NATIONAL INSTRUMENTS CORPORATION National Instruments Corporation and its subsidiaries (referred to as the "Company," "we," "us," "our," "National Instruments" or "NI") has made forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to risks and uncertainties. Any statements contained herein regarding our future financial performance, operations or other matters (including, without limitation, statements to the effect that we "believe," "expect," "plan," "intend to," "may," "will," "project," "anticipate," "continue," "strive to," "endeavor to," "seek to," "are committed to," "remaining committed to"; "are encouraged by," "remain cautious," "remain optimistic," "estimate", "focus on"; statements of "goals,""commitments," "strategy" or "visions"; or other variations thereof or comparable terminology or the negative thereof) should be considered forward-looking statements. All forward-looking statements are based on current expectations and projections of future events. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, forward-looking statements are not guarantees of performance and actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including those set forth under the heading "Risk Factors" above and elsewhere in this Form 10-K, which could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Actual results could differ materially from those stated or implied by our forward-looking statements, due to risks and uncertainties associated with our business or under different assumptions or conditions. You should not place undue reliance on any of these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Overview and Current Business Outlook For more than 40 years, we have enabled engineers and scientists around the world to accelerate productivity, innovation and discovery. Our software-centric platform provides an advanced approach through integration of software and modular hardware to create automated test and automated measurement systems. We believe our long-term track record of innovation and our differentiated platform help support the success of our customers, employees, suppliers and stockholders. We have been profitable in every year since 1990. We sell to a large number of customers in a wide variety of industries. No single customer represented more than 3% of our sales in each of the last three years. The key strategies that we focus on in running our business are the following: •Expanding our available market opportunity We strive to increase our available market by identifying new opportunities in existing customers, attracting and serving new customers, and expanding our business to market adjacencies. Our large network of existing customers provides a broad base from which to expand. •Maintaining a high level of customer satisfaction To maintain a high level of customer satisfaction we strive to offer innovative, modular and integrated products through a global sales and support network. We strive to maintain a high degree of backward compatibility across different platforms to preserve the customer's investment in our products. In this time of intense global competition, we believe it is crucial that we continue to offer products with high quality and reliability, and that our products provide cost-effective solutions for our customers. •Leveraging external and internal technology Our product strategy is to provide superior products by leveraging generally available technology, supporting open architectures on multiple platforms and by leveraging our core technologies across multiple products. We sell into test and measurement and industrial/embedded applications in a broad range of industries and are subject to the economic and industry forces that drive those markets. Examples of these types of customers include semiconductor, transportation, and aerospace, defense and government ("ADG"). 29 -------------------------------------------------------------------------------- Table of Contents •Leveraging a worldwide sales, distribution and manufacturing network We distribute and sell our software and hardware products through a direct sales organization, as well as through independent distributors. We also use OEMs, value added resellers, system integrators and consultants to market and sell our products. We have sales offices in theU.S. and sales offices and distributors in key international markets. Sales outside of theAmericas accounted for approximately 60% of our revenues in each of 2020, 2019 and 2018. The vast majority of our foreign sales are denominated in the customers' local currency, which exposes us to the effects of changes in foreign currency exchange rates. We expect that a significant portion of our total revenues will continue to be derived from international sales. (See Note 2 - Revenue and Note 14 - Segment information of Notes to Consolidated Financial Statements for details concerning the geographic breakdown of our net sales and long-lived assets, respectively). We manufacture substantially all of our product volume at our facilities in Debrecen,Hungary andPenang, Malaysia . •Delivering high quality, reliable products We believe that our long-term growth and success depend on delivering high quality software and hardware products on a timely basis. Accordingly, we focus significant efforts on research and development. We focus our research and development efforts on enhancing existing products and developing new products that incorporate appropriate features and functionality to be competitive with respect to technology, price and performance. Our success also depends on our ability to obtain and maintain patents and other proprietary rights related to technologies used in our products. We have engaged in litigation when necessary, and will likely engage in future litigation to protect our intellectual property rights. Our operating results fluctuate from period to period due to changes in global economic conditions and a number of other factors such as the impact of the COVID-19 pandemic. As a result, we believe our historical results of operations should not be relied upon as indications of future performance. There can be no assurance that our net sales will grow, or not decline, or that we will remain profitable in future periods. Recent Developments - Impact of COVID-19 pandemic As further discussed below and in the "Risk Factors" section of this Form 10-K, our operations and the operations of our customers and suppliers have been adversely impacted by the challenges resulting from the COVID-19 pandemic. Current Business Outlook While we remain cautious due to continuing uncertainty, we are optimistic about our position to capture long-term growth opportunities as we continue to enhance our offerings in key focus areas. We are seeing early signs of recovery in end markets where we experienced weaker demand over the past year, such as transportation. While we expect headwinds related to the COVID-19 pandemic to continue over the next few quarters, we expect demand to increase as our customers make investments in emerging technologies related to 5G/mmWave and vehicle electrification. We also expect recent additions and enhancements to our software offerings will fuel long-term revenue growth across our various end markets, particularly at our largest customers. We also remain confident in the strength of our operating model. Over the past several years, we had taken steps to improve efficiencies and rebalance our resources on activities that we believe will generate a higher return. These steps involved, among other things, reduction in our overall employee headcount and optimization of our organizational structure. We believe these pre-pandemic efforts have enhanced our financial and structural position to navigate the current challenges of the COVID-19 pandemic. Additionally, we are currently focusing on proactively managing expenses intended to help us maintain strength in our balance sheet and improve our financial position. During the three months endedDecember 31, 2020 , we began implementing additional measures that will reduce our headcount by approximately 9%, the remaining 6% of which we expect to occur over the next six to nine months. We expect our recent restructuring plan will reduce our operating expenses by approximately$40 million per year, which we expect to be offset by increases in operating expenses related to other strategic initiatives. We believe these measures will allow us to accelerate our growth strategy and achieve our long-term financial goals. We remain committed to maintaining our critical investments and capacity to run our business while continuing to innovate. Furthermore, we continue to focus on scale and efficiency in serving our broad-based customers. Our focus to streamline the process of doing business with NI means both reducing our costs and improving the experience of the large number of smaller accounts we serve. This includes investment in ni.com for a better digital experience and significantly expanding the usage of our distributor channel in 2021 and beyond. We believe these actions will allow our direct sales force to support proactive engagements with accounts where we can deliver enterprise-level value. 30 -------------------------------------------------------------------------------- Table of Contents During the twelve months endedDecember 31, 2020 , we saw continued volatility in the exchange rates between theU.S. dollar and many of the currency markets where we have exposure. As ofFebruary 12, 2021 , theU.S. dollar index, as tracked by the St. LouisFederal Reserve is below its 10-year average, approximately 5% above its low value over that period. If the US dollar maintains its current trading ranges against the major currency markets where we do business, we could see a modest benefit to our US dollar equivalent sales during 2021. We cannot predict to what degree foreign currency markets will fluctuate in the future. See Results of Operations -Net Sales below for additional discussion on the impact of foreign exchange rates on our net sales and Note 5 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for a further description of our derivative instruments and hedging activities.
Acquisitions and divestitures
OnJanuary 15, 2020 , we completed the sale ofAWR Corporation ("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/assets" in the consolidated statements of income, which also included approximately$1 million of transaction costs. (See Note 1 - Basis of presentation of Notes to Consolidated Financial Statements for additional details concerning the divestiture of the AWR business.) OnJuly 2, 2020 , we completed our acquisition of OptimalPlus. Total proceeds used to acquire the business and replace certain unvested share options consisted of approximately$365 million in cash, inclusive of$18 million in cash acquired. (See Note 1 - Basis of presentation and Note 18 - Acquisitions of Notes to Consolidated Financial Statements for additional details concerning this acquisition.)
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
net sales represented by geographic region and by certain items reflected in our
Consolidated Statements of Income:
Years ended December 31,
2020 2019 2018
Net sales:
Americas 39.5 % 39.8 % 39.6 %
EMEA 26.9 27.8 29.9
APAC 33.6 32.4 30.5
Consolidated net sales 100.0 100.0 100.0
Cost of sales 28.8 24.9 24.6
Gross profit 71.2 75.1 75.4
Operating expenses:
Sales and marketing 36.2 35.0 35.5
Research and development 21.8 20.1 19.2
General and administrative 10.1 9.1 8.0
Total operating expenses 68.1 64.2 62.7
Gain on sale of business/assets 12.4 2.0 -
Operating income 15.5 12.9 12.7
Other (expense) income: (0.1) 0.4 0.3
Income before income taxes 15.4 13.3 13.0
Provision for income taxes 4.3 1.4 1.6
Net income 11.2 % 12.0 % 11.4 %
Figures may not sum due to rounding.
31
--------------------------------------------------------------------------------
Table of Contents
Results of Operations for the years ended December 31, 2020 , 2019, and 2018
Net Sales . The following table sets forth our net sales for the years ended
December 31, 2020 , 2019, and 2018 along with the percent changes between the
corresponding periods.
Years ended December 31,
($ in millions) 2020 Change 2019 Change 2018
Product sales $ 1,137.6 (6.4)% $ 1,215.0 (0.4)% $ 1,220.0
Software maintenance sales 149.1 7.9% 138.2 (0.6)% 139.1
Total net sales $ 1,286.7 (4.9)% $ 1,353.2 (0.4)% $ 1,359.1 Figures may not sum due to rounding.
The divestiture of our AWR business inJanuary 2020 reduced our net sales by approximately 2% during 2020 compared to 2019, partially offset by net sales attributable to our acquisition of OptimalPlus, which was acquired onJuly 2, 2020 . The effect of changes in foreign currency exchange rates further reduced net sales by less than 1% during the same period. The remaining decreases were driven by weaker demand in certain industries, primarily attributable to the ongoing COVID-19 pandemic. On a global basis, we saw significant weakness in orders from our transportation customers and some of our broad-based portfolio offerings, which was partially offset by increased demand for system-level offerings from our ADG and semiconductor customers. In 2020, product sales decreased compared to 2019 while software maintenance sales increased compared to 2019. The decrease in product sales during the period was primarily attributable to the divestiture of our AWR business, unfavorable changes in exchange rates and general weakness in the industrial economy throughout most of 2020 due to the COVID-19 pandemic. The increase in software maintenance sales for 2020 was primarily attributable to renewals of our enterprise-wide software agreements and sales from our recently acquired OptimalPlus business. In 2019, product and software maintenance sales decreased compared to 2018. The decrease in product and software maintenance sales during the period was primarily attributable to unfavorable changes in exchange rates and general weakness in the industrial economy throughout most of 2019, particularly in the EMEA region, which was partially offset by strength in the APAC region. Orders with a value greater than$20,000 increased by 3% year over year during 2020 compared to a year over year increase of 4% in 2019, driven by increased demand for the system-level offerings described above. Orders with a value less than$20,000 decreased by 11% year over year during 2020 compared to a year over year decrease of 6% in 2019. Orders with a value greater than$20,000 were 64%, 60%, and 58% of our total orders for the years endedDecember 31, 2020 , 2019, and 2018, respectively.
The following table sets forth our net sales by geographic region for the
years ended
Years ended December 31,
($ in millions) 2020 Change 2019 Change 2018
Americas $ 508.4 (5.6)% $ 538.7 0.1% $ 538.4
Percentage of total net sales 39 % 40 % 40 %
EMEA $ 345.6 (8.2)% $ 376.6 (7.4)% $ 406.5
Percentage of total net sales 27 % 28 % 30 %
APAC $ 432.6 (1.2)% $ 438.0 5.7% $ 414.3
Percentage of total net sales 34 % 32 % 30 %
32--------------------------------------------------------------------------------
Table of Contents
We expect sales outside of theAmericas to continue to represent a significant portion of our revenue. We intend to continue to expand our international operations by increasing our presence in existing markets, adding a presence in some new geographical markets and expanding the use of distributors to sell our products in some countries. Almost all of the sales made by our direct sales offices in theAmericas (excluding theU.S. ), EMEA, and APAC are denominated in local currencies, and accordingly, theU.S. dollar equivalent of these sales is affected by changes in foreign currency exchange rates. In order to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency fluctuations between periods, we compare the percentage change in our results from period to period using constant currency calculations. To calculate the change in constant currency, current and comparative prior period results for entities reporting in currencies other thanU.S. Dollars are converted intoU.S. Dollars at constant exchange rates (i.e. the average rates in effect during the years endedDecember 31, 2020 and 2019, respectively). The following tables present this information, along with the impact of changes in foreign currency exchange rates on sales denominated in local currencies, for the years endedDecember 31, 2020 and 2019, respectively. Year Ended Change Impact of changes in foreign Year Ended December 31, 2019 in Constant Dollars currency exchange rates on net sales December 31, 2020 GAAP GAAP ($ in millions) Net Sales Dollars Percentage Dollars Percentage Net Sales Americas$ 538.7 $ (29.2) (5.4)%$ (1.1) (0.2)%$ 508.4 EMEA 376.6 (30.2) (8.0)% (0.8) (0.2)% 345.6 APAC 438.0 (1.0) (0.2)% (4.4) (1.0)% 432.6 Total net sales$ 1,353.2 $ (60.3) (4.5)%$ (6.2) (0.5)%$ 1,286.7
Figures may not sum due to rounding.
Year Ended Impact of changes in foreign Year Ended
December 31, 2018 Change currency exchange rates on net December 31, 2019
in Constant Dollars sales
GAAP GAAP
($ in millions) Net Sales Dollars Percentage Dollars Percentage Net Sales
Americas $ 538.4 $ 1.0 0.2% $ (0.7) (0.1)% $ 538.7
EMEA 406.5 (20.2) (5.0)% (9.7) (2.4)% 376.6
APAC 414.3 32.0 7.7% (8.3) (2.0)% 438.0
Total net sales $ 1,359.1 $ 12.8 0.9% $ (18.7) (1.4)% $ 1,353.2 Figures may not sum due to rounding.
To help protect against changes in theU.S. dollar equivalent value caused by fluctuations in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales, we hedge portions of our forecasted revenue denominated in foreign currencies with average rate forward contracts. (See Note 5 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impact on our consolidated sales for 2020 and 2019). Gross Profit. The following table sets forth our gross profit and gross profit as a percentage of net sales for the years endedDecember 31, 2020 , 2019, and 2018 along with the percentage changes in gross profit for the corresponding periods. We continue to focus on cost control and cost reduction measures throughout our manufacturing cycle. Years Ended December 31, ($ in millions) 2020 Change 2019 Change 2018 Gross Profit$ 915.6 (9.9)%$ 1,016.3 (0.9)%$ 1,025.4 Gross Profit as a percentage of net sales 71.2 % 75.1 % 75.4 % 33
--------------------------------------------------------------------------------
Table of Contents
The decreases in our gross profit and gross profit as a percentage of net sales
were primarily related to the following:
Twelve Months Ended
December 31, 2019 75.1 %Impact of acquisition-related intangible amortization, fair value adjustments and sales mix related to the OptimalPlus acquisition
(0.8) %
Changes in sales mix related to recently divested AWR business (included in comparative period)
(0.6) %
Changes in sales mix related to service cost reallocation (0.8) %
Impact of restructuring related costs (0.1) %
Increase in outbound freight and other logistics costs due to COVID-19 pandemic
(0.4) %
Changes in foreign currency exchange rates (0.1) %
Other changes in sales mix, product material variances and reserves
(1.1) %
December 31, 2020 71.2 %
During the years ended December 31, 2020 and 2019, the change in exchange rates
had the effect of decreasing our cost of sales by $2.1 million and $3.3 million ,
respectively. To help protect against changes in our cost of sales caused by a
fluctuation in foreign currency exchange rates of forecasted foreign currency
cash flows, we hedge portions of our forecasted costs of sales denominated in
foreign currencies with average rate forward contracts. During the years ended
December 31, 2020 and 2019, these hedges had the effect of increasing our cost
of sales by $2.2 million and $0.5 million , respectively. (See Note 5 -
Derivative instruments and hedging activities of Notes to Consolidated Financial
Statements for further discussion regarding our cash flow hedging program and
its related impacted on our results of operations).
Operating Expenses. The following table sets forth our operating expenses for
the years ended December 31, 2020 , 2019, and 2018 along with the percentage
changes between the corresponding periods and the line item as a percentage of
total net sales.
Years Ended December 31,
($ in thousands) 2020 Change 2019 Change 2018
Sales and marketing $ 465,509 (2)% $ 473,392 (2)% $ 482,576
Percentage of total net sales 36 % 35 % 36 %
Research and development $ 280,381 3% $ 272,452 4% $ 261,072
Percentage of total net sales 22 % 20 % 19 %
General and Administrative $ 129,863 6% $ 122,768 13% $ 108,878
Percentage of total net sales 10 % 9 % 8 %
Total operating expenses $ 875,753 1% $ 868,612 2% $ 852,526
Percentage of total net sales 68 % 64 % 63 %
The $7 million increase in our total operating expenses, excluding the gain on
sale of business/assets, during 2020 compared to 2019 was primarily related to
the following:
•$24 million increase in severance and other restructuring-related charges.
•$15 million increase in non-acquisition personnel costs, primarily attributable
to higher salaries and accrued payments under our variable pay programs, as well
as additional stock-based compensation expense (due to comparatively higher
stock prices on the grant date of unvested RSU awards and a shorter average
service period for our awards), which was partially offset by reductions in
benefit costs due to lower headcount;
•$13 million increase attributable to acquisition-related transaction and
integration costs, compensation expense related to unvested options acquired and
replaced with cash-settled awards that will be recognized as post-combination
expense over the remaining service period, amortization of acquisition-related
intangibles, and higher operating costs related to our recently acquired
OptimalPlus business, which were partially offset by a reduction in operating
costs related to the divestment of our AWR business;
34
--------------------------------------------------------------------------------
Table of Contents
•$5 million increase related to lower software development costs eligible for
capitalization;
•$(29) million related to decreases in travel and event related expenses related
to the travel restrictions from COVID-19, partially offset by additional
advertising-related costs associated with our 2020 rebranding initiative;
•$(11) million decrease attributable to the strategic reallocation of resources
related to the delivery of certain services offerings. The cost related to these
activities are now classified as "Cost of Sales" whereas historically they were
presented as "Sales and Marketing" expenses, as further discussed above under
"Gross Profit";
•$(7) million decrease related to a charitable contribution made during 2019;
and
•$(3) million decrease related to the effect of changes in foreign currency
exchange rates.
The increase in research and development costs during 2020 was primarily
related to a $5 million increase in software development costs expensed, that
did not qualify for capitalization and an increase in stock-based compensation
expense. In the second quarter of 2018, we began moving toward agile
methodologies of software development, which are characterized by a more dynamic
development process with more frequent and iterative revisions to a product's
features and functions. The transition to an agile method of software
development enables us to adapt quickly to the evolving needs of our customers
and accelerate our commitment to modernizing and expanding the usage of our
software platform. Consequently, we expect that for a significant majority of
our software development projects the costs incurred subsequent to the
achievement of technological feasibility will be immaterial in future periods
and we expect to record significantly less capitalized software development
costs than under our historical software development approaches, resulting in a
larger portion of our software development expenditures being recognized as
operating expenses. We also expect amortization of previously capitalized
software development costs to steadily decline as previously capitalized
software development costs become fully amortized over the next two years.
The $16 million increase in our operating expenses, excluding the gain on sale
of assets, during 2019 compared to 2018 was primarily related to the following:
•$14 million increase due to additional stock-based compensation expense,
primarily attributable to comparatively higher stock prices on the grant date
of unvested RSU awards and a shorter average service period for our awards;
•$13 million decrease related to the year over year impact of changes in foreign
currency exchange rates;
•$7 million increase due to a charitable contribution to a donor-advised fund
using a portion of the proceeds from the sale of an office building;
•$5 million increase related to a decrease in software development costs
eligible for capitalization, as described in more detail below;
•$6 million increase due to restructuring costs during the year; and
•$3 million decrease in personnel costs, primarily driven by a $12 million
decrease in variable pay related to not attaining the performance targets under
our company performance bonus for 2019, partially offset by increases in
salaries and other variable pay plans intended to remain competitive with market
levels.
The increase in research and development costs during 2019 was primarily related
to a $5 million increase in software development costs expensed, that did not
qualify for capitalization and an increase in stock-based compensation expense.
We believe that our long-term growth and success depends on developing high
quality software and hardware products on a timely basis. We are focused on
leveraging recent investments in research and development and in our field sales
force and taking actions to help ensure that those resources are focused in
areas and initiatives that will contribute to future growth in our business.
Gain on Sale of Business/Asset. On January 15, 2020 , we completed the sale of
our AWR subsidiary and recognized a gain on the sale of $160 million . On August
29, 2019 , we sold an office building and property located in Austin, Texas and
recognized a gain on the sale of $27 million . These amounts are presented as
"Gain on sales of business/asset" in our Consolidated Statements of Income, in
accordance with ASC 360 - Property, Plant and Equipment (See Note 1 - Operations
and Summary of Significant Accounting Policies of Notes to Consolidated
Financial Statements for further discussion).
Operating Income. For the years ended December 31, 2020 , 2019, and 2018,
operating income was $200 million , $175 million and $173 million , respectively,
an increase of 14% in 2020, following an increase of 1% in 2019. As a percentage
of net sales, operating income was 16%, 13% and 13%, respectively, over the
three-year period. The changes in operating income in absolute dollars and as a
percent of sales in 2019 and 2020 are attributable to the factors discussed in
Net Sales , Gross Profit and Operating Expenses above.
35
--------------------------------------------------------------------------------
Table of Contents
Other (Expense) Income.
•Interest Income. Interest income was $3.9 million , $8.1 million and $5.9
million for the years ended December 31, 2020 , 2019, and 2018, respectively. In
response to the negative economic impact of the COVID-19 pandemic, the Federal
Reserve took action to cut the Federal Funds Rate to a target range of zero to
0.25%. We do not expect yields to improve in the near term.
•Interest Expense. Interest expense was approximately $2 million , $0 million ,
and $0 million due to borrowings outstanding under our Credit Agreement for the
years ended December 31, 2020 , 2019, and 2018, respectively. Refer to Note 15 -
Debt and Note 20 - Subsequent events for additional information regarding the
terms of our Credit Agreement and related borrowings.
•Net Foreign Exchange Loss. Net foreign exchange loss was $0.1 million , $1.8
million , and $3.4 million for the years ended December 31, 2020 , 2019, and 2018,
respectively. These results are attributable to movements in the foreign
currency exchange rates between the U.S. dollar and foreign currencies in
subsidiaries for which our functional currency is not the U.S. dollar. During
2020, we saw continued volatility in the exchange rates between the U.S. dollar
and many of the currency markets where we have exposure. As of February 12,
2021 , the U.S. dollar index, as tracked by the St. Louis Federal Reserve is
below its 10-year average, approximately 5% above its low value over that
period. During most of 2019, we saw continued volatility in the exchange rates
between the U.S. dollar and many of the currency markets where we have exposure,
primarily in South Korea and Europe along with a moderately stronger U.S. dollar
when compared to 2018. In the past, we have noted that volatility in the foreign
currency exchange markets in which we do business has had a significant impact
on the revaluation of our foreign currency denominated firm commitments, on our
ability to forecast our U.S. dollar equivalent net sales and expenses and on the
effectiveness of our hedging programs. We cannot predict to what degree foreign
currency markets will fluctuate in the future. In the past, these dynamics have
also adversely affected our net sales growth in international markets and may
pose similar challenges in the future. We recognize the local currency as the
functional currency in virtually all of our international subsidiaries. See
"Results of Operations - Net Sales " above for additional discussion on the
impact of foreign exchange rates on our net sales.
We utilize foreign currency forward contracts to hedge our foreign denominated
net foreign currency balance sheet positions to help protect against the change
in value caused by a fluctuation in foreign currency exchange rates. We
typically hedge up to 90% of our outstanding foreign denominated net receivable
or payable positions and typically limit the duration of these foreign currency
forward contracts to approximately 90 days. The gain or loss on these
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". Our hedging strategy decreased our
foreign exchange loss by $0.8 million , increased our foreign exchange loss by
$0.3 million , and decreased our foreign exchange loss by $0.3 million in 2020,
2019, and 2018, respectively. (See Note 5 - Derivative instruments and hedging
activities of Notes to Consolidated Financial Statements for a further
description of our derivative instruments and hedging activities).
36
--------------------------------------------------------------------------------
Table of Contents
Provision for Income Taxes. For the years ended December 31, 2020 , 2019, and
2018, our provision for income taxes reflected an effective tax rate of 28%, 10%
and 12%, respectively. The factors that caused our effective tax rates to change
year-over-year are detailed in the table below:
Years ended
December 31 , Effective tax rate for 2019 10 %
Decreased profits in foreign jurisdictions with reduced income tax rates
6
Change in enhanced deduction for certain research and development
1
expenses
Change in intercompany prepaid tax asset 1
Change in state income taxes, net of federal benefit 1
Global intangible low-taxed income inclusion ("GILTI") (1)
Amortization of intangible asset 1
Foreign-derived intangible income deduction 1
Research and development tax credit 1
Outside basis difference on asset held for sale 8
Transition tax on deferred foreign income (1)
Effective tax rate for 2020 28 %
Years ended
December 31 ,
Effective tax rate for 2018 12 %Decreased profits in foreign jurisdictions with reduced income tax rates
4
Change in enhanced deduction for certain research and development
1
expenses
Change in intercompany prepaid tax asset 1
Change in state income taxes, net of federal benefit (2)
Global intangible low-taxed income inclusion ("GILTI") (1)
Foreign-derived intangible income deduction (2)
Global intangible low-taxed income deferred 2
Research and development tax credit (1)
Nondeductible officer compensation 1
Outside basis difference on asset held for sale (6)
Foreign tax on undistributed earnings 1
Effective tax rate for 2019 10 %
37
--------------------------------------------------------------------------------
Table of Contents
Other operational information
We believe that the following additional unaudited operational metrics assist
investors in assessing our operational performance relative to others in our
industry and to our historical results. The following tables provide details
with respect to the amount of GAAP charges related to stock-based compensation,
amortization of acquisition-related intangibles and fair value adjustments,
acquisition-related transaction costs, disposal gains on sales of
business/assets and related charitable contributions, tax effects on businesses
held-for-sale, capitalization and amortization of internally developed software
costs, and restructuring charges that were recorded in the line items indicated
below (in thousands).
Three Months Ended December 31, Years Ended December 31,
(In thousands) 2020 2019 2020 2019
Stock-based compensation
Cost of sales $ 979 $
887
5,462 4,868 22,288 19,612
Research and development 5,129 4,236 17,769 16,265
General and administrative 4,251 3,393 14,552 12,086
Provision for income taxes (445) (1,433) (8,705) (9,337)
Total $ 15,376 $ 11,951 $ 49,670 $ 42,101
Three Months Ended December 31, Years Ended December 31,
(In thousands) 2020 2019 2020 2019
Amortization of acquisition
intangibles
Net sales $ 1,961 $ - $ 3,260 $ -
Cost of sales 4,313 823 9,892 3,348
Sales and marketing 1,965 485 5,264 1,970
Research and development 9 28 94 112
General and administrative 846 - 846 -
Other (expense) income 124 124 487 409
Provision for income taxes (606) (127) (2,554) (703)
Total $ 8,612 $ 1,333 $ 17,289 $ 5,136
Three Months Ended December 31, Years Ended December 31,
(In thousands) 2020 2019 2020 2019
Acquisition transaction costs,
restructuring charges, and other
Cost of sales $ 1,620 $ - $ 1,626 $ -
Sales and marketing 23,309 5,356 32,079 13,646
Research and development 1,184 3,266 6,374 4,166
General and administrative (1)(4) 8,685 2,002 21,279 11,527
Gain on sale of business/assets (1)(2) - - (159,753) (26,842)
Other (expense) income 191 - 589 -
Provision for income taxes (3) (1,602) (13,477) 32,364 (12,237)
Total $ 33,387 $ (2,853) $ (65,442) $ (9,740)
(1): During the third quarter of 2019, we recognized a gain of $27 million related to the sale of an office building, presented
within "Gain on sale of business/assets". During the third quarter of 2019, we also recognized a charitable contribution expense of
$7 million related to a donation using a portion of the proceeds from the sale of the property, presented within "General and
Administrative".
(2): During the first quarter of 2020, we recognized a gain of $160 million related to the divestiture of AWR, presented within "Gain
on sale of Business/assets".
(3): During the fourth quarter of 2019, we recognized an income tax benefit of $11 million related to the recognition of deferred
taxes on the outside basis difference of our AWR business.
(4): During the third quarter of 2020, we recognized $5 million of compensation expense related to the replacement of unvested
options acquired in connection with the OptimalPlus acquisition. These amounts were accounted for as post-combination expense and
will be recognized over the required service period.
38--------------------------------------------------------------------------------
Table of Contents
Three Months Ended December 31, Years Ended December 31,
(In thousands) 2020 2019 2020 2019
(Capitalization) and amortization of
internally developed software costs
Cost of sales $ 6,936 $ 7,012 $ 27,931 $ 27,085
Research and development (1,248) (1,887) (4,043) (9,066)
Provision for income taxes (1,195) (1,076) (5,017) (3,784)
Total $ 4,493 $ 4,049 $ 18,871 $ 14,235
39-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Overview AtDecember 31, 2020 , we had$320 million in cash, cash equivalents and short-term investments. Our cash and cash equivalent balances are held in numerous financial institutions throughout the world, including substantial amounts held outside of theU.S. , however, all of our short-term investments that are located outside of theU.S. are denominated in theU.S. dollar. Our short-term investments do not include any foreign sovereign debt. The following table presents the geographic distribution of our cash, cash equivalents, and short-term investments as ofDecember 31, 2020 (in millions): Domestic International Total Cash and Cash Equivalents$102.5 $157.8 $260.2 39% 61% Short-term Investments$48.3 $11.6 $59.9 81% 19% Cash, Cash Equivalents and Short-term Investments$150.8 $169.4 $320.2 47% 53%
Figures may not sum due to rounding.
We utilize a variety of tax planning and financing strategies with the objective of having our worldwide cash available in the locations in which it is needed. The following table presents our working capital, cash and cash equivalents and short-term investments:
Increase/
(In thousands) December 31, 2020 December 31, 2019 (Decrease)
Working capital $ 467,655 $ 641,235 $ (173,580)
Cash and cash equivalents (1) 260,232 194,616 65,616
Short-term investments (1) 59,923 237,983 (178,060)
Total cash, cash equivalents and
short-term investments $ 320,155
$ 432,599
(1) Included in working capital
Our principal sources of liquidity include cash, cash equivalents, and marketable securities, as well as the cash flows generated from our operations. The primary drivers of the net decrease in working capital betweenDecember 31, 2019 andDecember 31, 2020 were: •Cash, cash equivalents, and short-term investments decreased by$112 million . Additional analysis of the changes in our cash flows for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 are discussed below. •"Accounts receivable, net" increased by$18 million which is primarily related to the timing of billings during the fourth quarter of 2020 compared to the same period in 2019. Days sales outstanding increased to 56 days atDecember 31, 2020 , compared to 54 days atDecember 31, 2019 . •Inventory decreased by$6 million to$194 million atDecember 31, 2020 , from$200 million atDecember 31, 2019 . Inventory turns increased to 1.7 atDecember 31, 2020 , compared to 1.5 atDecember 31, 2019 . The decrease in inventory is primarily attributable to stronger demand for our products during the fourth quarter of 2020. •Prepaid expenses and other current assets increased by$3 million , primarily related to the timing of prepaid insurance and maintenance contracts. •Accounts payable and accrued expenses decreased by$1 million , primarily related to timing of invoice payments to vendors. •Accrued compensation increased by$39 million primarily related to the restructuring initiative announced in the fourth quarter of 2020. •The current portion of deferred revenue increased by$1 million . •Other current liabilities increased by$22 million , primarily related to changes in the fair value of our foreign currency forward exchange contracts and the timing of certain tax payments. 40 -------------------------------------------------------------------------------- Table of Contents •Operating lease liabilities, current increased by$2 million . •Other taxes payable increased by$8 million , primarily related to the timing of payments for VAT and other indirect taxes. Analysis of Cash Flow
The following table summarizes the proceeds and (uses) of cash:
(In thousands)
2020 2019 2018
Cash provided by operating activities $ 180,767 $
224,405
Cash used by investing activities (61,301)
(17,948) (209,996)
Cash used by financing activities (56,454)
(270,817) (90,843)
Effect of exchange rate changes on cash 2,604
(410) (4,519)
Net change in cash equivalents 65,616
(64,770) (30,778)
Cash and cash equivalents at beginning of year 194,616 259,386 290,164
Cash and cash equivalents at end of year$ 260,232 $
194,616
Operating Activities Cash provided by operating activities for the year endedDecember 31, 2020 decreased by$44 million compared to the year endedDecember 31, 2019 . This decrease was primarily due to a$110 million decrease in net income excluding the effect of non-cash items including stock-based compensation, depreciation and amortization, gain on sale of assets/business, and deferred tax benefits, and was partially offset by a$67 million increase in cash provided by operating assets and liabilities during the year Investing Activities Cash used by investing activities for the year endedDecember 31, 2020 increased by$43 million compared to the same period in 2019. During 2020 we spent$335 million on the acquisition of OptimalPlus, net of cash received, and received$160 million in proceeds from the sale of our AWR business. During 2019 we received$32 million in proceeds from the sale of an office building. In 2020 we had a net sale of short-term investments of$178 million compared to a net sale of short-term investments of$34 million during the same period in 2019. The net sale of short-term investments was primarily driven by funding needs to support our acquisition of OptimalPlus and our common stock repurchase activities. Cash outflows related to capitalized software development also decreased by$5 million and there was a decrease in capital expenditures and investments in other intangible assets of$11 million compared to the same period in 2019. Additionally, during 2020, we decreased strategic investments in equity-method investments by$4 million when compared to 2019. Financing Activities Cash used by financing activities decreased by$214 million for 2020 compared to 2019. This was primarily related to a$97 million increase in proceeds received under our term loan, net of issuance costs and repayments, and a$123 million decrease in cash used to repurchase our common stock, partially offset by an increase of$5 million related to our quarterly dividends.(See Note 12 - Authorized shares of common and preferred stock and stock-based compensation plans of Notes to Consolidated Financial Statements for additional discussion about our share repurchase program). 41
--------------------------------------------------------------------------------
Table of Contents
Contractual Cash Obligations. The following summarizes our contractual cash
obligations as of
Payments due by period
Three to five
(In thousands) Total Less than one year One to three years years More than five years
Tax payable (1) 68,870 7,247 20,843 40,780 -
Term loan 98,750 5,000 10,000 83,750 -
Operating leases 58,514 17,868 19,575 12,935 8,136
Total contractual obligations 226,134 30,115 50,418 137,465 8,136(1) Represents one-time transition tax payable related to known amounts of cash taxes payable in future years as a result of the Tax Cuts and Jobs Act. For further information, refer to Note 10 - Income taxes of Notes to Consolidated Financial Statements
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. As ofDecember 31, 2020 , we had non-cancelable operating lease obligations of approximately$59 million compared to$66 million atDecember 31, 2019 . Rent expense under operating leases was$22 million ,$23 million and$21 million for the years endedDecember 31, 2020 , 2019 and 2018, respectively. The following summarizes our other commercial commitments as ofDecember 31, 2020 : (In thousands) Total 2021 2022 2023 2024 2025 Beyond Purchase obligations 5,015 5,015 - - - - - Total commercial commitments$ 5,015 $ 5,015 $ - $ - $ - $ - $ - Purchase obligations primarily represent purchase commitments for customized inventory and inventory components. As ofDecember 31, 2020 , we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately$5.0 million over the next twelve months. AtDecember 31, 2019 , we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately$6.5 million .
At
Credit Agreement. Refer to Note 15 - Debt of Notes to Consolidated Financial Statements for additional details on our secured term loan and secured revolving loan facilities. As ofDecember 30, 2020 , we had$114 million in available borrowing capacity under the revolving loan facility. Proceeds of additional borrowings made under the Amended and Restated Credit Agreement (the "Credit Agreement") may be used for working capital and other general corporate purposes. We may prepay the loans under the Credit Agreement in whole or in part at any time without premium or penalty. Certain of our existing and future material domestic subsidiaries are required to guaranty our obligations under the Credit Agreement. Off-Balance Sheet Arrangements. We do not have any off-balance sheet debt. AtDecember 31, 2020 , we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships. Prospective Capital Needs. We believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations as well as from the purchase of common stock through our employee stock purchase plan will be sufficient to cover our working capital needs, capital expenditures, investment requirements, commitments, payment of dividends to our stockholders and repurchases of our common stock for at least the next 12 months. We may also seek to pursue additional financing or to raise additional funds by seeking an increase in our unsecured revolving line of credit under our Credit Agreement or selling equity or debt to the public or in private transactions from time to time. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis or on acceptable terms, if at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of our existing stockholders would be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of our common stock. 42 -------------------------------------------------------------------------------- Table of Contents Although we believe that we have sufficient capital to fund our operating activities for at least the next 12 months, our future capital requirements may vary materially from those now planned. We anticipate that the amount of capital we will need in the future will depend on many factors, including: •payment of dividends to our stockholders; •required levels of research and development and other operating costs; •our business, product, capital expenditure and research and development plans, and product and technology roadmaps; •acquisitions of other businesses, assets, products or technologies; •repurchase of our common stock; •the overall levels of sales of our products and gross profit margins; •the levels of inventory and accounts receivable that we maintain; •general economic and political uncertainty and specific conditions in the markets we address, including any volatility in the industrial economy in the various geographic regions in which we do business; •the inability of certain of our customers who depend on credit to have access to their traditional sources of credit to finance the purchase of products from us, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us; •capital improvements for facilities; •our relationships with suppliers and customers; and •the level of stock purchases under our employee stock purchase plan. Recently Issued Accounting Pronouncements
See Note 1 - Operations and summary of significant accounting policies of Notes to Consolidated Financial Statements for discussion regarding recently issued accounting pronouncements.
43
--------------------------------------------------------------------------------
Table of Contents
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with 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.
Our critical accounting policies and estimates are as follows:
•Revenue recognition
Our contracts with customers often include promises to transfer multiple
products and services to a customer. Determining whether products and services
are considered distinct performance obligations that should be accounted for
separately versus together may require significant judgment.
Judgment is required to determine the stand-alone selling price ("SSP") for each
distinct performance obligation. We use a range of amounts to estimate SSP when
we sell each of our products and services separately and need to determine
whether there is a discount to be allocated based on the relative SSP of the
various products and services. In instances where SSP is not directly
observable, such as when we do not sell the product or service separately, we
determine the SSP using information that may include market conditions,
historical pricing relationships (such as software licenses available under
either a perpetual and term license period), and other observable inputs. We
typically have more than one SSP for individual products and services due to the
stratification of those products and services by customers and circumstances. In
these instances, we may use information such as the geographic region in
determining the SSP.
Due to the various benefits from and the nature of software licenses sold under
enterprise-wide licensing program, judgment is required to identify the distinct
performance obligations, determine the SSP for certain performance obligations
that is not directly observable, and assess the pattern of delivery, including
the utilization of certain benefits across our portfolio of customers.
Our products are generally sold with a right of return, and occasionally we may
provide other credits or incentives, which are accounted for as variable
consideration when determining the amount of revenue to recognize. Returns and
credits are estimated at contract inception and updated at the end of each
reporting period if additional information becomes available. We analyze
historical returns, current economic trends, and changes in customer demand and
acceptance of our products when evaluating the adequacy of our sales returns
allowance. Significant judgments and estimates must be made and used in
connection with establishing the sales returns allowance in any accounting
period. Changes to our estimated variable consideration were not material for
the periods presented.
•Valuation of acquired intangible assets
When we acquire a business, a portion of the purchase price is typically
allocated to identifiable intangible assets, such as acquired technology and
customer relationships. Fair value of these assets is determined primarily using
the income approach, which requires us to project future cash flows and apply an
appropriate discount rate. We amortize intangible assets with finite lives over
their expected useful lives. Our estimates are based upon assumptions believed
to be reasonable but which are inherently uncertain and unpredictable.
Assumptions may be incomplete or inaccurate, and unanticipated events and
circumstances may occur. Incorrect estimates could result in future impairment
charges, and those charges could be material to our results of operations.
•Estimating allowances, specifically the adjustment for excess and obsolete
inventories
We also make estimates about the net realizable value of our inventory. We write
down our inventory for estimated obsolescence or unmarketable inventory equal to
the difference between the cost of inventory and estimated net realizable value
based on assumptions of future demand and market conditions. Our allowance for
excess and obsolete inventories was $17.0 million and $15.5 million at December
31, 2020 and 2019, respectively. Significant judgments and estimates must be
made and used in connection with establishing this allowance. Material
differences may result in the amount and timing of inventory obsolescence if we
made different judgments or utilized different estimates or if actual results
varied materially from our estimates.
44
--------------------------------------------------------------------------------
Table of Contents
•Accounting for costs of computer software
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. Judgment is required in determining when
technological feasibility of a product is established. Amortization is computed
on an individual product basis for those products available for market and has
been recognized based on the product's estimated economic life, generally three
years. At each balance sheet date, the unamortized costs are reviewed by
management and reduced to net realizable value when necessary. As of December
31, 2020 and 2019, unamortized capitalized software development costs were $32
million and $56 million , respectively.
During the second quarter of 2018, we started applying agile development
methodologies to certain software development projects, which are characterized
by a more dynamic development process with more frequent and iterative revisions
to a product release's features and functions as the software is being
developed. Due to the shorter development cycle and focus on rapid production
associated with agile development, we expect that for a significant majority of
our agile development projects the costs incurred subsequent to the achievement
of technological feasibility will be immaterial in future periods and we expect
to record significantly less capitalized software development costs than under
our historical software development approaches. Prior capitalized costs will
continue to be amortized on the basis of each product's estimated useful life.
•Impairment of long-lived and intangible assets
We assess the impairment of identifiable intangibles, long-lived assets and
related goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. We have one operating segment and one
reporting unit. In accordance with FASB ASC 350, Intangibles - Goodwill and
Other (FASB ASC 350), goodwill is tested for impairment on an annual basis, and
between annual tests if indicators of potential impairment exist, using a
fair-value-based approach based on the market capitalization of the reporting
unit. Our annual impairment test was performed as of November 30, 2020 . No
impairment of goodwill and long-lived and intangible assets was identified
during 2020 and 2019. Goodwill is deductible for tax purposes in certain
jurisdictions. Factors considered important which could trigger an impairment
review include the following:
•significant underperformance relative to expected historical or projected
future operating results;
•significant changes in the manner of our use of the acquired assets or the
strategy for our overall business;
•significant negative industry or economic trends; and
•our market capitalization relative to net book value.
When it is determined that the carrying value of intangibles, long-lived assets
and related goodwill may not be recoverable based upon the existence of one or
more of the above indicators of impairment, the measurement of any impairment is
determined and the carrying value is reduced as appropriate. As of December 31,
2020 and 2019, we had goodwill of approximately $468 million and $262 million ,
respectively.
•Accounting for 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 bases of assets and liabilities and their
reported amounts. Valuation allowances are established when necessary to reduce
deferred tax assets to amounts which are more likely than not to be realized. We
had a valuation allowance of $93 million and $86 million at December 31,
2020 and December 31, 2019 , respectively. A majority of the valuation allowance
is related to the deferred tax assets of National Instruments Hungary Kft. ("NI
Hungary ").
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 continuing policy is to
recognize interest and penalties related to income tax matters in income tax
expense.
45
--------------------------------------------------------------------------------
Table of Contents
Our earnings in Hungary are subject to a statutory tax rate of 9%. In addition,
our research and development activities in Hungary continue to benefit from a
tax law in Hungary that provides for an enhanced deduction for qualified
research and development expenses. The tax position of our Hungarian operations
resulted in income tax benefits of $4.7 million and $9.8 million for the years
ended December 31, 2020 and 2019, respectively. 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 resulted in
income tax benefits of $2.0 million and $3.4 million for the years ended
December 31, 2020 and 2019, respective1y. The impact of the tax holiday on a per
share basis for each of the years ended December 31, 2020 and 2019 was a benefit
of $0.02 and $0.03 per share.
No other taxing jurisdictions had a significant impact on our effective tax
rate. We have not entered into any advanced pricing or other agreements with the
Internal Revenue Service with regard to any foreign jurisdictions. For
additional discussion about our income taxes including, components of income
before income taxes, our provision for income taxes charged to operations,
components of our deferred tax assets and liabilities, a reconciliation of
income taxes at the U.S. federal statutory rate to our effective tax rate and
other tax matters, see Note 10 - Income taxes of Notes to Consolidated Financial
Statements.
•Loss contingencies
We accrue for probable losses from contingencies including legal defense costs,
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. Disclosure of a contingency is required if
there is at least a reasonable possibility that a loss has been incurred. In
determining whether a loss should be accrued we evaluate, among other factors,
the degree of probability of an unfavorable outcome and our ability to make a
reasonable estimate of the amount of loss. Changes in these factors could
materially impact our financial position or our results of operation.
•Accounting for costs related to exit or disposal activities
Costs related to exit or disposal activities incurred as part of our recent
restructuring activities may consist of voluntary or involuntary
severance-related charges, asset-related charges and other costs related to exit
activities. We recognize voluntary termination benefits when the employee
accepts the offered benefit arrangement. We recognize involuntary
severance-related charges depending on whether the termination benefits are
provided under an ongoing benefit arrangement or under a one-time benefit
arrangement. If the former, we recognize the charges once they are probable and
the amounts are estimable. If the latter, we recognize the charges once the
benefits have been communicated to employees.
Restructuring activities associated with assets would be recorded as an
adjustment to the basis of the asset, not as a liability. When we commit to a
plan to abandon a long-lived asset before the end of its previously estimated
useful life, we accelerate the recognition of depreciation to reflect the use of
the asset over its shortened useful life.
Accounting Estimates
In preparing our consolidated financial statements, we make assumptions,
judgments and estimates that can have a significant impact on our net sales,
operating income and net income, as well as on the value of certain assets and
liabilities on our consolidated balance sheets. We base our assumptions,
judgments and estimates on historical experience and various other factors that
we believe to be reasonable under the circumstances. At least quarterly, we
evaluate our assumptions, judgments and estimates, and make changes as deemed
necessary. Due to the COVID-19 pandemic, there has been uncertainty and
disruption in the global economy and financial markets. We are not aware of any
specific event or circumstance that would require updates to our estimates or
judgments or require us to revise the carrying value of our assets or
liabilities as of the date of issuance of this Form 10-K.
Our estimates may change as new events occur and additional information is
obtained. Actual results could differ materially from these estimates under
different assumptions or conditions.
46--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
