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: September 30, 1999 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)
11500 North MoPac Expressway
Austin, Texas 78759
- ---------------------------------------- -----------------------------------
(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 November 11, 1999
Common Stock - $0.01 par value 50,007,257
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NATIONAL INSTRUMENTS CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Income (unaudited)
Three months and nine months ended September 30, 1999
and 1998 4
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 19
Page 2
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1999 1998
------------- ------------
Assets (unaudited)
Current assets:
Cash and cash equivalents................ $ 54,674 $ 51,538
Short-term investments................... 66,562 49,158
Accounts receivable, net................. 53,914 45,622
Inventories.............................. 20,664 16,454
Prepaid expenses and other current assets 8,421 6,687
Deferred income tax, net................. 6,056 4,937
------------- ------------
Total current assets.................. 210,291 174,396
Property and equipment, net................. 69,358 66,131
Intangibles and other assets................ 17,826 9,259
============= ============
Total assets.......................... $ 297,475 $ 249,786
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt........ $ 880 $ 849
Accounts payable......................... 22,116 17,242
Accrued compensation..................... 12,065 7,895
Accrued expenses and other liabilities... 9,303 5,011
Income taxes payable..................... 6,128 5,893
Other taxes payable...................... 5,434 3,996
------------- ------------
Total current liabilities............. 55,926 40,886
Long-term debt, net of current portion...... 3,710 4,379
Deferred income taxes....................... 675 337
------------- ------------
Total liabilities..................... 60,311 45,602
------------- ------------
Commitments and contingencies -- --
Stockholders' equity:
Common Stock: par value $.01; 180,000,000
shares authorized; 49,883,567 and 49,414,110
shares issued and outstanding, respectively 499 494
Additional paid-in capital.................. 55,986 51,497
Retained earnings........................... 184,813 153,601
Accumulated other comprehensive loss........ (4,134) (1,408)
------------- ------------
Total stockholders' equity............ 237,164 204,184
============= ============
Total liabilities and stockholders' equity $ 297,475 $ 249,786
============= ============
The accompanying notes are an integral part of these financial statements.
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NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.............................. $ 82,724 $ 67,874 $ 236,186 $ 200,997
Cost of sales.......................... 19,548 16,286 54,607 47,944
---------- ---------- ---------- ----------
Gross profit......................... 63,176 51,588 181,579 153,053
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing................. 30,982 24,971 86,679 73,995
Research and development............ 13,133 9,603 33,597 26,306
General and administrative.......... 6,220 5,020 17,413 14,941
---------- ---------- ---------- ----------
Total operating expenses......... 50,335 39,594 137,689 115,242
---------- ---------- ---------- ----------
Operating income................. 12,841 11,994 43,890 37,811
Other income (expense):
Interest income, net................ 1,161 651 2,917 2,083
Net foreign exchange gain (loss) and
other............................... 625 82 (97) (259)
---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting
change........................... 14,627 12,727 46,710 39,635
Provision for income taxes............. 4,681 4,200 14,947 13,079
---------- ---------- ---------- ----------
Income before cumulative effect of
accounting change...................... 9,946 8,527 31,763 26,556
Cumulative effect of accounting change. -- -- (552) --
---------- ---------- ---------- ----------
Net income....................... $ 9,946 $ 8,527 $ 31,211 $ 26,556
========== ========== ========== ==========
Basic earnings per share:
Income before cumulative effect of
accounting change................... $ 0.20 $ 0.17 $ 0.64 $ 0.54
Cumulative effect of accounting
change, net of tax.................. -- -- (0.01) --
---------- ---------- ---------- ----------
Basic earnings per share............ $ 0.20 $ 0.17 $ 0.63 $ 0.54
========== ========== ========== ==========
Diluted earnings per share:
Income before cumulative effect of
accounting change................... $ 0.19 $ 0.17 $ 0.61 $ 0.52
Cumulative effect of accounting
change, net of tax.................. -- -- (0.01) --
---------- ---------- ---------- ----------
Diluted earnings per share.......... $ 0.19 $ 0.17 $ 0.60 $ 0.52
========== ========== ========== ==========
Weighted average shares outstanding:
Basic 49,855 49,275 49,690 49,200
Diluted 52,570 50,925 51,950 51,150
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
------------------------
1999 1998
---------- ----------
Cash flow from operating activities:
Net income...................................... $ 31,211 $ 26,556
Adjustments to reconcile net income to cash
provided by operating activities:
Charges to income not requiring cash outlays:
Depreciation and amortization.............. 5,365 7,824
Purchased in-process research and development 2,130 --
Changes in operating assets and liabilities:
Increase in accounts receivable............ (8,292) (5,052)
Increase in inventory...................... (4,210) (920)
Decrease (increase) in prepaid expense and
other assets............................... (3,976) 858
Increase in current liabilities............ 15,012 3,182
---------- ----------
Net cash provided by operating activities.... 37,240 32,448
---------- ----------
Cash flow from investing activities:
Payments for acquisitions, net of cash received. (12,523) (1,519)
Capital expenditures............................ (6,988) (25,101)
Additions to intangibles ....................... (1,330) (1,688)
Purchases of short-term investments............. (176,656) (34,511)
Sales of short-term investments................. 159,252 37,993
---------- ----------
Net cash used in investing activities........ (38,245) (24,826)
---------- ----------
Cash flow from financing activities:
Repayments of long-term debt.................... (638) (606)
Net proceeds from issuance of common stock under
employee plans.................................. 4,493 2,198
---------- ----------
Net cash provided by financing activities.... 3,855 1,592
---------- ----------
Effects of translation rate changes on cash........ 286 (53)
---------- ----------
Net increase in cash and cash equivalents.......... 3,136 9,161
Cash and cash equivalents at beginning of period... 51,538 31,943
---------- ----------
Cash and cash equivalents at end of period......... $ 54,674 $ 41,104
========== ==========
The accompanying notes are an integral part of these financial statements.
Page 5
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NATIONAL INSTRUMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1998, 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 September 30, 1999 and December 31, 1998, and
the results of operations for the three-month and nine-month periods ended
September 30, 1999 and 1998, and the cash flows for the nine-month periods ended
September 30, 1999 and 1998. Operating results for the three-month and
nine-month periods ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
NOTE 2 - Earnings Per Share
On July 22, 1999, the Company declared a stock split effected in the form of a
dividend of one share of common stock for each two shares of common stock
outstanding. The dividend was paid on August 20, 1999 to holders of record as of
the close of business on August 5, 1999. All per share data and numbers of
common shares, where appropriate, have been retroactively adjusted to reflect
the stock split.
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. Common share equivalents include stock options. The number of common
share equivalents outstanding relating to stock options is computed using the
treasury stock method.
The reconciliation of the denominators used to calculate the basic EPS and
diluted EPS for the three-month and nine-month periods ended September 30, 1999
and 1998, respectively, are as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
(unaudited) (unaudited)
1999 1998 1999 1998
-------- -------- -------- --------
Weighted average shares
outstanding-basic.................. 49,855 49,275 49,690 49,200
Plus: Common share equivalents
Stock options................... 2,715 1,650 2,260 1,950
======== ======== ======== ========
Weighted average shares
outstanding-diluted................ 52,570 50,925 51,950 51,150
======== ======== ======== ========
Stock options to acquire 3,000 and 1,459,000 shares for the quarters ended
September 30, 1999 and 1998, respectively, and 29,000 and 1,017,000 shares for
the nine months ended September 30, 1999 and 1998, respectively, were not
included in the computations of diluted earnings per share because the effect of
including the stock options would have been anti-dilutive.
NOTE 3 - Inventories
Inventories consist of the following (in thousands):
September 30, December 31,
1999 1998
(unaudited)
------------- ------------
Raw materials $ 8,334 $ 7,194
Work-in-process 1,945 943
Finished goods 10,385 8,317
============= ============
$ 20,664 $ 16,454
============= ============
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NOTE 4 - Comprehensive Income
The Company's comprehensive income is comprised of net income, foreign currency
translation adjustments and unrealized gains and losses on certain investments
in debt and equity securities. Total comprehensive income for the quarters ended
September 30, 1999 and 1998 is $6.1 million and $9.3 million, respectively. For
the first nine months of 1999 and 1998, comprehensive income is $28.5 million
and $27.0 million, respectively.
NOTE 5 - Adoption of SFAS 133
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," on January
1, 1999. In accordance with the transition provisions of SFAS 133, the Company
recorded a net-of-tax cumulative-effect type adjustment of $552,000 in current
earnings to recognize the fair value of its derivatives designated as cash-flow
hedging instruments.
Accounting for Derivatives and Hedging Activities
All of the Company's derivative instruments are recognized on the balance sheet
at their fair value. The Company currently uses foreign currency forward
contracts (to hedge its exposure to material foreign currency receivables and
planned net foreign currency cash flows) and foreign currency put options (to
hedge exposure to planned net foreign currency cash flows). On the date the
derivative contract is entered into, the Company designates its derivative as
either a hedge of the fair value of a recognized asset or liability
("fair-value" hedge), as a hedge of the variability of cash flows to be received
("cash-flow" hedge), or as a foreign-currency cash-flow hedge
("foreign-currency" hedge). Changes in the fair value of a derivative that is
highly effective as - and that is designated and qualifies as - a fair-value
hedge, along with the loss or gain on the hedged asset or liability that is
attributable to the hedged risk (including losses or gains on firm commitments),
are recorded in current-period earnings. Changes in the fair value of a
derivative that is highly effective as - and that is designated and qualifies as
- - a cash-flow hedge are recorded in other comprehensive income, until earnings
are affected by the variability of cash flows. Changes in the fair value of
derivatives that are highly effective as - and that are designated and qualify
as - foreign-currency hedges are recorded in either current-period earnings or
other comprehensive income, depending on whether the hedge transaction is a
fair-value hedge (e.g., a hedge of a firm commitment that is to be settled in a
foreign currency) or a cash-flow hedge (e.g., a foreign-currency-denominated
forecasted transaction).
The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair-value, cash-flow or foreign-currency
hedges to specific assets and liabilities on the balance sheet or to specific
firm commitments or forecasted transactions. The Company also formally assesses,
both at the hedge's inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items. When it is determined that a
derivative is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Company discontinues hedge accounting prospectively,
as discussed below.
The Company discontinues hedge accounting prospectively when (1) it is
determined that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item (including firm commitments or
forecasted transactions); (2) the derivative expires or is sold, terminated or
exercised; (3) the derivative is dedesignated as a hedge instrument, because it
is unlikely that a forecasted transaction will occur; (4) the hedged firm
commitment no longer meets the definition of a firm commitment; or (5)
management determines that designation of the derivative as a hedge instrument
is no longer appropriate.
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When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair-value hedge, the derivative
will continue to be carried on the balance sheet at its fair value, and the
hedged asset or liability will no longer be adjusted for changes in fair value.
When hedge accounting is discontinued because the hedged item no longer meets
the definition of a firm commitment, the derivative will continue to be carried
on the balance sheet at its fair value, and any asset or liability that was
recorded pursuant to recognition of the firm commitment will be removed from the
balance sheet and recognized as a gain or loss in current-period earnings. When
hedge accounting is discontinued because it is probable that a forecasted
transaction will not occur, the derivative will continue to be carried on the
balance sheet at its fair value, and gains and losses that were accumulated in
other comprehensive income will be recognized immediately in earnings. In all
other situations in which hedge accounting is discontinued, the derivative will
be carried at its fair value on the balance sheet, with changes in its fair
value recognized in current-period earnings.
Included in accumulated other comprehensive loss is $3.2 million of unrealized
losses on the Company's cash-flow hedges in place at September 30, 1999.
NOTE 6 - Segment Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which the Company adopted in the first quarter of 1998. The statement supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with 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 the Company's reportable segments. It also requires disclosures about
products and services, geographic areas and major customers.
While the Company sells its products to many different markets, its management
has chosen to organize the Company by geographic areas, and as a result has
determined that it has one reportable segment. Substantially, all of the
interest income, interest expense, depreciation and amortization is recorded in
North America. Net sales, operating income and identifiable assets, classified
by the major geographic areas in which the Company operates, are as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(unaudited) (unaudited)
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales:
Americas:
Unaffiliated customer sales.. $ 46,601 $ 38,878 $ 128,535 $ 115,954
Geographic transfers......... 10,257 7,385 30,203 23,260
---------- ---------- ---------- ----------
56,858 46,263 158,738 139,214
---------- ---------- ---------- ----------
Europe:
Unaffiliated customer sales.. 25,226 20,159 74,532 59,882
---------- ---------- ---------- ----------
Asia Pacific:
Unaffiliated customer sales.. 10,897 8,837 33,119 25,161
---------- ---------- ---------- ----------
Eliminations................... (10,257) (7,385) (30,203) (23,260)
---------- ---------- ---------- ----------
$ 82,724 $ 67,874 $ 236,186 $ 200,997
========== ========== ========== ==========
Page 8
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Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(unaudited) (unaudited)
1999 1998 1999 1998
---------- ---------- ---------- ----------
Operating income:
Americas....................... $ 12,487 $ 11,100 $ 35,682 $ 34,583
Europe......................... 8,641 6,714 26,111 19,659
Asia Pacific................... 4,846 3,783 15,694 9,875
Unallocated:
Research and development
expenses....................... (13,133) (9,603) (33,597) (26,306)
---------- ---------- ---------- ----------
$ 12,841 $ 11,994 $ 43,890 $ 37,811
========== ========== ========== ==========
September 30, December 31,
1999 1998
(unaudited)
------------- ------------
Identifiable assets:
Americas....................... $ 239,457 $ 204,215
Europe......................... 35,101 29,978
Asia Pacific................... 22,917 15,593
============= ============
$ 297,475 $ 249,786
============= ============
NOTE 7 - Acquisition
On August 31, 1999, the Company acquired all of the issued and outstanding
shares of common stock of GfS Systemtechnik GmbH and related companies. The
acquisition was accounted for as a purchase. The Company recorded a $2.1 million
pre-tax charge against earnings during the third quarter of 1999 for the
write-off of in-process GfS research and development technology that had not
reached the working model stage. If this charge had not been taken, net income
for the quarter ended September 30, 1999 would have been $11.4 million or $0.22
per share-diluted and net income for the nine months ended September 30, 1999
would have been $32.7 million or $0.63 per share-diluted. The Company also
recorded $1.1 million of capitalized software development costs and $7.6 million
of goodwill related to the acquisition, which are included in intangibles and
other assets and are being amortized on a straight line basis over 5 years, and
10 years, respectively.
On August 17, 1998, the Company acquired all of the issued and outstanding
shares of common stock of DATALOG GmbH/DASYtec GmbH (Datalog) and related
subsidiaries for an aggregate purchase price of approximately $2.2 million. The
Company amortized $750,000 of the purchased software during the third quarter of
1998. This amortization period was utilized due to the nature of this technology
and timing of the revenue streams associated with it. If this charge had not
been taken, net income for the quarter ended September 30, 1998 would have been
$9.0 million or $0.18 per share-diluted and net income for the nine months ended
September 30, 1998 would have been $27.1 million or $0.53 per share-diluted.
The consolidated financial statements include the operating results of each
business from the date of acquisition. Proforma results of operations have not
been presented because the effects of those operations were not material.
Page 9
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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 the future financial performance or operations of the Company
(including, without limitation, statements to the effect that the Company
"expects," "plans," "may," "will," "projects," "continues," or "estimates" 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. 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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales:
Americas 56.3% 57.6% 54.4% 57.8%
Europe 30.5 29.7 31.6 29.8
Asia Pacific 13.2 12.7 14.0 12.4
---------- ---------- ---------- ----------
Consolidated net sales 100.0 100.0 100.0 100.0
Cost of sales 23.6 24.0 23.1 23.9
---------- ---------- ---------- ----------
Gross profit 76.4 76.0 76.9 76.1
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing 37.4 36.8 36.7 36.8
Research and development 15.9 14.1 14.2 13.1
General and administrative 7.5 7.4 7.4 7.4
---------- ---------- ---------- ----------
Total operating expenses 60.8 58.3 58.3 57.3
---------- ---------- ---------- ----------
Operating income 15.6 17.7 18.6 18.8
Other income (expense):
Interest income, net 1.4 1.0 1.2 1.0
Net foreign exchange
gain/(loss) and other 0.7 0.1 (0.1) (0.1)
---------- ---------- ---------- ----------
Income before income taxes
and cumulative effect of
accounting change 17.7 18.8 19.7 19.7
Provision for income taxes 5.7 6.2 6.3 6.5
---------- ---------- ---------- ----------
Income before cumulative effect
of accounting change 12.0 12.6 13.4 13.2
Cumulative effect of accounting
change, net of tax -- -- (0.2) --
========== ========== ========== ==========
Net income 12.0% 12.6% 13.2% 13.2%
========== ========== ========== ==========
Net Sales. Consolidated net sales increased by $14.9 million or 21.9% for
the three months ended September 30, 1999 to $82.7 million from $67.9 million
for the three months ended September 30, 1998, and increased $35.2 million or
17.5% to $236.2 million for the nine months ended September 30, 1999 from $201.0
million for the comparable period in the prior year. The increase in sales is
primarily attributable to the introduction of new and upgraded products and
increased marketing efforts. North American sales in the third quarter of 1999
increased by 19.9% over the third quarter of 1998 and North American sales for
the nine months ended September 30, 1999 increased 10.9% from the nine months
ended September 30, 1998. The Company believes its improved growth rate for
North American sales is primarily attributable to the growth in new products and
the continued general recovery in the test and measurement market.
Page 10
<PAGE>
International sales as a percentage of consolidated sales for the quarter
and nine months ended September 30, 1999 increased to 43.7% from 42.4% and to
45.6% from 42.2% over the comparable 1998 periods as a result of strong European
and Asian sales. Compared to 1998, the Company's European sales increased by
25.1% to $25.2 million for the quarter ended September 30, 1999 and by 24.5% to
$74.5 million for the nine months ended September 30, 1999. Sales in Asia
Pacific increased by 23.3% to $10.9 million for the quarter ended September 30,
1999 compared to 1998 and increased 31.6% to $33.1 million for the nine months
ended September 30, 1999 compared to the same period in 1998. The Company
believes its strong growth rate for Asia Pacific sales is primarily attributable
to the introduction of new and upgraded products and to the improved economy in
the Asia Pacific region. The Company expects sales outside of North America to
continue to represent a significant portion of its revenue.
The Company's 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 risk
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 weighted average value of the US
dollar. This weighted average is calculated as the percentage change in the
value of the currency relative to the US dollar, multiplied by the proportion of
international sales recorded in the particular currency. Between the third
quarter of 1998 and the third quarter of 1999 the weighted value of the US
dollar decreased by 1.2%, causing an equivalent increase in the US dollar value
of the Company's foreign currency sales and expenses. If the weighted average
value of the US dollar in the third quarter of 1999 had been the same as that in
the third quarter of 1998, the Company's sales for the third quarter of 1999
would have been $82.3 million, a 21% increase over the third quarter of 1998.
This effect is 0.5% of consolidated net sales in the aggregate. European sales
for the third quarter of 1999 would have been $25.8 million, a 28% increase in
third quarter 1999 sales over third quarter 1998. Asia Pacific sales for the
third quarter of 1999 would have been $9.8 million, an 11% increase in third
quarter 1999 sales over third quarter 1998 sales. If the weighted average value
of the dollar in the nine months ended September 30, 1999 had been the same as
that in the nine months ended September 30, 1998, the Company's year-to-date
sales would have been $231.8 million, a 15% increase in year-to-date sales over
1998 sales. Since most of the Company's international operating expenses are
also incurred in local currencies, the change in exchange rates had the effect
of increasing operating expenses $1.5 million for the nine months ended
September 30, 1999 and by $132,000 for the quarter ended September 30, 1999.
Gross Profit. As a percentage of net sales, gross profit increased to 76.4%
for the third quarter of 1999 from 76.0% for the third quarter of 1998 and
increased to 76.9% for the first nine months of 1999 from 76.1% for the
comparable period a year ago. The increase in margin for both the third quarter
and the nine months ended September 30, 1999 compared to the prior year periods
is attributable to increased sales of products with higher gross margins and
increased leveraging of fixed manufacturing expenses.
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.
Sales and Marketing. Sales and marketing expenses for the third quarter of
1999 increased to $31.0 million, a 24.1% increase, as compared to the third
quarter of 1998, and increased 17.1% to $86.7 million for the first nine months
of 1999 from the comparable 1998 period. As a percentage of net sales, sales and
marketing expenses were 37.4% and 36.8% for the quarters ended September 30,
1999 and 1998, respectively, and 36.7% and 36.8% for the nine months ended
September 30, 1999 and 1998, respectively. The increase in these expenses in
absolute dollar amounts is primarily attributable to increased advertising,
personnel, sales and marketing seminars, tradeshows, and other marketing
activities. Sales and marketing personnel increased from 724 at September 30,
1998 to 866 at September 30, 1999. 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 new recruiting, initial and on-going marketing
and advertising campaign costs associated with major new product releases and
entry into new market areas, increasing product demonstration costs and the
timing of domestic and international conferences and trade shows.
Page 11
<PAGE>
Research and Development. Research and development expenses increased to
$13.1 million for the quarter ended September 30, 1999, a 36.8% increase, as
compared to $9.6 million for the three months ended September 30, 1998, and
increased 27.7% to $33.6 million for the nine months ended September 30, 1999
from the comparable 1998 period. As a percentage of net sales, research and
development expenses represented 15.9% and 14.1% for the third quarters ended
September 30, 1999 and 1998, respectively, and 14.2% and 13.1% for the nine
months ended September 30, 1999 and 1998, respectively. The above comparisons
include charges of $2.1 million and $750,000 related to acquisitions for the
third quarter of 1999 and 1998, respectively. Excluding the effects of these
charges, the increase in research and development costs is mainly due to
increases in personnel costs from increased hiring, including increases in
intern personnel expenses to support the Company's increased recruiting efforts.
Research and development personnel increased from 393 at September 30, 1998 to
448 at September 30, 1999. The Company believes that a significant, on-going
investment in research and development is required to remain competitive.
The Company capitalizes software development costs in accordance with the
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed." The Company amortizes such costs over the related
product's estimated economic useful life, generally three years, beginning when
a product becomes available for general release. Amortization expense totaled
$500,000 and $544,000 for the quarters ended September 30, 1999 and 1998,
respectively, and $1.6 million and $1.5 million during the nine months ended
September 30, 1999 and 1998, respectively. Excluding amounts capitalized related
to new acquisitions, software development costs capitalized were $731,000 and
$84,000 for the quarters ended September 30, 1999 and 1998, respectively, and
$1.3 million and $1.2 million for the first nine months of 1999 and 1998,
respectively. Amounts capitalized relating to acquisitions during the third
quarters of 1999 and 1998 were $1.1 million for GfS and $367,000 for Datalog,
respectively. The amounts capitalized in the third quarter and first nine months
of 1999 include amounts related to LabVIEW 5.1, Lookout 4.0, NI DAQ 6.6, and
IMAQ Vision 5.0.
General and Administrative. General and administrative expenses for the
third quarter ended September 30, 1999 increased 23.9% to $6.2 million from $5.0
million for the comparable prior year period. For the first nine months of 1999,
general and administrative expenses increased 16.5% to $17.4 million from $14.9
million for the first nine months of 1998. As a percentage of net sales, general
and administrative expenses increased to 7.5% for the quarter ended September
30, 1999 from 7.4% for the third quarter of 1998. During the first nine months
of 1999, general and administrative expenses as a percentage of sales remained
unchanged at 7.4% versus the comparable prior year period. The Company's general
and administrative expense increased in absolute dollars mainly due to
additional personnel. 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. Net interest income in the third quarter of 1999
increased to $1.2 million from $651,000 in the third quarter of 1998 and
increased to $2.9 million from $2.1 million for the first nine months of 1999
and 1998. Net interest income has represented approximately one percent of net
sales. The increase in net interest income is due to increased investment
balances and decreased bank borrowings.
Net Foreign Exchange Gain (Loss). Net foreign exchange gains recognized in
the third quarter of 1999 were $646,000 compared to net foreign exchange gains
of $82,000 recognized in the third quarter of 1998. Net foreign exchange losses
of $599,000 were recognized for the first nine months of 1999 compared to
$259,000 for the first nine months of 1998. Foreign exchange gains and losses
are attributable to movements between the US dollar and the local currencies in
countries in which the Company's sales subsidiaries are located. The increase in
net foreign exchange losses recognized in the first nine months of 1999 is
mainly due to the weakening of the euro and pound sterling against the US dollar
as compared to the comparable period in 1998. The Company recognizes the local
currency as the functional currency of its international subsidiaries. To
minimize this foreign currency risk, the Company engages in hedging activities
by utilizing foreign currency forward exchange and option contracts.
The Company utilizes foreign currency forward exchange contracts against a
majority of its foreign currency-denominated receivables in order to reduce its
exposure to significant foreign currency fluctuations. The Company typically
limits the duration of its forward contracts to 90 days.
Page 12
<PAGE>
The Company utilizes foreign currency forward exchange contracts and
foreign currency purchased option contracts in order to reduce its exposure to
fluctuations in future net foreign currency cash flows. The Company's policy
allows for the purchase of these contracts for up to 80% of its risk and limits
the duration of these contracts to 24 months. It also requires that the foreign
currency purchased option contracts be purchased 5% "out-of-the-money." As a
result, the Company's hedging activities only partially address its risks in
foreign currency transactions, and there can be no assurance that this strategy
will be successful. The Company does not enter into contracts for speculative
purposes. The Company's hedging strategy has reduced the foreign exchange gains
recorded by $1.6 million during the quarter ended September 30, 1999, and
reduced the foreign exchange losses recorded by $1.5 million for the nine months
ended September 30, 1999.
Effective January 1, 1999, the Company elected to adopt SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." (See Note 5 of
Notes to Consolidated Financial Statements.)
Provision for Income Taxes. The provision for income taxes reflects an
effective tax rate of 32% and 33% for the three and nine months ended September
30, 1999 and 1998, respectively. The decrease in the effective rate resulted
from income tax benefits attributable to the Company's foreign sales corporation
and a change in the mix of income among taxing jurisdictions. As of September
30, 1999, ten of the Company's subsidiaries had available, for income tax
purposes, foreign net operating loss carryforwards of approximately $4.3
million, of which $3.2 million expires between 2000 and 2009. The remaining $1.1
million 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. At September 30, 1999, the Company had
working capital of approximately $156.5 million compared to $133.5 million at
December 31, 1998.
Accounts receivable increased to $53.9 million at September 30, 1999 from
$45.6 million at December 31, 1998. Days sales outstanding increased to 59 at
September 30, 1999 from 57 at December 31, 1998. Consolidated inventory balances
increased to $20.7 million at September 30, 1999 from $16.5 million at December
31, 1998. Inventory turns of 3.8 represent a slight decrease from turns of 4.2
at December 31, 1998. Cash used in the first nine months of 1999 for the
purchase of the property and equipment totaled $7.0 million and for the
capitalization of software development costs totaled $1.3 million.
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 $28.5 million credit agreement with NationsBank
of Texas, N.A. which consists of a $20.0 million revolving line of credit and an
$8.5 million manufacturing facility loan. As of September 30, 1999, the Company
had no outstanding balance on the revolving line of credit and a balance of $4.5
million on the manufacturing facility loan. The revolving line of credit expires
December 31, 1999. The Company's credit agreements contain certain financial
covenants and restrictions as to various matters, including the banks 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, short-term investments and credit available under the Company's
existing credit facilities, will be sufficient to meet its cash requirements for
at least the next twelve months.
Market Risk
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in the market value of its investments. In the normal
course of business, the Company employs established policies and procedures to
manage its exposure to fluctuations in foreign currency values and changes in
the market value of its investments.
Page 13
<PAGE>
Foreign Currency Hedging Activities. The Company's objective in managing
its exposure to foreign currency exchange rate fluctuations is to reduce the
impact of adverse fluctuations in such exchange rates on the Company's earnings
and cash flow. Accordingly, the Company utilizes purchased foreign currency
option contracts and forward exchange contracts to hedge its exposure of
anticipated transactions and firm commitments. The principal currencies hedged
are the euro, British pound and Japanese yen. The Company monitors its foreign
exchange exposures regularly to ensure the overall effectiveness of its foreign
currency hedge positions. However, there can be no assurance the Company's
foreign currency hedging activities will substantially offset the impact of
fluctuations in currency exchange rates on its results of operations and
financial position. Based on the foreign exchange instruments outstanding at
September 30, 1999, an adverse change (defined as 20% in certain Asian
currencies and 10% in all other currencies) in exchange rates would result in a
decline in income before taxes of less than $29.0 million. Additionally, as the
Company utilizes foreign currency instruments for hedging anticipated and firmly
committed transactions, management believes that a loss in fair value for those
instruments will be substantially offset by increases in the value of the
underlying exposure.
Short-term Investments. The fair value of the Company's investments in
marketable securities at September 30, 1999 was $66.6 million. The Company's
investment policy is to manage its investment portfolio to preserve principal
and liquidity while maximizing the return on the investment portfolio through
the full investment of available funds. The Company diversifies the marketable
securities portfolio by investing in multiple types of investment-grade
securities. The Company's investment portfolio is primarily invested in
short-term securities with at least an investment grade rating to minimize
interest rate and credit risk as well as to provide for an immediate source of
funds. Based on the Company's investment portfolio and interest rates at
September 30, 1999, a 100 basis point increase or decrease in interest rates
would result in a decrease or increase of less than $350,000, respectively, in
the fair value of the investment portfolio, which is not significantly different
from December 31, 1998. Although changes in interest rates may affect the fair
value of the investment portfolio and cause unrealized gains or losses, such
gains or losses would not be realized unless the investments are sold.
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. Specifically, if the local currencies in which the Company sells
weaken against the US dollar, and if the local sales prices cannot be raised,
the Company will experience a deterioration of its gross and net profit margins.
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,
either of which could have a material adverse impact on the Company's operating
results. Furthermore, the Company has significant revenues from customers in
industries such as semiconductors, automated test equipment, telecommunications,
aerospace, defense and automotive which are cyclical in nature. Downturns in
these industries like those experienced in 1998 could again 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, growing in the fourth quarter and being relatively
flat or declining from the fourth quarter of the year to the first quarter of
the following year. 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 college recruiting and increased
intern personnel expenses.
Page 14
<PAGE>
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 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 the Company's operating results. There can be no
assurance that the Company 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 new products to achieve or sustain market acceptance could have a
material adverse effect on the Company's operating results. Moreover, there can
be no assurance that the Company's international sales will continue at existing
levels or grow in accordance with the Company's efforts to increase foreign
market penetration.
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 Agilent, the former measurement
business division of Hewlett-Packard Company, which has been the leading
supplier of traditional instrumentation solutions for decades. Although Agilent
offers its own line of instrument controllers, Agilent 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. Agilent is aggressively advertising and marketing
products that are competitive with the Company's 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 the
Company's 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 compete
successfully in the future.
Management Information Systems. The Company relies on three primary
regional centers for its management information systems. It is possible that one
or more of the Company's three regional information systems could experience a
complete or partial shutdown. If such a shutdown occurred it could impact the
Company's product shipments and revenues as product distribution is heavily
dependent on the integrated management information systems in each region.
Accordingly, operating results in that quarter would be adversely impacted.
Impact of Year 2000. Like many other companies, the Year 2000 computer
issue creates risks for the Company. If internal systems do not correctly
recognize and process date information beyond the year 1999, there could be an
adverse impact on the Company's operations. A related issue which could also
lead to incorrect calculations or failures is that the Year 2000 is a leap year.
To address these Year 2000 issues with its internal systems, the Company has
initiated a comprehensive program, which is designed to deal with the most
critical systems first. These activities are intended to encompass all major
categories of systems in use by the Company, including network and
communications infrastructure, manufacturing, research and development,
facilities management, sales, finance and human resources. The Company's
manufacturing equipment and systems are highly automated, incorporating PCs,
embedded processors and related software to control activity scheduling,
inventory tracking and manufacturing. As of September 1999, the majority of the
Company's critical and priority manufacturing systems and non-manufacturing
systems were determined to be already Year 2000 capable, or replacements,
changes, upgrades or workarounds have been determined and tested. These
replacements, changes and upgrades may not yet have been deployed.
Page 15
<PAGE>
The Company is continuing to test, gather and produce information about its
products. Certain older products will not be tested. The Company is classifying
its tested products into the following categories of compliance: compliant,
compliant with minor issues and not compliant. Most of the products tested are
either compliant or compliant with minor issues. The Company is also providing
additional information and references to help other organizations test their
products and applications for Year 2000 compliance.
A Year 2000 Readiness Disclosure Statement is available at the National
Instruments web site. Information on the Company's web site is provided to
customers for the sole purpose of assisting in planning for the transition to
the Year 2000. No assurances can be made that problems will not arise such as
customer problems with software programs, operating systems or hardware that
disrupt their use of the Company's products. There can be no assurances that
such disruption would not negatively impact costs and revenues in future years.
The Company is also actively working with suppliers of products and
services to determine the extent to which the suppliers' operations and the
products and services they provide are Year 2000 capable and to monitor their
progress toward Year 2000 capability. Highest priority is being placed on
working with suppliers that are critical to the business. The Company has made
inquiry of its major suppliers and to date has received written responses to its
initial inquiries from all critical suppliers. Follow-up activities seek to
determine whether the supplier is taking all appropriate steps to fix Year 2000
problems and to be prepared to continue functioning effectively as a supplier in
accordance with National Instruments' standards and requirements. Contingency
plans are being developed to address issues related to suppliers that are not
considered to be making sufficient progress in becoming Year 2000 capable in a
timely manner. As with suppliers, the readiness of customers to deal with Year
2000 issues may affect their operations and their ability to order and pay for
products.
The Company believes that its most likely worst case Year 2000 scenarios
would relate to problems with the systems of third parties rather than with the
Company's internal systems or its products. It is clear that the Company has the
least ability to assess and remediate the Year 2000 problems of third parties
and the Company believes the risks are greatest with infrastructure (e.g.,
electricity supply, water and sewer service), telecommunications, transportation
supply chains and cricital suppliers of materials.
A worst case scenario involving a critical supplier of materials would be
the partial or complete shutdown of the supplier and its resulting inability to
provide critical supplies to the Company on a timely basis. The Company does not
maintain the capability to replace most third party supplies with internal
production. Where efforts to work with critical suppliers to ensure Year 2000
capability have not been successful, contingency planning generally emphasizes
the identification of substitute and second-source suppliers, and includes a
planned increase in the level of inventory carried, currently estimated at
approximately $3.0 million.
The Company is not in a position to identify or to avoid all possible
scenarios; however, the Company is currently assessing scenarios and taking
steps to mitigate the impacts of various scenarios if they were to occur. This
contingency planning will continue through 1999 as the Company learns more about
the preparations and vulnerabilities of third parties regarding Year 2000
issues. Due to the large number of variables involved, the Company cannot
provide an estimate of the damage it might suffer if any of these scenarios were
to occur.
In 1994, the Company commenced the replacement of its legacy information
systems with a new generation of integrated applications. Since that time, the
Company has progressively replaced its manufacturing, distribution, order entry
and financial systems in the US, Europe and Japan. These changes were made to
improve management's control of the organization and increase operational
efficiency. This early replacement of many of the Company's legacy systems has
reduced the extent of the Company's internal Year 2000 exposure.
The Company's Year 2000 efforts have been undertaken almost entirely with
its existing personnel. In some instances, consultants have been engaged to
provide specific guidance or services. Activities with suppliers and customers
have also involved their staffs and consultants.
The Company currently expects that the total cost of these programs,
including both incremental spending and redeployment of resources, will not
exceed $3.7 million. Approximately $3.4 million has been spent on the programs
to date. No significant internal systems projects are being deferred due to the
Year 2000 program efforts. The estimated costs do not include any potential
costs related to customer or other claims, or potential amounts related to
executing contingency plans, such as costs incurred on account of an
infrastructure or supplier failure. The Company has adequate general corporate
funds with which to pay for the programs' expected costs. All expected costs are
based on the current assessment of the programs and are subject to change as the
programs progress.
Page 16
<PAGE>
As we get closer to December 31, 1999, certain of the Company's customers
may decide to delay purchases of the Company's products as part of a general
restriction on new system implementations. Should a significant number of the
Company's customers adopt this strategy, this could have a material impact on
the Company's operating results.
Based on currently available information, management does not believe that
the Year 2000 matters discussed above related to internal systems or products
sold to customers will have a material adverse impact on the Company's financial
condition or overall trends in results of operations; however, it is uncertain
to what extent the Company may be affected by such matters. In addition, there
can be no assurance that the failure to ensure Year 2000 capability by a
supplier, customer or another third party would not have a material adverse
effect on the Company's financial condition or overall trends in results of
operations.
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 custom
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. Accordingly, the failure to receive sole-source
components from suppliers could result in a material adverse effect on revenues
and results of operations.
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 its proprietary rights, unauthorized
parties may have in the past infringed or violated certain of the Company's
intellectual property rights. The Company is currently litigating two complaints
in federal court alleging patent infringement by the products of two separate
defendants. 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 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.
Dependence on Key Management and Technical Personnel. The Company's success
depends to a significant degree upon the continued contributions of its key
management, sales, marketing, research and development and operational
personnel, including Dr. Truchard, Mr. Kodosky and other members of senior
management and key technical personnel. The Company has no agreements providing
for the employment of any of its key employees for any fixed term and the
Company's key employees may voluntarily terminate their employment with the
Company at any time. The loss of the services of one or more of the Company's
key employees in the future could have a material adverse affect on operating
results. The Company also believes its future success will depend in large part
upon its 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 the employees. In addition, the recruiting
environment for software engineering, sales and other technical professionals is
very competitive. Competition for qualified software engineers is particularly
intense and is likely to result in increased personnel costs. Failure to attract
or retain qualified software engineers could have an adverse effect on the
Company's operating results. The Company also recruits and employs foreign
nationals to achieve its hiring goals primarily for entry-level engineering and
software positions. There can be no guarantee that the Company will continue to
be able to recruit foreign nationals to the current degree if government
requirements for temporary and permanent residence become increasingly
restrictive. These factors further intensify competition for key personnel, and
there can be no assurance that the Company will be successful in retaining its
existing key personnel or attracting and retaining additional key personnel.
Failure to attract and retain a sufficient number of technical personnel could
have a material adverse effect on the results of operations.
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 - Market Risk" above.
Page 17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(11.1) Computation of Earnings Per Share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1999.
Page 18
<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/ Alex Davern
Alex Davern
Chief Financial Officer and Treasurer
(principal financial and accounting
officer)
Dated: November 15, 1999
Page 19
<PAGE>
NATIONAL INSTRUMENTS CORPORATION
INDEX TO EXHIBITS
Exhibit No. Description Page
11.1 Statement Regarding Computation 22
of Earnings per Share
Page 20
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income.......................... $ 9,946 $ 8,527 $ 31,211 $ 26,556
========== ========== ========== ==========
Basic earnings per share:
Income before cumulative effect of
accounting change................ $ 0.20 $ 0.17 $ 0.64 $ 0.54
Cumulative effect of accounting
change, net of tax............... -- -- (0.01) --
========== ========== ========== ==========
Basic earnings per share......... $ 0.20 $ 0.17 $ 0.63 $ 0.54
========== ========== ========== ==========
Diluted earnings per share:
Income before cumulative effect of
accounting change................ $ 0.19 $ 0.17 $ 0.61 $ 0.52
Cumulative effect of accounting
change, net of tax............... -- -- (0.01) --
========== ========== ========== ==========
Diluted earnings per share....... $ 0.19 $ 0.17 $ 0.60 $ 0.52
========== ========== ========== ==========
Weighted average shares outstanding:
Basic............................ 49,855 49,275 49,690 49,200
Diluted.......................... 52,570 50,925 51,950 51,150
Calculation of weighted average shares:
Weighted average common stock
outstanding-basic................ 49,855 49,275 49,690 49,200
Weighted average common stock
options, utilizing the treasury
stock method..................... 2,715 1,650 2,260 1,950
---------- ---------- ---------- ----------
Weighted average shares
outstanding-diluted................. 52,570 50,925 51,950 51,150
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 54,674
<SECURITIES> 66,562
<RECEIVABLES> 57,761
<ALLOWANCES> 3,847
<INVENTORY> 20,664
<CURRENT-ASSETS> 210,291
<PP&E> 111,844
<DEPRECIATION> 42,486
<TOTAL-ASSETS> 297,475
<CURRENT-LIABILITIES> 55,926
<BONDS> 0
0
0
<COMMON> 499
<OTHER-SE> 236,665
<TOTAL-LIABILITY-AND-EQUITY> 297,475
<SALES> 236,186
<TOTAL-REVENUES> 236,186
<CGS> 54,607
<TOTAL-COSTS> 54,607
<OTHER-EXPENSES> 137,689
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 46,710
<INCOME-TAX> 14,947
<INCOME-CONTINUING> 31,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (552)
<NET-INCOME> 31,211
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.60
</TABLE>
