a033110.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
T Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
fiscal quarter ended: March 31, 2010 or
£ Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from ________________ to ________________
Commission
file number: 0-25426
NATIONAL
INSTRUMENTS CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
|
74-1871327
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification Number)
|
|
|
|
11500
North MoPac Expressway
Austin,
Texas
|
|
78759
|
(address
of principal executive offices)
|
|
(zip
code)
|
Registrant's
telephone number, including area code: (512) 338-9119
__________________________
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes T No
£
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes £ No
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
T |
Accelerated filer |
£
|
Non-accelerated filer |
£
|
Smaller
reporting company |
£
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No
T
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
|
Outstanding
at May 3, 2010
|
Common
Stock - $0.01 par value
|
77,522,406 |
NATIONAL
INSTRUMENTS CORPORATION
INDEX
|
|
|
PART
I. FINANCIAL INFORMATION
|
Page No.
|
|
|
|
Item
1
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
March
31, 2010 (unaudited) and December 31, 2009
|
3
|
|
|
|
|
|
|
|
(unaudited)
for the three months ended March 31, 2010 and 2009
|
4
|
|
|
|
|
|
|
|
(unaudited)
for the three months ended March 31, 2010 and 2009
|
5
|
|
|
|
|
|
6
|
|
|
|
Item
2
|
|
22
|
|
|
|
Item
3
|
|
29
|
|
|
|
Item
4
|
|
32
|
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
|
|
Item
1
|
|
34
|
|
|
|
Item
1A
|
|
34
|
|
|
|
Item
2
|
|
41
|
|
|
|
Item
5
|
|
41
|
|
|
|
Item
6
|
|
42
|
|
|
|
|
|
43
|
PART
I - FINANCIAL INFORMATION
ITEM
1.
|
Financial
Statements
|
NATIONAL
INSTRUMENTS CORPORATION
(in
thousands, except per share data)
|
|
March
31, 2010
|
|
|
December
31, 2009
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$ |
184,618 |
|
|
$ |
201,465 |
|
Short-term
investments
|
|
|
110,952 |
|
|
|
87,196 |
|
Accounts
receivable,
net
|
|
|
104,818 |
|
|
|
103,957 |
|
Inventories,
net
|
|
|
89,826 |
|
|
|
86,515 |
|
Prepaid
expenses and other current
assets
|
|
|
34,937 |
|
|
|
36,523 |
|
Deferred
income taxes,
net
|
|
|
15,222 |
|
|
|
16,522 |
|
Total
current
assets
|
|
|
540,373 |
|
|
|
532,178 |
|
Property
and equipment,
net
|
|
|
152,567 |
|
|
|
153,265 |
|
Goodwill,
net
|
|
|
69,296 |
|
|
|
64,779 |
|
Intangible
assets,
net
|
|
|
48,369 |
|
|
|
43,390 |
|
Other
long-term
assets
|
|
|
19,647 |
|
|
|
19,417 |
|
Total
assets
|
|
$ |
830,252 |
|
|
$ |
813,029 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
27,450 |
|
|
$ |
23,502 |
|
Accrued
compensation
|
|
|
19,465 |
|
|
|
14,934 |
|
Deferred
revenue
|
|
|
60,972 |
|
|
|
57,242 |
|
Accrued
expenses and other
liabilities
|
|
|
12,619 |
|
|
|
8,560 |
|
Other
taxes
payable
|
|
|
12,306 |
|
|
|
14,181 |
|
Total
current
liabilities
|
|
|
132,812 |
|
|
|
118,419 |
|
Deferred
income
taxes
|
|
|
25,088 |
|
|
|
25,012 |
|
Liability
for uncertain tax
positions
|
|
|
10,926 |
|
|
|
11,062 |
|
Other
long-term
liabilities
|
|
|
4,259 |
|
|
|
4,116 |
|
Total
liabilities
|
|
|
173,085 |
|
|
|
158,609 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock: par value $0.01; 5,000,000 shares authorized; none issued and
outstanding
|
|
|
— |
|
|
|
— |
|
Common
stock: par value $0.01; 180,000,000 shares authorized; 77,325,552
and 77,367,874 shares issued and outstanding,
respectively
|
|
|
773 |
|
|
|
774 |
|
Additional
paid-in
capital
|
|
|
362,857 |
|
|
|
336,446 |
|
Retained
earnings
|
|
|
285,422 |
|
|
|
303,655 |
|
Accumulated
other comprehensive
income
|
|
|
8,115 |
|
|
|
13,545 |
|
Total
stockholders’
equity
|
|
|
657,167 |
|
|
|
654,420 |
|
Total
liabilities and stockholders’
equity
|
|
$ |
830,252 |
|
|
$ |
813,029 |
|
The
accompanying notes are an integral part of these financial
statements.
NATIONAL
INSTRUMENTS CORPORATION
(in
thousands, except per share data)
(unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
Product
|
|
$ |
175,395 |
|
|
$ |
143,450 |
|
Software
maintenance
|
|
|
15,696 |
|
|
|
14,349 |
|
Total
net
sales
|
|
|
191,091 |
|
|
|
157,799 |
|
|
|
|
|
|
|
|
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
Product
|
|
|
42,262 |
|
|
|
39,556 |
|
Software
maintenance
|
|
|
980 |
|
|
|
1,327 |
|
Total
cost of
sales
|
|
|
43,242 |
|
|
|
40,883 |
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
147,849 |
|
|
|
116,916 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and
marketing
|
|
|
74,441 |
|
|
|
68,826 |
|
Research
and
development
|
|
|
38,546 |
|
|
|
34,789 |
|
General
and
administrative
|
|
|
15,340 |
|
|
|
15,780 |
|
Total
operating
expenses
|
|
|
128,327 |
|
|
|
119,395 |
|
|
|
|
|
|
|
|
|
|
Operating
income
(loss)
|
|
|
19,522 |
|
|
|
(2,479 |
) |
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
300 |
|
|
|
589 |
|
Net
foreign exchange gain
(loss)
|
|
|
(698 |
) |
|
|
(702 |
) |
Other
income (expense),
net
|
|
|
348 |
|
|
|
163 |
|
Income
before income taxes
|
|
|
19,472 |
|
|
|
(2,429 |
) |
Provision
for (benefit from) income
taxes
|
|
|
1,119 |
|
|
|
(2,787 |
) |
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,353 |
|
|
$ |
358 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.24 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding –
basic
|
|
|
77,380 |
|
|
|
77,277 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.23 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding –
diluted
|
|
|
78,435 |
|
|
|
77,436 |
|
|
|
|
|
|
|
|
|
|
Dividends
declared per
share
|
|
$ |
0.13 |
|
|
$ |
0.12 |
|
The
accompanying notes are an integral part of these financial
statements.
NATIONAL
INSTRUMENTS CORPORATION
(in
thousands)
(unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,353 |
|
|
$ |
358 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
9,442 |
|
|
|
8,385 |
|
Stock-based
compensation
|
|
|
4,916 |
|
|
|
5,082 |
|
Tax
expense/(benefit) from deferred income
taxes
|
|
|
1,709 |
|
|
|
(1,486 |
) |
Tax
expense from stock option
plans
|
|
|
1,587 |
|
|
|
242 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(613 |
) |
|
|
30,631 |
|
Inventories
|
|
|
(3,006 |
) |
|
|
4,740 |
|
Prepaid
expenses and other
assets
|
|
|
(297 |
) |
|
|
(5,766 |
) |
Accounts
payable
|
|
|
3,618 |
|
|
|
(5,747 |
) |
Deferred
revenue
|
|
|
3,730 |
|
|
|
(549 |
) |
Taxes
and other
liabilities
|
|
|
2,162 |
|
|
|
(11,084 |
) |
Net
cash provided by operating
activities
|
|
|
41,601 |
|
|
|
24,806 |
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(5,271 |
) |
|
|
(3,004 |
) |
Capitalization
of internally developed
software
|
|
|
(3,404 |
) |
|
|
(3,114 |
) |
Additions
to other
intangibles
|
|
|
(543 |
) |
|
|
(1,340 |
) |
Acquisition,
net of cash
received
|
|
|
(2,191 |
) |
|
|
— |
|
Purchases
of short-term and long-term
investments
|
|
|
(35,823 |
) |
|
|
(11,850 |
) |
Sales
and maturities of short-term and long-term
investments
|
|
|
9,037 |
|
|
|
4,026 |
|
Net
cash (used by) investing
activities
|
|
|
(38,195 |
) |
|
|
(15,282 |
) |
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common
stock
|
|
|
22,341 |
|
|
|
7,237 |
|
Repurchase
of common
stock
|
|
|
(30,935 |
) |
|
|
(9,186 |
) |
Dividends
paid
|
|
|
(10,072 |
) |
|
|
(9,285 |
) |
Tax
(benefit) from stock option
plans
|
|
|
(1,587 |
) |
|
|
(242 |
) |
Net
cash (used by) financing
activities
|
|
|
(20,253 |
) |
|
|
(11,476 |
) |
|
|
|
|
|
|
|
|
|
Net
change in cash and cash
equivalents
|
|
|
(16,847 |
) |
|
|
(1,952 |
) |
Cash
and cash equivalents at beginning of
period
|
|
|
201,465 |
|
|
|
229,400 |
|
Cash
and cash equivalents at end of
period
|
|
$ |
184,618 |
|
|
$ |
227,448 |
|
The
accompanying notes are an integral part of these financial
statements.
NATIONAL
INSTRUMENTS CORPORATION
Note
1 – Basis of presentation
The
accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 2009, included in our annual report on Form 10-K, filed
with the Securities and Exchange Commission. In our opinion, the accompanying
consolidated financial statements reflect all adjustments (consisting only of
normal recurring items) considered necessary to present fairly our financial
position at March 31, 2010 and December 31, 2009, and the results of our
operations and cash flows for the three month periods ended March 31, 2010 and
March 31, 2009. Operating results for the three month period ended March 31,
2010, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2010. These financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America.
Note
2 – 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 include stock options and restricted
stock units, is computed using the treasury stock method.
The
reconciliation of the denominators used to calculate basic EPS and diluted EPS
for the three month periods ended March 31, 2010 and 2009, respectively, are as
follows (in thousands):
|
|
March
31,
|
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
Weighted
average shares
outstanding-basic
|
|
|
77,380 |
|
|
|
77,277 |
|
Plus:
Common share equivalents
|
|
|
|
|
|
|
|
|
Stock
options, restricted stock
units
|
|
|
1,055 |
|
|
|
159 |
|
Weighted
average shares
outstanding-diluted
|
|
|
78,435 |
|
|
|
77,436 |
|
Stock
options to acquire 1,297,000 shares and 5,495,000 shares for the three month
periods ended March 31, 2010 and 2009, respectively, were excluded in the
computations of diluted EPS because the effect of including the stock options
would have been anti-dilutive.
Note
3 – Cash, cash equivalents, short-term and long-term investments
Cash,
cash equivalents, short-term and long-term investments consist of the following
(in thousands):
|
|
As
of
March
31, 2010
|
|
|
As
of
December
31, 2009
|
|
|
|
(unaudited)
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
Cash
|
|
$ |
73,787 |
|
|
$ |
85,612 |
|
Cash
equivalents:
|
|
|
|
|
|
|
|
|
Money
market
accounts
|
|
|
110,831 |
|
|
|
115,853 |
|
Total
cash and cash
equivalents
|
|
|
184,618 |
|
|
|
201,465 |
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
|
16,564 |
|
|
|
12,549 |
|
Corporate
bonds
|
|
|
21,971 |
|
|
|
7,587 |
|
U.S.
treasuries and
agencies
|
|
|
28,234 |
|
|
|
21,033 |
|
Foreign
government
bonds
|
|
|
32,830 |
|
|
|
34,674 |
|
Time
deposits
|
|
|
2,753 |
|
|
|
2,753 |
|
Auction
rate
securities
|
|
|
8,198 |
|
|
|
8,177 |
|
Auction
rate securities put
option
|
|
|
402 |
|
|
|
423 |
|
Total
short-term
investments
|
|
|
110,952 |
|
|
|
87,196 |
|
Total
cash, cash equivalents and
investments
|
|
$ |
295,570 |
|
|
$ |
288,661 |
|
The
following table summarizes unrealized gains and losses related to our
investments designated as available-for-sale (in thousands):
|
|
As
of March 31, 2010
(unaudited)
|
|
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized
Gain
|
|
|
Gross
Unrealized
Loss
|
|
|
Cumulative
Translation Adjustment
|
|
|
Fair
Value
|
|
Municipal
bonds
|
|
$ |
16,502 |
|
|
$ |
62 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,564 |
|
Corporate
bonds
|
|
|
21,937 |
|
|
|
84 |
|
|
|
(50 |
) |
|
|
— |
|
|
|
21,971 |
|
U.S.
treasuries and
agencies
|
|
|
28,271 |
|
|
|
1 |
|
|
|
(37 |
) |
|
|
— |
|
|
|
28,235 |
|
Foreign
government
bonds
|
|
|
35,700 |
|
|
|
159 |
|
|
|
— |
|
|
|
(3,030 |
) |
|
|
32,829 |
|
Time
deposits
|
|
|
2,753 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,753 |
|
Auction
rate
securities
|
|
|
8,600 |
|
|
|
— |
|
|
|
(402 |
) |
|
|
— |
|
|
|
8,198 |
|
Auction
rate securities put option
|
|
|
— |
|
|
|
402 |
|
|
|
— |
|
|
|
— |
|
|
|
402 |
|
Total
investments
|
|
$ |
113,763 |
|
|
$ |
708 |
|
|
$ |
(489 |
) |
|
$ |
(3,030 |
) |
|
$ |
110,952 |
|
|
|
As
of December 31, 2009
|
|
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized
Gain
|
|
|
Gross
Unrealized
Loss
|
|
|
Cumulative
Translation Adjustment
|
|
|
Fair
Value
|
|
Municipal
bonds
|
|
$ |
12,491 |
|
|
$ |
58 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,549 |
|
Corporate
bonds
|
|
|
7,478 |
|
|
|
110 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
7,587 |
|
U.S.
treasuries and
agencies
|
|
|
21,080 |
|
|
|
— |
|
|
|
(47 |
) |
|
|
— |
|
|
|
21,033 |
|
Foreign
government
bonds
|
|
|
36,105 |
|
|
|
76 |
|
|
|
— |
|
|
|
(1,507 |
) |
|
|
34,674 |
|
Time
deposits
|
|
|
2,753 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,753 |
|
Auction
rate
securities
|
|
|
8,600 |
|
|
|
— |
|
|
|
(423 |
) |
|
|
— |
|
|
|
8,177 |
|
Auction
rate securities put option
|
|
|
— |
|
|
|
423 |
|
|
|
— |
|
|
|
— |
|
|
|
423 |
|
Total
investments
|
|
$ |
88,507 |
|
|
$ |
667 |
|
|
$ |
(471 |
) |
|
$ |
(1,507 |
) |
|
$ |
87,196 |
|
The
following table summarizes the contractual maturities of our investments
designated as available-for-sale (in thousands):
|
|
As
of March 31, 2010
(unaudited)
|
|
|
As
of December 31, 2009
|
|
|
|
Adjusted
Cost
|
|
|
Fair
Value
|
|
|
Adjusted
Cost
|
|
|
Fair
Value
|
|
Due
in less than 1
year
|
|
$ |
57,581 |
|
|
$ |
56,227 |
|
|
$ |
44,029 |
|
|
$ |
43,267 |
|
Due
in 1 to 5
years
|
|
|
56,182 |
|
|
|
54,725 |
|
|
|
44,478 |
|
|
|
43,929 |
|
Total
investments
|
|
$ |
113,763 |
|
|
$ |
110,952 |
|
|
$ |
88,507 |
|
|
$ |
87,196 |
|
|
|
|
|
|
|
|
Due
in less than 1 year
|
|
Adjusted
Cost
|
|
|
Fair
Value
|
|
|
Adjusted
Cost
|
|
|
Fair
Value
|
|
Municipal
bonds
|
|
$ |
12,902 |
|
|
$ |
12,949 |
|
|
$ |
4,103 |
|
|
$ |
4,110 |
|
Corporate
bonds
|
|
|
6,413 |
|
|
|
6,480 |
|
|
|
5,384 |
|
|
|
5,473 |
|
U.S.
treasuries and
agencies
|
|
|
9,149 |
|
|
|
9,138 |
|
|
|
5,065 |
|
|
|
5,057 |
|
Foreign
government
bonds
|
|
|
17,764 |
|
|
|
16,307 |
|
|
|
18,124 |
|
|
|
17,274 |
|
Time
deposits
|
|
|
2,753 |
|
|
|
2,753 |
|
|
|
2,753 |
|
|
|
2,753 |
|
Auction
rate
securities
|
|
|
8,600 |
|
|
|
8,198 |
|
|
|
8,600 |
|
|
|
8,177 |
|
Auction
rate securities put option
|
|
|
— |
|
|
|
402 |
|
|
|
— |
|
|
|
423 |
|
Total
investments
|
|
$ |
57,581 |
|
|
$ |
56,227 |
|
|
$ |
44,029 |
|
|
$ |
43,267 |
|
|
|
|
|
|
|
|
Due
in 1 to 5 years
|
|
Adjusted
Cost
|
|
|
Fair
Value
|
|
|
Adjusted
Cost
|
|
|
Fair
Value
|
|
Municipal
bonds
|
|
$ |
3,600 |
|
|
$ |
3,615 |
|
|
$ |
8,388 |
|
|
$ |
8,439 |
|
Corporate
bonds
|
|
|
15,524 |
|
|
|
15,491 |
|
|
|
2,094 |
|
|
|
2,114 |
|
U.S.
treasuries and
agencies
|
|
|
19,122 |
|
|
|
19,096 |
|
|
|
16,015 |
|
|
|
15,976 |
|
Foreign
government
bonds
|
|
|
17,936 |
|
|
|
16,523 |
|
|
|
17,981 |
|
|
|
17,400 |
|
Total
investments
|
|
$ |
56,182 |
|
|
$ |
54,725 |
|
|
$ |
44,478 |
|
|
$ |
43,929 |
|
Note 4 – Fair value
measurements
FASB ASC
820, Fair Value Measurements
and Disclosures (FASB ASC 820) clarifies the definition of fair value,
prescribes methods for measuring fair value, establishes a fair value hierarchy
based on the inputs used to measure fair value and expands disclosures about the
use of fair value measurements. Effective January 1, 2010, we adopted the update
to FASB ASC 820 that required additional disclosures and clarified existing
disclosures regarding fair value measurements. The additional disclosures
include transfers in and out of Level 1 and 2 as well as activity within Level 3
fair value measurements. The update also provides amendments that clarify
existing disclosures on level of disaggregation and disclosures about inputs and
valuation techniques. The adoption of the update to FASB ASC 820 did not have a
material impact on our consolidated financial position or results of
operations.
The
following tables present our assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy.
The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value (in thousands). We did not have any items that were
measured at fair value on a nonrecurring basis at March 31, 2010 and December
31, 2009.
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
(unaudited)
|
|
Description
|
|
March
31, 2010
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
Market
Funds
|
|
$ |
110,831 |
|
|
$ |
110,831 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term
investments available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
|
16,564 |
|
|
|
16,564 |
|
|
|
— |
|
|
|
— |
|
Corporate
bonds
|
|
|
21,971 |
|
|
|
21,971 |
|
|
|
— |
|
|
|
— |
|
U.S.
treasuries and
agencies
|
|
|
28,234 |
|
|
|
28,234 |
|
|
|
— |
|
|
|
— |
|
Foreign
government
bonds
|
|
|
32,830 |
|
|
|
32,830 |
|
|
|
— |
|
|
|
— |
|
Time
deposits
|
|
|
2,753 |
|
|
|
2,753 |
|
|
|
— |
|
|
|
— |
|
Auction
rate
securities
|
|
|
8,198 |
|
|
|
— |
|
|
|
— |
|
|
|
8,198 |
|
Auction
rate securities put option
|
|
|
402 |
|
|
|
— |
|
|
|
— |
|
|
|
402 |
|
Derivatives
|
|
|
10,436 |
|
|
|
— |
|
|
|
10,436 |
|
|
|
— |
|
Total
Assets
|
|
$ |
232,219 |
|
|
$ |
213,183 |
|
|
$ |
10,436 |
|
|
$ |
8,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
(578 |
) |
|
$ |
— |
|
|
$ |
(578 |
) |
|
$ |
— |
|
Total
Liabilities
|
|
$ |
(578 |
) |
|
$ |
— |
|
|
$ |
(578 |
) |
|
$ |
— |
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
Description
|
|
December
31, 2009
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
Market
Funds
|
|
$ |
115,853 |
|
|
$ |
115,853 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term
investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
|
12,549 |
|
|
|
12,549 |
|
|
|
— |
|
|
|
— |
|
Corporate
bonds
|
|
|
7,587 |
|
|
|
7,587 |
|
|
|
— |
|
|
|
— |
|
U.S.
treasuries and
agencies
|
|
|
21,033 |
|
|
|
21,033 |
|
|
|
— |
|
|
|
— |
|
Foreign
government
bonds
|
|
|
34,674 |
|
|
|
34,674 |
|
|
|
— |
|
|
|
— |
|
Time
deposits
|
|
|
2,753 |
|
|
|
2,753 |
|
|
|
— |
|
|
|
— |
|
Auction
rate
securities
|
|
|
8,177 |
|
|
|
— |
|
|
|
— |
|
|
|
8,177 |
|
Auction
rate securities put option
|
|
|
423 |
|
|
|
— |
|
|
|
— |
|
|
|
423 |
|
Derivatives
|
|
|
11,016 |
|
|
|
— |
|
|
|
11,016 |
|
|
|
— |
|
Total
Assets
|
|
$ |
214,065 |
|
|
$ |
194,449 |
|
|
$ |
11,016 |
|
|
$ |
8,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
(318 |
) |
|
$ |
— |
|
|
$ |
(318 |
) |
|
$ |
— |
|
Total
Liabilities
|
|
$ |
(318 |
) |
|
$ |
— |
|
|
$ |
(318 |
) |
|
$ |
— |
|
|
|
Fair
Value Measurements Using Significant Unobservable Inputs
(Level
3)
|
|
|
|
Short-term
investments available for sale
|
|
|
|
(unaudited)
|
|
|
|
|
|
Beginning
Balance at December 31,
2009
|
|
$ |
8,600 |
|
Total
gains or (losses) (realized/unrealized)
|
|
|
|
|
Included
in
earnings
|
|
|
402 |
|
Included
in other comprehensive
income
|
|
|
— |
|
Total
losses
(realized/unrealized)
|
|
|
|
|
Included
in
earnings
|
|
|
(402 |
) |
Included
in other comprehensive
income
|
|
|
— |
|
Purchases,
issuances and
settlements
|
|
|
— |
|
Transfer
in and/or out of Level
3
|
|
|
— |
|
Ending
Balance at March 31,
2010
|
|
$ |
8,600 |
|
|
|
|
|
|
The
amount of total gains or (losses) for the period included in earnings (or
changes in net assets) attributable to the change in unrealized gains or
losses relating to assets still held at the reporting date
|
|
|
— |
|
|
|
$ |
— |
|
Short-term
investments available-for-sale are valued using a market approach (Level 1)
based on the quoted market prices of identical instruments when available or
other observable inputs such as trading prices of identical instruments in
active markets. Short-term investments available-for-sale consists of debt
securities issued by states of the U.S. and political subdivisions of the
states, corporate debt securities and debt securities issued by U.S. government
corporations and agencies. All short-term investments available-for-sale have
contractual maturities of less than 24 months.
Derivatives
include foreign currency forward and option 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. Our foreign
currency option contracts are valued using a market approach based on the quoted
market prices which are derived from observable inputs including current and
future spot rates, interest rate spreads as well as quoted market prices of
identical instruments.
Short-term
investments available-for-sale included in Level 3 are reported at their fair
market value and consist of auction rate securities backed by education loan
revenue bonds. One of our auction rate securities is from the Vermont Student
Assistance Corporation and has a par value of $2.2 million. The other of our
auction rate securities is from the New Hampshire Health and Education
Facilities Authority and has a par value of $6.4 million. The ratings for these
securities at March 31, 2010, were Baa3/A/AAA and Aaa/NR/AAA, respectively.
Historically, we reported the fair market value of these securities at par as
differences between par value and the purchase price or settlement value were
historically comprised of accrued interest. Auction rate securities are variable
rate debt instruments whose interest rates are typically reset approximately
every 7 to 35 days. On March 26, 2010, and in prior auction periods beginning in
February 2008, the auction process for these securities failed. At March 31,
2010, we reported these as short-term investments at their estimated fair market
value of $8.2 million.
In
November 2008, we accepted the UBS Auction Rate Securities Rights (the “Rights”)
agreement offered by UBS as a liquidity alternative to the failed auction
process. This Rights agreement is related to the auction rates securities
discussed above. The Rights agreement is a nontransferable right to sell our
auction rate securities, at par value, back to UBS at any time during the period
June 30, 2010, through July 2, 2012. At March 31, 2010, we reported the Rights
agreement at its estimated fair market value of $402,000 as a component of
short-term debt securities available for sale.
The
estimated fair market value of both the auction rate securities and the Rights
agreement was determined using significant unobservable inputs (Level 3) as
prescribed by FASB ASC 820. We considered many factors in determining the fair
market value of the auction rate securities as well as our corresponding Rights
agreement at March 31, 2010, including the fact that the debt instruments
underlying the auction rate securities have redemption features which call for
redemption at 100% of par value, current credit curves for like securities and
discount factors to account for the illiquidity of the market for these
securities. During the three month period ended March 31, 2010, we did not make
any changes to our valuation techniques or related inputs.
Note
5 – Derivative instruments and hedging activities
FASB ASC
815, Derivatives and
Hedging, (FASB ASC 815) requires companies to recognize all of their
derivative instruments as either assets or liabilities in the 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, a company must 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
operations in over 40 countries. Sales outside of the Americas as a percentage
of consolidated sales were 59% and 57% for the three month periods ended March
31, 2010 and 2009, 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 and purchased option 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 purchase foreign currency forward and option 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 purchase foreign currency forward contracts
as hedges of forecasted expenses that are denominated in foreign currencies.
These contracts are entered into to help protect against the risk that the
eventual dollar-net-cash outflows resulting from foreign currency operating and
cost of revenue expenses will be adversely affected by changes in exchange
rates.
We
designate foreign currency forward and purchased option 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. These derivatives are not designated as hedging instruments
under FASB ASC 815. 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 or expenses over the next one to two 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 and purchased option contracts. For forward contracts, when the
dollar strengthens significantly against the foreign currencies, the change in
the present value of future foreign currency cash flows may be offset by the
change in the fair value of the forward contracts designated as hedges. For
option contracts, when the dollar strengthens significantly against the foreign
currencies, the change in the present value of future foreign currency cash
flows may be offset by the change in the fair value of the option contracts net
of the premium paid designated as hedges. Our foreign currency purchased option
contracts are purchased “at-the-money” or “out-of-the-money”. We purchase
foreign currency forward and option contracts for up to 100% of our forecasted
exposures in selected currencies (primarily in Euro, Japanese yen, British pound
sterling, South Korean won and Hungarian forint) and limit the duration of these
contracts to 40 months or less.
For
derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative is reported as a
component of accumulated other comprehensive income (“OCI”) and reclassified
into earnings in the same line item (net sales, operating expenses, or cost of
sales) associated with the forecasted transaction and in the same period or
periods during which the hedged transaction affects earnings. Gains and losses
on the derivative representing either hedge ineffectiveness or hedge components
excluded from the assessment of effectiveness are recognized in current earnings
or expenses during the current period and are classified as a component of “net
foreign exchange gain (loss)”. Hedge effectiveness of foreign currency forwards
and purchased option contracts designated as cash flow hedges are measured by
comparing the hedging instrument’s cumulative change in fair value from
inception to maturity to the forecasted transaction’s terminal
value.
We held
forward contracts with a notional amount of $21.6 million dollar equivalent of
Euro, $3.1 million dollar equivalent of British pound sterling, $19 million
dollar equivalent of Japanese yen, and $23.3 million dollar equivalent of
Hungarian forint at March 31, 2010. These contracts are for terms of up to 24
months. At December 31, 2009, we held forward contracts with a notional amount
of $28.6 million dollar equivalent of Euro, $4.0 million dollar equivalent of
British pound sterling, $24.4 million dollar equivalent of Japanese yen, and
$17.8 million dollar equivalent of Hungarian forint.
We held
purchased option contracts with a notional amount of $21.5 million dollar
equivalent of Euro at March 31, 2010. These contracts are for terms of up to 12
months. At December 31, 2009, we held purchased option contracts with a notional
amount of $28.4 million dollar equivalent of Euro.
At March
31, 2010, we expect to reclassify $4.3 million of gains on derivative
instruments from accumulated other comprehensive income to net sales during the
next twelve months when the hedged international sales occur, $2.4 million of
gains on derivative instruments from accumulated OCI to cost of sales and $1.1
million of gains on derivative instruments from accumulated OCI to operating
expenses during the next twelve months when the hedged international expenses
occur. Expected amounts are based on derivative valuations at March 31, 2010.
Actual results may vary as a result of changes in the corresponding exchange
rate subsequent to this date.
We did
not record any ineffectiveness during the three months ended March 31, 2010.
During the three months ended March 31, 2009, hedges with a notional amount of
$14.4 million were determined to be ineffective. As a result, we recorded a net
gain of $417,000 related to these hedges as a component of “net foreign exchange
gain (loss)”.
Other
derivatives
Other
derivatives not designated as hedging instruments under FASB ASC 815 consist
primarily of foreign currency forward contracts that we use to hedge our foreign
denominated net receivable or net payable 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 receivables
or net payables 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 “net foreign
exchange gain (loss)”. As of March 31, 2010 and December 31, 2009, we held
foreign currency forward contracts with a notional amount of $37.6 million and
$45.2 million, respectively.
The
following table presents the fair value of derivative instruments on our
Consolidated Balance Sheets and the effect of derivative instruments on our
Consolidated Statements of Income.
Fair
Values of Derivative Instruments (in thousands):
|
Asset
Derivatives
|
|
|
March
31, 2010
(unaudited)
|
|
December
31, 2009
|
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
Derivatives
designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – ST forwards
|
Prepaid
expenses and other current assets
|
|
$ |
6,476 |
|
Prepaid
expenses and other current assets
|
|
$ |
7,947 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – LT forwards
|
Other
long-term assets
|
|
|
327 |
|
Other
long-term assets
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – ST options
|
Prepaid
expenses and other current assets
|
|
|
2,331 |
|
Prepaid
expenses and other current assets
|
|
|
1,821 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives designated as hedging
instruments
|
|
|
$ |
9,134 |
|
|
|
$ |
10,042 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – ST forwards
|
Prepaid
expenses and other current assets
|
|
$ |
1,302 |
|
Prepaid
expenses and other current assets
|
|
$ |
974 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives not designated as hedging instruments
|
|
|
$ |
1,302 |
|
|
|
$ |
974 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives
|
|
|
$ |
10,436 |
|
|
|
$ |
11,016 |
|
|
Liability
Derivatives
|
|
|
March
31, 2010
(unaudited)
|
|
December
31, 2009
|
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
Derivatives
designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – ST forwards
|
Accrued
expenses and other liabilities
|
|
$ |
(33 |
) |
Accrued
expenses and other liabilities
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – LT forwards
|
Other
long-term liabilities
|
|
|
(110 |
) |
Other
long-term liabilities
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives designated as hedging
instruments
|
|
|
$ |
(143 |
) |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – ST forwards
|
Accrued
expenses and other liabilities
|
|
$ |
(435 |
) |
Accrued
expenses and other liabilities
|
|
$ |
(318 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives not designated as hedging instruments
|
|
|
$ |
(435 |
) |
|
|
$ |
(318 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives
|
|
|
$ |
(578 |
) |
|
|
$ |
(318 |
) |
The
following tables show the effect of derivative instruments on our Consolidated
Statements of Income for the three month periods ended March 31, 2010 and 2009,
respectively (in thousands):
March
31, 2010
(unaudited)
|
|
Derivatives
in Cash Flow Hedging Relationship
|
|
Amount
of Gain/(Loss) Recognized in OCI (Effective Portion)
|
|
Location
of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective
Portion)
|
|
Amount
of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective
Portion)
|
|
Location
of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount
Excluded from Effectiveness Testing)
|
|
Amount
of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount
Excluded from Effectiveness Testing)
|
|
Foreign
exchange contracts – forwards and options
|
|
$ |
1,515 |
|
Net
sales
|
|
$ |
1,037 |
|
Net
foreign exchange gain (loss)
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – forwards and options
|
|
|
(1,391 |
) |
Cost
of sales
|
|
|
769 |
|
Net
foreign exchange gain (loss)
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – forwards and options
|
|
|
(885 |
) |
Operating
expenses
|
|
|
368 |
|
Net
foreign exchange gain (loss)
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(761 |
) |
|
|
$ |
2,174 |
|
|
|
$ |
— |
|
March
31, 2009
(unaudited)
|
|
Derivatives
in Cash Flow Hedging Relationship
|
|
Amount
of Gain/(Loss) Recognized in OCI (Effective Portion)
|
|
Location
of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective
Portion)
|
|
Amount
of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective
Portion)
|
|
Location
of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount
Excluded from Effectiveness Testing)
|
|
Amount
of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount
Excluded from Effectiveness Testing)
|
|
Foreign
exchange contracts – forwards and options
|
|
$ |
3,796 |
|
Net
sales
|
|
$ |
2,633 |
|
Net
foreign exchange gain (loss)
|
|
$ |
940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – forwards and options
|
|
|
(2,746 |
) |
Cost
of sales
|
|
|
(255 |
) |
Net
foreign exchange gain (loss)
|
|
|
(523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts – forwards and options
|
|
|
(888 |
) |
Operating
expenses
|
|
|
(266 |
) |
Net
foreign exchange gain (loss)
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
162 |
|
|
|
$ |
2,112 |
|
|
|
$ |
417 |
|
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
|
|
|
|
|
March
31, 2010
(unaudited)
|
|
|
March
31, 2009
(unaudited)
|
|
Foreign
exchange contracts – forwards
|
Net
foreign exchange gain/(loss)
|
|
$ |
439 |
|
|
$ |
3,089 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
439 |
|
|
$ |
3,089 |
|
Note
6 – Inventories
Inventories,
net consist of the following (in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
43,524 |
|
|
$ |
42,121 |
|
Work-in-process
|
|
|
2,603 |
|
|
|
2,042 |
|
Finished
goods
|
|
|
43,699 |
|
|
|
42,352 |
|
|
|
$ |
89,826 |
|
|
$ |
86,515 |
|
Note
7 – Intangibles
Intangibles
at March 31, 2010 and December 31, 2009 are as follows (in
thousands):
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
Capitalized
software development costs
|
|
$ |
42,494 |
|
|
$ |
(23,053 |
) |
|
$ |
19,441 |
|
|
$ |
38,928 |
|
|
$ |
(20,455 |
) |
|
$ |
18,473 |
|
Acquired
technology
|
|
|
32,830 |
|
|
|
(21,775 |
) |
|
|
11,055 |
|
|
|
28,022 |
|
|
|
(20,967 |
) |
|
|
7,055 |
|
Patents
|
|
|
19,482 |
|
|
|
(5,611 |
) |
|
|
13,871 |
|
|
|
19,033 |
|
|
|
(5,377 |
) |
|
|
13,656 |
|
Leasehold
equipment and other
|
|
|
12,978 |
|
|
|
(8,976 |
) |
|
|
4,002 |
|
|
|
12,577 |
|
|
|
(8,371 |
) |
|
|
4,206 |
|
|
|
$ |
107,784 |
|
|
$ |
(59,415 |
) |
|
$ |
48,369 |
|
|
$ |
98,560 |
|
|
$ |
(55,170 |
) |
|
$ |
43,390 |
|
Software
development costs capitalized for the three month periods ended March 31, 2010
and 2009 were $3.6 million and $3.1 million, respectively, and related
amortization expense was $2.6 million and $2.1 million, respectively.
Capitalized software development costs for the three month periods ended March
31, 2010 and 2009, included costs related to stock based compensation of
$163,000 and $156,000, respectively. Amortization of capitalized software
development costs is computed on an individual product basis for those products
available for market and is recognized based on the product’s estimated economic
life, generally three 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 $4.2 million and $3.6 million
for the three months ended March 31, 2010 and March 31, 2009,
respectively.
Acquired
core technology and intangible assets are amortized over their useful lives,
which range from three to eight years. Amortization expense for acquisition
related intangibles was approximately $844,000 and $1.0 million for the three
months ended March 31, 2010 and March 31, 2009, respectively, of which
approximately $722,000 and $887,000 was recorded in cost of sales, respectively,
and approximately $122,000 and $126,000 was recorded in operating expenses for
the three months ended March 31, 2010 and March 31, 2009,
respectively.
Note
8 – Goodwill
The
carrying amount of goodwill as of March 31, 2010, is as follows (in
thousands):
|
|
Amount
|
|
Balance
as of December 31,
2009
|
|
$ |
64,779 |
|
Acquisitions
|
|
|
5,000 |
|
Divestitures
|
|
|
— |
|
Foreign
currency translation
impact
|
|
|
(483 |
) |
Balance
as of March 31,
2009
|
|
$ |
69,296 |
|
The
excess purchase price over the fair value of assets acquired is recorded as
goodwill. As we have one operating segment, we allocate goodwill to one
reporting unit for goodwill impairment testing. Goodwill is tested for
impairment on an annual basis, and between annual tests if indicators of
potential impairment exist, using a fair-value-based approach based on the
market capitalization of the reporting unit. Our annual impairment test was
performed as of February 28, 2010. No impairment of goodwill has been identified
during the period presented. Goodwill is deductible for tax purposes in certain
jurisdictions.
On
February 1, 2010, we acquired all of the outstanding shares of a privately-held
company for $2.2 million in net cash, $3.0 million in shares of our common stock
with the remainder to be paid in cash over the next four years. The purchase
price allocation for this acquisition included net working capital of $1.1
million, amortizable intangible assets of $5.0 million, and goodwill of $5.0
million. Our
consolidated financial statements include the operating results from the date of
acquisition.
Note
9 – 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.
FASB ASC
740, Income Taxes (FASB
ASC 740) addresses the accounting for uncertainty in income taxes recognized in
an entity’s financial statements and prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. We had $10.9 million and $11.1 million
of unrecognized tax benefits at March 31, 2010 and December 31, 2009,
respectively, all of which would affect our effective income tax rate if
recognized. We recorded a gross decrease in unrecognized tax benefits of $1.1
million for the three month period ended March 31, 2010, as a result of a
settlement with a taxing authority. As of March 31, 2010, it is deemed
reasonable that we will recognize tax benefits in the amount of $2.4 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. Our continuing policy is to recognize
interest and penalties related to income tax matters in income tax expense. As
of March 31, 2010, we have approximately $744,000 accrued for interest related
to uncertain tax positions. The tax years 2003 through 2009 remain open to
examination by the major taxing jurisdictions to which we are
subject.
Our
provision for income taxes reflected an effective tax rate of 6% and 115% for
the three month periods ended March 31, 2010 and 2009, respectively. For the
three month period ended March 31, 2010, our effective tax rate was lower than
the U.S. federal statutory rate of 35% as a result of a tax benefit from equity
awards that do not ordinarily result in a tax benefit, the partial release of a
deferred tax asset valuation allowance, an enhanced deduction for certain
research and development expenses, increased profits in foreign jurisdictions
with reduced income tax rates and a decrease in unrecognized tax benefits for
uncertain tax positions. For the three months ended March 31, 2009, our
effective tax rate was higher than the U.S. federal statutory rate of 35% as a
result of non-deductible stock-based compensation expense, a change in a
valuation allowance related to deferred tax assets for which tax benefits were
previously recognized and the partial release of a deferred tax asset valuation
allowance. The partial release of the valuation allowance had the effect of
increasing our effective tax rate in the three months ended March 31, 2009,
because we reported a net loss before taxes in that period.
The tax
position of our Hungarian operation continues to benefit from assets created by
the restructuring of our operations in Hungary. In addition, effective January
1, 2010, a new tax law in Hungary provides 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. Partial release of
the valuation allowance on assets from the restructuring and the enhanced tax
deduction for research expenses resulted in income tax benefits of $3.2 and $1.1
million for the three month periods ended March 31, 2010 and 2009,
respectively.
Note
10 – Comprehensive income
Our
comprehensive income is comprised of net income, foreign currency translation,
unrealized gains and losses on forward and option contracts and securities
available for sale. Comprehensive income for the three month periods ended March
31, 2010 and March 31, 2009, was as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
Comprehensive
income:
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,353 |
|
|
$ |
358 |
|
Foreign
currency translation (losses), net of
taxes
|
|
|
(3,962 |
) |
|
|
(2,775 |
) |
Unrealized
(losses) on derivative instruments, net of taxes
|
|
|
(3,345 |
) |
|
|
(78 |
) |
Unrealized
gains/(losses) on available for sale securities, net of
taxes
|
|
|
1,877 |
|
|
|
(180 |
) |
Total
comprehensive income
|
|
$ |
12,923 |
|
|
$ |
(2,675 |
) |
Note
11 – Stock-based compensation plans
Stock
option plans
Our
stockholders approved the 1994 Incentive Stock Option Plan (the “1994 Plan”) on
May 9, 1994. At the time of approval, 9,112,500 shares of our common stock were
reserved for issuance under this plan. In 1997, an additional 7,087,500 shares
of our common stock were reserved for issuance under this plan, and an
additional 750,000 shares were reserved for issuance under this plan, as
amended, in 2004. The 1994 Plan terminated in May 2005, except with respect to
outstanding awards previously granted thereunder. Awards under the plan were
either incentive stock options within the meaning of Section 422 of the Internal
Revenue Code or nonqualified options. The right to purchase shares vests over a
five to ten-year period, beginning on the date of grant. Vesting of ten year
awards may accelerate based on the Company’s previous year’s earnings and
revenue growth but shares cannot accelerate to vest over a period of less than
five years. Stock options must be exercised within ten years from date of grant.
Stock options were issued at the market price at the grant date. We estimate
potential forfeitures of stock grants and adjust compensation cost recorded
accordingly. The estimate of forfeitures will be adjusted over the requisite
service period to the extent that actual forfeitures differ, or are expected to
differ, from such estimates. Changes in estimated forfeitures will be recognized
through a cumulative catch-up adjustment in the period of change and will also
impact the amount of stock compensation expense to be recognized in future
periods. During the three months ended March 31, 2010, we did not make any
changes in accounting principles or methods of estimates.
Restricted
stock plan
Our
stockholders approved our 2005 Incentive Plan on May 10, 2005. At the time of
approval, 2,700,000 shares of our common stock were reserved for issuance under
this plan, as well as the number of shares which had been reserved but not
issued under the 1994 Plan (our incentive stock option plan which terminated in
May 2005), and any shares that returned to the 1994 Plan as a result of
termination of options or repurchase of shares issued under such plan. The 2005
Plan, administered by the Compensation Committee of the Board of Directors,
provides for granting of incentive awards in the form of restricted stock and
restricted stock units (“RSUs”) to directors, executive officers and employees
of the Company and its subsidiaries. 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 the Company’s previous year’s earnings and growth but ten
year awards cannot accelerate to vest over a period of less than five years.
Shares available for grant at March 31, 2010 were 2,256,408. We estimate
potential forfeitures of RSUs and adjust compensation cost recorded accordingly.
The estimate of forfeitures will be adjusted over the requisite service period
to the extent that actual forfeitures differ, or are expected to differ, from
such estimates. Changes in estimated forfeitures will be recognized through a
cumulative catch-up adjustment in the period of change and will also impact the
amount of stock compensation expense to be recognized in future periods. During
the three months ended March 31, 2010, we did not make any changes in accounting
principles or methods of estimates.
Employee
stock purchase plan
Our
employee stock purchase plan 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 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. We
had 1,573,211 shares of common stock reserved for future employee purchases
under this plan at March 31, 2010. We issued 181,860 shares under this plan in
the three month period ended March 31, 2010. The weighted average fair value of
the employees’ purchase rights was $22.70 per share and was estimated using the
Black-Scholes model. During the three months ended March 31, 2010, we did not
make any changes in accounting principles or methods of estimates.
For the
three months ended March 31, 2010 and March 31, 2009, stock-based compensation
recorded as a component of cost of sales, sales and marketing, research and
development, and general and administrative was as follows (in
thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
Stock-based
compensation
|
|
|
|
|
|
|
Cost
of sales
|
|
$ |
362 |
|
|
$ |
310 |
|
Sales
and marketing
|
|
|
2,104 |
|
|
|
2,185 |
|
Research
and development
|
|
|
1,765 |
|
|
|
1,737 |
|
General
and administrative
|
|
|
685 |
|
|
|
799 |
|
|
|
|
4,916 |
|
|
|
5,031 |
|
Provision
for income taxes
|
|
|
(1,545 |
) |
|
|
(3,014 |
) |
Total
|
|
$ |
3,371 |
|
|
$ |
2,017 |
|
Authorized
Preferred Stock and Preferred Stock Purchase Rights Plan
We have
5,000,000 authorized shares of preferred stock. On January 21, 2004, our Board
of Directors designated 750,000 of these shares as Series A Participating
Preferred Stock in conjunction with its adoption of a Preferred Stock Rights
Agreement (the “Rights Agreement”) and declaration of a dividend of one
preferred share purchase right (a “Right”) for each share of common stock
outstanding held as of May 10, 2004 or issued thereafter. Each Right will
entitle its holder to purchase one one-thousandth of a share of National
Instruments’ Series A Participating Preferred Stock at an exercise price of
$200, subject to adjustment, under certain circumstances. The Rights Agreement
was not adopted in response to any effort to acquire control of National
Instruments.
The
Rights only become exercisable in certain limited circumstances following the
tenth day after a person or group announces acquisitions of or tender offers for
20% or more of our common stock. In addition, if an acquirer (subject to certain
exclusions for certain current stockholders of National Instruments, an
“Acquiring Person”) obtains 20% or more of our common stock, then each Right
(other than the Rights owned by an Acquiring Person or its affiliates) will
entitle the holder to purchase, for the exercise price, shares of our common
stock having a value equal to two times the exercise price. Under certain
circumstances, our Board of Directors may redeem the Rights, in whole, but not
in part, at a purchase price of $0.01 per Right. The Rights have no voting
privileges and are attached to and automatically traded with our common stock
until the occurrence of specified trigger events. The Rights will expire on the
earlier of May 10, 2014 or the exchange or redemption of the
Rights.
Note 12 – Segment
information
We
determine operating segments using the management approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of our
operating segments. It also requires disclosures about products and services,
geographic areas and major customers.
We have
defined our operating segment based on geographic regions. We sell our products
in three geographic regions. Our sales to these regions share similar economic
characteristics, similar product mix, similar customers, and similar
distribution methods. Accordingly, we have elected to aggregate these three
geographic regions into a single operating segment. 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.
Total net
sales, operating income, interest income and long-lived assets, classified by
the major geographic areas in which we operate, are as follows (in
thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
Net
sales:
|
|
|
|
|
|
|
Americas:
|
|
$ |
79,197 |
|
|
$ |
68,439 |
|
|
|
|
|
|
|
|
|
|
Europe:
|
|
|
57,923 |
|
|
|
49,480 |
|
|
|
|
|
|
|
|
|
|
Asia
Pacific:
|
|
|
53,971 |
|
|
|
39,880 |
|
|
|
$ |
191,091 |
|
|
$ |
157,799 |
|
|
|
Three
Months Ended
March
31,
|
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
Operating
income (loss):
|
|
|
|
|
|
|
Americas
|
|
$ |
13,379 |
|
|
$ |
5,307 |
|
Europe
|
|
|
27,039 |
|
|
|
16,780 |
|
Asia
Pacific
|
|
|
17,650 |
|
|
|
10,223 |
|
Unallocated:
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
(38,546 |
) |
|
|
(34,789 |
) |
|
|
$ |
19,522 |
|
|
$ |
(2,479 |
) |
|
|
Three
Months Ended
March
31,
|
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
Interest
income:
|
|
|
|
|
|
|
Americas
|
|
$ |
111 |
|
|
$ |
294 |
|
Europe
|
|
|
159 |
|
|
|
274 |
|
Asia
Pacific
|
|
|
30 |
|
|
|
21 |
|
|
|
$ |
300 |
|
|
$ |
589 |
|
|
|
March
31,
2010
|
|
|
December
31,
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Long-lived
assets:
|
|
|
|
|
|
|
Americas
|
|
$ |
100,555 |
|
|
$ |
100,489 |
|
Europe
|
|
|
35,407 |
|
|
|
36,555 |
|
Asia
Pacific
|
|
|
16,605 |
|
|
|
16,221 |
|
|
|
$ |
152,567 |
|
|
$ |
153,265 |
|
Total
sales outside the United States for the three month periods ended March 31, 2010
and 2009 were $119.4 million and $96.2 million, respectively.
Note
13 – Commitments and Contingencies
We offer
a one-year limited warranty on most hardware products, with a two or three-year
warranty on a subset of our hardware products, which is included in the sales
price of many of our products. Provision is made for estimated future warranty
costs at the time of the sale, for the estimated costs that may be incurred
under the basic limited warranty. Our estimate is based on historical experience
and product sales during this period.
The
warranty reserve for the three month periods ended March 31, 2010 and 2009,
respectively, was as follows (in thousands):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
Balance
at the beginning of the
period
|
|
$ |
921 |
|
|
$ |
952 |
|
Accruals
for warranties issued during the
period
|
|
|
485 |
|
|
|
496 |
|
Settlements
made (in cash or in kind) during the period
|
|
|
(484 |
) |
|
|
(602 |
) |
Balance
at the end of the
period
|
|
$ |
922 |
|
|
$ |
846 |
|
As of
March 31, 2010, we have outstanding guarantees for payment of foreign operating
leases, customs and foreign grants totaling approximately $5.1
million.
As of
March 31, 2010, we have non-cancelable purchase commitments with various
suppliers of customized inventory and inventory components totaling
approximately $7.5 million over the next twelve months.
Note
14 – Recently issued accounting pronouncements
In
October 2009, the FASB updated FASB ASC 605, Revenue Recognition (FASB ASC
605) that amended the criteria for separating consideration in
multiple-deliverable arrangements. The amendments establish a selling price
hierarchy for determining the selling price of a deliverable. The selling price
used for each deliverable will be based on vendor-specific objective evidence if
available, third–party evidence if vendor-specific objective evidence is not
available, or estimated selling price if neither vendor-specific objective
evidence nor third-party evidence is available. The amendments will change the
application of the residual method of allocation and require that arrangement
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. The relative selling price
method allocates any discount in the arrangement proportionally to each
deliverable on the basis of each deliverable’s selling price. This update will
be effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. We are currently evaluating the requirements of this update and have
not yet determined the impact on our consolidated financial
statements.
In
October 2009, the FASB updated FASB ASC 985, Software (FASB ASC 985) that
changes the accounting model for revenue arrangements that include both tangible
products and software elements. Tangible products containing software components
and non-software components that function together to deliver the tangible
product’s essential functionality are no longer within the scope of the software
revenue guidance in Subtopic 985-605. In addition, the amendments require that
hardware components of a tangible product containing software components always
be excluded from the software revenue guidance. This update will be effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
We are currently evaluating the requirements of this update and have not yet
determined the impact on our consolidated financial statements.
In
January 2010, the FASB updated FASB ASC 820, Fair Value Measurements and
Disclosures (FASB ASC 820) that requires additional disclosures and
clarifies existing disclosures regarding fair value measurements. The additional
disclosures include 1) transfers in and out of Levels 1 and 2 and 2) activity in
Level 3 fair value measurements. The update provides amendments that clarify
existing disclosures on 1) level of disaggregation and 2) disclosures about
inputs and valuation techniques. This update will be effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. These disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. We adopted the update on January 1, 2010 as
required and concluded it did not have a material impact on our consolidated
financial position or results of operations.
In
February 2010, the FASB updated FASB ASC 855, Subsequent Events (FASB ASC
855) that requires an entity that is an SEC filer to evaluate subsequent events
through the date that the financial statements are issued. For an SEC filer,
this guidance also eliminates the required disclosure of the date through which
subsequent events are evaluated. This update is effective upon
issuance. We adopted the update on January 1, 2010 as required and concluded it
did not have a material impact on our consolidated financial position or results
of operations.
Note
15 – Litigation
We filed
a patent infringement action on January 25, 2001, in the U.S. District Court,
Eastern District of Texas (Marshall Division) claiming that The MathWorks, Inc.
(“MathWorks”) infringed certain of our U.S. patents. On January 30, 2003, a jury
found infringement by MathWorks of three of the patents involved and awarded us
specified damages. On September 23, 2003, the District Court entered final
judgment in favor of us and entered an injunction against MathWorks’ sale of its
Simulink and related products and stayed the injunction pending appeal. Upon
appeal, the judgment and the injunction were affirmed by the U.S. Court of
Appeals for the Federal Circuit (September 3, 2004). Subsequently the stay of
injunction was lifted by the District Court. In November 2004, the final
judgment amount of $7.4 million which had been held in escrow pending appeal was
released to us.
An action
was filed by MathWorks against us on September 22, 2004, in the U.S. District
Court, Eastern District of Texas (Marshall Division), claiming that on that day
MathWorks had released modified versions of its Simulink and related products,
and seeking a declaratory judgment that the modified products do not infringe
the three patents adjudged infringed in the District Court's decision of
September 23, 2003 (and affirmed by the Court of Appeals on September 3, 2004).
On November 2, 2004, MathWorks served the complaint on us. We filed an answer to
MathWorks’ declaratory judgment complaint, denying MathWorks’ claims of
non-infringement and alleging our own affirmative defenses. On January 5, 2005,
the Court denied a contempt motion by us to enjoin the modified Simulink
products under the injunction in effect from the first case. On January 7, 2005,
we amended our answer to include counterclaims that MathWorks’ modified products
are infringing three of our patents, and requested unspecified damages and an
injunction. MathWorks filed its reply to our counterclaims on February 7, 2005,
denying the counterclaims and alleging affirmative defenses. On March 2, 2005,
we filed a notice of appeal regarding the Court's denial of the contempt motion.
On March 15, 2005, the Court stayed MathWorks’ declaratory judgment action,
pending a decision on the appeal by the Court of Appeals for the Federal
Circuit. On February 9, 2006, the Court of Appeals for the Federal Circuit
affirmed the District Court’s January 2005 order. On November 22, 2006, the
District Court lifted the stay. The case schedule has yet to be set in this
action. During the fourth quarter of 2004, we accrued $4 million related to our
probable loss from this contingency, which consists entirely of anticipated
patent defense costs that are probable of being incurred. In the
fourth quarter of 2006, we accrued an additional $600,000 related to this
contingency. During the third quarter of 2009, we reduced the accrual by $2
million and during the first quarter of 2010, we reduced the accrual by an
additional $1,037,000 to reflect a decrease in the estimated costs that are
probable of being incurred in this action. To date, we have charged a cumulative
total of $623,000 against this accrual. At March 31, the remaining accrual was
$936,000.
Note
16 – Subsequent events
We have
evaluated subsequent events through the date the financial statements were
issued.
On April
21, 2010, our Board of Directors declared a quarterly cash dividend of $0.13 per
common share, payable June 1, 2010, to shareholders of record on May 10,
2010.
On April
21, 2010, our Board of Directors approved a new share repurchase plan that
increased the aggregate number of shares of common stock that we are authorized
to repurchase from 674,098 to 3.0 million.
Item
2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Any statements contained herein regarding our
future financial performance or operations (including, without limitation,
statements to the effect that we “believe,” "expect," "plan," "may," "will,"
"project," "continue," or "estimate" or other variations thereof or comparable
terminology or the negative thereof) should be considered forward-looking
statements. 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” beginning on page 34,
and the discussion below. Readers are also encouraged to refer to the documents
regularly filed by us with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for further discussion of our business and the risks
attendant thereto.
Overview
National
Instruments Corporation (“we”, “us” or “our”) is a leading supplier of
measurement and automation products that engineers and scientists use in a wide
range of industries. These industries comprise a large and diverse market for
design, control and test applications. We provide flexible application software
and modular, multifunctional hardware that users combine with industry-standard
computers, networks and third party devices to create measurement, automation
and embedded systems, which we also refer to as “virtual instruments”. Our
approach gives customers the ability to quickly and cost-effectively design,
prototype and deploy unique custom-defined solutions for their design, control
and test application needs. We sell to a large number of customers in a wide
variety of industries. No single customer accounted for more than 3% of our
sales in the three months ended March 31, 2010 or in the years 2009, 2008 or
2007.
The key
strategies that management focuses on in running our business are the
following:
Expanding
our broad customer base
We strive
to increase our already broad customer base by serving a large market on many
computer platforms, through a global marketing and distribution network. We also
seek to acquire new technologies and expertise from time to time in order to
open new opportunities for our existing product portfolio.
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 backwards compatibility across different
platforms in order 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 quality and reliability, and that these 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 such as custom application specific integrated
circuits (“ASICs”) across multiple products.
We sell
into test and measurement (“T&M”) and industrial/embedded applications in a
broad range of industries and as such are subject to the economic and industry
forces which drive those markets. It has been our experience that the
performance of these industries and our performance is impacted by general
trends in industrial production for the global economy and by the specific
performance of certain vertical markets that are intensive consumers of
measurement technologies. Examples of these markets are semiconductor capital
equipment, telecom, defense, aerospace, automotive and others. In assessing our
business, we consider the trends in the Global Purchasing Managers Index (“PMI”)
published by JP Morgan, global industrial production as well as industry reports
on the specific vertical industries that we target. Starting in August 2009, the
PMI has had readings above 50 which are indicative of expansion in the
industrial global economy. We are unable to predict whether the current
expansion cycle, as measured by the PMI, will be sustained throughout
2010.
We
distribute our software and hardware products primarily through a direct sales
organization. We also use independent distributors, OEMs, VARs, system
integrators and consultants to market our products. We have sales offices in the
U.S. and sales offices and distributors in key international markets. Sales
outside of the Americas accounted for approximately 59% and 57% or our revenues
for the three month periods ended March 31, 2010 and 2009, respectively. 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 12 – Segment
information of Notes to Consolidated Financial Statements for details concerning
the geographic breakdown of our net sales, operating income, interest income and
long-lived assets).
We
manufacture a substantial majority of our products at our facilities in
Debrecen, Hungary. Additional production primarily of low volume or newly
introduced products is done in Austin, Texas. Our product manufacturing
operations can be divided into four areas: electronic circuit card and module
assembly; chassis and cable assembly; technical manuals and product support
documentation; and software duplication. We manufacture most of the electronic
circuit card assemblies, and modules in-house, although subcontractors are used
from time to time. We currently use subcontractors in Asia to manufacture a
significant portion of our chassis but we review these arrangements
periodically. We manufacture some of our electronic cable assemblies in-house,
but many assemblies are produced by subcontractors. We primarily subcontract our
software duplication, our technical manuals and product support
documentation.
We
believe that our long-term growth and success depends 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 is dependent on
our ability to obtain and maintain patents and other proprietary rights related
to technologies used in our products. We have engaged in litigation and where
necessary, will likely engage in future litigation to protect our intellectual
property rights. In monitoring and policing our intellectual property rights, we
have been and may be required to spend significant resources.
We have
been profitable in every year since 1990. However, there can be no assurance
that our net sales will grow or that we will remain profitable in future
periods. Our operating results fluctuate from period to period due to changes in
global economic conditions and a number of other factors. As a result, we
believe historical results of operations should not be relied upon as
indications of future performance.
Current
business outlook
Many of
the industries we serve have historically been cyclical and have experienced
periodic downturns. Our customers across all industries and geographic regions
demonstrated reduced order patterns throughout most of 2009. During
the fourth quarter of 2009, we began to see positive trends in the order
patterns of our customers and have seen those trends continue during our first
quarter of 2010. These positive order trends are consistent with the expansion
we have seen in the global industrial economy as measured by the global PMI
which has risen from 50 in July 2009 to 57 in March 2010. We have seen these
positive trends across all geographic regions and across all the vertical
markets that we serve although the strength of the trend varies by region and by
market. We are unable to predict whether the current expansion cycle, as
measured by the PMI, will be sustained throughout 2010. If this expansion cannot
be sustained, it could have an adverse effect on the spending patterns of
businesses including our current and potential customers which could adversely
affect our revenues and therefore harm our business and result of operations.
Our key strategies are to maintain a stable gross margin and to optimize our
operating cost structure while maintaining strong employee
productivity.
Results
of Operations
The
following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items reflected in our Consolidated Statements of
Income:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Net
sales:
|
|
|
|
|
|
|
Americas
|
|
|
41.4 |
% |
|
|
43.4 |
% |
Europe
|
|
|
30.3 |
|
|
|
31.3 |
|
Asia
Pacific
|
|
|
28.3 |
|
|
|
25.3 |
|
Consolidated
net sales
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost
of sales
|
|
|
22.6 |
|
|
|
25.9 |
|
Gross
profit
|
|
|
77.4 |
|
|
|
74.1 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
39.0 |
|
|
|
43.6 |
|
Research
and development
|
|
|
20.2 |
|
|
|
22.1 |
|
General
and administrative
|
|
|
8.0 |
|
|
|
10.0 |
|
Total
operating expenses
|
|
|
67.2 |
|
|
|
75.7 |
|
Operating
income (loss)
|
|
|
10.2 |
|
|
|
(1.6 |
) |
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
0.2 |
|
|
|
0.4 |
|
Net
foreign exchange gain (loss)
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
Other
income (expense), net
|
|
|
0.2 |
|
|
|
0.1 |
|
Income
(loss) before income taxes
|
|
|
10.2 |
|
|
|
(1.5 |
) |
Provision
for (benefit from) income taxes
|
|
|
0.6 |
|
|
|
(1.7 |
) |
Net
income
|
|
|
9.6 |
% |
|
|
0.2 |
% |
Net
Sales. Consolidated net sales were $191 million and $158
million for the three month periods ended March 31, 2010 and 2009, respectively,
an increase of 21%. This increase can be attributed to increases in
sales volume across all areas of our business. Products in the areas of virtual
instrumentation and graphical system design, which comprised approximately 92%
of our revenue in the three months ended March 31, 2010, saw a year-over-year
revenue increase of 19%. Instrument control products, which comprised
approximately 8% of our revenues in the three months ended March 31, 2010, saw a
year-over-year revenue increase of 48%. For the three months ended March 31,
2009, instrument control products comprised 6% of our revenues, while virtual
instrumentation and graphical system design comprised 94% of our revenues. Our
instrument control products are the most economically sensitive portion of our
revenue. We did not take any significant action with regard to product pricing
during the three months ended March 31, 2010, and thus, the increase in revenues
is attributable to an increase in customer orders.
Sales in
the Americas were $79 million and $68 million for the three month periods ended
March 31, 2010 and 2009, respectively, an increase of 16%. Sales outside of the
Americas, as a percentage of consolidated sales, increased to 59% for the three
months ended March 31, 2010 compared to 57% for the comparable period in 2009.
Sales in Europe were $58 million and $49 million for the three month periods
ended March 31, 2010 and 2009, respectively, an increase of 17%. Sales in Asia
were $54 million and $40 million for the three month periods ended March 31,
2010, and 2009, respectively, an increase of 35%. We expect sales outside of the
Americas 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 continuing the use of distributors to sell our products in some
countries.
Almost
all sales made by our direct sales offices in the non U.S. Americas, in Europe
and in Asia Pacific are denominated in local currencies, and accordingly, the
U.S. dollar equivalent of these sales is affected by changes in foreign currency
exchange rates. For the three months ended March 31, 2010, net of hedging
results, the change in exchange rates had the effect of increasing our
consolidated sales by $12 million or 7%, increasing Americas sales by $1.5
million or 2%, increasing European sales by $7 million or 14%, and increasing
sales in Asia Pacific by $3.1 million or 8% compared to the three months ended
March 31, 2009.
Gross
Profit. As a percentage of sales, gross margin was 77% and 74%
for the three month periods ended March 31, 2010, and 2009, respectively. Gross
margin increased in the three months ended March 31, 2010, primarily as a result
of increased sales volumes compared to the same period in 2009. For the three
months ended March 31, 2010, charges related to acquisition related intangibles
and stock based compensation decreased to $1.1 million from $1.2 million during
the comparable period in 2009. For the three months ended March 31, 2010, the
net impact of foreign currency exchange rates had the effect of increasing our
cost of goods sold by $759,000 million or 2%.
Sales and
Marketing. Sales and marketing expenses were $74 million and
$69 million for the three month periods ended March 31, 2010, and 2009,
respectively, an increase of 8%. As a percentage of net sales, sales and
marketing expenses were 39% and 44% over the same periods. The decrease in sales
and marketing expense as a percentage of revenue was due to the 21% increase in
revenue during the three months ended March 31, 2010, compared to the three
months ended March 31, 2009. The increase in sales and marketing expenses in
absolute dollars was due to an increase in personnel related expenses of $2.3
million which includes commissions and variable compensation, as well as an
increase caused by the net impact of changes in foreign currency exchange rates
of $3.5 million. We plan to continue to make investments in our field sales
force during the remainder of 2010. However, our field sales expansion during
the remainder of 2010 will likely be targeted to strategic areas of need,
whether technical or regional. We expect sales and marketing expenses in future
periods to continue to fluctuate as a percentage of sales based on recruiting,
marketing and advertising campaign costs associated with major new product
releases and entry into new market areas, investment in web sales and marketing
efforts, increasing product demonstration costs and the timing of domestic and
international conferences and trade shows.
Research and
Development. Research and development expenses were $39
million and $35 million for the three month periods ended March 31, 2010, and
2009, respectively, an increase of 11%. As a percentage of net sales, research
and development expenses were 20% and 22% over the same periods. The decrease in
research and development expenses as a percentage of revenue was due to the 21%
increase in revenue during the three months ended March 31, 2010, compared to
the three months ended March 31, 2009. The increase in research and development
expenses in absolute dollars was due to an increase in personnel related
expenses of $3.1 million which primarily consist of benefits and variable
compensation as well as an increase caused by the net impact of changes in
foreign currency exchange rates of $740,000. The suspension of temporary cost
cutting measures implemented during 2009, which included a company-wide wage
reduction as well as a reduction in the number of accrued vacation hours that
employees were allowed to carry beyond the end of a fiscal year, resulted in an
additional cost increase of $955,000 compared to the first quarter of 2009. We
plan to continue to make additional investments in our research and development
group during the remainder of 2010. However, our research and development
expansion during the remainder of 2010 will likely be targeted to strategic
areas of need.
We
capitalize software development costs in accordance with FASB ASC
985. We amortize such costs over the related product’s estimated
economic life, generally three years, beginning when a product becomes available
for general release. Software amortization expense included in cost of goods
sold totaled $2.6 million and $2.1 million during the three month periods ended
March 31, 2010 and 2009, respectively. Internally developed software costs
capitalized during the three month periods ended March 31, 2010 and 2009, were
$3.6 million and $3.1 million, respectively. Capitalization of internally
developed software costs varies depending on the timing of when each project
reaches technological feasibility and the length and scope of the development
cycle of each individual project. (See Note 7 - Intangibles of Notes to
Consolidated Financial Statements for a description of
intangibles).
General and
Administrative. General and
administrative expenses were $15 million and $16 million for the three month
periods ended March 31, 2010 and 2009, respectively, a decrease of 3%. As a
percentage of net sales, general and administrative expenses were 8% and 10%
over the same periods. The decrease in general and administrative expenses as a
percentage of revenue was driven by the 21% increase in revenue during the three
months ended March 31, 2010, compared to the three months ended March 31, 2009.
During the three months ended March 31, 2010, we recorded a reduction of our
patent litigation accrual which resulted in a non-cash decrease to our general
and administrative expenses of $1.1 million. This decrease was offset to some
extent by personnel related expenses consisting of variable compensation had the
effect of increasing general and administrative expenses by $400,000 and the net
impact of changes in foreign currency exchange rates had the effect of
increasing our general and administrative expenses by $541,000. We expect that
general and administrative expenses in future periods will fluctuate in absolute
dollars and as a percentage of revenue.
Interest
Income. Interest income
was $300,000 and $589,000 for the three month periods ended March 31, 2010 and
2009, respectively, a decrease of 49%. The decrease is attributable to a
continued decrease in investment yields. The source of interest income is from
the investment of our cash and short-term and long-term
investments.
Net Foreign
Exchange Gain (Loss). Net foreign exchange (loss) was
($698,000) and ($702,000) for the three month periods ended March 31, 2010 and
2009, 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. We
recognize the local currency as the functional currency in virtually all of our
international subsidiaries.
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 hedge item attributable to the hedged
risk is recognized in current earnings under the line item “Net foreign exchange
gain (loss)”. Our hedging strategy reduced our foreign exchange losses by
$439,000 and $3.1 million during the three month periods ended March 31, 2010
and 2009, respectively.
To
protect against the change in the value caused by a fluctuation in foreign
currency exchange rates of forecasted foreign currency cash flows resulting from
international sales and expenses over the next one to two years, we have a
foreign currency cash flow hedging program. We hedge portions of our forecasted
revenue and forecasted expenses denominated in foreign currencies with forward
and option contracts. For forward contracts, when the dollar strengthens
significantly against the foreign currencies, the change in the present value of
future foreign currency cash flows may be offset by the change in the fair value
of the forward contracts designated as hedges. For purchased option contracts,
when the dollar strengthens significantly against the foreign currencies, the
change in the present value of future foreign currency cash flows may be offset
by the change in the fair value of the option contracts designated as hedges,
net of the premium paid. Our foreign currency purchased option contracts are
purchased “at-the-money” or “out-of-the-money.” We purchase foreign currency
forward and option contracts for up to 100% of our forecasted exposures in
selected currencies (primarily in Euro, Japanese yen, British pound sterling and
Hungarian forint) and limit the duration of these contracts to 40 months or
less. As a result, our hedging activities only partially address our risks from
foreign currency transactions, and there can be no assurance that this strategy
will be successful. We do not invest in contracts for speculative purposes. (See
Note 5 - Derivative instruments and hedging activities of Notes to Consolidated
Financial Statements for a description of our forward and purchased option
contracts and hedged positions).
Provision for
Income Taxes. Our provision for income taxes reflected an
effective tax rate of 6% and 115% for the three month periods ended March 31,
2010 and 2009, respectively. The decrease in our effective tax rate for the
three months ended March 31, 2010, compared to March 31, 2009, was due to the
following;
Effective
tax rate for the three months ended March 31, 2009
|
|
|
115% |
|
Decrease
in unrecognized tax benefits for uncertain tax positions
|
|
|
(47%) |
|
Change
in valuation allowance related to deferred tax assets for which tax
benefits were previously recognized, recorded during the three months
ended March 31, 2009
|
|
|
(18%) |
|
Increased
profits in foreign jurisdictions with reduced income tax
rates
|
|
|
(17%) |
|
Decrease
in non-deductible stock-based compensation expense as a percentage of net
income
|
|
|
(14%) |
|
Enhanced
deduction for certain research and development expenses in
2010
|
|
|
(12%) |
|
Increase
in the tax benefit from equity awards that do not ordinarily result in a
tax benefit
|
|
|
(6%) |
|
Increase
in the partial release of a deferred tax asset valuation
allowance
|
|
|
(3%) |
|
Other
|
|
|
(2%) |
|
Expiration
of the research and development tax credit as of December 31,
2009
|
|
|
10% |
|
Effective
tax rate for the three months ended March 31, 2010
|
|
|
6% |
|
(See Note
9 – Income taxes of Notes to Consolidated Financial Statements for further
discussion regarding our effective tax rate and a discussion of income taxes at
the U.S. federal statutory income tax rate of 35% and our effective tax
rate).
Liquidity
and Capital Resources
Working Capital,
Cash and Cash Equivalents and Short-term Investments. The
following table presents our working capital, cash and cash equivalents and
marketable securities (in thousands):
|
|
March
31, 2010
|
|
|
December
31, 2009
|
|
|
Increase/
(Decrease)
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
407,561 |
|
|
$ |
413,759 |
|
|
$ |
(6,198 |
) |
Cash
and cash equivalents
(1)
|
|
|
184,618 |
|
|
|
201,465 |
|
|
|
(16,847 |
) |
Short-term
investments
(1)
|
|
|
110,952 |
|
|
|
87,196 |
|
|
|
23,756 |
|
Total
cash, cash equivalents, short and long-term investments
|
|
$ |
295,570 |
|
|
$ |
288,661 |
|
|
$ |
6,909 |
|
(1) Included
in working capital
Our
working capital decreased by $6 million during the three months ended March 31,
2010, compared to December 31, 2009, due to the net effect of cash provided by
operations offset by repurchases of shares of our common stock, dividend
payments and capital expenditures.
Our cash
and cash equivalent balances are held in numerous financial institutions
throughout the world, including substantial amounts held outside of the U.S.,
however, the majority of our cash and investments that are located outside of
the U.S. are denominated in the U.S. dollar with the exception of $33 million
U.S. dollar equivalent that is denominated in Euro. Most of the amounts held
outside of the U.S. could be repatriated to the U.S., but under current law,
would be subject to U.S. federal income taxes, less applicable foreign tax
credits. In some countries repatriation of certain foreign balances is
restricted by local laws. We have provided for the U.S. federal tax liability on
these amounts for financial statement purposes, except for foreign earnings that
are considered indefinitely reinvested outside of the U.S. Repatriation could
result in additional U.S. federal income tax payments in future years. 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.
Cash Provided and
(Used) in 2010 and 2009. Cash and cash
equivalents decreased to $185 million at March 31, 2010 from $201 million at
December 31, 2009. The following table summarizes the proceeds and (uses) of
cash (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
Cash
provided by operating
activities
|
|
$ |
41,601 |
|
|
$ |
24,806 |
|
Cash
(used by) investing
activities
|
|
|
(38,195 |
) |
|
|
(15,282 |
) |
Cash
(used by) financing
activities
|
|
|
(20,253 |
) |
|
|
(11,476 |
) |
Net
(decrease) in cash
equivalents
|
|
|
(16,847 |
) |
|
|
(1,952 |
) |
Cash
and cash equivalents at beginning of
year
|
|
|
201,465 |
|
|
|
229,400 |
|
Cash
and cash equivalents at end of
period
|
|
$ |
184,618 |
|
|
$ |
227,448 |
|
Our
operating activities provided cash of $42 million and $25 million for the three
month periods ended March 31, 2010 and 2009, respectively, a 68% increase. For
the three months ended March 31, 2010, cash provided by operating activities was
the result of $18 million of net income, $18 million in net non-cash operating
expenses which consisted of depreciation and amortization, stock-based
compensation and benefits from deferred income taxes, and by $6 million in net
cash provided by changes in operating assets and liabilities, principally a $10
million increase in accounts payable, deferred revenue and tax and other
liabilities, offset by a $3.9 million increase in accounts receivable,
inventories and prepaid expenses and other assets. For the three months ended
March 31, 2009, cash provided by operating activities was the result of $12
million in net non-cash operating expenses which consisted of depreciation and
amortization, stock-based compensation, benefits from deferred income taxes, and
by $12 million in net cash provided by changes in operating assets and
liabilities, principally a $31 million decrease in accounts
receivable.
Accounts
receivable was relatively constant at $105 million at March 31, 2010 compared to
$104 million at December 31, 2009. Days sales outstanding was 49 days at March
31, 2010, compared to 61 days at December 31, 2009. We typically bill customers
on an open account basis subject to our standard net thirty day payment terms.
If, in the longer term, our revenue increases, it is likely that our accounts
receivable balance will also increase. Our accounts receivable could also
increase if customers delay their payments or if we grant extended payment terms
to customers, both of which are more likely to occur during challenging economic
times when our customers may face issues gaining access to sufficient funding or
credit.
Consolidated
inventory balances increased to $90 million at March 31, 2010 from $87 million
at December 31, 2009. Inventory turns were 2.0 at March 31, 2010, compared to
1.8 at December 31, 2009. The increase in inventory during the three months
ended March 31, 2010, was driven by an increase in our manufacturing activities
in response to the positive order trends we have seen over the last six months.
Our inventory levels will continue to be determined based upon our anticipated
demand for products and our need to keep sufficient inventory on hand to meet
our customers’ demands. Such considerations are balanced against the risk of
obsolescence or potentially excess inventory levels. Rapid changes in customer
demand could have a significant impact on our inventory balances in future
periods.
Investing
activities used cash of $38 million during the three months ended March 31,
2010, which was the result of the net purchase of $27 million of short-term
investments, the purchase of property and equipment of $5 million, and
capitalization of internally developed software of $3.4 million. Investing
activities used cash of $15 million during the three months ended March 31,
2009, which was the result of the net purchase of $8 million of short-term
investments, the purchase of property and equipment of $3.0 million,
capitalization of internally developed software of $3.1 million and the
acquisition of other intangibles of $1.3 million.
Financing
activities used $20 million during the three months ended March 31, 2010, which
was the result of $31 million used to repurchase our common stock and $10
million used to pay dividends to our stockholders, offset by $22 million
received as a result of the issuance of our common stock from the exercise of
stock options and our employee stock purchase plan. The repurchase of our common
stock resulted in a reduction to common stock of $10,000, a reduction to paid in
capital of $4.4 million and a reduction to retained earnings of $27 million.
Financing activities used $11 million during the three months ended March 31,
2009, which was the result of $9 million used to repurchase our common stock and
$9 million used to pay dividends to our stockholders, offset by $7 million
received as a result of the issuance of our common stock from the exercise of
stock options and our employee stock purchase plan.
From time
to time our Board of Directors has authorized various programs to repurchase
shares of our common stock depending on market conditions and other factors.
Under such programs, we repurchased a total of 1,014,229 shares of our common
stock at a weighted average price per share of $30.50 during the three months
ended March 31, 2010, and 1,443,441 and 4,110,042 shares of our common stock at
weighted average prices of $23.96 and $25.22 per share, in the years ended
December 31, 2009 and 2008, respectively.
On April
21, 2010, our Board of Directors approved a new share purchase plan which
increased the aggregate number of shares of common stock that we are authorized
to repurchase from 674,098 to 3.0 million. This repurchase plan does not have an
expiration date.
During
the three months ended March 31, 2010, we received increased proceeds from the
exercise of stock options compared to the three months ended March 31, 2009. The
timing and number of stock option exercises and the amount of cash proceeds we
receive through those exercises are not within our control and in the future, we
may not generate as much cash from the exercise of stock options as we have in
the past. Moreover, since 2005 it has been our practice to issue restricted
stock units and not stock options to eligible employees which will reduce the
number of stock options available for exercise in the future. Unlike the
exercise of stock options, the issuance of shares upon vesting of restricted
stock units does not result in any cash proceeds to us.
Contractual Cash
Obligations. Purchase obligations primarily represent purchase
commitments for customized inventory and inventory components. As of March 31,
2010, we have non-cancelable purchase commitments with various suppliers of
customized inventory and inventory components totaling approximately $8 million.
At December 31, 2009, we had non-cancelable purchase commitments with various
suppliers of customized inventory and inventory components totaling
approximately $7 million.
Guarantees
are related to payments of customs and foreign grants. As of March 31, 2010, we
have outstanding guarantees for payment of customs and foreign grants totaling
approximately $5 million. As of December 31, 2009, we had outstanding guarantees
for payment of customs and foreign grants totaling approximately $5
million.
Off-Balance Sheet
Arrangements. We do not have any debt or off-balance sheet
debt. As of March 31, 2010 and December 31, 2009, 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 marketable securities, together with cash generated from
operations and from the exercise of employee stock options and 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. However, we may choose or be
required to raise additional funds by selling equity or debt securities to the
public or to selected investors, or by borrowing money from financial
institutions. Historically, we have not had to rely on debt, public or private,
to fund our operating, financing or investing activities. We could also choose
or be required to reduce certain expenditures, such as payments of dividends or
repurchases of our common stock. In addition, even though we may not need
additional funds, we may still elect to sell additional equity or debt
securities or obtain credit facilities for other reasons. 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
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.
Although
we believe that we have sufficient capital to fund our 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:
·
|
general
economic and political conditions and specific conditions in the markets
we address, including the continuing fluctuations in the industrial
economy, current general economic conditions and trends in the industrial
economy in 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, particularly in the current global economic environment, which
may lead them to reduce their level of purchases or to seek credit or
other accommodations from us;
|
·
|
the
overall levels of sales of our products and gross profit
margins;
|
·
|
our
business, product, capital expenditure and research and development plans,
and product and technology
roadmaps;
|
·
|
repurchases
of our common stock;
|
·
|
required
levels of research and development and other operating
costs;
|
·
|
litigation
expenses, settlements and
judgments;
|
·
|
the
levels of inventory and accounts receivable that we
maintain;
|
·
|
acquisitions
of other businesses, assets, products or
technologies;
|
·
|
capital
improvements for new and existing
facilities;
|
·
|
our
relationships with suppliers and customers;
and,
|
·
|
the
level of exercises of stock options and stock purchases under our employee
stock purchase plan.
|
Recently
Issued Accounting Pronouncements
See Note
14 – Recently Issued Accounting Pronouncements in Notes to Consolidated
Financial Statements.
Item
3. Quantitative and Qualitative
Disclosures About Market Risk
Response
to this item is included in Item 2 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations above.
Financial
Risk Management
Our
international sales are subject to inherent risks, including fluctuations in
local economies; fluctuations in foreign currencies relative to the U.S. dollar;
difficulties in staffing and managing foreign operations; greater difficulty in
accounts receivable collection; costs and risks of localizing products for
foreign countries; unexpected changes in regulatory requirements, tariffs and
other trade barriers; difficulties in the repatriation of earnings and burdens
of complying with a wide variety of foreign laws. The vast majority of our sales
outside of North America are denominated in local currencies, and accordingly,
the U.S. dollar equivalent of these sales is affected by changes in the foreign
currency exchange rates. Net of hedging results, the change in exchange rates
had the effect of increasing our consolidated sales by $12 million or 7% for the
three months ended March 31, 2010, compared to the same period in 2009. If the
local currencies in which we sell our products strengthen against the U.S.
dollar, we may need to lower our prices in the local currency to remain
competitive in our international markets which could have a material adverse
effect on our gross and net profit margins. If the local currencies in which we
sell our products weaken against the U.S. dollar and if the local sales prices
cannot be raised due to competitive pressures, we will experience a
deterioration of our gross and net profit margins. Since most of our
international operating expenses are also incurred in local currencies, the
change in exchange rates had the effect of increasing our operating expenses by
$4.8 million or 4% for the three months ended March 31, 2010, compared to the
same period in 2009. Currently, we are experiencing significant volatility in
foreign currency exchange rates in many of the markets in which we do business.
This has had a significant impact on the revaluation of our foreign currency
denominated firm commitments and on our ability to forecast our U.S. dollar
equivalent revenues and expenses. In the past, these dynamics have also
adversely affected our revenue growth in international markets and will likely
pose similar challenges in the future. Our foreign currency hedging program
includes both foreign currency forward and purchased option contracts to reduce
the effect of exchange rate fluctuations. However, our hedging program will not
eliminate all of our foreign exchange risks, particularly when market conditions
experience the recent level of volatility. (See Note 5 – Derivative instruments
and hedging activities of Notes to Consolidated Financial
Statements).
Inventory
Management
The
marketplace for our products dictates that many of our products be shipped very
quickly after an order is received. As a result, we are required to maintain
significant inventories. Therefore, inventory obsolescence is a risk for us due
to frequent engineering changes, shifting customer demand, the emergence of new
industry standards and rapid technological advances including the introduction
by us or our competitors of products embodying new technology. While we adjust
for excess and obsolete inventories and we monitor the valuation of our
inventories, there can be no assurance that our valuation adjustments will be
sufficient.
Market
Risk
We are
exposed to a variety of risks, including foreign currency fluctuations and
changes in the market value of our investments. In the normal course of
business, we employ established policies and procedures to manage our exposure
to fluctuations in foreign currency values and changes in the market value of
our investments.
Cash,
Cash Equivalents and Short-Term Investments
At March
31, 2010, we had $296 million in cash, cash equivalents and short-term
investments. We maintain cash and cash equivalents and short-term investments
with various financial institutions located in many countries throughout the
world. Approximately $118 million or 40% of these amounts were held in domestic
accounts with various financial institutions and $178 million or 60% was held in
accounts outside of the U.S. with various financial institutions. At March 31,
2010, $74 million or 40% of our cash and cash equivalents was held in cash in
various operating accounts throughout the world, and $111 million or 60% was
held in money market accounts. The most significant of our operating accounts
was our domestic operating account which held approximately $14 million or 8% of
our total cash and cash equivalents at a bank that carried an A1 rating at March
31, 2010. Our short-term investment balance is comprised of $46 million or 41%
held in our investment accounts in the U.S. and $65 million or 59% held in
investment accounts of our foreign subsidiaries.
Short-term
debt securities available-for-sale included auction rate securities backed by
education loan revenue bonds. One of our auction rate securities is from the
Vermont Student Assistance Corporation and has a par value of $2.2 million. The
other of our auction rate securities is from the New Hampshire Health and
Education Facilities Authority and has a par value of $6.4 million. The ratings
for these securities at March 31, 2010, were Baa3/A/AAA and Aaa/NR/AAA,
respectively. Historically, we reported the fair market value of these
securities at par as differences between par value and the purchase price or
settlement value were historically comprised of accrued interest. Auction rate
securities are variable rate debt instruments whose interest rates are typically
reset approximately every 7 to 35 days. On March 26, 2010, and in prior auction
periods beginning in February 2008, the auction process for these securities
failed. At March 31, 2010, we reported these as short-term investments at their
estimated fair market value of $8.2 million.
In
November 2008, we accepted the UBS Auction Rate Securities Rights (the “Rights”)
agreement offered by UBS as a liquidity alternative to the failed auction
process. This Rights agreement is related to the auction rates securities
discussed above. The Rights agreement is a nontransferable right to sell our
auction rate securities, at par value, back to UBS at any time during the period
June 30, 2010, through July 2, 2012. At March 31, 2010, we reported the Rights
agreement at its estimated fair market value of $402,000 as a component of
short-term debt securities available for sale.
We do not
anticipate that the auction rate market will provide liquidity for these
securities in the foreseeable future. Should we need or desire to access the
funds invested in those securities prior to their maturity or prior to our
exercise period under the Rights agreement discussed above, we may be unable to
find a buyer in a secondary market outside the auction process or if a buyer in
a secondary market is found, we would likely realize a loss.
We
maintain an investment portfolio of various types of security holdings and
maturities. Pursuant to FASB ASC 820, cash equivalents and short-term
investments available-for-sale are valued using a market approach (Level 1)
based on the quoted market prices of identical instruments when available or
other observable inputs such as trading prices of identical instruments in
active markets. The estimated fair market value of both the auction rate
securities and the Rights agreement was determined using significant
unobservable inputs (Level 3) as prescribed by FASB ASC 820. See Note 4 – Fair
value measurements in Notes to Consolidated Financial Statements for further
discussion of our auction rate securities and our Rights agreement.
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. Other than our auction
rate securities discussed above, at March 31, 2010, 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, variable rate
demand notes 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 three years or less, with a
weighted average maturity of no longer than 18 months with at least 10% maturing
in 90 days or less.
We
account for our investments in debt and equity instruments under FASB ASC 320
Investments – Debt and Equity
Securities (FASB ASC 320). Our investments 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
shareholders’ equity. Unrealized losses are charged against income when a
decline in fair value is determined to be other than temporary. 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. The fair value of our short-term
investments at March 31, 2010 and December 31, 2009 was $111 million and $87
million, respectively. The increase was due to the net purchase of $27 million
of short-term investments. The net purchase of $27 million of short term
investments was done to continue the diversification our holdings from money
market accounts to debt securities and to take advantage of higher yields
associated with longer maturity debt securities.
We follow
the guidance provided by FASB ASC 320 to assess whether our investments with
unrealized loss positions are other than temporarily impaired. Realized gains
and losses and declines in value judged to be other than temporary are
determined based on the specific identification method and are reported in other
income (expense), net, in our Consolidated Statements of Income.
Interest
Rate Risk
Investments
in both fixed rate and floating rate instruments carry a degree of interest rate
risk. Fixed rate securities may have their market value adversely impacted due
to an increase in interest rates, while floating rate securities may produce
less income than expected if interest rates fall. Due in part to these factors,
our future investment income may fall short of expectations due to changes in
interest rates or if the decline in fair value of our publicly traded debt
investments is judged to be other-than-temporary. We may suffer losses in
principal if we are forced to sell securities that have declined in market value
due to changes in interest rates. However, because any debt securities we hold
are classified as available-for-sale, no gains or losses are realized in the
income statement due to changes in interest rates unless such securities are
sold prior to maturity or unless declines in value are determined to be
other-than-temporary. These securities are reported at fair value with the
related unrealized gains and losses included in accumulated other comprehensive
income (loss), a component of shareholders’ equity, net of tax.
In a
declining interest rate environment, as short-term investments mature,
reinvestment occurs at less favorable market rates. Given the short-term nature
of certain investments, the current interest rate environment of low or
declining rates will likely negatively impact our investment
income.
In order
to assess the interest rate risk associated with our investment portfolio, we
performed a sensitivity analysis to determine the impact a change in interest
rates would have on the value of the investment portfolio assuming a 100 basis
point parallel shift in the yield curve. Based on our investment positions as of
March 31, 2010, a 100 basis point increase or decrease in interest rates across
all maturities would result in a $807,000 increase or decrease in the fair
market value of the portfolio. As of December 31, 2009, a similar 100 basis
point shift in the yield curve would have resulted in a $614,000 increase or
decrease in the fair market value of the portfolio. Such losses would only be
realized if we sold the investments prior to maturity or if there is a other
than temporary impairment.
Actual
future gains and losses associated with our investments may differ from the
sensitivity analyses performed as of March 31, 2010, due to the inherent
limitations associated with predicting the changes in the timing and level of
interest rates and our actual exposures and positions.
Economic
conditions during the first half of 2009 had negative effects on the financial
markets. In response to these conditions, we shifted a larger
percentage of our portfolio to money market funds, U.S. Treasuries and time
deposits. This had a negative impact on our investment income. As we have noted
continued stabilization in the financial markets, we have diversified our
holdings to include debt securities with maturities up to 18 months to take
advantage of higher yields associated with longer maturities. However, yields,
even at longer maturities, remain at or near historic lows. We weight the
benefit of the higher yields associated with longer maturities against the
interest rate risk and credit rating risk, also associated with these longer
maturities when making these decisions. We cannot predict when interest rates
and investment yields will rise. If yields continue to stay at these low levels,
our investment income will continue to be negatively impacted.
Exchange
Rate Risk
Our
objective in managing our exposure to foreign currency exchange rate
fluctuations is to reduce the impact of adverse fluctuations in such exchange
rates on our earnings and cash flow. Accordingly, we utilize purchased foreign
currency option and forward contracts to hedge our exposure on anticipated
transactions and firm commitments. The principal currencies hedged are the Euro,
British pound, Japanese yen and Hungarian forint. We monitor our foreign
exchange exposures regularly to help ensure the overall effectiveness of our
foreign currency hedge positions. There can be no assurance that our foreign
currency hedging activities will substantially offset the impact of fluctuations
in currency exchanges rates on our results of operations and financial position.
Based on the foreign exchange instruments outstanding at March 31, 2010 and
December 31, 2009, an adverse change (defined as 20% in the Asian currencies and
10% in all other currencies) in exchange rates would result in a decline in the
aggregate settlement value of all of our instruments outstanding of
approximately $18 million and $22 million, respectively. However, as we utilize
foreign currency instruments for hedging anticipated and firmly committed
transactions, we believe that a loss in settlement value for those instruments
will be substantially offset by increases in the value of the underlying
exposure. (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).
As of the
end of the period covered by this Quarterly Report on Form 10-Q, our Chief
Executive Officer, Dr. James Truchard, and our Chief Financial Officer, Alex
Davern, based on their evaluation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended), required by paragraph (b) of Rule 13a – 15 or Rule 15d – 15, have
concluded that our disclosure controls and procedures were effective at the
reasonable assurance level, to ensure the timely collection, evaluation and
disclosure of information relating to us that would potentially be subject to
disclosure under the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated there under, and that such information is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. These disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports we file or submit is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. Our assessment of the effectiveness of our internal controls over
financial reporting is expressed at the level of reasonable assurance because a
control system, no matter how well designed and operated, can provide only
reasonable, but not absolute assurance that the control system’s objectives will
be met. We continue to enhance our internal control over financial reporting in
key functional areas with the goal of monitoring our operations at the level of
documentation, segregation of duties, and systems security necessary, as well as
transactional control procedures required under Auditing Standard No. 5 issued
by the Public Company Accounting Oversight Board. We discuss and disclose these
matters to the audit committee of our board of directors and to our auditors.
During the three months ended March 31, 2010, there were no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of the Rule 13a – 15 or Rule 15d – 15 that
have materially affected, or are likely to materially affect, our internal
control over financial reporting.
PART
II - OTHER INFORMATION
See Note
15 – Litigation in Notes to Consolidated Financial Statements.
Fluctuations in
General Economic Conditions and in the Global Credit and Equity Markets Have
Adversely Affected Our Financial Condition and Results of
Operations. Our business is sensitive to fluctuations in
general economic conditions, both in the U.S. and globally. The continuing
uncertainty regarding the availability of credit could negatively impact the
spending patterns of businesses including our current and potential customers
which may have an adverse effect on our revenues and therefore harm our business
and results of operations. Historically, our business cycles have corresponded
to changes in the global Purchasing Managers Index (“PMI”). The global PMI has
risen from 50 in July 2009 to 57 in March 2010 which is indicative of an
expanding economy. However, we are unable to predict whether the current
expansion cycle, as measured by the PMI, will be sustained throughout 2010. If
this expansion is not sustained, it could have an adverse effect on the spending
patterns of businesses including our current and potential customers which could
adversely affect our revenues and therefore harm our business and result of
operations.
Concentrations of
Credit Risk and Negative Conditions in the Global Financial Markets May
Adversely Affect Our Financial Condition and Result of
Operations. By virtue of our holdings of investment securities
and foreign currency derivatives, we have exposure to many different
counterparties, and routinely execute transactions with counterparties in the
financial services industry, including commercial banks and investment banks.
Many of these transactions expose us to credit risk in the event of a default of
our counterparties. We have policies relating to initial credit rating
requirements and to exposure limits to counterparties, which are designed to
mitigate credit and liquidity risk. There can be no assurance, however, that any
losses or impairments to the carrying value of our financial assets as a result
of defaults by our counterparties, would not materially and adversely affect our
business, financial position and results of operations.
Negative
Conditions in the Global Credit Markets Have Impaired the Liquidity of a Portion
of Our Investment Portfolio. Our short-term investments
include auction rate securities backed by education loan revenue bonds. One of
our auction rate securities is from the Vermont Student Assistance Corporation
and has a par value of $2.2 million. The other of our auction rate securities is
from the New Hampshire Health and Education Facilities Authority and has a par
value of $6.4 million. On March 26, 2010, and in prior auction periods beginning
in February 2008, the auction process for these securities failed. These auction
rate securities are classified as available-for-sale. The auction rate market is
not expected to provide liquidity for these securities in the foreseeable
future. Should we need or desire to access the funds invested in those
securities prior to their maturity or prior to our exercise period under our
Rights agreement with UBS, we may be unable to find a buyer in a secondary
market outside the auction process or if a buyer in a secondary market is found,
we would likely realize a loss. See Note 4 – Fair value measurements in Notes to
Consolidated Financial Statements for further discussion of our auction rate
securities.
We Have
Established a Budget and Variations From Our Budget Will Affect Our Financial
Results. During the fourth quarter of 2009, we established an
operating budget for 2010. Our budgets are established based on the estimated
revenue from sales of our products which are based on economic conditions in the
markets in which we do business as well as the timing and volume of our new
products and the expected penetration of both new and existing products in the
marketplace. If demand for our products in 2010 is less than the demand we
anticipated in setting our 2010 budget, our operating results could be
negatively impacted. If we exceed the level of expenses established in our 2010
operating budget or if we cannot reduce budgeted expenditures in response to a
decrease in revenue, our operating results could be adversely affected. Our
spending could exceed our budgets due to a number of factors,
including:
·
|
additional
marketing costs for new product introductions and/or for conferences and
tradeshows;
|
·
|
increased
costs from hiring more product development engineers or other
personnel;
|
·
|
additional
costs associated with our incremental investment in our field sales
force;
|
·
|
additional
costs associated with the expiration of temporary cost cutting measures,
such as salary reductions, implemented in
2009;
|
·
|
increased
manufacturing costs resulting from component supply shortages and/or
component price fluctuations;
|
·
|
increased
component costs resulting from vendors increasing prices in response to
increased economic activity;
|
·
|
additional
expenses related to intellectual property litigation;
and/or
|
·
|
additional
costs related to acquisitions, if
any.
|
We are Subject to
Risks Associated with Our Centralization of Inventory and
Distribution. Currently, shipments to our customers worldwide
are primarily sourced from our warehouse facility in Debrecen, Hungary.
Shipments to some of our customers in Asia are currently made either out of
local inventory managed by our branch operations in various Asian countries or
from a centralized distribution point in Singapore. We plan to continue to
devote resources to centralizing our distribution to a limited number of
shipping points. Our centralization of inventory and distribution from a limited
number of shipping points is subject to inherent risks, including:
·
|
burdens
of complying with additional and/or more complex VAT and customs
regulations; and,
|
·
|
severe
concentration of inventory increasing the risks associated with fire,
natural disasters and logistics disruptions to customer order
fulfillment.
|
No
assurance can be given that our efforts will be successful. Any difficulties
with the centralization of distribution or delays in the implementation of the
systems or processes to support this centralized distribution could result in
interruption of our normal operations, including our ability to process orders
and ship products to our customers. Any failure or delay in distribution from
our facility in Hungary could have a material adverse effect on our operating
results.
A Substantial
Majority of Our Manufacturing Capacity is Located in
Hungary. Our Hungarian manufacturing and warehouse facility
sources a substantial majority of our sales. During the three months ended March
31, 2010, we continued to maintain and enhance the systems and processes that
support the direct shipment of product orders to our customers worldwide from
our manufacturing facility in Hungary. In order to enable timely shipment of
products to our customers we also maintain the vast majority of our inventory at
our Hungary warehouse facility. In addition to being subject to the risks of
maintaining such a concentration of manufacturing capacity and global inventory,
this facility and its operation are also subject to risks associated with doing
business internationally, including:
·
|
difficulty
in managing manufacturing operations in a foreign
country;
|
·
|
difficulty
in achieving or maintaining product
quality;
|
·
|
interruption
to transportation flows for delivery of components to us and finished
goods to our customers;
|
·
|
changes
in the country’s political or economic conditions;
and,
|
·
|
changes
in the country’s tax laws.
|
No
assurance can be given that our efforts to mitigate these risks will be
successful. Accordingly, a failure to deal with these factors could result in
interruption in the facility’s operation or delays in expanding its capacity,
either of which could have a material adverse effect on our operating
results.
In
response to significant and frequent changes in the corporate tax law, the
unstable political environment, a restrictive labor code, the volatility of the
Hungarian forint relative to the U.S. dollar and increasing labor costs, we have
doubts as to the long term viability of Hungary as a location for our
manufacturing and warehousing operations. As such, we may need to look for an
alternative location for a substantial majority of our manufacturing and
warehousing activities which could have a material adverse effect on our ability
to meet current customer demands, our ability to grow our business as well as
our liquidity, capital resources and results of operations. Our long term
manufacturing and warehousing capacity planning contemplates a third
manufacturing and warehousing facility in Malaysia. Deployment of this facility
could be accelerated in response to an unfavorable change in the corporate
taxation, regulatory or economic environment in Hungary. We can give no
assurance that we would be successful in accelerating the deployment of a new
facility in Malaysia. Our failure to accelerate the deployment of our
manufacturing and warehousing facility in Malaysia in response to unfavorable
changes in the corporate taxation, regulatory or economic environment in
Hungary, could have a material adverse effect on our ability to meet current
customer demands, our ability to grow our business as well as our liquidity,
capital resources and results of operations.
Our Income Tax
Rate is Affected by our Tax Benefits in Hungary. As a result
of certain foreign investment incentives available under Hungarian law, the
profit from our Hungarian operation was subject to a reduced income tax rate.
This special tax status terminated on January 1, 2008, with the merger of our
Hungarian manufacturing operations with its Hungarian parent company. In
addition, effective January 1, 2010, a new tax law in Hungary provides 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. Partial release of the valuation allowance on assets
from the restructuring and the enhanced tax deduction for research expenses
resulted in income tax benefits of $3.4 and $1.1 million for the three month
periods ended March 31, 2010, and 2009, respectively.
These
benefits may not be available in future periods due to changes in Hungary’s
political condition or tax laws. The reduction or elimination of these benefits
in Hungary or future changes in U.S. law pertaining to taxation of foreign
earnings could result in an increase in our future effective income tax rate
which could have a material adverse effect on our operating
results.
We Rely on
Management Information Systems and any Disruptions in Our Systems Would
Adversely Affect Us. We rely on a primary global center for
our management information systems and on multiple systems in branches not
covered by our global center. As with any information system, unforeseen issues
may arise that could affect our ability to receive adequate, accurate and timely
financial information, which in turn could inhibit effective and timely
decisions. Furthermore, it is possible that our global center for information
systems or our branch operations could experience a complete or partial
shutdown. If such a shutdown occurred, it could impact our product shipments and
revenues, as order processing and product distribution are heavily dependent on
our management information systems. Accordingly, our operating results in such
periods would be adversely impacted. We are continually working to maintain
reliable systems to control costs and improve our ability to deliver our
products in our markets worldwide. No assurance can be given that our efforts
will be successful.
During
the three months ended March 31, 2010, we continued to devote resources to the
development of our systems for manufacturing, sales and product services and to
the continued development of our web offerings. There can be no assurance that
we will not experience difficulties with our systems or web offerings.
Difficulties with our systems or web offerings may interrupt our normal
operations, including our ability to provide quotes, process orders, ship
products, provide services and support to our customers, bill and track our
customers, fulfill contractual obligations and otherwise run our business. Any
disruption occurring with these systems or web offerings may have a material
adverse effect on our operating results. During the remainder of 2010, we plan
to focus on upgrading our Americas business application suite to Oracle’s
version R12 and to continue to devote significant resources to the continued
development of our web applications. Any failure to successfully implement these
initiatives could have a material adverse effect on our operating
results.
Our Quarterly
Results are Subject to Fluctuations Due to Various
Factors. Our quarterly operating results have fluctuated in
the past and may fluctuate significantly in the future due to a number of
factors, including:
·
|
changes
in the economy or credit markets in the U.S. or
globally;
|
·
|
changes
in the mix of products sold;
|
·
|
the
availability and pricing of components from third parties (especially
limited sources);
|
·
|
fluctuations
in foreign currency exchange rates;
|
·
|
the
timing, cost or outcome of intellectual property
litigation;
|
·
|
the
difficulty in maintaining margins, including the higher margins
traditionally achieved in international sales;
and,
|
·
|
changes
in pricing policies by us, our competitors or
suppliers;
|
·
|
delays
in product shipments caused by human error;
and,
|
·
|
disruptions
in transportation resulting from issues such as the recent volcanic
eruption in Iceland.
|
Our Revenues are
Subject to Seasonal Variations. In previous years, our
revenues have been characterized by seasonality, with revenues typically growing
from the first quarter to the second quarter, being relatively constant from the
second quarter to the third quarter, growing in the fourth quarter compared to
the third quarter and declining in the first quarter of the following year from
the fourth quarter of the preceding year. This historical trend has been
affected and may continue to be affected in the future by broad fluctuations in
the global industrial economy, the economic impact of larger orders as well as
the timing of new product introductions and/or acquisitions, if any. For
example, our first quarter and second quarter of 2009 had sequential revenue
declines from the fourth quarter of 2008 and first quarter of 2009,
respectively, and the magnitude of the decline in the first quarter of 2009 was
greater than what had occurred in the past. If the global industrial economy
continues to grow and maintains stability throughout 2010, we would expect to
return to our typical historical revenue pattern. However, we cannot predict
whether the global industrial economy will continue to grow or maintain
stability throughout 2010 and therefore, cannot predict when or if we will
return to our typical historical revenue pattern. We believe the historical
pattern of seasonality of our revenue results from the international mix of our
revenue and the variability of the budgeting and purchasing cycles of our
customers throughout each international region. In addition, our total operating
expenses have in the past tended to increase in each successive quarter and have
fluctuated as a percentage of revenue based on the seasonality of our revenue.
During 2009, we were able to reduce our operating costs compared to 2008. Some
of the cost cutting measures implemented in 2009, such as salary reductions,
were discontinued during the three months ended March 31, 2010. During 2010, we
plan to continue our strategic investments in research and development and field
sales while limiting expense growth elsewhere.
We Operate in
Intensely Competitive Markets. The markets in which we operate
are characterized by intense competition from numerous competitors, some of
which are divisions of large corporations having far greater resources than we
have, and we may face further competition from new market entrants in the
future. A key competitor is Agilent Technologies Inc. (“Agilent”). Agilent
offers hardware and software products that provide solutions that directly
compete with our virtual instrumentation products. Agilent is aggressively
advertising and marketing products that are competitive with our products.
Because of Agilent’s strong position in the instrumentation business, changes in
its marketing strategy or product offerings could have a material adverse effect
on our operating results.
We
believe our ability to compete successfully depends on a number of factors both
within and outside our control, including:
·
|
new
product introductions by
competitors;
|
·
|
the
impact of foreign exchange rates on product
pricing;
|
·
|
quality
and performance;
|
·
|
success
in developing new products;
|
·
|
adequate
manufacturing capacity and supply of components and
materials;
|
·
|
efficiency
of manufacturing operations;
|
·
|
effectiveness
of sales and marketing resources and
strategies;
|
·
|
strategic
relationships with other suppliers;
|
·
|
timing
of our new product introductions;
|
·
|
protection
of our products by effective use of intellectual property
laws;
|
·
|
the
outcome of any material intellectual property
litigation;
|
·
|
the
financial strength of our
competitors;
|
·
|
barriers
to entry imposed by competitors with significant market power in new
markets;
|
·
|
general
market and economic conditions;
and,
|
·
|
government
actions throughout the world.
|
There can
be no assurance that we will be able to compete successfully in the
future.
Our Product
Revenues are Dependent on Certain Industries. Sales of our
products are dependent on customers in certain industries, particularly the
telecommunications, semiconductor, automotive, automated test equipment, defense
and aerospace industries. As we have experienced in the past, and as we may
continue to experience in the future, downturns characterized by diminished
product demand in any one or more of these industries have resulted and may
continue to result in decreased sales, and a material adverse effect on our
operating results.
Our Success
Depends on New Product Introductions and Market Acceptance of Our
Products. The market for our products is characterized by
rapid technological change, evolving industry standards, changes in customer
needs and frequent new product introductions, and is therefore highly dependent
upon timely product innovation. Our success is dependent on our ability to
successfully develop and introduce new and enhanced products on a timely basis
to replace declining revenues from older products, and on increasing penetration
in domestic and international markets. As has occurred in the past and as may be
expected to occur in the future, we have experienced significant delays between
the announcement and the commercial availability of new products. Any
significant delay in releasing new products could have a material adverse effect
on the ultimate success of a product and other related products and could impede
continued sales of predecessor products, any of which could have a material
adverse effect on our operating results. There can be no assurance that we will
be able to introduce new products in accordance with announced release dates,
that new products will achieve market acceptance or that any such acceptance
will be sustained for any significant period. Failure of our new products to
achieve or sustain market acceptance could have a material adverse effect on our
operating results. Moreover, there can be no assurance that our international
sales will continue at existing levels or grow in accordance with our efforts to
increase foreign market penetration.
Our Business is
Dependent on Key Suppliers. Our manufacturing processes use
large volumes of high-quality components and subassemblies supplied by outside
sources. Several of these components are available through limited sources.
Limited source components purchased include custom application specific
integrated circuits (“ASICs”), chassis and other components. We have in the past
experienced delays and quality problems in connection with limited source
components, and there can be no assurance that these problems will not recur in
the future. Accordingly, our failure to receive components from limited
suppliers could result in a material adverse effect on our revenues and
operating results. In the event that any of our limited suppliers experience
significant financial or operational difficulties due to adverse global economic
conditions or otherwise, our business and operating results would likely be
adversely impacted until we are able to secure another source for the required
materials.
We May Experience
Component Shortages. As has occurred in the past and as may be
expected to occur in the future, supply shortages of components used in our
products, including limited source components, can result in significant
additional costs and inefficiencies in manufacturing. If we are unsuccessful in
resolving any such component shortages in a timely manner, we will experience a
significant impact on the timing of revenue, a possible loss of revenue, and/or
an increase in manufacturing costs, any of which would have a material adverse
impact on our operating results.
We are Subject to
Risks Associated with Our Web Site. We devote resources to
maintain our Web site as a key marketing, sales and support tool and expect to
continue to do so in the future. However, there can be no assurance that we will
be successful in our attempt to leverage the Web to increase sales. We host our
Web site internally. Any failure to successfully maintain our Web site or any
significant downtime or outages affecting our Web site could have a material
adverse impact on our operating results.
Our Products are
Complex and May Contain Bugs or Errors. As has occurred in the
past and as may be expected to occur in the future, our new software products or
new operating systems of third parties on which our products are based often
contain bugs or errors that can result in reduced sales and/or cause our support
costs to increase, either of which could have a material adverse impact on our
operating results.
We are Subject to
Various Risks Associated with International Operations and Foreign
Economies. Our international sales are subject to inherent
risks, including:
·
|
fluctuations
in local economies;
|
·
|
fluctuations
in foreign currencies relative to the U.S.
dollar;
|
·
|
difficulties
in staffing and managing foreign
operations;
|
·
|
greater
difficulty in accounts receivable
collection;
|
·
|
costs
and risks of localizing products for foreign
countries;
|
·
|
unexpected
changes in regulatory requirements;
|
·
|
tariffs
and other trade barriers;
|
·
|
difficulties
in the repatriation of earnings;
and,
|
·
|
the
burdens of complying with a wide variety of foreign
laws.
|
In many
foreign countries, particularly in those with developing economies, it is common
to engage in business practices that are prohibited by U.S. regulations
applicable to us such as the Foreign Corrupt Practices Act. Although we have
policies and procedures designed to ensure compliance with these laws, there can
be no assurance that all of our employees, contractors and agents, including
those based in or from countries where practices which violate such U.S. laws
may be customary, will not take actions in violation of our policies. Any
violation of foreign or U.S. laws by our employees, contractors or agents, even
if such violation is prohibited by our policies, could have a material adverse
effect on our business. We must also comply with various import and export
regulations. The application of these various regulations depends on the
classification of our products which can change over time as such regulations
are modified or interpreted. As a result, even if we are currently in compliance
with applicable regulations, there can be no assurance that we will not have to
incur additional costs or take additional compliance actions in the future.
Failure to comply with these regulations could result in fines and/or
termination of import and export privileges, which could have a material adverse
effect on our operating results. Additionally, the regulatory environment in
some countries is very restrictive as their governments try to protect their
local economy and value of their local currency against the U.S.
dollar.
Sales
made by our international direct sales offices are denominated in local
currencies, and accordingly, the U.S. dollar equivalent of these sales is
affected by changes in the foreign currency exchange rates. Net of hedging
results, the change in exchange rates had the effect of increasing our
consolidated sales by $12 million or 7% for the three months ended March 31,
2010, compared to the same period in 2009. If the local currencies in which we
sell our products strengthen against the U.S. dollar, we may need to lower our
prices in the local currency to remain competitive in our international markets
which could have a material adverse effect on our gross and net profit margins.
If the local currencies in which we sell our products weaken against the U.S.
dollar and if the local sales prices cannot be raised due to competitive
pressures, we will experience a deterioration of our gross and net profit
margins. Since most of our international operating expenses are also incurred in
local currencies, the change in exchange rates had the effect of increasing our
operating expenses by $4.8 million or 4% for the three months ended March 31,
2010, compared to the same period in 2009. Currently, we are experiencing
significant volatility in foreign currency exchange rates in many of the markets
in which we do business. This has had a significant impact on the revaluation of
our foreign currency denominated firm commitments and on our ability to forecast
our U.S. dollar equivalent revenues and expenses. In the past, these dynamics
have also adversely affected our revenue growth in international markets and
will likely pose similar challenges in the future. Our foreign currency hedging
program includes both foreign currency forward and purchased option contracts to
reduce the effect of exchange rate fluctuations. However, our hedging program
will not eliminate all of our foreign exchange risks, particularly when market
conditions experience the recent level of volatility. (See Note 5 – Derivative
instruments and hedging activities of Notes to Consolidated Financial
Statements).
Our Business
Depends on Our Proprietary Rights and We are Subject to Intellectual Property
Litigation. Our success depends on our ability to obtain and
maintain patents and other proprietary rights relative to the technologies used
in our principal products. Despite our efforts to protect our proprietary
rights, unauthorized parties may have in the past infringed or violated certain
of our intellectual property rights. We from time to time engage in litigation
to protect our intellectual property rights. In monitoring and policing our
intellectual property rights, we have been and may be required to spend
significant resources. We from time to time may be notified that we are
infringing certain patent or intellectual property rights of others. There can
be no assurance that any existing intellectual property litigation or any
intellectual property litigation initiated in the future, will not result in
significant litigation expense, liability, injunction against the sale of some
of our products, and a diversion of management’s attention, any of which may
have a material adverse effect on our operating results.
Our Reported
Financial Results May be Adversely Affected by Changes in Accounting Principles
Generally Accepted in the United States. We prepare our
financial statements in conformity with accounting principles generally accepted
in the U.S. These accounting principles are subject to interpretation by the
Financial Accounting Standards Board and the Securities and Exchange Commission.
A change in these policies or interpretations could have a significant effect on
our reported financial results, and could affect the reporting of transactions
completed before the announcement of a change.
Compliance With
Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 is Costly and
Challenging. As required by Section 302 of the Sarbanes-Oxley
Act of 2002, this Form 10-Q contains our managements’ certification of adequate
disclosure controls and procedures as of March 31, 2010. Our most recent annual
report on Form 10-K also contains a report by our management on our internal
control over financial reporting including an assessment of the effectiveness of
our internal control over financial reporting as of December 31, 2009. Our most
recent Form 10-K also contains an attestation and report by our external
auditors with respect to the effectiveness of our internal control over
financial reporting under Section 404. While these assessments and reports did
not reveal any material weaknesses in our internal control over financial
reporting, compliance with Sections 302 and 404 is required for each future
fiscal year end. We expect that the ongoing compliance with Sections 302 and 404
will continue to be both very costly and very challenging and there can be no
assurance that material weaknesses will not be identified in future periods. Any
adverse results from such ongoing compliance efforts could result in a loss of
investor confidence in our financial reports and have an adverse effect on our
stock price.
Our Business
Depends on the Continued Service of Key Management and Technical
Personnel. Our success depends upon the continued
contributions of our key management, sales, marketing, research and development
and operational personnel, including Dr. Truchard, our Chairman and Chief
Executive Officer, and other members of our senior management and key technical
personnel. We have no agreements providing for the employment of any of our key
employees for any fixed term and our key employees may voluntarily terminate
their employment with us at any time. The loss of the services of one or more of
our key employees in the future could have a material adverse effect on our
operating results. We also believe our future success will depend upon our
ability to attract and retain additional highly skilled management, technical,
marketing, research and development, and operational personnel with experience
in managing large and rapidly changing companies, as well as training,
motivating and supervising employees. Our failure to attract or retain key
technical or managerial talent could have an adverse effect on our operating
results. We also recruit and employ foreign nationals to achieve our hiring
goals primarily for engineering and software positions. There can be no
guarantee that we will continue to be able to recruit foreign nationals at the
current rate. There can be no assurance that we will be successful in retaining
our existing key personnel or attracting and retaining additional key personnel.
Failure to attract and retain a sufficient number of our key personnel could
have a material adverse effect on our operating results.
Our Manufacturing
Operations are Subject to a Variety of Environmental Regulations and
Costs. We must comply with many different governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in our manufacturing operations
in the U.S. and in Hungary. Although we believe that our activities conform to
presently applicable environmental regulations, our failure to comply with
present or future regulations could result in the imposition of fines,
suspension of production or a cessation of operations. Any such environmental
regulations could require us to acquire costly equipment or to incur other
significant expenses to comply with such regulations. Any failure by us to
control the use of or adequately restrict the discharge of hazardous substances
could subject us to future liabilities.
We Are Subject to
the Risk of Product Liability Claims. Our products are
designed to provide information upon which users may rely. Our products are also
used in “real time” applications requiring extremely rapid and continuous
processing and constant feedback. Such applications give rise to the risk that a
failure or interruption of the system or application could result in economic
damage or bodily harm. We attempt to assure the quality and accuracy of the
processes contained in our products, and to limit our product liability exposure
through contractual limitations on liability, limited warranties, express
disclaimers and warnings as well as disclaimers contained in our “shrink wrap”
license agreements with end-users. If our products contain errors that produce
incorrect results on which users rely or cause failure or interruption of
systems or processes, customer acceptance of our products could be adversely
affected. Further, we could be subject to liability claims that could have a
material adverse effect on our operating results or financial position. Although
we maintain liability insurance for product liability matters, there can be no
assurance that such insurance or the contractual limitations used by us to limit
our liability will be sufficient to cover or limit any claims which may
occur.
Our Acquisitions
are Subject to a Number of Related Costs and Challenges. We
have from time to time acquired, and may in the future acquire, complementary
businesses, products or technologies. Achieving the anticipated benefits of an
acquisition depends upon whether the integration of the acquired business,
products or technology is accomplished efficiently and effectively. In addition,
successful acquisitions generally require, among other things, integration of
product offerings, manufacturing operations and coordination of sales and
marketing and R&D efforts. These difficulties can become more challenging
due to the need to coordinate geographically separated organizations, the
complexities of the technologies being integrated, and the necessities of
integrating personnel with disparate business backgrounds and combining two
different corporate cultures. The integration of operations following an
acquisition also requires the dedication of management resources, which may
distract attention from our day-to-day business and may disrupt key R&D,
marketing or sales efforts. The inability of our management to successfully
integrate any future acquisition could harm our business. Some of the existing
products previously sold by some of the entities we have acquired are of lesser
quality than our products and/or could contain errors that produce incorrect
results on which users rely or cause failure or interruption of systems or
processes that could subject us to liability claims that could have a material
adverse effect on our operating results or financial position. Furthermore,
products acquired in connection with acquisitions may not gain acceptance in our
markets, and we may not achieve the anticipated or desired benefits of such
transaction.
Provisions in Our
Charter Documents and Delaware Law and Our Stockholder Rights Plan May Delay or
Prevent an Acquisition of Us. Our certificate of incorporation
and bylaws and Delaware law contain provisions that could make it more difficult
for a third party to acquire us without the consent of our Board of Directors.
These provisions include a classified Board of Directors, prohibition of
stockholder action by written consent, prohibition of stockholders to call
special meetings and the requirement that the holders of at least 80% of our
shares approve any business combination not otherwise approved by two-thirds of
the Board of Directors. Delaware law also imposes some restrictions on mergers
and other business combinations between us and any holder of 15% or more of our
outstanding common stock. In addition, our Board of Directors has the right to
issue preferred stock without stockholder approval, which could be used to
dilute the stock ownership of a potential hostile acquirer. Our Board of
Directors adopted a stockholders rights plan on January 21, 2004, pursuant to
which we declared a dividend of one right for each share of our common stock
outstanding as of May 10, 2004. This rights plan replaced a similar rights plan
that had been in effect since our initial public offering in 1995. Unless
redeemed by us prior to the time the rights are exercised, upon the occurrence
of certain events, the rights will entitle the holders to receive upon exercise
thereof shares of our preferred stock, or shares of an acquiring entity, having
a value equal to twice the then-current exercise price of the right. The
issuance of the rights could have the effect of delaying or preventing a change
of control of us.
ITEM
2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
The
following table provides information as of March 31, 2010 with respect to the
shares of common stock that we repurchased during the first quarter of
2010.
Period
|
|
Total
number of shares purchased
|
|
|
Average
price paid per share
|
|
|
Total
number of shares purchased as part of a publicly announced plans or
programs
|
|
|
Maximum
number of shares that may yet be purchased under the plans or programs
(1)
|
|
January
1, 2010 to January 31, 2010
|
|
|
44,094 |
|
|
$ |
29.74 |
|
|
|
44,094 |
|
|
|
1,644,233 |
|
February
1, 2010 to February 28, 2010
|
|
|
970,135 |
|
|
$ |
30.54 |
|
|
|
970,135 |
|
|
|
674,098 |
|
March
1, 2010 to March 31, 2010
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
674,098 |
|
Total
|
|
|
1,014,229 |
|
|
$ |
30.50 |
|
|
|
1,014,229 |
|
|
|
|
|
(1)
|
For
the past several years, we have maintained various stock repurchase
programs. At December 31, 2009, there were 1,688,327 shares available for
repurchase under the plan approved in January 2009. On April 21, 2010, our
Board of Directors approved a new share repurchase plan that increased the
aggregate number of shares of common stock that we are authorized to
repurchase from 674,098 to 3.0 million. This repurchase plan does not have
an expiration date.
|
On
February 1, 2010, we entered into a Purchase Agreement (the “Purchase
Agreement”) with a private company and the holder of all of the outstanding
membership interests in that company pursuant to which we purchased all of such
membership interests in exchange for cash and 102,179 shares of our common
stock. Based on the representations and warranties in the Purchase Agreement,
such shares were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as a transaction not
involving a public offering, and in reliance on similar exemptions under
applicable state laws.
From time
to time our directors, executive officers and other insiders may adopt stock
trading plans pursuant to Rule 10b5-1(c) promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended.
Jeffrey L. Kodosky and James J. Truchard have made periodic sales of our stock
pursuant to such plans.
3.1(1)
|
|
Certificate
of Incorporation, as amended, of the Company.
|
3.2(2)
|
|
Amended
and Restated Bylaws of the Company.
|
3.3(3)
|
|
Certificate
of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of the Company.
|
4.1(4)
|
|
Specimen
of Common Stock certificate of the Company.
|
4.2(5)
|
|
Rights
Agreement dated as of January 21, 2004, between the Company and EquiServe
Trust Company, N.A.
|
10.1(4)
|
|
Form
of Indemnification Agreement.
|
10.2(6)
|
|
1994
Incentive Plan, as amended.*
|
10.3(7)
|
|
1994
Employee Stock Purchase Plan.*
|
10.5(8)
|
|
2005
Incentive Plan.*
|
10.6(9)
|
|
National
Instruments Corporation Annual Incentive Program.*
|
10.7(10)
|
|
National
Instruments Corporation Annual Incentive Program, as
amended*
|
10.8(11)
|
|
Form
of Restricted Stock Unit Award Agreement (Non-Employee
Director).*
|
10.9(11)
|
|
Form
of Restricted Stock Unit Award Agreement (Performance
Vesting).*
|
10.10(11)
|
|
Form
of Restricted Stock Unit Award Agreement (Current
Employee).*
|
10.11(11)
|
|
Form
of Restricted Stock Unit Award Agreement (Newly Hired
Employee).*
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
(1)
|
|
Incorporated
by reference to the same-numbered exhibit filed with the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31,
2003.
|
(2)
|
|
Incorporated
by reference to the same-numbered exhibit filed with the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31,
2007.
|
(3)
|
|
Incorporated
by reference to the same-numbered exhibit filed with the Company’s Form
8-K on January 28, 2004.
|
(4)
|
|
Incorporated
by reference to the Company’s Registration Statement of Form S-1 (Reg. No.
33-88386) declared effective March 13, 1995.
|
(5)
|
|
Incorporated
by reference to exhibit 4.1 filed with the Company’s Current Report on
Form 8-K filed on January 28, 2004.
|
(6)
|
|
Incorporated
by reference to the same-numbered exhibit filed with the Company’s Form
10-Q on August 5, 2004.
|
(7)
|
|
Incorporated
by reference to exhibit 10.3 filed with the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2006.
|
(8)
|
|
Incorporated
by reference to exhibit A of the Company’s Proxy Statement dated and filed
on April 4, 2005.
|
(9)
|
|
Incorporated
by reference to exhibit 10.1 filed with the Company’s Current Report
on Form 8-K filed on June 27, 2006.
|
(10)
|
|
Incorporated
by reference to exhibit 99.2 filed with the Company’s Current Report on
Form 8-K filed on October 28, 2008.
|
(11)
|
|
Incorporated
by reference to the same-numbered exhibit filed with the Company’s Form
10-Q on August 2, 2006.
|
|
|
|
*
|
|
Management
Contract or Compensatory Plan or
Arrangement
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
NATIONAL INSTRUMENTS
CORPORATION |
|
|
|
|
|
Dated:
May 5, 2010
|
By:
|
/s/ Alex
Davern |
|
|
|
Chief
Financial Officer and Treasurer |
|
|
|
(principal
financial and accounting officer) |
|
|
|
|
|