		%	3.8		%

As of December 31, 2022, we have additional operating leases, primarily for real estate, that have not yet commenced of approximately $8 million. These operating leases will commence in 2023 with lease terms of up to 10 years.

The components of income before income taxes are as follows:

(In thousands)						Years Ended December 31,
						2022						2021						2020
Domestic						$	65,258					$	33,368					$	189,486
Foreign						106,618						70,207						9,276
Total						$	171,876					$	103,575					$	198,762

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The provision for income taxes charged to operations is as follows:

(In thousands)						Years Ended December 31,
						2022						2021						2020
Current tax expense:
U.S. federal						$	77,136					$	10,979					$	25,949
State						7,504						3,135						4,793
Foreign						20,500						15,942						16,590
Total current						$	105,140					$	30,056					$	47,332
Deferred tax expense (benefit):
U.S. federal						$	(64,415)					$	(8,485)					$	10,056
State						(2,375)						(732)						885
Foreign						(4,471)						(6,676)						(5,100)
Total deferred						$	(71,261)					$	(15,893)					$	5,841
Change in valuation allowance						(1,647)						97						1,930
Total provision						$	32,232					$	14,260					$	55,103

Deferred tax liabilities (assets) at December 31, 2022 and 2021 were as follows:

(In thousands)						December 31,
						2022						2021
Capitalized software						$	733					$	1,956
Depreciation and amortization						6,113						8,202
Intangible assets						22,694						25,526
Right of use asset						7,607						7,246
Undistributed earnings of foreign subsidiaries						6,071						2,865
Unrealized gain on derivative instruments						76						481
Gross deferred tax liabilities						43,294						46,276
Operating loss carryforwards						(82,722)						(92,069)
Vacation and other accruals						(4,801)						(6,188)
Inventory valuation and warranty provisions						(2,920)						(2,566)
Doubtful accounts and sales provisions						(2,341)						(1,759)
Capitalized R&D						(59,055)						—
Deferred revenue						(5,128)						(5,997)
Operating lease liabilities						(8,208)						(7,847)
Accrued expenses						(227)						(194)
Global intangible low-taxed income						(14,022)						(2,714)
Stock-based compensation						(6,537)						(6,786)
Research and development tax credit carryforward						—						(33)
Foreign tax credit carryforward						(1,580)						(1,468)
Cumulative translation adjustment on undistributed earnings						(1,558)						(873)
Unrealized exchange loss						(50)						(758)
Other						(4,424)						(3,446)
Gross deferred tax assets						(193,573)						(132,698)
Valuation allowance						74,129						83,630
Net deferred tax (asset) liability						$	(76,150)					$	(2,792)

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A reconciliation of income taxes at the U.S. federal statutory income tax rate to our effective tax rate follows:

						Years Ended December 31,
						2022						2021						2020
U.S. federal statutory rate						21		%				21		%				21		%
Foreign taxes greater (less) than federal statutory rate						4						(3)						6
Outside basis difference on asset held for sale						—						—						2
Research and development tax credits						(4)						(4)						(2)
Enhanced deduction for certain research and development expenses						(3)						(5)						(2)
State income taxes, net of federal tax benefit						3						2						1
Nondeductible officer compensation						2						2						1
Change in intercompany prepaid tax asset						—						(1)						1
Foreign-derived intangible income deduction						(7)						(4)						(2)
Global intangible low-taxed income inclusion ("GILTI")						7						2						—
Amortization of intangible assets						2						3						1
Global intangible low-taxed income deferred						(7)						—						—
Other						1						1						1
Effective tax rate						19		%				14		%				28		%

The Tax Cuts and Jobs Act was enacted on December 22, 2017 (the "Tax Act"). The Tax Act requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The amount of transition tax payable as of December 31, 2022 was $54.2 million, of which $13.6 million is due in the next 12 months and $40.6 million is payable during 2024 through 2025.

As of December 31, 2022, we had federal tax net operating loss carryforwards of $1.7 million, which may be carried forward indefinitely, and tax credit carryforwards of $1.6 million which expire during the years 2029 to 2040. Certain of these carryforwards are subject to limitations following a change in ownership. We do not expect to utilize certain of these tax credit carryforwards and have recorded a valuation allowance of $1.5 million against those credits at December 31, 2022.

As of December 31, 2022, 25 of our subsidiaries had available, for income tax purposes, foreign net operating loss carryforwards of an aggregate of approximately $864 million, of which $772 million expires during the years 2023 to 2041 and $92 million of which may be carried forward indefinitely. Our tax valuation allowance relates primarily to our ability to realize certain of these foreign net operating loss carryforwards.

Effective January 1, 2010, a new tax law in Hungary provided for an enhanced deduction for the qualified research and development expenses of NI Hungary Software and Hardware Manufacturing Kft. (“NI Hungary”). During the three months ended December 31, 2009, we obtained confirmation of the application of this new tax law for the qualified research and development expenses of NI Hungary. Based on the application of this new tax law to the qualified research and development expense of NI Hungary, we do not expect to have sufficient future taxable income in Hungary to realize the benefits of NI Hungary’s deferred tax assets. Therefore, we had a full valuation allowance against those assets at December 31, 2022.

    

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Earnings from our operations in Malaysia are free of tax under a tax holiday effective January 1, 2013. This tax holiday expires in 2037. If we fail to satisfy the conditions of the tax holiday, this tax benefit may be terminated early. The tax holiday in Malaysia resulted in income tax benefits of $6.3 million and $3.9 million for the years ended December 31, 2022 and 2021, respective1y. The impact of the tax holiday on a per share basis for each of the years ended December 31, 2022 and 2021 was a benefit of $0.05 and $0.03 per share, respectively.

We have not provided for foreign withholding or distribution taxes on approximately $15.4 million of certain non-U.S. subsidiaries' undistributed earnings as of December 31, 2022. These earnings would become subject to withholding or distribution taxes of approximately $1.5 million, if they were remitted to the parent company as dividends. We intend to permanently reinvest these undistributed earnings.

We account for uncertainty in income taxes recognized in our financial statements using prescribed recognition thresholds and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on our tax returns. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(In thousands)						December 31, 2022						December 31, 2021
Balance at beginning of period						$	9,360					$	10,488
Additions based on tax positions related to the current year						2,544						232
Additions based on tax positions related to the prior year						2,143						—
Reductions as a result of the closing of open tax periods						(1,486)						(1,360)
Balance at end of period						$	12,561					$	9,360

All of our gross unrecognized tax benefits at December 31, 2022 would affect our effective income tax rate if recognized. As of December 31, 2022, it is reasonably possible that the unrecognized gross tax benefits could decrease in the amount of $0.8 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty is related to deductions taken on returns that have not been examined by the applicable tax authority.  

We recognize interest and penalties related to income tax matters in income tax expense. During the years ended December 31, 2022 and 2021, we recognized interest expense related to uncertain tax positions of approximately $0.2 million. As of December 31, 2022 and 2021, we had approximately $0.3 million accrued for interest related to uncertain tax positions.

The tax years 2016 through 2022 remain open to examination by the major taxing jurisdictions to which we are subject.

Our comprehensive income is comprised of net income, foreign currency translation, unrealized gains and losses on designated derivatives and debt securities classified as available-for-sale. The accumulated other comprehensive income, net of tax, for the years ended December 31, 2022 and 2020, consisted of the following:   

						December 31, 2022
(In thousands)						Currency translation adjustment						Investments						Derivative instruments						Accumulated other comprehensive income (loss)
Balance as of December 31, 2021						$	(23,179)					$	—					$	3,048					$	(20,131)
Current-period other comprehensive (loss) income						(15,071)						—						12,155						(2,916)
Reclassified from accumulated OCI into income						—						—						(15,231)						(15,231)
Income tax benefit (expense)						—						—						413						413
Balance as of December 31, 2022						$	(38,250)					$	—					$	385					$	(37,865)

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Authorized shares of common and preferred stock

The total number of shares which we are authorized to issue is 365,000,000 shares, consisting of (i) 5,000,000 shares of preferred stock, par value $0.01 per share, and (ii) 360,000,000 shares of common stock, par value $0.01 per share.

Stock-Based Compensation Plan  

Our stockholders approved our 2010 Incentive Plan (the “2010 Plan”) on May 11, 2010. At the time of approval, 3,000,000 shares of our common stock were reserved for issuance under the 2010 Plan, as well as the 3,362,304 shares of common stock that were reserved but not issued under the 1994 Plan and the 2005 Incentive Plan (the "2005 Plan") as of May 11, 2010, and any shares that are returned to the 1994 Plan and the 2005 Plan as a result of the forfeiture or termination of options or RSUs or repurchase of shares issued under those plans. The 2010 Plan provided for the granting of incentive awards in the form of restricted stock and RSUs to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten-year awards may accelerate based on our previous year’s earnings and growth but ten-year awards cannot accelerate to vest over a period of less than five years. The 2010 Plan terminated on May 12, 2015, except with respect to the outstanding awards previously granted thereunder. There were 2,518,416 shares of common stock that were reserved but not issued under the 2010 Plan as of May 12, 2015.

Our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”) on May 12, 2015. At the time of approval, 3,000,000 shares of our common stock were reserved for issuance under the 2015 Plan, as well as the 2,518,416 shares of common stock that were reserved but not issued under the 2010 Plan as of May 12, 2015, and any shares that were returned to the 1994 Plan, 2005 Plan, and 2010 Plan as a result of the forfeiture or termination of options or RSUs or repurchase of shares issued under those plans. The 2015 Plan provides for the granting of incentive awards in the form of restricted stock and RSUs to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company and such awards may be subject to performance-based vesting conditions. Awards generally vest over a three, four, five or ten-year period, beginning on the date of grant. Vesting of ten-year awards may accelerate based on our previous year’s earnings and growth but ten-year awards cannot accelerate to vest over a period of less than five years. The 2015 Plan terminated on May 5, 2020, except with respect to the outstanding awards previously granted thereunder. There were 567,142 shares of common stock that were reserved but not issued under the 2015 Plan as of May 5, 2020.  

Our stockholders approved our 2020 Equity Incentive Plan (the “2020 Plan”) on May 5, 2020. At the time of approval, 4,500,000 shares of our common stock were reserved for issuance under the 2020 Plan, as well as the 567,142 shares of common stock that were reserved but not issued under the 2015 Plan as of May 5, 2020, and any shares that were returned to the 2005 Plan, 2010 Plan and 2015 Plan as a result of the forfeiture or termination of options or RSUs or repurchase of shares issued under those plans. The 2020 Plan provides for the granting of incentive awards in the form of restricted stock and RSUs to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Awards generally vest over a one, two, three, or four-year period, beginning on the date of the grant and awards may be subject to performance-based vesting conditions. There were 1,568,571 shares of common stock that were reserved but not issued under the 2020 Plan as of May 10, 2022. 

Our stockholders approved our 2022 Equity Incentive Plan (the “2022 Plan”) on May 10, 2022. At the time of approval, 4,500,000 shares of our common stock were reserved for issuance under the 2022 Plan, as well as the 1,568,571 shares of common stock that were reserved but not issued under the 2020 Plan as of May 10, 2022, and any shares that were returned to the 2005 Plan, 2010 Plan, 2015 Plan and 2020 Plan as a result of the forfeiture, repurchase or termination of unissued shares subject to options or RSUs issued under those plans. The 2022 Plan provides for the granting of incentive awards in the form of restricted stock and RSUs to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Awards generally vest over a one, two, three or four-year period, beginning on the date of the grant and awards may be subject to performance-based vesting conditions. There were 6,176,156 shares available for grant under the 2022 Plan at December 31, 2022.

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During the year ended December 31, 2022, we did not make any changes in accounting principles or methods of estimates related to the 2010, 2015 and 2020 Plans.  Transactions under our 2010 Plan, 2015 Plan, 2020 Plan and 2022 Plan are summarized as follows:

						RSUs
						Number of RSUs						Weighted average grant price per share
Outstanding at December 31, 2019						3,289,637						$	40.99
Granted						2,347,725						$	40.27
Earned						(1,105,559)						$	40.02
Canceled						(490,541)						$	40.74
Outstanding at December 31, 2020						4,041,262						$	40.88
Granted						1,757,606						$	45.67
Earned						(1,389,110)						$	39.92
Canceled						(447,300)						$	41.54
Outstanding at December 31, 2021						3,962,458						$	43.26
Granted						2,138,494						$	41.77
Earned						(1,514,636)						$	42.04
Canceled						(565,864)						$	43.24
Outstanding at December 31, 2022						4,020,452						$	42.93

Total unrecognized stock-based compensation expense related to non-vested RSUs was approximately $122.4 million as of December 31, 2022, related to 4,020,452 shares with a per share weighted average grant date fair value of $42.93. We anticipate this expense to be recognized over a weighted average period of approximately 2.39 years.

Performance-based stock units

During the year ended December 31, 2022, 2021 and 2020, we granted 164,843, 130,006 and 144,647 PRSUs, respectively, to executive officers pursuant to the 2020 Plan, respectively. The PRSUs may be earned based on our total shareholder return ("TSR") compared to the TSR of the Russell 2000 Index (the “Index”) over a three-year performance period. For the PRSUs granted during the year ended December 31, 2022, the three-year performance period commenced on January 1, 2022, and will end on December 31, 2024, for the PRSUs granted during the year ended December 31, 2021, the three-year performance period commenced on January 1, 2021 and will end on December 31, 2023, and for the PRSUs granted during the year ended December 31, 2020, the three-year performance period commenced on January 1, 2020 and ended on December 31, 2022, in each case, using the average daily closing price over a 30-day lookback. The number of awards earned could range from zero to two times the target number of shares granted.

The fair values of PRSUs are estimated using a Monte Carlo simulation. The determination of fair value of the PRSUs is based on our stock price and a number of assumptions including the expected volatility, expected dividend yield and the risk-free interest rate. The expected volatility at the date of grant was based on the historical volatilities of our stock and the companies included in the Index over the performance period. The Monte Carlo model is based on random projections of stock-price paths and must be repeated numerous times to achieve a probabilistic assessment. The key assumptions used in valuing these market-based awards are as follows:

			Years Ended
			December 31, 2022			December 31, 2021			December 31, 2020
Number of simulations			100,000			100,000			100,000
Expected volatility			37.81%			40.60%			27.41%
Expected life in years			2.95 years			2.95 years			2.92 years
Risk-free interest rate			1.33%			0.21%			1.38%
Dividend yield			2.52%			2.66%			2.32%

The weighted average grant date fair value of the market-based awards, as determined by the Monte Carlo valuation model, was $59.65 per share, $66.97 per share and $61.00 per share in 2022, 2021 and 2020, respectively.

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Employee stock purchase plan  

Our employee stock purchase plan ("ESPP") permits substantially all domestic employees and employees of designated subsidiaries to acquire our common stock at a purchase price of 85% of the lower of the market price at the beginning or the end of the purchase period. The plan has quarterly purchase periods generally beginning on February 1, May 1, August 1 and November 1 of each year. Employees may designate up to 15% of their compensation for the purchase of common stock under this plan. On May 10, 2022, our stockholders approved an additional 3,000,000 shares for issuance under our ESPP. At December 31, 2022, we had 4,073,090 shares of common stock reserved for future issuance under the ESPP. We issued 988,431 shares under this plan in the year ended December 31, 2022. The weighted average purchase price of the shares under this plan was $32.19 per share.

The grant date fair value of the purchase rights was estimated using the Black-Scholes model with the following assumptions: 

						2022						2021						2020
Dividend yield						0.714		%				0.653		%				0.620		%
Expected life						3 months						3 months						3 months
Expected volatility						30		%				35		%				47		%
Risk-free interest rate						0.32		%				0.07		%				1.26		%

Weighted average, grant date fair value of purchase rights granted under the ESPP are as follows:

						Number of Shares						Weighted average fair value per share
2020						1,026,578						$	8.80
2021						997,671						$	9.17
2022						988,431						$	7.89

During the year ended December 31, 2022, we did not make any changes in accounting principles or methods of estimates with respect to the employee stock purchase plan.  

Stock repurchases and retirements

On April 21, 2010, our Board of Directors authorized a program to repurchase shares of our common stock from time to time, depending on market conditions and other factors (the "2019 Program"). The Board has amended the 2019 Program several times over the years to increase the number of shares that may be purchased under the program. On October 23, 2019, our Board amended the 2019 Program to increase the number of shares that may be repurchased by 3,000,000 shares.

On January 19, 2022, our Board of Directors approved a new stock repurchase plan for up to $250 million of our common stock, effective immediately (the "2022 Program"). This new repurchase program is in addition to the existing 2019 Program. Under the 2022 Program, shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the other terms of the repurchase will depend on a variety of factors, including legal requirements, economic and market conditions, and other investment opportunities. The 2022 Program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

As of March 31, 2022, there were no shares remaining available for repurchase under the 2019 Program. At December 31, 2022, there was $109 million available for repurchase under the 2022 Program. Under the 2022 and 2019 Program, during the year ended December 31, 2022, we repurchased 3,792,063 shares of our common stock at a weighted average price per share of $40.04. Under the 2019 Program, we repurchased 1,339,498 shares of our common stock at a weighted average price per share of $41.06 during the year ended December 31, 2021, and we repurchased 1,390,057 shares of our common stock at a weighted average price per share of $35.04 during the year ended December 31, 2020.

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We operate as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, who is our chief executive officer, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker evaluates our financial information and resources and assesses the performance of these resources on a consolidated basis. Since we operate in one operating segment, all required financial segment information can be found in the consolidated financial statements and the notes thereto.

We sell our products in three geographic regions which consist of Americas; EMEA; and APAC. Our sales to these regions share similar economic characteristics including the nature of products and services we sell, the type and class of customers, and the methods used to distribute our products and services. Revenue from the sale of our products, which are similar in nature, and software maintenance are reflected as total net sales in our Consolidated Statements of Income. (See Note 2 – Revenue of Notes to Consolidated Financial Statements for total net sales by the geographic regions in which we operate). 

The following tables present summarized information for net sales by country. Revenues from external customers are generally attributed to countries based upon the customer's location. Net sales attributable to each individual foreign country outside the U.S. and China were not material.

			United States			China(1)			Rest of the World			Total
			(in millions)
Net sales:
Year ended December 31, 2022			$	687		$	240		$	730		$	1,657
Year ended December 31, 2021			$	566		$	233		$	671		$	1,470
Year ended December 31, 2020			$	482		$	201		$	604		$	1,287
(1): Includes Mainland China and Hong Kong Special Administrative Region

The following table presents summarized information for long-lived assets by country. Long-lived assets attributable to each individual country outside the U.S., Hungary and Malaysia were not material. The long-lived assets presented below consist of property, plant, and equipment and operating lease right-of-use assets and excludes intangible assets.

(in millions)			United States			Hungary			Malaysia			Rest of the World			Total
Long-lived Assets:
December 31, 2022			$	124		$	58		$	82		$	61		$	325
December 31, 2021			$	125		$	51		$	76		$	60		$	312

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The following table presents the amounts outstanding related to our borrowing arrangements discussed above as of December 31, 2022, and 2021, respectively (in thousands):

			December 31,			December 31,
			2022			2021
Secured
2022 term loan			$	493,750		$	—
2022 revolving credit			50,000			—
2021 revolving credit			—			300,000
Total Debt			543,750			300,000
Less: Unamortized debt issuance costs			(2,113)			—
Less: Current Portion of Total Debt			(25,000)			—
Total Debt, non-current			$	516,637		$	300,000

Debt Issuance Costs

The effective interest rate for the 2022 term loan, was 5.6%, the 2022 revolving credit was 5.7% and for the 2021 revolving credit was 1.4%. As of December 31, 2022, debt issuance costs of approximately $2.1 million attributable to our revolving credit are presented within "Other long-term assets" in our Consolidated Balance Sheet and debt issuance costs of approximately $2.1 million attributable to the term loan are presented within "Debt, non-current". As of December 31, 2021, debt issuance costs of approximately $2.5 million attributable to our revolving credit are presented within "Other long-term assets" in our Consolidated Balance Sheet. These amounts are amortized to interest expense ratably over the life of the revolving credit.

Credit Facility

On August 24, 2022, we amended the terms of our Credit Facility by entering into a Third Amended and Restated Credit Agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as the administrative agent, swingline lender and issuing lender (the "Administrative Agent"), Wells Fargo Securities, LLC, BofA Securities, Inc. and Citibank, N.A., as joint lead arrangers and joint bookrunners, BofA Securities, Inc. and Citibank, N.A., as syndication agents, and the lenders party thereto. The Credit Agreement amends and restates and refinances our Second Amended and Restated Credit Agreement, dated as of June 18, 2021, by and among us, the lenders from time-to-time party thereto and Wells Fargo Bank, National Association, as the administrative agent (the "Prior Credit Agreement"). All outstanding loans under the Prior Credit Agreement were repaid in full in connection with the entry into the Credit Agreement. The replacement of the Prior Credit Agreement with the Credit Agreement was treated as a debt modification and the remaining balance of unamortized debt issuance costs were allocated to the new loan facilities, as described below.

The Credit Agreement provides for an initial $1 billion Credit Facility consisting of (a) a secured revolving loan facility in an aggregate principal amount of up to $500 million at any time outstanding, with a sublimit of $25 million for the issuance of letters of credit and (b) a secured term loan facility in an aggregate principal amount of $500 million. Subject to the terms of the Credit Agreement, including obtaining commitments from existing lenders or new lenders, we may request additional term loans and/or revolving loan commitments. The Credit Facility terminates, and all revolving loans outstanding and/or outstanding term loan amounts (together with accrued interest and fees) are payable in full, on August 24, 2027, unless terminated earlier pursuant to the terms of the Credit Agreement. The term loans amortize in quarterly payments equal to 1.25% of the original principal amount of the term loans, with the remaining outstanding balance due at maturity.

The term loans and revolving loans accrue interest, at our option, at (i) a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%, and (c) an adjusted term SOFR for an interest period of one month plus 1.00%, in each case, plus a margin of 0.25% to 0.75%, or (ii) an adjusted term SOFR (for an interest period of one, three or six months) plus a margin of 1.25% to 1.75%, with the margin being determined based upon our consolidated total net leverage ratio. The Credit Agreement contains financial covenants requiring us to maintain a maximum consolidated total net leverage ratio of less than or equal to 3.50 to 1.00, which increases to 4.00 to 1.00 for a specified period following material acquisitions, and a minimum consolidated interest coverage ratio of greater than or equal to 3.00 to 1.00, in each case determined in accordance with the Credit Agreement.

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The Credit Agreement provides for a commitment fee of 0.150% to 0.250% per annum, determined based upon our consolidated total net leverage ratio, on the average daily unused portion of the revolving committed amount, payable quarterly in arrears.

Under the circumstances described in the Credit Agreement, certain of our wholly owned domestic subsidiaries (the "Subsidiary Guarantors") are required to enter into a guaranty agreement ("Guaranty") in favor of the Administrative Agent guarantying our obligations under the Credit Agreement, among other things. As of December 31, 2022, there were no Subsidiary Guarantors, and no Guaranty had been executed. In connection with the Credit Agreement, we entered into a Second Amended and Restated Collateral Agreement (the "Collateral Agreement") pursuant to which we granted a continuing security interest on substantially all of our assets, in favor of the Administrative Agent (for the benefit of the lenders of the Credit Facility), to secure our obligations under the Credit Agreement. Subsidiary Guarantors are required to join the Collateral Agreement and make similar grants of security interests.

The Credit Agreement contains customary affirmative and negative covenants. The affirmative covenants include, among other things, delivery of financial statements, compliance certificates and notices, payment of taxes and other obligations, maintenance of existence, maintenance of properties and insurance, maintenance of books and records, and compliance with applicable laws and regulations. The negative covenants include, among other things, limitations on indebtedness, liens, mergers, consolidations, acquisitions and sales of assets, investments, changes in the nature of the business, affiliate transactions and certain restricted payments. The Credit Agreement contains customary events of default including, among other things, payment defaults, breaches of covenants or representations and warranties, cross-defaults with certain other indebtedness, bankruptcy and insolvency events, judgment defaults and change in control events, subject to grace periods in certain instances. Upon an event of default, the Administrative Agent and the lenders may declare all or a portion of the outstanding obligations payable by us to be immediately due and payable and exercise other rights and remedies provided for under the Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Credit Agreement at a per annum interest rate equal to 2.00% above the otherwise applicable interest rate.

The proceeds of the term loans made on August 24, 2022 were used to prepay in full the revolving loans outstanding under the Prior Credit Agreement. Remaining proceeds of the loans made on August 24, 2022 were used to pay associated costs, fees and other expenses and for other working capital and general corporate purposes. Proceeds of current and additional revolving loans under the Credit Agreement may be used for working capital and other general corporate purposes including acquisitions, share repurchases and dividend payouts. We may prepay the loans under the Credit Agreement in whole or in part at any time without premium or penalty.

We have commitments under non-cancelable operating leases primarily for office facilities throughout the world. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. Future minimum lease payments as of December 31, 2022, for each of the next five years are as follows:

			Amount
			(In thousands)
2023			$	15,284
2024			12,431
2025			8,702
2026			7,519
2027			2,977
Thereafter			488
Total			$	47,401

Rent expense under operating leases was approximately $23 million for the year ended December 31, 2022, $21 million for the year ended December 31, 2021 and $22 million for the year ended December 31, 2020.

In the ordinary course of business, we enter into purchase orders with suppliers for the purchase of goods and services, including non-cancelable agreements for certain inventory components ("unconditional purchase obligations"). The majority of our unconditional purchase obligations relate to amounts due within the next 12 months. As of December 31, 2022, our unconditional purchase obligations primarily consist of payments to various suppliers for inventory components. As of December 31, 2022, our future payments under noncancellable unconditional purchase obligations with a remaining term in excess of one year were approximately $19.4 million. As of December 31, 2021, our future payments under noncancellable unconditional purchase obligations

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Kratzer Acquisition

On May 2, 2022, we completed the acquisition of certain assets of, and assumed certain liabilities of, the test systems business of Germany-based Kratzer. As part of this integrated transaction, we also purchased 100% of the shares in certain subsidiaries of Kratzer including Kratzer Automation S.a.r.l. ("Kratzer France"), Kratzer Automation Inc. ("Kratzer US") and Kratzer Automation (Shanghai) Co., Ltd. ("Kratzer China"). The acquisitions of Kratzer France, Kratzer US, and Kratzer China were completed on June 1, 2022, June 2, 2022, and August 26, 2022, respectively. This transaction was accounted for as a business combination using the acquisition method of accounting. Total cash consideration for the transaction was $56.3 million inclusive of $0.7 million in cash acquired. All of the acquired assets and liabilities of the TS Business have been recorded at their respective fair values as of the acquisition date. The acquisition was funded by cash on hand.

Transaction costs have been expensed as incurred. We expensed $2.2 million of transaction costs related to the acquisition of the TS Business, which are included in selling, general and administrative expenses.

The excess of the purchase price over the net assets acquired was recorded as goodwill. The goodwill generated from the acquisition is primarily attributed to expected growth in the scope of and market opportunities for our existing offerings related to vehicle electrification test systems and other related applications. The goodwill is deductible locally and in the U.S. over 15 years for federal income tax purposes.

During the fourth quarter of 2022, we recorded measurement period adjustments to our preliminary estimate of the fair value of intangible assets acquired as a result of new information obtained on acquired customer contracts. The net decrease to the fair value of total intangible assets acquired was $10 million, with a corresponding increase to goodwill. This change to the provisional amount did not have a material impact to the income statements in the current or previous reporting periods.

Fair value of net assets acquired and liabilities assumed

The information below represents the preliminary purchase price allocation of the TS Business (in thousands):

						May 2, 2022
Consideration Transferred			$			56,324
Cash and cash equivalents						672
Accounts receivable						2,616
Inventories						5,130
Prepaid expenses and other current assets						1,900
Property and equipment						1,145
Goodwill						29,223
Intangible assets						25,192
Operating lease right-of-use assets						4,638
Other long-term assets						108
Accounts payable and accrued expenses						(966)
Accrued compensation						(463)
Operating lease liabilities - current						(1,050)
Accrued expenses and other current liabilities						(8,233)
Operating lease liabilities - non-current						(3,588)
Net Assets Acquired			$			56,324

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The preliminary purchase price allocation related to the acquisition was not finalized as of December 31, 2022. These preliminary estimates of the fair value of the assets acquired and the liabilities assumed are based on the information currently available, and we are continuing to evaluate the underlying inputs and assumptions used in our valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of acquisition. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the acquisition would result in a corresponding increase in the amount of goodwill acquired. The primary areas of purchase price that are not yet finalized relate to intangible assets, income taxes and residual goodwill.

Acquired intangible assets will be amortized over their estimated useful lives on a straight-line basis. The following table summarizes the preliminary purchase price allocation and the preliminary average remaining useful lives for identifiable intangible assets acquired.

			Estimated Fair Value (in thousands)			Estimated Useful Lives (in years)
Customer relationships			$	2,470		10
Developed software			20,830			5
Trade name contractual rights			1,710			2
Total			25,010

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers. The economic useful life was determined by examining the period of time over which the customer attrition curve falls below a target threshold.

Developed software represents the fair value of automation systems for performing test bench tasks and management systems for all resources and accruing data in the test field. The economic life of this software is estimated to be 5 years based on the expected future utilization of the software in its current form.

Results of operations of the business acquired have been included in our condensed consolidated financial statements subsequent to the dates of acquisition. Pro-forma results of operations have not been presented as the impact of the acquired operations was not material.

Heinzinger Acquisition

On February 28, 2022, we completed the acquisition of Heinzinger Automotive GmbH, a leader in the power supply systems for the automotive industry, for $22.5 million in total cash consideration, subject to certain post-closing adjustments. This transaction is being accounted for as a business combination using the acquisition method of accounting. All of the acquired assets and liabilities have been recorded at their respective fair values as of the acquisition date. We recognized approximately $13.5 million of goodwill and $7.2 million of other intangible assets as part of our preliminary purchase price allocation. Transaction costs have been expensed as incurred and were not material to the periods presented. The acquisition was funded by cash on hand.

The preliminary purchase price allocation related to the acquisition was not finalized as of December 31, 2022, and is based upon a preliminary valuation which is subject to change as we obtain additional information with respect to certain intangible assets and income taxes during the measurement period, which is up to one year from the date of acquisition. Pro-forma results of operations have not been presented as the impact of the acquired operations was not material.

The excess of the purchase price over the net assets acquired was recorded as goodwill. Goodwill generated from the acquisition is primarily attributable to expected growth in the scope of and market opportunities for our existing offerings related to vehicle electrification and other related applications. Goodwill is deductible for tax purposes.

NHR Acquisition

On October 19, 2021, we completed the acquisition of NHR, a manufacturer of test and measurement solutions for high power applications including electric vehicles and batteries. As a result of acquiring 100% of the outstanding share capital of NHR, NHR became our wholly owned subsidiary. This transaction is being accounted for as a business combination using the acquisition method of accounting. All of the acquired assets and liabilities of NHR have been recorded at their respective fair values as of the acquisition date. Transaction costs have been expensed as incurred.

At the acquisition date, total consideration transferred was approximately $205 million, inclusive of $3 million in cash acquired. The excess of the purchase price over the net assets acquired was recorded as goodwill. Goodwill generated from the

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acquisition is primarily attributable to expected growth in the scope of and market opportunities for our existing offerings related to vehicle electrification and other related applications. As a result of the structure of the transaction, the balance of goodwill is deductible in the U.S. over 15 years for income tax purposes.

The acquisition was funded primarily by cash on hand in addition to $200 million drawn under our then-existing credit facility in October 2021. See Note 15 – Debt of Notes to Consolidated Financial Statements for further information on our outstanding borrowings. During the year ended December 31, 2021, we expensed $6 million of transaction costs in connection with the acquisition of NHR, which are included in selling, general and administrative expenses.

    During the first quarter of 2022, we recorded a measurement period adjustment to our preliminary estimate of the fair value of liabilities assumed related to amounts owed for certain pre-acquisition activities. The increase to the fair value of acquired liabilities was $5.1 million, with a corresponding increase to goodwill. The change to this provisional amount had no impact to the current or previous period income statements.

During the second quarter of 2022, we recorded measurement period adjustments to total consideration transferred related to amounts received for certain pre-acquisition activities and certain post-closing adjustments. The net decrease to total consideration transferred was $0.8 million, with a corresponding decrease to goodwill. This change had no impact to the current or previous period income statements.

Fair value of net assets acquired and liabilities assumed

The information below represents the purchase price allocation of NHR (in thousands):

			October 19, 2021
Consideration Transferred			$	205,396
Cash			2,935
Accounts receivable, net			3,902
Inventories, net			4,764
Property and equipment, net			287
Other assets and liabilities			(4,621)
Intangible assets			98,510
Goodwill			102,090
Accounts payable and accrued expenses			(2,186)
Deferred revenue			(285)
Net assets acquired			$	205,396

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Acquired intangible assets will be amortized over their estimated useful lives on a straight-line basis. The following table summarizes the purchase price allocation, and the average remaining useful lives, for identifiable intangible assets acquired (dollars in thousands):

			Estimated Fair Value			Estimated Useful Lives (in years)
Customer relationships			$	54,350		7
Developed software			6,010			2-7
Existing product configurations			28,300			9
In-process research and development (IPR&D)			4,030			Indefinite
Trade name			5,820			6
Total			$	98,510

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers. Customer relationships were valued using the multi-period excess earnings method of the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by customer relationships less charges representing the contribution of other assets to those cash flows. The economic useful life was determined by examining the period of time over which a target cumulative present value of discounted cash flows could be achieved.

Existing product configurations represent the existing hardware configurations of products sold by NHR. These products are created from component parts and assembled based on their intended purpose and application. Existing product configurations were valued using the avoided costs / lost profits method. The fair value represents the total costs that would be avoided by having this asset in place. The economic useful life was determined based on the number of years since launch for each product compared to the expected total life of each product.

Unaudited Pro Forma Information

Our results of operations for the year ended December 31, 2021 include net sales of $9 million and net income of $3 million related to NHR for the period subsequent to the acquisition date. The following unaudited pro forma financial information presents combined results of operations for the periods presented, as if the NHR acquisition had occurred on January 1, 2020, with adjustments to give effect to pro forma events that are directly attributable to the acquisition. These pro forma adjustments include additional amortization expense for the identifiable intangible assets and an increase in interest expense related to the additional borrowings entered into in connection with the acquisition, net of tax effects. For the pro forma presentation, given the assumed acquisition date of January 1, 2020, transaction and integration costs that were incurred at or subsequent to the actual acquisition date have been included in the calculation of pro forma net income for the twelve months ended December 31, 2021, whereas transaction and integration costs that were incurred prior to the acquisition date have been excluded from the calculation of pro forma net income. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations. The unaudited pro forma results do not include the impact of synergies, nor any potential impacts on current or future market conditions which could alter the unaudited pro forma results.

			Years Ended December 31,
(in thousands)			2021			2020
Net sales			$	1,496,917		$	1,319,330
Net income			$	85,746		$	144,211

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2021 - Other Acquisitions

During the second quarter of 2021, we also completed the acquisition of a software company that specializes in signal processing and high-fidelity simulation software for validation of autonomous vehicles and advanced driver-assistance systems for approximately $20 million in total cash consideration, subject to certain post-closing adjustments. This transaction was accounted for as a business combination using the acquisition method of accounting. All of the acquired assets and liabilities of the software company have been recorded at their respective fair values as of the acquisition date. We recognized approximately $17 million of goodwill and $4 million of other intangible assets as part of our purchase price allocation. Transaction costs have been expensed as incurred and were not material to the periods presented.

Pro forma results of operations have not been presented because the effects of the acquired operations were not material.

The excess of the purchase price over the net assets acquired was recorded as goodwill. Goodwill generated from the acquisition is primarily attributable to expected growth in the scope of and market opportunities for our software-defined automated test and measurement platform. Goodwill is not deductible for tax purposes.

2022 Restructuring

During the year ended December 31, 2022, we incurred restructuring-related expenses of approximately $5.2 million related to targeted headcount reductions initiated during the year and the finalization of certain activities related to the 2021 Plan discussed below. These severance-related charges are primarily presented within "Sales and Marketing" and "General and Administrative" below. During the fourth quarter of 2022, we also commenced a voluntary separation program for eligible employees, for which we incurred approximately $5.0 million of severance charges for employees who were voluntarily terminated. The majority of costs related to the voluntary separation program were recorded during the fourth quarter of 2022.

During the third quarter of 2022, we recorded an inventory write-down of approximately $3.9 million, presented in "Cost of sales", related to the final transition of manufacturing activities from our RF and microwave test business from Santa Clara, California to our manufacturing hubs in Hungary and Malaysia. The majority of the other charges incurred during the year are related to the severance payments discussed above.

2021 Restructuring

On October 26, 2021, we initiated a restructuring plan (the “2021 Plan”) that resulted in the site closure of our facilities in Aachen, Germany. This targeted restructuring effort was intended to further optimize our research and development operations and accelerate investment in strategic growth opportunities. The majority of these charges were recognized during the fourth quarter of 2021.

2020 Restructuring

On October 29, 2020, we announced a workforce reduction plan (the “2020 Plan”) intended to accelerate our growth strategy and further optimize our operations and cost structure. The majority of charges related to this 2020 Plan were recognized during the three months ended December 31, 2020. We implemented a majority of the actions under this 2020 Plan as of December 31, 2021.

A summary of the charges in the consolidated statement of operations resulting from these restructuring activities is shown below:

(In thousands)			Years Ended
			2022			2021			2020
Cost of sales			$	4,805		(25)			1,626
Research and development			2,779			7,907			5,564
Sales and marketing			4,458			4,006			30,189
General and administrative			2,062			2,174			7,871
Other			—			316			—
Total restructuring and other related costs			$	14,104		14,378			45,250

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Total restructuring and other charges incurred during the year ended December 31, 2022 related to the initiatives described above were $14.1 million primarily related to employee severance costs. A summary of balance sheet activity during 2022 related to the restructuring activity is shown below:

			Restructuring Liability
Balance as of December 31, 2020			$	28,993
Income statement expense			14,378
Cash payments			(31,851)
Balance as of December 31, 2021			$	11,520
Income statement expense			10,160
Cash payments			(11,671)
Balance as of December 31, 2022			$	10,009

The restructuring liability of $10.0 million at December 31, 2022, relating primarily to severance payments associated with the restructuring activity, is recorded in the “accrued compensation” line item of the consolidated balance sheet.

Dividend

On January 25, 2023, our Board of Directors declared a quarterly cash dividend of $0.28 per common share, payable on March 6, 2023, to stockholders of record at the close of business on February 13, 2023. 

Rights Plan

On January 13, 2023, the Board of Directors authorized and declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of common stock to stockholders of record as of the close of business on January 23, 2023, as set forth in a Preferred Stock Rights Agreement dated as of January 13, 2023. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series B Participating Preferred Stock, par value $0.01 per share, of the Company at an exercise price of $200.00, subject to adjustment. The Rights expire on the earliest of (1) January 12, 2024, unless such date is extended, or (2) the distribution date, which is the date when the Rights become exercisable.

Restructuring

During the first quarter of 2023, we announced a workforce reduction plan (the “Plan”) intended to realign our investments to accelerate our growth strategy and further optimize our operations and cost structure. The Plan is expected to result in reductions to our worldwide headcount of approximately 4% during 2023, with a majority of the reductions occurring in the first quarter of 2023. In connection with the Plan, we currently estimate that we will incur charges consisting primarily of cash termination benefits and other employee-related costs. We are continuing to evaluate the amount of these charges and expect that the majority of these charges will be recognized during the first quarter of 2023.