Edgar Filing: NATIONAL INSTRUMENTS CORP /DE/

a013111.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2011 or

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

For the transition period from ________________ to ________________

Commission file number: 0-25426

NATIONAL INSTRUMENTS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		74-1871327
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

11500 North MoPac Expressway Austin, Texas		78759
(address of principal executive offices)		(zip code)

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

__________________________

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

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

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

Large accelerated filer T Accelerated filer £ Non-accelerated filer £ Smaller reporting company £

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

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

Class	Outstanding at April 25, 2011
Common Stock - $0.01 par value	119,012,203

NATIONAL INSTRUMENTS CORPORATION

INDEX


PART I. FINANCIAL INFORMATION		Page No.

Item 1	Financial Statements:

	Consolidated Balance Sheets
	March 31, 2011 (unaudited) and December 31, 2010	3

	Consolidated Statements of Income
	(unaudited) for the three months ended March 31, 2011 and 2010	4

	Consolidated Statements of Cash Flows
	(unaudited) for the three months ended March 31, 2011 and 2010	5

	Notes to Consolidated Financial Statements	6

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4	Controls and Procedures	32


PART II. OTHER INFORMATION


Item 1	Legal Proceedings	33

Item 1A	Risk Factors	33

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 5	Other Information	41

Item 6	Exhibits	42

	Signatures and Certifications	44

PART I - FINANCIAL INFORMATION

ITEM 1.

Financial Statements

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2011 (Unaudited)		December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	254,594	$	219,447
Short-term investments		130,460		131,215
Accounts receivable, net		132,148		127,214
Inventories, net		134,408		117,765
Prepaid expenses and other current assets		25,459		36,239
Deferred income taxes, net		19,792		18,838
Total current assets		696,861		650,718
Property and equipment, net		164,288		160,410
Goodwill		70,768		70,278
Intangible assets, net		51,928		52,816
Other long-term assets		27,584		25,460
Total assets	$	1,011,429	$	959,682
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	36,615	$	33,544
Accrued compensation		22,952		27,734
Deferred revenue		77,787		71,650
Accrued expenses and other liabilities		14,081		16,538
Other taxes payable		14,805		16,846
Total current liabilities		166,240		166,312
Deferred income taxes		29,697		29,477
Liability for uncertain tax positions		16,416		14,953
Other long-term liabilities		4,694		4,395
Total liabilities		217,047		215,137
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; 270,000,000 shares authorized; 119,009,927 and 117,904,976 shares issued and outstanding, respectively		1,190		786
Additional paid-in capital		431,726		408,106
Retained earnings		354,956		336,363
Accumulated other comprehensive income (loss)		6,510		(710	)
Total stockholders’ equity		794,382		744,545
Total liabilities and stockholders’ equity	$	1,011,429	$	959,682

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

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

	Three Months Ended
	March 31,
	2011			2010

Net sales:
Product	$	218,610		$	175,395
Software maintenance		19,240			15,696
Total net sales		237,850			191,091

Cost of sales:
Product	$	50,958		$	42,262
Software maintenance		1,518			980
Total cost of sales		52,476			43,242

Gross profit		185,374			147,849

Operating expenses:
Sales and marketing	$	87,155		$	74,441
Research and development		42,868			38,546
General and administrative		18,839			15,340
Total operating expenses		148,862			128,327

Operating income		36,512			19,522

Other income (expense):
Interest income	$	341		$	300
Net foreign exchange (loss)		(223	)		(698	)
Other income, net		446			348
Income before income taxes		37,076			19,472
Provision for income taxes		6,615			1,119

Net income	$	30,461		$	18,353

Basic earnings per share	$	0.26		$	0.16

Weighted average shares outstanding - basic		118,693			116,070

Diluted earnings per share	$	0.25		$	0.16

Weighted average shares outstanding - diluted		120,443			117,652

Dividends declared per share	$	0.10		$	0.09

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

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2011			2010
Cash flow from operating activities:
Net income	$	30,461		$	18,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,973			9,442
Stock-based compensation		4,590			4,916
Tax expense (benefit) from deferred income taxes		(560	)		1,709
Tax expense (benefit) from stock option plans		(1,327	)		1,587
Changes in operating assets and liabilities:
Accounts receivable		(4,933	)		(613	)
Inventories		(16,643	)		(3,006	)
Prepaid expenses and other assets		14,995			(297	)
Accounts payable		3,071			3,618
Deferred revenue		6,137			3,730
Taxes and other liabilities		(5,134	)		2,162
Net cash provided by operating activities		41,630			41,601

Cash flow from investing activities:
Capital expenditures		(9,580	)		(5,271	)
Capitalization of internally developed software		(3,731	)		(3,404	)
Additions to other intangibles		(436	)		(543	)
Acquisition, net of cash received		-			(2,191	)
Purchases of short-term investments		(27,176	)		(35,823	)
Sales and maturities of short-term investments		27,931			9,037
Net cash (used by) investing activities		(12,992	)		(38,195	)

Cash flow from financing activities:
Proceeds from issuance of common stock		17,050			22,341
Repurchase of common stock		-			(30,935	)
Dividends paid		(11,868	)		(10,072	)
Tax (expense) benefit from stock option plans		1,327			(1,587	)
Net cash provided (used) by financing activities		6,509			(20,253	)

Net change in cash and cash equivalents		35,147			(16,847	)
Cash and cash equivalents at beginning of period		219,447			201,465
Cash and cash equivalents at end of period	$	254,594		$	184,618

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

NATIONAL INSTRUMENTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of presentation

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2010, 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 March 31, 2011 and December 31, 2010, and the results of our operations and cash flows for the three month periods ended March 31, 2011 and March 31, 2010. Operating results for the three month period ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Note 2 – Earnings per share

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

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three month periods ended March 31, 2011 and 2010, respectively, are as follows (in thousands):

	March 31,
	(unaudited)
	2011		2010
Weighted average shares outstanding-basic		118,693		116,070
Plus: Common share equivalents
Stock options, restricted stock units		1,750		1,583
Weighted average shares outstanding-diluted		120,443		117,653

There were not any stock options to acquire shares that were excluded in the computations of diluted EPS because the effect of including the stock options would have been anti-dilutive in the three month period ended March 31, 2011. In the three month period ended March 31, 2010, stock options to acquire 1,945,500 shares were excluded in the computations of diluted EPS because the effect of including the stock options would have been anti-dilutive.

On January 21, 2011, our Board of Directors declared a 3 for 2 stock split which was effected as a stock dividend, and paid on February 21, 2011, to stockholders of record on February 4, 2011. All per share data and numbers of common shares, where appropriate, have been retroactively adjusted to reflect the stock split.

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

Cash, cash equivalents and short-term investments consist of the following (in thousands):

	As of March 31, 2011 (Unaudited)		As of December 31, 2010

Cash and cash equivalents:
Cash	$	101,017	$	86,344
Cash equivalents:
Money market accounts		153,577		133,103
Total cash and cash equivalents		254,594		219,447
Short-term investments:
Municipal bonds		21,819		16,861
Corporate bonds		47,595		56,110
U.S. treasuries and agencies		24,093		23,135
Foreign government bonds		34,501		32,657
Time deposits		2,452		2,452
Total short-term investments		130,460		131,215
Total cash, cash equivalents and short-term investments	$	385,054	$	350,662

The following table summarizes unrealized gains and losses related to our short-term investments designated as available-for-sale (in thousands):

	As of March 31, 2011 (Unaudited)
	Adjusted Cost		Gross Unrealized Gain		Gross Unrealized Loss			Cumulative Translation Adjustment			Fair Value
Municipal bonds	$	21,806	$	15	$	(2	)	$	-		$	21,819
Corporate bonds		47,575		36		(16	)		-			47,595
U.S. treasuries and agencies		24,106		10		(23	)		-			24,093
Foreign government bonds		36,090		11		(234	)		(1,366	)		34,501
Time deposits		2,452		-		-			-			2,452
Total short-term investments	$	132,029	$	72	$	(275	)	$	(1,366	)	$	130,460

	As of December 31, 2010
	Adjusted Cost		Gross Unrealized Gain		Gross Unrealized Loss			Cumulative Translation Adjustment			Fair Value
Municipal bonds	$	16,843	$	18	$	-		$	-		$	16,861
Corporate bonds		56,141		38		(69	)		-			56,110
U.S. treasuries and agencies		23,142		13		(20	)		-			23,135
Foreign government bonds		36,010		89		(32	)		(3,410	)		32,657
Time deposits		2,452		-		-			-			2,452
Total short-term investments	$	134,588	$	158	$	(121	)	$	(3,410	)	$	131,215

The following table summarizes the contractual maturities of our short-term investments designated as available-for-sale (in thousands):

	As of March 31, 2011 (Unaudited)				As of December 31, 2010
	Adjusted Cost		Fair Value		Adjusted Cost		Fair Value
Due in less than 1 year	$	86,134	$	85,514	$	84,884	$	83,334
Due in 1 to 5 years		45,895		44,946		49,704		47,881
Total short-term investments	$	132,029	$	130,460	$	134,588	$	131,215

Due in less than 1 year	Adjusted Cost		Fair Value		Adjusted Cost		Fair Value
Municipal bonds	$	16,483	$	16,493	$	15,841	$	15,860
Corporate bonds		42,252		42,277		37,641		37,668
U.S. treasuries and agencies		7,086		7,096		11,136		11,147
Foreign government bonds		17,861		17,196		17,814		16,207
Time deposits		2,452		2,452		2,452		2,452
Total short-term investments	$	86,134	$	85,514	$	84,884	$	83,334

Due in 1 to 5 years	Adjusted Cost		Fair Value		Adjusted Cost		Fair Value
Municipal bonds	$	5,323	$	5,326	$	1,002	$	1,001
Corporate bonds		5,323		5,318		18,500		18,442
U.S. treasuries and agencies		17,020		16,997		12,006		11,988
Foreign government bonds		18,229		17,305		18,196		16,450
Total short-term investments	$	45,895	$	44,946	$	49,704	$	47,881

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 and assumptions that market participants would use when pricing the asset or liability.

We follow a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the fair value hierarchy within which the fair value measurement falls 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 (in thousands):

	Fair Value Measurements at Reporting Date Using (Unaudited)
Description	March 31, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Money Market Funds	$	153,577		$	153,577	$	-		$	-
Short-term investments available for sale:
Municipal bonds		21,819			21,819		-			-
Corporate bonds		47,595			47,595		-			-
U.S. treasuries and agencies		24,093			24,093		-			-
Foreign government bonds		34,501			34,501		-			-
Time deposits		2,452			2,452		-			-
Derivatives		5,016			-		5,016			-
Total Assets	$	289,053		$	284,037	$	5,016		$	-

Liabilities
Derivatives	$	(3,819	)	$	-	$	(3,819	)	$	-
Total Liabilities	$	(3,819	)	$	-	$	(3,819	)	$	-

	Fair Value Measurements at Reporting Date Using
Description	December 31, 2010			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Money Market Funds	$	133,103		$	133,103	$	-		$	-
Short-term investments available for sale:
Municipal bonds		16,861			16,861		-			-
Corporate bonds		56,110			56,110		-			-
U.S. treasuries and agencies		23,135			23,135		-			-
Foreign government bonds		32,657			32,657		-			-
Time deposits		2,452			2,452		-			-
Derivatives		2,325			-		2,325			-
Total Assets	$	266,643		$	264,318	$	2,325		$	-

Liabilities
Derivatives	$	(3,733	)	$	-	$	(3,733	)	$	-
Total Liabilities	$	(3,733	)	$	-	$	(3,733	)	$	-

Short-term investments available-for-sale are valued using a market approach (Level 1) based on the quoted market prices of identical instruments when available or other observable inputs such as trading prices of identical instruments in active markets. Short-term investments available-for-sale consists of debt securities issued by states of the U.S. and political subdivisions of the 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. There were not any transfers in or out of Level 1 during the three month period ended March 31, 2011.

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. There were not any transfers in or out of Level 2 during the three month period ended March 31, 2011.

We did not have any items that were measured at fair value on a nonrecurring basis at March 31, 2011 and December 31, 2010.

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 59% of our revenues during each of the three month periods ended March 31, 2011 and March 31, 2010. 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.

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, British pound sterling and Hungarian forint) and limit the duration of these contracts to 40 months or less.

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

We held forward contracts with a notional amount of $20.6 million dollar equivalent of Euro, $4.7 million dollar equivalent of British pound sterling, $21.4 million dollar equivalent of Japanese yen, and $28.3 million dollar equivalent of Hungarian forint at March 31, 2011. These contracts are for terms of up to 24 months. At December 31, 2010, we held forward contracts with a notional amount of $28.3 million dollar equivalent of Euro, $6.0 million dollar equivalent of British pound sterling, $18.4 million dollar equivalent of Japanese yen, and $33.4 million dollar equivalent of Hungarian forint.

We did not have any purchased option contracts at March 31, 2011. At March 31, 2010, we held purchased option contracts with a notional amount of $21.5 million dollar equivalent of Euro.

At March 31, 2011, we expect to reclassify $2.6 million of losses on derivative instruments from accumulated other comprehensive income to net sales during the next twelve months when the hedged international sales occur, $1.8 million of gains on derivative instruments from accumulated OCI to cost of sales when the cost of sales are incurred and $898,000 of gains 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 March 31, 2011. 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 months ended March 31, 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 March 31, 2011 and December 31, 2010, we held foreign currency forward contracts with a notional amount of $42.2 million and $41.3 million, respectively.

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 (in thousands):

	Asset Derivatives
	March 31, 2011 (Unaudited)			December 31, 2010
	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	$	2,800	Prepaid expenses and other current assets	$	1,104

Foreign exchange contracts - LT forwards	Other long-term assets		1,809	Other long-term assets		490
Total derivatives designated as hedging instruments		$	4,609		$	1,594

Derivatives not designated as hedging instruments

Foreign exchange contracts - ST forwards	Prepaid expenses and other current assets	$	407	Prepaid expenses and other current assets	$	731
Total derivatives not designated as hedging instruments		$	407		$	731

Total derivatives		$	5,016		$	2,325

	Liability Derivatives
	March 31, 2011 (Unaudited)				December 31, 2010
	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	$	(2,752	)	Accrued expenses and other liabilities	$	(2,677	)

Foreign exchange contracts - LT forwards	Other long-term liabilities		-		Other long-term liabilities		-
Total derivatives designated as hedging instruments		$	(2,752	)		$	(2,677	)

Derivatives not designated as hedging instruments

Foreign exchange contracts - ST forwards	Accrued expenses and other liabilities	$	(1,067	)	Accrued expenses and other liabilities	$	(1,056	)
Total derivatives not designated as hedging instruments		$	(1,067	)		$	(1,056	)

Total derivatives		$	(3,819	)		$	(3,733	)

Effect of derivative instruments on our Consolidated Statements of Income for the three month periods ended March 31, 2011 and 2010, respectively (in thousands):

March 31, 2011 (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	$	(396	)	Net sales	$	(757	)	Net foreign exchange gain (loss)	$	-

Foreign exchange contracts - forwards and options		2,154		Cost of sales		344		Net foreign exchange gain (loss)		-

Foreign exchange contracts - forwards and options		1,088		Operating expenses		145		Net foreign exchange gain (loss)		-
Total	$	2,846			$	(268	)		$	-

March 31, 2010 (Unaudited)
Derivatives in Cash Flow Hedging Relationship	Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Foreign exchange contracts - forwards and options	$	1,515		Net sales	$	1,037	Net foreign exchange gain (loss)	$	-

Foreign exchange contracts - forwards and options		(1,391	)	Cost of sales		769	Net foreign exchange gain (loss)		-

Foreign exchange contracts - forwards and options		(885	)	Operating expenses		368	Net foreign exchange gain (loss)		-
Total	$	(761	)		$	2,174		$	-

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
		March 31, 2011 (Unaudited)			March 31, 2010 (Unaudited)
Foreign exchange contracts - forwards	Net foreign exchange gain/(loss)	$	(993	)	$	439

Total		$	(993	)	$	439

Note 6 – Inventories

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

	March 31,		December 31,
	2011 (Unaudited)		2010

Raw materials	$	62,239	$	55,218
Work-in-process		4,675		6,359
Finished goods		67,494		56,188
	$	134,408	$	117,765

Note 7 – Intangibles

Intangibles at March 31, 2011 and December 31, 2010 are as follows (in thousands):

	March 31, 2011 (Unaudited)							December 31, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized software development costs	$	44,361	$	(19,449	)	$	24,912	$	40,481	$	(16,217	)	$	24,264
Acquired technology		35,787		(26,364	)		9,423		35,634		(25,017	)		10,617
Patents		21,076		(6,629	)		14,447		20,790		(6,312	)		14,478
Other		14,041		(10,895	)		3,146		14,059		(10,602	)		3,457
	$	115,265	$	(63,337	)	$	51,928	$	110,964	$	(58,148	)	$	52,816

Software development costs capitalized for the three month periods ended March 31, 2011 and 2010 were $3.9 million and $3.6 million, respectively, and related amortization expense was $3.2 million and $2.6 million, respectively. Capitalized software development costs for the three month periods ended March 31, 2011 and 2010, included costs related to stock based compensation of $149,000 and $163,000, respectively. Amortization of capitalized software development costs is computed on an individual product basis for those products available for market and is recognized based on the product’s estimated economic life, generally three years. Patents are amortized using the straight-line method over their estimated period of benefit, generally ten to seventeen years. Total intangible assets amortization expenses were $5.2 million and $4.2 million for the three months ended March 31, 2011 and March 31, 2010, respectively.

Acquired core technology and intangible assets are amortized over their useful lives, which range from three to eight years. Amortization expense for acquisition related intangibles was approximately $1.1 million and $844,000 for the three months ended March 31, 2011 and March 31, 2010, respectively, of which approximately $1.0 million and $722,000 was recorded in cost of sales, respectively, and approximately $77,000 and $122,000 was recorded in operating expenses for the three months ended March 31, 2011 and March 31, 2010, respectively.

Note 8 – Goodwill

The carrying amount of goodwill as of March 31, 2011, is as follows (in thousands):

	Amount
Balance as of December 31, 2010	$	70,278
Acquisitions		-
Divestitures		-
Foreign currency translation impact		490
Balance as of March 31, 2011	$	70,768

The excess purchase price over the fair value of assets acquired is recorded as goodwill. As we have one operating segment, we allocate goodwill to one reporting unit for goodwill impairment testing. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach based on the market capitalization of the reporting unit. Our annual impairment test was performed as of February 28, 2011. No impairment of goodwill has been identified during the period presented. Goodwill is deductible for tax purposes in certain jurisdictions.

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 $16.4 million and $15.0 million of unrecognized tax benefits at March 31, 2011 and December 31, 2010, respectively, all of which would affect our effective income tax rate if recognized. We recorded a gross increase in unrecognized tax benefits of $1.4 million for the three month period ended March 31, 2011. As of March 31, 2011, it is deemed reasonable that we will recognize tax benefits in the amount of $3.6 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty is related to deductions taken on returns that have not been examined by the applicable tax authority. Our continuing policy is to recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 2011, we have approximately $842,000 accrued for interest related to uncertain tax positions. The tax years 2004 through 2010 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 18% and 6% for the three month periods ended March 31, 2011 and 2010, respectively. For the three month period ended March 31, 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, increased profits in foreign jurisdictions with reduced income tax rates and the U.S. federal research and development credit. For the three month period ended March 31, 2010, 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, the partial release of a deferred tax asset valuation allowance, an enhanced deduction for certain research and development expenses, increased profits in foreign jurisdictions with reduced income tax rates and a decrease in unrecognized tax benefits for uncertain tax positions.

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 $3.4 million and $2.3 million for the three month periods ended March 31, 2011 and 2010, respectively. 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 $4.8 million and $3.2 million for the three month periods ended March 31, 2011 and 2010, respectively.

Note 10 – Comprehensive income

Our comprehensive income is comprised of net income, foreign currency translation, unrealized gains and losses on forward and option contracts and securities classified as available for sale. Comprehensive income for the three month periods ended March 31, 2011 and March 31, 2010, was as follows (in thousands):

	Three Months Ended
	March 31,
	(unaudited)
	2011			2010
Comprehensive income:
Net income	$	30,461		$	18,353
Foreign currency translation gains (losses), net of taxes		5,275			(3,962	)
Unrealized gains (losses) on derivative instruments, net of taxes		2,369			(3,345	)
Unrealized gains (losses) on available for sale securities, net of taxes		(424	)		1,877
Total comprehensive income	$	37,681		$	12,923

Note 11 – Stock-based compensation plans

Stock option plans

Our stockholders approved the 1994 Incentive Stock Option Plan (the “1994 Plan”) on May 9, 1994. At the time of approval, 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 three month period ended March 31, 2011, we did not make any changes in accounting principles or methods of estimates.

Restricted stock plan

Our stockholders approved our 2005 Incentive Plan (the “2005 Plan”) on May 10, 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 restricted stock units (“RSUs”) to directors, executive officers and employees of the Company and its subsidiaries. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. The 2005 Plan terminated on May 11, 2010, except with respect to outstanding awards previously granted thereunder. There were 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 6,286,475 shares available for grant under the 2010 Plan at March 31, 2011.

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 three month period ended March 31, 2011, 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. We had 1,375,319 shares of common stock reserved for future employee purchases under this plan at March 31, 2011. We issued 245,523 shares under this plan in the three month period ended March 31, 2011. The weighted average fair value of the employees’ purchase rights was $19.70 per share and was estimated using the Black-Scholes model. During the three months ended March 31, 2011, we did not make any changes in accounting principles or methods of estimates.

For the three months ended March 31, 2011 and March 31, 2010, stock-based compensation recorded as a component of cost of sales, sales and marketing, research and development, and general and administrative was as follows (in thousands):

	Three Months Ended March 31, (Unaudited)
	2011		2010
Stock-based compensation
Total cost of sales	$	317	$	362
Sales and marketing		1,922		2,104
Research and development		1,686		1,765
General and administrative		665		685
Total	$	4,590	$	4,916

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 March 31, 2011.

Note 12 – Segment information

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

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

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

	Three Months Ended March 31,
	(unaudited)
	2011		2010
Net sales:
Americas:	$	97,364	$	79,197
Europe:		71,056		57,923
Asia Pacific:		69,430		53,971
	$	237,850	$	191,091

	Three Months Ended March 31,
	(unaudited)
	2011			2010
Operating income (loss):
Americas	$	18,587		$	13,379
Europe		34,876			27,039
Asia Pacific		25,917			17,650
Unallocated:
Research and development expenses		(42,868	)		(38,546	)
	$	36,512		$	19,522

	Three Months Ended March 31,
	(unaudited)
	2011		2010
Interest income:
Americas	$	149	$	111
Europe		158		159
Asia Pacific		34		30
	$	341	$	300

	March 31, 2011		December 31, 2010
	(unaudited)
Long-lived assets:
Americas	$	105,313	$	103,033
Europe		40,677		40,083
Asia Pacific		18,298		17,294
	$	164,288	$	160,410

Total sales outside the United States for the three month periods ended March 31, 2011 and 2010 were $148.9 million and $119.4 million, respectively.

Note 13 – Commitments and Contingencies

We offer a one-year limited warranty on most hardware products, with a two or three-year warranty on a subset of our hardware products, which is included in the sales price of many of our products. Provision is made for estimated future warranty costs at the time of the sale for the estimated costs that may be incurred under the basic limited warranty. Our estimate is based on historical experience and product sales during this period.

The warranty reserve for the three month periods ended March 31, 2011 and 2010, respectively, was as follows (in thousands):

	Three Months Ended
	March 31,
	(unaudited)
	2011			2010
Balance at the beginning of the period	$	921		$	921
Accruals for warranties issued during the period		818			485
Settlements made (in cash or in kind) during the period		(818	)		(484	)
Balance at the end of the period	$	921		$	922

As of March 31, 2011, we have non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $8.5 million over the next twelve months.

As of March 31, 2011, we have outstanding guarantees for payment of customs and foreign grants totaling approximately $4.6 million, which are generally payable over the next twelve months.

Since 1999, we have sold products to the U.S. government under a contract with the General Services Administration (“GSA”). During such time, our sales under the contract have been approximately 2% of our total sales. Our contract with GSA contains a price reduction or “most favored customer” pricing provision. We have been in discussions with GSA regarding our compliance with this pricing provision and have provided information regarding our pricing practices to GSA. To date, GSA has not made a demand for pricing adjustments related to our GSA contract. However, there can be no assurance that GSA will not make such a demand in the future, and there can be no assurance that the amount of any such demand, if we were forced to pay it, would not have a material adverse impact on our results of operations. If GSA believes that our pricing practices did not comply with the contract, GSA could conduct a formal investigation of such matter or could refer such matter to the U.S. Department of Justice for investigation, including an investigation regarding potential violations of the False Claims Act, which could result in litigation and the possible imposition of a damage remedy that includes treble damages plus civil penalties, and could also result in us being suspended or debarred from future government contracting. Due to the complexities of conducting business with GSA, the relatively small amount of revenue we realize from our GSA contract, and our belief that we can continue to sell our products to U.S. government agencies through other contracting methods, we cancelled our contract with GSA in April 2011, effective May 2011. We do not expect the cancellation of our GSA contract to have a material adverse impact on our results of operations.

Note 14 – Recently issued accounting pronouncements

In October 2009, the FASB updated FASB ASC 605, Revenue Recognition (FASB ASC 605) that amended the criteria for separating consideration in multiple-deliverable arrangements. The amendments establish a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third–party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments will change the application of the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.

On January 1, 2011, we adopted the accounting update as required on a prospective basis. The adoption of the amended revenue recognition rules did not change the units of accounting for our revenue transactions. It also did not significantly change how we allocated the arrangement consideration to the various units of accounting or the timing of revenue. The impact of our adoption was not material to our consolidated financial statements for the three months ended March 31, 2011. We cannot reasonably estimate the effect of adopting these standards on future financial periods as the impact will vary depending on the nature and volume of new or materially modified sales arrangements in any given period. In addition, as our, or our competitors’, pricing practices and strategies evolve, we may modify our pricing practices in the future. This may result in a different allocation of revenue to the deliverables in the multiple element arrangements from the current fiscal quarter, which may change the pattern and timing of revenue recognition for these elements, but will not change the total revenue recognized for the arrangement.

In January 2010, the FASB updated FASB ASC 820, Fair Value Measurements and Disclosures (FASB ASC 820) that requires additional disclosures and clarifies existing disclosures regarding fair value measurements. The additional disclosures include (i) transfers in and out of Levels 1 and 2 and (ii) activity in Level 3 fair value measurements. The update provides amendments that clarify existing disclosures on level of disaggregation and disclosures about inputs and valuation techniques. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the update on January 1, 2010 as required and subsequently adopted on January 1, 2011, the update surrounding disclosures on Level 3 fair value measurements and concluded it did not have a material impact on our consolidated financial position or results of operations.

Note 15 – Litigation

We are not currently a party to any material litigation. However, in the ordinary course of our business, we are involved in a limited number of legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. We also periodically receive notifications from various third parties related to alleged infringement of patents or intellectual property rights, commercial disputes or other matters. With respect to pending legal actions to which we are a party, although the outcomes of these actions are not generally determinable, we believe that the ultimate resolution of these matters will not have a material adverse effect on our financial position, cash flows or results of operations. Litigation in our industry is not uncommon, and we are, and from time to time have been, subject to litigation. No assurances can be given with respect to the extent or outcome of any future litigation or dispute.

Note 16 – Acquisitions

On December 31, 2010, we acquired all of the outstanding shares of a privately-held company for $2.3 million in net cash with an additional $500,000 in net cash to be paid out over the next three years. The purchase price for this acquisition included net working capital of $187,000, amortizable intangible assets of $1.5 million, and goodwill of $1.1 million. Our consolidated financial statements include the operating results of the acquired company from the date of acquisition.

On February 1, 2010, we acquired all of the outstanding shares of a privately-held company for $2.2 million in net cash, $3.0 million in shares of our common stock with the remainder to be paid in cash over the next four years. The purchase price allocation for this acquisition included net working capital of $1.1 million, amortizable intangible assets of $5.0 million, and goodwill of $5.0 million. Our consolidated financial statements include the operating results of the acquired company from the date of acquisition.

For these acquisitions, goodwill is not deductible for tax purposes. Existing technology, non-competition agreements, trademarks, and customer relationships have useful lives of 5 years, 3 years, 3 years, and 5 years, respectively, from the date of acquisition. These assets are not deductible for tax purposes.

Note 17 – Subsequent events

We have evaluated subsequent events through the date the financial statements were issued.

On April 20, 2011, our Board of Directors declared a quarterly cash dividend of $0.10 per common share, payable May 31, 2011, to shareholders of record on May 9, 2011.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements contained herein regarding our future financial performance or operations (including, without limitation, statements to the effect that we “believe,” "expect," "plan," "may," "will," "project," "continue," or "estimate" or other variations thereof or comparable terminology or the negative thereof) should be considered forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including those set forth under the heading “Risk Factors” beginning on page 33, and the discussion below. Readers are also encouraged to refer to the documents regularly filed by us with the Securities and Exchange Commission, including our Annual Report on Form 10-K for further discussion of our business and the risks attendant thereto.

Overview

National Instruments Corporation (“we”, “us” or “our”) is a leading supplier of measurement and automation products that engineers and scientists use in a wide range of industries. These industries comprise a large and diverse market for design, control and test applications. We provide flexible application software and modular, multifunctional hardware that users combine with industry-standard computers, networks and third party devices to create measurement, automation and embedded systems, which we also refer to as “virtual instruments”. Our approach gives customers the ability to quickly and cost-effectively design, prototype and deploy unique custom-defined solutions for their design, control and test application needs. We sell to a large number of customers in a wide variety of industries. We have been profitable in every year since 1990.

The key strategies that we focus on in running our business are the following:

Expanding our broad customer base

We strive to increase our already broad customer base by serving a large market on many computer platforms, through a global marketing and distribution network. We also seek to acquire new technologies and expertise from time to time in order to open new opportunities for our existing product portfolio.

Maintaining a high level of customer satisfaction

To maintain a high level of customer satisfaction we strive to offer innovative, modular and integrated products through a global sales and support network. We strive to maintain a high degree of backwards compatibility across different platforms in order to preserve the customer’s investment in our products. In this time of intense global competition, we believe it is crucial that we continue to offer products with quality and reliability, and that our products provide cost-effective solutions for our customers.

Leveraging external and internal technology

Our product strategy is to provide superior products by leveraging generally available technology, supporting open architectures on multiple platforms and by leveraging our core technologies such as custom application specific integrated circuits (“ASICs”) across multiple products.

We sell into test and measurement (“T&M”) and industrial/embedded applications in a broad range of industries and as such are subject to the economic and industry forces which drive those markets. It has been our experience that the performance of these industries and our performance is impacted by general trends in industrial production for the global economy and by the specific performance of certain vertical markets that are intensive consumers of measurement technologies. Examples of these markets are semiconductor capital equipment, telecom, defense, aerospace, automotive and others

In assessing our business, we consider the trends in the Global Purchasing Managers Index (“PMI”) published by JP Morgan, global industrial production as well as industry reports on the specific vertical industries that we target. Over the last 24 months, the PMI has reflected an expanding industrial economy by rising from a value of 42 in April 2009, to a high of 58 in April 2010, and having an average value of 54 over that time period. At March 31, 2011, the PMI was at 56. Historically, our business cycles have followed the expansion and contraction cycles in the PMI. During the three month period ended March 31, 2011, the PMI had an average value of 57. A value above 50 is indicative of expansion in the global industrial economy. We are unable to predict whether the current expansion cycle, as measured by the PMI, will be sustained throughout 2011. If this expansion is not sustained, even at moderate levels, it could have an adverse effect on the spending patterns of businesses including our current and potential customers which could adversely affect our revenues and therefore harm our business and result of operations.

We distribute our software and hardware products primarily through a direct sales organization. We also use independent distributors, OEMs, VARs, system integrators and consultants to market our products. We have sales offices in the U.S. and sales offices and distributors in key international markets. Sales outside of the Americas accounted for approximately 59% of our revenues during each of the three month periods ended March 31, 2011 and March 31, 2010. The vast majority of our foreign sales are denominated in the customers’ local currency, which exposes us to the effects of changes in foreign currency exchange rates. We expect that a significant portion of our total revenues will continue to be derived from international sales. (See Note 12 - Segment information of Notes to Consolidated Financial Statements for details concerning the geographic breakdown of our net sales, operating income, interest income and long-lived assets).

We manufacture a substantial majority of our products at our facilities in Debrecen, Hungary. Additional production primarily of low volume or newly introduced products is done in Austin, Texas. Our product manufacturing operations can be divided into four areas: electronic circuit card and module assembly; chassis and cable assembly; technical manuals and product support documentation; and software duplication. We manufacture most of the electronic circuit card assemblies and modules in-house, although subcontractors are used from time to time. We currently use a subcontractor in Asia to manufacture a significant portion of our chassis but we are steadily moving an increasing percentage of this production in-house. We manufacture some of our electronic cable assemblies in-house, but many assemblies are produced by subcontractors. We primarily subcontract our software duplication, our technical manuals and product support documentation.

We believe that our long-term growth and success depend on delivering high quality software and hardware products on a timely basis. Accordingly, we focus significant efforts on research and development. We focus our 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, price and performance. Our success also is dependent on our ability to obtain and maintain patents and other proprietary rights related to technologies used in our products. We have engaged in litigation and where necessary, will likely engage in future litigation to protect our intellectual property rights. In monitoring and policing our intellectual property rights, we have been and may be required to spend significant resources.

Our operating results fluctuate from period to period due to changes in global economic conditions and a number of other factors. As a result, we believe our historical results of operations should not be relied upon as indications of future performance. There can be no assurance that our net sales will grow or that we will remain profitable in future periods.

Current business outlook

Many of the industries we serve have historically been cyclical and have experienced periodic downturns. Our customers across all industries and geographic regions demonstrated increased order patterns throughout 2010 and during the three month period ended March 31, 2011. These positive order trends are consistent with the expansion we have seen in the global industrial economy as measured by the global PMI which has risen from 42 in April 2009 to 56 in March 2011. We have seen these positive trends across all geographic regions and across all the vertical markets that we serve although the strength of the trend varies by region and by market. We are unable to predict whether the current expansion cycle, as measured by the PMI, will be sustained throughout 2011. If this expansion cannot be sustained, it could have an adverse effect on the spending patterns of businesses including our current and potential customers which could adversely affect our revenues and therefore harm our business and result of operations. Our key strategies are to maintain a stable gross margin and to optimize our operating cost structure while maintaining strong employee productivity.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items reflected in our Consolidated Statements of Income:

	Three Months Ended
	March 31, (Unaudited)
	2011			2010
Net sales:
Americas		40.9	%		41.4	%
Europe		29.9			30.3
Asia Pacific		29.2			28.3
Consolidated net sales		100.0			100.0
Cost of sales		22.1			22.6
Gross profit		77.9			77.4
Operating expenses:
Sales and marketing		36.7			39.0
Research and development		18.0			20.2
General and administrative		7.9			8.0
Total operating expenses		62.6			67.2
Operating income		15.3			10.2
Other income (expense):
Interest income		0.2			0.2
Net foreign exchange gain (loss)		(0.1	)		(0.4	)
Other income, net		0.2			0.2
Income before income taxes		15.6			10.2
Provision for income taxes		2.8			0.6
Net income		12.8	%		9.6	%

Results of Operations for the Three Month Periods ended March 31, 2011 and 2010

We are encouraged that 2011 began with record revenue for us for a first quarter. We continued to execute on our long-term vision while growing our investments in research and development and our field sales force. We believe our strategic investments in innovation and product development will position us for growth as we continue in 2011, and we continue to be optimistic about our position in the industry.

Net Sales. Our consolidated net sales were $238 million and $191 million for the three month periods ended March 31, 2011 and 2010, respectively, an increase of 24%. For the same periods, product sales were $219 million and $175 million, an increase of 25% and software maintenance sales were $19 million and $16 million an increase of 23%. Products in the areas of virtual instrumentation and graphical system design, which comprised approximately 93% of our revenue in the three months ended March 31, 2011, saw a year-over-year revenue increase of 25%. Instrument control products, which comprised approximately 7% of our revenues in the three months ended March 31, 2011, saw a year-over-year revenue increase of 18%. Products in the areas of virtual instrumentation and graphical system design, which comprised approximately 92% of our revenue in the three months ended March 31, 2010, saw a year-over-year revenue increase of 19%. Instrument control products, which comprised approximately 8% of our revenues in the three months ended March 31, 2010, saw a year-over-year revenue increase of 48%. Revenues from our instrument control products are the most sensitive to the cycles of the global industrial economy. The increase in 2011 and 2010 are attributed to increases in sales volume across all geographic regions of our business. We did not take any significant action with regard to pricing during the three month periods ended March 31, 2011 and 2010.

For the three month periods ended March 31, 2011 and 2010, net sales in the Americas were $97 million and $79 million respectively, an increase of 23%. Sales in the Americas, as a percentage of consolidated sales were 41% in both 2011 and 2010. In Europe, net sales were $71 million and $58 million in 2011 and 2010, respectively, an increase of 23%. Sales in Europe, as a percentage of consolidated sales were 30% in both 2011 and 2010. In Asia, net sales were $69 million and $54 million in 2011 and 2010, respectively, an increase of 29%. Sales in Asia, as a percentage of consolidated sales were 29% and 28% in 2011 and 2010, respectively. We anticipate that sales growth in Asia will continue to outpace growth in the Americas and Europe and continue to grow as a percent of our total net sales.

We expect sales outside of the Americas to continue to represent a significant portion of our revenue. We intend to continue to expand our international operations by increasing our presence in existing markets, adding a presence in some new geographical markets and continuing the use of distributors to sell our products in some countries.

Almost all of the sales made by our direct sales offices in the Americas, outside of the U.S., in Europe and in Asia Pacific are denominated in local currencies, and accordingly, the U.S. dollar equivalent of these sales is affected by changes in foreign currency exchange rates. For the three month period ended March 31, 2011, in local currency terms, our consolidated net sales increased by $49 million or 26%, Americas sales increased by $18 million or 23%, European sales increased by $15 million or 26%, and sales in Asia Pacific increased by $16 million or 29%, compared to the three month period ended March 31, 2010. During this same period, the change in exchange rates had the effect of decreasing our consolidated sales by $1.0 million or 0.5%, decreasing Americas sales by $3,000 or 0.0%, decreasing European sales by $1.1 million or 2%, and increasing sales in Asia Pacific by $14,000 or 0.0%.

To help protect against a reduction in value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue denominated in foreign currencies with forward and purchased option contracts. During the three month periods ended March 31, 2011 and 2010, these hedges had the effect of decreasing our consolidated sales by $757,000 and increasing our consolidated sales by $1.0 million, respectively. (See Note 5 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impacted on our consolidated sales for 2011 and 2010).

Gross Profit. For the three month periods ended March 31, 2011 and 2010, gross profit was $185 million and $148 million, respectively. As a percentage of sales, gross profit was 78% and 77% for the three month periods ended March 31, 2011 and 2010, respectively. Since 2009, we have been successful in implementing and sustaining cost reduction strategies throughout our manufacturing cycle. This along with robust sales growth has allowed us to achieve and maintain stability in our gross margin percentage.

For the three month periods ended March 31, 2011 and 2010, charges related to acquisition related intangibles and stock based compensation included in cost of sales were $1.3 million and $1.1 million, respectively. For three month periods ended March 31, 2011 and 2010, the net impact of the change in foreign currency exchange rates had the effect of increasing our cost of goods sold by $1.2 million or 3% and increasing our cost of goods sold by $759,000 or 2%, respectively.

Operating Expenses. For the three month periods ended March 31, 2011 and 2010, operating expenses were $149 million and $128 million, respectively, an increase of 16%. This increase in our operating expenses was due to higher personnel related expenses of $8 million which included commissions, variable compensation and benefits. The increase in personnel expenses is related to a net increase in our overall headcount of 355 employees as well as the fact that temporary cost cutting measures enacted in 2009 were still in place in January of 2010. In addition, this increase is attributed to higher expenses related to marketing and outside services of $6 million, higher expenses for building and equipment of $2.7 million and higher travel related expenses of $2.6 million. The net impact of changes in foreign currency exchange rates increased our operating expense by $1.1 million. For the three month periods ended March 31, 2011 and 2010, charges related to acquisition related intangibles and stock based compensation included in operating expenses were $4.4 million and $4.7 million, respectively.

As a percentage of net sales, operating expenses in the three month periods ended March 31, 2011 and 2010, were 63% and 67%, respectively. The year over year decrease in our operating expenses as a percent of sales is attributed to the fact that we grew our overall operating expenses by 16% while our net sales grew by 24%.

We believe that our long-term growth and success depends on developing high quality software and hardware products on a timely basis. To that end, we have made investments in research and development a priority. For the three month periods ended March 31, 2011 and 2010, our research and development expenses were $43 million and $39 million, respectively. This increase was due to an increase in our research and development headcount to 1,600 at March 31, 2011 from 1,489 at March 31, 2010. We plan to continue to make the investments which we believe are necessary to drive our long term growth and therefore are planning to increase our research and development headcount throughout the remainder of 2011. We expect that the incremental costs associated with these additions will be partially offset by an expected reduction in our variable compensation costs in 2011.

We capitalize costs for software development and amortize such costs over the related product’s estimated economic life, generally three years, beginning when a product becomes available for general release. For the three month periods ended March 31, 2011 and 2010, we capitalized $3.9 million and $3.6 million of internally developed software costs, respectively. Capitalization of internally developed software costs varies depending on the timing of when each project reaches technological feasibility and the length and scope of the development cycle of each individual project. (See Note 7 - Intangibles of Notes to Consolidated Financial Statements for a description of intangibles). For the three month periods ended March 31, 2011 and 2010, software amortization expense included in cost of goods sold totaled $3.2 million and $2.6 million, respectively.

We also believe that our long-term growth and success depends on delivering high quality software and hardware products to our customers on a timely basis. To that end, we have made investment in our field sales force a priority. For the three month periods ended March 31, 2011 and 2010, our sales and marketing expenses were $87 million and $74 million, respectively. This increase was due to an increase in our sales and marketing headcount to 1,977 at March 31, 2011 from 1,844 at March 31, 2010. We plan to continue to make the investments which we believe are necessary to drive our long term growth and we are budgeting to continue to increase our field sales force throughout the remainder of 2011. We expect that the incremental costs associated with these additions will be partially offset by an expected reduction in our variable compensation costs in 2011.

Operating Income. For the three month periods ended March 31, 2011 and 2010, operating income was $37 million and $20 million, respectively, an increase of 87%. As a percentage of net sales, operating income was 15% and 10%, respectively in these same periods. The increase in our operating income as a percent of sales during this period can be attributed to our overall increase in net sales of 24% while limiting our increase in operating expenses to 16%.

Interest Income. For the three month periods ended March 31, 2011 and 2010, interest income was $341,000 and $300,000, respectively, an increase of 14%. We continued to see low yields for high quality investment alternatives that comply with our corporate investment policy. We do not expect yields in these types of investments to increase in 2011.

Net Foreign Exchange (Loss). For the three month periods ended March 31, 2011 and 2010, net foreign exchange (loss) was $(223,000) and $(698,000), respectively. These results are attributable to movements in the foreign currency exchange rates between the U.S. dollar and foreign currencies in subsidiaries for which our functional currency is not the U.S. dollar. During the three month period ended March 31, 2011, the U.S. dollar declined against most of the major currencies in the markets in which we do business. Although this decline has been gradual, we cannot predict direction or degree of future movements. In the past, we have noted that significant volatility in foreign currency exchange rates in the markets in which we do business has had a significant impact on the revaluation of our foreign currency denominated firm commitments, on our ability to forecast our U.S. dollar equivalent revenues and expenses and on the effectiveness of our hedging programs. In the past, these dynamics have also adversely affected our revenue growth in international markets and may pose similar challenges in the future. We recognize the local currency as the functional currency in virtually all of our international subsidiaries.

We utilize foreign currency forward contracts to hedge our foreign denominated net foreign currency balance sheet positions to help protect against the change in value caused by a fluctuation in foreign currency exchange rates. We typically hedge up to 90% of our outstanding foreign denominated net receivable or payable positions and typically limit the duration of these foreign currency forward contracts to approximately 90 days. The gain or loss on these derivatives as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings under the line item “Net foreign exchange gain (loss)”. Our hedging strategy decreased our foreign exchange gain by $993,000 in the three month period ended March 31, 2011 and decreased our foreign exchange losses by $439,000 in three month period ended March 31, 2010.

To help protect against the change in the value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales and expenses over the next one to two years, we have a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue and forecasted expenses denominated in foreign currencies with forward and 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 purchased 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 designated as hedges, net of the premium paid. Our foreign currency purchased option contracts are purchased “at-the-money” or “out-of-the-money.” We purchase foreign currency forward and option contracts for up to 100% of our forecasted exposures in selected currencies (primarily in Euro, Japanese yen, British pound sterling and Hungarian forint) and limit the duration of these contracts to 40 months or less. As a result, our hedging activities only partially address our risks from foreign currency transactions, and there can be no assurance that this strategy will be successful. We do not invest in contracts for speculative purposes. (See Note 5 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for a description of our forward and purchased option contracts and hedged positions).

Provision for Income Taxes. For the three month periods ended March 31, 2011 and 2010, our provision for income taxes reflected an effective tax rate of 18% and 6%, respectively. The factors that caused our effective tax rate to change year-over-year are detailed in the table below;

	Three Months Ended March 31, 2011 (Unaudited)
Effective tax rate at March 31, 2010		6	%
Change in unrecognized tax benefits for uncertain tax positions		5	%
Decreased profits in foreign jurisdictions with reduced income tax rates as a percent of net income		5	%
Change in enhanced deduction for certain research and development expenses		2	%
Decrease in the partial release of a deferred tax asset valuation allowance		2	%
Change in research and development tax credit		(2	)%
Effective tax rate at March 31, 2011		18	%

(See Note 9 – Income taxes of Notes to Consolidated Financial Statements for further discussion regarding changes in our effective tax rate and a reconciliation of income taxes at the U.S. federal statutory income tax rate of 35% to our effective tax rate).

Liquidity and Capital Resources

Working Capital, Cash and Cash Equivalents and Short-term Investments. The following table presents our working capital, cash and cash equivalents and marketable securities (in thousands):

	March 31, 2011		December 31, 2010		Increase/ (Decrease)
	(unaudited)
Working capital	$	530,621	$	484,406	$	46,215
Cash and cash equivalents (1)		254,594		219,447		35,147
Short-term investments (1)		130,460		131,215		(755	)
Total cash, cash equivalents and short-term investments	$	385,054	$	350,662	$	34,392

(1) Included in working capital

During the three month period ended March 31, 2011, our working capital increased by $46 million due to the increase in our cash, cash equivalents and short-term investments of $34 million, an increase in inventory of $17 million and an increase in accounts receivable of $4.9 million, offset by a decrease in prepaid expenses and other current assets of $11 million. These increases can be attributed to our overall business growth during the three month period ended March 31, 2011.

Our cash and cash equivalent balances are held in numerous financial institutions throughout the world, including substantial amounts held outside of the U.S., however, the majority of our cash and investments that are located outside of the U.S. are denominated in the U.S. dollar with the exception of $35 million U.S. dollar equivalent that is denominated in Euro. At March 31, 2011, we had $385 million in cash, cash equivalents and short-term investments. Approximately $196 million or 51% of these amounts were held in domestic accounts with various financial institutions and $189 million or 49% was held in accounts outside of the U.S. with various financial institutions. Of our short-term investments $61 million or 47% is held in our investment accounts in the U.S. and $69 million or 53% is held in investment accounts of our foreign subsidiaries. Most of the amounts held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal income taxes, less applicable foreign tax credits. We have provided for the U.S. federal tax liability on these amounts for financial statement purposes, except for foreign earnings that are considered indefinitely reinvested outside of the U.S. Repatriation could result in additional U.S. federal income tax payments in future years. We utilize a variety of tax planning and financing strategies with the objective of having our worldwide cash available in the locations in which it is needed.

Cash Provided and (Used) in the Three Month Periods ended March 31, 2011 and 2010. Cash and cash equivalents increased to $255 million at March 31, 2011 from $219 million at December 31, 2010. The following table summarizes the proceeds and (uses) of cash (in thousands):

	Three Months Ended March 31,
	2011			2010
	(unaudited)
Cash provided by operating activities	$	41,630		$	41,601
Cash (used by) investing activities		(12,992	)		(38,195	)
Cash provided (used) by financing activities		6,509			(20,253	)
Net increase (decrease) in cash equivalents		35,147			(16,847	)
Cash and cash equivalents at beginning of year		219,447			201,465
Cash and cash equivalents at end of period	$	254,594		$	184,618

For each of the three month periods ended March 31, 2011 and 2010, cash provided by operating activities was $42 million. Year over year, we saw an increase in net income of $12 million offset by a decrease in cash provided by operating assets and liabilities of $12 million.

Accounts receivable increased to $132 million at March 31, 2011 compared to $127 million at December 31, 2010. Days sales outstanding was 49 days at March 31, 2011, compared to 48 days at December 31, 2010. We typically bill customers on an open account basis subject to our standard net thirty day payment terms. If, in the longer term, our revenue increases, it is likely that our accounts receivable balance will also increase. Our accounts receivable could also increase if customers delay their payments or if we grant extended payment terms to customers, both of which are more likely to occur during challenging economic times when our customers may face issues gaining access to sufficient funding or credit.

Consolidated inventory balances increased to $134 million at March 31, 2011 from $118 million at December 31, 2010. Inventory turns were 1.7 at March 31, 2011, compared to 2.0 at December 31, 2010. Inventory increased by $17 million during the three month period ended March 31, 2011, as we took actions to support our potential growth later in the year and to respond to the supply concerns raised by the recent tragedy in Japan. Our inventory levels will continue to be determined based upon our anticipated demand for products and our need to keep sufficient inventory on hand to meet our customers’ demands. Such considerations are balanced against the risk of obsolescence or potentially excess inventory levels. Rapid changes in customer demand could have a significant impact on our inventory balances in future periods.

Investing activities used cash of $13 million during the three months ended March 31, 2011, as the result of the purchase of property and equipment of $10 million, and capitalization of internally developed software of $4 million. Investing activities used cash of $38 million during the three months ended March 31, 2010, which was the result of the net purchase of $27 million of short-term investments, the purchase of property and equipment of $5 million, and capitalization of internally developed software of $3.4 million.

Financing activities provided cash of $7 million during the three months ended March 31, 2011, which was the result of $17 million received from the issuance of our common stock from the exercise of stock options and our employee stock purchase plan, offset by $12 million used to pay dividends to our stockholders. Financing activities used cash of $20 million during the three months ended March 31, 2010, as the result of $31 million used to repurchase our common stock and $10 million used to pay dividends to our stockholders, offset by $22 million received from the issuance of our common stock from the exercise of stock options and our employee stock purchase plan.

From time to time our Board of Directors has authorized various programs to repurchase shares of our common stock depending on market conditions and other factors. Under such programs, we repurchased a total of 2,089,098. 2,165,161 and 6,165,063 shares of our common stock at weighted average prices of $20.04, $15.97 and $16.81 per share, in the years ended December 31, 2010, 2009 and 2008, respectively. On April 21, 2010, our Board of Directors approved a new share repurchase program that increased the aggregate number of shares of common stock that we are authorized to repurchase from 1,011,147 to 4.5 million. At March 31, 2011, there were 3,932,245 shares remaining available for repurchase under this plan. This repurchase plan does not have an expiration date.

During the three months ended March 31, 2011, we received less proceeds from the exercise of stock options compared to the three months ended March 31, 2010. The timing and number of stock option exercises and the amount of cash proceeds we receive through those exercises are not within our control and in the future, we may not generate as much cash from the exercise of stock options as we have in the past. Moreover, since 2005, it has been our practice to issue restricted stock units and not stock options to eligible employees which will reduce the number of stock options available for exercise in the future. Unlike the exercise of stock options, the issuance of shares upon vesting of restricted stock units does not result in any cash proceeds to us.

Contractual Cash Obligations. Purchase obligations primarily represent purchase commitments for customized inventory and inventory components. At March 31, 2011, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $9 million. At December 31, 2010, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $8 million.

Guarantees are related to payments of customs and foreign grants. At March 31, 2011, we had outstanding guarantees for payment of customs and foreign grants totaling approximately $5 million. At December 31, 2010, we had we had outstanding guarantees for payment of customs, foreign grants and potential customer disputes totaling approximately $5 million.

Off-Balance Sheet Arrangements. We do not have any debt or off-balance sheet debt. At March 31, 2011, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.

Prospective Capital Needs. We believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations as well as from the exercise of employee stock options and the purchase of common stock through our employee stock purchase plan, will be sufficient to cover our working capital needs, capital expenditures, investment requirements, commitments, payment of dividends to our stockholders and repurchases of our common stock for at least the next 12 months. We also believe these sources of cash will be sufficient to fund the construction of our manufacturing, logistics and research and development facility in Penang, Malaysia, which is scheduled to begin in the third quarter of 2011 and continue through the third quarter of 2012. However, we may choose or be required to raise additional funds by selling equity or debt securities to the public or to selected investors, or by borrowing money from financial institutions. Historically, we have not had to rely on debt, public or private, to fund our operating, financing or investing activities. We could also choose or be required to reduce certain expenditures, such as payments of dividends or repurchases of our common stock. In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis on acceptable terms, if at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of our common stock.

Although we believe that we have sufficient capital to fund our activities for at least the next 12 months, our future capital requirements may vary materially from those now planned. We anticipate that the amount of capital we will need in the future will depend on many factors, including:

·	acquisitions of other businesses, assets, products or technologies;

·	the timing cost or outcome of any future intellectual property or commercial litigation;

·	costs associated with the planned expansion of our manufacturing facilities in Malaysia;

·	required levels of research and development and other operating costs;

·	payment of our dividends;

·	capital improvements for new and existing facilities;

·	the overall levels of sales of our products and gross profit margins;

·	our business, product, capital expenditure and research and development plans, and product and technology roadmaps;

·	the levels of inventory and accounts receivable that we maintain;

·	repurchases of our common stock;

·	our relationships with suppliers and customers;

·	general economic and political conditions and specific conditions in the markets we address, including any volatility in the industrial economy in the various geographic regions in which we do business;

·	the inability of certain of our customers who depend on credit to have access to their traditional sources of credit to finance the purchase of products from us, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us; and,

·	the level of exercises of stock options and stock purchases under our employee stock purchase plan.

Recently Issued Accounting Pronouncements

See Note 14 – Recently Issued Accounting Pronouncements in Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Response to this item is included in Item 2 - Management's Discussion and Analysis of Financial Conditions and Results of Operations above.

Financial Risk Management

Our international sales are subject to inherent risks, including fluctuations in local economies; fluctuations in foreign currencies relative to the U.S. dollar; 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 vast majority of our sales outside of North America are denominated in local currencies, and accordingly, the U.S. dollar equivalent of these sales is affected by changes in the foreign currency exchange rates. The change in exchange rates had the effect decreasing our consolidated sales by $1.0 million or 0.5% in the three month period ended March 31, 2011, and increasing our consolidated sales by $8 million or 5% in the three month period ended March 31, 2010. If the local currencies in which we sell our products strengthen against the U.S. dollar, we may need to lower our prices in the local currency to remain competitive in our international markets which could have a material adverse effect on our gross and net profit margins. If the local currencies in which we sell our products weaken against the U.S. dollar and if the local sales prices cannot be raised due to competitive pressures, we will experience a deterioration of our gross and net profit margins. Since most of our international operating expenses are also incurred in local currencies the change in exchange rates had the effect of increasing our consolidated operating expenses by $1.1 million or 1% in the three month period ended March 31, 2011, and increasing our consolidated operating expenses by $4.8 million or 4% in the three month period ended March 31, 2010. During the three month period ended March 31, 2011, the U.S. dollar declined against most of the major currencies in the markets in which we do business. Although this decline has been gradual, we cannot predict the direction or degree of future movements. In the past, we have noted that significant volatility in foreign currency exchange rates in the markets in which we do business has had a significant impact on the revaluation of our foreign currency denominated firm commitments, on our ability to forecast our U.S. dollar equivalent revenues and expenses and on the effectiveness of our hedging programs. In the past, these dynamics have also adversely affected our revenue growth in international markets and may pose similar challenges in the future. We recognize the local currency as the functional currency in virtually all of our international subsidiaries.

To help protect against changes in value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue, cost of sales and operating expenses denominated in foreign currencies with foreign currency forward contracts. During the three month period ended March 31, 2011, these hedges had the effect of decreasing our consolidated sales by $757,000, decreasing our cost of sales by $344,000, and decreasing our operating expenses by $145,000. During the three month period ended March 31, 2010, these hedges had the effect of increasing our consolidated sales by $1.0 million, decreasing our cost of sales by $769,000, and decreasing our operating expenses by $368,000. (See Note 5 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impacted on our consolidated sales, cost of sales and operating expenses for the three month periods ended March 31, 2011 and 2010).

Inventory Management

The recent tragedies in Japan have, in a few cases, caused disruptions in our supply chain for a limited number of components we use in our manufacturing process. Some of these disruptions have been of a short term nature and others we expect to have a longer term impact. In response to these uncertainties and where possible, we have accelerated purchases of affected tier-one components and are looking for opportunities to accelerate purchases of affected tier-two components. Where we have determined the disruptions to be long term or permanent, we have started taking steps to re-qualify alternate components and to redesign products where necessary. These activities may lead to an increase in our overall inventory levels and an increased risk of inventory obsolescence. We cannot rule out that additional disruptions in our supply chain may occur in the future. While the tragic events unfolding in Japan are beyond the normal scope of disruption, we will continue to assess our global inventory and work to mitigate these risks in order to avoid further supply chain disruptions.

The marketplace for our products dictates that many of our products be shipped very quickly after an order is received. As a result, we are required to maintain significant inventories. Therefore, inventory obsolescence is a risk for us due to frequent engineering changes, shifting customer demand, the emergence of new industry standards and rapid technological advances including the introduction by us or our competitors of products embodying new technology. However our risk of obsolescence is mitigated as many of our products have interchangeable parts and many have long lives. While we adjust for excess and obsolete inventories and we monitor the valuation of our inventories, there can be no assurance that our valuation adjustments will be sufficient.

Market Risk

We are exposed to a variety of risks, including foreign currency fluctuations and changes in the market value of our investments. In the normal course of business, we employ established policies and procedures to manage our exposure to fluctuations in foreign currency values and changes in the market value of our investments.

Cash, Cash Equivalents and Short-Term Investments

At March 31, 2011, we had $385 million in cash, cash equivalents and short-term investments. We maintain cash and cash equivalents and short-term investments with various financial institutions located in many countries throughout the world. Approximately $196 million or 51% of these amounts were held in domestic accounts with various financial institutions and $189 million or 49% was held in accounts outside of the U.S. with various financial institutions. At March 31, 2011, $101 million or 40% of our cash and cash equivalents was held in cash in various operating accounts throughout the world, and $154 million or 60% was held in money market accounts. The most significant of our operating accounts was our domestic operating account which held approximately $23 million or 9% of our total cash and cash equivalents at a bank that carried an A1 rating at March 31, 2011. Of our short-term investments, $61 million or 47% is held in our investment accounts in the U.S. and $69 million or 53% is held in investment accounts of our foreign subsidiaries.

We maintain an investment portfolio of various types of security holdings and maturities. Cash equivalents and short-term investments available-for-sale are valued using a market approach (Level 1) based on the quoted market prices of identical instruments when available or other observable inputs such as trading prices of identical instruments in active markets.

The goal of our investment policy is to manage our investment portfolio to preserve principal and liquidity while maximizing the return on our investment portfolio through the full investment of available funds. We place our cash investments in instruments that meet credit quality standards, as specified in our corporate investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. Our cash equivalents and short-term investments carried ratings from the major credit rating agencies that were in accordance with our corporate investment policy. Our investment policy allows investments in the following; government and federal agency obligations, repurchase agreements (“Repos”), certificates of deposit and time deposits, corporate obligations, medium term notes and deposit notes, commercial paper including asset-backed commercial paper (“ABCP”), puttable bonds, general obligation and revenue bonds, money market funds, taxable commercial paper, corporate notes/bonds, municipal notes, municipal obligations, variable rate demand notes and tax exempt commercial paper. All such instruments must carry minimum ratings of A1/P1/F1, MIG1/VMIG1/SP1 and A2/A/A, as applicable, all of which are considered “investment grade”. Our investment policy for marketable securities requires that all securities mature in three years or less, with a weighted average maturity of no longer than 18 months with at least 10% maturing in 90 days or less.

We account for our investments in debt and equity instruments under FASB ASC 320 Investments – Debt and Equity Securities (FASB ASC 320). Our investments are classified as available-for-sale and accordingly are reported at fair value, with unrealized gains and losses reported as other comprehensive income, a component of shareholders’ equity. Unrealized losses are charged against income when a decline in fair value is determined to be other than temporary. Investments with maturities beyond one year are classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The fair value of our short-term investments at March 31, 2011 and December 31, 2010 was $130 million and $131 million, respectively.

We follow the guidance provided by FASB ASC 320 to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net, in our Consolidated Statements of Income.

Interest Rate Risk

Investments in both fixed rate and floating rate instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in the fair value of our publicly traded debt investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. However, because any debt securities we hold are classified as available-for-sale, no gains or losses are realized in our income statement due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of shareholders’ equity, net of tax.

In a declining interest rate environment, as short-term investments mature, reinvestment occurs at less favorable market rates. Given the short-term nature of certain investments, the current interest rate environment of low rates may negatively impact our investment income.

In order to assess the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of our investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on our investment positions as of March 31, 2011, a 100 basis point increase or decrease in interest rates across all maturities would result in a $1.0 million increase or decrease in the fair market value of our portfolio. As of December 31, 2010, a similar 100 basis point increase or decrease in interest rates across all maturities would result in a $1.0 million increase or decrease in the fair market value of our portfolio. Such losses would only be realized if we sold the investments prior to maturity or if there is a other than temporary impairment.

Actual future gains and losses associated with our investments may differ from the sensitivity analyses performed as of March 31, 2011, due to the inherent limitations associated with predicting the changes in the timing and level of interest rates and our actual exposures and positions.

We noted continued stabilization in the financial markets in 2011 and throughout 2010. As such, we have extended the maturity date of our holdings to include debt securities with maturities of up to 24 months to take advantage of the higher yields associated with longer maturities. However, yields, even at longer maturities, remain at or near historic lows. We weigh the benefit of the higher yields associated with longer maturities against the interest rate risk and credit rating risk, also associated with these longer maturities when making these decisions. We cannot predict when or if interest rates and investment yields will rise. If yields continue to stay at these low levels, our investment income will continue to be negatively impacted.

Exchange Rate Risk

Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in such exchange rates on our earnings and cash flow. Accordingly, we utilize purchased foreign currency option and forward contracts to hedge our exposure on anticipated transactions and firm commitments. The principal currencies hedged are the Euro, British pound, Japanese yen and Hungarian forint. We monitor our foreign exchange exposures regularly to help ensure the overall effectiveness of our foreign currency hedge positions. There can be no assurance that our foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchanges rates on our results of operations and financial position. Based on the foreign exchange instruments outstanding at March 31, 2011 and December 31, 2010, 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 settlement value of all of our instruments outstanding of approximately $11 million and $10 million, respectively. However, as we utilize foreign currency instruments for hedging anticipated and firmly committed transactions, we believe that a loss in settlement value for those instruments will be substantially offset by increases in the value of the underlying exposure. (See Note 4 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for a further description of our derivative instruments and hedging activities).

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer, Dr. James Truchard, and our EVP, Chief Operating Officer and Chief Financial Officer, Alex Davern, based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), required by paragraph (b) of Rule 13a – 15 or Rule 15d – 15, have concluded that our disclosure controls and procedures were effective at the reasonable assurance level, to ensure the timely collection, evaluation and disclosure of information relating to us that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated there under, and that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include components of our internal control over financial reporting. Our assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute assurance that the control system’s objectives will be met. We continue to enhance our internal control over financial reporting in key functional areas with the goal of monitoring our operations at the level of documentation, segregation of duties, and systems security necessary, as well as transactional control procedures required under Auditing Standard No. 5 issued by the Public Company Accounting Oversight Board. We discuss and disclose these matters to the audit committee of our board of directors and to our auditors.

During the three month period ended March 31, 2011, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of the Rule 13a – 15 or Rule 15d – 15 that have materially affected, or are likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Risks Associated With the Compliance With the Pricing Provisions of our GSA Contract Could Have a Material Adverse Impact on Our Results of Operations. Since 1999, we have sold products to the U.S. government under a contract with the General Services Administration (“GSA”). During such time, our sales under the contract have been approximately 2% of our total sales. Our contract with GSA contains a price reduction or “most favored customer” pricing provision. We have been in discussions with GSA regarding our compliance with this pricing provision and have provided information regarding our pricing practices to GSA. To date, GSA has not made a demand for pricing adjustments related to our GSA contract. However, there can be no assurance that GSA will not make such a demand in the future, and there can be no assurance that the amount of any such demand, if we were forced to pay it, would not have a material adverse impact on our results of operations. If GSA believes that our pricing practices did not comply with the contract, GSA could conduct a formal investigation of such matter or could refer such matter to the U.S. Department of Justice for investigation, including an investigation regarding potential violations of the False Claims Act, which could result in litigation and the possible imposition of a damage remedy that includes treble damages plus civil penalties, and could also result in us being suspended or debarred from future government contracting. Due to the complexities of conducting business with GSA, the relatively small amount of revenue we realize from our GSA contract, and our belief that we can continue to sell our products to U.S. government agencies through other contracting methods, we cancelled our contract with GSA in April 2011, effective May 2011. We do not expect the cancellation of our GSA contract to have a material adverse impact on our results of operations.

Uncertain Economic Conditions Could Materially Adversely Affect Our Business. Our business is sensitive to fluctuations in general economic conditions, both in the U.S. and globally. Uncertainty associated with natural disasters, energy costs, budget and tax policies throughout the world’s developed economies, employment levels, labor costs, healthcare costs, negative financial news, foreign currency markets, declining income or asset values and credit availability, could negatively impact the spending patterns of businesses including our current and potential customers which may have an adverse effect on our revenues and therefore harm our business and results of operations. Historically, our business cycles have generally followed the expansion and contraction cycles in the global industrial economy. During the three month period ended March 31, 2011 and during 2010, the global industrial economy expanded. We cannot predict whether the global industrial economy will continue to grow or maintain stability throughout 2011. If this expansion cycle is not sustained, even at moderate growth levels, it could have an adverse effect on the spending patterns of businesses including our current and potential customers which could adversely affect our revenues and therefore harm our business and result of operations.

Changes in the Amount of Revenue Derived from Large Orders Could Adversely Affect our Gross Margin and Could Lead to Greater Variability in our Quarterly Results. Our large orders, defined as those orders with a value greater than $20,000, may be more sensitive to changes in the global industrial economy and may be subject to greater discount variability. Historically, our gross margins have been quite stable from period to period. If the amount of our revenue derived from larger orders increase in future periods, our gross margins could be negatively impacted. This dynamic may also have an adverse effect on the historical seasonal pattern of our revenues and our results of operations.

Our Business is Dependent on Key Suppliers. Our manufacturing processes use large volumes of high-quality components and subassemblies supplied by outside sources. Several of these components are available through limited sources. Limited source components purchased include custom application specific integrated circuits (“ASICs”), chassis and other components. We have in the past experienced delays and quality problems in connection with limited source components, and there can be no assurance that these problems will not recur in the future. Accordingly, our failure to receive components from limited suppliers could result in a material adverse effect on our revenues and operating results. In the event that any of our limited suppliers experience significant financial or operational difficulties due to adverse global economic conditions or otherwise, our business and operating results would likely be adversely impacted until we are able to secure another source for the required materials.

Recent Tragedies in Japan Have Caused Disruptions in our Supply Chain and May Cause Further Disruptions in the Future. The recent tragedies in Japan have, in a few cases, caused disruptions in our supply chain for a limited number of components we use in our manufacturing process. Some of these disruptions have been of a short term nature and others we expect to have a longer term impact. These disruptions may have an adverse effect on our ability to meet customer demands and therefore could have an adverse effect on our revenues, our business and our results of operations. Where we have determined the disruptions to be long term or permanent, we have started taking steps to re-qualify alternate components and to redesign products where necessary. If we are not successful in re-qualifying alternate components or in redesigning our products, or if the process takes longer than we anticipate, our ability to meet customer demands may be negatively impacted and therefore could have an adverse effect on our revenues, our business and our results of operations. If we are successful in re-qualifying alternate components or in redesigning our products, the results may lead to higher component and manufacturing costs. Thus, our efforts to respond to these disruptions and to meet our customer demands may lead to lower gross margins in future periods and may have an adverse effect our business and our results of operations. We cannot rule out that additional disruptions in our supply chain may occur in the future.

We May Experience Component Shortages. As has occurred in the past and as may be expected to occur in the future, supply shortages of components used in our products, including limited source components, can result in significant additional costs and inefficiencies in manufacturing. If we are unsuccessful in resolving any such component shortages in a timely manner, we will experience a significant impact on the timing of revenue, a possible loss of revenue, and/or an increase in manufacturing costs, any of which would have a material adverse impact on our operating results.

Our Acquisitions are Subject to a Number of Related Costs and Challenges. We have from time to time acquired, and expect in the future to acquire, complementary businesses, products or technologies. Achieving the anticipated benefits of an acquisition depends upon whether the integration of the acquired business, products or technology is accomplished efficiently and effectively. In addition, successful acquisitions generally require, among other things, integration of product offerings, manufacturing operations and coordination of sales and marketing and R&D efforts. These difficulties can become more challenging due to the need to coordinate geographically separated organizations, the complexities of the technologies being integrated, and the necessities of integrating personnel with disparate business backgrounds and combining two different corporate cultures. The integration of operations following an acquisition also requires the dedication of management resources, which may distract attention from our day-to-day business and may disrupt key R&D, marketing or sales efforts. The inability of our management to successfully integrate any future acquisition could harm our business. Some of the existing products previously sold by some of the entities we have acquired are of lesser quality than our products and/or could contain errors that produce incorrect results on which users rely or cause failure or interruption of systems or processes that could subject us to liability claims that could have a material adverse effect on our operating results or financial position. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transaction.

A Substantial Majority of Our Manufacturing Capacity is Located in Hungary. Our Hungarian manufacturing and warehouse facility sources a substantial majority of our sales. In order to enable timely shipment of products to our customers we also maintain the vast majority of our inventory at our Hungary warehouse facility. In addition to being subject to the risks of maintaining such a concentration of manufacturing capacity and global inventory, this facility and its operation are also subject to risks associated with doing business internationally, including:

·	difficulty in managing manufacturing operations in a foreign country;

·	challenges in expanding capacity to meet increased demand;

·	difficulty in achieving or maintaining product quality;

·	interruption to transportation flows for delivery of components to us and finished goods to our customers;

·	a restrictive labor code;

·	increasing labor costs;

·	the volatility of the Hungarian forint relative to the U.S. dollar;

·	changing and unstable political environment; and,

·	significant and frequent changes in the corporate tax law.

No assurance can be given that our efforts to mitigate these risks will be successful. We are currently operating our manufacturing facility in Hungary at a high level of capacity utilization and are selectively increasing our capacity to meet anticipated demand for our products. Any failure to effectively deal with the risks above could result in an interruption in the facility’s operation or delays in expanding its capacity, either of which could have a material adverse effect on our operating results and limit our revenue growth opportunities.

Our long term manufacturing and warehousing capacity planning contemplates a third manufacturing and warehousing facility in Penang, Malaysia. We began warehousing and distribution operations out of Penang, Malaysia via a third party logistics provider on October 1, 2010. We plan to start construction of a manufacturing, logistics and research and development facility in Malaysia in the third quarter of 2011, and plan to begin manufacturing operations at our Penang location during the third quarter of 2012. We can give no assurance that we will be successful in deploying our new facility in Malaysia on schedule or that we will not exceed our cost estimates. Our failure to successfully deploy our new facility in Malaysia or our failure to deploy this facility without exceeding our cost estimates could have a material adverse effect on our ability to meet customer demands, our ability to grow our business as well as our liquidity, capital resources and results of operations. If we succeed in deploying our Malaysian manufacturing facility on schedule and the demand for our products does not grow as expected, we will have excess manufacturing capacity which will cause an increase in overhead that will negatively impact our gross margins and results of operations.

We Have Established a Budget and Variations From Our Budget Will Affect Our Financial Results. During the fourth quarter of 2010, we established an operating budget for 2011. Our budgets are established based on the estimated revenue from sales of our products which are based on economic conditions in the markets in which we do business as well as the timing and volume of our new products and the expected penetration of both new and existing products in the marketplace. If demand for our products in 2011 is less than the demand we anticipated in setting our 2011 budget, our operating results could be negatively impacted. We are budgeting to increase our research and development personnel and our field sales force during 2011. We anticipate the incremental cost of these additions will be partially offset by an expected reduction in our variable compensation in 2011. If we exceed the level of expenses established in our 2011 operating budget or if we cannot reduce budgeted expenditures in response to a decrease in revenue, our operating results could be adversely affected. Our spending could exceed our budgets due to a number of factors, including:

·	the timing cost or outcome of any future intellectual property or commercial litigation;

·	increased costs from hiring more product development engineers or other personnel;

·	increased costs from hiring more field sales personnel;

·	increased manufacturing costs resulting from component supply shortages and/or component price fluctuations;

·	additional marketing costs for new product introductions and/or for conferences and tradeshows;

·	increased component costs resulting from vendors increasing prices in response to increased economic activity; and/or

·	additional costs related to acquisitions, if any.

Our Income Tax Rate is Affected by our Tax Benefits in Hungary. The profit from our Hungarian operation benefits from the fact that it is subject to an effective income tax rate that is lower than the U.S. federal statutory tax rate of 35%. 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 $3.4 million and $2.3 million for the three month periods ended March 31, 2011 and 2010, respectively. In addition, effective January 1, 2010, certain qualified research and development expenses became eligible for an enhanced tax deduction. The enhanced tax deduction for research and development expenses resulted in an income tax benefit of $3.8 million and $2.3 million in the three month periods ended March 31, 2011 and 2010, respectively.

This benefit may not be available in future years due to changes in political conditions in Hungary or changes in tax laws in Hungary and in the U.S. The reduction or elimination of these benefits in Hungary or future changes in U.S. law pertaining to the taxation of foreign earnings could result in an increase in our future effective income tax rate which could have a material adverse effect on our operating results.

We are Subject to Risks Associated with Our Centralization of Inventory and Distribution. Currently, shipments to our customers worldwide are primarily sourced from our warehouse facility in Debrecen, Hungary. Shipments to some of our customers in Asia are currently made either out of local inventory managed by our branch operations in various Asian countries or from a centralized distribution point in Penang, Malaysia. We plan to continue to devote resources to centralizing our distribution to a limited number of shipping points. Our centralization of inventory and distribution from a limited number of shipping points is subject to inherent risks, including:

·	burdens of complying with additional and/or more complex VAT and customs regulations; and,

·	severe concentration of inventory increasing the risks associated with fire, natural disasters and logistics disruptions to customer order fulfillment.

Any difficulties with the centralization of our distribution or delays in the implementation of the systems or processes to support this centralized distribution could result in an interruption of our normal operations, including our ability to process orders and ship products to our customers. Any failure or delay in distribution from our facility in Hungary and Penang could have a material adverse effect on our operating results.

We Operate in Intensely Competitive Markets. The markets in which we operate are characterized by intense competition from numerous competitors, some of which are divisions of large corporations having far greater resources than we have, and we may face further competition from new market entrants in the future. A key competitor is Agilent Technologies Inc. (“Agilent”). Agilent offers hardware and software products that provide solutions that directly compete with our virtual instrumentation products and has recently released its own line of PXI based hardware. Agilent is aggressively advertising and marketing products that are competitive with our 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 our operating results.

We believe our ability to compete successfully depends on a number of factors both within and outside our control, including:

·	new product introductions by competitors;

·	the outcome of any future intellectual property or commercial litigation;

·	the ability of competitors to more fully leverage low cost geographies;

·	product pricing;

·	the impact of foreign exchange rates on product pricing;

·	adequate manufacturing capacity and supply of components and materials;

·	efficiency of manufacturing operations;

·	success in developing new products;

·	timing of our new product introductions;

·	effectiveness of sales and marketing resources and strategies;

·	strategic relationships with other suppliers;

·	quality and performance;

·	protection of our products by effective use of intellectual property laws;

·	the financial strength of our competitors;

·	barriers to entry imposed by competitors with significant market power in new markets;

·	general market and economic conditions; and,

·	government actions throughout the world.

There can be no assurance that we will be able to compete successfully in the future.

Our Quarterly Results are Subject to Fluctuations Due to Various Factors. Our 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 amount of revenue derived from large orders;

·	the timing, cost or outcome of any future intellectual property or commercial litigation;

·	changes in the mix of products sold;

·	fluctuations in foreign currency exchange rates;

·	changes in the economy or credit markets in the U.S. or globally;

·	the availability and pricing of components from third parties (especially limited sources);

·	the difficulty in maintaining margins, including the higher margins traditionally achieved in international sales;

·	changes in pricing policies by us, our competitors or suppliers;

·	delays in product shipments caused by human error or other factors; and,

·	disruptions in transportation channels.

Concentrations of Credit Risk and Uncertain Conditions in the Global Financial Markets May Adversely Affect Our Financial Condition and Result of Operations. By virtue of our holdings of cash, investment securities and foreign currency derivatives, we have exposure to many different counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks and investment banks. Many of these transactions expose us to credit risk in the event of a default of our counterparties. There can be no assurance that any losses or impairments to the carrying value of our financial assets as a result of defaults by our counterparties, would not materially and adversely affect our business, financial position and results of operations.

We Rely on Management Information Systems and any Disruptions in Our Systems Would Adversely Affect Us. We rely on a primary global center for our management information systems and on multiple systems in branches not covered by our global center. As with any information system, unforeseen issues may arise that could affect our ability to receive adequate, accurate and timely financial information, which in turn could inhibit effective and timely decisions. Furthermore, it is possible that our global center for information systems or our branch operations could experience a complete or partial shutdown. If such a shutdown occurred, it would impact our product shipments and revenues, as order processing and product distribution are heavily dependent on our management information systems. Accordingly, our operating results in such periods would be adversely impacted. We are continually working to maintain reliable systems to control costs and improve our ability to deliver our products in our markets worldwide. No assurance can be given that our efforts will be successful.

During 2010 and in the first quarter of 2011, we continued to devote resources to the development of our web offering. In addition, we devoted significant resources to the upgrade of our Americas business application suite to Oracle’s version R12. There can be no assurance that we will not experience difficulties with our systems or web offerings. Difficulties with our systems or web offerings may interrupt our normal operations, including our ability to provide quotes, process orders, ship products, provide services and support to our customers, bill and track our customers, fulfill contractual obligations and otherwise run our business. Any disruption occurring with these systems or web offerings may have a material adverse effect on our operating results.

During the remainder of 2011, we plan to devote significant resources to the upgrade of our European and Japanese business application suite to Oracle’s version R12. We are also planning to upgrade the underlying infrastructure of our web site, ni.com, and our European and Japanese business application suite. In addition, we expect to continue to devote resources to the continued development of our worldwide network infrastructure, business applications and web offerings. These types of system wide upgrades and development have the potential to cause significant business disruptions. We have plans to mitigate these potential business disruptions but there can be no certainty that our plans will be effective should such a disruption occur. Any failure to successfully implement these initiatives could have a material adverse effect on our operating results.

Recent Adoption of Complex Health Care Legislation and Related Regulations and Financial Reform Could Increase our Operating Costs. The adoption of the Patient Protection and Affordable Care Act and the related reconciliation measure, the Health Care and Education Reconciliation Act of 2010, and the regulations resulting from such legislation could increase the costs of providing health care to our employees. Due to the complexity of the legislation and the uncertain timing and content of the related regulations, we are unable to predict the amount and timing of any such increased costs. In addition it is likely that we will incur additional administrative costs to comply with certain provisions of this legislation. Due to the fact that many of the rules and regulations have not yet been defined, we are unable to predict the amount of these costs or to what extent we may need to divert other resources to comply with various provisions of this legislation. Additionally, the recently adopted Dodd-Frank Wall Street Reform and Consumer Protection Act could result in increased costs to us either as a result of our efforts to comply with the corporate governance provisions which may be applicable to us or due to the impact of such legislation on the derivative contracts or other financial instruments or financial markets that we utilize in the normal course of our business.

Our Revenues are Subject to Seasonal Variations. In previous years, our revenues have been characterized by seasonality, with revenues typically growing from the first quarter to the second quarter, being relatively constant from the second quarter to the third quarter, growing in the fourth quarter compared to the third quarter and declining in the first quarter of the following year from the fourth quarter of the preceding year. This historical trend has been affected and may continue to be affected in the future by broad fluctuations in the global industrial economy, the economic impact of larger orders as well as the timing of new product introductions and/or acquisitions, if any. We cannot predict whether the global industrial economy will continue to grow or maintain stability throughout 2011. Our total operating expenses have in the past tended to increase in each successive quarter and have fluctuated as a percentage of revenue based on the seasonality of our revenue. We are budgeting to increase our research and development personnel and our field sales force during 2011. The timing and extent of these personnel additions could affect our historical patterns of operating costs as a percent of revenue and our historical patterns of profitability.

Our Product Revenues are Dependent on Certain Industries. Sales of our products are dependent on customers in certain industries, particularly the telecommunications, semiconductor, consumer electronics, automotive, automated test equipment, defense and aerospace industries. As we have experienced in the past, and as we may continue to experience in the future, downturns characterized by diminished product demand in any one or more of these industries may result in decreased sales, and a material adverse effect on our operating results.

Our Success Depends on New Product Introductions and Market Acceptance of Our Products. The market for our 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. Our success is dependent on our 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. As has occurred in the past and as may be expected to occur in the future, we have 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 our operating results. There can be no assurance that we will be able to introduce new products in accordance with announced release dates, that our new products will achieve market acceptance or that any such acceptance will be sustained for any significant period. Failure of our new products to achieve or sustain market acceptance could have a material adverse effect on our operating results. Moreover, there can be no assurance that our international sales will continue at existing levels or grow in accordance with our efforts to increase foreign market penetration.

We are Subject to Risks Associated with Our Web Site. We devote resources to maintain our Web site as a key marketing, sales and support tool and expect to continue to do so in the future. However, there can be no assurance that we will be successful in our attempt to leverage the Web to increase sales. We host our Web site internally. Any failure to successfully maintain our Web site or any significant downtime or outages affecting our Web site could have a material adverse impact on our operating results.

Our Products are Complex and May Contain Bugs or Errors. As has occurred in the past and as may be expected to occur in the future, our new software products or new operating systems of third parties on which our products are based often contain bugs or errors that can result in reduced sales and/or cause our support costs to increase, either of which could have a material adverse impact on our operating results.

We are Subject to Various Risks Associated with International Operations and Foreign Economies. Our international sales are subject to inherent risks, including:

·	fluctuations in local economies;

·	fluctuations in foreign currencies relative to the U.S. dollar;

·	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.

In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable to us such as the Foreign Corrupt Practices Act. Although we have policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors and agents, including those based in or from countries where practices which violate such U.S. laws may be customary, will not take actions in violation of our policies. Any violation of foreign or U.S. laws by our employees, contractors or agents, even if such violation is prohibited by our policies, could have a material adverse effect on our business. We must also comply with various import and export regulations. The application of these various regulations depends on the classification of our products which can change over time as such regulations are modified or interpreted. As a result, even if we are currently in compliance with applicable regulations, there can be no assurance that we will not have to incur additional costs or take additional compliance actions in the future. Failure to comply with these regulations could result in fines and/or termination of import and export privileges, which could have a material adverse effect on our operating results. Additionally, 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.

Our Business Depends on Our Proprietary Rights and We Have Been Subject to Intellectual Property Litigation. Our success depends on our ability to obtain and maintain patents and other proprietary rights relative to the technologies used in our principal products. Despite our efforts to protect our proprietary rights, unauthorized parties may have in the past infringed or violated certain of our intellectual property rights. We from time to time engage in litigation to protect our intellectual property rights. In monitoring and policing our intellectual property rights, we have been and may be required to spend significant resources. We from time to time may be notified that we are infringing certain patent or intellectual property rights of others. There can be no assurance that any existing intellectual property litigation or any intellectual property litigation initiated in the future, will not result in significant litigation expense, liability, injunction against the sale of some of our products, and a diversion of management’s attention, any of which may have a material adverse effect on our operating results.

Our Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the United States. We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to interpretation by the Financial Accounting Standards Board and the Securities and Exchange Commission. A change in these policies or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

Our Business Depends on the Continued Service of Key Management and Technical Personnel. Our success depends upon the continued contributions of our key management, sales, marketing, research and development and operational personnel, including Dr. Truchard, our Chairman and Chief Executive Officer, and other members of our senior management and key technical personnel. We have no agreements providing for the employment of any of our key employees for any fixed term and our key employees may voluntarily terminate their employment with us at any time. The loss of the services of one or more of our key employees in the future could have a material adverse effect on our operating results. We also believe our future success will depend upon our ability to attract and retain additional highly skilled management, technical, marketing, research and development, and operational personnel with experience in managing large and rapidly changing companies, as well as training, motivating and supervising employees. Our failure to attract or retain key technical or managerial talent could have an adverse effect on our operating results. We also recruit and employ foreign nationals to achieve our hiring goals primarily for engineering and software positions. There can be no guarantee that we will continue to be able to recruit foreign nationals at the current rate. There can be no assurance that we will be successful in retaining our existing key personnel or attracting and retaining additional key personnel. Failure to attract and retain a sufficient number of our key personnel could have a material adverse effect on our operating results.

Our Manufacturing Operations are Subject to a Variety of Environmental Regulations and Costs. We must comply with many different governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing operations in the U.S. and in Hungary. Although we believe that our activities conform to presently applicable environmental regulations, our failure to comply with present or future regulations could result in the imposition of fines, suspension of production or a cessation of operations. Any such environmental regulations could require us to acquire costly equipment or to incur other significant expenses to comply with such regulations. Any failure by us to control the use of or adequately restrict the discharge of hazardous substances could subject us to future liabilities.

We Are Subject to the Risk of Product Liability Claims. Our products are designed to provide information upon which users may rely. Our products are also used in “real time” applications requiring extremely rapid and continuous processing and constant feedback. Such applications give rise to the risk that a failure or interruption of the system or application could result in economic damage or bodily harm. We attempt to assure the quality and accuracy of the processes contained in our products, and to limit our product liability exposure through contractual limitations on liability, limited warranties, express disclaimers and warnings as well as disclaimers contained in our “shrink wrap” license agreements with end-users. If our products contain errors that produce incorrect results on which users rely or cause failure or interruption of systems or processes, customer acceptance of our products could be adversely affected. Further, we could be subject to liability claims that could have a material adverse effect on our operating results or financial position. Although we maintain liability insurance for product liability matters, there can be no assurance that such insurance or the contractual limitations used by us to limit our liability will be sufficient to cover or limit any claims which may occur.

Provisions in Our Charter Documents and Delaware Law and Our Stockholder Rights Plan May Delay or Prevent an Acquisition of Us. Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions include a classified Board of Directors, prohibition of stockholder action by written consent, prohibition of stockholders to call special meetings and the requirement that the holders of at least 80% of our shares approve any business combination not otherwise approved by two-thirds of the Board of Directors. Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. In addition, our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Our Board of Directors adopted a stockholders rights plan on January 21, 2004, pursuant to which we declared a dividend of one right for each share of our common stock outstanding as of May 10, 2004. This rights plan replaced a similar rights plan that had been in effect since our initial public offering in 1995. Unless redeemed by us prior to the time the rights are exercised, upon the occurrence of certain events, the rights will entitle the holders to receive upon exercise thereof shares of our preferred stock, or shares of an acquiring entity, having a value equal to twice the then-current exercise price of the right. The issuance of the rights could have the effect of delaying or preventing a change of control of us.

Compliance With Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 is Costly and Challenging. As required by Section 302 of the Sarbanes-Oxley Act of 2002, this Form 10-Q contains our managements’ certification of adequate disclosure controls and procedures as of March 31, 2011. Our most recent annual report on Form 10-K also contains a report by our management on our internal control over financial reporting including an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010. Our most recent Form 10-K also contains an attestation and report by our external auditors with respect to the effectiveness of our internal control over financial reporting under Section 404. While these assessments and reports did not reveal any material weaknesses in our internal control over financial reporting, compliance with Sections 302 and 404 is required for each future fiscal year end. We expect that the ongoing compliance with Sections 302 and 404 will continue to be both very costly and very challenging and there can be no assurance that material weaknesses will not be identified in future periods. Any adverse results from such ongoing compliance efforts could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information as of March 31, 2011 with respect to the shares of common stock that we repurchased during the first quarter of 2011.

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs (1)
January 1, 2011 to January 31, 2011		-	$	-		-		3,932,245
February 1, 2011 to February 28, 2011		-		-		-		3,932,245
March 1, 2011 to March 31, 2011		-		-		-		3,932,245
Total		-	$	-		-

(1)	For the past several years, we have maintained various stock repurchase programs. At March 31, 2011, there were 3,932,245 shares available for repurchase under the plan approved on April 21, 2010. This repurchase plan does not have an expiration date.

ITEM 5. OTHER INFORMATION

From time to time our 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. Jeffrey L. Kodosky and James J. Truchard have made periodic sales of our stock pursuant to such plans.

ITEM 6. EXHIBITS

3.1(1)		Certificate of Incorporation, as amended, of the Company.
3.2(2)		Amended and Restated Bylaws of the Company.
3.3(3)		Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company.
4.1(4)		Specimen of Common Stock certificate of the Company.
4.2(5)		Rights Agreement dated as of January 21, 2004, between the Company and EquiServe Trust Company, N.A.
10.1(4)		Form of Indemnification Agreement.
10.2(6)		1994 Incentive Plan, as amended.*
10.3(7)		1994 Employee Stock Purchase Plan.*
10.5(8)		National Instruments Corporation Annual Incentive Program, as amended.*
10.6(9)		2005 Incentive Plan.*
10.7(10)		2005 Form of Restricted Stock Unit Award Agreement (Non-Employee Director).*
10.8(10)		2005 Form of Restricted Stock Unit Award Agreement (Performance Vesting).*
10.9(10)		2005 Form of Restricted Stock Unit Award Agreement (Current Employee).*
10.10(10)		2005 Form of Restricted Stock Unit Award Agreement (Newly Hired Employee).*
10.11(11)		2010 Incentive Plan.*
10.12(12)		2010 Form of Restricted Stock Unit Award Agreement (Non-Employee Director).*
10.13(13)		2010 Form of Restricted Stock Unit Award Agreement (Performance Vesting).*
10.14(14)		2010 Form of Restricted Stock Unit Award Agreement (Current Employee).*
10.15(15)		2010 Form of Restricted Stock Unit Award Agreement (Newly Hired Employee).*
31.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document **
101.SCH		XBRL Taxonomy Extension Schema Document **
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document **
101.LAB		XBRL Taxonomy Extension Label Linkbase Document **
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document **

(1)		Incorporated by reference to the same-numbered exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
(2)		Incorporated by reference to the same-numbered exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
(3)		Incorporated by reference to the same-numbered exhibit filed with the Company’s Registration Statement on Form 8-A on April 27, 2004.
(4)		Incorporated by reference to the Company’s Registration Statement on Form S-1 (Reg. No. 33-88386) declared effective March 13, 1995.
(5)		Incorporated by reference to exhibit 4.1 filed with the Company’s Current Report on Form 8-K filed on January 28, 2004.
(6)		Incorporated by reference to the same-numbered exhibit filed with the Company’s Form 10-Q on August 5, 2004.
(7)		Incorporated by reference to exhibit 10.3 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
(8)		Incorporated by reference to exhibit 99.1 filed with the Company’s Current Report on Form 8-K filed on October 22, 2010.
(9)		Incorporated by reference to exhibit A of the Company’s Proxy Statement dated and filed on April 4, 2005.
(10)		Incorporated by reference to the same-numbered exhibit filed with the Company’s Form 10-Q on August 2, 2006.
(11)		Incorporated by reference to exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed on May 17, 2010.
(12)		Incorporated by reference to exhibit 10.2 filed with the Company’s Current Report on Form 8-K filed on June 24, 2010.
(13)		Incorporated by reference to exhibit 10.3 filed with the Company’s Current Report on Form 8-K filed on June 24, 2010.
(14)		Incorporated by reference to exhibit 10.4 filed with the Company’s Current Report on Form 8-K filed on June 24, 2010.
(15)		Incorporated by reference to exhibit 10.5 filed with the Company’s Current Report on Form 8-K filed on June 24, 2010.
*		Management Contract or Compensatory Plan or Arrangement
**		In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NATIONAL INSTRUMENTS CORPORATION

April 29, 2011	By:	/s/ Alex M. Davern
		EVP, Chief Operating Officer,
		Chief Financial Officer and Treasurer
		(Prinicpal Financial and Accounting Officer)