SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended: March 31, 1997 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 (I.R.S. Employer
incorporation or organization) Identification Number)
6504 Bridge Point Parkway
Austin, Texas 78730
- ---------------------------------------- -----------------------------------
(address of principal executive (zip code)
offices)
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 X No
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 April 28, 1997
Common Stock - $0.01 par value 21,699,644
Page 1
<PAGE>
NATIONAL INSTRUMENTS CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets
March 31, 1997 (unaudited) and December 31, 1996.........3
Consolidated Statements of Income (unaudited)
three months ended March 31, 1997 and 1996...............4
Consolidated Statements of Cash Flows (unaudited)
three months ended March 31, 1997 and 1996...............5
Consolidated Statement of Stockholders' Equity
March 31, 1997 (unaudited) and December 31, 1996 ........6
Notes to Consolidated Financial Statements...............7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................8
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K...........................15
Page 2
<PAGE>
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
1997 1996
---------- ----------
Assets (unaudited)
Current assets:
Cash and cash equivalents ......................... $ 30,167 $ 30,211
Short-term investments ............................ 50,442 48,956
Accounts receivable, net .......................... 34,698 33,442
Inventories ....................................... 11,630 11,778
Prepaid expenses and other current assets ......... 7,748 7,198
--------- ---------
Total current assets ........................... 134,685 131,585
Property and equipment, net .......................... 32,282 32,184
Intangibles and other assets ......................... 5,733 5,456
========= =========
Total assets ................................... $ 172,700 $ 169,225
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt ................. $ 851 $ 1,517
Accounts payable .................................. 12,617 11,430
Accrued expenses and other liabilities ............ 9,613 9,360
Taxes payable ..................................... 9,114 9,984
--------- ---------
Total current liabilities ...................... 32,195 32,291
Long-term debt, net of current portion ............... 5,848 9,175
Deferred income taxes ................................ 808 806
--------- ---------
Total liabilities .............................. 38,851 42,272
--------- ---------
Commitments and contingencies Stockholders' equity:
Common Stock: par value $.01; 60,000,000 shares
authorized; 21,653,620 and 21,642,241 shares issued
and outstanding, respectively ..................... 216 216
Additional paid-in capital ........................... 44,552 44,396
Retained earnings .................................... 90,158 82,590
Other ................................................ (1,077) (249)
--------- ---------
Total stockholders' equity ..................... 133,849 126,953
========= =========
Total liabilities and stockholders' equity ..... $ 172,700 $ 169,225
========= =========
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
--------------------------
1997 1996
------------ ------------
Net sales.......................................... $ 54,571 $ 46,408
Cost of sales...................................... 12,293 11,266
------------ ------------
Gross profit.................................... 42,278 35,142
------------ ------------
Operating expenses:
Sales and marketing............................. 19,962 17,565
Research and development........................ 6,477 4,975
General and administrative...................... 4,270 4,174
------------ ------------
Total operating expenses..................... 30,709 26,714
------------ ------------
Operating income............................. 11,569 8,428
Other (expense) income:
Interest income, net............................ 698 257
Foreign exchange (loss), net.................... (964) (378)
------------ ------------
Income before income taxes................... 11,303 8,307
Provision for income taxes......................... 3,735 2,824
============ ============
Net income................................... $ 7,568 $ 5,483
============ ============
Earnings per share................................. $ 0.34 $ 0.25
============ ============
Weighted average shares outstanding................ 22,300 21,666
============ ============
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
------------------------
1997 1996
---------- ---------
Cash flow from operating activities:
Net income ........................................... $ 7,568 $ 5,483
Adjustments to reconcile net income to cash
provided by operating activities
Charges to income not requiring cash outlays:
Depreciation and amortization ................... 2,147 2,018
Changes in operating assets and liabilities:
Increase in accounts receivable ................. (1,582) (4,764)
(Increase)/decrease in inventory ................ (1) 1,706
Decrease in prepaid expense and other assets .... 83 766
Increase in accounts payable .................... 2,744 288
(Decrease)/increase in accrued expenses and
other ........................................... (1,633) 2,086
liabilities
-------- --------
Net cash provided by operating activities ......... 9,326 7,583
-------- --------
Cash flow from investing activities:
Purchases of short-term investments .................. (12,508) (9,163)
Sales of short-term investments ...................... 10,893 7,375
Capital expenditures ................................. (2,837) (1,043)
Additions to capitalized software .................... (788) (655)
-------- --------
Net cash used in investing activities ............. (5,240) (3,486)
-------- --------
Cash flow from financing activities:
(Repayments of)/borrowings from long-term debt ....... (3,990) 284
Net proceeds from issuance of common stock ........... 156 6
-------- --------
Net cash (used in)/provided by financing activities (3,834) 290
-------- --------
Effect of translation rate changes on cash .............. (296) (61)
-------- --------
Net (decrease)/increase in cash and cash equivalents .... (44) 4,326
Cash and cash equivalents at beginning of period ........ 30,211 12,016
-------- --------
Cash and cash equivalents at end of period .............. $ 30,167 $ 16,342
======== ========
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Common Additional
Stock Common Paid-In Retained
(Shares) Stock Capital Earnings Other Total
-------- ----- ------- -------- ----- -----
Balance at
December 31, 1996 21,642,241 $216 $44,396 $82,590 $ (249) $ 126,953
Net income ....... -- -- -- 7,568 -- 7,568
Issuance under
stock option plan 11,379 -- 156 -- -- 156
Unrealized loss
on short term ... -- -- -- -- (129) (129)
investments
Foreign currency . -- -- -- -- (699) (699)
translation
adjustment
========== ==== ======= ======= ======= =========
Balance at
March 31, 1997 21,653,620 $216 $44,552 $90,158 $(1,077) $ 133,849
========== ==== ======= ======= ======= =========
The accompanying notes are an integral part of these financial statements.
Page 6
<PAGE>
NATIONAL INSTRUMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1996, included in the Company's annual report on Form
10-K, filed with the Securities and Exchange Commission. In the opinion of
management, the accompanying consolidated financial statements reflect all
adjustments (consisting only of normal recurring items) considered necessary to
present fairly the financial position of National Instruments Corporation and
its consolidated subsidiaries at March 31, 1997 and December 31, 1996, and the
results of operations and cash flows for the three-month periods ended March 31,
1997 and 1996. Operating results for the three-month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
NOTE 2 - Earnings Per Share
- ---------------------------
Earnings per share are computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding (if
dilutive) during each period. Common share equivalents include stock options.
The number of common share equivalents outstanding relating to stock options is
computed using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." The new
standard, which is effective for financial statements issued for periods ending
after December 15, 1997, establishes standards for computing and presenting
earnings per share (EPS) and upon adoption requires restatement of all
prior-period EPS data presented. The company will implement this standard in the
fourth quarter of 1997. The implementation of the standard will result in the
presentation of a basic EPS calculation in the consolidated financial statements
as well as a diluted EPS calculation. If the Company had adopted the new
standard for the first quarter of 1997, basic EPS would have been $0.35 per
share and diluted EPS would have approximated the EPS of $0.34 presented in the
accompanying consolidated statement of income.
NOTE 3 - Inventories
- --------------------
Inventories consist of the following (in thousands):
March 31, December 31,
1996 1997
---------------- ---------------
Raw materials $ 5,135 $ 5,324
Work-in-process 907 864
Finished goods 5,588 5,590
================ ===============
$ 11,630 $ 11,778
================ ===============
Page 7
<PAGE>
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. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to the Issues and Outlook section and
financial statement line item discussions below. Readers are also encouraged to
refer to the Company's Annual Report on Form 10-K for further discussion of the
Company's business and the risks and opportunities attendant thereto.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statements of income:
Three Months Ended
March 31,
-------------------------
1997 1996
---------- ----------
Net sales:
North America ............................... 56.4% 56.5%
Europe ...................................... 27.5 28.2
Asia Pacific ................................ 16.1 15.3
----- -----
Consolidated net sales ...................... 100.0 100.0
Cost of sales .................................. 22.5 24.3
----- -----
Gross profit ................................ 77.5 75.7
Operating expenses:
Sales and marketing ......................... 36.6 37.8
Research and development .................... 11.9 10.8
General and administrative .................. 7.8 9.0
----- -----
Total operating expenses .................... 56.3 57.6
----- -----
Operating income ......................... 21.2 18.1
Other income (expense):
Interest income, net ........................ 1.3 0.6
Foreign exchange (loss), net ................ (1.8) (0.8)
----- -----
Income before income taxes ............... 20.7 17.9
Provision for income taxes ..................... 6.8 6.1
===== =====
Net income .................................. 13.9% 11.8%
===== =====
Net Sales. Consolidated net sales for the first quarter of 1997 increased
$8.2 million or 18% over the comparable prior year quarter. This increase in
sales is primarily attributable to the introduction of new and upgraded
products, increased market acceptance of the Company's products, and an
expanding customer base. North American sales in the first quarter of 1997
increased 17% over the first quarter of 1996, compared with an increase of 21%
in the first quarter of 1996 from the first quarter of 1995.
Page 8
<PAGE>
International sales as a percentage of consolidated net sales in the first
quarter of 1997 remained consistent with the first quarter of 1996 when
international sales represented 44% of consolidated sales. European sales
increased 15% in the first quarter of 1997 compared to the first quarter of 1996
in contrast to a decrease in European sales of 1.5% in the first quarter of 1996
over the first quarter of 1995. Asia Pacific sales increased 25% during the
first quarter of 1997 over the first quarter of 1996, compared with an increase
of 45% in the first quarter of 1996 compared to the first quarter of 1995. The
decrease is due to the foreign currency on effect on sales as discussed below.
The sales increase in the Asia Pacific region is attributable to customer
acceptance of localized products and support, particularly in Japan, and the
Company's sales offices in Hong Kong, Singapore, South Korea and Taiwan which
opened in late 1994 and early 1995 and are continuing to achieve market
acceptance. The Company expects sales outside of North America to continue to
represent a significant, and possibly increasing, portion of its revenue.
International sales are subject to inherent risks, including fluctuations
in local economies, 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. Sales
made by the Company's direct sales offices in Europe and Asia Pacific are
denominated in local currencies, and accordingly, the US dollar equivalent of
these sales is affected by changes in the value of the US dollar. Between the
first quarter of 1996 and the first quarter of 1997 the weighted average value
of the US dollar increased by 8.8%, causing an equivalent decrease in the US
dollar value of the Company's foreign currency sales and expenses. This weighted
average is calculated as the percentage change in the value of the currency
relative to the dollar, multiplied by the proportion of international sales
recorded in the particular currency. If the weighted average value of the dollar
in the first quarter of 1997 had been the same as that in the first quarter of
1996, the Company's sales for the first quarter of 1997 would have been $56.6
million. This effect is 3.6% of consolidated net sales in the aggregate.
European sales for the first quarter of 1997 would have been $16.1 million,
representing an increase of $1.1 million and would have reflected an increase in
first quarter 1997 sales over first quarter 1996 sales by 23% instead of by 15%.
Asia Pacific sales for the first quarter of 1997 would have been $9.8 million,
representing an increase of $984,000 and would have reflected an increase in
first quarter 1997 sales over first quarter 1996 sales by 38% instead of by 25%.
Since most of the Company's international operating expenses are also incurred
in local currencies the change in exchange rates has a corresponding effect on
international operating expenses. If the current trend in the value of the
dollar continues throughout 1997, it will continue to have the effect of
lowering the US dollar equivalent of international sales and operating expenses.
Gross Profit. The increase in gross profit was primarily due to
manufacturing labor and overhead efficiencies. Further, reductions were realized
in material and software duplication costs. As a percentage of net sales, gross
profit represented 77.5% and 75.7% for the three months ended March 31, 1997 and
1996, respectively.
The marketplace for the Company's products dictates that many of the
Company's products be shipped very quickly after an order is received. As a
result, the Company is required to maintain significant inventories. Therefore,
inventory obsolescence is a risk for the Company due to frequent engineering
changes, shifting customer demand, the emergence of new industry standards and
rapid technological advances including the introduction by the Company, or its
competitors, of products embodying new technology. While the Company maintains
valuation allowances for excess and obsolete inventory and management continues
to monitor the adequacy of such valuation allowances, there can be no assurance
that such valuation allowances will be sufficient.
Page 9
<PAGE>
Sales and Marketing. Sales and marketing expenses increased by 14% from
$17.6 million for the three months ended March 31, 1996 to $20.0 million for the
three months ended March 31, 1997. As a percentage of net sales, sales and
marketing expenses were 36.6% and 37.8% for the three months ended March 31,
1997 and 1996, respectively. The increase in these expenses in absolute dollar
amounts is primarily attributable to increases in sales and marketing personnel
and increased sales and marketing activities. Overall sales and marketing
personnel increased from approximately 482 at March 31, 1996, to 566 at March
31, 1997. The Company expects sales and marketing expenses in future periods to
increase in absolute dollars, and to fluctuate as a percentage of sales based on
initial marketing and advertising campaign costs associated with major new
product releases, the opening of new sales offices and the timing of domestic
and international conferences and trade shows.
Research and Development. The Company believes that a significant
investment in research and development is required to remain competitive.
Research and development expenses were $6.5 million and $5.0 million for the
three months ended March 31, 1997 and 1996, respectively. As a percentage of net
sales, research and development expenses represented 11.9% and 10.8% for the
three months ended March 31, 1997 and 1996, respectively. The increase in
research and development costs is mainly attributable to the increase in
personnel costs. R&D personnel increased from 271 at March 31, 1996 to 332 at
March 31, 1997. The Company capitalizes software development costs in accordance
with the Statement of Financial Accounting Standards No. 86 and amortizes such
costs over the related product's estimated economic useful life, generally three
years beginning when a product becomes available for general release.
Capitalization of software development costs during the first quarter of 1997
related primarily to the development of NI-DAQ 5.0. Amortization expense totaled
$376,000 and $285,000 during the three months ended March 31, 1997 and 1996,
respectively. Software development costs capitalized during such quarters were
$318,000 and $655,000, respectively. The decrease is attributable to the
capitalization of software development costs in the first quarter of 1996
related primarily to costs capitalized in conjunction with the development of
LabVIEW 4.0.
General and Administrative. General and administrative expenses were $4.3
million and $4.2 million for the three months ended March 31, 1997 and 1996,
respectively. As a percentage of net sales, general and administrative expense
was 7.8% and 9.0% for the three months ended March 31, 1997 and 1996,
respectively. The decrease in general and administrative expenses as a percent
of sales is the result of operational efficiencies achieved as a result of
increased systems integration during the past two years. The Company's general
and administrative expense increased in absolute dollars due to additional
personnel and equipment depreciation expenses. The Company expects that general
and administrative expense in future periods will increase in absolute amounts
and will fluctuate as a percentage of net sales.
Interest Income, Net. Interest income, net was $698,000 and $257,000 for
the three months ended March 31, 1997 and 1996, respectively. Historically
interest expense has generally represented less than one percent of net sales
and has fluctuated as a result of bank borrowings and interest terms thereon.
Interest expense was $133,000 and $230,000, for the three months ended March 31,
1997 and 1996, respectively. This decrease was because of repayments of debt in
January 1997.
Foreign Exchange Gain/Loss. The Company experienced net foreign exchange
losses of $964,000 and $378,000 for the three months ended March 31, 1997 and
1996, respectively. These results are attributable to movements between the US
dollar and the local currencies in countries in which the Company's sales
subsidiaries are located. The Company recognizes the local currency as the
functional currency of its international subsidiaries. The net losses in 1997
are a result of the strengthening of the US dollar against local currencies,
primarily the Japanese Yen.
Page 10
<PAGE>
The Company enters into foreign currency forward exchange contracts against
a majority of its intercompany foreign currency-denominated receivables in order
to reduce its exposure to significant foreign currency fluctuations. This
hedging strategy only partially addresses the Company's risks in foreign
currency transactions as the Company does not currently hedge anticipated
transactions. There can be no assurance that this strategy will be successful.
If the strengthening of the US dollar continues throughout 1997, the Company
will continue experiencing significant foreign exchange losses due to the
foreign exchange risks that are not addressed by the Company's hedging strategy.
The Company typically limits the duration of its foreign exchange contracts to
90 days and does not invest in contracts for speculative purposes.
Provision for Income Taxes. The provision for income taxes reflects an
effective tax rate of 33% and 34% for the three months ended March 31, 1997 and
1996, respectively. The decrease in the effective rate resulted from a change in
the mix of income among taxing jurisdictions and utilization of tax credits for
taxes paid in higher tax rate jurisdictions. As of March 31, 1997, eight of the
Company's subsidiaries had available, for income tax purposes, foreign net
operating loss carryforwards of approximately $1 million, of which $635,000
expire between 1999 and 2007. The remaining $399,000 of loss carryforwards may
be carried forward indefinitely to offset future taxable income in the related
tax jurisdictions.
Liquidity and Capital Resources
- -------------------------------
The Company is currently financing its operations and capital expenditures
through cash flow from operations. Historically, the Company also financed its
capital expenditures, such as the new manufacturing facility constructed in
1995, through borrowings from financial institutions. At March 31, 1997, the
Company had working capital of approximately $102 million compared to $99
million at December 31, 1996. The increase in working capital is attributable to
an increase in short term investments of $1.5 million and an increase of net
accounts receivable of $1.3 million from December 31, 1996 to March 31, 1997.
Accounts receivable increased to $35 million at March 31, 1997, from $33
million at December 31, 1996, as a result of higher sales levels. Receivable
days outstanding was 57 at both March 31, 1997 and December 31, 1996. Inventory
levels remained steady with consolidated inventory balances of $12 million at
both March 31, 1997 and December 31, 1996, which evidences improvements in
inventory management at the manufacturing facility in Austin, Texas as well as
the centralized European warehouse in Amsterdam. In the event that days sales
outstanding significantly lengthen, the Company's cash could be adversely
affected. Inventory turns of 4.2 represent an improvement over turns of 3.7 at
December 31, 1996.
Cash used in the first three months of 1997 for the purchase of property
and equipment totaled $2.8 million and for the capitalization of software
development costs totaled $318,000. The Company is currently planning to break
ground for an office building to be located next to the new manufacturing
facility which was completed in Austin, Texas in June, 1995. It is currently
anticipated that a significant portion of the construction costs will be paid
out of the Company's existing working capital with the remaining costs being
funded through credit from the Company's current financial institutions. The
Company estimates the total cost for the new building, including furniture,
fixtures and equipment, will range from $30 million to $35 million with
approximately $18 million expected to be incurred during 1997 and the remainder
in early 1998. In May of 1997, the Company plans to enter into firm commitments
of approximately $25 million for the new building. The actual level of spending
may vary depending on a variety of factors, including unforeseen difficulties in
construction.
Page 11
<PAGE>
The Company currently expects to fund expenditures for capital requirements
as well as liquidity needs created by changes in working capital from a
combination of available cash and short-term investment balances, internally
generated funds, and financing arrangements with its current financial
institutions. The Company has a $31.7 million credit agreement with NationsBank
of Texas, N.A. which consists of (i) an $8.0 million revolving line of credit,
(ii) a $7.5 million equipment line of credit, (iii) a $3.9 million equipment
loan, (iv) a $3.8 million Millennium office building loan and (v) an $8.5
million manufacturing facility loan. As of March 31, 1997, the Company had no
outstanding balances under any of the lines of credit and had repaid all of the
loans except the $8.5 million loan, which had a balance of $6.6 million. The
revolving line of credit expires on June 30, 1997. The Company's credit
agreements contain certain financial covenants and restrictions as to various
matters, including the bank's prior approval of significant mergers and
acquisitions. Borrowings under the line of credit are collateralized by
substantially all of the Company's assets.
The Company believes that its cash flow from operations, if any, existing
cash balances and short-term investments and available credit under the
Company's existing credit facilities, will be sufficient to meet its cash
requirements for at least the next twelve months.
Issues and Outlook
- ------------------
Fluctuations in Quarterly Results. The Company's 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 mix of products
sold; the availability and pricing of components from third parties (especially
sole sources); the timing of orders; level of pricing of international sales;
fluctuations in foreign currency exchange rates; the difficulty in maintaining
margins, including the higher margins traditionally achieved in international
sales; and changes in pricing policies by the Company, its competitors or
suppliers. As has occurred in the past and as may be expected to occur in the
future, new software products of the Company or new operating systems of third
parties on which the Company's products are based, often contain bugs or errors
that can result in reduced sales and/or cause the Company's support costs to
increase, having a material adverse impact on the Company's operating results.
Furthermore, the Company serves a number of industries such as semiconductors,
telecommunications, aerospace, defense and automotive which are cyclical in
nature. Downturns in these industries could have a material adverse effect on
the Company's operating results.
In recent years, the Company's revenues have been characterized by
seasonality, with revenues typically being relatively constant in the first,
second and third quarters, and growing in the fourth quarter. If this historical
pattern continues, revenues for the second and third quarters of 1997 would not
significantly exceed revenues for the first quarter of 1997. The Company
believes the seasonality of its revenue results from the international mix of
its revenue and the variability of the budgeting and purchasing cycles of its
customers throughout each international region. In addition, total operating
expenses have in the past tended to be higher in the second and third quarters
of each year, due to increased sales and marketing activities. If this
historical pattern continues, net income for the second and third quarters of
1997 will be less than that in the first quarter of 1997. The Company's results
of operations may be adversely affected by lower sales levels in Europe which
typically occur during the summer months.
Management Information Systems. The Company does not currently have an
integrated world-wide management information system. While the Company is in the
process of implementing a new world-wide system, the deficiencies in its
existing information resources have at times inhibited management's ability to
Page 12
<PAGE>
manage certain aspects of the Company's operations in a timely manner. The
Company has implemented all of the US components of the new system. The Company
plans to complete transition of the sales and receivable functions of the
European operations by the fourth quarter of 1997. The Company is in the early
stages of implementation for its Japanese operation which will be ongoing
throughout 1997. All of the Company's Asia Pacific operations are currently
using independent management information systems. Until the new world-wide
system can be implemented in this region, the growth of the Company's operations
may be inhibited by the deficiencies of its current system. The Company is
working to eventually achieve a world-wide management information system that
will allow for the consolidation of common functions, reduced costs, and
improvements in the ability to deliver product world-wide. No assurance can be
given that the Company's efforts will be successful. The failure to receive
adequate, accurate and timely financial information could inhibit management's
ability to make effective and timely decisions.
New Product Introductions and Market Acceptance. The market for the
Company's 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.
The Company's success is dependent in part on its 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
international markets. In the past, the Company has experienced significant
delays between the announcement and the commercial availability of new products.
Any sigificant 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 proudcts, any of which could have a
material adverse effect on the Company's operating results. There can be no
assurance that the Company will be able to introduce new products on a timely
basis, that new products will achieve market acceptance or that any such
acceptance will be sustained for any significant period. Moreover, there can be
no assurance that the Company's efforts to increase international market
penetration will be successful.
Operation in Intensely Competitive Markets. The markets in which the
Company operates are characterized by intense competition from numerous
competitors, and the Company expects to face further competition from new market
entrants in the future. A key competitor is Hewlett-Packard Company ("HP"),
which has been the leading supplier of traditional instrumentation solutions for
decades. Although HP offers its own line of proprietary instrument controllers,
HP also offers hardware and software add-on products for third-party desktop
computers and workstations that provide solutions that directly compete with the
Company's virtual instrumentation products. HP is aggressively advertising and
marketing products that are competitive with the Company's products. Because of
HP dominance in the instrumentation business, changes in its marketing strategy
or product offerings could have a material adverse effect on the Company
operating results.
The Company believes its ability to compete successfully depends on a
number of factors both within and outside its control, including: new product
introductions by competitors; 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 new product introductions by the Company; protection
of the Company's products by effective use of intellectual property laws;
general market and economic conditions; and government actions throughout the
world. There can be no assurance that the Company will be able to complete
successfully in the future.
Dependence on Key Suppliers. The Company's manufacturing processes use
large volumes of high-quality components and subassemblies supplied by outside
sources. Several of these components are available through sole or limited
sources. Sole-source components purchased by the Company include
application-specific integrated circuits ("ASICs") and other components. The
Company has in the past experienced delays and quality problems in connection
with sole-source components, and there can be no assurance that these problems
will not recur in the future.
Page 13
<PAGE>
Proprietary Rights and Intellectual Property Litigation. The Company's
success depends in part on its ability to obtain and maintain patents and other
proprietary rights, relative to the technologies used in its principal products.
Despite the Company's efforts to protect it's proprietary rights, unauthorized
parties may have in the past infringed or violated certain of the Company's
intellectual property rights. As is typical in the industry, the Company from
time to time may be notified that it is infringing certain patent or
intellectual property rights of others. While no actions are currently pending
by or against the Company, there can be no assurance that litigation will not be
initiated in the future which may cause significant litigation expense,
liability and a diversion of management's attention which may have a material
adverse affect on results of operations.
Page 14
<PAGE>
- -------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1997.
Page 15
<PAGE>
SIGNATURE
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
Registrant
BY: /s/ JOEL B. ROLLINS
Joel B. Rollins
Vice President, Finance, Chief
Financial Officer and Treasurer
(principal financial and
accounting officer)
Dated: May 9, 1997
Page 16
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
Three Months Ended
March 31,
----------------------
1997 1996
-------- --------
Net Income ........................................... $ 7,568 $ 5,483
======= =======
Weighted Average Shares Outstanding .................. 22,300 21,666
======= =======
Earnings Per Share ................................... $ 0.34 $ 0.25
======= =======
Calculation of Weighted Average Shares:
Weighted Average Common Stock Outstanding ......... 21,650 21,472
Weighted Average Common Stock Options,
utilizing the treasury stock method ............. 631 194
------- -------
22,281 21,666
======= =======
Page 17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 0000935494
<NAME> National Instruments Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30167
<SECURITIES> 50442
<RECEIVABLES> 34698
<ALLOWANCES> 0
<INVENTORY> 11630
<CURRENT-ASSETS> 134685
<PP&E> 32282
<DEPRECIATION> 0
<TOTAL-ASSETS> 172700
<CURRENT-LIABILITIES> 32195
<BONDS> 0
0
0
<COMMON> 216
<OTHER-SE> 133633
<TOTAL-LIABILITY-AND-EQUITY> 172700
<SALES> 54571
<TOTAL-REVENUES> 54571
<CGS> 12293
<TOTAL-COSTS> 12293
<OTHER-EXPENSES> 30709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11303
<INCOME-TAX> 3735
<INCOME-CONTINUING> 7568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7568
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
