UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                                             
                                    FORM 10-K

(Mark One)
|X|  Annual Report  pursuant to  Section 13 or 15(d) of  the Securities Exchange
     Act of 1934

For the fiscal year ended:  December 31, 2000

                                       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)

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                 Delaware                                    74-1871327
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                    Identification Number)
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       11500 North Mopac Expressway
              Austin, Texas                                    78759
     (address of principal executive                         (zip code)
                 offices)
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       Registrant's telephone number, including area code: (512) 338-9119
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        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.01 par value
                        (Title of Class)

                                                            
      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      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 .

     The aggregate  market value of voting stock held by  non-affiliates  of the
registrant  at the close of business on  February  2, 2001,  was  $1,483,331,318
based upon the last sales price  reported  for such date on the NASDAQ  National
Market System.  For purposes of this disclosure,  shares of Common Stock held by
persons  who hold more  than 5% of the  outstanding  shares of Common  Stock and
shares held by officers and directors of the  registrant as of December 31, 2000
have been  excluded in that such  persons may be deemed to be  affiliates.  This
determination is not necessarily conclusive.

      At the close of business on February 2, 2001,  registrant had  outstanding
50,690,054 shares of Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE


      Part I and Part III incorporate  certain information by reference from the
definitive  proxy statement for the Annual Meeting of Stockholders to be held on
May 8, 2001 (the "Proxy Statement").

                                      -2-

<PAGE>
                                     PART I

      Certain  information  required by Part III is omitted  from this Report in
that the Registrant  intends to file a definitive  proxy  statement  pursuant to
Regulation  14A  with  the  Securities  and  Exchange   Commission  (the  "Proxy
Statement")  relating to its annual meeting of  stockholders  not later than 120
days  after  the end of the  fiscal  year  covered  by  this  Report,  and  such
information is incorporated by reference herein.


ITEM 1.     BUSINESS

      National Instruments Corporation (the "Company" or "National Instruments")
is a leading supplier of measurement and automation  products that engineers and
scientists use in a wide range of industries. These industries are spread across
a large and  diverse  market for test and  measurement  ("T&M")  and  industrial
automation  ("IA")  applications.  The  Company  provides  flexible  application
software  and  modular,   multifunction   hardware   that  users   combine  with
industry-standard computers, networks and the Internet to create measurement and
automation systems, which the Company also refers to as "virtual instruments."

      A virtual  instrument is a user-defined  measurement and automation system
that consists of an industry standard computer or workstation  equipped with the
Company's user-friendly application software, cost-effective hardware and driver
software.   Virtual   instrumentation   represents  a  fundamental   shift  from
traditional  hardware-centered   instrumentation  systems  to  software-centered
systems that exploit the computational,  display,  productivity and connectivity
capabilities   of  computers,   networks  and  the  Internet.   Because  virtual
instruments exploit these computation,  connectivity,  and display capabilities,
users can define and change the functionality of their instruments,  rather than
being restricted by fixed-functions  imposed by traditional  instrument vendors.
The  Company's  products  empower  users  to  monitor  and  control  traditional
instruments,   create  innovative   computer-based   systems  that  can  replace
traditional  instruments  at a lower cost,  and develop  systems that  integrate
measurement functionality with industrial automation.  The Company believes that
giving users  flexibility to create their own user-defined  virtual  instruments
for an increasing  number of applications  in a wide variety of industries,  and
letting users leverage the latest  technologies  from computers,  networking and
communications  shortens  system  development  time and reduces  both short- and
long-term costs of developing,  owning and operating  measurement and automation
systems,  and  improves  efficiency  and  precision  of  applications   spanning
research, design, production and service.

      The Company is based in Austin,  Texas and was incorporated under the laws
of the State of Texas in May 1976 and was  reincorporated  in  Delaware  in June
1994. On March 13, 1995,  the Company  completed an initial  public  offering of
shares of its Common Stock.  The Company's  Common  Stock,  $0.01 par value,  is
quoted on the NASDAQ National Market System under the trading symbol NATI.

Industry Background

      Engineers and scientists  have long used  instruments  to observe,  better
understand and manage the real-world phenomena,  events and processes related to
their  industries  or  areas  of  expertise.  Instruments  measure  and  control
electrical signals, such as voltage,  current and power, and physical phenomena,
such as temperature, pressure, speed, flow, volume, torque and vibration. Common
instruments include voltmeters, signal generators,  oscilloscopes,  dataloggers,
spectrum  analyzers,   cameras,   and  temperature  and  pressure  monitors  and
controllers.   Instruments   generally  perform  three  basic  functions:   data
acquisition and control; data analysis; and presentation of results. Instruments
are  used  pervasively  in  research,   education,   manufacturing  and  service
applications in numerous fields including  electronics,  automotive,  aerospace,
telecommunications,  medical  research  and  pharmaceutical,  semiconductor  and
petrochemical.

      Instruments and systems are used to facilitate research as well as product
design, production and service. In research and development settings, scientists
and engineers use  instruments  and systems to collect and analyze  experimental
data and  simulate  manufacturing  processes  or  techniques.  In  manufacturing
environments,  engineers  use  instruments  and  systems  to test and verify the
proper  operation of the products being  manufactured and to monitor and control
the manufacturing machines and processes.  In service contexts,  instruments and
systems are used to monitor, troubleshoot and repair products and processes.

      Traditional Instrument Applications for Measurement and Automation

      Instrument  applications can be generally categorized as either T&M or IA.
T&M applications  generally  involve testing during the design,  manufacture and
service  of a wide  variety  of  products.  IA  applications  generally  involve
automating the machinery and processes  used in the production and  distribution
of a wide variety of products and materials.

                                      -3-

<PAGE>

      A typical T&M instrument is a stand-alone unit that has input,  output and
analysis capabilities;  knobs, switches and push buttons for user operation; and
gauges,  meters or other displays for visual data  presentation.  Traditionally,
most T&M instruments  were  vendor-defined,  fixed-function  devices designed to
address specific  applications.  As a result,  users had limited  flexibility to
adapt their instruments to changing  requirements.  In the 1960's, vendors began
to incorporate integrated circuits, including programmable microcontrollers,  to
increase  instrument  flexibility.   In  the  mid-1970's,  the  General  Purpose
Interface  Bus ("GPIB" or "IEEE 488") was  developed as a standard  interface to
connect  instruments to external computers.  The first computer  controllers for
GPIB instruments were based on proprietary hardware architectures.  In the later
1970's,  some  minicomputers  with general purpose but complex operating systems
were  equipped  for GPIB  instrument  control.  In the  early  1980's,  personal
computers  with limited  processing  power  equipped  with  MS-DOS,  a standard,
character-based operating system, began replacing minicomputers as the preferred
platforms for instrument control applications.  In the 1990s, personal computers
with Windows operating systems and graphics-based  application  software grew in
popularity   and  became  the  dominant   platforms   for   instrument   control
applications.  In the late 1990s,  connectivity  to the Internet and the ability
for personal  computers to integrate and share data  throughout  the  enterprise
further  increased the popularity and use of PC-based  instrumentation  systems,
and new web-enabled tools enabled users to begin to easily leverage the internet
for networked and distributed measurement applications.

      IA  systems  have long  included  mechanical  devices,  analog  gauges and
meters, and since the 1960's, have also included electronic  instruments such as
data  loggers  and strip chart  recorders.  In the  1970's,  programmable  logic
controllers  ("PLCs"),   special-purpose,   proprietary  stand-alone  industrial
computers,  were introduced and were used primarily for "discrete" manufacturing
applications such as automobile assembly.  PLCs have traditionally had primitive
operator  interface  panels  incorporating  buttons,  lights and indicators.  In
parallel,  sophisticated  instrumentation  systems  called  distributed  control
systems  ("DCSs") were also adopted to provide  computer  control of large-scale
continuous processes,  such as those found in oil refineries.  DCSs integrated a
variety  of  sensors  and  control   elements  using  both  analog  and  digital
connections,  all controlled by a central computer running proprietary software.
In the mid-1980's, another approach became available when industrial PC-based IA
systems came into use. These early PC-based  systems  generally ran proprietary,
vendor-defined  software and  incorporated  plug-in data  acquisition  boards or
interfaced  to PLCs.  In the 1990's,  Ethernet  networks grew in popularity as a
standard for  connectivity  between IA devices,  instruments,  and systems,  and
personal  computers with high-speed  processors  running Windows based operating
systems. In addition,  graphics-based application software grew in popularity as
platforms for supervision and control of IA systems and  applications.  Finally,
just as in T&M  applications,  in the late 1990's  connectivity  to the internet
enabled users to leverage networked applications via the internet.

      Limitations of Traditional Approaches to Instrumentation

      Instruments and systems for both T&M and IA applications have historically
shared  common  limitations,  including:  fixed,  vendor-defined  functionality;
proprietary,  closed  architectures that were generally difficult to program and
integrate  with other  systems;  and inflexible  operator  interfaces  that were
usually  cumbersome  to operate and change.  These  problems  have been  further
complicated  in  IA   applications   because   specialized   data  transfer  and
communications  standards have not evolved rapidly or been widely  adopted.  For
example, PLCs, while greatly improving control of individual processes,  created
multiple  "islands of information"  that were generally unable to communicate or
share  data  with  other  systems   throughout  the  manufacturing   enterprise.
Furthermore,  proprietary  instrumentation  systems have traditionally been very
expensive,  with IA system prices ranging as high as several million dollars and
T&M instrumentation  system prices often ranging in the hundreds of thousands of
dollars. In addition,  the limitations on programmability of traditional systems
means that adopting these systems to changing requirements is both expensive and
time consuming, and users are often required to purchase multiple single-purpose
instruments.

      Although  desktop  computers  in the 1980's  typically  were based on open
architectures,  until the 1990's they lacked higher-level  application  software
development   tools  and   intuitive   graphical   user   interfaces   ("GUIs").
Consequently,  the process of creating  intuitive operator interface and control
panels was difficult and  expensive.  These early desktop  computers also lacked
the power to rapidly  process and analyze the volume of data  characteristic  of
many high data rate T&M and IA applications. In addition, desktop computers were
difficult to network reliably until standard network  operating  systems evolved
late in the decade. For all of these reasons,  users and vendors were relatively
slow to incorporate desktop computers in their instrumentation systems.

                                      -4-

<PAGE>

      In the 1990's,  desktop and portable computers  improved  significantly in
data and graphics  processing  power,  storage,  communication,  and  networking
capabilities,  user-friendliness and reliability. Nevertheless, users accustomed
to  the  flexibility,   efficiency,   power  and  open   architecture  of  these
later-generation   computers,   and  the  highly  evolved  application  software
available for business computing needs, have been generally  frustrated in their
efforts to integrate these computers into measurement and automation  solutions.
Standard  desktop  computers  were not equipped  with the  hardware  connections
required    to    control    many    types    of    instruments    and    lacked
instrumentation-specific    application   development   tools,   including   GUI
development environments.  Neither standard programming languages such as C/ C++
and Visual Basic,  nor operating  systems such as Windows,  Linux and UNIX,  are
"measurement  aware."  Without the aid of  instrumentation-specific  software to
facilitate the integration of various  instrumentation  system  capabilities and
components, engineers and scientists could not easily utilize the full potential
of computers, networks and the Internet to meet their measurement and automation
requirements.

The Company's Approach to Measurement and Automation

      The Company  pioneered a new  computer-based  approach to measurement  and
automation called virtual instrumentation in 1986 when it introduced its LabVIEW
application software, which is a graphical programming environment that empowers
users to easily build their own  computer-based  instruments and systems to meet
their specific measurement and automation needs. While a traditional  instrument
bundles the data acquisition,  analysis and presentation  functions in a single,
stand-alone  unit,  "virtual  instrument"  system consists of industry  standard
computers or workstations equipped with the Company's user-friendly  application
software,  cost-effective hardware and driver software that together perform the
functions of  instruments.  By  unbundling  the key  instrumentation  functions,
virtual  instruments  represent  a  fundamental  shift  from   hardware-centered
instrumentation   systems  to   software-centered   systems   that  exploit  the
computational, display, productivity and connectivity capabilities of computers,
networks and the Internet.  The  Company's  application  software  products give
users the power and  flexibility  to define,  implement,  modify and control the
core data acquisition,  analysis, and presentation functions of instruments with
their computer. Users can mix and match their choice of the Company's DAQ, GPIB,
VXI,  PXI,  image  acquisition,  motion  control  or  industrial  communications
products to create  virtual  instrumentation  systems  that meet their  specific
instrumentation  needs.  The  Company's  products  empower  users to monitor and
control instruments,  create innovative  computer-based systems that can replace
instruments  at a lower  cost,  and  integrate  measurement  functionality  with
industrial  automation and standard network  connectivity to improve  efficiency
and precision of applications spanning research, design, production and service.
Because much of the instrumentation  functionality resides in the software, in a
significant sense, the software is the instrument.

User Benefits

      Compared with traditional solutions, the Company believes its products and
computer-based,   virtual   instrumentation   approach   provide  the  following
significant customer benefits:

      Performance, Ease-of-Use and Efficiency

      The Company's virtual instrument application software brings the power and
ease-of-use  of  computers,  networks  and the  Internet to the  instrumentation
market. With features such as graphical  programming,  automatic code generation
capabilities,  graphical  tools  libraries,  ready-to-use  example  programs and
libraries  of specific  instrumentation  functions,  users can  quickly  build a
virtual  instrument  system that meets their individual  application  needs. For
example,  a user may build the data  acquisition  and  analysis  functions of an
instrument   by  selecting  and   connecting   icons   representing   particular
instrumentation  functions  and may  customize  the  display  on the  computer's
monitor to reflect the desired presentation. With faster time to solution, users
have more time to optimize system functionality and performance,  and can devote
more  time to  their  core  work  rather  than to  programming  instruments.  In
addition,  the  continuous  improvement  in performance of PCs and the Internet,
which  are the core  platform  for the  Company's  approach,  result  in  direct
performance  benefits  for  virtual  instrument  users  in the  form  of  faster
execution for software-based measurement and automation applications,  resulting
in  shorter  test  times  and  faster  automation,   and  higher   manufacturing
throughput.

      Modularity, Reusability and Reconfigurability

      The Company's products include reusable hardware and software modules that
offer considerable flexibility in configuring systems. This ability to reuse and
reconfigure  instrument  systems  allows  users to reduce  development  time and
maximize efficiency by eliminating duplicated programming efforts and to quickly
adapt their  instruments to new and changing needs. In addition,  these features
help protect both hardware and software investments against obsolescence.

                                      -5-

<PAGE>

      Mix and Match Capabilities

      The flexibility of the Company's virtual instrumentation  approach permits
users  to mix and  match  many  combinations  of  GPIB,  VXI,  DAQ,  PXI,  image
acquisition,  motion  control and  industrial  communications  products to build
customized  measurement  and  automation  solutions.  The Company's open product
architecture provides a high level of integration between the Company's products
and other industry  standard  instrumentation  products.  This approach provides
users  with the  flexibility  to mix and match  the  Company's  and  third-party
hardware components when developing custom virtual instrumentation systems.

      Long-Term Compatibility Across Multiple Computer Platforms

      The Company offers a variety of multi-platform  software products so users
can choose the platform and programming  methodology that best meets their needs
and skills.  These software products also have portable,  open  architectures so
users  can move  their  applications  among  multiple  platforms  and  operating
systems.  In addition,  the Company  strives to ensure  long-term  compatibility
between  its  products  and the latest  industry-standard  computers,  operating
systems, programming languages and tools, as well as backward compatibility with
its own product offerings.

      Network and Integrate with Customers' Computing Environments

      The  Company's  products   facilitate   connectivity  of  measurement  and
automation  systems  with the  enterprise  by utilizing  industry  communication
standards such as the Web, Ethernet and TCP/IP.  The Company's  products provide
integrated Web support,  data and file transfer between  computers,  distributed
access to  databases  and remote test and  measurement  and  process  monitoring
capabilities.  In addition,  the Company's  products are also  compatible with a
wide  variety  of  familiar,  easy-to-use  software  applications  such  as word
processors,  spreadsheets,  Web browsers, and databases. In many cases, a single
computer or workstation can serve both the  instrumentation  and general purpose
computing needs of scientists and engineers.

      Large User Base

      The Company supports and encourages the sharing of ideas, derived software
libraries  and  modules  among its broad user base  through its NI.com Web site,
user groups,  newsletters,  conferences  and seminars.  This large base of users
stimulates  the expansion of the Company's  network of  approximately  600 third
party system  integrators and consultants,  who can save users time and money by
providing  value-added  expertise,  software programs and integration of systems
for use with the Company's products.

      Lower Total Solution Cost

      The   Company   believes   that   its   products   and   solutions   offer
price/performance   advantages   over   traditional   instrumentation.   Virtual
instrumentation   provides  users  the  ability  to  utilize  industry  standard
computers  and  workstations  equipped  with  modular and  reusable  application
software,  cost-effective hardware and driver software that together perform the
instrumentation   functions  that  would   otherwise  be  performed  by  costly,
proprietary  instrumentation systems. In addition, virtual instrumentation gives
users the  flexibility  and  portability  to adapt to  changing  needs,  whereas
traditional  closed systems are both  expensive and time consuming to adapt,  if
adaptable at all.

Strategy

      The Company's  objective is to be a leading  supplier of  measurement  and
automation  products and solutions to engineers,  scientists  and others in both
T&M and IA  applications.  To achieve this objective,  the Company is pursuing a
strategy that includes the following elements:

      Expand Broad Customer Base

      Serve A Large and Diverse Market.  The Company's products and services are
designed to serve a broad  customer  base across  many  industries.  The Company
defines product  features and  capabilities by working closely with  technically
sophisticated  customers and seeks to achieve high unit volumes by selling these
same  products  to a large  base  of  customers  with  diverse  measurement  and
automation needs.

      Support Many Computer and Instrument Options.  The Company diversifies its
customer base by accommodating  many popular computer platforms and a variety of
instrumentation  options. In addition, the Company expects to continue to create
or adapt  products for computer  systems and  instrumentation  options that gain
market acceptance.  Customers are provided a range of price/performance  options
through the Company's extensive line of products.

                                      -6-

<PAGE>

      Provide Worldwide  Marketing and  Distribution.  The Company uses multiple
coordinated  distribution  channels  in its major  world  markets.  The  Company
devotes  significant  resources to direct sales  activities in the United States
and in key international  markets. In addition to its direct sales channel,  the
Company's  other  distribution  channels  include  distributors,  OEMs, VARs and
systems integrators and consultants.  By using this broad range of channels, the
Company seeks to develop and maintain relations with its customers and prospects
and to provide the levels of support,  training  and  education  required by the
market.  To address the range of sales  opportunities,  the  Company  expects to
continue to pursue value-added sales channels through formal  relationships with
OEMs, VARs,  consultants or other third parties when such  relationships can add
significant  value to its  products or revenues.  The Company  intends to expand
each of these distribution networks to take advantage of market opportunities.

      Acquire New Technologies.  The Company has in the past acquired companies,
products,  and  technologies  to augment its product  offerings,  and intends to
continue  to seek  opportunities  to  satisfy  customer  needs and build  market
penetration through acquisitions of new products and technologies in the future.
In connection with these acquisitions, the Company has leveraged its established
sales channels in an effort to accelerate  the delivery of the acquired  product
to the market and build market share.

      Target Academic  Environments.  The Company markets and sells its products
to colleges and  universities,  increasing  the  potential  for future growth as
students gain experience  using the Company's  products before entering the work
force.

      Maintain High Levels of Customer Satisfaction

      Offer Innovative Modular and Integrated Solutions.  The Company intends to
continue to deliver  innovative,  modular software and hardware tools with open,
portable  architectures that can be easily integrated to create  instrumentation
systems and solutions. The Company solicits regular feedback from its customers,
resulting in the addition of new product features and enhanced  performance,  to
help  ensure  that   existing  and  new  products   meet  or  surpass   customer
expectations.

      Provide Global  Customer  Support and Education.  The Company's  sales and
marketing  engineers  have  the  technical  expertise  necessary  to  understand
customers'  instrumentation  application  needs and work  with them to  identify
cost-effective solutions using the virtual instrumentation approach. The Company
also offers comprehensive customer support,  including technical support via the
NI.com  Web  site,   electronic  mail,   bulletin  boards,  fax  and  telephone,
newsletters,  warranty  service  and  repair,  upgrade  programs,  free and paid
seminars and technical classes.  In 2000 the Company continued to invest heavily
to leverage the Web for customer support. Through the Company's NI.com Web site,
customers  have access to a growing range of support  options to solve their own
problems directly over the Web, including software  downloads,  upgrades and bug
fixes,  automated product  configuration  tools,  knowledge  databases of common
questions and answers, online seminars, and discussion forums.

      Deliver Long-Term Compatibility. The Company emphasizes consistency in the
implementation  of its  products  across  different  platforms  and  strives  to
maintain  a high  degree of  backward  compatibility  between  existing  and new
products, engendering a high degree of customer loyalty.

      Leverage External and Internal Technology

      Leverage  Generally  Available  Technology.   The  Company  leverages  the
research  and  development   efforts  of  vendors  of  personal   computers  and
workstations,  operating systems, programming languages and software development
tools, and their suppliers.  By integrating Web,  networking and  communications
capabilities  directly in its  software  and hardware  products,  the  Company's
products  allow users of its virtual  instrument  approach to easily  distribute
measurement  and  automation  capabilities  throughout  factories and around the
world,  easily  integrate  measurement  and  automation  data  throughout  their
organization and across the enterprise and achieve advanced solutions at a lower
development cost.

      Support Open Architecture on Multiple  Platforms.  The Company  approaches
the market with an open  architecture  so users have the  flexibility to combine
the Company's  products with those from instrument  suppliers,  computer vendors
and competitors.

      Leverage  Core  Technologies.  The Company  designs  proprietary  ASICs to
optimize  performance and reduce  production  costs.  The Company utilizes these
ASICs and its other  internally  developed  hardware and software  components in
multiple products to achieve consistency and compatibility between products.

                                      -7-

<PAGE>

      Develop and Support Industry Standards.  The Company actively participates
in  efforts  to  standardize  key  technologies  by  participating  in  industry
consortia and serving on standards  committees,  such as IEEE 488, VXI,  Compact
PCI, PXI, PICmg, the Interchangeable  Virtual Instrumentation  Foundation,  also
called IVI,  Foundation  Fieldbus,  OPC, and ASAM, a new automotive  measurement
standard.  The  Company's  ongoing  strategy  is  to  conform  its  products  to
established  and  emerging  standards  in  both  the  general  computer  and the
instrumentation industries.

Products and Technology

      The  Company  offers  an  extensive  line of  measurement  and  automation
products.  Engineers,  scientists  and  other  users  involved  in  T&M  and  IA
applications can use these products with computers, networks and the Internet to
develop  customer-defined  virtual instrument solutions.  The Company's products
consist of application  software,  and hardware components together with related
driver  software.  In T&M  applications,  the Company's  products can be used to
monitor  and  control  traditional   instruments  or  to  create  computer-based
instruments  that can replace the traditional  instruments.  In IA applications,
the  Company's  products  can be used in the same ways as in T&M and can also be
used  to   integrate   measurement   functionality   with   process   automation
capabilities.  The  Company's  products  are  designed  to  work  either  in  an
integrated  solution or separately.  The Company  believes that the flexibility,
functionality and ease of use of its application  software promotes sales of the
Company's other software and hardware products.

      Application Software

      The Company believes that application  software is playing an increasingly
important role in the development of  computer-based  instruments and systems in
measurement  and automation  applications.  The Company's  application  software
products  leverage the  increasing  capability  of  computers,  networks and the
Internet  for  data  analysis,  connectivity  and  presentation  power  to bring
increasing efficiency and precision to measurement and automation  applications.
The Company's application software products include LabVIEW, Measurement Studio,
Lookout,  Measure,  Virtual Bench, TestStand,  DIAdem and DASYLab. The Company's
application software products are integrated with the Company's  hardware/driver
software.

      The  Company  offers  a  variety  of  software   products  for  developing
measurement and automation  applications  to meet the different  programming and
computer  preferences  of its  customers.  LabVIEW  and  Measurement  Studio are
programming  environments with which users can develop GUIs, control instruments
and acquire,  analyze and present data. With these software products,  users can
design  custom  virtual  instruments  by creating a GUI on the  computer  screen
through  which they operate the actual  program and control  selected  hardware.
Users can  customize  front  panels  with  knobs,  buttons,  dials and graphs to
emulate  control  panels of  instruments  or add  custom  graphics  to  visually
represent the control and operation of processes. LabVIEW and Measurement Studio
also have  ready-to-use  libraries  for  controlling  hundreds  of  programmable
instruments,  including  serial,  GPIB and VXI, the Company's plug-in DAQ boards
and PXI/PCI computer-based instruments. Once created, virtual instruments can be
modified or used as components of another  program by the original  developer or
another user.

     The principal  difference  between LabVIEW and Measurement Studio is in the
way users develop programs. With LabVIEW, users program graphically,  developing
application  programs by connecting  icons to create "block  diagrams" which are
natural design notations for scientists and engineers.  With Measurement Studio,
a  software   package   which   upgraded   and   replaced   LabWindows/CVI   and
ComponentWorks, users may program with the conventional,  text-based language of
C. Measurement Studio also includes application-specific OLE or ActiveX controls
and  libraries to the  Microsoft  Visual  Basic,  Visual C++ and Borland  Delphi
development environments.

      The latest revisions of LabVIEW and Measurement  Studio software  packages
feature  enhanced  capabilities to allow users to more easily  integrate the Web
into their  computer-based  instrumentation  applications.  In 2000, the Company
introduced a version of LabVIEW -- LabVIEW 6i. LabVIEW 6i allows the customer to
easily  communicate,  share and control  measurement and automation  systems and
information  with anyone on the Web,  and  customers  can use the  Internet  and
Intranets to build  distributed,  networked systems throughout their enterprise.
In addition,  in 2000 the Company  expanded the capabilities of its LabVIEW Real
Time software product to include support for the PXI hardware  platform to allow
users who have exceptional response requirements to reliably execute an expanded
range of  system-level  applications  even if the PC operating  system crashes -
solving a key objection  some  potential  users have had in the past to using PC
technology  for  embedded  devices  or  for  mission  critical  measurement  and
automation   applications,   and  extending  the  range  of   applications   for
computer-based measurement and automation.

                                      -8-

<PAGE>

      The Company also sells a range of optional add-on products for LabVIEW and
Measurement  Studio,  such as advanced  analysis  libraries,  database tools and
Internet  integration.   In  2000,  the  Company  also  introduced  the  LabVIEW
Datalogging  and Supervisory  Control Module,  an add-on module for high channel
count applications in research and development and manufacturing.

      The Company's  instrumentation  software products also include DASYLab and
DIAdem.  DASYLab is a schematic environment by which users can quickly configure
simple DAQ applications  using both the Company's and third-party DAQ boards. In
1999, the Company added DIAdem to its line of instrumentation software products.
DIAdem is an easy to use, rapid  development  environment for data  acquisition,
monitoring,  visualization,  open and closed loop control, analysis,  automation
and documentation.  DIAdem features  extensive  off-line analysis  capabilities,
including analysis functions specific to automotive test.

      The Company also offers a software product called  TestStand  targeted for
T&M applications in a manufacturing environment.  TestStand is a test management
environment for organizing,  controlling,  and running automated production test
systems on the factory  floor.  It also  generates  customized  test reports and
integrates product and test data across the customers' enterprise and across the
Internet.  TestStand  manages tests that are written in LabVIEW and  Measurement
Studio,  C and C++,  and  VisualBasic,  so test  engineers  can easily share and
re-use test code throughout their organization and from one product to the next.
TestStand is a key element of the Company's strategy to broaden the reach of its
application software products across the corporate enterprise.

      The Company's  Lookout  software  product is targeted  specifically for IA
applications.  Lookout is a non-programming solution. Lookout is a human machine
interface/supervisory   control  and  data  acquisition  ("HMI/SCADA")  software
product that  requires no  programming  or script  writing.  Lookout  provides a
scalable architecture for applications ranging from HMIs to large, sophisticated
SCADA applications.

      Hardware Products and Related Driver Software

      The Company's  hardware and related driver software products include GPIB,
VXI, DAQ, PXI, image acquisition, motion control, and industrial communications.
The Company  believes it can deliver  significant  cost/performance  benefits to
users  and  clearly  distinguish  its  products  from  competitive  products  by
designing  proprietary ASICs for use in its hardware products.  Software drivers
are  necessary  to link  hardware  to the  operating  system  and the  Company's
application  software.  The high  level of  integration  between  the  Company's
products  provides  users  with  the  flexibility  to  mix  and  match  hardware
components when developing custom virtual instrumentation systems.

      GPIB  Interfaces/Driver  Software.  GPIB,  also  known  as  the  IEEE  488
standard,  has existed since 1975 and defines the protocol for transferring data
between certain instruments and computers over an  industry-standard  cable. The
computer must be equipped with a GPIB interface.  Driver  software  controls the
interface and the transfer of data between the instrument and the computer. GPIB
is largely used in T&M applications.

      The Company began selling GPIB products in 1977 and is a leading  supplier
of GPIB  interface  boards  and driver  software  to  control  traditional  GPIB
instruments.  These  traditional  instruments  are  manufactured by a variety of
third-party  vendors and are used primarily in T&M  applications.  The Company's
diverse portfolio of hardware and software products for GPIB instrument  control
is available for a wide range of computers,  workstations and minicomputers. The
Company's GPIB product line also includes  products for portable  computers such
as a PCMCIA-GPIB  interface card, and products for controlling  GPIB instruments
using the computer's  standard  parallel USB, IEEE 1394  (Firewire) and Ethernet
ports.

      Portability  of GPIB  application  programs is  provided by the  Company's
NI-488.2 driver software,  considered a de facto industry standard,  and NI-VISA
driver software.  The Company offers  networking  capabilities  through its GPIB
products.  With these  products,  users can  communicate  with and control  GPIB
instruments from any point on an Ethernet-based TCP/IP network. The Company also
offers a variety of GPIB  support  products,  including  converters,  expanders,
extenders,  data  buffers and GPIB system  analyzers as well as cables and other
accessories.

      VXI  Modules/Driver   Software.  VXI  is  an  industry  standard  high-end
instrumentation  platform  developed in 1987 through an industry  consortium  to
take advantage of the  computation,  connectivity  and display  capabilities  of
desktop  computers  and  workstations.  With VXI, the physical  size of multiple
instrument  systems can be decreased and communication  between  instruments and
computers can be dramatically improved. Like GPIB, VXI is supported by a variety
of traditional  third-party instrument  manufacturers and is largely used in T&M
applications.

                                      -9-

<PAGE>

      VXI  instruments  are  modular  in  design  and  can be  inserted  into an
industry-standard  chassis.  Unlike GPIB instruments,  VXI modules do not have a
front  panel for  manual  operation  or  visual  data  presentation.  Therefore,
software  is  necessary  for users to create,  define the  functionality  of and
operate VXI  instrumentation  systems.  Today,  VXI is being used  primarily  to
supplement or replace high-end GPIB products in T&M applications.

      The Company is a leading supplier of VXI computer  controller hardware and
the accompanying  NI-VXI and NI-VISA driver software.  The Company also offers a
variety of VXI DAQ modules  with  NI-DAQ  driver  software,  as well as LabVIEW,
Measurement Studio and TestStand software products for VXI systems.

      DAQ  Hardware/Driver  Software.  DAQ hardware and driver software products
are  "instruments  on a board"  that  users can  combine  with  sensors,  signal
conditioning  hardware and software to acquire analog data and convert it into a
digital  format that can be accepted by a computer.  The Company  believes  that
computer-based DAQ products are typically a lower-cost solution than traditional
instrumentation.

      The Company  believes  that  applications  suitable  for  automation  with
computer-based DAQ products are widespread throughout many industries,  and that
many systems  currently  using  traditional  instrumentation  (either  manual or
computer-controlled)  could be displaced  by  computer-based  DAQ  systems.  The
Company  offers a range of  computer-based  DAQ products,  including  models for
digital, analog and timing input-output, and for transferring data directly to a
computer's random-access memory.

      The Company's DAQ products provide a range of  price/performance  options,
and include products for high-speed  applications such as on-line monitoring and
control as well as products designed for long-term  recording of slowly changing
data such as  temperatures.  The Company  also  offers  products  with  features
comparable to stand-alone traditional  instruments such as oscilloscopes,  DMMs,
and  function  and  arbitrary  waveform  generators.   The  Company  offers  DAQ
hardware/driver  software products for numerous desktop and notebook  computers.
The   Company   also   offers   SCXI   (signal   conditioning   extensions   for
instrumentation)  hardware, which expands the types and quantity of sensors that
can be connected to the Company's data acquisition boards.

      PXI  Modular   Instrumentation.   The  Company's  PXI  modular  instrument
platform,  which was  introduced  in 1997,  is a desktop PC packaged in a small,
rugged form factor  with  expansion  slots and  instrumentation  extensions.  It
combines  mainstream PC software and PCI hardware with advanced  instrumentation
capabilities   designed  in  the  VXI  architecture.   In  essence,  PXI  is  an
instrumentation  PC with  plenty of  expansion  slots to enable  the  company to
pursue complete system-level  opportunities and deliver a much higher percentage
of the overall  system  content using the  company's own products.  PXI delivers
many of the benefits of VXI in a much smaller  package and at lower prices.  The
Company  continues to expand its PXI product  offerings with new modules,  which
address a wide variety of  measurement  and automation  applications.  Also, PXI
continues to gain  acceptance as an open industry  standard,  with  endorsements
from over 50 suppliers.

      Machine Vision/Image Acquisition. In late 1996, the Company introduced its
first image  acquisition  hardware.  With the advanced  technologies in personal
computers and the Company's vision products,  it is cost-effective for end-users
to integrate  vision into their  measurement  and automation  applications.  The
Company's vision software is designed to work with many different  environments,
including LabVIEW and Measurement Studio.  Image acquisition is commonly used in
applications for quality control of manufactured products.

      Motion Control.  During 1997, the Company acquired technologies and assets
that resulted in the addition of a line of motion control hardware, software and
peripheral  products.  This  intelligent  PC-based  motion  control  hardware is
programmable from industry standard development  environments  including LabVIEW
and  Measurement  Studio.  The  Company's  software  tools for motion are easily
integrated  with the  Company's  other  product  lines,  allowing  motion  to be
combined  with  image  acquisition,  test,  measurement,  data  acquisition  and
automation.  As in many areas,  motion control is moving to PC-based systems and
the motion  products allow users to leverage  standard  hardware and software in
measurement and automation applications to create robust, flexible solutions.

      Industrial  Communications  Interfaces.  In  mid-1995,  the Company  began
shipping its first interface boards for communicating with serial devices,  such
as dataloggers and PLCs targeted for IA applications,  and benchtop instruments,
such as oscilloscopes,  targeted for T&M applications.  Industrial  applications
need  the  same  high-quality,  easy-to-use  hardware  and  software  tools  for
communicating  with industrial  devices such as process  instrumentation,  PLCs,
single-loop  controllers,  and a  variety  of  I/O  and  DAQ  devices.  National
Instruments  offers  three  hardware  and  driver  software  product  lines  for
communication   with  industrial  devices  --  Controller  Area  Network  (CAN),
Foundation   Fieldbus,   and  RS-485  and  RS-232.   The  Company's   industrial
communication  products  are  designed  to work with  standard  serial  software
drivers, and Windows versions of LabVIEW and Measurement Studio.

                                      -10-

<PAGE>

      Distributed  Input/Output  Hardware/Software.  The Company  introduced its
FieldPoint  product for distributed I/O applications in mid-1997.  FieldPoint is
an intelligent, distributed, and modular I/O system that gives industrial system
developers an economical  solution for distributed data acquisition,  monitoring
and control  applications.  The FieldPoint  system includes  isolated analog and
digital I/O modules,  terminal base  options,  and network  modules.  FieldPoint
software includes a server that provides  seamless  integration into the LabVIEW
Datalogging and Supervisory  Control Module,  driver libraries for support under
LabVIEW,  Measurement  Studio and Lookout,  and an OPC server that provides wide
compatibility of FieldPoint  hardware with other industrial  automation software
packages.

      Customer Training Courses

      The Company offers fee-based  training classes and self-paced  course kits
for many of its software and hardware  products.  On-site courses are quoted per
customer requests.  The Company also offers programs to certify  programmers and
instructors for its products.

Markets and Applications

      The  Company's  products are used across many  industries  in a variety of
applications from research and development to production  testing and industrial
control.

Customers

      The Company has a broad  customer  base,  with no customer  accounting for
more than 3% of the Company's sales in 2000, 1999, or 1998.

Marketing

      Through its worldwide  marketing  efforts,  the Company strives to educate
engineers  and   scientists   about  the  benefits  of  the  Company's   virtual
instrumentation  philosophy,  products  and  technology,  and to  highlight  the
performance,  ease of use and cost advantages of its products.  The Company also
seeks to present its  position as a  technological  leader  among  producers  of
instrumentation  software and hardware and to help promulgate industry standards
that will benefit users of computer-based instrumentation.

      The Company reaches its intended  audience  through its Web site at NI.com
as well as the  distribution  of  written  and  electronic  materials  including
demonstration versions of its software products, participation in tradeshows and
technical conferences and training and user seminars. An in-house staff develops
the NI.com Web site, advertising,  publicity, and promotional materials that the
Company uses worldwide.  The primary  marketing/sales  tool is the Company's Web
site  at  NI.com.   Throughout  1998,  1999,  and  2000,  the  Company  invested
aggressively to enhance the content, performance, and features of NI.com as well
as to integrate  E-commerce as a core component of the Company's business model.
Through  NI.com,  customers can view the  Company's  complete  on-line  catalog,
interactively configure systems, obtain pricing in a number of currencies, place
orders,  track the  status of orders,  register  products  and  obtain  software
upgrades.  The  Company's  believes  its  direct  business  model  provides  the
opportunity  to  leverage  the  Web  heavily  to  reach  customers  and  improve
operations.

      The  primary  printed  marketing/sales  tool  is  the  Company's  catalog,
published  annually and  distributed  worldwide.  The catalog is over 900 pages,
with detailed  tutorial  information  that educates  readers about the Company's
integrated product architecture and virtual instrumentation concept.  Short-form
versions of the catalog are  typically  also  available  in  languages  of major
international markets, including French, German, Spanish and Japanese.

      The  Company  also uses  quarterly  newsletters  to  educate  current  and
prospective  customers about its products and  technologies.  These  newsletters
include new product information, feature articles that educate readers about new
instrumentation   technology,   user   solution   case  studies  of   real-world
applications,  product news from Alliance Program members and key customers, and
event and customer education schedules. These newsletters are available in print
form and via email  subscription.  There are also many  books  available  on the
Company's technology in English, German, French and other languages.

      The   Company   actively   markets  its   products  in  higher   education
environments, and identifies many colleges, universities and trade and technical
schools as key  accounts.  The  Company  offers  special  academic  pricing  and
products to enable universities to utilize Company products in their classes and
laboratories.  The Company  believes its prominence in the higher education area
can contribute to its future success because  students gain experience using the
Company's products before they enter the work force.

Sales and Distribution

                                      -11-

<PAGE>

      The Company  distributes  its  software and  hardware  products  primarily
through  a  direct  sales  organization.   The  Company  also  uses  independent
distributors,  OEMs,  VARs,  system  integrators  and  consultants to market its
products.  The Company has sales  offices in the United States and sales offices
and distributors in key  international  markets.  Sales outside of North America
accounted for approximately 47%, 47%, and 44% of the Company's revenues in 2000,
1999, and 1998, respectively.  The Company expects that a significant portion of
its total  revenues will continue to be derived from  international  sales.  See
Note 13 of Notes to Consolidated Financial Statements for details concerning the
geographic   breakdown  of  the  Company's  net  sales,   operating  income  and
identifiable assets.

      Through all of its sales channels, the Company seeks to approach potential
customers with a highly  technical  sales force.  The Company  believes that the
majority of sales are made directly to those persons within an organization  who
actually use the Company's products to integrate their own systems.  The Company
identifies and targets major end-user accounts as those having a large number of
actual or potential  end users,  and  believes  that it achieves a high level of
repeat  customer  sales.  The Company  targets major  accounts with a variety of
targeted  sales  and  marketing   campaigns  such  as  seminars,   user  groups,
newsletters and direct mail.

      Throughout 2000, the Company continued to invest aggressively to integrate
the Web as a core  component  of its direct sales  model.  The Company  provides
worldwide  on-line  pricing  for  products  in a number  of  currencies,  allows
customers  to order the  complete  catalog of products  via the Web,  provides a
variety of  Web-based  configuration  tools to allow  customers  to more  easily
select and order  multiple  compatible  products for their  systems,  and offers
Prime Access business-to-business capabilities to allow key customers to conduct
business directly with the Company through secure, private pages at NI.com.

      Direct Sales

      The  Company  directly  markets and sells its  products  in the  Americas,
Europe and Asia.  The Company has sales offices  located  throughout  the United
States and in key  international  markets.  Many of the Company's  international
sales offices employ application  engineering  technical support  specialists as
well as sales, marketing and administrative personnel.

      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
risks of  localizing  products  for  foreign  countries;  unexpected  changes in
regulatory requirements,  tariffs and other trade barriers,  difficulties in the
repatriation of earnings and burdens of complying with a wide variety of foreign
laws.  The Company's  sales outside of North  America are  denominated  in local
currencies, and accordingly, the Company is subject to the risks associated with
fluctuations  in currency  rates.  In particular,  increases in the value of the
dollar  against  foreign  currencies  decrease the dollar value of foreign sales
requiring the Company either to increase its price in the local currency,  which
could render the Company's product prices  noncompetitive,  or to suffer reduced
revenues  and gross  margins as  measured  in US dollars.  These  dynamics  have
adversely affected revenue growth in international  markets in recent years. See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and Note 12 of Notes to Consolidated Financial Statements.

      Distributors

      The Company  utilizes  distributors  primarily  to market its  products in
geographic  areas  not  served  by  the  Company's  direct  sales  organization.
Generally,  the Company's  indirect sales customers do not maintain  significant
inventory levels.

      OEMs

      The Company utilizes OEMs such as traditional instrument manufacturers who
offer  integrated  systems and/or services to their customer bases.  The Company
approaches  OEM accounts  with its standard  product  lines and offers  quantity
discounts based on volume  commitments and technical  support  capabilities  and
requirements.  The Company also promotes its sales and marketing capabilities to
its OEMs by providing specialized product training, documentation, packaging and
part numbers to simplify ordering, flexible shipping and warranty repair options
and joint promotion.

      VARs, System Integrators and Consultants

      The Company has relationships  with third-party  VARs, system  integrators
and consultants who offer add-on products and system integration services. These
third-party  developers  expand the Company's market and sales  opportunities by
adding  value to the  Company's  standard  products,  making them  suitable  for
vertical  market   applications  such  as  manufacturing   automation  or  image

                                      -12-

<PAGE>

processing   and   analysis.   The  Company   maintains  a  formal   third-party
sales/marketing/training  program, called the Alliance Program, which it uses to
work with many of the VARs, system integrators and consultants.  Applicants must
be sponsored  for  membership by a Company sales  engineer,  pass  qualification
criteria  and pay a nominal  annual  membership  fee. In late 1998,  the Company
introduced an elite level of its Alliance  Program  called  Select  Integrators.
Select  Integrators  must  qualify  for the  program  based upon their  level of
business  with the  Company.  As of December 31, 2000,  the  Company's  Alliance
Program had approximately 600 members including several Select Integrators.  The
Company  publishes  on-line  directories  on its NI.com Web site of  third-party
Alliance Program member products and services for use by its sales force and its
end users to locate  additional  products  and/or  services  compatible with the
Company's products.  The Company makes available to qualified  third-parties the
opportunity to participate in joint marketing and sales programs,  such as trade
shows, customer sales events and the Company's  newsletters.  In addition to its
relationships  with third party VAR,  system  integrators and  consultants,  the
Company has a direct presence in the German systems  integration  market through
its Datalog and GfS subsidiaries.

Customer Support

      The  Company  believes  the ability to provide  comprehensive  service and
support to its  customers is an important  factor in its  business.  The Company
permits customers to return products within 30 days from receipt for a refund of
the purchase price less a restocking  charge,  and generally provides a two-year
warranty  on GPIB  hardware  products,  a one-year  warranty  on other  hardware
products,  and a 90-day warranty on cables and software (medium only). Customers
may  also  purchase  a  one-year   extended   warranty  on  hardware   products.
Historically, warranty costs have not been material. Some of the key elements of
the Company's service and support strategy include:

      Customer Technical Support

      The  Company  maintains  a large  staff of  application  engineers  at its
corporate facility,  all of whom are highly qualified  technical  professionals.
Application  engineers are also assigned to the  Company's  major  international
offices. These application engineers provide customer support by telephone, fax,
electronic mail and world-wide Web forums,  and electronic  bulletin boards, and
are  trained in both  instrumentation  and  computer  technology.  In 2000,  the
Company  continued to invest  heavily to leverage the Web for customer  support.
Through the Company's NI.com web site,  customers have access to a growing range
of support options to solve their own problems directly over the Web,  including
software  downloads,  upgrades and bug fixes,  automated  product  configuration
tools,  knowledge  databases  of common  questions  and  answers,  live Web chat
capabilities, and discussion forums.

      Upgrades

      The Company  typically  offers  programs in which  existing  customers can
upgrade to the latest  Company  products  for an upgrade  fee that is a discount
from  the  list  price.  Application  software  customers  have  the  option  of
purchasing a one-year renewable maintenance and support program,  which entitles
them to software upgrades and priority access to the Company's technical support
hotline.

      Customer Education

      The Company  offers a variety of  fee-based  training  classes  ranging in
scope from basic and introductory  courses for new users to advanced courses for
experienced users.

Competition

      The markets in which the Company  operates  are  characterized  by intense
competition  from  numerous  competitors,  some of which are  divisions of large
corporations  having far greater  resources  than the  Company,  and the Company
expects to face further  competition  from new market entrants in the future.  A
key competitor is Agilent  Technologies Inc.  ("Agilent").  The Company believes
Agilent is the  dominant  supplier of GPIB and  VXI-compatible  instruments  and
systems.  Agilent  is  also  a  leading  supplier  of  equipment  used  in  data
acquisition  and  control  applications.  Agilent  offers  its own  line of GPIB
instrument  controllers,  as well as hardware and software  add-on  products for
third-party  desktop  computers and workstations  that directly compete with the
Company's  products.  Agilent is  aggressively  advertising  and  marketing  its
products and system integration services.  Because of Agilent's dominance in the
instrumentation business, changes in its marketing strategy or product offerings
could have a material  adverse  affect on the  Company.  The Company  also faces
competition from a variety of other competitors.

                                      -13-

<PAGE>

      Certain  of  the  Company's   competitors  have  substantial   competitive
advantages  in terms of breadth of  technology,  sales,  marketing  and  support
capability and resources,  including the number of sales and technical personnel
and their  ability to cover a  geographic  area and/or  particular  account more
extensively  and with more complete  solutions  than the Company can offer,  and
more extensive  warranty support,  system  integration and service  capabilities
than those of the Company.  In addition,  large competitors can often enter into
strategic alliances with key customers or target accounts of the Company,  which
can  potentially  have a negative  impact on the  Company's  success  with those
accounts.

      The  Company  believes  its ability to compete  successfully  depends on a
number of factors  both  within and  outside  its  control,  including:  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;  success in leveraging the Web;  strategic  relationships with other
suppliers;   timing  of  new  product  introductions  by  the  Company  and  its
competitors;   protection  of  the  Company's   products  by  effective  use  of
intellectual  property laws; general market and economic conditions;  and events
related to weather and government  actions throughout the world. There can be no
assurance that the Company will be able to compete successfully in the future.

      The Company is continually designing new and improved products to maintain
its competitive  position.  Because of the rapidly changing computer  technology
for which many of the Company's products are designed, the Company believes that
its future success will depend in part on its ability to continue to improve its
products and technologies.  In the past, certain competitors have cloned some of
the  Company's  hardware  products  at much lower  prices,  and  promoted  these
hardware  products  as being  capable of running  the  Company's  software.  The
Company has  responded to this tactic in the past by releasing  new and improved
versions of its products  designed around  proprietary  ASICs that have improved
performance and functionality in an effort to surpass the competition.

Research and Development

      The Company  believes that its long-term  growth and success  depends,  in
part,  on  delivering  high quality  software and hardware  products on a timely
basis.  The Company  intends to focus its  research and  development  efforts on
enhancing  existing  products  and  developing  new  products  that  incorporate
appropriate  features  and  functionality  to be  competitive  with  respect  to
technology and price/performance.

      The Company's research and development staff strives to build quality into
products  at the design  stage in an effort to reduce  overall  development  and
manufacturing  costs. The Company's  research and development staff also designs
proprietary  ASICs, many of which are designed for use in several products.  The
goal of the ASIC  design  program  is to  further  differentiate  the  Company's
products from competing  products,  to improve  manufacturability  and to reduce
costs.  The  Company  seeks to reduce  the time to market  for new and  enhanced
products by sharing its internally  developed  hardware and software  components
across multiple products.

      In the  past,  the  Company  has  experienced  significant  delays  in the
introduction  of new  products.  The Company's  strategy of developing  products
based  primarily  on  third  parties'  commercially  available  technologies  is
substantially  dependent on the Company's ability to gain pre-release access to,
and to develop  expertise in,  current and future product  developments  of such
companies.  There can be no assurance  that the Company will continue to receive
such pre-release access from any of these companies,  or, even with such access,
that the Company  will be able to develop  products  on a timely  basis that are
compatible with future releases.

      The Company has implemented  certain programs,  including  pre-release bug
analysis measures and enhanced project-tracking efforts, in order to improve the
product  development  process and to permit more  accurate  product  development
scheduling.  Nonetheless,  there can be no assurance that the Company's research
and development  efforts will not encounter delays or other  difficulties,  that
development efforts will result in commercially successful products, or that the
Company's  products will not be rendered obsolete by changing  technology or new
product announcements by other companies.

      As of  December  31,  2000,  the  Company  employed  672 people in product
research and development.  The Company's research and development  expenses were
$56.0  million,  $45.5  million,  and $34.8  million  for 2000,  1999,  and 1998
respectively.

Intellectual Property

                                      -14-

<PAGE>

      The Company relies on a combination of patent, trade secret, copyright and
trademark  law,  contracts and  technical  measures to establish and protect its
proprietary  rights in its products.  The Company believes that legal protection
through means such as the patent and copyright laws will be less  influential on
the  Company's  ability to compete  than such factors as the  creativity  of its
development  staff, its ability to expand its market share,  develop new markets
and serve its customers.

      As of December 31, 2000,  the Company held 126 United States  patents (121
utility  patents and 5 design  patents)  and 6 patents in foreign  countries  (3
patents  registered in Europe in various  countries;  1 patent in Canada,  and 2
patents in Japan), and had 118 patent applications  pending in the United States
and foreign  countries.  Thirty-five  of such United States patents are software
patents  related to  LabVIEW,  and cover  fundamental  aspects of the  graphical
programming  approach used in LabVIEW. The Company's patents expire from 2007 to
2019. No assurance can be given that the Company's  pending patent  applications
will result in the issuance of patents. The Company also owns certain registered
trademarks in the United States and abroad.

      Although the Company relies to some extent on trade secret  protection for
much of its technology,  and regularly obtains  confidentiality  agreements with
key  customers  who wish to know more about the  Company's  product  development
philosophy  and/or  future  directions,  there can be no  assurance  that  third
parties will not either  independently  develop the same or similar  technology,
obtain unauthorized access to the Company's proprietary technology or misuse the
technology to which the Company has granted access.

      The laws of certain foreign  countries treat the protection of proprietary
rights of the  Company  in its  products  differently  from  those in the United
States, and in many cases the protection afforded by such foreign laws is not as
strong as in the United States. The Company believes that its products and their
use do not infringe the  proprietary  rights of third  parties.  There can be no
assurance, however, that infringement claims will not successfully be made.

Manufacturing and Suppliers

      The Company  manufactures  a majority of its products at its facilities in
Austin,  Texas. Product  manufacturing  operations at the Company can be divided
into four areas:  electronic  circuit card and module assembly;  cable assembly;
technical manuals and product support  documentation;  and software duplication.
The Company  manufactures  most of the  electronic  circuit card  assemblies and
modules  in-house,  although  subcontractors  are used  from  time to time.  The
Company manufactures some of its electronic cable assemblies in-house,  but many
assemblies are produced by  subcontractors.  The Company primarily  subcontracts
its  software  duplication  and  packaging   functions.   Reliance  on  contract
manufacturers  entails  risks of  quality  problems,  less  control  of  product
pricing, and potential  unavailability of or delays in delivery of products, any
of which  could  have a  material  adverse  effect on the  Company's  results of
operations.  There  can be no  assurance  that the  Company,  together  with its
third-party manufacturers,  will be able to produce sufficient quantities of the
Company's products in a timely manner.

      During 2001, the Company will be working to establish a new  manufacturing
operation in Hungary.  The new Hungarian  operation will be the Company's second
manufacturing  facility. This new facility will be required to meet the expected
customer demand in Q4, 2001. Any delay in bringing this facility into production
could have a material adverse effect on the results of operations.

      The  marketplace  dictates that many of the Company's  products be shipped
very  quickly  after  an  order  is  received.  Since  purchased  component  and
manufacturing  lead  times  are  typically  much  longer  than the  short  order
fulfillment  time, the Company is required to keep adequate  amounts of finished
goods inventory and must use an accurate system for forecasting demand for those
products in its production planning  operations.  Fluctuations in demand for the
Company's  products  typically  result  from  month-to-month  variations  in the
quantity and mix of products and from normal, seasonal variations.  A variety of
circumstances,   including   inaccurate   forecasts  of  customer  demand,  poor
availability of purchased  components,  supplier  quality  problems,  production
equipment  problems,  carrier  strikes or damage to  products  in  manufacturing
operations,  could create a buildup of excess  finished goods on the one hand or
an  inability  to  timely  deliver  product  on  the  other.  See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

      Engineering  refinements  to  the  Company's  new  hardware  and  software
products are fairly  common.  These changes can result in the  disruption of the
manufacturing  operation and concurrent delays in delivery dates. Finished goods
inventory at the Company's international warehouses and branches typically has a
short shelf life due to engineering  changes and product  upgrades  initiated by
the Company's product development  operation,  and, if managed incorrectly,  can
result in significant  quantities of obsolete  inventory.  This relatively short
shelf life,  and the resulting  requirement  to properly  manage the quantity of

                                      -15-

<PAGE>

inventory to meet customer demand while minimizing inventory  obsolescence,  has
been and continues to be a challenge to the Company and its branch offices.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

      The Company  obtains  most of its  electronic  components  from  suppliers
located  principally  in the  United  States  and Asia.  Some of the  components
purchased by the Company,  including ASICs, are sole-sourced.  Any disruption of
the Company's  supply of sole or limited source  components,  whether  resulting
from business demand, quality,  production or delivery problems, could adversely
affect the Company's  ability to manufacture  its products,  which could in turn
adversely  affect  the  Company's  business  and  results  of  operations.   See
"Managements  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations."

Backlog

      The Company  typically ships products shortly  following the receipt of an
order.  Accordingly,  the  Company  does not have a material  amount of backlog.
Backlog should not be viewed as an indicator of future sales.

Employees

      As of December 31, 2000, the Company had 2,511 employees, including 672 in
research and development, 1,185 in sales and marketing and customer support, 347
in manufacturing  and 307 in administration  and finance.  None of the Company's
employees is represented by a labor union and the Company has never  experienced
a work stoppage. The Company considers its employee relations to be good.


I
TEM 2.     PROPERTIES

      The Company's principal administrative,  sales, marketing,  manufacturing,
research  and  development  activities  are  conducted  at  three  Company-owned
buildings in Austin,  Texas. The Company owns  approximately 69 acres of land in
north Austin,  Texas,  at which are a 232,000 square foot office  facility and a
140,000  square foot  manufacturing  facility.  The Company is in the process of
constructing  a new R&D  building,  a 380,000  square foot office  facility with
estimated  completion during the first quarter of 2002, and is also working on a
plan and design of a second  manufacturing  facility  to be located in  Hungary,
estimated to be completed by Q4 of 2001.  The Company also owns a 136,000 square
foot office  building in Austin,  Texas in which it houses  certain of its sales
operations.  A portion of the 136,000  square foot office  building is currently
leased to Trilogy,  Inc.  During 2000,  the  Company's  German  subsidiary,  GfS
Systemtechnik  GmbH & Co. completed  construction of a 25,500 square foot office
building in Aachen, Germany in which a majority of its activities are conducted.
GfS also owns another 19,375 square foot office building,  a portion of which is
partially  leased to BMS Modern Games.  The remainder of this office building is
used by GfS.

      As of December  31,  2000,  the Company  also leased a number of sales and
support offices in the United States and overseas. The Company believes existing
field  sales  and  support   facilities   are   adequate  to  meet  its  current
requirements.


ITEM 3.     LEGAL PROCEEDINGS

      On May 2, 2000,  the  Company was served by Cognex  Corporation  asserting
patent  infringement of two Cognex patents,  copyright  infringement,  trademark
infringement  and unfair  competition.  Cognex seeks  preliminary  and permanent
injunctive  relief,  actual  monetary  damages  in an  unspecified  amount,  and
attorney's  fees and costs.  On June 21, 2000,  the Company  filed a response to
their  lawsuit  denying all claims.  A trial has been  scheduled for October 23,
2001. The Company is defending this lawsuit vigorously. The Company is unable to
predict the outcome of the  litigation at this time.  Based on the facts we have
reviewed to date,  management  does not expect the  resolution of this matter to
have a material adverse effect on the Company's business or financial condition.
However,  because the plaintiff has indicated an unwillingness to withdraw these
claims, the Company has accrued $2.5 million of anticipated patent defense costs
that are probable of being incurred.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matter was  submitted to a vote of security  holders  during the fourth
quarter of the fiscal year covered by this report.

                                      -16-

<PAGE>


                                     PART II


ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

      The Company's Common Stock,  $0.01 par value,  began trading on the Nasdaq
National Market System under the symbol NATI effective March 13, 1995.  Prior to
that date,  there was no public  market for the Common  Stock.  The high and low
closing  prices for the Common  Stock in the  following  table,  as  reported by
Nasdaq,  have been  retroactively  restated to reflect the  three-for-two  stock
split declared by the Company's  Board of Directors on July 22, 1999 for holders
of record as of the close of business on August 5, 1999.

                   2000        High       Low

             First Quarter     50.188     34.938
             2000

             Second Quarter    56.75      33.00
             2000

             Third Quarter     48.875     40.813
             2000

             Fourth Quarter    52.438     37.063
             2000

                   1999        High       Low

             First Quarter     23.083     17.417
             1999

             Second Quarter    27.50      18.167
             1999

             Third Quarter     35.344     26.167
             1999

             Fourth Quarter    38.25      27.25
             1999

      At the close of business on February 2, 2001, there were approximately 798
holders of record of the Common Stock and  approximately  6,800  shareholders of
beneficial interest.

      The Company believes factors such as quarterly  fluctuations in results of
operations,  announcements  by the  Company  or its  competitors,  technological
innovations, new product introductions,  governmental regulations, litigation or
changes in  earnings  estimates  by analysts  may cause the market  price of the
Common Stock to fluctuate, perhaps substantially.  In addition, stock prices for
many technology  companies fluctuate widely for reasons that may be unrelated to
their  operating  results.  These broad  market and  industry  fluctuations  may
adversely affect the market price of the Company's Common Stock.

      To date,  the Company has not paid any cash dividends on its Common Stock.
The Company  currently  anticipates  that it will retain any available  funds to
finance the growth and operation of its business and does not anticipate  paying
any cash dividends in the immediate future.

                                      -17-

<PAGE>


ITEM 6.     SELECTED CONSOLIDATED FINANCIAL DATA

      The  following  selected  consolidated  financial  data  should be read in
conjunction with the consolidated  financial statements,  including the Notes to
Consolidated  Financial  Statements.  The  information  set  forth  below is not
necessarily  indicative of results of future operations.  The information should
be read in conjunction with  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."

                                            Years Ended December 31,
                               ------------------------------------------------
                                 2000      1999      1998      1997      1996
                               --------  --------  --------  --------  --------
                                     (in thousands, except per share data)

Statements of Income Data:
Net sales:

  North America..............  $215,960  $175,873  $153,435  $141,784  $114,382
  Europe.....................   133,799   108,801    86,961    66,318    58,108
  Asia Pacific...............    60,390    44,909    33,834    32,777    28,225
                               --------  --------  --------  --------  --------
  Consolidated net sales.....   410,149   329,583   274,230   240,879   200,715

Cost of sales................    98,326    76,040    65,187    55,096    49,755
                               --------  --------  --------  --------  --------
  Gross profit...............   311,823   253,543   209,043   185,783   150,960
                               --------  --------  --------  --------  --------
 
Operating expenses:
  Sales and marketing........   147,377   120,886   100,783    87,096    72,067
  Research and development...    55,954    45,531    34,757    30,296    24,387
  General and administrative.    32,077    24,258    20,455    18,508    17,129
                               --------  --------  --------  --------  --------
  Total operating expenses...   235,408   190,675   155,995   135,900   113,583
                               --------  --------  --------  --------- --------

  Operating income...........    76,415    62,868    53,048    49,883    37,377

Other income (expense):
  Interest income............     6,390     4,759     3,439     3,455     2,405
  Interest expense...........      (533)     (404)     (463)     (502)     (844)
  Net foreign exchange (loss)
    gain and other...........    (1,159)      130      (224)   (2,649)     (899)
                               --------  --------  --------  --------  --------

Income before income taxes
 and cumulative effect of              
 accounting change...........    81,113    67,353    55,800    50,187    38,039
Provision for income taxes...    25,956    21,553    18,414    16,562    12,553
                               --------  --------  --------  --------  --------

Income before cumulative
 effect of accounting            
 change......................    55,157    45,800    37,386    33,625    25,486
Cumulative effect of
 accounting change,                     
 net of tax..................        --      (552)       --        --        --
                               --------  --------  --------  --------  --------

       Net income............  $ 55,157  $ 45,248  $ 37,386  $ 33,625  $ 25,486
                               ========  ========  ========  ========  ========
 
Basic earnings per share:
   Income before cumulative
   effect of accounting
   change....................  $   1.10  $   0.92  $   0.76  $   0.69  $   0.53
   Cumulative effect of
   accounting change, net of           
   tax.......................        --     (0.01)       --        --        --
                               --------  --------  --------  --------  --------
   Basic earnings per share..  $   1.10  $   0.91  $   0.76  $   0.69  $   0.53
                               ========  ========  ========  ========  ========

                                      -18-

<PAGE>

Diluted earnings per share:
   Income before cumulative
   effect of accounting
   change....................  $   1.03  $   0.88  $   0.73  $   0.67  $   0.52
   Cumulative effect of
   accounting change, net of                
   tax.......................        --     (0.01)       --        --        --
                               --------  --------  --------  --------  --------
   Diluted earnings per share  $   1.03  $   0.87  $   0.73  $   0.67  $   0.52
                               ========  ========  ========  ========  ========

Weighted average shares
outstanding:

   Basic.....................    50,332    49,776    49,248    48,845    48,539
   Diluted...................    53,564    52,203    51,150    50,484    49,415

                                                  December 31,
                               ------------------------------------------------
                                 2000      1999      1998      1997      1996
                               --------  --------  --------  --------  --------
                                                 (in thousands)
Balance Sheet Data:

Cash and cash equivalents....  $ 75,277  $ 45,309  $ 51,538  $ 31,943  $ 30,211
Short-term investments.......    79,525    83,525    49,158    51,067    48,956
Working capital..............   220,208   173,761   133,510   112,142    99,294
Total assets.................   389,350   318,753   249,786   204,490   169,225
Long-term  debt, net of      
  current portion............        --     4,301     4,379     5,151     9,175
Total stockholders' equity...   321,023   254,235   204,184   161,754   126,953

                                      -19-

<PAGE>


ITEM 7.     MANAGEMENT'S  DISCUSSION AND  ANALYSIS  OF  FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

      The  discussion  in  this  document  contains  trend  analysis  and  other
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended.  Actual results could differ  materially from those projected in the
forward-looking  statements  throughout this document 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 risk factors set forth below in Factors
Affecting the Company's  Business,  in the financial line item discussions below
and elsewhere in this document.

Overview

      National  Instruments  Corporation  designs,  develops,  manufactures  and
markets  instrumentation  and  automation  software  and  hardware  for  general
commercial,  industrial and scientific applications. The Company offers hundreds
of products used to create virtual  instrumentation  systems for measurement and
automation.  The Company has  identified a large and diverse market for test and
measurement ("T&M") and industrial automation ("IA") applications. The Company's
products are used in a variety of applications  from research and development to
production testing and industrial control. In test and measurement applications,
the  Company's  products  can  be  used  to  monitor  and  control   traditional
instruments or to create computer-based instruments that can replace traditional
instruments.  In industrial automation applications,  the Company's products can
be used in the  same  ways as in test  and  measurement  and can also be used to
integrate measurement  functionality with process automation  capabilities.  The
Company sells to a large number of customers in a wide variety of industries. No
single customer  accounted for more than 3% of the Company's sales in 2000, 1999
or 1998.

      The  Company's  revenues  have grown every year since 1977 and the Company
has been profitable in every year since 1990. There can be no assurance that the
Company's  net sales  will  continue  to grow or that the  Company  will  remain
profitable  in future  periods.  As a result,  the Company  believes  historical
results  of  operations  should  not be  relied  upon as  indications  of future
performance.

                                      -20-

<PAGE>

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:

                                                  Years Ended December 31,
                                             ----------------------------------
                                                2000        1999        1998
                                             ----------  ----------  ----------
Net sales:
  North America........................          52.7%       53.4%       56.0%
  Europe...............................          32.6        33.0        31.7
  Asia Pacific.........................          14.7        13.6        12.3
                                             ----------  ----------  ----------
  Consolidated net sales...............         100.0       100.0       100.0
Cost of sales..........................          24.0        23.1        23.8
                                             ----------  ----------  ----------
  Gross profit.........................          76.0        76.9        76.2
Operating expenses:
  Sales and marketing..................          35.9        36.7        36.7
  Research and development.............          13.7        13.8        12.7
  General and administrative...........           7.8         7.3         7.5
                                             ----------  ----------  ----------
    Total operating expenses...........          57.4        57.8        56.9
                                             ----------  ----------  ----------
    Operating income...................          18.6        19.1        19.3
Other income (expense):
  Interest income .....................           1.5         1.4         1.3
  Interest expense.....................          (0.1)       (0.1)       (0.2)
  Net foreign exchange gain (loss).....          (0.3)       --          (0.1)
                                             ----------  ----------  ----------
Income before income taxes and
  cumulative effect of accounting                               
  change...............................          19.7        20.4        20.3
Provision for income taxes.............           6.3         6.5         6.7
                                             ----------  ----------  ----------
Income before cumulative effect of
  accounting change....................          13.4        13.9        13.6
Cumulative effect of accounting change,
  net of tax...........................          --          (0.2)       --
                                             ----------  ----------  ----------
Net income.............................          13.4%       13.7%       13.6%
                                             ==========  ==========  ==========

                                      -21-


<PAGE>

      Net Sales.  In 2000, net sales for the Company's  products  reached $410.1
million,  a 24%  increase  from the level  achieved in 1999,  which  followed an
increase in net sales of 20% in 1999 over the level achieved in 1998.  This year
marks the twenty-fourth  year of consecutive  double-digit  annual sales growth.
The  increase  in  sales in  these  periods  is  primarily  attributable  to the
introduction  of new and  upgraded  products in each  period,  increased  market
acceptance of the Company's  products in each of the major geographical areas in
which the Company  operates,  and an expanded customer base. The increase in the
revenue  growth rate to 24% from 20% in 1999,  is  attributed  to an increase in
unit sales growth in all regions,  a broad  increase in demand for the Company's
products and  significant  growth in newer  product  areas such as PXI,  Machine
Vision, Motion Control, FieldPoint and PC based instruments.

      North American revenue was $216.0 million in 2000, an increase of 23% from
1999,  following a 15% increase in 1999 over 1998.  The increase in sales and in
the revenue  growth rate in North America in 2000 is primarily  attributable  to
market  acceptance of the Company's new products,  an expanded sales force and a
recovery from the industry downturn in early 1999.

      European revenue was $133.8 million in 2000, an increase of 23% over 1999,
following a 25% increase in 1999 from 1998. The increase in revenue in Europe is
primarily  attributable  to continued  market  acceptance  of the  Company's new
products, the strong local economies and the Company's expansion in its European
sales force.

      Asia Pacific  revenue grew 35% to $60.4 million in 2000,  which followed a
33% increase in 1999 over 1998 levels.  The increase in the Asia Pacific revenue
growth rate during 2000 is primarily  attributed to the success of the Company's
new products, an expanded sales force and the continued improvement in the state
of the Asian economies. See the discussion below for more information concerning
the impact of foreign currency fluctuations on sales growth.

      International   sales  (sales  to  customers  outside  of  North  America)
accounted for 47%, 47% and 44% of the Company's consolidated net sales for 2000,
1999 and 1998,  respectively.  The  Company  intends to  continue  to expand its
international  operations by increasing market presence in existing markets, and
continuing  to use  distributors  to sell its products in countries in which the
sales volume does not justify direct sales activities.

      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
risks of  localizing  products  for  foreign  countries;  unexpected  changes in
regulatory requirements,  tariffs and other trade barriers;  difficulties in the
repatriation of earnings and burdens of complying with a wide variety of foreign
laws.  The Company's  sales outside of North  America are  denominated  in local
currencies, and accordingly, the Company is subject to the risks associated with
fluctuations  in currency  rates.  In particular,  increases in the value of the
dollar  against  foreign  currencies  decrease the U.S.  dollar value of foreign
sales  requiring the Company either to increase its price in the local currency,
which could render the Company's  product  prices  noncompetitive,  or to suffer
reduced revenues and gross margins as measured in U.S.  dollars.  These dynamics
have adversely  affected revenue growth in international  markets in 2000 and in
previous years.  The Company's  foreign  currency  hedging program includes both
foreign  currency forward and purchased option contracts to reduce the effect of
exchange rate fluctuations.  However, the hedging program will not eliminate all
of the Company's foreign exchange risks. (See "Foreign Exchange Gain/Loss" below
and Note 12 of Notes to Consolidated Financial Statements.)

      Sales  made by the  Company's  direct  sales  offices  in Europe  and Asia
Pacific are denominated in local  currencies,  and accordingly,  the U.S. dollar
equivalent  of these sales is affected by changes in the weighted  average value
of the U.S. dollar. This weighted average is calculated as the percentage change
in  the  value  of  the  currency  relative  to the  dollar,  multiplied  by the
proportion of international sales recorded in the particular  currency.  Between
2000 and 1999 this weighted  average value of the U.S. dollar increased by 8.2%,
causing an equivalent decrease in the U.S. dollar value of the Company's foreign
currency sales and expenses.  If the weighted average value during 2000 had been
the same as that in 1999, on a pro-forma  basis,  the Company's  growth rate for
2000  would  have been  26.6%.  Pro-forma  European  sales for 2000  would  have
increased by 32% over 1999 sales.  Pro-forma  Asia Pacific  sales for 2000 would
have  increased  by 29% over 1999 sales.  If the weighted  average  value of the
dollar during 2000 had been the same as that in 1999, on a pro-forma  basis, the
Company's  consolidated  operating  expenses  would  have been  $236.4  million,
representing an increase of $1.0 million.  The preceding  pro-forma  amounts and
percentages are not presented in accordance with Generally  Accepted  Accounting
Principles but are presented for comparative purposes.

      Gross Profit. As a percentage of sales,  gross profit represented 76%, 77%
and 76% in 2000,  1999, and 1998,  respectively.  The  relatively  high software
content of the Company's  products is demonstrated in the gross margins achieved

                                      -22-

<PAGE>

by the Company.  The lower margin in 2000 is the result of  unfavorable  foreign
currency exchange rates,  lost capacity and increased  overhead costs related to
delayed  receipt of components  from  suppliers.  In 1999,  improved  production
efficiencies and favorable foreign currency exchange rate fluctuations  resulted
in higher margins.  There can be no assurance that the Company will maintain its
historical margins.

      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.

      The Company is currently working to establish a new manufacturing facility
in Hungary in Q4 of 2001.  This new  facility  will be required in order to meet
the customer  demand  anticipated in Q4, 2001. Any delay in making this capacity
available could have a material adverse effect on the results of operations.

      Sales and  Marketing.  Sales and marketing  expense in 2000  increased 22%
from 1999,  which followed an increase of 20% in 1999 from 1998. The increase in
the expense in absolute  amounts during 2000 and 1999 is primarily  attributable
to increases in sales and marketing personnel both  internationally and in North
America,  increased  marketing  for new  products  and web  marketing  and sales
activities.  Sales and marketing personnel increased by 237 during 2000 from 948
at December 31, 1999 to 1,185 at December 31, 2000. Sales and marketing expense,
as a percentage of revenue was 36% in 2000, down from 37% in 1999 and 1998.

      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 marketing and advertising campaign costs associated with
major new product  releases and entry into new market  areas,  investment in the
web sales and marketing efforts,  increasing product demonstration costs and the
timing of domestic and international sales conferences and trade shows.

      Research  and  Development.  Research  and  development  expense  in  2000
increased  23% compared to 1999  following an increase of 31% in 1999 over 1998.
Excluding  the pre-tax  charge for the  write-off  of  in-process  research  and
development,  on a pro-forma basis,  research and development  expense grew 29%,
28% and 12% during 2000,  1999 and 1998,  respectively.  (See Note 8 of Notes to
Consolidated   Financial   Statements   for  a  description   of  the  Company's
acquisitions.) The increase in research and development  expenditures (excluding
the acquisition related charges in 1998) in absolute amounts and as a percentage
of sales in each period was primarily  due to increases in personnel  costs from
hiring of additional  product  development  engineers.  Research and development
personnel  increased  from 501 at December 31, 1999 to 672 at December 31, 2000.
The Company  believes  that a  significant,  ongoing  investment in research and
development is required to remain competitive and continue revenue growth.

      The Company  capitalizes  software  development  costs in accordance  with
Statement of Financial Accounting Standards 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.  Software  amortization expense totaled $2.6 million,  $2.3 million and
$2.8 million  during 2000,  1999 and 1998,  respectively.  Software  development
costs  capitalized  during such years were $5.0  million,  $2.8 million and $3.3
million,  respectively.  The increased  levels of  capitalization  for 2000 were
primarily a result of the development of LabVIEW 6i, NI-DAQ 6.9 and MAX 2.1. The
significant  items  capitalized in 1999 were primarily the result of NI-DAQ 6.6,
Lookout  4.0  and  purchased  software  development  costs  related  to the  GfS
acquisition.  (See Note 5 of Notes to  Consolidated  Financial  Statements for a
description of intangibles.)

      General and  Administrative.  General and administrative  expenses in 2000
increased 32% from 1999,  which followed an increase of 19% in 1999 from 1998. A
significant  amount  of the  increase  was due to the  increase  in legal  costs
primarily from a $2.5 million accrual for anticipated  patent defense costs. The
increase was also comprised of cost  attributable  to staffing  increases in the
information  system,   finance,   legal  and  human  resources  departments  and
significant  increases in recruiting  costs due to the  continued  growth in the
target  number  of  engineering  recruits.  Continued  development  of  web  and
e-commerce offerings were the main areas of focus for incremental  investment in
the  information  system  department in 2000.  The 2000 increase  followed a 19%
increase in 1999,  which was primarily  driven by support of the new  management
information  systems  and web based  applications.  General  and  administrative
expenses as a percentage  of revenue  increased to 7.8% during 2000 from 7.3% in

                                      -23-

<PAGE>

1999.  The increase in 2000 was  primarily  due to the $2.5 million  accrual for
future patent  defense costs recorded in the fourth quarter of 2000. The Company
expects  that  general  and  administrative  costs will  continue to increase in
absolute  amounts and to  fluctuate  as a  percentage  of revenue as the Company
continues  to  invest  in  maintaining  its  existing  systems,  developing  the
infrastructure for the new Hungarian  manufacturing facility, and developing web
based commerce and management information systems.

      Interest Income and Expense.  Interest  income  increased 34% in 2000 from
1999, which followed an increase of 38% in 1999 from 1998. The primary source of
interest  income is from the investment of proceeds from the Company's  issuance
of common  stock  under an initial  public  offering in March 1995 and cash flow
generated  from  operations.  Net cash provided by operating  activities in 2000
totaled  $55.0  million.  During  2000,  interest  income  increased  due to the
investment of cash generated from  operations.  Interest  expense  increased 32%
from 1999, which followed a decrease of 13% in 1999 from 1998.  Interest expense
represents  less  than  1% of net  sales  and  fluctuates  as a  result  of bank
borrowings  and interest  terms  thereon.  (See Note 6 of Notes to  Consolidated
Financial Statements for a description of the Company's debt.)

      Net  Foreign  Exchange  Gain/Loss.  The  Company  experienced  net foreign
exchange  losses of $1.5 million in 2000,  compared to gains of $130,000 in 1999
and losses of $224,000 in 1998.  These  results are  attributable  to  movements
between  the U.S.  dollar and the local  currencies  in  countries  in which the
Company's  sales  subsidiaries  are located.  The Company  recognizes  the local
currency as the functional currency of its international subsidiaries.

      The  Company  utilizes  foreign  currency  forward  contracts  to  hedge 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  "receivables"  foreign exchange forward contracts to
90 days.

      The Company also utilizes foreign  currency forward  contracts and foreign
currency  purchased  option  contracts  in  order to  reduce  its  exposures  to
fluctuations in future foreign currency cash flows. The Company  purchases these
contracts  for up to 100% of its  forecasted  cash flows in selected  currencies
(primarily  the euro,  yen and pound  sterling) and limits the duration of these
contracts to 30 months.  The foreign  currency  purchased  option  contracts are
purchased  "at-the-money"  or  "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 invest in contracts for speculative  purposes.
(See Note 12 of Notes to Consolidated  Financial Statements for a description of
the Company's forward and purchased option contracts and hedged  positions.) The
Company's  hedging  strategy  reduced the foreign exchange loss for December 31,
2000 by $10.2 million and reduced the net foreign exchange loss for December 31,
1999 by $3.3 million.

      Effective  January  1, 1999, the  Company  elected to adopt SFAS No.  133,
"Accounting for Derivative Instruments and Hedging Activities." (See Note 11 and
Note 12 of Notes to Consolidated Financial Statements.)

      Provision  for Income Taxes.  The  provision for income taxes  reflects an
effective  tax rate of 32% in 2000 and 1999 and 33% in 1998.  The  effective tax
rate is  lower  than  the  Federal  Statutory  rate  primarily  as a  result  of
tax-exempt  interest and reduced tax rates in certain  international  locations.
(See Note 7 of Notes to Consolidated Financial Statements).

Liquidity and Capital Resources

      The Company is currently financing its operations and capital expenditures
through cash flow from operations. At December 31, 2000, the Company had working
capital of  approximately  $220.2 million compared to $173.8 million at December
31, 1999.

      Accounts  receivable  increased to $74.7 million at December 31, 2000 from
$58.3  million  at  December  31,  1999,  as a result  of higher  sales  levels.
Receivable  days  outstanding  at December 31, 2000 increased to 60 days from 58
days at December 31, 1999.  Consolidated  inventory  balances have  increased to
$33.3  million at December  31, 2000 from $26.2  million at December  31,  1999.
Inventory  turns of 3.3 per year for 2000 represent a decrease from turns of 3.6
per year for 1999 and  reflect the  planned  increase in the level of  inventory
related  to  allocated  components  and  increased  procurement  of  end-of-life
components. The Company expects these high inventory levels to persist until the
component supply situation has eased significantly.

      Cash used for investing  activities in 2000 includes $27.6 million for the
purchase of property and equipment and  capitalization  of software  development
costs of $5.0 million.

                                      -24-

<PAGE>

      In October of 2000, the Company began  construction  of an office building
("Mopac C") located on the North Austin campus. It is currently anticipated that
a  significant  portion  of the  construction  costs  will  be  paid  out of the
Company's existing working capital. The Company estimates the total cost for the
new building,  including furniture,  fixtures and equipment, will range from $58
million to $62  million.  In  October of 2000,  the  Company  entered  into firm
commitments of approximately  $60 million for the new building.  The Company has
incurred  approximately  $6.6 million in  construction  costs as of December 31,
2000, with the remainder  becoming payable in 2001. The actual level of spending
may vary depending on a variety of factors, including unforeseen difficulties in
construction.  Upon  completion of the Mopac C building,  the Company intends to
vacate its existing 136,000 sq. ft.  Millenium office building.  The Company has
signed  an  agreement  to lease  the  Millenium  building  to a third  party and
currently  estimates  that the net rental  income  from this  lease will  offset
approximately 30% of the projected operating costs from the Mopac C building.

      The Company also plans to construct a second manufacturing  facility to be
located in  Hungary.  The Company  estimates  that this  European  manufacturing
facility  will be  operational  by Q4 of 2001,  and that by 2003  will  source a
significant  portion of the Company's  international  sales. The location of the
facility  has a cost  base and tax rate  significantly  lower  than in the U.S.,
which should have the effect of reducing the cost of manufacturing  and lowering
the  consolidated tax rate.  However,  there can be no assurance that the actual
manufacturing  costs  will  be  lower.  It  is  currently   anticipated  that  a
significant  portion of the construction costs will be paid out of the Company's
existing  working  capital with any remaining  costs being funded through credit
from the Company's  current  financial  institutions.  The Company estimates the
total cost for the new facility,  including  furniture,  fixtures and equipment,
will be  approximately  $17.0  million.  The actual  level of spending  may vary
depending  on  a  variety  of  factors,  including  unforeseen  difficulties  in
construction.

      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 and
internally  generated  funds.  As of December 31, 2000,  the Company had no debt
outstanding  to  financial  institutions.  (See Note 6 of Notes to  Consolidated
Financial Statements for additional information regarding the Company's debt.)

      The Company believes that the cash flow from operations,  if any, existing
cash balances and  short-term  investments,  will be sufficient to meet its cash
requirements for at least the next twelve months.  Cash requirements for periods
beyond the next twelve months depend on the Company's profitability, its ability
to manage working capital requirements and its rate of growth.

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.

      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  contracts to hedge its  exposure on  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 December 31, 2000, an
adverse  change  (defined  as 20% in the Asian  currencies  and 10% in all other
currencies)  in exchange  rates would result in a decline in the aggregate  fair
market value of all  instruments  outstanding  of  approximately  $17.9 million.
However,  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.  (See  Note 11 of Notes to  Consolidated
Financial Statements for a description of the Company's financial instruments at
December 31, 2000 and 1999.)

      Short-term  Investments.  The fair value of the Company's  investments  in
marketable  securities  at December 31, 2000 was $79.5  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

                                      -25-

<PAGE>

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
December  31,  2000,  a 100 basis point  increase or decrease in interest  rates
would result in a decrease or increase of less than $400,000,  respectively,  in
the fair value of the investment  portfolio.  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.

Recently Issued Accounting Pronouncement

      In the fourth  quarter  of 2000,  the  Company  adopted  Staff  Accounting
Bulletin ("SAB") No. 101,  Revenue  Recognition in Financial  Statements,  which
provides  guidance in  applying  generally  accepted  accounting  principles  to
certain  revenue  recognition  issues.  The  adoption  of SAB 101 did not have a
material impact on the Company's financial position or overall trends in results
of operations.

Factors Affecting the Company's Business

      U.S./Global Economic Slowdown.  As has occurred in the past, most recently
in 1998 when the Asian  economic  situation and its effects on the U.S.  economy
resulted in a slowdown in  automated  test  equipment,  semiconductor  and other
markets,  the markets in which the Company does business could again  experience
the  negative  effects  of a  slowdown  in the  U.S.  and/or  Global  economies.
Downturns in the U.S. or Global  economies could have a material  adverse effect
on the Company's operating results.

      Risk of Component Shortages. As has occurred in the past, most recently in
the quarter ended December 31, 2000,  supply  shortages of components  including
sole  source   components  can  result  in  significant   additional  costs  and
inefficiencies in manufacturing.  Component shortages, including components from
Analog Devices,  Inc., have continued in the first quarter and if the Company is
unsuccessful in resolving these issues, it will experience a significant  impact
on the timing of revenue and/or an increase in  manufacturing  costs,  either of
which would have a material adverse impact on the Company's operating results.

      Expansion of Manufacturing Capacity. The Company is working to establish a
new manufacturing  facility which is to be located in Hungary. It is anticipated
that this facility will be in operation by Q4, 2001. This additional capacity is
required to meet anticipated  customer demand in Q4, 2001. Any delay in bringing
this  facility  into  production  could  have a material  adverse  effect on the
Company's  results of  operations.  Factors,  which  could  result in a delay in
bringing  this  new  facility  into  production,   include  possible  delays  in
construction,  difficulties  in recruiting and training the local work force and
possible difficulties in establishing the required information systems.

      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 U.S. dollar,  and if the local sales prices cannot be raised,
the Company will experience a deterioration of its gross and net profit margins.
The Company expects the strength of the U.S. dollar to have a negative effect on
gross and net profit margins in future quarters.

      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 could have a material adverse effect on the Company's operating
results.

      In  recent  years,  the  Company's  revenues  have been  characterized  by
seasonality,  with revenues  typically being  relatively  constant in the first,
second and third  quarters,  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. If this historical pattern continues,  revenues and earnings
for the first quarter of 2001 may not exceed revenues from the fourth quarter of
2000. Also, the Company's results of operations in the third quarter of 2001 may

                                      -26-

<PAGE>

be adversely  affected by lower sales levels in Europe,  which  typically  occur
during the summer months.  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 significantly increased intern personnel expenses.

      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
domestic and  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.

      Risks  associated with Increased  Development of Web site. The Company has
devoted significant  resources in developing its Web site as a key marketing and
sales  tool and  expects to  continue  to do so in the  future.  There can be no
assurance that the Company will be successful in its attempt to leverage the Web
to  increase  sales.  The  Company  hosts its Web site  internally.  Failure  to
successfully  maintain the Web site and to protect it from hackers  could have a
significant impact on the Company's results.

      Operation  in  Intensely  Competitive  Markets.  The  markets in which the
Company  operates  are  characterized  by  intense   competition  from  numerous
competitors,  some of which  are  divisions  of large  corporations  having  far
greater  resources  than the  Company,  and the Company  expects to face further
competition  from new market entrants in the future. A key competitor is Agilent
Technologies  Inc.  ("Agilent").  Agilent  offers  its own  line  of  instrument
controllers,   and  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.   During  2000,  the  Company  devoted
significant  resources  to  the  continued  development  of web  and  e-commerce
offerings.  In 2001, the Company will focus on implementing  information systems
to support its new manufacturing  facility in Europe and upgrading its worldwide
business  applications  suite to Oracle's  latest  web-based  release  11i.  The
Company  will also be  implementing  an  advanced  planning  system  to  enhance
predictability  of  material  flow  in its  manufacturing  operations  and  will
continue to devote significant  resources to the development of the web. Failure
to successfully implement these initiatives could have a material adverse effect
on the results of operations.

      The Company  relies on three primary  regional  centers for its management
information systems. As with any information system, unforeseen issues may arise
that could affect management's ability to receive adequate,  accurate and timely
financial  information,  which  in  turn  could  inhibit  effective  and  timely
decisions.  Furthermore,  it is possible that one or more of the Company's three
regional information systems could experience a complete or partial shutdown. If

                                      -27-

<PAGE>

such a shutdown occurred near the end of a quarter 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  due to the
shipments,  which would not occur  until the  following  period.  The Company is
working to achieve reliable regional  management  information systems to control
costs and improve the ability to deliver its  products in  substantially  all of
its direct  markets  worldwide.  No  assurance  can be given that the  Company's
efforts will be successful. The failure to receive adequate, accurate and timely
financial  information could inhibit  management's ability to make effective and
timely decisions.

      Risks  Associated  with  International  Operations and Foreign  Economies.
International  sales are subject to inherent  risks,  including  fluctuations in
local  economies,  difficulties  in staffing  and managing  foreign  operations,
greater  difficulty  in  accounts  receivable  collection,  costs  and  risks of
localizing  products for foreign  countries,  unexpected  changes in  regulatory
requirements, tariffs and other trade barriers, difficulties in the repatriation
of earnings  and the burdens of complying  with a wide variety of foreign  laws.
The  regulatory  environment  in some  countries  is very  restrictive  as their
governments try to protect their local economy and value of their local currency
against the U.S. dollar. Sales made by the Company's  international direct sales
offices are denominated in local  currencies,  and accordingly,  the U.S. dollar
equivalent  of these sales is affected by changes in the weighted  average value
of the U.S. dollar. This weighted average is calculated as the percentage change
in  the  value  of  the  currency  relative  to the  dollar,  multiplied  by the
proportion of international sales recorded in the particular  currency.  Between
2000 and 1999 this weighted  average value of the U.S. dollar increased by 8.2%,
causing an equivalent decrease in the U.S. dollar value of the Company's foreign
currency sales and expenses.  If the weighted average value during 2000 had been
the same as that in 1999,  the  Company's  growth  rate for 2000 would have been
26.6%.  If the weighted  average  value during 2000 had been the same as that in
1999,  the  Company's  consolidated  operating  expenses  would have been $236.4
million,   representing  an  increase  of  $1.0  million.  If  the  U.S.  dollar
strengthens  again in the future,  it could have a materially  adverse effect on
the operating results of the Company.

      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  integration  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.  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.  On May 2, 2000, the Company was served
by Cognex  Corporation,  asserting  patent  infringement  of two Cognex patents,
copyright  infringement,  trademark infringement and unfair competition.  Cognex
seeks preliminary and permanent injunctive relief, actual monetary damages in an
unspecified amount and attorney's fees and costs. In the fourth quarter of 2000,
the Company  accrued $2.5 million,  the estimated  legal fees for defending this
litigation. The Cognex litigation and any other intellectual property litigation
initiated in the future may cause significant litigation expense,  liability and
a diversion of management's  attention which may have a material  adverse effect
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 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  effect 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,  including  companies  acquired  through
acquisition,  as well as training,  motivating and supervising the employees. In
addition, the recruiting  environment for software engineering,  sales and other

                                      -28-

<PAGE>

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 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.  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.

      Risk of Product Liability Claims.  The Company's  products are designed in
part to provide  information upon which the users may rely. The Company attempts
to assure the quality and accuracy of the  processes  contained in its products,
and to limit its product liability exposure through  contractual  limitations on
liability,  including  disclaimers in its "shrink wrap" license  agreements with
end-users.  If future products contain errors that produce  incorrect results on
which  users  rely,  customer  acceptance  of the  Company's  products  could be
adversely  affected.  Further,  the Company could be subject to liability claims
that could have a material adverse effect on the Company's  operating results or
financial position.  Although the Company maintains liability  insurance,  there
can be no assurance that such insurance or the  contractual  provisions  used by
the Company to limit its liability will be sufficient.

I
TEM 7(a).  MARKET RISK

      Response to this item is included in "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Market Risk" above.


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The information  required by this item is incorporated by reference to the
Consolidated Financial Statements set forth on pages F-1 through F-19 hereof.


ITEM 9.     CHANGES IN AND DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
            FINANCIAL DISCLOSURE

      Not applicable.


                                      -29-

<PAGE>


                                    PART III

      Certain  information  required by Part III is omitted  from this Report in
that the Registrant  intends to file a definitive  proxy  statement  pursuant to
Regulation  14A  with  the  Securities  and  Exchange   Commission  (the  "Proxy
Statement")  relating to its annual meeting of  stockholders  not later than 120
days  after  the end of the  fiscal  year  covered  by  this  Report,  and  such
information is incorporated by reference herein.


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information  concerning the Company's  directors required by this Item
is  incorporated by reference to the Company's Proxy Statement under the heading
"Election of Directors."

      The information  concerning the Company's  executive  officers required by
this Item is  incorporated  by reference to the Company's  Proxy Statement under
the heading "Executive Officers."


ITEM 11.    EXECUTIVE COMPENSATION

      The information  required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Election of Directors."


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      From time to time the Company's  directors,  executive  officers and other
insiders may adopt stock trading plans pursuant to Rule 10b5-1(c) promulgated by
the Securities  and Exchange  Commission  under the  Securities  Exchange Act of
1934,  as amended.  Starting in the fourth  quarter of 2000,  William C. Nowlin,
Jr.,  Jeffrey L. Kodosky and James J. Truchard  have made periodic  sales of the
Company's stock pursuant to such plans.

      The information  required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Election of Directors."


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Not applicable.

                                      -30-

<PAGE>


                                     PART IV


ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a)   Documents Filed with Report

            1.  Financial  Statements.   See  Index  to  Consolidated  Financial
                Statements  at  page F-1  of  this Form  10-K and  the Financial
                Statements and  Notes  thereto  which  are included at pages F-2
                to F-19 of this Form 10-K.

            2.  Exhibits

                Exhibit
                Number   Description

                3.1*     Certificate of Incorporation of the Company.
                3.2*     Bylaws of the Company.
                4.1*     Specimen of Common Stock certificate of the Company.
                4.2*     Rights Agreement dated as of May 19, 1994,  between the
                         Company and The First National Bank of Boston.
               10.1*     Form of Indemnification Agreement.
               10.2*     1994 Incentive Plan.
               10.3*     1994 Employee Stock Purchase Plan.
               11.1      Computation of Earnings Per Share.
               21.1      Subsidiaries of the Company.
               23        Consent of Independent Accountants.
               24.0      Power of Attorney (see page 32).

                *  Incorporated  by  reference  to  the  Company's  Registration
                   Statement  on Form S-1 (Reg. No. 33-88386) declared effective
                   March 13, 1995.

      (b)   Reports on Form 8-K

            Not Applicable.

      (c)   Exhibits

            See Item 14(a)(2) above.

                                      -31-

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                   Registrant

                        NATIONAL INSTRUMENTS CORPORATION

February 8, 2001                    BY:   /s/ James J. Truchard
                                          Dr. James J. Truchard
                                          Chairman of the Board and President

                                 POWER OF ATTORNEY

             KNOW  ALL  PERSONS  BY  THESE  PRESENTS,  that  each  person  whose
signature  appears  below  constitutes  and appoints  Dr. James J.  Truchard and
Alexander M. Davern, jointly and severally, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any amendments
to this Report on Form 10-K,  and to file the same,  with  exhibits  thereto and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission,   hereby   ratifying   and   conforming   all  that   each  of  said
attorneys-in-fact,  or his substitute or substitutes, any do or cause to be done
by virtue hereof.

             Pursuant to the  requirements  of the  Securities  Exchange  Act of
1934,  this report has been signed below by the  following  persons on behalf of
the registrant and in the capacities and on the dates indicated.

--------------------------------------------------------------------------------

        Signature             Capacity in Which Signed             Date
                                                                               
--------------------------------------------------------------------------------

/s/ James J. Truchard         Chairman of the Board and
Dr. James J. Truchard       President (Principal Executive     February 8, 2001
                                      Officer)
--------------------------------------------------------------------------------

/s/ Alexander M. Davern      Chief Financial Officer and
Alexander M. Davern         Treasurer (Principal Financial  
                                and Accounting Officer)        February 8, 2001

--------------------------------------------------------------------------------

                                      Director                 
Jeffrey L. Kodosky

--------------------------------------------------------------------------------

/s/ William C. Nowlin, Jr.            Director                 February 4, 2001
William C. Nowlin, Jr.

--------------------------------------------------------------------------------

/s/ L. Wayne Ashby                    Director                 February 6, 2001
L. Wayne Ashby

--------------------------------------------------------------------------------

/s/ Donald M. Carlton                 Director                 February 7, 2001
Dr. Donald M. Carlton

--------------------------------------------------------------------------------

/s/ Ben G. Streetman                  Director                 February 3, 2001
Ben G. Streetman

--------------------------------------------------------------------------------

/s/ R. Gary Daniels                   Director                 February 4, 2001
R. Gary Daniels

--------------------------------------------------------------------------------

/s/ Charles J. Roesslein              Director                 February 5, 2001
Charles J. Roesslein

--------------------------------------------------------------------------------

                                      -32-

<PAGE>

                        NATIONAL INSTRUMENTS CORPORATION

                          INDEX TO FINANCIAL STATEMENTS

                                                                      Page No.

Financial Statements:

Report of Independent Accountants                                       F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999            F-3
Consolidated Statements of Income for the Three Years Ended
  December 31, 2000                                                     F-4
Consolidated Statements of Cash Flows for the Three Years Ended
  December 31, 2000                                                     F-5
Consolidated Statements of Stockholders' Equity for the Three
  Years Ended December 31, 2000                                         F-6
Notes to Consolidated Financial Statements                              F-7

Financial Statement Schedules:
For the Three Years Ended December 31, 2000
      Schedule II - Valuation and Qualifying Accounts                   S-1

      All other  schedules  are omitted  because they are not  applicable or the
required information is shown in the financial statements or notes thereto.

                                      -F1-

<PAGE>


                        Report of Independent Accountants

To the Board of Directors and Stockholders of National Instruments Corporation

In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
National  Instruments  Corporation and its subsidiaries at December 31, 2000 and
1999,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity  with accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial  statement schedule listed in the accompanying index
presents  fairly,  in all material  respects,  the information set forth therein
when read in conjunction  with the related  consolidated  financial  statements.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Austin, Texas

January 18, 2001



                                      -F2-

<PAGE>

                        National Instruments Corporation
                           Consolidated Balance Sheets
                        (In thousands, except share data)

                                  Assets

                                                            December 31,
                                                      -----------------------
                                                         2000         1999
                                                      ----------   ----------
Current assets:
 Cash and cash equivalents......................      $  75,277    $  45,309
 Short-term investments.........................         79,525       83,525
 Accounts receivable, net.......................         74,704       58,279
 Inventories, net...............................         33,292       26,161
 Prepaid expenses and other current assets......         13,499       11,216
 Deferred income taxes, net.....................          8,262        6,539
                                                      ----------   ----------
    Total current assets........................        284,559      231,029

Property and equipment, net.....................         84,694       69,771
Intangibles and other assets....................         20,097       17,953
                                                      ----------   ----------
    Total assets................................      $ 389,350    $ 318,753
                                                      ==========   ==========


                      Liabilities and Stockholders' Equity

Current liabilities:
 Current portion of long-term debt..............      $      --    $     876
 Accounts payable...............................         30,365       23,318
 Accrued compensation...........................         12,720       11,021
 Accrued expenses and other liabilities.........          9,923       10,326
 Income taxes payable...........................          3,366        4,739
 Other taxes payable............................          7,977        6,988
                                                      ----------   ----------
    Total current liabilities...................         64,351       57,268

Long-term debt, net of current portion..........             --        4,301
Deferred income taxes, net......................          3,976        2,949
                                                      ----------   ----------
    Total liabilities...........................         68,327       64,518
                                                      ----------   ----------

Commitments and contingencies...................             --           --
Stockholders' equity:
   Common stock: par value $.01; 180,000,000
   shares authorized; 50,634,603 and 50,047,182
   shares issued and outstanding, respectively..            506          500
   Additional paid-in capital...................         69,534       58,830
   Retained earnings............................        254,006      198,849
   Accumulated other comprehensive loss.........         (3,023)      (3,944)
                                                      ----------   ----------
    Total stockholders' equity..................        321,023      254,235
                                                      ----------   ----------
    Total liabilities and stockholders' equity..      $ 389,350    $ 318,753
                                                      ==========   ==========

         The  accompanying  notes  are  an  integral  part  of  these  financial
statements.

                                      -F3-

<PAGE>

                        National Instruments Corporation
                        Consolidated Statements of Income
                      (In thousands, except per share data)

                                                       For the Years
                                                      Ended December 31,
                                              ----------------------------------
                                                 2000        1999        1998
                                              ----------  ----------  ----------

Net sales................................     $ 410,149   $ 329,583   $ 274,230
Cost of sales............................        98,326      76,040      65,187
                                              ----------  ----------  ----------
   Gross profit..........................       311,823     253,543     209,043
                                              ----------  ----------  ----------

Operating expenses:
   Sales and marketing...................       147,377     120,886     100,783
   Research and development..............        55,954      45,531      34,757
   General and administrative............        32,077      24,258      20,455
                                              ----------  ----------  ----------
   Total operating expenses..............       235,408     190,675     155,995
                                              ----------  ----------  ----------

   Operating income......................        76,415      62,868      53,048

Other income (expense):
   Interest income.......................         6,390       4,759       3,439
   Interest expense......................          (533)       (404)       (463)
   Net foreign exchange (loss) gain and        
   other.................................        (1,159)        130        (224)
                                              ----------  ----------  ----------
Income before income taxes and cumulative
effect of accounting change..............        81,113      67,353      55,800
Provision for income taxes...............        25,956      21,553      18,414
                                              ----------  ----------  ----------
Income before cumulative effect of              
accounting change........................        55,157      45,800      37,386
Cumulative effect of accounting change,    
net of tax...............................            --        (552)         --
                                              ----------  ----------  ----------
   Net income............................     $  55,157   $  45,248   $  37,386
                                              ==========  ==========  ==========

Basic earnings per share:
  Income before cumulative effect of          
  accounting change......................     $    1.10   $    0.92   $    0.76
  Cumulative effect of accounting change,
  net of tax.............................            --       (0.01)         --
                                              ----------  ----------  ----------
  Basic earnings per share...............     $    1.10   $    0.91   $    0.76
                                              ==========  ==========  ==========

Diluted earnings per share:
  Income before cumulative effect of        
  accounting change......................     $    1.03   $    0.88   $    0.73
  Cumulative effect of accounting change,     
  net of tax.............................            --       (0.01)         --
                                              ----------  ----------  ----------
  Diluted earnings per share.............     $    1.03   $    0.87   $    0.73
                                              ==========  ==========  ==========

Weighted average shares outstanding:

  Basic..................................        50,332      49,776      49,248
  Diluted................................        53,564      52,203      51,150

         The  accompanying  notes  are  an  integral  part  of  these  financial
statements.

                                      -F4-

<PAGE>

                        National Instruments Corporation
                      Consolidated Statements of Cash Flows
                                 (In thousands)

                                              For the Years Ended December 31,
                                             ----------------------------------
                                                2000        1999        1998
                                             ----------  ----------  ----------
Cash flow from operating activities:

Net income................................   $  55,157   $  45,248   $  37,386
Adjustments to reconcile net income to
  cash provided by operating activities:
Charges to income not requiring cash
  outlays:
    Depreciation and amortization.........      16,345      13,026      11,638
    (Benefit) provision for deferred           
      income taxes........................        (832)        798       1,529
    Purchase of in-process research &             
      development.........................          --       2,130          --
Changes in operating assets and liabilities:

    Increase in accounts receivable.......     (16,425)     (9,963)     (5,678)
    Increase in inventory.................      (7,131)     (9,002)       (605)
    Increase in prepaid expenses and            
      other assets........................      (1,655)     (7,761)       (952)
    Increase in accounts payable..........       7,047       6,075       1,128
    Increase in taxes and other                  
      liabilities.........................       2,490       6,185       1,730
                                             ----------  ----------  ----------
Net cash provided by operating activities       54,996      46,736      46,176
                                             ----------  ----------  ----------

Cash flow from investing activities:

Payments for acquisitions, net of cash              
  received................................          --     (13,072)     (1,519)
Capital expenditures......................     (27,631)     (9,452)    (27,985)
Additions to intangibles..................      (6,930)     (2,188)     (2,667)
Purchases of short-term investments.......     (97,685)   (268,965)    (52,188)
Sales of short-term investments...........     101,685     234,808      54,097
                                             ----------  ----------  ----------
Net cash used in investing activities.....     (30,561)    (58,869)    (30,262)
                                             ----------  ----------  ----------

Cash flow from financing activities:

Repayments of long-term debt..............      (5,177)     (1,435)       (824)
Net proceeds from issuance of common
  stock under employee plans..............      10,710       7,339       4,505
                                             ----------  ----------  ----------
Net cash provided by financing activities.       5,533       5,904       3,681
                                             ----------  ----------  ----------

Net increase (decrease) in cash and cash       
  equivalents.............................      29,968      (6,229)     19,595
Cash and cash equivalents at beginning of   
  period..................................      45,309      51,538      31,943
                                             ----------  ----------  ----------
Cash and cash equivalents at end of period   $  75,277   $  45,309   $  51,538
                                             ==========  ==========  ==========

Cash paid for interest and income taxes
   Interest...............................   $     601   $     336   $     499
   Income taxes...........................   $  26,776   $  21,283   $  16,008

         The  accompanying  notes  are  an  integral  part  of  these  financial
statements.

                                      -F5-

<PAGE>

                        National Instruments Corporation
                 Consolidated Statements of Stockholders' Equity
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                               
                                                                     Accumulated
                           Common    Common    Additional            Other          Total
                           Stock     Stock     Paid-In     Retained  Comprehensive  Stockholders'
                          (Shares)   Amount    Capital     Earnings  Gain/(Loss)    Equity
                          ---------  --------  ----------  --------  -------------  -------------
<S>                       <C>        <C>       <C>         <C>       <C>            <C>
Balance at December 31,  
  1997.................   48,984,709 $   490   $  46,996   $116,215  $   (1,947)    $  161,754
Net income.............                                      37,386                     37,386
Foreign currency
  translation
  adjustment (net of 
  $288 tax expense)....                                                     584            584
Unrealized loss on
  securities available
  for sale (net of $0
  tax benefit).........                                                     (45)           (45)
Issuance of common
  stock under employee
  plans................      429,401       5       4,500                                 4,505
===============================================================================================

Balance at December 31,   
  1998.................   49,414,110 $   495   $  51,496   $153,601  $   (1,408)    $  204,184
Net income.............                                      45,248                     45,248
Foreign currency
  translation                                                            
  adjustment (net of
  $647 tax benefit)....                                                  (1,374)        (1,374)
Unrealized loss on
  securities available           
  for sale (net of $0
  tax benefit).........                                                    (534)          (534)
Unrealized loss on
  derivative instruments
  (net of $295 tax                          
  benefit).............                                                    (628)          (628)
Issuance of common
  stock under employee             
  plans................      633,072       5       7,334                                 7,339
===============================================================================================

Balance at December 31,   
  1999.................   50,047,182 $   500   $  58,830   $198,849  $   (3,944)    $  254,235
Net income.............                                      55,157                     55,157
Foreign currency
  translation                                         
  adjustment (net of 
  1,126 tax benefit)...                                                  (2,090)        (2,090)
Unrealized gain on
  securities available                                             
  for sale (net of $75
  tax expense).........                                                     202            202
Unrealized gain on
  derivative instruments
  (net of 1,512 tax                            
  expense).............                                                   2,809          2,809
Issuance of common
  stock under employee          
  plans................      587,421       6      10,704                                10,710
===============================================================================================

Balance at December 31,  
  2000.................   50,634,603 $   506   $  69,534   $254,006  $   (3,023)    $  321,023
</TABLE>


         The  accompanying  notes  are  an  integral  part  of  these  financial
statements.

                                      -F6-

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Operations and summary of significant accounting policies

      National   Instruments   Corporation   (the   "Company")   is  a  Delaware
Corporation.  The Company  engages in the design,  development,  manufacture and
marketing  of  instrumentation   software  and  specialty  interface  cards  and
accessories for general commercial,  industrial and scientific applications. The
Company  offers  hundreds of  products  used to create  virtual  instrumentation
systems.  The  Company's  products  may be used in different  environments,  and
consequently,  specific  application of the Company's  products is determined by
the customer and often is not known to the Company.  The Company  approaches all
markets  with  essentially  the same  products,  which are used in a variety  of
applications from research and development to production  testing and industrial
control.  The following  industries and applications are served worldwide by the
Company:  advanced research,  automotive,  commercial  aerospace,  computers and
electronics,  continuous process manufacturing,  education,  government/defense,
medical research/pharmaceutical,  power/energy,  semiconductors,  automated test
equipment, telecommunications and others.

      Principles of consolidation

      The consolidated  financial statements include the accounts of the Company
and its wholly-owned  subsidiaries.  All significant  intercompany  accounts and
transactions have been eliminated.

      Certain prior year amounts have been reclassified to conform with the 2000
presentation.

      Use of estimates

      Judgments and estimates by management  are required in the  preparation of
financial  statements to conform with generally accepted accounting  principles.
The estimates and underlying  assumptions  affect the reported amounts of assets
and  liabilities,  the disclosure of contingencies at the balance sheet date and
the reported  revenues and expenses for the period.  Actual results could differ
from those estimates.

      Cash and cash equivalents

      Cash and cash equivalents  include cash and highly liquid investments with
maturities of three months or less at the date of acquisition.

      Short-term investments

      Short-term   investments   consist  of  corporate,   state  and  municipal
securities with readily  determinable fair market values and original maturities
in  excess  of  three  months.  The  Company's  investments  are  classified  as
available-for-sale  and accordingly are reported at fair value,  with unrealized
gains and losses reported as other comprehensive  income.  Unrealized losses are
charged  against  income when a decline in fair value is  determined to be other
than temporary. The specific identification method is used to determine the cost
of securities sold.

      Inventories

      Inventories are stated at the lower of cost or market.  Cost is determined
using standard costs,  which  approximate the first in, first out (FIFO) method.
Cost  includes  the  acquisition  cost  of  purchased   components,   parts  and
subassemblies,  in-bound freight costs, labor and overhead. Market, with respect
to raw materials,  is replacement cost and, with respect to work-in-process  and
finished goods, is net realizable value.

      Inventory is shown net of allowance  for excess and obsolete  inventory of
$2.5 million and $2.4 million at December 31, 2000 and 1999, respectively.

      Property and equipment

      Property  and  equipment  are recorded at cost.  Depreciation  is computed
using the  straight-line  method over the estimated  useful lives of the assets,
which range from twenty to forty years for buildings and three to five years for
equipment.  Leasehold  improvements are depreciated over the shorter of the life
of the lease or the asset.

      Intangible assets

      The  Company  has  capitalized   costs  related  to  the  development  and
acquisition  of certain  software  products.  In  accordance  with  Statement of
Financial  Accounting  Standards  ("SFAS") No. 86  "Accounting  for the Costs of

                                      -F7-

<PAGE>

Computer Software to Be Sold, Leased or Otherwise  Marketed,"  capitalization of
costs begins when  technological  feasibility has been established and ends when
the product is  available  for general  release to  customers.  Amortization  is
computed on an individual  product basis for those products available for market
and  has  been  recognized  based  on the  product's  estimated  economic  life,
generally three years.

      The  excess  purchase  price  over the fair  value of assets  acquired  is
recorded as goodwill and is amortized  using the  straight-line  method over ten
years.  Intangible assets are periodically  assessed for impairment of value and
any loss is recognized upon impairment.

      Concentrations of credit risk

      Financial   instruments   that   potentially   subject   the   Company  to
concentrations  of credit risk consist  principally of foreign  currency forward
and option  contracts,  cash and cash  equivalents,  short-term  investments and
trade accounts receivable. In management's opinion, no significant concentration
of credit risk exists for the Company.

      The Company's  counterparties  in its foreign  currency forward and option
contracts  are major  financial  institutions.  The Company does not  anticipate
nonperformance  by these  counterparties.  The Company  maintains  cash and cash
equivalents  with  various  financial  institutions  located  in many  countries
worldwide.  Company  policy  is  to  limit  exposure  in  foreign  countries  by
transferring  cash  to  the  U.S.  The  Company's  short-term   investments  are
diversified  among and  limited  to  high-quality  securities  with high  credit
ratings.  Concentration of credit risk with respect to trade accounts receivable
is limited due to the large number of customers and their dispersion across many
countries and industries.  The amount of sales and trade accounts  receivable to
any individual customer was not material for the periods presented.

      Revenue recognition

      Sales  revenue  is  recognized  on the date the  product is shipped to the
customer.  Provision  is made  for  estimated  sales  returns  based  on  actual
historical  experience.  Revenue related to the sale of maintenance contracts is
deferred and amortized on a straight-line basis over the service period.

      In the fourth  quarter,  the Company  adopted  Staff  Accounting  Bulletin
("SAB") No. 101,  Revenue  Recognition in Financial  Statements,  which provides
guidance in applying generally accepted accounting principles to certain revenue
recognition  issues.  The adoption of SAB 101 did not have a material  impact on
the Company's financial position or overall trends in results of operations.

      Accounts  receivable are net of allowances  for doubtful  accounts of $4.5
million and $4.1 million at December 31, 2000 and 1999, respectively.

      Warranty expense

      The Company offers a one-year limited  warranty on most hardware  products
and a 90-day warranty on software products, which is included in the sales price
of many of its products.  Provision is made for estimated  future warranty costs
at the time of sale.

      Advertising expense

      The Company  expenses its costs of  advertising  as incurred.  Advertising
expense for the years ended  December 31, 2000,  1999 and 1998 is $35.4 million,
$34.1 million and $31.3 million, respectively.

      Foreign currency translation

      The functional currency for the Company's international  operations is the
applicable  local currency.  The assets and liabilities of these  operations are
translated  at the rate of exchange in effect on the balance  sheet date;  sales
and expenses are translated at average rates. The resultant gains or losses from
translation are included in a separate component of other comprehensive  income.
Gains and  losses  resulting  from  remeasuring  monetary  asset  and  liability
accounts that are denominated in a currency other than a subsidiary's functional
currency are included in determining net income.

      Foreign currency hedging instruments

      The Company adopted 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
adjustment  of $552,000 in current  earnings to recognize  the fair value of its
derivatives designated as cash-flow hedging instruments at the date of adoption.

                                      -F8-

<PAGE>

      All of the Company's derivative  instruments are recognized on the balance
sheet at their fair value.  The Company  currently uses foreign currency forward
and  purchased  option  contracts  to hedge its  exposure  to  material  foreign
currency denominated receivables and forecasted 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  foreign
currency  denominated  receivables  ("fair-value"  hedge)  or as a hedge  of the
variability  of foreign  currency cash flows to be received  ("foreign-currency"
hedge).  Changes in the fair market  value of a fair-value  hedge are  recorded,
along    with    the    loss    or    gain    on    the     re-measurement    of
foreign-currency-denominated  receivables,  in current earnings.  Changes in the
fair value of derivatives that are highly effective as - and that are designated
and qualify as -  foreign-currency  hedges  under FAS 133 are  recorded in other
comprehensive  income,  with the  exception  of  changes  in the  time-value  of
instruments,  which are recorded in current  earnings.  As of December 31, 2000,
the Company has not entered into a derivative contract for speculative purposes.

      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 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  to  hedge  forecasted  transactions  are  highly  effective  in
offsetting changes in cash flows of hedged items.

      The  Company  prospectively  discontinues  hedge  accounting  if (1) it is
determined  that the  derivative  is no longer  highly  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  de-designated  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.

      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  where hedge accounting is discontinued,  the
derivative will be carried as its fair value on the balance sheet,  with changes
in its fair value recognized in current-period earnings.

      Income taxes

      The  provision  for income taxes is based on pretax  financial  accounting
income.  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.

      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.  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 years ended December 31, 2000,  1999 and 1998,  respectively
are as follows (in thousands):

                                           Years Ended December 31,
                                      ----------------------------------
                                         2000        1999        1998
                                      ----------  ----------  ----------
Weighted average shares                 
outstanding-basic................        50,332      49,776      49,248

Plus: Common share equivalents
  Stock options..................         3,232       2,427       1,902
                                      ----------  ----------  ----------

Weighted average shares                 
outstanding-diluted..............        53,564      52,203      51,150
                                      ==========  ==========  ==========

                                      -F9-

<PAGE>

      Stock  options to acquire  989,545,  57,783 and  1,144,686  shares for the
years ended December 31, 2000,  1999 and 1998,  respectively  were excluded from
the  computations of diluted  earnings per share because the effect of including
stock options would have been anti-dilutive.

      Stock-based compensation plans

      The Company has adopted the  disclosure-only  provisions  of SFAS No. 123,
"Accounting  for  Stock-Based  Compensation."  As allowed by SFAS No.  123,  the
Company continues to apply the provisions of Accounting Principles Board Opinion
No. 25,  "Accounting for Stock issued to Employees" and related  interpretations
in accounting for its plans. Accordingly, compensation cost for stock options is
measured as the  excess,  if any, of the quoted  market  price of the  Company's
stock at the date of the grant over the amount an  employee  must pay to acquire
the stock.

      Comprehensive income

      The Company has adopted SFAS No. 130,  "Reporting  Comprehensive  Income",
which  established   standards  for  reporting,   in  addition  to  net  income,
comprehensive  income  and its  components  including,  as  applicable,  foreign
currency items,  minimum pension liability  adjustments and unrealized gains and
losses on certain investments in debt and equity securities. Total comprehensive
income  for  2000,  1999 and 1998 was $56.1  million,  $42.7  million  and $37.9
million, respectively.

Note 2: Short-term investments

      Short-term  investments  at  December  31,  2000 and 1999,  consisting  of
corporate, state and municipal securities, were acquired at an aggregate cost of
$78.3 million and $81.5 million,  respectively.  The  contractual  maturities of
these securities, which are classified as available-for-sale and carried at fair
value, are as follows (in thousands):

                                                     December 31,
                                                  ------------------
                                                    2000      1999
                                                  --------  --------
      Less than 90 days.....................      $    990  $     --
      90 days to one year...................        55,969    26,989
      One year through two years............        19,484    41,681
      Two years through three years.........         3,082    14,855
                                                  --------  --------
                                                  $ 79,525  $ 83,525
                                                  ========  ========

Note 3: Inventories

      Inventories, net consist of the following (in thousands):

                                                     December 31,
                                                  ------------------
                                                    2000      1999
                                                  --------  --------
      Raw materials.........................      $ 17,298  $ 11,115
      Work-in-process.......................           978     2,402
      Finished goods........................        15,016    12,644
                                                  --------  --------
                                                  $ 33,292  $ 26,161
                                                  ========  ========

Note 4: Property and equipment

      Property and equipment consist of the following (in thousands):

                                                       December 31,
                                                  ----------------------
                                                     2000        1999
                                                  ----------  ----------
      Land..................................      $   5,208   $   4,006
      Buildings.............................         55,242      45,013
      Furniture and equipment...............         78,221      68,595
                                                  ----------  ----------
                                                    138,671     117,614
      Accumulated depreciation..............        (60,552)    (47,843)
      Construction-in-progress..............          6,575          --
                                                  ----------  ----------
                                                  $  84,694   $  69,771
                                                  ==========  ==========

      Depreciation expense for the years ended December 31, 2000, 1999 and 1998,
is $12.8 million, $10.5 million and $8.9 million, respectively.

                                     -F10-

<PAGE>

Note 5: Intangibles and other assets

      Intangibles  at December  31, 2000 and 1999 include  capitalized  software
development costs of $6.7 million and $4.4 million, respectively,  which are net
of accumulated amortization of $8.5 million and $6.0 million,  respectively, and
goodwill of $6.8 million and $7.5  million in 2000 and 1999 (net of  accumulated
amortization of $900,000 and $180,000),  respectively.  Total amortization costs
were $3.5  million,  $2.5 million and $2.8 million for the years ended  December
31, 2000, 1999 and 1998,  respectively.  Substantially all of these amounts were
amortization of software development costs.

Note 6: Debt

      Debt consists of the following (in thousands):             December 31,
                                                              ------------------
                                                                2000      1999
                                                              --------  --------
      Long-term debt: Manufacturing facility loan, LIBOR,
       $8,480,000 commitment, half the principal is
       payable, together with interest, in equal
       quarterly installments over a five-year term,
       beginning September 1995, remainder due
       maturity at February 28, 2001....................      $    --   $ 4,515
      Other.............................................           --       662
                                                              --------  --------
      Total debt........................................           --     5,177
         Less current portion...........................           --       876
                                                              --------  --------
      Long-term portion.................................      $    --   $ 4,301
                                                              ========  ========

      The  manufacturing  facility loan was fully repaid in 2000 at its carrying
value.

Note 7: Income taxes

      The  components  of income  before the  provision  for income taxes are as
follows (in thousands):

                                        Years Ended December 31,
                                   ----------------------------------
                                      2000        1999        1998
                                   ----------  ----------  ----------
      Domestic...............      $  68,982   $  57,189   $  46,817
      Foreign................         12,131      10,164       8,983
                                   ----------  ----------  ----------
                                   $  81,113   $  67,353   $  55,800
                                   ==========  ==========  ==========

      The  provision  for income taxes  charged to  operations is as follows (in
thousands):

                                        Years Ended December 31,
                                   ----------------------------------
                                      2000        1999        1998
                                   ----------  ----------  ----------
      Current tax expense:
         U.S. federal........      $  22,902   $  17,858   $  11,945
         State...............          2,043       1,165       1,109
         Foreign.............          1,843       1,732       3,831
                                   ----------  ----------  ----------
      Total current..........         26,788      20,755      16,885
                                   ----------  ----------  ----------
      Deferred tax expense
       (benefit):
         U.S. federal........         (2,031)      1,394       2,352
         State...............            (12)        115         329
         Foreign.............          1,211        (711)     (1,152)
                                   ----------  ----------  ----------
      Total deferred.........           (832)        798       1,529
                                   ----------  ----------  ----------
      Total provision........      $  25,956   $  21,553   $  18,414
                                   ==========  ==========  ==========

                                     -F11-

<PAGE>

      Deferred  tax  liabilities  (assets) at December  31, 2000 and 1999 are as
follows (in thousands):

                                                             December 31,
                                                        ----------------------
                                                           2000        1999
                                                        ----------  ----------
      Capitalized software.........................     $   2,202   $   1,194
      Unrealized gain on derivative instruments....         1,174          --
      Depreciation and amortization................           263         164
      Undistributed earnings of foreign             
        subsidiaries...............................            --         616
                                                        ----------  ----------
        Gross deferred tax liabilities.............         3,639       1,974
                                                        ----------  ----------
      Operating loss carryforwards.................          (685)     (1,563)
      Vacation and other accruals..................        (1,835)     (1,711)
      Inventory valuation and warranty provisions..        (2,124)     (1,853)
      Doubtful accounts and sales provisions.......        (1,434)     (1,413)
      Unrealized exchange loss.....................          (436)       (137)
      Intercompany profit..........................        (1,162)       (782)
      Undistributed earnings of foreign      
        subsidiaries...............................          (155)         --
      Accrued legal expenses.......................          (923)         --
      Unrealized loss on derivative instruments....            --        (318)
      Other........................................          (442)       (462)
                                                        ----------  ----------
        Gross deferred tax assets..................        (9,196)     (8,239)
                                                        ----------  ----------
      Valuation allowance..........................           332         292
                                                        ----------  ----------
      Net deferred tax asset.......................     $  (5,225)  $  (5,973)
                                                        ==========  ==========

     A reconciliation  of income taxes at the U.S. federal  statutory income tax
rate to the effective tax rate follows:
                                                            Years Ended
                                                            December 31,
                                                       ----------------------
                                                        2000    1999    1998
                                                       ------  ------  ------
      U.S. federal statutory tax rate.............       35 %    35 %    35 %
      Foreign sales corporation benefit...........       (2)     (2)     (2)
      Foreign taxes less than federal statutory
        rate......................................       (1)     (1)     --
      Tax exempt interest.........................       (2)     (2)     (2)
      State income taxes, net of federal tax
        benefit...................................        2       2       2
                                                       ------  ------  ------
        Effective tax rate........................       32 %    32 %    33 %
                                                       ======  ======  ======

      As of  December  31,  2000,  eight  of  the  Company's  subsidiaries  have
available, for income tax purposes,  foreign net operating loss carryforwards of
approximately $2.9 million, of which $1.3 million expire during the years 2002 -
2010 and $1.6 million of which may be carried forward indefinitely.

      The  Company  has  not  provided  for  U.S.  federal  income  and  foreign
withholding   taxes  on   approximately   $3.3   million  of  certain   non-U.S.
subsidiaries'  undistributed  earnings as of December 31, 2000.  These  earnings
would become subject to taxes of approximately  $400,000,  if they were actually
or deemed to be remitted to the parent  company as  dividends  or if the Company
should sell its stock in these  subsidiaries.  The Company  currently intends to
reinvest indefinitely these undistributed earnings.

Note 8: Acquisitions

      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.  The Company  also  recorded  $1.1 million of
capitalized  software  development costs and $7.7 million of goodwill related to
the  acquisition,  which are  included  in  intangibles  and other  assets.  The
consolidated financial statements include the operating results from the date of
acquisition.  Pro-forma results of operation have not been presented because the
effects of those operations were not material.

                                     -F12-

<PAGE>

Note 9: Stockholders' equity

      Common stock

      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 share  information  included in the
accompanying  consolidated financial statements and notes has been retroactively
adjusted to reflect the exchange and stock split.

      Stock-based compensation plans

      At December 31, 2000, the Company has two active stock-based  compensation
plans and one inactive plan. The two active  stock-based  compensation plans are
the 1994  Incentive  Stock Option Plan and the Employee  Stock Purchase Plan. No
compensation cost has been recognized in the Company's financial  statements for
the stock option plan and the stock purchase plan. If compensation  cost for the
Company's two active stock-based compensation plans were determined based on the
fair value at the grant date for awards  under those plans  consistent  with the
method  established  by SFAS No. 123, the  Company's net income and earnings per
share  would have been  reduced  to the pro forma  amounts  indicated  below (in
thousands, except per share data).

                                                Years Ended December 31,
                                              ----------------------------
                                                2000      1999      1998
                                              --------  --------  --------
Net income                   As reported      $ 55,157  $ 45,248  $ 37,386
                             Pro-forma          44,307    38,742    31,281

Basic earnings per share     As reported      $   1.10  $   0.91  $   0.76
                             Pro-forma            0.88      0.78      0.63

Diluted earnings per share   As reported      $   1.03  $   0.87  $   0.73
                             Pro-forma            0.83      0.74      0.61

      Stock option plans

      The  stockholders of the Company  approved the 1994 Incentive Stock Option
Plan on May 9, 1994. At the time of approval,  6,075,000 shares of the Company's
common stock were reserved for issuance  under this plan. In 1997, an additional
4,725,000  shares of the Company's common stock were reserved for issuance under
this plan.  The 1994 Plan,  administered  by the  Compensation  Committee of the
Board of  Directors,  provides for  granting of incentive  awards in the form of
stock options to directors,  executive officers and employees of the Company and
its subsidiaries.  Awards under the plan must be granted within ten years of the
effective date of the 1994 Plan.  Options granted may be 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.  Stock options must be exercised within
ten years from date of grant.  Stock  options are issued at market  price at the
grant date. Shares available for grant at December 31, 2000 were 3,326,327.

                                     -F13-

<PAGE>

      Transactions under all plans are summarized as follows:

                                                 Number of        Weighted
                                                shares under  average exercise
                                                   option          price
                                                ------------  ----------------
      Outstanding at December 31, 1997...         4,557,272     $     10.38
         Exercised.......................          (244,691)           5.11
         Canceled........................          (202,313)          14.57
         Granted.........................         1,481,866           22.53
                                                ------------  ----------------
      Outstanding at December 31, 1998...         5,592,134           13.69
         Exercised.......................          (498,514)           9.94
         Canceled........................          (522,905)          16.22
         Granted.........................           946,247           20.41
                                                ------------  ----------------
      Outstanding at December 31, 1999...         5,516,962           14.95
         Exercised.......................          (443,544)          11.56
         Canceled........................          (209,966)          24.98
         Granted.........................         1,451,062           47.92
                                                ------------  ----------------
      Outstanding at December 31, 2000...         6,314,514    $      22.40
                                                ============  ================

      Options exercisable at December 31:

         1998............................         1,855,802    $      10.29
         1999............................         2,398,305           11.99
         2000............................         2,964,530           14.20

      Weighted average, grant date                                Weighted
      fair value value of options                               average fair
      granted during:                                              value
                                                              ----------------
         1998............................         1,481,866    $      10.33
         1999............................           946,247            8.57
         2000............................         1,451,062           25.17

                                December 31, 2000
--------------------------------------------------------------------------------
                  Options Outstanding                      Options Exercisable
-------------------------------------------------------   ----------------------
                                            Weighted
                               Weighted     average                    Weighted
                  Number       average      remaining     Number of    average
Exercise          of options   exercise     contractual   options      exercise
price             outstanding  price        life (yrs)    exercisable  price
---------------   -----------  ----------   -----------   -----------  ---------
$ 6.44 - $ 8.78      693,018   $    6.55        4            608,380   $   6.55
  8.89 -  14.06    1,040,668        9.20        5            813,887       9.17
 14.44 -  14.44    1,155,306       14.44        6            696,036      14.44
 14.83 -  22.96    1,879,463       20.89        8            723,060      21.16
 23.33 -  51.56    1,546,059       46.17        9            123,167      42.97
                  -----------                             -----------
                   6,314,514       22.40        7          2,964,530      14.20

      The fair  value of each  option  grant is  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:

                                      2000        1999        1998
                                   ----------  ----------  ----------
      Dividend expense yield.....         0%          0%          0%
      Expected life..............    5 years     5 years     5 years
      Expected volatility........      40.6%       35.5%       33.3%
      Risk-free interest rate....       6.8%        4.8%        5.6%

      Employee stock purchase plan

      The Company's stock purchase plan became effective March 13, 1995 upon the
first date of  registration  of the  Company's  Common  Stock.  The plan permits
substantially all domestic employees and employees of designated subsidiaries to
acquire the  Company's  Common Stock at a purchase  price of 85% of the lower of
the market price at the beginning or the end of the  participation  period.  The
semi-annual  periods begin on October 1 and April 1 of each year.  Employees may
designate  up to 15% of their  compensation  for the  purchase of Common  Stock.

                                     -F14-

<PAGE>

Common Stock reserved for future employee purchases  aggregated 2,461,702 shares
at December 31, 2000.  Shares  issued under this plan were 145,821 in 2000.  The
weighted average fair value of the employees'  purchase  rights,  as shown below
was estimated using the Black-Scholes model with the following assumptions:

                                      2000        1999        1998
                                   ----------  ----------  ----------
      Dividend expense yield.....         0%          0%          0%
      Expected life..............   6 months    6 months    6 months
      Expected volatility........        58%         38%         40%
      Risk-free interest rate....       5.6%        4.2%        5.3%

      Weighted average, grant date fair value      
      of purchase rights  granted under the     Number     Weighted average
      Employee Stock Purchase Plan:            of shares     fair value
                                               ----------  ---------------
           1998..............................    195,179     $     5.16
           1999..............................    160,830           6.79
           2000..............................    158,158          14.54

      Stockholders' rights plan

      The Board of Directors  and  stockholders  approved and adopted the Rights
Agreement prior to the Company's  initial public offering (the  "offering").  On
March 13,  1995,  the  effective  date of the  offering,  the Board of Directors
declared a dividend  distribution  of one common share  purchase  right for each
outstanding  share of Common Stock. The rights become  exercisable under certain
conditions  involving  acquisition of the Company's Common Stock.  Under certain
other conditions  where the Company is consolidated or merged,  each holder of a
right shall have the right to  receive,  upon  exercise of the right,  shares of
Common Stock of the Company,  or acquiring company,  having a value of twice the
exercise  price of the right.  The rights  expire on March 13, 2005,  and may be
redeemed  in whole by the Company  for $.01 per right.  The rights are  excluded
from earnings per share  computations  because they qualify as contingent shares
and therefore are excluded as long as the  conditions  that require  issuance of
the shares are not imminent.

Note 10: Employee retirement plan

      The Company has a defined contribution retirement plan pursuant to Section
401(k) of the Internal Revenue Code.  Substantially all domestic  employees with
at least one year of  continuous  service are  eligible to  participate  and may
contribute up to 15% of their  compensation.  The Board of Directors has elected
to make matching contributions equal to 50% of employee contributions, which may
be  applied,  to a maximum  of 6% of each  participant's  compensation.  Company
contributions vest immediately.  Company  contributions  charged to expense were
$1,292,000, $1,087,000 and $933,000 in 2000, 1999 and 1998, respectively.

Note 11: Financial instruments

      Fair value of financial instruments

      The estimated fair value amounts  disclosed  below have been determined by
the Company using  available  market  information  and  valuation  methodologies
described  below.  However,  considerable  judgment is required in  interpreting
market data to develop these estimates of fair value. Accordingly, the estimates
presented herein are not necessarily  indicative of the amounts that the Company
could  realize  in a  current  market  exchange.  The  use of  different  market
assumptions  could  have a  significant  effect on the  estimates.  For  certain
financial  instruments  of the  Company,  including  cash and cash  equivalents,
accounts  receivable,  accounts  payable,  accrued  liabilities  and the current
portion of long-term  debt, the carrying amount  approximates  fair value due to
the short-term  maturity of these instruments.  The estimated fair values of the
other assets  (liabilities) of the Company's remaining financial  instruments at
December 31, 2000 and 1999 are as follows (in thousands):

                                                    December 31,
                                    --------------------------------------------
                                            2000                    1999
                                    --------------------    --------------------
                                    Carrying     Fair       Carrying     Fair
                                     Amount      Value       Amount      Value
                                    --------------------    --------------------
      Short-term investments.....   $ 79,525   $ 79,525     $ 83,525   $ 83,525

      Other assets/liabilities:
         Forward contracts.......      3,293      3,293          (41)       (41)
         Purchased options.......        871        871           --         --
      Long-term debt.............         --         --       (4,301)    (3,884)

      The fair values of short-term  investments  and foreign  currency  forward
contracts  were  estimated  based upon quotes from brokers as of the  applicable
balance  sheet  date.  The  fair  value  of  long-term  debt  was  estimated  by
discounting  the future cash flows using rates  currently  available for debt of
similar terms and maturity.

                                     -F15-

<PAGE>

Note 12: Derivative instruments and hedging activities

      The Company has  operations in over 30 countries.  Forty-seven  percent of
the  Company's  revenues are  generated  outside  North  America.  The Company's
activities  expose it to a variety of market  risks,  including  the  effects of
changes in  foreign-currency  exchange rates and interest rates. These financial
risks are  monitored  and  managed  by the  Company as an  integral  part of its
overall risk management program.

      The Company  maintains a  foreign-currency  risk management  strategy that
uses derivative  instruments  (foreign  currency  forward and purchased  options
contracts) to protect its interests from fluctuations in earnings and cash flows
caused  by  the   volatility   in  currency   exchange   rates.   Movements   in
foreign-currency  exchange  rates pose a risk to the  Company's  operations  and
competitive position,  since exchange rate changes may affect the profitability,
cash flow, and business and/or pricing strategies of non-U.S. based competitors.

      Foreign currency fair value and cash flow hedges

      The  Company's  foreign  sales are  denominated  in the  customers'  local
currency.  The Company  purchases foreign currency forward and purchased options
contracts  as  hedges of  anticipated  sales  that are  denominated  in  foreign
currencies  and as hedges of foreign  currency  denominated  receivables.  These
contracts  are  entered  into to  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.

      At December 31, 2000,  the Company held forward  contracts with a notional
amount of $35.1  million that were  designated  as foreign  currency  fair value
hedges of the Company's foreign denominated receivables.  These contracts, which
are for 90-day periods,  had a carrying amount of $(63,000).  The Company hedges
up to 90% of its outstanding foreign denominated receivables.

      At December 31, 2000,  the Company held forward  contracts with a notional
amount of $65.3  million  that were  designated  as foreign  currency  cash flow
hedges related to the Company's anticipated sales transactions. These contracts,
which are for terms up to twenty-four  months,  had a pre-tax carrying amount of
$3.4 million and a net  unrealized  deferred  gain of $3.4  million  recorded in
"Accumulated Other  Comprehensive  Income." Based on the Company's  estimates of
future foreign  exchange rates, it hedges up to 100% of anticipated cash inflows
for the following 1 to 30 months.

      As  of  December  31,  2000,  $38,000  of  deferred  gains  on  derivative
instruments  recorded in Accumulated Other Comprehensive  Income are expected to
be reclassified  to earnings  during the next twelve months.  The actual foreign
sales  expected  to occur  over the next  twelve  months  will  necessitate  the
reclassifying to earnings of these derivative gains.

      For the year ended December 31, 2000, the Company recognized a net loss of
$961,000  (reported in the "Net Foreign Exchange  Gain/(Loss)"  line item in the
Consolidated  Statement of Income),  which represented the total ineffectiveness
of all cash-flow hedges.

Note 13: Segment information

      In 1998, the Company adopted SFAS No. 131,  "Disclosures about Segments of
an  Enterprise  and  Related  Information."  SFAS 131  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

                                     -F16-

<PAGE>

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):

                                                Years Ended December 31,
                                           ----------------------------------
                                              2000        1999        1998
                                           ----------  ----------  ----------
Net sales:
North America:
  Unaffiliated customer sales..........    $ 215,960   $ 175,873   $ 153,435
  Geographic transfers.................       55,524      41,739      32,451
                                           ----------  ----------  ----------
                                             271,484     217,612     185,886
                                           ----------  ----------  ----------
Europe:
  Unaffiliated customer sales..........      133,799     108,801      86,961
                                           ----------  ----------  ----------
Asia Pacific:
  Unaffiliated customer sales..........       60,390      44,909      33,834
                                           ----------  ----------  ----------
Eliminations...........................      (55,524)    (41,739)    (32,451)
                                           ----------  ----------  ----------
                                           $ 410,149   $ 329,583   $ 274,230
                                           ==========  ==========  ==========

                                                Years Ended December 31,
                                           ----------------------------------
                                              2000        1999        1998
                                           ----------  ----------  ----------
Operating income:
North America..........................    $  57,188   $  48,679   $  44,669
Europe.................................       48,180      39,603      29,964
Asia Pacific...........................       27,001      20,117      13,172
Unallocated:
Research and development expenses......      (55,954)    (45,531)    (34,757)
                                           ----------  ----------  ----------
                                           $  76,415   $  62,868   $  53,048
                                           ==========  ==========  ==========

                                                December 31,
                                           ----------------------
                                              2000        1999
                                           ----------  ----------
Identifiable assets:
North America..........................    $ 324,881   $ 261,709
Europe.................................       52,056      34,457
Asia Pacific...........................       12,413      22,587
                                           ----------  ----------
                                           $ 389,350   $ 318,753
                                           ==========  ==========

      Total sales outside the United  States for 2000,  1999 and 1998 was $217.3
million, $171.6 million and $135.6 million, respectively.

Note 14: Commitments and contingencies

      The Company has commitments under noncancelable operating leases primarily
for office  facilities  and  equipment.  Future  minimum  lease  payments  as of
December  31,  2000,  for  each  of the  next  five  years  are as  follows  (in
thousands):

           2001........................   $ 1,741
           2002........................     1,653
           2003........................     1,539
           2004........................     1,485
           2005........................       737
           Thereafter..................        --
                                          --------
                                          $ 7,155
                                          ========

      Rent expense under operating leases was approximately  $3.5 million,  $3.6
million and $2.6 million for the years ended  December 31, 2000,  1999 and 1998,
respectively.

Note 15: Litigation

      On May 2, 2000,  the Company was served by Cognex  Corporation,  asserting
patent  infringement of two Cognex patents,  copyright  infringement,  trademark
infringement  and unfair  competition.  Cognex seeks  preliminary  and permanent
injunctive  relief,  actual  monetary  damages  in  an  unspecified  amount  and
attorney's  fees and costs.  On June 21, 2000,  the Company  filed a response to

                                     -F17-

<PAGE>

their  lawsuit  denying all claims.  A trial has been  scheduled for October 23,
2001. The Company is defending this lawsuit vigorously. The Company is unable to
predict the outcome of the  litigation at this time.  Based on the facts we have
reviewed to date,  management  does not expect the  resolution of this matter to
have a material adverse effect on the Company's business or financial condition.
However,  because the plaintiff has indicated an unwillingness to withdraw these
claims, the Company has accrued $2.5 million of anticipated patent defense costs
that are probable of being incurred.

Note 16: Quarterly results (unaudited)

      The  following   quarterly   results  have  been  derived  from  unaudited
consolidated  financial  statements that, in the opinion of management,  reflect
all adjustments  (consisting only of normal recurring adjustments) necessary for
a fair presentation of such quarterly information. The operating results for any
quarter are not  necessarily  indicative  of the results to be expected  for any
future  period.  The unaudited  quarterly  financial  data for each of the eight
quarters in the two years ended  December 31, 2000 are as follows (in thousands,
except per share data):

                                                Three Months Ended
                                  ----------------------------------------------
                                     Mar.        Jun.        Sep.        Dec.
                                      31,         30,         30,         31,
                                     2000        2000        2000        2000
                                  ----------  ----------  ----------  ----------
Net sales......................   $  94,105   $  99,550   $ 102,247   $ 114,247
Gross profit...................      71,865      75,520      77,830      86,607
Operating income...............      18,053      20,175      18,404      19,783
Net income.....................      12,664      14,431      13,197      14,864
Basic earnings per share.......   $    0.25   $    0.29   $    0.26   $    0.29
Weighted average shares              
  outstanding-basic............      50,112      50,274      50,364      50,567
Diluted earnings per share.....   $    0.24   $    0.27   $    0.25   $    0.28
Weighted average shares              
  outstanding-diluted..........      53,415      53,567      53,612      53,642

                                                Three Months Ended
                                  ----------------------------------------------
                                     Mar.        Jun.        Sep.        Dec.
                                      31,         30,         30,         31,
                                     2000        2000        2000        2000
                                  ----------  ----------  ----------  ----------
Net sales......................   $  73,686   $  79,777   $  82,724   $  93,396
Gross profit...................      56,746      61,658      63,176      71,963
Operating income...............      15,166      15,883      12,841      18,978
Income before cumulative effect
  of accounting change.........      10,560      11,257       9,946      14,037
Net income.....................      10,008      11,257       9,946      14,037

Basic earnings per share:
  Income before cumulative
  effect of accounting change..   $    0.21   $    0.23   $    0.20   $    0.28
  Cumulative effect of           
  accounting change,
  net of tax...................       (0.01)         --          --          --
                                  ----------  ----------  ----------  ----------
  Basic earnings per share.....   $    0.20   $    0.23   $    0.20   $    0.28
                                  ==========  ==========  ==========  ==========

Diluted earnings per share:
  Income before cumulative
  effect of accounting change..   $    0.20   $    0.22   $    0.19   $    0.27
  Cumulative effect of         
  accounting change,
  net of tax...................       (0.01)         --          --          --
                                  ----------  ----------  ----------  ----------
  Diluted earnings per share...   $    0.19   $    0.22   $    0.19   $    0.27
                                  ==========  ==========  ==========  ==========

Weighted average shares outstanding:

  Basic........................      49,484      49,725      49,855      50,029
  Diluted......................      51,339      51,866      52,570      52,802

                                     -F18-

<PAGE>                                  

 
                                                                    SCHEDULE II

                        NATIONAL INSTRUMENTS CORPORATION
                      VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)

Allowance for doubtful accounts
                                              Provision
                                 Balance at   for        Write-Offs   Balance
                                 Beginning    Bad Debt   Charged to   at End of
Year    Description              of Period    Expense    Allowances   Period
----    ----------------------   ----------   ---------  ----------   ----------
1998    Allowance for doubtful
        accounts                 $   4,000    $    183   $     513    $   3,670
1999    Allowance for doubtful      
        accounts                     3,670       1,455         982        4,143
2000    Allowance for doubtful       
        accounts                     4,143       1,962       1,589        4,516


Valuation allowances for excess and obsolete inventory

                                              Provision
                                 Balance at   Charged    Write-Offs   Balance
                                 Beginning    to Cost    Charged to   at End of
Year    Description              of Period    of Sales   Allowances   Period
----    ----------------------   ----------   ---------  ----------   ----------
1998    Valuation allowances 
        for excess and                      
        obsolete inventory       $   3,160    $     --   $   1,356    $   1,804
1999    Valuation allowances
        for excess and
        obsolete inventory           1,804       1,244         694        2,354
2000    Valuation allowances
        for excess and                      
        obsolete inventory           2,354       1,090         978        2,466


                                      -S1-






                                                                      EXHIBIT 11

                NATIONAL INSTRUMENTS CORPORATION AND SUBSIDIARIES
                STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE
                      (In thousands, except per share data)


                                                   Years Ended December 31,
                                              ----------------------------------
                                                 2000        1999        1998
                                              ----------  ----------  ----------

Net income                                    $  55,157   $  45,248   $  37,386
                                              ==========  ==========  ==========

Basic earnings per share                      $    1.10   $    0.91   $    0.76
                                              ==========  ==========  ==========

Weighted average shares outstanding-basic        50,332      49,776      49,248
                                              ==========  ==========  ==========

Diluted earnings per share                    $    1.03   $    0.87   $    0.73
                                              ==========  ==========  ==========

Weighted average shares outstanding-diluted      53,564      52,203      51,150
                                              ==========  ==========  ==========

Calculation of weighted average shares:

   Weighted average common stock             
     outstanding-basic                           50,332      49,776      49,248
   Weighted average common stock options,
     utilizing the treasury stock method          3,232       2,427       1,902
                                              ----------  ----------  ----------

Weighted average shares outstanding-diluted      53,564      52,203      51,150
                                              ==========  ==========  ==========





                                                                    EXHIBIT 21.1

                           Subsidiaries of the Company

(Unless noted as a Texas  corporation,  all  subsidiaries are formed under local
law.)

DASYTEC USA, Incorporated

DATALOG Systeme zur Me(beta)werterfassung GmbH & Co. KG, Germany
GfS Systemtechnik GmbH & Co. KG, Germany
N.I. Export (Barbados) Ltd., Barbados
National Instruments Australia Corporation, a Texas corporation
National Instruments Belgium N.V., Belgium
National Instruments Beteiligungs GmbH, Germany
National Instruments Brazil, Brazil
National Instruments Canada Corporation, a Texas corporation
National Instruments China Corporation, a Texas corporation
National Instruments (Czech Republic) s.r.o., Czech Republic
National Instruments Corporation (UK) Limited, United Kingdom
National Instruments de Mexico, S.A. de C.V., Mexico
National Instruments Europe Corporation, a Texas corporation
National  Instruments  Europe  Software  and  Hardware   Manufacturing   Limited
Liability Company, Hungary
National Instruments Finland Oy, Finland
National Instruments France Corporation, a Texas corporation
National Instruments Germany GmbH, Germany
National Instruments Gesellschaft m.b.H., Salzburg, Austria
National Instruments Hellas Measurement and Automation
 Systems, E.P.E., Greece
National Instruments Hong Kong Limited, Hong Kong
National Instruments (Ireland) Limited, Ireland
NI Systems (India) Private Limited, India
National  Instruments  Instrumentacija,  avtomatizacija in upravljanje  procesov
d.o.o., Slovenija
National Instruments Israel Ltd., Israel
National Instruments Italy s.r.l., Italy
National Instruments Japan Kabushiki Kaisha, Japan
National Instruments (Korea) Corporation, Korea
National Instruments Netherlands B.V., Netherlands
National Instruments Netherlands Investments B.V., Netherlands
National Instruments New Zealand Limited, New Zealand
National Instruments Poland Sp.Zo.o, Poland
National Instruments Portugal Unipessoal Lda, Portugal
National Instruments Russia Corporation, a Texas corporation
National Instruments Scandinavia Corporation, a Texas corporation
National Instruments Services B.V., Netherlands
National Instruments Singapore (PTE) Ltd., Singapore
National Instruments Spain, S.L., Spain
National Instruments Sweden A.B., Sweden
National Instruments Switzerland Corporation, a Texas corporation
National Instruments Taiwan Corporation, a Texas corporation
Shanghai NI Instruments LTD, China
Virtual Instruments SDN BHD, Malaysia
WorldSoft, Ltd., United Kingdom




                                                                      EXHIBIT 23


                        Consent of Independent Accountants



We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement on Form S-8 (No. 333-91671) of National Instruments Corporation of our
report  dated  January 18, 2001  relating to the  financial  statements  and the
financial statement schedule, which appears in this Form 10-K.




/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Austin, Texas
February 7, 2001