b063010.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
T Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2010 or
£ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number: 0-25426
NATIONAL INSTRUMENTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
|
|
74-1871327
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification Number)
|
|
|
|
11500 North MoPac Expressway
Austin, Texas
|
|
78759
|
(address of principal executive offices)
|
|
(zip code)
|
Registrant's telephone number, including area code: (512) 338-9119
__________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer T Accelerated filer £ Non-accelerated filer £ Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
|
Outstanding at August 5, 2010
|
Common Stock - $0.01 par value
|
78,378,257
|
NATIONAL INSTRUMENTS CORPORATION
INDEX
|
|
|
PART I. FINANCIAL INFORMATION |
|
Page No. |
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|
|
Item 1
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Financial Statements:
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
June 30, 2010 (unaudited) and December 31, 2009
|
3
|
|
|
|
|
Consolidated Statements of Income
|
|
|
(unaudited) for the three and six month periods ended June 30, 2010 and 2009
|
4
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
(unaudited) for the six month periods ended June 30, 2010 and 2009
|
5
|
|
|
|
|
Notes to Consolidated Financial Statements
|
6
|
|
|
|
Item 2
|
Management's Discussion and Analysis of Financial
|
|
|
Condition and Results of Operations
|
24
|
|
|
|
Item 3
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Quantitative and Qualitative Disclosures about Market Risk
|
32
|
|
|
|
Item 4
|
Controls and Procedures
|
35
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|
|
|
|
|
|
PART II. OTHER INFORMATION |
|
|
|
|
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Item 1
|
Legal Proceedings
|
37
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|
|
|
Item 1A
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Risk Factors
|
37
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|
|
|
Item 2
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
44
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|
|
|
Item 4
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Reserved
|
44
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|
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|
Item 5
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Other Information
|
44
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|
|
|
Item 6
|
Exhibits
|
45
|
|
|
|
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Signatures and Certifications
|
47
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PART I - FINANCIAL INFORMATION
ITEM 1.
|
Financial Statements
|
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
June 30,
2010
|
|
|
December 31,
2009
|
|
Assets
|
|
(unaudited)
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
185,418 |
|
|
$ |
201,465 |
|
Short-term investments
|
|
|
130,857 |
|
|
|
87,196 |
|
Accounts receivable, net
|
|
|
111,008 |
|
|
|
103,957 |
|
Inventories, net
|
|
|
95,983 |
|
|
|
86,515 |
|
Prepaid expenses and other current assets
|
|
|
41,928 |
|
|
|
36,523 |
|
Deferred income taxes, net
|
|
|
12,811 |
|
|
|
16,522 |
|
Total current assets
|
|
|
578,005 |
|
|
|
532,178 |
|
Property and equipment, net
|
|
|
150,905 |
|
|
|
153,265 |
|
Goodwill, net
|
|
|
68,569 |
|
|
|
64,779 |
|
Intangible assets, net
|
|
|
53,132 |
|
|
|
43,390 |
|
Other long-term assets
|
|
|
17,559 |
|
|
|
19,417 |
|
Total assets
|
|
$ |
868,170 |
|
|
$ |
813,029 |
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
28,786 |
|
|
$ |
23,502 |
|
Accrued compensation
|
|
|
29,145 |
|
|
|
14,934 |
|
Deferred revenue
|
|
|
64,447 |
|
|
|
57,242 |
|
Accrued expenses and other liabilities
|
|
|
14,566 |
|
|
|
8,560 |
|
Other taxes payable
|
|
|
12,910 |
|
|
|
14,181 |
|
Total current liabilities
|
|
|
149,854 |
|
|
|
118,419 |
|
Deferred income taxes
|
|
|
24,700 |
|
|
|
25,012 |
|
Liability for uncertain tax positions
|
|
|
12,389 |
|
|
|
11,062 |
|
Other long-term liabilities
|
|
|
5,251 |
|
|
|
4,116 |
|
Total liabilities
|
|
|
192,194 |
|
|
|
158,609 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock: par value $0.01; 5,000,000 shares authorized; none issued and outstanding
|
|
|
- |
|
|
|
- |
|
Common stock: par value $0.01; 180,000,000 shares authorized; 78,187,444 and 77,367,874 shares issued and outstanding, respectively
|
|
|
782 |
|
|
|
774 |
|
Additional paid-in capital
|
|
|
379,468 |
|
|
|
336,446 |
|
Retained earnings
|
|
|
299,871 |
|
|
|
303,655 |
|
Accumulated other comprehensive income (loss)
|
|
|
(4,145 |
) |
|
|
13,545 |
|
Total stockholders’ equity
|
|
|
675,976 |
|
|
|
654,420 |
|
Total liabilities and stockholders’ equity
|
|
$ |
868,170 |
|
|
$ |
813,029 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$ |
194,830 |
|
|
$ |
139,792 |
|
|
$ |
370,225 |
|
|
$ |
283,242 |
|
Software maintenance
|
|
|
16,887 |
|
|
|
12,371 |
|
|
|
32,583 |
|
|
|
26,720 |
|
Total net sales
|
|
|
211,717 |
|
|
|
152,163 |
|
|
|
402,808 |
|
|
|
309,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$ |
47,176 |
|
|
$ |
39,202 |
|
|
$ |
89,438 |
|
|
$ |
78,758 |
|
Software maintenance
|
|
|
1,463 |
|
|
|
1,284 |
|
|
|
2,443 |
|
|
|
2,611 |
|
Total cost of sales
|
|
|
48,639 |
|
|
|
40,486 |
|
|
|
91,881 |
|
|
|
81,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
163,078 |
|
|
|
111,677 |
|
|
|
310,927 |
|
|
|
228,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$ |
79,231 |
|
|
$ |
65,137 |
|
|
$ |
153,672 |
|
|
$ |
133,963 |
|
Research and development
|
|
|
36,395 |
|
|
|
29,447 |
|
|
|
74,941 |
|
|
|
64,236 |
|
General and administrative
|
|
|
16,969 |
|
|
|
14,752 |
|
|
|
32,309 |
|
|
|
30,532 |
|
Total operating expenses
|
|
|
132,595 |
|
|
|
109,336 |
|
|
|
260,922 |
|
|
|
228,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
30,483 |
|
|
|
2,341 |
|
|
|
50,005 |
|
|
|
(138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
371 |
|
|
$ |
407 |
|
|
$ |
671 |
|
|
$ |
996 |
|
Net foreign exchange gain (loss)
|
|
|
(2,203 |
) |
|
|
1,063 |
|
|
|
(2,901 |
) |
|
|
361 |
|
Other income, net
|
|
|
462 |
|
|
|
334 |
|
|
|
810 |
|
|
|
497 |
|
Income before income taxes
|
|
|
29,113 |
|
|
|
4,145 |
|
|
|
48,585 |
|
|
|
1,716 |
|
Provision for (benefit from) income taxes
|
|
|
4,511 |
|
|
|
(285 |
) |
|
|
5,630 |
|
|
|
(3,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
24,602 |
|
|
$ |
4,430 |
|
|
$ |
42,955 |
|
|
$ |
4,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
0.32 |
|
|
$ |
0.06 |
|
|
$ |
0.55 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
77,932 |
|
|
|
77,556 |
|
|
|
77,657 |
|
|
|
77,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$ |
0.31 |
|
|
$ |
0.06 |
|
|
$ |
0.55 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
78,992 |
|
|
|
77,824 |
|
|
|
78,752 |
|
|
|
77,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$ |
0.13 |
|
|
$ |
0.12 |
|
|
$ |
0.26 |
|
|
$ |
0.24 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
42,955 |
|
|
$ |
4,788 |
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,988 |
|
|
|
19,023 |
|
Stock-based compensation
|
|
|
9,459 |
|
|
|
10,036 |
|
Tax expense/(benefit) from deferred income taxes
|
|
|
3,774 |
|
|
|
(2,610 |
) |
Tax expense from stock option plans
|
|
|
579 |
|
|
|
1,379 |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,803 |
) |
|
|
30,155 |
|
Inventories
|
|
|
(9,163 |
) |
|
|
12,089 |
|
Prepaid expenses and other assets
|
|
|
(18,740 |
) |
|
|
(624 |
) |
Accounts payable
|
|
|
4,953 |
|
|
|
(6,498 |
) |
Deferred revenue
|
|
|
7,205 |
|
|
|
2,178 |
|
Taxes and other liabilities
|
|
|
18,513 |
|
|
|
(11,922 |
) |
Net cash provided by operating activities
|
|
|
71,720 |
|
|
|
57,994 |
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(10,015 |
) |
|
|
(7,706 |
) |
Capitalization of internally developed software
|
|
|
(11,021 |
) |
|
|
(9,390 |
) |
Additions to other intangibles
|
|
|
(1,690 |
) |
|
|
(2,420 |
) |
Acquisition, net of cash received
|
|
|
(2,191 |
) |
|
|
- |
|
Purchases of short-term and long-term investments
|
|
|
(85,199 |
) |
|
|
(23,989 |
) |
Sales and maturities of short-term and long-term investments
|
|
|
41,538 |
|
|
|
1,218 |
|
Net cash (used by) investing activities
|
|
|
(68,578 |
) |
|
|
(42,287 |
) |
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
32,550 |
|
|
|
11,520 |
|
Repurchase of common stock
|
|
|
(30,935 |
) |
|
|
(14,908 |
) |
Dividends paid
|
|
|
(20,225 |
) |
|
|
(18,617 |
) |
Tax expense (benefit) from stock option plans
|
|
|
(579 |
) |
|
|
(1,379 |
) |
Net cash (used by) financing activities
|
|
|
(19,189 |
) |
|
|
(23,384 |
) |
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(16,047 |
) |
|
|
(7,677 |
) |
Cash and cash equivalents at beginning of period
|
|
|
201,465 |
|
|
|
229,400 |
|
Cash and cash equivalents at end of period
|
|
$ |
185,418 |
|
|
$ |
221,723 |
|
The accompanying notes are an integral part of these financial statements.
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, 2009, included in our annual report on Form 10-K, filed with the Securities and Exchange Commission. In our opinion, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary to present fairly our financial position at June 30, 2010 and December 31, 2009, and the results of our operations for the three month and six month periods ended June 30, 2010 and June 30, 2009 and the cash flows for the six month periods ended June 30, 2010 and June 30, 2009. Operating results for the three-month and six-month periods ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
Note 2 – Earnings per share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. The number of common share equivalents, which include stock options and restricted stock units, is computed using the treasury stock method.
The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three month and six month periods ended June 30, 2010 and 2009, respectively, are as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Weighted average shares outstanding-basic
|
|
|
77,932 |
|
|
|
77,556 |
|
|
|
77,657 |
|
|
|
77,417 |
|
Plus: Common share equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock units
|
|
|
1,060 |
|
|
|
268 |
|
|
|
1,095 |
|
|
|
179 |
|
Weighted average shares outstanding-diluted
|
|
|
78,992 |
|
|
|
77,824 |
|
|
|
78,752 |
|
|
|
77,596 |
|
Stock options to acquire 270,000 shares and 3,696,000 shares for the three month periods ended June 30, 2010 and 2009, respectively, and 285,000 and 4,973,000 shares for the six month periods ended June 30, 2010 and 2009, respectively, were excluded in the computations of diluted EPS because the effect of including the stock options would have been anti-dilutive.
Note 3 – Cash, cash equivalents and short-term investments
Cash, cash equivalents, short-term and long-term investments consist of the following (in thousands):
|
|
As of
June 30, 2010
|
|
|
As of
December 31, 2009
|
|
|
|
(unaudited)
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
Cash
|
|
$ |
78,014 |
|
|
$ |
85,612 |
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market accounts
|
|
|
104,065 |
|
|
|
115,853 |
|
Municipal bonds
|
|
|
1,339 |
|
|
|
- |
|
Corporate bonds
|
|
|
2,000 |
|
|
|
- |
|
Total cash and cash equivalents
|
|
|
185,418 |
|
|
|
201,465 |
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
18,097 |
|
|
|
12,549 |
|
Corporate bonds
|
|
|
45,581 |
|
|
|
7,587 |
|
U.S. treasuries and agencies
|
|
|
32,446 |
|
|
|
21,033 |
|
Foreign government bonds
|
|
|
30,081 |
|
|
|
34,674 |
|
Time deposits
|
|
|
2,452 |
|
|
|
2,753 |
|
Auction rate securities
|
|
|
2,060 |
|
|
|
8,177 |
|
Auction rate securities put option
|
|
|
140 |
|
|
|
423 |
|
Total short-term investments
|
|
|
130,857 |
|
|
|
87,196 |
|
Total cash, cash equivalents and investments
|
|
$ |
316,275 |
|
|
$ |
288,661 |
|
The following table summarizes unrealized gains and losses related to our investments designated as available-for-sale (in thousands):
|
|
As of June 30, 2010
(unaudited)
|
|
|
|
Adjusted Cost
|
|
|
Gross
Unrealized Gain
|
|
|
Gross
Unrealized Loss
|
|
|
Cumulative Translation Adjustment
|
|
|
Fair Value
|
|
Municipal bonds
|
|
$ |
18,060 |
|
|
$ |
43 |
|
|
$ |
(6 |
) |
|
$ |
- |
|
|
$ |
18,097 |
|
Corporate bonds
|
|
|
45,659 |
|
|
|
26 |
|
|
|
(104 |
) |
|
|
- |
|
|
|
45,581 |
|
U.S. treasuries and agencies
|
|
|
32,426 |
|
|
|
21 |
|
|
|
(1 |
) |
|
|
- |
|
|
|
32,446 |
|
Foreign government bonds
|
|
|
35,996 |
|
|
|
216 |
|
|
|
- |
|
|
|
(6,131 |
) |
|
|
30,081 |
|
Time deposits
|
|
|
2,452 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,452 |
|
Auction rate securities
|
|
|
2,200 |
|
|
|
- |
|
|
|
(140 |
) |
|
|
- |
|
|
|
2,060 |
|
Auction rate securities put option
|
|
|
- |
|
|
|
140 |
|
|
|
- |
|
|
|
- |
|
|
|
140 |
|
Total investments
|
|
$ |
136,793 |
|
|
$ |
446 |
|
|
$ |
(251 |
) |
|
$ |
(6,131 |
) |
|
$ |
130,857 |
|
|
|
As of December 31, 2009
(unaudited)
|
|
|
|
Adjusted Cost
|
|
|
Gross
Unrealized Gain
|
|
|
Gross
Unrealized Loss
|
|
|
Cumulative Translation Adjustment
|
|
|
Fair Value
|
|
Municipal bonds
|
|
$ |
12,491 |
|
|
$ |
58 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,549 |
|
Corporate bonds
|
|
|
7,478 |
|
|
|
110 |
|
|
|
(1 |
) |
|
|
- |
|
|
|
7,587 |
|
U.S. treasuries and agencies
|
|
|
21,080 |
|
|
|
- |
|
|
|
(47 |
) |
|
|
- |
|
|
|
21,033 |
|
Foreign government bonds
|
|
|
36,105 |
|
|
|
76 |
|
|
|
- |
|
|
|
(1,507 |
) |
|
|
34,674 |
|
Time deposits
|
|
|
2,753 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,753 |
|
Auction rate securities
|
|
|
8,600 |
|
|
|
- |
|
|
|
(423 |
) |
|
|
- |
|
|
|
8,177 |
|
Auction rate securities put option
|
|
|
- |
|
|
|
423 |
|
|
|
- |
|
|
|
- |
|
|
|
423 |
|
Total investments
|
|
$ |
88,507 |
|
|
$ |
667 |
|
|
$ |
(471 |
) |
|
$ |
(1,507 |
) |
|
$ |
87,196 |
|
The following table summarizes the contractual maturities of our investments designated as available-for-sale (in thousands):
|
|
As of June 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Adjusted Cost
|
|
|
Fair Value
|
|
|
Adjusted Cost
|
|
|
Fair Value
|
|
Due in less than 1 year
|
|
$ |
85,296 |
|
|
$ |
82,390 |
|
|
$ |
44,029 |
|
|
$ |
43,267 |
|
Due in 1 to 5 years
|
|
|
51,497 |
|
|
|
48,467 |
|
|
|
44,478 |
|
|
|
43,929 |
|
Total investments
|
|
$ |
136,793 |
|
|
$ |
130,857 |
|
|
$ |
88,507 |
|
|
$ |
87,196 |
|
|
|
|
|
Due in less than 1 year
|
|
Adjusted Cost
|
|
|
Fair Value
|
|
|
Adjusted Cost
|
|
|
Fair Value
|
|
Municipal bonds
|
|
$ |
13,390 |
|
|
$ |
13,432 |
|
|
$ |
4,103 |
|
|
$ |
4,110 |
|
Corporate bonds
|
|
|
34,405 |
|
|
|
34,346 |
|
|
|
5,384 |
|
|
|
5,473 |
|
U.S. treasuries and agencies
|
|
|
15,288 |
|
|
|
15,290 |
|
|
|
5,065 |
|
|
|
5,057 |
|
Foreign government bonds
|
|
|
17,561 |
|
|
|
14,670 |
|
|
|
18,124 |
|
|
|
17,274 |
|
Time deposits
|
|
|
2,452 |
|
|
|
2,452 |
|
|
|
2,753 |
|
|
|
2,753 |
|
Auction rate securities
|
|
|
2,200 |
|
|
|
2,060 |
|
|
|
8,600 |
|
|
|
8,177 |
|
Auction rate securities put option
|
|
|
- |
|
|
|
140 |
|
|
|
- |
|
|
|
423 |
|
Total investments
|
|
$ |
85,296 |
|
|
$ |
82,390 |
|
|
$ |
44,029 |
|
|
$ |
43,267 |
|
|
|
|
|
Due in 1 to 5 years
|
|
Adjusted Cost
|
|
|
Fair Value
|
|
|
Adjusted Cost
|
|
|
Fair Value
|
|
Municipal bonds
|
|
$ |
4,670 |
|
|
$ |
4,665 |
|
|
$ |
8,388 |
|
|
$ |
8,439 |
|
Corporate bonds
|
|
|
11,254 |
|
|
|
11,235 |
|
|
|
2,094 |
|
|
|
2,114 |
|
U.S. treasuries and agencies
|
|
|
17,138 |
|
|
|
17,156 |
|
|
|
16,015 |
|
|
|
15,976 |
|
Foreign government bonds
|
|
|
18,435 |
|
|
|
15,411 |
|
|
|
17,981 |
|
|
|
17,400 |
|
Total investments
|
|
$ |
51,497 |
|
|
$ |
48,467 |
|
|
$ |
44,478 |
|
|
$ |
43,929 |
|
Note 4 – Fair value measurements
FASB ASC 820, Fair Value Measurements and Disclosures (FASB ASC 820) clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements. Effective January 1, 2010, we adopted the update to FASB ASC 820 that required additional disclosures and clarified existing disclosures regarding fair value measurements. The additional disclosures include transfers in and out of Level 1 and 2 as well as activity within Level 3 fair value measurements. The update also provides amendments that clarify existing disclosures on level of disaggregation and disclosures about inputs and valuation techniques. The adoption of the update to FASB ASC 820 did not have a material impact on our consolidated financial position or results of operations.
The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value (in thousands). We did not have any items that were measured at fair value on a nonrecurring basis at June 30, 2010 and December 31, 2009.
|
|
Fair Value Measurements at Reporting Date Using
(unaudited)
|
|
Description
|
|
June 30, 2010
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$ |
104,065 |
|
|
$ |
104,065 |
|
|
$ |
- |
|
|
$ |
- |
|
Municipal bonds
|
|
|
1,339 |
|
|
|
1,339 |
|
|
|
- |
|
|
|
- |
|
Corporate bonds
|
|
|
2,000 |
|
|
|
2,000 |
|
|
|
- |
|
|
|
- |
|
Short-term investments available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
18,097 |
|
|
|
18,097 |
|
|
|
- |
|
|
|
- |
|
Corporate bonds
|
|
|
45,581 |
|
|
|
45,581 |
|
|
|
- |
|
|
|
- |
|
U.S. treasuries and agencies
|
|
|
32,446 |
|
|
|
32,446 |
|
|
|
- |
|
|
|
- |
|
Foreign government bonds
|
|
|
30,081 |
|
|
|
30,081 |
|
|
|
- |
|
|
|
- |
|
Time deposits
|
|
|
2,452 |
|
|
|
2,452 |
|
|
|
- |
|
|
|
- |
|
Auction rate securities
|
|
|
2,060 |
|
|
|
- |
|
|
|
- |
|
|
|
2,060 |
|
Auction rate securities put option
|
|
|
140 |
|
|
|
- |
|
|
|
- |
|
|
|
140 |
|
Derivatives
|
|
|
8,571 |
|
|
|
- |
|
|
|
8,571 |
|
|
|
- |
|
Total Assets
|
|
$ |
246,832 |
|
|
$ |
236,061 |
|
|
$ |
8,571 |
|
|
$ |
2,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
(2,737 |
) |
|
$ |
- |
|
|
$ |
(2,737 |
) |
|
$ |
- |
|
Total Liabilities
|
|
$ |
(2,737 |
) |
|
$ |
- |
|
|
$ |
(2,737 |
) |
|
$ |
- |
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Description
|
|
December 31, 2009
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$ |
115,853 |
|
|
$ |
115,853 |
|
|
$ |
- |
|
|
$ |
- |
|
Short-term investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
12,549 |
|
|
|
12,549 |
|
|
|
- |
|
|
|
- |
|
Corporate bonds
|
|
|
7,587 |
|
|
|
7,587 |
|
|
|
- |
|
|
|
- |
|
U.S. treasuries and agencies
|
|
|
21,033 |
|
|
|
21,033 |
|
|
|
- |
|
|
|
- |
|
Foreign government bonds
|
|
|
34,674 |
|
|
|
34,674 |
|
|
|
- |
|
|
|
- |
|
Time deposits
|
|
|
2,753 |
|
|
|
2,753 |
|
|
|
- |
|
|
|
- |
|
Auction rate securities
|
|
|
8,177 |
|
|
|
- |
|
|
|
- |
|
|
|
8,177 |
|
Auction rate securities put option
|
|
|
423 |
|
|
|
- |
|
|
|
- |
|
|
|
423 |
|
Derivatives
|
|
|
11,016 |
|
|
|
- |
|
|
|
11,016 |
|
|
|
- |
|
Total Assets
|
|
$ |
214,065 |
|
|
$ |
194,449 |
|
|
$ |
11,016 |
|
|
$ |
8,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
(318 |
) |
|
$ |
- |
|
|
$ |
(318 |
) |
|
$ |
- |
|
Total Liabilities
|
|
$ |
(318 |
) |
|
$ |
- |
|
|
$ |
(318 |
) |
|
$ |
- |
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Short-term investments available for sale
|
|
|
|
(unaudited)
|
|
|
|
|
|
Beginning Balance at December 31, 2009
|
|
$ |
8,600 |
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
Included in earnings
|
|
|
140 |
|
Included in other comprehensive income
|
|
|
- |
|
Total losses (realized/unrealized)
|
|
|
|
|
Included in earnings
|
|
|
(140 |
) |
Included in other comprehensive income
|
|
|
- |
|
Purchases, issuances and settlements
|
|
|
(6,400 |
) |
Transfer in and/or out of Level 3
|
|
|
- |
|
Ending Balance at June 30, 2010
|
|
$ |
2,200 |
|
|
|
|
|
|
The amount of total gains or (losses) for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date
|
|
|
- |
|
|
|
$ |
- |
|
Short-term investments available-for-sale are valued using a market approach (Level 1) based on the quoted market prices of identical instruments when available or other observable inputs such as trading prices of identical instruments in active markets. Short-term investments available-for-sale consists of debt securities issued by states of the U.S. and political subdivisions of the states, corporate debt securities and debt securities issued by U.S. government corporations and agencies. All short-term investments available-for-sale have contractual maturities of less than 24 months. There were not any transfers in or out of Level 1 during the six months ended June 30, 2010.
Derivatives include foreign currency forward and option contracts. Our foreign currency forward contracts are valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. Our foreign currency option contracts are valued using a market approach based on the quoted market prices which are derived from observable inputs including current and future spot rates, interest rate spreads as well as quoted market prices of identical instruments. There were not any transfers in or out of Level 2 during the six months ended June 30, 2010.
The short-term investment available-for-sale included in Level 3 is reported at its fair market value and consists of auction rate securities backed by education loan revenue bonds from the Vermont Student Assistance Corporation. The par value for this auction rate security was $2.2 million at June 30, 2010. The rating for this security at June 30, 2010, was Baa3/A/AA+. Auction rate securities are variable rate debt instruments whose interest rates are typically reset approximately every 7 to 35 days. On June 4, 2010, and in prior auction periods beginning in February 2008, the auction process for this security failed. At June 30, 2010, we reported this security as a short-term investment at its estimated fair market value of $2.1 million.
In November 2008, we accepted the UBS Auction Rate Securities Rights (the “Rights”) agreement offered by UBS as a liquidity alternative to the failed auction process. The Rights agreement is a nontransferable right to sell our auction rate securities, at par value, back to UBS at any time during the period June 30, 2010, through July 2, 2012. On June 14, 2010, under the terms of this Rights agreement, UBS purchased back from us our auction rate security from the New Hampshire Health and Education Facilities Authority. We received the full par value of $6.4 million from UBS in accordance with the terms or our Rights agreement. At June 30, 2010, we reported the portion of our Rights agreement related to our auction rate security from the Vermont Student Assistance Corporation at its estimated fair market value of $140,000 as a component of short-term debt securities available for sale.
The estimated fair market value of both the auction rate security and the Rights agreement was determined using significant unobservable inputs (Level 3). We considered many factors in determining the fair market value of our auction rate security as well as our corresponding Rights agreement at June 30, 2010, including the fact that the debt instruments underlying the auction rate security have redemption features which call for redemption at 100% of par value, current credit curves for like securities and discount factors to account for the illiquidity of the market for this security. During the six month period ended June 30, 2010, we did not make any significant changes to our valuation techniques or related inputs.
On July 1, 2010, under the terms of this Rights agreement, UBS purchased back from us our auction rate security from the Vermont Student Assistance Corporation. We received the full par value of $2.2 million from UBS in accordance with the terms of our Rights agreement.
Note 5 – Derivative instruments and hedging activities
FASB ASC 815, Derivatives and Hedging, (FASB ASC 815) requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
We have operations in over 40 countries. Sales outside of the Americas as a percentage of consolidated sales were 57% and 55% in each of the three month periods ended June 30, 2010 and 2009, respectively, and 58% and 56% in each of the six month periods ended June 30, 2010 and 2009, respectively. Our activities expose us to a variety of market risks, including the effects of changes in foreign-currency exchange rates. These financial risks are monitored and managed by us as an integral part of our overall risk management program.
We maintain a foreign currency risk management strategy that uses derivative instruments (foreign currency forward and purchased option contracts) to help protect our earnings and cash flows from fluctuations caused by the volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to our operations and competitive position, since exchange rate changes may affect our profitability and cash flow, and the business or pricing strategies of our non-U.S. based competitors.
The vast majority of our foreign sales are denominated in the customers’ local currency. We purchase foreign currency forward and option contracts as hedges of forecasted sales that are denominated in foreign currencies and as hedges of foreign currency denominated receivables. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash inflows resulting from such sales or firm commitments will be adversely affected by changes in exchange rates. We also purchase foreign currency forward contracts as hedges of forecasted expenses that are denominated in foreign currencies. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash outflows resulting from foreign currency operating and cost of revenue expenses will be adversely affected by changes in exchange rates.
We designate foreign currency forward and purchased option contracts as cash flow hedges of forecasted revenues or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts. These derivatives are not designated as hedging instruments under FASB ASC 815. None of our derivative instruments contain a credit-risk-related contingent feature.
Cash flow hedges
To help protect against the reduction in value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales or expenses over the next one to two years, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue and forecasted expenses denominated in foreign currencies with forward and purchased option contracts. For forward contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the forward contracts designated as hedges. For option contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the option contracts net of the premium paid designated as hedges. Our foreign currency purchased option contracts are purchased “at-the-money” or “out-of-the-money”. We purchase foreign currency forward and option contracts for up to 100% of our forecasted exposures in selected currencies (primarily in Euro, Japanese yen, British pound sterling, South Korean won and Hungarian forint) and limit the duration of these contracts to 40 months or less.
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“OCI”) and reclassified into earnings in the same line item (net sales, operating expenses, or cost of sales) associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings or expenses during the current period and are classified as a component of “net foreign exchange gain (loss)”. Hedge effectiveness of foreign currency forwards and purchased option contracts designated as cash flow hedges are measured by comparing the hedging instrument’s cumulative change in fair value from inception to maturity to the forecasted transaction’s terminal value.
We held forward contracts with a notional amount of $14.9 million dollar equivalent of Euro, $2.1 million dollar equivalent of British pound sterling, $16.4 million dollar equivalent of Japanese yen, and $26.8 million dollar equivalent of Hungarian forint at June 30, 2010. These contracts are for terms of up to 24 months. At December 31, 2009, we held forward contracts with a notional amount of $28.6 million dollar equivalent of Euro, $4.0 million dollar equivalent of British pound sterling, $24.4 million dollar equivalent of Japanese yen, and $17.8 million dollar equivalent of Hungarian forint.
We held purchased option contracts with a notional amount of $14.8 million dollar equivalent of Euro at June 30, 2010. These contracts are for terms of up to 12 months. At December 31, 2009, we held purchased option contracts with a notional amount of $28.4 million dollar equivalent of Euro.
At June 30, 2010, we expect to reclassify $4.9 million of gains on derivative instruments from accumulated other comprehensive income to net sales during the next twelve months when the hedged international sales occur, $120,000 of losses on derivative instruments from accumulated OCI to cost of sales and $52,000 of losses on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged international expenses occur. Expected amounts are based on derivative valuations at June 30, 2010. Actual results may vary as a result of changes in the corresponding exchange rate subsequent to this date.
We did not record any gains or losses due to the ineffectiveness of our hedges during the six months ended June 30, 2010. During the six months ended June 30, 2009, hedges with a notional amount of $14.4 million were determined to be ineffective. As a result, we recorded a net gain of $512,000 related to these hedges as a component of “net foreign exchange gain (loss)” during the six months ended June 30, 2009.
Other Derivatives
Other derivatives not designated as hedging instruments under FASB ASC 815 consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated net receivable or net payable positions to help protect against the change in value caused by a fluctuation in foreign currency exchange rates. We typically hedge up to 90% of our outstanding foreign denominated net receivables or net payables and typically limit the duration of these foreign currency forward contracts to approximately 90 days. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item “net foreign exchange gain (loss)”. As of June 30, 2010 and December 31, 2009, we held foreign currency forward contracts with a notional amount of $35.9 million and $45.2 million, respectively.
The following table presents the fair value of derivative instruments on our Consolidated Balance Sheets and the effect of derivative instruments on our Consolidated Statements of Income.
Fair Values of Derivative Instruments (in thousands):
|
Asset Derivatives
|
|
|
June 30, 2010
(unaudited)
|
|
December 31, 2009
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging
instruments
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - ST forwards
|
Prepaid expenses and other current assets
|
|
$ |
3,636 |
|
Prepaid expenses and other current assets
|
|
$ |
7,947 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - LT forwards
|
Other long-term assets
|
|
|
- |
|
Other long-term assets
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - ST options
|
Prepaid expenses and other current assets
|
|
|
2,776 |
|
Prepaid expenses and other current assets
|
|
|
1,821 |
|
Total derivatives designated as hedging instruments
|
|
|
$ |
6,412 |
|
|
|
$ |
10,042 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - ST forwards
|
Prepaid expenses and other current assets
|
|
$ |
2,159 |
|
Prepaid expenses and other current assets
|
|
$ |
974 |
|
Total derivatives not designated as hedging instruments
|
|
|
$ |
2,159 |
|
|
|
$ |
974 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
$ |
8,571 |
|
|
|
$ |
11,016 |
|
|
Liability Derivatives
|
|
|
June 30, 2010
(unaudited)
|
|
December 31, 2009
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging
instruments
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - ST forwards
|
Accrued expenses and other liabilities
|
|
$ |
(972 |
) |
Accrued expenses and other liabilities
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - LT forwards
|
Other long-term liabilities
|
|
|
(1,122 |
) |
Other long-term liabilities
|
|
|
- |
|
Total derivatives designated as hedging instruments
|
|
|
$ |
(2,094 |
) |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - ST forwards
|
Accrued expenses and other liabilities
|
|
$ |
(643 |
) |
Accrued expenses and other liabilities
|
|
$ |
(318 |
) |
Total derivatives not designated as hedging instruments
|
|
|
$ |
(643 |
) |
|
|
$ |
(318 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
$ |
(2,737 |
) |
|
|
$ |
(318 |
) |
The following unaudited table shows the effect of derivative instruments on the Consolidated Statements of Income for the three month periods ended June 30, 2010 and 2009, respectively (in thousands):
June 30, 2010
(unaudited)
|
|
Derivatives in Cash Flow Hedging Relationship
|
|
Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
|
|
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
|
|
2010
|
|
|
|
2010
|
|
|
|
2010
|
|
Foreign exchange contracts - forwards and options
|
|
$ |
229 |
|
Net sales
|
|
$ |
2,012 |
|
Net foreign exchange gain (loss)
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
(3,319 |
) |
Cost of sales
|
|
|
642 |
|
Net foreign exchange gain (loss)
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
(1,509 |
) |
Operating expenses
|
|
|
219 |
|
Net foreign exchange gain (loss)
|
|
|
- |
|
Total
|
|
$ |
(4,599 |
) |
|
|
$ |
2,873 |
|
|
|
$ |
- |
|
June 30, 2009
(unaudited)
|
|
Derivatives in Cash Flow Hedging Relationship
|
|
Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
|
|
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
|
|
2009
|
|
|
|
2009
|
|
|
|
2009
|
|
Foreign exchange contracts - forwards and options
|
|
$ |
(7,581 |
) |
Net sales
|
|
$ |
346 |
|
Net foreign exchange gain (loss)
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
4,057 |
|
Cost of sales
|
|
|
(413 |
) |
Net foreign exchange gain (loss)
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
2,553 |
|
Operating expenses
|
|
|
70 |
|
Net foreign exchange gain (loss)
|
|
|
- |
|
Total
|
|
$ |
(971 |
) |
|
|
$ |
3 |
|
|
|
$ |
95 |
|
Derivatives not Designated as Hedging Instruments
|
Location of Gain (Loss) Recognized in Income
|
|
Amount of Gain (Loss) Recognized in Income
|
|
|
Amount of Gain (Loss) Recognized in Income
|
|
|
|
|
June 30, 2010
(unaudited)
|
|
|
June 30, 2009
(unaudited)
|
|
Foreign exchange contracts - forwards
|
Net foreign exchange gain/(loss)
|
|
$ |
937 |
|
|
$ |
(3,273 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
937 |
|
|
$ |
(3,273 |
) |
The following unaudited table shows the effect of derivative instruments on the Consolidated Statements of Income for the six month periods ended June 30, 2010 and 2009, respectively (in thousands):
June 30, 2010
(unaudited)
|
|
Derivatives in Cash Flow Hedging Relationship
|
|
Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
|
|
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
|
|
2010
|
|
|
|
2010
|
|
|
|
2010
|
|
Foreign exchange contracts - forwards and options
|
|
$ |
1,744 |
|
Net sales
|
|
$ |
3,049 |
|
Net foreign exchange gain (loss)
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
(4,710 |
) |
Cost of sales
|
|
|
1,411 |
|
Net foreign exchange gain (loss)
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
(2,394 |
) |
Operating expenses
|
|
|
587 |
|
Net foreign exchange gain (loss)
|
|
|
- |
|
Total
|
|
$ |
(5,360 |
) |
|
|
$ |
5,047 |
|
|
|
$ |
- |
|
June 30, 2009
(unaudited)
|
|
Derivatives in Cash Flow Hedging Relationship
|
|
Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
|
|
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
|
|
2009
|
|
|
|
2009
|
|
|
|
2009
|
|
Foreign exchange contracts - forwards and options
|
|
$ |
(3,785 |
) |
Net sales
|
|
$ |
2,979 |
|
Net foreign exchange gain (loss)
|
|
$ |
951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
1,311 |
|
Cost of sales
|
|
|
(668 |
) |
Net foreign exchange gain (loss)
|
|
|
(439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts - forwards and options
|
|
|
1,665 |
|
Operating expenses
|
|
|
(196 |
) |
Net foreign exchange gain (loss)
|
|
|
- |
|
Total
|
|
$ |
(809 |
) |
|
|
$ |
2,115 |
|
|
|
$ |
512 |
|
Derivatives not Designated as Hedging Instruments
|
Location of Gain (Loss) Recognized in Income
|
|
Amount of Gain (Loss) Recognized in Income
|
|
|
Amount of Gain (Loss) Recognized in Income
|
|
|
|
|
June 30, 2010
(unaudited)
|
|
|
June 30, 2009
(unaudited)
|
|
Foreign exchange contracts - forwards
|
Net foreign exchange gain/(loss)
|
|
$ |
1,376 |
|
|
$ |
(184 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
1,376 |
|
|
$ |
(184 |
) |
Note 6 – Inventories
Inventories, net at June 30, 2010 and December 31, 2009, consist of the following (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$ |
47,794 |
|
|
$ |
42,121 |
|
Work-in-process
|
|
|
3,567 |
|
|
|
2,042 |
|
Finished goods
|
|
|
44,622 |
|
|
|
42,352 |
|
|
|
$ |
95,983 |
|
|
$ |
86,515 |
|
Note 7 – Intangibles
Intangibles at June 30, 2010 and December 31, 2009, are as follows:
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Capitalized software development costs
|
|
$ |
50,460 |
|
|
$ |
(25,560 |
) |
|
$ |
24,900 |
|
|
$ |
38,928 |
|
|
$ |
(20,455 |
) |
|
$ |
18,473 |
|
Acquired technology
|
|
|
32,599 |
|
|
|
(22,652 |
) |
|
|
9,947 |
|
|
|
28,022 |
|
|
|
(20,967 |
) |
|
|
7,055 |
|
Patents
|
|
|
19,992 |
|
|
|
(5,845 |
) |
|
|
14,147 |
|
|
|
19,033 |
|
|
|
(5,377 |
) |
|
|
13,656 |
|
Leasehold equipment and other
|
|
|
13,484 |
|
|
|
(9,346 |
) |
|
|
4,138 |
|
|
|
12,577 |
|
|
|
(8,371 |
) |
|
|
4,206 |
|
|
|
$ |
116,535 |
|
|
$ |
(63,403 |
) |
|
$ |
53,132 |
|
|
$ |
98,560 |
|
|
$ |
(55,170 |
) |
|
$ |
43,390 |
|
Software development costs capitalized during the three month periods ended June 30, 2010 and 2009, were $8.0 million and $6.8 million, respectively, and related amortization expense was $2.5 million and $2.1 million, respectively. Capitalized software development costs for the three month periods ended June 30, 2010 and 2009, included costs related to stock based compensation of $349,000 and $391,000, respectively. During the six month periods ended June 30, 2010 and 2009, we capitalized software development costs of $11.5 million and $9.9 million, respectively, and related amortization expense was $5.1 million and $4.2 million, respectively. Capitalized software development costs for the six month periods ended June 30, 2010 and 2009, included costs related to stock based compensation of $511,000 and $546,000, respectively. Amortization of capitalized software development costs is computed on an individual product basis for those products available for market and is recognized based on the product’s estimated economic life, generally three years. Patents are amortized using the straight-line method over their estimated period of benefit, generally ten to seventeen years. Total intangible assets amortization expenses were $4.1 million and $3.9 million during the three month periods ended June 30, 2010 and 2009, respectively, and $8.2 million and $7.5 million during the six month periods ended June 30, 2010 and 2009, respectively.
Acquired core technology and intangible assets are amortized over their useful lives, which range from three to eight years. Amortization expense for intangible assets acquired was approximately $1.0 million and $1.0 million for the three month periods ended June 30, 2010 and 2009, respectively, of which approximately $922,000 and $853,000 was recorded in cost of sales, respectively, and approximately $100,000 and $126,000 was recorded in operating expenses, respectively. For the six month periods ended June 30, 2010 and 2009, amortization expense for intangible assets acquired was approximately $1.9 million and $2.0 million, respectively, of which approximately $1.6 million and $1.7 million was recorded in cost of sales, respectively, and approximately $222,000 and $252,000 was recorded in operating expenses, respectively.
Note 8 – Goodwill
The carrying amount of goodwill as of June 30, 2010, is as follows (in thousands):
|
|
Amount
|
|
Balance as of December 31, 2009
|
|
$ |
64,779 |
|
Acquisitions
|
|
|
5,013 |
|
Divestitures
|
|
|
- |
|
Foreign currency translation impact
|
|
|
(1,223 |
) |
Balance as of June 30, 2010
|
|
$ |
68,569 |
|
The excess purchase price over the fair value of assets acquired is recorded as goodwill. As we have one operating segment, we allocate goodwill to one reporting unit for goodwill impairment testing. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach based on the market capitalization of the reporting unit. Our annual impairment test was performed as of February 28, 2010. No impairment of goodwill has been identified during the period presented. Goodwill is deductible for tax purposes in certain jurisdictions.
On February 1, 2010, we acquired all of the outstanding shares of a privately-held company for $2.2 million in net cash, $3.0 million in shares of our common stock with the remainder to be paid in cash over the next four years. The purchase price allocation for this acquisition included net working capital of $1.1 million, amortizable intangible assets of $5.0 million, and goodwill of $5.0 million. Our consolidated financial statements include the operating results from the date of acquisition.
Note 9 – Income taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized.
FASB ASC 740, Income Taxes (FASB ASC 740) addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. We had $12.4 million and $11.1 million of unrecognized tax benefits at June 30, 2010 and December 31, 2009, respectively, all of which would affect our effective income tax rate if recognized. We recorded a gross decrease in unrecognized tax benefits of $1.1 million for the six month period ended June 30, 2010, as a result of a settlement with a taxing authority. As of June 30, 2010, it is deemed reasonable that we will recognize tax benefits in the amount of $2.4 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty is related to deductions taken on returns that have not been examined by the applicable tax authority. Our continuing policy is to recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2010, we have approximately $863,000 accrued for interest related to uncertain tax positions. The tax years 2003 through 2009 remain open to examination by the major taxing jurisdictions to which we are subject.
Our provision for income taxes reflected an effective tax rate of 16% and (7)% for the three month periods ended June 30, 2010 and 2009, respectively, and 12% and (179)% for the six month periods ended June 30, 2010 and 2009, respectively. For the three months ended June 30, 2010, our effective tax rate was lower than the U.S. federal statutory rate of 35% as a result of the partial release of a deferred tax asset valuation allowance, an enhanced deduction for certain research and development expenses and profits in foreign jurisdictions with reduced income tax rates. For the six months ended June 30, 2010, our effective tax rate was lower than the U.S. federal statutory rate of 35% as a result of the partial release of a deferred tax asset valuation allowance, an enhanced deduction for certain research and development expenses, profits in foreign jurisdictions with reduced income tax rates and a decrease in unrecognized tax benefits for uncertain tax positions. For the three and six month periods ended June 30, 2009, our effective tax rate was lower than the U.S. federal statutory rate of 35% due to a partial release of a deferred tax asset valuation allowance and the research credit. These benefits were partially offset by non-deductible stock-based compensation expenses, losses in foreign jurisdictions with reduced income tax rates and a valuation allowance related to a deferred tax asset for which a tax benefit was previously recognized.
The tax position of our Hungarian operation continues to benefit from assets created by the restructuring of our operations in Hungary. In addition, effective January 1, 2010, a new tax law in Hungary provides for an enhanced deduction for the qualified research and development expenses of NI Hungary Software and Hardware Manufacturing Kft. (“NI Hungary”). Partial release of the valuation allowance on assets from the restructuring and the enhanced tax deduction for research expenses resulted in income tax benefits of $4.6 million and $3.2 million for the three month periods ended June 30, 2010 and 2009, respectively and $7.8 million and $4.2 million for the six month periods ended June 30, 2010 and 2009, respectively.
Note 10 – Comprehensive income
Our comprehensive income is comprised of net income, foreign currency translation, unrealized gains and losses on forward and option contracts and unrealized gains and losses on our investments designated as available for sale. Comprehensive income for the three and six month periods ended June 30, 2010 and June 30, 2009, was as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
24,602 |
|
|
$ |
4,430 |
|
|
$ |
42,955 |
|
|
$ |
4,788 |
|
Foreign currency translation gains (losses), net of taxes
|
|
|
(7,407 |
) |
|
|
3,270 |
|
|
|
(11,369 |
) |
|
|
495 |
|
Unrealized gains (losses) on derivative instruments, net of taxes
|
|
|
(3,747 |
) |
|
|
227 |
|
|
|
(7,092 |
) |
|
|
149 |
|
Unrealized gains (losses) on investments designated as available for sale, net of taxes
|
|
|
(1,106 |
) |
|
|
54 |
|
|
|
771 |
|
|
|
(126 |
) |
Total comprehensive income
|
|
$ |
12,342 |
|
|
$ |
7,981 |
|
|
$ |
25,265 |
|
|
$ |
5,306 |
|
Note 11 – Stock-based compensation plans
Stock option plans
Our stockholders approved the 1994 Incentive Stock Option Plan (the “1994 Plan”) on May 9, 1994. At the time of approval, 9,112,500 shares of our common stock were reserved for issuance under this plan. In 1997, an additional 7,087,500 shares of our common stock were reserved for issuance under this plan, and an additional 750,000 shares were reserved for issuance under this plan in 2004. The 1994 Plan terminated in May 2005, except with respect to outstanding awards previously granted thereunder.
Awards under the plan were either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or nonqualified options. The right to purchase shares vests over a five to ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and revenue growth but shares cannot accelerate to vest over a period of less than five years. Stock options must be exercised within ten years from date of grant. Stock options were issued with an exercise price which was equal to the market price at the grant date. We estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. During the six months ended June 30, 2010, we did not make any changes in accounting principles or methods of estimates.
Restricted stock plans
Our stockholders approved our 2005 Incentive Plan (the “2005 Plan”) on May 10, 2005. At the time of approval, 2,700,000 shares of our common stock were reserved for issuance under this plan, as well as the number of shares which had been reserved but not issued under the 1994 Plan (our incentive stock option plan which terminated in May 2005), and any shares that returned to the 1994 Plan as a result of termination of options or repurchase of shares issued under such plan. The 2005 Plan, administered by the Compensation Committee of the Board of Directors, provided for granting of incentive awards in the form of restricted stock and restricted stock units (“RSUs”) to directors, executive officers and employees of the Company and its subsidiaries. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. The 2005 Plan terminated on May 11, 2010, except with respect to outstanding awards previously granted thereunder. There were 2,241,536 share of common stock that were reserved but not issued under the 1994 Plan and the 2005 Plan as of May 11, 2010.
Our stockholders approved our 2010 Incentive Plan (the “2010 Plan”) on May 11, 2010. At the time of approval, 2,000,000 shares of our common stock were reserved for issuance under this plan, as well as the 2,241,536 share of common stock that were reserved but not issued under the 1994 Plan and the 2005 Plan as of May 11, 2010, and any shares that are returned to the 1994 Plan and the 2005 Plan as a result of forfeiture or termination of options or RSUs or repurchase of shares issued under these plans. The 2010 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of restricted stock and RSUs to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. There were 4,219,216 shares available for grant under the 2010 Plan at June 30, 2010.
We estimate potential forfeitures of RSUs and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. During the six months ended June 30, 2010, we did not make any changes in accounting principles or methods of estimates.
Employee stock purchase plan
Our employee stock purchase plan permits substantially all domestic employees and employees of designated subsidiaries to acquire our common stock at a purchase price of 85% of the lower of the market price at the beginning or the end of the purchase period. The plan has quarterly purchase periods beginning on February 1, May 1, August 1 and November 1 of each year. Employees may designate up to 15% of their compensation for the purchase of common stock under this plan. We had 1,398,050 shares of common stock reserved for future employee purchases under this plan at June 30, 2010. We issued 357,021 shares under this plan in the six months ended June 30, 2010. The weighted average fair value of the employees’ purchase rights was $23.82 per share and was estimated using the Black-Scholes model. During the six months ended June 30, 2010, we did not make any changes in accounting principles or methods of estimates.
For the three and six month periods ended June 30, 2010 and June 30, 2009, stock-based compensation recorded as a component of cost of sales, sales and marketing, research and development, and general and administrative was as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$ |
320 |
|
|
$ |
330 |
|
|
$ |
682 |
|
|
$ |
640 |
|
Sales and marketing
|
|
|
1,996 |
|
|
|
2,231 |
|
|
|
4,100 |
|
|
|
4,416 |
|
Research and development
|
|
|
1,593 |
|
|
|
1,683 |
|
|
|
3,358 |
|
|
|
3,420 |
|
General and administrative
|
|
|
634 |
|
|
|
761 |
|
|
|
1,319 |
|
|
|
1,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(1,582 |
) |
|
|
(1,865 |
) |
|
|
(3,127 |
) |
|
|
(4,879 |
) |
Total
|
|
$ |
2,961 |
|
|
$ |
3,140 |
|
|
$ |
6,332 |
|
|
$ |
5,157 |
|
Authorized Preferred Stock and Preferred Stock Purchase Rights Plan
We have 5,000,000 authorized shares of preferred stock. On January 21, 2004, our Board of Directors designated 750,000 of these shares as Series A Participating Preferred Stock in conjunction with its adoption of a Preferred Stock Rights Agreement (the “Rights Agreement”) and declaration of a dividend of one preferred share purchase right (a “Right”) for each share of common stock outstanding held as of May 10, 2004 or issued thereafter. Each Right will entitle its holder to purchase one one-thousandth of a share of National Instruments’ Series A Participating Preferred Stock at an exercise price of $200, subject to adjustment, under certain circumstances. The Rights Agreement was not adopted in response to any effort to acquire control of National Instruments.
The Rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 20% or more of our common stock. In addition, if an acquirer (subject to certain exclusions for certain current stockholders of National Instruments, an “Acquiring Person”) obtains 20% or more of our common stock, then each Right (other than the Rights owned by an Acquiring Person or its affiliates) will entitle the holder to purchase, for the exercise price, shares of our common stock having a value equal to two times the exercise price. Under certain circumstances, our Board of Directors may redeem the Rights, in whole, but not in part, at a purchase price of $0.01 per Right. The Rights have no voting privileges and are attached to and automatically traded with our common stock until the occurrence of specified trigger events. The Rights will expire on the earlier of May 10, 2014 or the exchange or redemption of the Rights.
Note 12 – Segment information
We determine operating segments using the management approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our operating segments. It also requires disclosures about products and services, geographic areas and major customers.
We have defined our operating segment based on geographic regions. We sell our products in three geographic regions. Our sales to these regions share similar economic characteristics, similar product mix, similar customers, and similar distribution methods. Accordingly, we have elected to aggregate these three geographic regions into a single operating segment. Revenue from the sale of our products which are similar in nature and software maintenance are reflected as total net sales in our Consolidated Statements of Income.
Total net sales, operating income, interest income and long-lived assets, classified by the major geographic areas in which we operate, are as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customer sales
|
|
$ |
90,072 |
|
|
$ |
68,093 |
|
|
$ |
169,269 |
|
|
$ |
136,532 |
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customer sales
|
|
|
59,876 |
|
|
|
46,863 |
|
|
|
117,799 |
|
|
|
96,343 |
|
Asia Pacific:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customer sales
|
|
|
61,769 |
|
|
|
37,207 |
|
|
|
115,740 |
|
|
|
77,087 |
|
|
|
$ |
211,717 |
|
|
$ |
152,163 |
|
|
$ |
402,808 |
|
|
$ |
309,962 |
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$ |
17,915 |
|
|
$ |
8,293 |
|
|
$ |
31,294 |
|
|
$ |
13,600 |
|
Europe
|
|
|
29,023 |
|
|
|
15,695 |
|
|
|
56,062 |
|
|
|
32,475 |
|
Asia Pacific
|
|
|
19,940 |
|
|
|
7,800 |
|
|
|
37,590 |
|
|
|
18,023 |
|
Unallocated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
(36,395 |
) |
|
|
(29,447 |
) |
|
|
(74,941 |
) |
|
|
(64,236 |
) |
|
|
$ |
30,483 |
|
|
$ |
2,341 |
|
|
$ |
50,005 |
|
|
$ |
(138 |
) |
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$ |
145 |
|
|
$ |
226 |
|
|
$ |
256 |
|
|
$ |
520 |
|
Europe
|
|
|
206 |
|
|
|
162 |
|
|
|
365 |
|
|
|
436 |
|
Asia Pacific
|
|
|
20 |
|
|
|
19 |
|
|
|
50 |
|
|
|
40 |
|
|
|
$ |
371 |
|
|
$ |
407 |
|
|
$ |
671 |
|
|
$ |
996 |
|
|
|
June 30,
2010
|
|
|
December 31,
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
Americas
|
|
$ |
100,491 |
|
|
$ |
100,489 |
|
Europe
|
|
|
33,960 |
|
|
|
36,555 |
|
Asia Pacific
|
|
|
16,454 |
|
|
|
16,221 |
|
|
|
$ |
150,905 |
|
|
$ |
153,265 |
|
Total sales outside the United States for the three month periods ended June 30, 2010 and 2009, were $128.2 million and $90.9 million, respectively. Total sales outside the United States for the six months ended June 30, 2010 and 2009, were $247.6 million and $187.1 million, respectively.
Note 13 – Commitments and contingencies
We offer a one-year limited warranty on most hardware products, with a two or three-year warranty on a subset of our hardware products, which is included in the sales price of many of our products. Provision is made for estimated future warranty costs at the time of the sale, for the estimated costs that may be incurred under the basic limited warranty. Our estimate is based on historical experience and product sales during this period.
Our warranty reserve at June 30, 2010 and June 30, 2009, was $921,000 and $922,000, respectively.
As of June 30, 2010, we have outstanding guarantees for payment of foreign operating leases, customs and foreign grants totaling approximately $2.0 million.
As of June 30, 2010, we have non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $7.7 million over the next twelve months.
Note 14 – Recently issued accounting pronouncements
In October 2009, the FASB updated FASB ASC 605, Revenue Recognition (FASB ASC 605) that amended the criteria for separating consideration in multiple-deliverable arrangements. The amendments establish a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third–party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments will change the application of the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements.
In October 2009, the FASB updated FASB ASC 985, Software (FASB ASC 985) that changes the accounting model for revenue arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of the software revenue guidance in Subtopic 985-605. In addition, the amendments require that hardware components of a tangible product containing software components always be excluded from the software revenue guidance. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements.
In January 2010, the FASB updated FASB ASC 820, Fair Value Measurements and Disclosures (FASB ASC 820) that requires additional disclosures and clarifies existing disclosures regarding fair value measurements. The additional disclosures include 1) transfers in and out of Levels 1 and 2 and 2) activity in Level 3 fair value measurements. The update provides amendments that clarify existing disclosures on 1) level of disaggregation and 2) disclosures about inputs and valuation techniques. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the update on January 1, 2010 as required and concluded it did not have a material impact on our consolidated financial position or results of operations.
In February 2010, the FASB updated FASB ASC 855, Subsequent Events (FASB ASC 855) that requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued. For an SEC filer, this guidance also eliminates the required disclosure of the date through which subsequent events are evaluated. This update is effective upon issuance. We adopted the update on January 1, 2010 as required and concluded it did not have a material impact on our consolidated financial position or results of operations.
Note 15 – Litigation
We filed a patent infringement action on January 25, 2001, in the U.S. District Court, Eastern District of Texas (Marshall Division) claiming that The MathWorks, Inc. (“MathWorks”) infringed certain of our U.S. patents. On January 30, 2003, a jury found infringement by MathWorks of three of the patents involved and awarded us specified damages. On September 23, 2003, the District Court entered final judgment in favor of us and entered an injunction against MathWorks’ sale of its Simulink and related products and stayed the injunction pending appeal. Upon appeal, the judgment and the injunction were affirmed by the U.S. Court of Appeals for the Federal Circuit (September 3, 2004). Subsequently the stay of injunction was lifted by the District Court. In November 2004, the final judgment amount of $7.4 million which had been held in escrow pending appeal was released to us.
An action was filed by MathWorks against us on September 22, 2004, in the U.S. District Court, Eastern District of Texas (Marshall Division), claiming that on that day MathWorks had released modified versions of its Simulink and related products, and seeking a declaratory judgment that the modified products do not infringe the three patents adjudged infringed in the District Court's decision of September 23, 2003 (and affirmed by the Court of Appeals on September 3, 2004). On November 2, 2004, MathWorks served the complaint on us. We filed an answer to MathWorks’ declaratory judgment complaint, denying MathWorks’ claims of non-infringement and alleging our own affirmative defenses. On January 5, 2005, the Court denied a contempt motion by us to enjoin the modified Simulink products under the injunction in effect from the first case. On January 7, 2005, we amended our answer to include counterclaims that MathWorks’ modified products are infringing three of our patents, and requested unspecified damages and an injunction. MathWorks filed its reply to our counterclaims on February 7, 2005, denying the counterclaims and alleging affirmative defenses. On March 2, 2005, we filed a notice of appeal regarding the Court's denial of the contempt motion. On March 15, 2005, the Court stayed MathWorks’ declaratory judgment action, pending a decision on the appeal by the Court of Appeals for the Federal Circuit. On February 9, 2006, the Court of Appeals for the Federal Circuit affirmed the District Court’s January 2005 order. On November 22, 2006, the District Court lifted the stay. The case schedule has yet to be set in this action. During the fourth quarter of 2004, we accrued $4 million related to our probable loss from this contingency, which consists entirely of anticipated patent defense costs that are probable of being incurred. In the fourth quarter of 2006, we accrued an additional $600,000 related to this contingency. During the third quarter of 2009, we reduced the accrual by $2 million and during the first quarter of 2010, we reduced the accrual by an additional $1,037,000 to reflect a decrease in the estimated costs that are probable of being incurred in this action. To date, we have charged a cumulative total of $628,000 against this accrual. At June 30, 2010, the remaining accrual was $935,000.
Note 16 – Subsequent events
We have evaluated subsequent events through the date the financial statements were issued.
On July 1, 2010, under the terms of this Rights agreement, UBS purchased back from us our auction rate security from the Vermont Student Assistance Corporation. We received the full par value of $2.2 million from UBS in accordance with the terms or our Rights agreement.
On July 21, 2010, our Board of Directors declared a quarterly cash dividend of $0.13 per common share, payable on August 30, 2010, to shareholders of record on August 9, 2010.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements contained herein regarding our future financial performance or operations (including, without limitation, statements to the effect that we “believe,” "expect," "plan," "may," "will," "project," "continue," or "estimate" or other variations thereof or comparable terminology or the negative thereof) should be considered forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including those set forth under the heading “Risk Factors” beginning on page 37, and the discussion below. Readers are also encouraged to refer to the documents regularly filed by us with the Securities and Exchange Commission, including our Annual Report on Form 10-K for further discussion of our business and the risks attendant thereto.
Overview
National Instruments Corporation (“we”, “us” or “our”) is a leading supplier of measurement and automation products that engineers and scientists use in a wide range of industries. These industries comprise a large and diverse market for design, control and test applications. We provide flexible application software and modular, multifunctional hardware that users combine with industry-standard computers, networks and third party devices to create measurement, automation and embedded systems, which we also refer to as “virtual instruments”. Our approach gives customers the ability to quickly and cost-effectively design, prototype and deploy unique custom-defined solutions for their design, control and test application needs. We sell to a large number of customers in a wide variety of industries. No single customer accounted for more than 3% of our sales in the three and six month periods ended June 30, 2010 or in the years 2009, 2008 or 2007.
The key strategies that management focuses on in running our business are the following:
Expanding our broad customer base
We strive to increase our already broad customer base by serving a large market on many computer platforms, through a global marketing and distribution network. We also seek to acquire new technologies and expertise from time to time in order to open new opportunities for our existing product portfolio.
Maintaining a high level of customer satisfaction
To maintain a high level of customer satisfaction we strive to offer innovative, modular and integrated products through a global sales and support network. We strive to maintain a high degree of backwards compatibility across different platforms in order to preserve the customer’s investment in our products. In this time of intense global competition, we believe it is crucial that we continue to offer products with quality and reliability, and that these products provide cost-effective solutions for our customers.
Leveraging external and internal technology
Our product strategy is to provide superior products by leveraging generally available technology, supporting open architectures on multiple platforms and by leveraging our core technologies such as custom application specific integrated circuits (“ASICs”) across multiple products.
We sell into test and measurement (“T&M”) and industrial/embedded applications in a broad range of industries and as such are subject to the economic and industry forces which drive those markets. It has been our experience that the performance of these industries and our performance is impacted by general trends in industrial production for the global economy and by the specific performance of certain vertical markets that are intensive consumers of measurement technologies. Examples of these markets are semiconductor capital equipment, telecom, defense, aerospace, automotive and others. In assessing our b