cfb4976cc6df44e

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

T  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended:  June 30, 2012 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

 

https://cdn.kscope.io/5a6f693c5e536004691090069788e7c5-nati-20120630x10qg1.jpg

NATIONAL INSTRUMENTS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

 

74-1871327

(I.R.S. Employer Identification Number)

 

 

 

11500 North MoPac Expressway

Austin, Texas

 

 

78759

(address of principal executive offices)

 

(zip code)

 

Registrant's telephone number, including area code:  (512) 338-9119

__________________________

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T  No £

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T  No £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer TAccelerated filer £Non-accelerated filer £Smaller reporting company £

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £  No T

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

 

 

Class

Outstanding at August 1, 2012

Common Stock - $0.01 par value

122,189,609

1

 


 

NATIONAL INSTRUMENTS CORPORATION

 

INDEX

 

 

 

 

 

 

 

 

 

 

PART I.  FINANCIAL INFORMATION 

Page No.

 

 

 

Item 1

Financial Statements:

 

 

 

 

 

Consolidated Balance Sheets

 

 

June 30, 2012 (unaudited) and December 31, 2011

3

 

 

 

 

Consolidated Statements of Income

 

 

(unaudited) for the three and six month periods ended June 30, 2012 and 2011

5

 

 

 

 

Statements of Consolidated Comprehensive Income

 

 

(unaudited) for the three and six month periods June 30, 2012 and 2011

5

 

 

 

 

Consolidated Statements of Cash Flows

 

 

(unaudited) for the six month periods ended June 30, 2012 and 2011

6

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

32

 

 

 

Item 4

Controls and Procedures

35

 

 

 

 

 

 

PART II.  OTHER INFORMATION 

 

 

 

 

 

 

 

Item 1

Legal Proceedings

37

 

 

 

Item 1A

Risk Factors

37

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 5

Other Information

45

 

 

 

Item 6

Exhibits

46

 

 

 

 

Signatures and Certifications

47

 

2

 


 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.               Financial Statements

 

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31,

 

 

(unaudited)

 

2011

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

271,402 

$

142,608 

Short-term investments

 

79,325 

 

223,504 

Accounts receivable, net

 

188,258 

 

157,056 

Inventories, net

 

148,989 

 

131,995 

Prepaid expenses and other current assets

 

56,089 

 

38,082 

Deferred income taxes, net

 

19,588 

 

26,304 

Total current assets

 

763,651 

 

719,549 

Property and equipment, net

 

205,754 

 

190,148 

Goodwill

 

128,963 

 

130,747 

Intangible assets, net

 

80,679 

 

83,866 

Other long-term assets

 

34,584 

 

29,984 

Total assets

$

1,213,631 

$

1,154,294 

Liabilities and stockholders' equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

51,707 

$

41,111 

Accrued compensation

 

33,354 

 

29,616 

Deferred revenue - current

 

89,497 

 

80,059 

Accrued expenses and other liabilities

 

22,007 

 

37,612 

Other taxes payable

 

22,165 

 

24,507 

Total current liabilities

 

218,730 

 

212,905 

Deferred income taxes

 

43,128 

 

43,186 

Liability for uncertain tax positions

 

21,289 

 

19,494 

Deferred revenue - long-term

 

18,488 

 

10,015 

Other long-term liabilities

 

15,668 

 

16,683 

Total liabilities

 

317,303 

 

302,283 

Commitments and contingencies

 

 

 

 

Stockholders' equity:

 

 

 

 

Preferred stock:  par value $0.01; 5,000,000 shares authorized; none issued and outstanding

 

 -

 

Common stock:  par value $0.01; 180,000,000 shares authorized; 122,188,083 and 120,677,143 shares issued and outstanding, respectively

 

1,222 

 

1,207 

Additional paid-in capital

 

501,885 

 

471,830 

Retained earnings

 

393,502 

 

382,474 

Accumulated other comprehensive income (loss)

 

(281)

 

(3,500)

Total stockholders’ equity

 

896,328 

 

852,011 

Total liabilities and stockholders’ equity

$

1,213,631 

$

1,154,294 

 

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

 

3

 


 

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

Product

$

268,979 

$

233,141 

$

508,314 

$

451,751 

Software maintenance

 

21,931 

 

20,143 

 

43,729 

 

39,383 

GSA accrual

 

1,349 

 

 -

 

1,349 

 

 -

Total net sales

 

292,259 

 

253,284 

 

553,392 

 

491,134 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

Product

 

69,787 

 

54,803 

 

129,578 

 

105,761 

Software maintenance

 

1,064 

 

1,083 

 

2,621 

 

2,601 

Total cost of sales

 

70,851 

 

55,886 

 

132,199 

 

108,362 

 

 

 

 

 

 

 

 

 

Gross profit

 

221,408 

 

197,398 

 

421,193 

 

382,772 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

110,756 

 

96,197 

 

210,808 

 

183,352 

Research and development

 

54,286 

 

47,027 

 

108,301 

 

89,895 

General and administrative

 

21,502 

 

21,232 

 

42,876 

 

40,071 

Total operating expenses

 

186,544 

 

164,456 

 

361,985 

 

313,318 

 

 

 

 

 

 

 

 

 

Operating income

 

34,864 

 

32,942 

 

59,208 

 

69,454 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

Interest income

 

132 

 

344 

 

362 

 

685 

Net foreign exchange (loss)

 

(1,016)

 

(486)

 

(1,904)

 

(709)

Other income (expense), net

 

151 

 

(571)

 

255 

 

(125)

Income before income taxes

 

34,131 

 

32,229 

 

57,921 

 

69,305 

Provision for income taxes

 

7,690 

 

5,681 

 

12,838 

 

12,296 

 

 

 

 

 

 

 

 

 

Net income

$

26,441 

$

26,548 

$

45,083 

$

57,009 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.22 

$

0.22 

$

0.37 

$

0.48 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

121,801 

 

119,736 

 

121,360 

 

119,218 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$

0.22 

$

0.22 

$

0.37 

$

0.47 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

122,759 

 

121,161 

 

122,376 

 

120,810 

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.14 

$

0.10 

$

0.28 

$

0.20 

 

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

 

.

 

4

 


 

NATIONAL INSTRUMENTS CORPORATION

 STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2012

 

2011

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

26,441 

$

26,548 

 

$

45,083 

$

57,009 

Other comprehensive income, before tax and net of reclassification adjustments:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(4,336)

 

2,149 

 

 

(954)

 

7,424 

Unrealized (loss) gain on securities available-for-sale, net

 

(313)

 

(580)

 

 

700 

 

(1,004)

Unrealized gain on derivative instruments, net

 

747 

 

309 

 

 

4,632 

 

3,155 

Other comprehensive (loss) income, before tax

 

(3,902)

 

1,878 

 

 

4,378 

 

9,575 

Tax provision related to items of other comprehensive income

 

(347)

 

(47)

 

 

(1,159)

 

(524)

Other comprehensive (loss) income, net of tax

 

(4,249)

 

1,831 

 

 

3,219 

 

9,051 

Comprehensive income

$

22,192 

$

28,379 

 

$

48,302 

$

66,060 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

5

 


 

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

 

 

2012

 

2011

Cash flow from operating activities:

 

 

 

 

Net income

$

45,083 

$

57,009 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

27,316 

 

23,390 

Stock-based compensation

 

13,285 

 

10,296 

Tax expense from deferred income taxes

 

6,695 

 

2,770 

Tax expense (benefit) from stock option plans

 

(2,094)

 

(5,035)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(31,203)

 

(13,841)

Inventories

 

(16,994)

 

(21,393)

Prepaid expenses and other assets

 

(17,625)

 

2,186 

Accounts payable

 

10,596 

 

937 

Deferred revenue

 

17,911 

 

7,051 

Taxes, accrued expenses and other liabilities

 

(11,169)

 

9,926 

Net cash provided by operating activities

 

41,801 

 

73,296 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

Capital expenditures

 

(28,934)

 

(23,053)

Capitalization of internally developed software

 

(9,664)

 

(9,391)

Additions to other intangibles

 

(1,085)

 

(1,756)

Acquisition, net of cash received

 

 -

 

(73,558)

Purchases of short-term investments

 

(38,879)

 

(54,097)

Sales and maturities of short-term investments

 

183,058 

 

73,915 

Net cash provided/(used) by investing activities

 

104,496 

 

(87,940)

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

Proceeds from issuance of common stock

 

14,422 

 

21,389 

Dividends paid

 

(34,019)

 

(23,860)

Tax benefit from stock option plans

 

2,094 

 

5,035 

Net cash (used)/provided by financing activities

 

(17,503)

 

2,564 

 

 

 

 

 

Net change in cash and cash equivalents

 

128,794 

 

(12,080)

Cash and cash equivalents at beginning of period

 

142,608 

 

219,447 

Cash and cash equivalents at end of period

$

271,402 

$

207,367 

 

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

 

 

 

6

 


 

NATIONAL INSTRUMENTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Basis of presentation

 

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2011, included in our annual report on Form 10-K, filed with the Securities and Exchange Commission. In our opinion, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary to present fairly our financial position at June 30, 2012 and December 31, 2011, the results of our operations and comprehensive income for the three month and six month periods ended June 30, 2012 and June 30, 2011, and the cash flows for the six month periods ended June 30, 2012 and June 30, 2011. Operating results for the three month and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

 

Beginning in the second quarter of 2012, we are separately reporting our current and long-term deferred revenue. The separation has no impact on total reported deferred revenue, total liabilities, or total stockholder’s equity for any period on our Consolidated Balance Sheets. The Company assessed the materiality of this item on previously reported periods and concluded the separation was not material. Certain prior year amounts have been reclassified to conform to the 2012 presentation as shown in the following table:

 

 

 

 

 

December 31, 2011

(In thousands)

 

(Unaudited)

 

 

 

Deferred revenue, as previously reported

$

90,074 

 

 

 

Balances as reported in current Form 10-Q:

 

 

Deferred revenue - long-term

$

10,015 

Deferred revenue - current

$

80,059 

 

 

 

 

Note 2 – Earnings per share

 

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. The number of common share equivalents, which include stock options and restricted stock units (“RSUs”), is computed using the treasury stock method.

 

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three month and six month periods ended June 30, 2012 and 2011, respectively, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

(In thousands)

 

(In thousands)

 

(Unaudited)

 

(Unaudited)

 

2012

 

2011

 

2012

 

2011

Weighted average shares outstanding-basic

121,801 

 

119,736 

 

121,360 

 

119,218 

Plus: Common share equivalents

 

 

 

 

 

 

 

Stock options, restricted stock units

958 

 

1,425 

 

1,016 

 

1,592 

Weighted average shares outstanding-diluted

122,759 

 

121,161 

 

122,376 

 

120,810 

 

Stock awards to acquire 4,300 and 823,500 shares for the three month periods ended June 30, 2012 and 2011, respectively, and 74,900 and 415,700 shares for the six month periods ended June 30, 2012 and 2011, respectively, were excluded in the computations of diluted EPS because the effect of including the stock awards would have been anti-dilutive.

 

Note 3 – Cash, cash equivalents and short-term investments

 

The following tables summarize unrealized gains and losses related to our short-term investments designated as available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2012

(In thousands)

 

(Unaudited)

 

 

 

 

Gross

 

Gross

 

Cumulative

 

 

 

 

Adjusted Cost

 

Unrealized Gain

 

Unrealized Loss

 

Translation Adjustment

 

Fair Value

Cash

$

124,213 

$

 -

$

 -

$

 -

$

124,213 

Money Market Accounts

 

62,326 

 

 -

 

 -

 

 -

 

62,326 

Municipal bonds

 

6,613 

 

 

 -

 

 -

 

6,615 

Corporate bonds

 

9,181 

 

 

 -

 

 -

 

9,189 

U.S. treasuries and agencies

 

113,793 

 

 

(8)

 

 -

 

113,788 

Foreign government bonds

 

36,568 

 

135 

 

(20)

 

(5,157)

 

31,526 

Time deposits

 

3,070 

 

 -

 

 -

 

 -

 

3,070 

Cash, cash equivalents, and short-term investments

$

355,764 

$

148 

$

(28)

$

(5,157)

$

350,727 

7

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

As of December 31, 2011

 

 

 

 

Gross

 

Gross

 

Cumulative

 

 

 

 

Adjusted Cost

 

Unrealized Gain

 

Unrealized Loss

 

Translation Adjustment

 

Fair Value

Cash

$

106,431 

$

 -

$

 -

$

 -

$

106,431 

Money Market Accounts

 

22,677 

 

 -

 

 -

 

 -

 

22,677 

Municipal bonds

 

12,381 

 

11 

 

 -

 

 -

 

12,392 

Corporate bonds

 

18,631 

 

 -

 

(67)

 

 -

 

18,564 

U.S. treasuries and agencies

 

170,926 

 

 

(9)

 

 -

 

170,919 

Foreign government bonds

 

36,460 

 

240 

 

(1)

 

(4,482)

 

32,217 

Time deposits

 

2,912 

 

 -

 

 -

 

 -

 

2,912 

Cash, cash equivalents, and short-term investments

$

370,418 

$

253 

$

(77)

$

(4,482)

$

366,112 

 

 

The following tables summarize the contractual maturities of our short-term investments designated as available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2012

(In thousands)

 

(Unaudited)

 

 

Adjusted Cost

 

Fair Value

Due in less than 1 year

$

153,484 

$

149,862 

Due in 1 to 5 years

 

15,741 

 

14,326 

Total available-for-sale debt securities

$

169,225 

$

164,188 

 

 

 

 

 

Due in less than 1 year

 

Adjusted Cost

 

Fair Value

Municipal bonds

$

5,118 

$

5,120 

Corporate bonds

 

9,181 

 

9,189 

U.S. treasuries and agencies

 

109,390 

 

109,393 

Foreign government bonds

 

26,725 

 

23,090 

Time deposits

 

3,070 

 

3,070 

Total available-for-sale debt securities

$

153,484 

$

149,862 

 

 

 

 

 

Due in 1 to 5 years

 

Adjusted Cost

 

Fair Value

Municipal bonds

$

1,495 

$

1,495 

U.S. treasuries and agencies

 

4,403 

 

4,395 

Foreign government bonds

 

9,843 

 

8,436 

Total available-for-sale debt securities

$

15,741 

$

14,326 

 

 

 

Note 4 – Fair value measurements

 

We define fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market that market participants may use when pricing the asset or liability.

 

8

 


 

We follow a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value measurement is determined based on the lowest level input that is significant to the fair value measurement. The three values of the fair value hierarchy are the following:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities

 

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

 

Level 3 – Inputs that are not based on observable market data

 

Assets and liabilities measured at fair value on a recurring basis are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

(In thousands)

 

(Unaudited)

Description

 

June 30, 2012

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

Significant Other Observable Inputs (Level 2)

 

Significant Unobservable Inputs (Level 3)

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents available for sale:

 

 

 

 

 

 

 

 

Money Market Funds

$

62,326 

$

62,326 

$

 -

$

 -

U.S. treasuries and agencies

 

84,863 

 

 -

 

84,863 

 

 -

Short-term investments available for sale:

 

 

 

 

 

 

 

 

Municipal bonds

 

6,615 

 

 -

 

6,615 

 

 -

Corporate bonds

 

9,189 

 

 -

 

9,189 

 

 -

U.S. treasuries and agencies

 

28,925 

 

 -

 

28,925 

 

 -

Foreign government bonds

 

31,526 

 

 -

 

31,526 

 

 -

Time deposits

 

3,070 

 

3,070 

 

 -

 

 -

Derivatives

 

5,572 

 

 -

 

5,572 

 

 -

Total Assets 

$

232,086 

$

65,396 

$

166,690 

$

 -

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Derivatives

$

(1,806)

$

 -

$

(1,806)

$

 -

Total Liabilities 

$

(1,806)

$

 -

$

(1,806)

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Fair Value Measurements at Reporting Date Using

Description

 

December 31, 2011

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

Significant Other Observable Inputs (Level 2)

 

Significant Unobservable Inputs (Level 3)

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents available for sale:

 

 

 

 

 

 

 

 

Money Market Funds

$

22,677 

$

22,677 

$

                    - 

$

 -

U.S. Treasuries and Agencies

 

13,500 

 

 -

 

13,500 

 

 -

Short-term investments available for sale:

 

 

 

 

 

 

 

 

Municipal bonds

 

12,392 

 

 -

 

12,392 

 

 -

Corporate bonds

 

18,564 

 

 -

 

18,564 

 

 -

U.S. treasuries and agencies

 

157,419 

 

 -

 

157,419 

 

 -

Foreign government bonds

 

32,217 

 

 -

 

32,217 

 

 -

Time deposits

 

2,912 

 

2,912 

 

 -

 

 -

Derivatives

 

4,297 

 

 -

 

4,297 

 

 -

Total Assets 

$

263,978 

$

25,589 

$

238,389 

$

 -

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Derivatives

$

(4,542)

$

 -

$

(4,542)

$

 -

Total Liabilities 

$

(4,542)

$

 -

$

(4,542)

$

 -

 

9

 


 

We value our available-for-sale short term investments based on pricing from third party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. We classify all of our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques. We believe all of these sources reflect the credit risk associated with each of our available for sale short term investments. Short-term investments available-for-sale consists of debt securities issued by states of the U.S. and political subdivisions of the U.S., corporate debt securities and debt securities issued by U.S. government corporations and agencies as well as debt securities issued by foreign governments. All short-term investments available-for-sale have contractual maturities of less than 24 months.

 

Derivatives include foreign currency forward and option contracts. Our foreign currency forward contracts are valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. Our foreign currency option contracts are valued using a market approach based on the quoted market prices which are derived from observable inputs including current and future spot rates, interest rate spreads as well as quoted market prices of similar instruments. We consider counterparty credit risk in the valuation of our derivatives. However, counterparty credit risk did not impact the valuation of our derivatives during the six month period ended June 30, 2012. There were not any transfers in or out of Level 1 or Level 2 during the six month period ended June 30, 2012.

 

Our foreign government bonds consist of German government sovereign debt denominated in Euro with maximum maturities of 24 months. Our short-term investments do not involve sovereign debt from any other country in Europe.

 

We did not have any items that were measured at fair value on a nonrecurring basis at June 30, 2012 and December 31, 2011.

 

The carrying value of net accounts receivable and accounts payable contained in the Consolidated Balance Sheet approximates fair value.

 

Note 5 – Derivative instruments and hedging activities

 

We recognize all of our derivative instruments as either assets or liabilities in our statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

 

We have operations in over 40 countries. Sales outside of the Americas accounted for approximately 61% and 59% of our revenues during each of the three month periods ended June 30, 2012 and 2011, respectively, and 60% and 59% of our revenues during the six month periods ended June 30, 2012 and 2011, respectively. Our activities expose us to a variety of market risks, including the effects of changes in foreign currency exchange rates. These financial risks are monitored and managed by us as an integral part of our overall risk management program.

 

We maintain a foreign currency risk management strategy that uses derivative instruments (foreign currency forward and purchased option contracts) to help protect our earnings and cash flows from fluctuations caused by the volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to our operations and competitive position, since exchange rate changes may affect our profitability and cash flow, and the business or pricing strategies of our non-U.S. based competitors.

 

The vast majority of our foreign sales are denominated in the customers’ local currency. We purchase foreign currency forward and option contracts as hedges of forecasted sales that are denominated in foreign currencies and as hedges of foreign currency denominated receivables. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash inflows resulting from such sales or firm commitments will be adversely affected by changes in exchange rates. We also purchase foreign currency forward contracts as hedges of forecasted expenses that are denominated in foreign currencies. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash outflows resulting from foreign currency operating and cost of revenue expenses will be adversely affected by changes in exchange rates.

 

We designate foreign currency forward and purchased option contracts as cash flow hedges of forecasted revenues or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts that are not designated as hedging instruments. None of our derivative instruments contain a credit-risk-related contingent feature.

 

10

 


 

Cash flow hedges

 

To help protect against the reduction in value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales over the next one to two years, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue and forecasted expenses denominated in foreign currencies with forward and purchased option contracts. For forward contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the forward contracts designated as hedges. For option contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the option contracts net of the premium paid designated as hedges. Our foreign currency purchased option contracts are purchased “at-the-money” or “out-of-the-money”. We purchase foreign currency forward and option contracts for up to 100% of our forecasted exposures in selected currencies (primarily in Euro, Japanese yen, Korean won and Hungarian forint) and limit the duration of these contracts to 40 months or less.

 

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“OCI”) and reclassified into earnings in the same line item (net sales, operating expenses, or cost of sales) associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings or expenses during the current period and are classified as a component of “net foreign exchange gain (loss)”. Hedge effectiveness of foreign currency forwards and purchased option contracts designated as cash flow hedges are measured by comparing the hedging instrument’s cumulative change in fair value from inception to maturity to the forecasted transaction’s terminal value.

 

We held forward contracts with the following notional amounts:

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

US Dollar Equivalent

 

 

As of June 30, 2012

 

 

As of December 31,

 

 

(Unaudited)

 

 

2011

Euro

$

72,172 

 

$

60,992 

Japanese yen

 

29,661 

 

 

43,569 

Korean won

 

 -

 

 

3,309 

Hungarian forint

 

26,388 

 

 

28,189 

Total forward contracts notional amount

$

128,221 

 

$

136,059 

 

The contracts in the foregoing table had contractual maturities of 24 months or less at June 30, 2012 and December 31, 2011, respectively.

 

At June 30, 2012, we expect to reclassify $2.9 million of gains on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $24,000 of gains on derivative instruments from accumulated OCI to cost of sales when the cost of sales are incurred and $1,000 of losses on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged operating expenses occur. Expected amounts are based on derivative valuations at June 30, 2012. Actual results may vary as a result of changes in the corresponding exchange rate subsequent to this date.

 

We did not record any ineffectiveness from our hedges during the three and six month periods ended June 30, 2012 and 2011.

 

Other Derivatives

 

Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated net receivable or net payable positions to protect against the change in value caused by a fluctuation in foreign currency exchange rates. We typically attempt to hedge up to 90% of our outstanding foreign denominated net receivables or net payables and typically limit the duration of these foreign currency forward contracts to approximately 120 days. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item “net foreign exchange gain (loss)”. As of June 30, 2012 and December 31, 2011, we held foreign currency forward contracts with a notional amount of $44.9 million and $53.8 million, respectively.

11

 


 

The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets and the effect of derivative instruments on our Consolidated Statements of Income.

 

Fair Values of Derivative Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

June 30, 2012

December 31, 2011

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Location

 

Fair Value

Balance Sheet Location

 

Fair Value

Derivatives designated as hedging instruments

 

 

 

 

 

 

Foreign exchange contracts - ST forwards

Prepaid expenses and other current assets

$

3,545 

Prepaid expenses and other current assets

$

2,500 

 

 

 

 

 

 

 

Foreign exchange contracts - LT forwards

Other long-term assets

 

1,144 

Other long-term assets

 

190 

Total derivatives designated as hedging instruments

 

$

4,689 

 

$

2,690 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - ST forwards

Prepaid expenses and other current assets

$

883 

Prepaid expenses and other current assets

$

1,607 

Total derivatives not designated as hedging instruments

 

$

883 

 

$

1,607 

 

 

 

 

 

 

 

Total derivatives

 

$

5,572 

 

$

4,297 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

June 30, 2012

December 31, 2011

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Location

 

Fair Value

Balance Sheet Location

 

Fair Value

Derivatives designated as hedging instruments

 

 

 

 

 

 

Foreign exchange contracts - ST forwards

Accrued expenses and other liabilities

$

(647)

Accrued expenses and other liabilities

$

(2,007)

 

 

 

 

 

 

 

Foreign exchange contracts - LT forwards

Other long-term liabilities

 

(580)

Other long-term liabilities

 

(1,770)

Total derivatives designated as hedging instruments

 

$

(1,227)

 

$

(3,777)

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - ST forwards

Accrued expenses and other liabilities

$

(579)

Accrued expenses and other liabilities

$

(765)

Total derivatives not designated as hedging instruments

 

$

(579)

 

$

(765)

 

 

 

 

 

 

 

Total derivatives

 

$

(1,806)

 

$

(4,542)

 

12

 


 

 

The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the three month periods ended June 30, 2012 and 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

(In thousands)

(Unaudited)

Derivatives in Cash Flow Hedging Relationship

 

Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)

Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

 

Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

 

Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

Foreign exchange contracts - forwards and options

$

1,281 

Net sales

$

728 

Net foreign exchange gain (loss)

$

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

(377)

Cost of sales

 

103 

Net foreign exchange gain (loss)

 

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

(157)

Operating expenses

 

Net foreign exchange gain (loss)

 

 -

Total

$

747 

 

$

839 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2011

(In thousands)

(Unaudited)

Derivatives in Cash Flow Hedging Relationship

 

Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)

Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

 

Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

 

Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

Foreign exchange contracts - forwards and options

$

(71)

Net sales

$

(983)

Net foreign exchange gain (loss)

$

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

326 

Cost of sales

 

376 

Net foreign exchange gain (loss)

 

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

55 

Operating expenses

 

277 

Net foreign exchange gain (loss)

 

 -

Total

$

310 

 

$

(330)

 

$

 -

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Derivatives not Designated as Hedging Instruments

Location of Gain (Loss) Recognized in Income

 

Amount of Gain (Loss) Recognized in Income

 

Amount of Gain (Loss) Recognized in Income

 

 

 

June 30, 2012

 

June 30, 2011

 

 

 

(Unaudited)

 

(Unaudited)

Foreign exchange contracts - forwards

Net foreign exchange gain/(loss)

$

794 

$

(1,110)

 

 

 

 

 

 

Total

 

$

794 

$

(1,110)

 

13

 


 

 

The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the six month periods ended June 30, 2012 and 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

(In thousands)

(Unaudited)

Derivatives in Cash Flow Hedging Relationship

 

Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)

Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

 

Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

 

Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

Foreign exchange contracts - forwards and options

$

1,743 

Net sales

$

1,204 

Net foreign exchange gain (loss)

$

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

1,871 

Cost of sales

 

95 

Net foreign exchange gain (loss)

 

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

1,018 

Operating expenses

 

63 

Net foreign exchange gain (loss)

 

 -

Total

$

4,632 

 

$

1,362 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2011

(In thousands)

(Unaudited)

Derivatives in Cash Flow Hedging Relationship

 

Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)

Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

 

Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)

Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

 

Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

Foreign exchange contracts - forwards and options

$

(467)

Net sales

$

(1,740)

Net foreign exchange gain (loss)

$

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

2,480 

Cost of sales

 

750 

Net foreign exchange gain (loss)

 

 -

 

 

 

 

 

 

 

 

 

Foreign exchange contracts - forwards and options

 

1,143 

Operating expenses

 

422 

Net foreign exchange gain (loss)

 

 -

Total

$

3,156 

 

$

(568)

 

$

 -

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Derivatives not Designated as Hedging Instruments

Location of Gain (Loss) Recognized in Income

 

Amount of Gain (Loss) Recognized in Income

 

Amount of Gain (Loss) Recognized in Income

 

 

 

June 30, 2012

 

June 30, 2011

 

 

 

(Unaudited)

 

(Unaudited)

Foreign exchange contracts - forwards

Net foreign exchange gain/(loss)

$

(236)

$

(2,103)

 

 

 

 

 

 

Total

 

$

(236)

$

(2,103)

14

 


 

Note 6 – Inventories

 

Inventories, net consist of the following:

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31,

(In thousands)

 

(Unaudited)

 

2011

 

 

 

 

 

Raw materials  

$

64,002 

$

56,139 

Work-in-process

 

5,863 

 

5,708 

Finished goods

 

79,124 

 

70,148 

 

$

148,989 

$

131,995 

 

Note 7 – Intangibles

 

Intangibles at June 30, 2012 and December 31, 2011 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

 

(In thousands)

 

(Unaudited)

 

December 31, 2011

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

Capitalized software development costs

$

63,150 

$

(36,723)

$

26,427 

$

53,086 

$

(29,606)

$

23,480 

Acquired technology

 

67,868 

 

(36,991)

 

30,877 

 

67,918 

 

(32,210)

 

35,708 

Patents

 

23,199 

 

(8,691)

 

14,508 

 

21,875 

 

(7,992)

 

13,883 

Other

 

23,823 

 

(14,956)

 

8,867 

 

24,614 

 

(13,819)

 

10,795 

 

$

178,040 

$

(97,361)

$

80,679 

$

167,493 

$

(83,627)

$

83,866 

 

 

Software development costs capitalized for the three month periods ended June 30, 2012 and 2011 were $6.1 million and $5.9 million, respectively, and related amortization expense was $3.5 million and $3.3 million, respectively. For the six month periods ended June 30, 2012 and 2011, capitalized software development costs were $10.1 million and $9.8 million, respectively, and related amortization expense was $7.1 million and $6.6 million, respectively. Capitalized software development costs for the three month periods ended June 30, 2012 and 2011 included costs related to stock based compensation of $221,000 and $262,000, respectively. For the six month periods ended June 30, 2012 and 2011, capitalized software development costs included costs related to stock based compensation of $400,000 and $412,000, respectively.

 

Amortization of capitalized software development costs is computed on an individual product basis for those products available for market and is recognized based on the product’s estimated economic life, generally three years. Acquired core technology and intangible assets are amortized over their useful lives, which range from three to eight years. Patents are amortized using the straight-line method over their estimated period of benefit, generally 10 to 17 years. Total intangible assets amortization expenses were $7.0 million and $5.5 million for the three months ended June 30, 2012 and 2011, respectively,  and $13.7 million and $10.7 million for the six month periods ended June 30, 2012 and 2011, respectively.

 

Note 8 – Goodwill

 

The carrying amount of goodwill as of June 30, 2012,  was as follows:

 

 

 

 

 

 

 

 

Amount

 

 

(In thousands)

Balance as of December 31, 2011

$

130,747 

Purchase price adjustments

 

(1,623)

Divestitures

 

 -

Foreign currency translation impact

 

(161)

Balance as of June 30, 2012 (unaudited)

$

128,963 

 

The excess purchase price over the fair value of assets acquired is recorded as goodwill. See Note 16 – Acquisitions, for discussion regarding the purchase price adjustment in the table above. As we have one operating segment, we allocate goodwill to one reporting unit for goodwill impairment testing. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach based on the market capitalization of the reporting unit. Our annual impairment test was performed as of February 29, 2012. No impairment of goodwill was identified during 2012 and 2011. Goodwill is deductible for tax purposes in certain jurisdictions.

 

15

 


 

Note 9 – Income taxes

 

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized.

 

We account for uncertainty in income taxes recognized in our financial statements using prescribed recognition thresholds and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on our tax returns. We had $21.3 million and $19.5 million of unrecognized tax benefits at June 30, 2012 and December 31, 2011, respectively, all of which would affect our effective income tax rate if recognized. We recorded a gross increase in unrecognized tax benefits of $1.7 million for the six month period ended June 30, 2012, as a result of tax positions taken during the period. We recorded a gross decrease in unrecognized tax benefits of $285,000 for the six month period ended June 30, 2012 related to settlements with taxing authorities. As of June 30, 2012, it is deemed reasonable that we will recognize tax benefits in the amount of $2.2 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty with regard to the amount of the benefit we may recognize is related to deductions taken on returns that have not been examined by the applicable tax authority. Our continuing policy is to recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2012, we have approximately $1.1 million accrued for interest related to uncertain tax positions. The tax years 2005 through 2011 remain open to examination by the major taxing jurisdictions to which we are subject.

 

Our provision for income taxes reflected an effective tax rate of 23% and 18% for the three month periods ended June 30, 2012 and 2011, respectively, and of 22% and 18% for the six month periods ended June 30, 2012 and 2011, respectively. For the three and six month periods ended June 30, 2012, our effective tax rate was lower than the U.S. federal statutory rate of 35% as a result of an enhanced deduction for certain research and development expenses and profits in foreign jurisdictions with reduced income tax rates. For the three and six month periods ended June 30, 2011, our effective tax rate was lower than the U.S. federal statutory rate of 35% as a result of a tax benefit from equity awards that do not ordinarily result in a tax benefit, an enhanced deduction for certain research and development expenses, profits in foreign jurisdictions with reduced income tax rates and the U.S. federal research and development credit.

 

Our earnings in Hungary are subject to a statutory tax rate of 19%. The difference between this rate and the statutory U.S. rate of 35% resulted in income tax benefits of $3.1 million and $4.0 million for the three month periods ended June 30, 2012 and 2011, respectively, and $5.2 million and $7.4 million for the six month periods ended June 30, 2012 and 2011. No countries other than Hungary had a significant impact on our effective tax rate. We have not entered into any advanced pricing or other agreements with the Internal Revenue Service with regard to any foreign jurisdictions.

 

The tax position of our Hungarian operation continues to benefit from assets created by the restructuring of our operations in Hungary. In addition, our research and development activities in Hungary continue to benefit from a tax law in Hungary that provides for an enhanced deduction for qualified research and development expenses. Partial release of the valuation allowance on assets from the restructuring and the enhanced tax deduction for research expenses resulted in income tax benefits of $4.6 million and $5.2 million for the three month periods ended June 30, 2012 and 2011, respectively, and $7.7 million and $9.9 million for the six month periods ended June 30, 2012 and 2011, respectively.

16

 


 

Note 10 – Comprehensive income

 

Our comprehensive income is comprised of net income, foreign currency translation, unrealized gains and losses on forward and option contracts and securities classified as available-for-sale. The accumulated other comprehensive income/(loss), net of tax, for the three and six month periods ended June 30, 2012 and 2011, consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2012

 

 

(Unaudited)

(In thousands)

 

Currency translation adjustment

 

Investments

 

Derivative instruments

 

Accumulated other comprehensive income

Balance as of March 31, 2012

$

1,839 

$

349 

$

1,780 

$

3,968 

Current-period other comprehensive (loss) income

 

(4,336)

 

(313)

 

400 

 

(4,249)

Balance as of June 30, 2012

$

(2,497)

$

36 

$

2,180 

$

(281)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2012

 

 

(Unaudited)

(In thousands)

 

Currency translation adjustment

 

Investments

 

Derivative instruments

 

Accumulated other comprehensive income

Balance as of December 31, 2011

$

(1,543)

$

(664)

$

(1,293)

$

(3,500)

Current-period other comprehensive (loss) income

 

(954)

 

700 

 

3,473 

 

3,219 

Balance as of June 30, 2012

$

(2,497)

$

36 

$

2,180 

$

(281)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2011

 

 

(Unaudited)

(In thousands)

 

Currency translation adjustment

 

Investments

 

Derivative instruments

 

Accumulated other comprehensive income

Balance as of March 31, 2011

$

4,779 

$

(228)

$

1,959 

$

6,510 

Current-period other comprehensive (loss) income

 

2,149 

 

(580)

 

262 

 

1,831 

Balance as of June 30, 2011

$

6,928 

$

(808)

$

2,221 

$

8,341 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2011

 

 

(Unaudited)

(In thousands)

 

Currency translation adjustment

 

Investments

 

Derivative instruments

 

Accumulated other comprehensive income

Balance as of December 31, 2010

$

(496)

$

196 

$

(410)

$

(710)

Current-period other comprehensive (loss) income

 

7,424 

 

(1,004)

 

2,631 

 

9,051 

Balance as of June 30, 2011

$

6,928 

$

(808)

$

2,221 

$

8,341 

 

Note 11 – Stock-based compensation plans

 

Stock option plans

 

Our stockholders approved the 1994 Incentive Stock Option Plan (the “1994 Plan”) in May 1994. At the time of approval, 13,668,750 shares of our common stock were reserved for issuance under this plan. In 1997, an additional 10,631,250 shares of our common stock were reserved for issuance under this plan, and an additional 1,125,000 shares were reserved for issuance under this plan in 2004. The 1994 Plan terminated in May 2005, except with respect to outstanding awards previously granted thereunder.

 

Awards under the plan were either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or nonqualified options. The right to purchase shares under the options vests over a five to ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and revenue growth but shares cannot accelerate to vest over a period of less than five years. Stock options must be exercised within ten years from date of grant. Stock options were issued with an exercise price which was equal to the market price of our common stock at the grant date. We estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. During the six month period ended June 30, 2012, we did not make any changes in accounting principles or methods of estimates.

 

 

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Restricted stock plan

 

Our stockholders approved our 2005 Incentive Plan (the “2005 Plan”) in May 2005. At the time of approval, 4,050,000 shares of our common stock were reserved for issuance under this plan, as well as the number of shares which had been reserved but not issued under the 1994 Plan (our incentive stock option plan which terminated in May 2005), and any shares that returned to the 1994 Plan as a result of termination of options or repurchase of shares issued under such plan. The 2005 Plan, administered by the Compensation Committee of the Board of Directors, provided for granting of incentive awards in the form of restricted stock and RSUs to directors, executive officers and employees of the Company and its subsidiaries. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. The 2005 Plan terminated on May 11, 2010, except with respect to outstanding awards previously granted thereunder. There were 3,362,304 shares of common stock that were reserved but not issued under the 1994 Plan and the 2005 Plan as of May 11, 2010.

 

Our stockholders approved our 2010 Incentive Plan (the “2010 Plan”) on May 11, 2010. At the time of approval, 3,000,000 shares of our common stock were reserved for issuance under this plan, as well as the 3,362,304 shares of common stock that were reserved but not issued under the 1994 Plan and the 2005 Plan as of May 11, 2010, and any shares that are returned to the 1994 Plan and the 2005 Plan as a result of forfeiture or termination of options or RSUs or repurchase of shares issued under these plans. The 2010 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of restricted stock and RSUs to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. There were 3,919,146 shares available for grant under the 2010 Plan at June 30, 2012.

 

We estimate potential forfeitures of RSUs and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. During the six month period ended June 30, 2012, we did not make any changes in accounting principles or methods of estimates related to the 2010 Plan.

 

Employee stock purchase plan

 

Our employee stock purchase plan permits substantially all domestic employees and employees of designated subsidiaries to acquire our common stock at a purchase price of 85% of the lower of the market price at the beginning or the end of the purchase period. The plan has quarterly purchase periods generally beginning on February 1, May 1, August 1 and November 1 of each year. Employees may designate up to 15% of their compensation for the purchase of common stock under this plan. On May 10, 2011, our stockholders approved an additional 3,000,000 shares for issuance under our employee stock purchase plan, and at June 30, 2012, we had 3,144,521 shares of common stock reserved for future issuance under this plan. We issued 535,617 shares under this plan in the six month period ended June 30, 2012. The weighted average fair value of the employees’ purchase rights was $22.79 per share and was estimated using the Black-Scholes model. During the six months ended June 30, 2012, we did not make any changes in accounting principles or methods of estimates with respect to such plan.

 

Authorized Preferred Stock and Preferred Stock Purchase Rights Plan

 

We have 5,000,000 authorized shares of preferred stock. On January 21, 2004, our Board of Directors designated 750,000 of these shares as Series A Participating Preferred Stock in conjunction with its adoption of a Preferred Stock Rights Agreement (the “Rights Agreement”) and declaration of a dividend of one preferred share purchase right (a “Right”) for each share of common stock outstanding held as of May 10, 2004 or issued thereafter. Each Right will entitle its holder to purchase one one-thousandth of a share of National Instruments’ Series A Participating Preferred Stock at an exercise price of $200, subject to adjustment, under certain circumstances. The Rights Agreement was not adopted in response to any effort to acquire control of National Instruments.

 

The Rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 20% or more of our common stock. In addition, if an acquirer (subject to certain exclusions for certain current stockholders of National Instruments, an “Acquiring Person”) obtains 20% or more of our common stock, then each Right (other than the Rights owned by an Acquiring Person or its affiliates) will entitle the holder to purchase, for the exercise price, shares of our common stock having a value equal to two times the exercise price. Under certain circumstances, our Board of Directors may redeem the Rights, in whole, but not in part, at a purchase price of $0.01 per Right. The Rights have no voting privileges and are attached to and automatically traded with our common stock until the occurrence of specified trigger events. The Rights will expire on the earlier of May 10, 2014 or the exchange or redemption of the Rights.

 

There were not any shares of preferred stock issued and outstanding at June 30, 2012.

18

 


 

 

Note 12 – Segment information

 

We determine operating segments using the management approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our operating segments. It also requires disclosures about products and services, geographic areas and major customers.

 

We have defined our operating segment based on geographic regions. We sell our products in three geographic regions. Our sales to these regions share similar economic characteristics, similar product mix, similar customers, and similar distribution methods. Accordingly, we have elected to aggregate these three geographic regions into a single operating segment. Revenue from the sale of our products which are similar in nature and software maintenance are reflected as total net sales in our Consolidated Statements of Income.

 

Total net sales, operating income, interest income and long-lived assets, classified by the major geographic areas in which we operate, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

(In thousands)

 

June 30,