Our Quarterly Results are Subject to Fluctuations Due to Various Factors.Factors that May Adversely Affect Our Business and Result of Operations.  Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a number of factors, including:

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.products and Agilent has 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.

Our Income tax Rate could be Affected by a Tax Holiday in Malaysia.  Potential future profits from our new manufacturing facility in Penang, Malaysia is expected to be free of tax under a tax holiday with effect from January 1, 2013.  If we fail to satisfy the conditions of the tax holiday, this tax benefit may not be available. The expiration of the holiday or future changes in U.S. law pertaining to the taxation of foreign earnings could have a material adverse effect on our operating results.

A Substantial Majority of our Manufacturing, Warehousing and Distribution Capacity is Located Outside of the United States. Our Hungarian manufacturing and warehouse facility sourced a substantial majority of our sales in 2012. In 2013, we expect to transition some of this capacity to our newly completed manufacturing, warehouse and distribution facility in Penang, Malaysia.

In order to enable timely shipment of products to our customers we also maintain the vast majority of our inventory at these international locations. In addition to being subject to the risks of maintaining such a concentration of manufacturing capacity and global inventory, these facilities and their operations are also subject to risks associated with doing business internationally, including:

No assurance can be given that our efforts to mitigate these risks will be successful. Any failure to effectively deal with the risks above could result in an interruption in operations of our facilities in Hungary or Malaysia which could have a material adverse effect on our operating results.

Our centralization of inventory and distribution from a limited number of shipping points is subject to inherent risks, including:

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 facilities in Hungary and Malaysia could have 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.

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 as well as the timing of new product introductions or acquisitions. In addition, the increasing percentage of our revenue derived from very large orders could have a significant impact on our historical seasonal trends as these orders may be more sensitive to changes in the global industrial economy, may be subject to greater discount variability, lower gross margins, and may contract at a faster pace during an economic downturn. Our historical seasonal variation could also be significantly impacted if we cannot maintain or grow our business with our very large customers. The continuing economic contraction in the Euro zone could persist or worsen in 2013. If this instability in the Euro zone continues, worsens or negatively affects other economic regions in 2013, it may have a material adverse effect on the seasonal patterns described above as well as on our overall results of operations and profitability. 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.

Concentrations of Credit Risk and Uncertain Conditions in the Global Financial Markets May Adversely Affect Our Business 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. We continue to monitor the stability of the financial markets, particularly those in the European region and have taken steps to limit our direct and indirect exposure to these markets; however, we can give no assurance that we will not be negatively impacted by any adverse outcomes in those markets. 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.

Our Acquisitions are Subject to a Number of Costs and Challenges that Could Have a Material Adverse Effect on Our Business and Results of Operations. During the fourth quarter of 2012, we completed three acquisitions including Signalion. During 2011, we completed acquisitions of AWR Corporation (AWR) and Phase Matrix Inc. (PMI). We may in the future acquire additional 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 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. Our inability to successfully integrate Signalion or any other acquisition could harm our business. The existing products previously sold by entities we have acquired may be of a 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 transactions.

We Rely on Management Information Systems and Interruptions in our Information Technology Systems Could Adversely Affect our Business.  We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business. 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. A significant system or network disruption could be the result of new system implementations, computer viruses, security breaches, facility issues or energy blackouts. If such a shutdown or disruption occurred, it would adversely impact our product shipments and revenues, as order processing and product distribution are heavily dependent on our management information systems. Such an interruption could also result in a loss of our intellectual property or the release of sensitive competitive information or partner, customer or employee personal data. Any loss of such information could harm our competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by the disruptions or security breaches. 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. Our efforts include, but are not limited to following: firewalls, antivirus, patches, log monitors, routine backups with offsite retention of storage media, system audits, data partitioning and routine password modifications. No assurance can be given that our efforts will be successful.

We are Subject to Risks Associated with Our Web Site.Website.  We devote significant resources to maintain our Web siteWebsite, ni.com, 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. Failure to properly maintain our website may interrupt 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 which would have a material adverse effect on our results of operations. We host our Web siteWebsite internally. Any failure to successfully maintain our Web siteWebsite or any significant downtime or outages affecting our Web siteWebsite could have a material adverse impact on our operating results.

16

---

Table of Contents

Adoption of Complex Health Care Legislation and Related Regulations and Financial Reform Could Increase our Operating Costs and Adversely Affect Our Result of Operations. 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 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 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 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; difficulties and the high tax costs associated with the repatriation of earnings;

·	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; and,

·	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.

Sales made by

The vast majority of our international direct sales officesoutside 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. Net of hedging results, theThe change in exchange rates had the effect of decreasing our consolidated sales by $29$20 million or 4% for the year ended December 31, 2009, compared to 2008. If the local currencies2% in which we sell2012, and increasing our products strengthen against the U.S. dollar, we may need to lower our pricesconsolidated sales by $27 million or 3% 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.2011. Since most of our international operating expenses are also incurred in local currencies, the change in exchange rates had the effect of decreasing our consolidated operating expenses by $12$5.8 million or 2% for1% in 2012, and increasing our consolidated operating expenses by $19 million or 3% in 2011.

17

---

Table of Contents

During 2012, we saw an overall appreciation of the year ended December 31, 2009, comparedU.S. dollar against the major currencies in the markets we do business in and a high level of volatility in the broader foreign currency exchange markets. During 2011, the U.S. dollar generally declined against most of the major currencies in the markets in which we do business.  We cannot predict to 2008. Currently,what degree or how long this volatility in the foreign currency exchange markets will continue. In the past, we are experiencinghave noted that significant volatility in foreign currency exchange rates in many of the markets in which we do business. Thisbusiness has had a significant impact on the revaluation of our foreign currency denominated firm commitments, and on our ability to forecast our U.S. dollar equivalent revenues and expenses.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 will likelymay pose similar challenges in the future.

We recognize the local currency as the functional currency in virtually all of our international subsidiaries.

Our Business Depends on Our Proprietary Rights and We areHave Been Subject to Intellectual Property LitigationLitigation.  .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 existingfuture intellectual property litigationdispute or any intellectual property litigation initiated in the future, will not causeresult 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 StatesStates.  .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.

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-K contains our managements’ certification of adequate disclosure controls and procedures as of December 31, 2009. This 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, 2009. This 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.

Our Business Depends on the Continued Service of Key Management and Technical PersonnelPersonnel.  .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 that May Have a Material Adverse Effect on our Business and Results of our Operations.  .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., Hungary, and in Hungary.Malaysia. 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.

18

---

Table of Contents

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.

Our Acquisitions are Subject to a Number of Related Costs and Challenges.  We have from time to time acquired, and may in the future 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.

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-K contains our management’s certification of adequate disclosure controls and procedures as of December 31, 2012. This 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, 2012. This 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 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2.PROPERTIES

We own approximately 139 acres of land in the Austin, Texas area. Our principal corporate and research and development activities are conducted atin three buildings we own in Austin, Texas. We own approximately 69 acres of land in north Austin, Texas, on which areTexas; a 232,000 square foot office facility, a 140,000 square foot manufacturing and office facility, and a 380,000 square foot research and development facility. We also own a 136,000 square foot office building in Austin, Texas which is being leased to third-parties. third parties.

Our principalprinciple manufacturing and distribution activities are conducted at ourin Debrecen, Hungary and Penang, Malaysia. We own a 239,000 square foot manufacturing and distribution facility in Debrecen, Hungary which we own. and a new 314,000 square foot manufacturing, research and development, and general and administrative facility in Penang, Malaysia. We also own approximately 23 acres of land comprised of two tracts in an industrial park in Penang, Malaysia.

Our German subsidiary, National Instruments Engineering GmbH & Co. KG, owns a 25,500 square foot office building in Aachen, Germany in which a majority of its activities are conducted. National Instruments Engineering owns another 19,375 square foot office building in Aachen, Germany, which is partially leased to third-parties. We own approximately 17 acres of landNational Instruments Corporation (UK) Limited, United Kingdom, owns a 29,270 square foot office building in an industrial park in Penang, Malaysia.

Newbury, UK. 

As of December 31, 2009,2012, we also leased a number of sales and support offices in the U. S.U.S. and various countries throughout the world. Our sales and support facilities are currently being utilized below maximum capacity to allow for future headcount growth and design/construction cycles, as needed. We believe our existing facilities are adequate to meet our current requirements.

19

---

Table of Contents

ITEM 3.LEGAL PROCEEDINGS

We filedare not currently a patent infringement action on January 25, 2001,party to any material litigation. However, in the U.S. District Court, Eastern District of Texas (Marshall Division) claiming that The MathWorks, Inc. (“MathWorks”) infringed certainordinary course of our U.S. patents. On January 30, 2003, a jury found infringement by MathWorksbusiness, we are involved in legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of three of the patents involved and awarded us specified damages. On September 23, 2003, the District Court entered final judgment in favor of us and entered an injunction against MathWorks’ sale of its Simulink and related products and stayed the injunction pending appeal. Upon appeal, the judgment and the injunction were affirmed by the U.S. Court of Appeals for the Federal Circuit (September 3, 2004). Subsequently the stay of injunction was lifted by the District Court. In November 2004, the final judgment amount of $7.4 million which had been held in escrow pending appeal was released to us.

An action was filed by MathWorks against us on September 22, 2004, in the U.S. District Court, Eastern District of Texas (Marshall Division), claiming that on that day MathWorks had released modified versions of its Simulink and related products, and seeking a declaratory judgment that the modified products do not infringe the three patents adjudged infringed in the District Court's decision of September 23, 2003 (and affirmed by the Court of Appeals on September 3, 2004). On November 2, 2004, MathWorks served the complaint on us.them. We filed an answer to MathWorks’ declaratory judgment complaint, denying MathWorks’ claims of non-infringement and alleging our own affirmative defenses. On January 5, 2005, the Court denied a contempt motion by us to enjoin the modified Simulink products under the injunction in effectalso periodically receive notifications from the first case. On January 7, 2005, we amended our answer to include counterclaims that MathWorks’ modified products are infringing three of our patents, and requested unspecified damages and an injunction. MathWorks filed its reply to our counterclaims on February 7, 2005, denying the counterclaims and alleging affirmative defenses. On March 2, 2005, we filed a notice of appeal regarding the Court's denial of the contempt motion. On March 15, 2005, the Court stayed MathWorks’ declaratory judgment action, pending a decision on the appeal by the Court of Appeals for the Federal Circuit. On February 9, 2006, the Court of Appeals for the Federal Circuit affirmed the District Court’s January 2005 order. On November 22, 2006, the District Court lifted the stay. The case schedule has yet to be set in this action. During the fourth quarter of 2004, we accrued $4 millionvarious third parties related to our probable loss from this contingency, which consists entirelyalleged infringement of anticipated patent defense costs that are probablepatents or intellectual property rights, commercial disputes or other matters. No assurances can be given with respect to the extent or outcome of being incurred.  In the fourth quarterany future litigation or dispute.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

20

---

Table of 2006, we accrued an additional $600,000 related to this contingency. During the third quarter of 2009, we reduced the accrual by $2 million to reflect a decrease in the estimated costs that are probable of being incurred in this action. To date, we have charged a cumulative total of $623,000 against this accrual. At December 31, 2009, the remaining accrual was $2 million.Contents

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

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

---

PART II

ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock, $0.01 par value, began trading on The NASDAQ Stock Market under the symbol NATI effective March 13, 1995. Prior to that date, there was no public market for our common stock. The high and low closing prices for our common stock, as reported by Nasdaq for the two most recent fiscal years, are as indicated in the following table.table:

		High		Low
2012
First Quarter 2012	$	28.52	$	24.51
Second Quarter 2012		28.40		25.03
Third Quarter 2012		27.87		24.85
Fourth Quarter 2012		25.90		23.37
2011
First Quarter 2011	$	32.80	$	25.26
Second Quarter 2011		32.93		27.50
Third Quarter 2011		31.02		22.16
Fourth Quarter 2011		28.29		21.72

		High				Low
2009
First Quarter 2009		$	23.40			$	15.82
Second Quarter 2009			23.61				18.41
Third Quarter 2009			28.42				21.26
Fourth Quarter 2009			29.85				26.52
2008
First Quarter 2008		$	31.95			$	24.19
Second Quarter 2008			31.85				25.59
Third Quarter 2008			34.63				25.88
Fourth Quarter 2008			27.99				20.20

At the close of business on February 15, 2010,4, 2013, there were approximately 473404 holders of record of our common stock and approximately 26,500 shareholders25,502 beneficial holders of beneficial interest.

our common stock.

We believe factors such as quarterly fluctuations in our results of operations, announcements by us or our competitors, technological innovations, new product introductions, governmental regulations, litigation, changes in earnings estimates by analysts or changes in our financial guidance may cause the market price of our common stock to fluctuate, perhaps substantially. In addition, stock prices for many technology companies fluctuate widely for reasons that may be unrelated to their operating results. These broad market and industry fluctuations may adversely affect the market price of our common stock.

Our cash dividend payments for the two most recent fiscal years, on a per share basis, are indicated in the following table on a per share basis.table. The dividends were paid on the dates set forth below;below:

		Dividend Amount
2012
March 5, 2012	$	0.14
May 25, 2012		0.14
August 31, 2012		0.14
December 3, 2012		0.14
2011
February 21, 2011	$	0.10
May 31, 2011		0.10
August 29, 2011		0.10
November 28, 2011		0.10

2009
March 2, 2009		$	0.12
June 1, 2009			0.12
August 31, 2009			0.12
November 30, 2009			0.12
2008
March 3, 2008		$	0.11
June 2, 2008			0.11
September 2, 2008			0.11
December 1, 2008			0.11

Our policy as to future dividends will be based on, among other considerations, our balance of domestic cash, our ability to obtain external financing through a line of credit, or by selling equity or debt securities to the public or to selected investors, our views on changes in tax rates applied to dividend income, potential future capital requirements related to research and development, expansion into new market areas, strategic investments and business acquisitions, share dilution management, legal risks, and challenges to our business model.

On January 31, 2013, our Board of Directors declared a quarterly cash dividend of $0.14 per common share, payable on March 11, 2013, to stockholders of record on February 19, 2013.

See Item 12 for information regarding securities authorized for issuance under our equity compensation plans.

21

---

Table of Contents

Performance Graph

The following graph compares the cumulative total return to stockholdersholders of NI’s common stock from December 31, 20042007 to December 31, 20092012 to the cumulative return over such period of the (i) Nasdaq Composite Index and (ii) Russell 2000 Index. We use the Russell 2000 Index due to the fact that we have not been able to identify a published industry or line of business index that we believe appropriately reflects our industry or line of business. We considered that our primary competitors are divisions of large corporations that have other significant business operations such that any index comprised of such competitors would not be reflective of our industry or line of business. We have also considered using a peer group index but do not believe such index is appropriate as we have not been able to identify other public companies that we believe are principally in the same line of business as we are.

The graph assumes that $100 was invested on December 31, 20042007 in NI’s common stock and in each of the other two indices and the reinvestment of all dividends, if any. Stockholders are cautioned against drawing any conclusions from the data contained therein, as past results are not necessarily indicative of future performance.

	12/31/07	12/31/08	12/31/09	12/31/10		12/31/11		12/31/12
National Instruments	100	73	88	113		117		116
Nasdaq	100	59	86	100		98		114
Russell 2000	100	65	82	102		97		111

The information contained in the Performance Graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent that NI specifically incorporates it by reference into any such filing. The graph is presented in accordance with SEC requirements.

Issuer Purchase of Equity Securities

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)
October 1, 2012 to October 31, 2012		-		-		-		3,932,245
November 1, 2012 to November 30, 2012		-		-		-		3,932,245
December 1, 2012 to December 31, 2012		-		-		-		3,932,245
Total		-		-		-

ISSUER PURCHASES OF EQUITY SECURITIES

Period		Total number of shares				Average price paid per share				Total number of shares purchased as part of a publicly announced plan or program				Maximum number of shares that may yet be purchased under the plan or program (1)
October 1, 2009 to October 31, 2009			—				—				—				2,262,168
November 1, 2009 to November 30, 2009			573,841			$	28.55				573,841				1,688,327
December 1, 2009 to December 31, 2009			—				—				—				1,688,327
Total			573,841			$	28.55				573,841

(1) For the past several years, we have maintained various stock repurchase programs. At December 31, 2012, 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.

22

---

Table of Contents

ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements, including the Notes to Consolidated Financial Statements contained in this Form 10-K. The information set forth below is not necessarily indicative of the results of our future operations. The information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

		For the years ended December 31,
		(in thousands, except per share data)
		2012		2011		2010		2009		2008
Statements of Income Data:
Net sales:
Americas	$	454,616	$	411,006	$	359,895	$	292,999	$	355,878
Europe		297,572		308,619		261,118		210,188		267,373
East Asia		282,512		215,500		180,713		126,147		142,858
Emerging Asia ROW		108,992		89,048		71,494		47,260		54,428
Consolidated net sales		1,143,692		1,024,173		873,220		676,594		820,537
Cost of sales:		280,274		240,964		200,083		169,884		207,109
Gross profit		863,418		783,209		673,137		506,710		613,428
Operating expenses:
Sales and marketing		431,468		388,768		319,606		269,267		307,409
Research and development		222,994		199,071		158,149		132,974		143,140
General and administrative		85,239		82,658		67,069		57,938		67,162
Acquisition related adjustment		6,783		-		-		-		-
Total operating expenses		746,484		670,497		544,824		460,179		517,711
Operating income		116,934		112,712		128,313		46,531		95,717
Other income (expense):
Interest income		716		1,319		1,391		1,629		5,996
Net foreign exchange (loss) gain		(2,246)		(2,755)		(2,585)		734		(3,737)
Other (expense) income, net		(567)		(142)		993		1,351		161
Income before income taxes		114,837		111,134		128,112		50,245		98,137
Provision for income taxes		24,700		17,062		18,996		33,160		13,310
Net income	$	90,137	$	94,072	$	109,116	$	17,085	$	84,827
Basic earnings per share	$	0.74	$	0.79	$	0.93	$	0.15	$	0.72
Weighted average shares outstanding - basic		121,973		119,836		116,973		116,280		117,850
Diluted earnings per share	$	0.73	$	0.78	$	0.92	$	0.15	$	0.71
Weighted average shares outstanding - diluted		122,977		121,220		118,572		117,039		119,272
Cash dividends declared per common share	$	0.56	$	0.40	$	0.35	$	0.32	$	0.29

		December 31,
		(in thousands)
		2012		2011		2010		2009		2008
Balance Sheet Data:
Cash and cash equivalents	$	161,996	$	142,608	$	219,447	$	201,465	$	229,400
Short-term investments		173,166		223,504		131,215		87,196		6,220
Working capital		522,744		506,644		484,406		413,759		398,292
Total assets		1,284,769		1,154,294		959,682		813,029		832,591
Long-term debt, net of current portion		-		-		-		-		-
Total stockholders' equity		939,128		852,011		744,545		654,420		664,438

		Years Ended December 31,
		2009				2008				2007				2006				2005
		(in thousands, except per share data)
Statements of Income Data:
Net sales:
Americas		$	292,999			$	355,878			$	331,482			$	317,780			$	275,524
Europe .			210,188				267,373				230,940				193,364				171,499
Asia Pacific			173,407				197,286				177,956				149,263				124,818
Consolidated net sales			676,594				820,537				740,378				660,407				571,841
Cost of sales			169,884				207,109				185,267				173,348				151,939
Gross profit			506,710				613,428				555,111				487,059				419,902
Operating expenses:
Sales and marketing			269,267				307,409				264,060				232,050				208,650
Research and development			132,974				143,140				126,515				113,095				87,841
General and administrative			57,938				67,162				62,445				54,192				45,199
Total operating expenses			460,179				517,711				453,020				399,337				341,690
Operating income			46,531				95,717				102,091				87,722				78,212
Other income (expense):
Interest income			1,629				5,996				9,822				6,847				3,758
Net foreign exchange gain (loss)			734				(3,737	)			1,672				740				(1,566	)
Other income (expense), net			1,351				161				(158	)			(7	)			276
Income before income taxes			50,245				98,137				113,427				95,302				80,680
Provision for income taxes			33,160				13,310				6,394				22,594				19,163
Net income		$	17,085			$	84,827			$	107,033			$	72,708			$	61,517
Basic earnings per share		$	0.22			$	1.08			$	1.35			$	0.91			$	0.78
Weighted average shares outstanding - basic			77,520				78,567				79,468				79,519				78,552
Diluted earnings per share		$	0.22			$	1.07			$	1.32			$	0.89			$	0.76
Weighted average shares outstanding - diluted			78,026				79,515				81,043				81,519				80,910
Cash dividends declared per common share		$	0.48			$	0.44			$	0.34			$	0.24			$	0.20

23

---

Table of Contents

		December 31,
		2009				2008				2007				2006				2005
		(in thousands)
Balance Sheet Data:
Cash and cash equivalents		$	201,465			$	229,400			$	194,839			$	100,287			$	55,864
Short-term investments			87,196				6,220				93,838				150,190				119,846
Working capital			413,759				398,292				419,874				379,733				274,686
Total assets			813,029				832,591				818,812				721,220				608,336
Long-term debt, net of current portion			—				—				—				—				—
Total stockholders’ equity			654,420				664,438				661,086				596,682				503,850

---

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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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,  operations, or operationsother activities (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”“Risk Factors” beginning on page 10,11, and elsewhere in this Form 10-K. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. We disclaim any obligation to update information contained in any forward-looking statement.

Overview

National Instruments Corporation (“we”, “us” or “our”) is a leading supplier of measurementdesigns, manufactures and automation products thatsells tools to engineers and scientists use in a wide range of industries. These industries comprise a largethat accelerate productivity, innovation and diverse market fordiscovery. Our graphical system design control and test applications. We provide flexible applicationapproach to engineering provides an integrated software and modular, multifunctional hardware platform that users combine with industry-standard computers, networksspeeds the development of systems needing measurement and third party devices to create measurement, automationcontrol. We believe our long-term vision and embedded systems, which we also refer to as “virtual instruments”. Our approach givesfocus on technology supports the success of our customers, the ability to quicklyemployees, suppliers and cost-effectively design, prototype and deploy unique custom-defined solutions for their design, control and test application needs.stockholders. We sell to a large number of customers in a wide variety of industries. We have been profitable in every year since 1990. No single customer accounted for more than 3%7%, 4%, or 4% of our sales in 2009, 20082012, 2011, or 2007.

2010, respectively.

The key strategies that management focuses on in running our business are the following:

Expanding our broad customer base

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

Maintaining a high level of customer satisfaction

To maintain a high level of customer satisfaction we strive to offer innovative, modular and integrated products through a global sales and support network. We strive to maintain a high degree of backwards compatibility across different platforms in order to preserve the customer’s investment in our products. In this time of intense global competition, we believe it is crucial that we continue to offer products with quality and reliability, and that theseour 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 and mobile devices, consumer electronics, defense, aerospace automotive and others. automotive.

24

---

Table of Contents

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. Starting in August 2009, theA PMI has had readingsreading above 50 which areis indicative of expansion in the global industrial global economy. However, we believe thereOur business is still a substantial amount of uncertainty aboutsensitive to fluctuations in general economic conditions, both in the U.S. and globally. Historically, our business cycles have generally followed the expansion and contraction cycles in the global industrial economic conditions.economy as measured by the PMI. The most recent reading for January 2013 showed the PMI had increased to 51.5 up from a reading of 48.8 for September 2012. This marks the second month since May 2012 that the PMI has had a reading above 50. For January 2013, the new order element of the PMI was 51.8 up from 48.0 in September 2012. This is the first time in six months that the new order element of the PMI has had a reading above 50. We are unable to predict whether the current expansion cycle,industrial economy, as measured by the PMI, will be sustained throughout 2010. This continuing uncertainty instrengthen or contract during 2013. If the global industrial economy, is likely to continue toas measured by the PMI contracts or remains at a neutral reading at or around 50, indicating general weakness, 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. Sales through these alternative channels account for less than 7% of our total sales in 2012. 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 57%, 57% and 55% or60% of our revenues in 2009, 20082012, 60% of our revenues in 2011 and 2007, respectively.59% of our revenues in 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 –13 - 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. We are currently in the process of ramping up our third manufacturing site in Penang, Malaysia. It is expected that in 2013 our site in Malaysia will produce around 15% to 20% of our total production and will focus primarily on making existing products transferred from our Hungarian production facility to support anticipated growth in our business. 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, modules and moduleschassis in-house, although subcontractors are used from time to time. We currently use subcontractors in Asia to manufacture a significant portion of our chassis but we review these arrangements periodically. 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 dependsdepend 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.

We have been profitable in every year since 1990. However, there can be no assurance that our net sales will grow or that we will remain profitable in future periods.

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.

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:

	Years ended December 31,
	2012		2011		2010
Net sales:
Americas	39.8	%	40.1	%	41.2	%
Europe	26.0		30.1		29.9
East Asia	24.7		21.1		20.7
Emerging Asia ROW	9.5		8.7		8.2
Consolidated net sales	100.0		100.0		100.0
Cost of sales	24.5		23.5		22.9
Gross profit	75.5		76.5		77.1
Operating expenses:
Sales and marketing	37.7		38.0		36.6
Research and development	19.5		19.4		18.1
General and administrative	7.5		8.1		7.7
Acquisition related adjustment	0.6		-		-
Total operating expenses	65.3		65.5		62.4
Operating income	10.2		11.0		14.7
Other income (expense):
Interest income	0.1		0.2		0.2
Net foreign exchange loss	(0.2)		(0.3)		(0.3)
Other income, net	(0.0)		-		0.1
Income before income taxes	10.1		10.9		14.7
Provision for income taxes	2.2		1.7		2.2
Net income	7.9	%	9.2	%	12.5	%

25

---

		Years Ended December 31,
		2009				2008				2007
Net sales:
Americas			43.3	%			43.4	%			44.8	%
Europe			31.1				32.6				31.2
Asia Pacific			25.6		��		24.0				24.0
Consolidated net sales			100.0				100.0				100.0
Cost of sales			25.1				25.2				25.0
Gross profit			74.9				74.8				75.0
Operating expenses:
Sales and marketing			39.8				37.5				35.7
Research and development			19.6				17.4				17.1
General and administrative			8.6				8.2				8.4
Total operating expenses			68.0				63.1				61.2
Operating income			6.9				11.7				13.8
Other income (expense):
Interest income			0.2				0.7				1.3
Net foreign exchange gain (loss)			0.1				(0.5	)			0.2
Other income (expense), net			0.2				—				—
Income before income taxes			7.4				11.9				15.3
Provision for income taxes			4.9				1.6				0.8
Net income			2.5	%			10.3	%			14.5	%

Table of Contents

Results of Operations for years ended December 31, 2012, 2011 and 2010

Despite difficult economic conditions throughout 2012, we are pleased with our disciplined execution which allowed us to grow revenue 12% year over year and delivering record revenue of $1.14 billion. While we remain cautious in the short-term due to uncertain economic conditions, we are optimistic about our long-term position in the industry through the sustained differentiation we deliver to our customers through graphical system design.

Net Sales.  Consolidated  Our net sales were $677$1,144 million, $821$1,024 million and $740$873 million for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively, a decreasean increase of 18%12% in 2009 compared to 20082012 following an increase of 11%17% in 20082011. Product sales were $1,055 million, $956 million and $807 million for the years ended December 31, 2012, 2011 and 2010, respectively, an increase of 10% in 2012 following an increase of 18% in 2011. Software maintenance sales were $87 million, $82 million and $66 million for the years ended December 31, 2012, 2011 and 2010, respectively, an increase of 7% in 2012 following an increase of 24% in 2011. For the year ended December 31, 2012, our net sales were positively impacted by our Settlement Agreement with GSA which was $1.3 million less than the amount previously accrued. For the year ended December 31, 2011, net sales were negatively impacted by the $13 million accrual related to our GSA contract.  The revenue increase in 2012 compared to 2007. The decrease in 2009 can be2011 is attributed to declinesincreases in sales volume in the Americas, East Asia and Emerging Asia Rest of World (ROW). In 2011, the revenue increase is attributed to increases in sales volume across all regions of our business. Instrument control products which comprised approximately 7% of our revenues for the year ended December 31, 2009, saw a year-over-year decline of 31%. Products in the areas of virtual instrumentation and graphical system design which comprised approximately 93% of our revenues for the year ended December 31, 2009, saw a year-over-year decline of 16%. Revenues from our instrument control products are the most sensitive to the cycles of the global industrial economy. For the year ended December 31, 2009, our order backlog increased by approximately $8 million. Backlog is a measure of orders that were received but that had not shipped to customers at the end of the quarter.

We did not take any significant action with regard to pricing during the yearyears ended December 31, 2009,2012, 2011 and thus, the decrease2010.

Large orders, defined as orders with a value greater than $100,000, grew by 67%, during 2012 following growth of 38% during 2011. During 2012, 2011 and 2010, these large orders were 21%, 14% and 12%, respectively, of our total orders. During 2012, we received a series of orders totaling $59 million for a large graphical system design application from one customer of which $56 million was recognized in revenues is attributable torevenue during 2012. Including this order, we received a decreasetotal of $76 million in orders from this customer orders. The increase in 2012, of which $72 million or 6% of our total net sales was recognized as revenue in 2008, compared2012. Larger orders may be more sensitive to 2007 can be attributed to volume growthchanges in the areas of modular instruments, particularly RF test products, PXI, softwareglobal industrial economy, may be subject to greater discount variability and CompactRIO which performed very well in light of the industry contraction. The increases in these areas were offset by declines in revenue from instrument control products which are the most sensitive to downturns in the Global PMI.

Sales in the Americas were $293 million, $356 million and $331 million formay contract at a faster pace during an economic downturn.

For the years ended December 31, 2009, 20082012, 2011 and 2007,2010, net sales in the Americas were $455 million, $411 million and $360 million, respectively, a decreasean increase of 18%11% in 2009 compared to 20082012 following an increase of 14% in of 8%2011. Sales in 2008 compared to 2007. Sales outside of the Americas, as a percentage of consolidated sales were 57%40%, 57%40% and 55% for41%, respectively, over the years ended December 31, 2009, 2008 and 2007, respectively. Sales inthree year period. In Europe, net sales were $210$298 million, $267$309 million and $231$261 million, for the years ended December 31, 2009, 2008 and 2007, respectively, a decrease of 21%4% in 2009 compared to 20082012 following an increase of 16%18% in 2008 compared to 2007.2011. The decrease in 2012 was mainly the result of changes in foreign currency exchange rates. Sales in Europe, as a percentage of consolidated sales were 26%, 30% and 30%, respectively, over the three year period. In East Asia, sales were $173$283 million, $197$216 million and $178$181 million, for the years ended December 31, 2009, 2008 and 2007, respectively, a decreasean increase of 12%31% in 2009 compared to 20082012 following an increase of 11%19% in 2008 compared2011. The increase in 2012 was impacted by the large graphical system design application discussed above. Net sales in East Asia, as a percentage of consolidated sales were 25%, 21% and 21%, respectively, over the three year period. We defined East Asia to 2007. include greater China, Japan and Korea. In Emerging Asia ROW, net sales were $109 million, $89 million and $71 million, respectively, an increase of 22% in 2012 following an increase of 25% in 2011. Sales in Emerging Asia ROW, as a percentage of consolidated sales were 10%, 9% and 8%, respectively, over the three year period. We define Emerging Asia ROW to include Southeast Asia, Africa, the Middle East, and the former Russian Republics.

26

---

Table of Contents

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.

We anticipate that sales growth in Asia may continue to be strong relative to the Americas and Europe and continue to grow as a percentage of our total net sales.

Almost all of the sales made by our direct sales offices in the Americas, outside of the U.S., in Europe, East Asia, and inEmerging Asia PacificROW 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 2009, net of hedging results,2012, in local currency terms, our total sales increased by $138 million or 13%, Americas sales increased by $45 million or 11%, European sales increased by $4.6 million or 1%, sales in East Asia increased by $63 million or 29%, and sales in Emerging Asia ROW increased by $25 million or 28%. During this same period, the change in exchange rates had the effect of decreasing our consolidatedtotal sales by $29 million or 4%, decreasing America’s sales by $6$20 million or 2%, decreasing Americas sales by $1.8 million or 0.4%, decreasing European sales by $17$18 million or 6%, increasing East Asia by $4.0 million or 2% and decreasing Emerging Asia ROW sales by $4.9 million or 6%.

For 2011, in local currency terms, our total sales increased by $128 million or 15%, Americas sales increased by $50 million or 14%, European sales increased by $37 million or 16%, and sales in East Asia Pacificincreased by $6$27 million or 3% compared to 2008. For 2008, net of hedging results,15%, and sales in Emerging Asia ROW increased by $14 million or 19%. During this same period, the change in exchange rates had the effect of increasing our consolidatedtotal sales by $34$27 million or 4%3%, increasing America’sAmericas sales by $1.7$1 million or 0.5%0.4%, increasing European sales by $28$13 million or 12%5%, increasing East Asia by $7.4 million or 4% and  increasing Emerging Asia ROW sales in Asia Pacific by $4.3$5.7 million or 2% compared8%.

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 2012, these hedges had the effect of increasing our consolidated sales by $2.9 million. During 2011, these hedges had the effect of decreasing our consolidated sales by $3.9 million. (See Note 4 - Derivative instruments and hedging activities of Notes to 2007.

Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impacted on our consolidated sales for 2012 and 2011).

Gross Profit. For the years ended December 31, 2012, 2011 and 2010, gross profit was $863 million, $783 million and $673 million, respectively. As a percentage of sales, gross profit was 76%, 77% and 77% in 2012, 2011 and 2010, respectively. During the year ended December 31, 2012, gross margin was 75%negatively impacted by the decline in 2009, 75% in 2008our European business as a result of the weakness of the European industrial economy and 75% in 2007.  In 2009, we were successful in implementingthe weaker Euro as well as the lower than average gross margin on our largest order. We continued to focus on cost control and cost reduction strategiesmeasures throughout our manufacturing cycle which allowedcycle. These cost control and cost reduction measures along with sales growth have helped us to maintain a stablerelative stability in our gross margin percentage despite the 18% decrease in sales volume in 2009. For the years ended December 31, 2009, 2008margin.

During 2012 and 2007, charges related to acquisition related intangibles and stock based compensation were $4.7 million, $4.7 million and $3.6 million, respectively.  For the years ended December 31, 2009 and 2008, the net impact of2011, the change in foreign currency exchange rates had the effect of decreasing our cost of goods soldsales by $3$1.2 million or 1%, and increasing our cost of goods soldsales by $1.1$4.7 million or 4%2%, respectively.

Sales To help protect against changes in our cost of sales caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows, we have a foreign currency cash flow hedging program. We hedge portions of our forecasted costs of sales denominated in foreign currencies with forward contracts. During 2012 and Marketing.  Sales2011, these hedges had the effect of decreasing our cost of sales by $402,000 and marketing expenses were $269decreasing our cost of sales by $1.4 million, $307 millionrespectively. (See Note 4 - Derivative instruments and $264 millionhedging 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 2012 and 2011).

Operating Expenses. For the years ended December 31, 2009, 20082012, 2011 and 2007,2010, operating expenses were $746 million, $670 million and $545 million, respectively, a decreasean increase of 12%11% in 2009 compared to 20082012, following an increase of 23% in 2011. During 2012, our operating expenses grew 16% in 2008during the first half of the year, compared to 2007. Asthe first half of 2011 and grew by 8% during the second half of the year, compared to the second half of 2012. The 8% growth in the second half of the year includes an adjustment to the accrual related to our AWR acquisition of $6.8 million as a percentageresult of net sales, sales and marketing expenses were 40%, 38% and 36% for 2009, 2008 and 2007, respectively. For 2009,AWR’s performance exceeding our prior expectations. Overall, the increase in sales and marketingour operating expenses as a percentage of revenuein 2012 was due to the 18% decrease in revenue. For 2009, the decrease in sales and marketinghigher personnel related expenses in absolute dollars was due to a decrease in travel, tradeshows and advertising of $15$51 million a decrease inwhich included commissions, variable compensation and benefits, higher expenses for building, equipment and supplies of $4.2$9 million, higher expenses related to marketing and outside services of $8 million,  higher travel related expenses of $7.3 million and a decrease caused byhigher equity based compensation of $4.6  million. Over the same period, the net impact of changes in foreign currency exchange rates decreased our operating expense by $5.8 million. The increase in personnel expenses is related to a net increase in our headcount of $9 million. Temporary634 employees during 2012.

27

---

Table of Contents

The increase in our operating expenses in 2011 was due to higher personnel related expenses of $48 million which included commissions, variable compensation and benefits as well as the fact that temporary cost cutting measures which included a company-wide wage reduction as well as a reductionenacted in the number of accrued vacation hours that employees are allowed2009 were still in place in January 2010, higher expenses related to carry beyond December 31, 2009, resulted in additional cost savings of $7 million compared to 2008. For 2008, the increase in sales and marketing expense, both in absolute dollars and as a percentage of sales, was consistent with our plan to make additional investments in our field sales force during 2008. Approximately 65% of the increase in 2008 over 2007, can be attributed to the increase in sales and marketing personnel, increases in stock-based compensation and the increase in variable compensation from higher sales volume. In addition, during 2008, the net impact of foreign currency exchange rates had the effect of increasing our sales and marketing expense by $10 million or 3%. We plan to continue to make additional investments in our field sales force in 2010. However, due to the continuing uncertainty in the industrial economy, the extent of our field sales expansion during 2010 will be dependent on our overall sales volumes in 2010. We expect sales and marketing expenses in future periods to continue to fluctuate as a percentage of sales based on recruiting, marketing and advertising campaign costs associated with major new product releasesoutside services of $25 million, higher expenses for building, equipment and entry into new market areas, investment in web sales and marketing efforts, increasing product demonstration costs and the timingsupplies of domestic and international conferences and trade shows.

Research and Development.  Research and development$12 million, higher travel related expenses were $133of $11 million, $143higher equity based compensation of $4.2 million and $127 million forhigher software development costs of $3.7 million. Over the years ended December 31, 2009, 2008 and 2007, respectively, a decrease of 7% in 2009 compared to 2008 following an increase of 13% in 2008 compared to 2007. As a percentage of net sales, research and development expenses were 20%, 17% and 17% for 2009, 2008 and 2007, respectively. For 2009, the increase in research and development expenses as a percentage of revenue was due to the 18% decrease in revenue. For 2009, the decrease in research and development expenses in absolute dollars was due to a decrease in variable compensation of $2.9 million and a decrease caused bysame period, the net impact of changes in foreign currency exchange rates of $327,000. Temporary cost cutting measures which included a company-wide wage reduction as wellincreased our operating expense by $19 million.

For the years ended December 31, 2012, 2011 and 2010, operating expenses as a reductionpercentage of net sales were 65%, 66% and 62%, respectively. The year over year decrease in our operating expenses as a percentage of net sales in 2012 compared to 2011 is attributed to the numberfact that we grew our overall operating expenses by 11% while our net sales grew by 12%. For 2011, the increase in our operating expenses as a percent of accrued vacation hourssales was due to the fact that employees were allowedwe grew our overall operating expense by 23% while our net sales grew by 17%.

We believe that our long-term growth and success depends on developing high quality software and hardware products and delivering those products to carry beyondour customers on a timely basis. To that end, we made investments in research and development and our field sales force a priority. For the years ended December 31, 2009, resulted in additional cost savings of $7 million. These decreases2012 and 2011, our research and development expenses were offset by personnel costs related to a net headcount$223 million and $199 million, respectively, an increase of 42 people during 2009. For 2008,12% following an increase of 26% in 2011. From a regional perspective, the increase in research and development expenses in absolute dollars2012, had a larger impact on the operating income of the Americas as the Americas absorbed $21 million of the overall $24 million increase. The overall increase in research and development expense was primarily due to increasesan increase in personnel costs from the hiring of additional product development engineers as well as increases related to stock-based compensation and was consistent with our plan to continue to grow our research and development capacityheadcount to 2,007 at December 31, 2012 from 1,868 at December 31, 2011. This increase in lineheadcount is consistent with the overall revenue growth of the company. During 2008, we had a net headcount increase of 109 people in our worldwide research and development group. In addition, during 2008, the net impact of foreign currency exchange rates had the effect of increasing our research and development expense by $2.7 million or 2%. Westated plan to continue to make additional investmentsinvestment in research and development a priority to support our long-term growth.

Operating Income.For the years ended December 31, 2012, 2011 and 2010, operating income was $117 million, $113 million and $128 million, respectively, an increase of 4% in 2010. However, due2012, following an decrease of 12% in 2011. As a percentage of net sales, operating income was 10%, 11% and 15%, respectively, over the three year period. Our operating income in 2012 includes the negative impact of the adjustment to the continuing uncertaintyaccrual related to our AWR acquisition of $6.8 million as a result of AWR’s performance exceeding our prior expectations and the positive impact of a $1.3 million favorable settlement from our GSA contract during the second quarter of 2012. The settlement of this matter was $1.3 million less than what we estimated in the industrial economy, the extent2011. The decrease in our operating income as a percent of our research and development expansionsales during 2010 will2011 can be dependent onattributed to our overall increase in operating expenses of 23% when compared to the overall net sales volumesincrease of 17%. Operating income for 2011 was negatively impacted by the $13 million accrual related to our GSA contract, which reduced our revenue in 2010.2011.

We capitalize software development costs in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 985, SoftwareInterest Income.    (FASB ASC 985). We amortize such costs over the related product’s estimated economic life, generally three years, beginning when a product becomes available for general release. Software amortization expense included in cost of goods sold totaled $9 million, $10Interest income was $716,000, $1.3 million and $9 million during 2009, 2008 and 2007, respectively. Internally developed software costs capitalized during 2009, 2008 and 2007 were $13 million, $10 million and $8 million, 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).

General and Administrative.  General and administrative expenses were $58 million, $67 million and $62$1.4 million for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively, a decrease of 13%46% in 2009 compared to 20082012, following an increase of 8% in 2008 compared to 2007. As a percentage of net sales, general and administrative expenses were 9%, 8% and 8% in 2009, 2008 and 2007. For 2009, the increase in general and administrative expenses as a percentage of revenue was due to the 18% decrease in revenue. For 2009, the decrease in general and administrative expenses was due to a decrease caused by the net impact of changes5% in 2011. We continue 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 significantly in 2013.

Net Foreign Exchange Loss.  Net foreign currency exchange rates of $2.6loss was $(2.2) million, a reduction of our patent litigation accrual which resulted in a non-cash decrease to our operating expenses of $2$(2.8) million, and a decrease in variable compensation of $948,000. Temporary cost cutting measures which include a company-wide wage reduction as well as a reduction in the number of accrued vacation hours that employees are allowed to carry beyond December 31, 2009, resulted in additional cost savings of $1.8 million. For 2008, the increase in absolute dollars compared to 2007 can primarily be attributed to the net impact of foreign currency exchange rates which had the effect of increasing our general and administrative expense by $2.4 million or 4%. We expect that general and administrative expenses in future periods will fluctuate in absolute dollars and as a percentage of revenue.

Interest Income. Interest income was $1.6 million, $6 million and $10$(2.6) million for the years ended December 31, 2009, 20082012, 2011 and 2007, respectively, a decrease of 73% in 2009 compared to 2008 following a decrease of 40% in 2008 compared to 2007. For 2009, the decrease is attributable to significant decreases in investment yields for high grade treasury, municipal and corporate bonds. For 2008, the decrease is attributable to a decrease in invested funds as well as to the rapid rate of decrease in interest rates during the second half of 2008. The primary source of interest income is from the investment of our cash and short-term investments.

Net Foreign Exchange Gain (Loss). Net foreign exchange gain (loss) was $734,000, $(3.7) million and $1.7 million for the years ended December 31, 2009, 2008 and 2007,2010, respectively. These results are attributable to movements in the foreign currency exchange rates between the U.S. dollar and foreign currencies in countries wheremarkets for which our functional currency is not the U.S. dollar. During 2012, we saw an overall appreciation of the U.S. dollar against the major currencies in the markets we do business in and a high level of volatility in the broader foreign currency exchange markets. During 2011, the U.S. dollar generally declined against most of the major currencies in the markets in which we do business. We cannot predict to what degree or how long this volatility in the foreign currency exchange markets will continue. 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.markets.

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 hedgehedged item attributable to the hedged risk is recognized in current earnings under the line item “net“Net foreign exchange gain (loss)”loss”. Our hedging strategy reducedincreased our foreign exchange gainslosses by $1.7$2.1 million in 2009,2012, reduced our foreign exchange losses by $1.2 million$959,000 in 20082011, and reducedincreased our foreign exchange gainsgain by $1.1$1.6 million in 2007.2010.

28

---

To protect against the change in the value caused by a fluctuation in foreign currency exchange rates

Table of forecasted foreign currency cash flows resulting from international sales and expenses over the next one to two years, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue and forecasted expenses denominated in foreign currencies with forward and 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 4Contents - 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.  Our    For the years ended December 31, 2012, 2011 and 2010, our provision for income taxes reflected an effective tax rate of 66%22%, 14%15% and 6% for the years ended December 31, 2009, 2008 and 2007,15%, respectively. The increase infactors that caused our effective tax rate to change in 20092012 compared to 2008 was driven by changes2011 are detailed in our valuation allowances, tax charges related to inter-company profits and an increase in equity compensation expense as a percentage of pre-tax book income. (See the table below:

	Years ended
	December 31,
Effective tax rate for 2011	15	%
Decreased profits in foreign jurisdictions with reduced income tax rates	2
Change in non-deductible stock-based compensation expense as a percentage of net income	1
Change in enhanced deduction for certain research and development expenses	1
Change in intercompany profit	(1)
Nondeductible acquisition costs	2
Change in research and development tax credits	3
Other	(1)
Effective tax rate for 2012	22	%

(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).

Quarterly results of operations

The following quarterly results have been derived from unaudited consolidated financial statements that, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period. You should read the following tables presenting our quarterly results of operations in conjunction with the consolidated financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. The unaudited quarterly financial data for each of the eight quarters in the two years ended December 31, 2012 are as follows: 

		Three months ended
		(in thousands, except per share data)
		March 31, 2012		June 30, 2012		September 30, 2012		December 31, 2012
Net sales	$	261,133	$	292,259	$	289,974	$	300,326
Gross profit		199,785		221,408		216,480		225,745
Operating income		24,344		34,864		29,926		27,800
Net income		18,642		26,441		24,340		20,713
Basic earnings per share	$	0.15	$	0.22	$	0.20	$	0.17
Weighted average shares outstanding - basic		120,908		121,801		122,402		122,754
Diluted earnings per share	$	0.15	$	0.22	$	0.20	$	0.17
Weighted average shares outstanding - diluted		121,972		122,759		123,074		123,375
Dividends declared per share	$	0.14	$	0.14	$	0.14	$	0.14

		Three months ended
		(in thousands, except per share data)
		March 31, 2011		June 30, 2011		September 30, 2011		December 31, 2011
Net sales	$	237,850	$	253,284	$	254,988	$	278,051
Gross profit		185,374		197,398		189,773		210,664
Operating income		36,512		32,942		10,756		32,502
Net income		30,461		26,548		12,736		24,327
Basic earnings per share	$	0.26	$	0.22	$	0.11	$	0.20
Weighted average shares outstanding - basic		118,693		119,736		120,308		120,582
Diluted earnings per share	$	0.25	$	0.22	$	0.11	$	0.20
Weighted average shares outstanding - diluted		120,443		121,161		121,102		121,453
Dividends declared per share	$	0.10	$	0.10	$	0.10	$	0.10

29

---

Table of Contents

Other operational metrics

We believe that the following additional unaudited operational metrics assists investors in assessing our operational performance relative to our peers and to our historical results.

Acquisition Related Deferred Revenue excluded from Revenue and GSA Accrual Reduction to Revenue. For the three month periods and years ended December 31, 2012 and 2011, the excluded acquisition related deferred revenue and the reduction of revenue resulting from our GSA accrual were as follows:

(In thousands)		Three Months Ended December 31,				Years Ended December 31,
		2012		2011		2012		2011
Revenue
Acquisition related deferred revenue	$	-	$	1,912	$	2,156	$	4,730
GSA accrual		-		-		(1,349)		13,107
Provision for income taxes		-		(669)		(282)		(6,242)
Total	$	-	$	1,243	$	525	$	11,595

Charges Related to Stock-based Compensation, Amortization of Acquired Intangibles and Acquisition Related Transaction Costs. For the three month periods and years ended December 31, 2012 and 2011, the gross charges related to stock-based compensation as a component of cost of sales, sales and marketing, research and development, and general and administrative expenses and the total charges were as follows:  

(In thousands)		Three Months Ended December 31,				Years Ended December 31,
		2012		2011		2012		2011
Stock-based compensation
Cost of sales	$	430	$	411	$	1,719	$	1,527
Sales and marketing		3,033		2,702		11,612		9,711
Research and development		2,919		2,625		10,909		8,870
General and administrative		908		831		3,556		3,111
Provision for income taxes		(2,193)		(2,041)		(7,579)		(6,827)
Total	$	5,097	$	4,528	$	20,217	$	16,392

For the three month periods and years ended December 31, 2012 and 2011, the gross charges related to the amortization of acquisition related intangibles as a component of cost of sales, sales and marketing, research and development, and other income, net and the total charges were as follows:

(In thousands)		Three Months Ended December 31,				Years Ended December 31,
		2012		2011		2012		2011
Amortization of acquired intangibles
Cost of sales	$	2,165	$	2,469	$	8,926	$	7,064
Sales and marketing		476		447		1,819		1,071
Research and development		217		-		217		-
Other income, net		194		190		765		955
Provision for  income taxes		(964)		(993)		(3,717)		(2,736)
Total	$	2,088	$	2,113	$	8,010	$	6,354

For the three month periods and years ended December 31, 2012 and 2011, the gross charges related to acquisition related transaction costs as a component of cost of sales, sales and marketing, research and development, general and administrative expenses, acquisition related adjustment, and the total charges were as follows:

(In thousands)		Three Months Ended December 31,				Years Ended December 31,
		2012		2011		2012		2011
Acquisition related transaction costs
Cost of sales	$	(56)	$	32	$	(24)	$	54
Sales and marketing		177		220		606		1,349
Research and development		165		106		360		176
General and administrative		355		47		393		505
Acquisition related adjustment		6,783		-		6,783		-
Provision for income taxes		(105)		(142)		(348)		(288)
Total	$	7,319	$	263	$	7,770	$	1,796

30

---

Table of Contents

Liquidity and Capital Resources

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

(In thousands)		December 31, 2012		December 31, 2011		Increase/(Decrease)
Working capital	$	522,744	$	506,644	$	16,100
Cash and cash equivalents (1)		161,996		142,608		19,388
Short-term investments (1)		173,166		223,504		(50,338)
Total cash, cash equivalents and short-term investments	$	335,162	$	366,112	$	(30,950)
(1) Included in working capital

		December 31, 2009				December 31, 2008				Increase/ (Decrease)
Working capital		$	413,759			$	398,292			$	15,467
Cash and cash equivalents (1)			201,465				229,400				(27,935	)
Short-term investments (1)			87,196				6,220				80,976
Long-term investments			—				10,500				(10,500	)
Total cash, cash equivalents, short and long-term investments		$	288,661			$	246,120			$	42,541

(1)Included in working capital

OurDuring 2012, our working capital increased by $15$16 million. Factors contributing to this increase in our working capital were an increase in accounts receivable of $30 million and an increase in inventory of $38 million, offset by a decrease in our cash, cash equivalents and short-term investments of $31 million, an increase in accounts payable of $24 million, and an increase in current deferred revenue of $11 million. The increase in our working capital accounts can be attributed to our overall business growth during 2012. The change in our cash, cash equivalents and short-term investments is discussed in more detail below under the yearheading Cash Provided and (Used) in the Years ended December 31, 2009 compared to December 31, 2008, due to cash provided by operations offset by repurchases of shares of our common stock, dividend payments2012 and capital expenditures.

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 U.S. dollars with the exception of $25 million U.S. dollar equivalent of German government sovereign debt that is denominated in Euro. Our German government sovereign debt holdings have a maximum maturity of 24 months and carry Aaa/AAA ratings. At December 31, 2012, we had $335 million in cash, cash equivalents and short-term investments. Approximately $28 million or 8% of these amounts were held in domestic accounts with various financial institutions and $307 million or 92% was held in accounts outside of the U.S. dollar.with various financial institutions. Of our short-term investments, $1.5 million or 1% is held in our investment accounts in the U.S. and $172 million or 99% 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. In some countries repatriation of certain foreign balances is restricted by local laws. 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 2009the Years ended December 31, 2012 and 20082011.  Cash and cash equivalents decreasedincreased to $201$162 million at December 31, 20092012 from $229$143 million at December 31, 2008.2011. The following table summarizes the proceeds and (uses) of cash (in thousands):cash:

(In thousands)		December 31,
		2012		2011
Cash provided by operating activities	$	132,516	$	169,899
Cash used by investing activities		(77,827)		(236,833)
Cash used by financing activities		(35,301)		(9,905)
Net change in cash equivalents		19,388		(76,839)
Cash and cash equivalents at beginning of year		142,608		219,447
Cash and cash equivalents at end of period	$	161,996	$	142,608

		December 31,
		2009				2008
Cash provided by operating activities		$	135,651			$	121,818
Cash (used in)/provided by investing activities			(111,915	)			18,756
Cash (used in) financing activities			(51,671	)			(106,013	)
Net (decrease)/increase in cash equivalents			(27,935	)			34,561
Cash and cash equivalents at beginning of year			229,400				194,839
Cash and cash equivalents at end of year		$	201,465			$	229,400

Our operating activities provided $136 million and $122 million for

For the years ended December 31, 20092012 and 2008, respectively, a 11% increase. For 2009,2011, cash provided by operating activities was the result of $17$133 million ofand $170 million, respectively. Year over year, we saw a decrease in net income $77of $3.9 million as well as a decrease in net non-cash operating expenses which consisted of depreciation and amortization, stock-based compensation, benefits from deferred income taxes, and by $41 million in net cash provided by changes in operating assets and liabilities principally a $18 million decrease in accounts receivable, a $21 million decrease in inventories and a $13 million decrease in prepaid expenses and other assets, offset by a decrease of $10 million in accounts payable, taxes and other liabilities. In 2008, cash provided by operating activities was primarily the result of $84.8 million in net income and $51.3 million in net non-cash operating expenses which primarily consisted of depreciation and amortization, stock-based compensation, and benefits from deferred income taxes, offset in part by $14.3 million in net cash used by changes in operating assets and liabilities, principally a $24.6 million increase in inventory.

$33 million.

Accounts receivable decreasedincreased to $104$187 million at December 31, 2009 from $1222012 compared to $157 million at December 31, 2008, as a result of lower sales volumes during 2009. This decrease in revenue also caused our days2011. Days sales outstanding to increase to 61was 55 days at December 31, 2009,2012, compared to 5751 days at December 31, 2008.2011. We typically bill customers on an open account basis subject to our standard net thirty30 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 balance 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.

31

---

Table of Contents

Consolidated inventory balances decreasedincreased to $87$170 million at December 31, 20092012 from $107$132 million at December 31, 2008.2011. Inventory turns decreased to 1.8 per year atwere 1.9 in each of the years ended December 31, 2009 compared to 2.1 per2012 and 2011. Inventory increased by $38 million during the year atended December 31, 2008. The decrease in inventory during 2009 was driven by a reduction2012, as we took actions to support the expected growth in our manufacturing activities in response to the decreased demand for our products.overall business. 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. We attempt to balance suchSuch considerations are balanced against the risk of obsolescence or potentially excess inventory levels. Rapid changes in industrialcustomer demand could have a significant impact on our inventory balances in future periods.

Investing activities used cash of $112$78 million during 2009, which wasthe year ended December 31, 2012, as the result of theour acquisitions of $25 million, net purchase of short-term investments of $74 million,cash received, as well as the purchase of property and equipment and other intangibles of $21$91 million, the capitalization of internally developed software of $13$12 million, and the acquisition of other intangibles of $5 million. For 2008, investing activities provided cash of $19 million which was primarily the result ofoffset by the net sale of $77$50 million of short-term investments, offset byinvestments. For the year ended December 31, 2011, Investing activities used cash of $237 million, which was the result of our acquisitions of AWR Corporation (AWR) and Phase Matrix Inc. (PMI) for $45 million, net of cash received, and $28 million, net of cash received, respectively, as well as the purchase of property and equipment and other intangibles of $26$60 million, athe capitalization of internally developed software of $12 million, and the net cash paymentpurchase of $17$91 million related to the acquisition of microLEX Systems ApS (see short-term investments. (See Note 15 -16 – Acquisitions of Notes to Consolidated Financial Statements), capitalization of internally developed software of $10 million andStatements for further discussion regarding the acquisition of other intangibles of $3 million.

AWR and PMI).

Financing activities used $52cash of $35 million during 2009,the year ended December 31, 2012, which was the result of $35 million used to repurchase our common stock and $37$68 million used to pay dividends to our shareholders,stockholders offset by $22$31 million received as a result offrom the issuance of our common stock from the exercise of stock options and sales of our common stock throughunder our employee stock purchase plan.plan as well as a tax benefit of $2.2 million. For 2008,the year ended December 31, 2011, financing activities used $106$10 million, which was the result of $104 million used to repurchase our common stock and $35$48 million used to pay dividends to our shareholders,stockholders offset by $31$33 million received as a result offrom the issuance of our common stock from the exercise of stock options and under our employee stock purchase plan.

plan as well as a tax benefit of $5.2 million.

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 1,443,441, 4,110,042 and 2,730,1252,089,098 shares of our common stock at a weighted average pricesprice of $23.96, $25.22 and $29.20$20.04 per share in the yearsyear ended December 31, 2009, 2008 and 2007, respectively.

2010. On January 23, 2009,April 21, 2010, our Board of Directors approved a new share repurchase plan whichprogram that increased the aggregate number of shares of common stock that we are authorized to repurchase from 591,3241,011,147 to 3.04.5 million. At December 31, 2009,2012, there were 1,688,3273,932,245 shares remaining available for repurchase under this plan. This repurchase plan does not have an expiration date.

We did not repurchase any shares of our common stock during the years ended during 2012 and 2011.

During 2009,the year ended December 31, 2012, we received reducedless proceeds from the exercise of stock options compared to 2008.the year ended December 31, 2011. 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 is nowhas 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.  The following summarizes our contractual cash obligations as of December 31, 2009 (in thousands):2012:

		Payments due by period
(In thousands)		Total		2013		2014		2015		2016		2017		Beyond
Long-term debt	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Capital lease obligation		-		-		-		-		-		-		-
Operating leases		63,330		17,096		14,042		12,132		8,030		5,011		7,019
Total contractual obligations	$	63,330	$	17,096	$	14,042	$	12,132	$	8,030	$	5,011	$	7,019

		Payments Due by Period
		Total				2010				2011				2012				2013				2014				Beyond
Long-term debt		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Capital lease obligations			—				—				—				—				—				���				—
Operating leases			51,701				14,415				9,898				6,982				4,611				3,665				12,130
Total contractual cash obligations		$	51,701			$	14,415			$	9,898			$	6,982			$	4,611			$	3,665			$	12,130

The following summarizes our other commercial commitments as of December 31, 2009 (in thousands):2012:

(In thousands)		Total		2013		2014		2015		2016		2017		Beyond
Guarantees	$	4,978	$	4,978	$	-	$	-	$	-	$	-	$	-
Purchase obligations		7,268		7,268		-		-		-		-		-
Total commercial commitments	$	12,246	$	12,246	$	-	$	-	$	-	$	-	$	-

32

---

		Total				2010				2011				2012				2013				2014				Beyond
Guarantees		$	5,200			$	5,200			$	—			$	—			$	—			$	—			$	—
Purchase obligations			6,500				6,500				—				—				—				—				—
Total commercial commitments		$	11,700			$	11,700			$	—			$	—			$	—			$	—			$	—

Table of Contents

We have commitments under non-cancelable operating leases primarily for office facilities throughout the world. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. As of December 31, 2009,2012, we havehad non-cancelable operating lease obligations of approximately $52$63 million compared to $50$54 million at December 31, 2008.2011. Rent expense under operating leases was $12$17 million, $12$16 million and $10$14 million for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively.

Purchase obligations primarily represent purchase commitments for customized inventory and inventory components. As of December 31, 2009,2012, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $6.5$7 million over the next twelve months. At December 31, 2008,2011, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $8.4$14 million.

Guarantees are related to payments of customs and foreign grants. As of

At December 31, 2009,2012, we havehad outstanding guarantees for payment of customs and foreign grants totaling approximately $5.2$5.0 million. As ofAt December 31, 2008,2011, we havehad outstanding guarantees for payment of customs, and foreign grants and potential customer disputes totaling approximately $2.4$4.8 million.

Off-Balance Sheet Arrangements.    We do not have any debt or off-balance sheet debt. As of December 31, 2009,2012, 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 marketable securities,short-term investments, together with cash generated from operations andas 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 shareholdersstockholders and repurchases of our common stock for at least the next 12 months. However,Over the next few months, we will likely seek external financing, most likely in the form of a line of credit so that we will have sufficient domestic cash to fund continued dividends to our stockholders and to fund potential acquisitions. We may also 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.investors.  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 our existing shareholdersstockholders 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 and a line of credit would likely have covenants or impose other restrictions on our business. We may also choose to repatriate foreign earnings which would be subject to the U.S. federal statutory tax rate of 35% and therefore, would likely have a material adverse effect on our effective tax rate and on our net income and earnings per share. We could also choose to reduce certain expenditures or payments of dividends or suspend our program to repurchase shares of our common stock. Historically, we have not had to rely on debt, public or private, to fund our operating, financing or investing activities.

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:

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

·	difficulties and the high tax costs associated with the repatriation of earnings;

·	payment of dividends to our stockholders;

·

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, particularly in the current global economic environment, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us;

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

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

·	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;

·	repurchases of our common stock;

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

·	litigation expenses, settlements and judgments;

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

·	acquisitions repurchases of other businesses, assets, products or technologies;our common stock;

·	capital improvements for new and existing facilities;

·	our relationships with suppliers and customers; and,

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

33

---

Table of Contents

Recently Issued Accounting Pronouncements

In April 2009, the FASB updated FASB ASC 820 providing additional guidance

Note 1 – Operations and Summary of Significant Accounting Policies for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This update also includes guidance on identifying circumstances that indicate a transaction is not orderly. We adopted the update on April 1, 2009 as required and concluded it did not have a material impact on our consolidated financial position or results of operations.

In September 2009, the FASB updated FASB ASC 105, Generally Accepted Accounting Principles (FASB ASC 105). The update establishes the FASB Standards Accounting Codification (“Codification”) as the source of authoritative U.S. generally accepteddiscussion regarding recently issued accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. This update is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted the update on July 1, 2009, as required and concluded it did not have a material impact on our consolidated financial position or results of operations.

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

In October 2009, the FASB updated FASB ASC 985, Software (FASB ASC 985) that changes the accounting model for revenue arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of the software revenue guidance in Subtopic 985-605. In addition, the amendments require that hardware components of a tangible product containing software components always be excluded from the software revenue guidance. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements.

pronouncements.

Critical Accounting Policies

The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Although these estimates are based on management's best knowledge of current events and actions that may impact the company in the future, actual results may be materially different from the estimates.

Our critical accounting policies are as follows:

·	Revenue recognition

We derive revenue primarily from the sale/licensing of integratedsell test and measurement solutions that include hardware, and software solutions. Independent sales of application software licenses, include post contract supportand related services. In addition, training services are sold separately. The products and servicesOur sales are generally soldmade under standardized licensing andstandard sales arrangements with payment terms ranging from net 30 days in the U.S. to net 30 days and up to net 90120 days in some international markets. Approximately 83% of our product/license sales include both hardware and software in the customer arrangement, with a small percentage of sales including other services. We offer rights of return and standard warranties for product defects related to our products. The rights of return are generally for a period of up to 30 days after the delivery date. TheOur standard warranties cover periods ranging from 90 days to three years. We do not generally enter into contracts requiring product acceptance from the customer.

Revenue is recognized in accordance

In recent years, we have made a concentrated effort to increase our revenue through the pursuit of orders with a value greater than $1.0 million. These orders often include contract terms that vary substantially from our standard terms of sale including product acceptance requirements and product performance evaluations which create uncertainty with respect to the provisionstiming of FASB ASC 985,our ability to recognize revenue from such orders. These orders may also include most favored customer pricing, significant discounts, extended payment terms and volume rebates which also creates uncertainty with respect to the timing of our ability to recognize revenue from such orders.

Sales of application software licenses include post-contract support services. Other services include customer training, customer support, and extended warranties.

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the feeprice is fixed or determinable and collectability is probable. reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. For most of our hardware and software sales, title and risk of loss transfer upon delivery. For services, we recognize revenue when the service is provided, except for extended warranties for which revenue is recognized ratably over the warranty period.

We enter into certain arrangements wherein which we are obligated to deliver multiple products and/or services (“multiple elements”).  In these transactions,These arrangements may include hardware, software, and services. On January 1, 2011, we allocateprospectively adopted accounting rules that changed the totalcriteria for separating consideration in multiple-deliverable arrangements.  These rules changed the application of the residual method of allocation and require that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method.  Revenue allocated to each element is then recognized when the basic revenue amongrecognition criteria for that element have been met.  The relative selling price method allocates any discount in the elementsarrangement proportionally to each deliverable on the basis of each deliverable’s selling price. The selling price used for each deliverable will be based on vendor specificvendor-specific objective evidence (“VSOE”) if available, third–party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available. The adoption of fair valuethe 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 years ended December 31, 2012 and 2011.

34

---

Table of Contents

Software revenue recognition rules are applied to software sold on a stand-alone basis, and to software sold as determined bypart of a multiple element arrangement with hardware where the sales price of each elementsoftware is not required to deliver the tangible product's essential functionality.  Under these rules, when sold separately.

When VSOE of fair value is not available for a delivered element but is available for the undelivered element of a multiple element arrangements,arrangement, sales revenue is generally recognized on the date the product is shipped, using the residual method, under FASB ASC 985, with athe portion of revenue recorded as deferred (unearned) duethat is related to applicable undelivered elements.  Undelivered elements for our multiple element arrangements with a customerrelated to software are generally restricted to post contract support and training and education. The amount of revenue allocated to these undelivered elements is based on the VSOE of fair value for those undelivered elements. Deferred revenue due to undelivered elements is recognized ratably on a straight-line basis over the service period or when the service is completed. When VSOE of fair value is not available for the undelivered element of a multiple element arrangement, sales revenue for the entire sales contract value is generally recognized ratably on a straight-line basis over the service period of the undelivered element, generally 12 months or when the service is completed in accordance with the subscription method under FASB ASC 985. Deferred revenue at December 31, 2009 and 2008 was $57 million and $46 million, respectively.

method.

The application of FASB ASC 985,revenue recognition standards requires judgment, including whether a software arrangement includes multiple elements, and if so, whether VSOE of fair value exists for those elements. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and changes to a product’s estimated life cycle could materially impact the amount of our earned and unearned revenue. Judgment is also required to assess whether future releases of certain software represent new products or upgrades and enhancements to existing products.

·	Estimating allowances for sales returns

The preparation of financial statements requires that we make estimates and assumptions of potential future product returns related to current period product revenue. We analyze historical returns, current economic trends, and changes in customer demand and acceptance of our products when evaluating the adequacy of our sales returns allowance. Significant judgments and estimates must be made and used in connection with establishing the sales returns allowance in any accounting period. A provision for estimated sales returns is made by reducing recorded revenue by the amount of the allowance. Accounts receivable is reported net of the allowance for sales returns. TheOur allowance for sales returns was $1.9$2.1 million and $1.8$1.6 million at December 31, 20092012 and 2008,2011, respectively. Material differences may result in the amount and timing of our revenue for any period if we made different judgments or utilized different estimates or if our actual results varied materially from our estimates.

·	Estimating allowances, specifically the allowance for doubtful accounts and the adjustment for excess and obsolete inventories

In addition to estimating an allowance for sales returns, we must also make estimates about the uncollectability of our accounts receivables. We specifically analyze accounts receivable and analyze historical bad debts, customer concentrations, customer credit-worthiness and current economic trends when evaluating the adequacy of our allowance for doubtful accounts. Our allowance for doubtful accounts was $2.7 $2.8 million and $3.9$2.6 million at December 31, 20092012 and 2008,2011, respectively. We also write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and estimated market value based on assumptions of future demand and market conditions. Our allowance for excess and obsolete inventories was $4.4$3.8 million and $4.4$4.2 million at December 31, 20092012 and 2008,2011, respectively. Significant judgments and estimates must be made and used in connection with establishing these allowances. Material differences may result in the amount and timing of our bad debt and inventory obsolescence if we made different judgments or utilized different estimates or if actual results varied materially from our estimates.

·	Accounting for costs of computer software

We capitalize costs related to the development and acquisition of certain software products. Capitalization of costs begins when technological feasibility has been established and ends when the product is available for general release to customers. Technological feasibility for our products is established when the product is available for beta release. Judgment is required in determining when technological feasibility of a product is established. Amortization is computed on an individual product basis for those products available for market and has been recognized based on the product’s estimated economic life, generally three years. At each balance sheet date, the unamortized costs are reviewed by management and reduced to net realized value when necessary. As of December 31, 2009,2012 and 2011 unamortized capitalized software development costs were $18 million.$22 million and $23 million, respectively.

35

---

Table of Contents

·	Valuation of long-lived and intangible assets

We assess the impairment of identifiable intangibles, long-lived assets and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with FASB ASC 350, Intangibles – Goodwill and Other (FASB ASC 350), 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, 2009.29, 2012. No impairment of goodwill has beenand long-lived and intangible assets was identified during the period presented.2012 and 2011. Goodwill is deductible for tax purposes in certain jurisdictions. We have defined our operating segment based on geographic regions. We sell our products in threefour 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 threefour geographic regions into a single operating segment. As we have one reporting segment, we allocate goodwill to one reporting unit for goodwill impairment testing. Factors considered important which could trigger an impairment review include the following:

·	significant underperformance relative to expected historical or projected future operating results;

·	significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

·	significant negative industry or economic trends; and,

·	our market capitalization relative to net book value.

When it is determined that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the measurement of any impairment is determined and the carrying value is reduced as appropriate. As of December 31, 2009,2012 and 2011, we had net goodwill of approximately $65 million.

$147 million and $131 million, respectively.

·	Accounting for income taxes

We account for income taxes under the asset and liability method that requires the recognition of deferredmethod. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in our financial statements ortemporary differences between the tax returns.basis 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. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position or our results of operations. In estimating future tax consequences, all expected future events are considered other than enactments of changes in tax laws or rates. Valuation allowances are established when necessary to reduce deferredWe account for uncertainty in income taxes recognized in our financial statements using prescribed recognition thresholds and measurement attributes for financial statement disclosure of tax assets to amounts which are more likely than notpositions taken or expected to be realized.

As a result of certain foreign investment incentives available under Hungarian law, the profit fromtaken on our Hungarian operation was subjecttax returns. Our continuing policy is to a reducedrecognize interest and penalties related to income tax rate. This specialmatters in income tax status terminated on January 1, 2008, with the merger of our Hungarian manufacturing operations with its Hungarian parent company. expense.

The tax position of our Hungarian operation continuedoperations continues to benefit from assets created by the restructuring of our operations in Hungary. Realization of these assets was based on estimated future earningsHungary in Hungary.2003. 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 these assets from the restructuring and the enhanced tax deduction for research expenses resulted in income tax benefits of $18.3$17 million and $19 million for the yearyears ended December 31, 2007,2012 and $8.72011, respectively.

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 $12 million and $16 million for the yearyears ended December 31, 2008.

For2012 and 2011, respectively. No country 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 year 2009, we expectedInternal Revenue Service with regard to recognize an additional tax benefit of $9.7 million related to these assets. Effective January 1, 2010, a new tax law in Hungary provides for an enhanced deduction for the qualified research and development expenses of NI Hungary Software and Hardware Manufacturing Kft. ("NI Hungary"). During the three months ended December 31, 2009, we obtained confirmation of the application of this new tax law for the qualified research and development expenses of NI Hungary. Based on the application of this new tax law to the qualified research and development expense of NI Hungary, we no longer expect to have sufficient future taxable income in Hungary to realize the benefits of these tax assets. As such, we recorded an income tax charge of $21.6 million during the three months ended December 31, 2009, $18.4 million of which was related to a valuation allowance on the previously recognized assets created by the restructuring and $3.2 million of which was related to tax benefits from other assets that we will no longer be able to realize as a result of this change. We do not expect to realize the tax benefit of the remaining assets created by the restructuring and therefore we have a full valuation allowance of $98.2 million against those assets at December 31, 2009.

any foreign jurisdictions.

For additional discussion about our income taxes including components of income before income taxes, our provision for income taxes charged to operations, components of our deferred tax assets and liabilities, a reconciliation of income taxes at the U.S. federal statutory rate of 35% to our effective tax rate and other tax matters, see Note 9 – Income taxes of Notes to Consolidated Financial Statements.

36

---

Table of Contents

·	Loss contingencies

Loss contingencies

We accrue for probable losses from contingencies including legal defense costs, on an undiscounted basis, in accordance with FASB ASC 450, Contingencies (FASB ASC 450), when such costs are considered probable of being incurred and are reasonably estimable. We periodically evaluate available information, both internal and external, relative to such contingencies and adjust this accrual as necessary. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and theour ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position or our results of operation.

37

---

Table of Contents

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 and costs 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. Net of hedging results, theThe change in exchange rates had the effect of decreasing our consolidated sales by $29$20 million or 4% for2% in 2012, and increasing our consolidated sales by $27 million or 3% in 2011. Since most of our international operating expenses are also incurred in local currencies, the year ended December 31, 2009, comparedchange in exchange rates had the effect of decreasing our consolidated operating expenses by $5.8 million or 1% in 2012, and increasing our consolidated operating expenses by $19 million or 3% in 2011.

During the 2012, there was an overall appreciation of the U.S. dollar against the major currencies we do business in and a high level of volatility in the broader foreign exchange markets. During the first half of 2011, the U.S. dollar generally declined against most of the major currencies in the markets in which we do business. We cannot predict to 2008. what degree or how long this volatility in the foreign currency exchange markets will continue. 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.

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 mostTo 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 internationalforecasted revenue, cost of sales and operating expenses are also incurreddenominated in localforeign currencies with foreign currency forward contracts. For forward contracts, when the dollar strengthens significantly against the foreign currencies, the change in exchange ratesthe 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, Korean won 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.

During 2012, our hedges had the effect of increasing our consolidated sales by $2.9 million, decreasing our cost of sales by $402,000, and decreasing our operating expenses by $259,000. During 2011, these hedges had the effect of decreasing our consolidated sales by $3.9 million, decreasing our cost of sales by $1.4 million, and decreasing our operating expenses by $12 million or 2% for the year ended December 31, 2009, compared to 2008. Currently, we are experiencing significant volatility in foreign currency exchange rates in many of the markets in which we do business. This has had a significant impact on the revaluation of our foreign currency denominated firm commitments and on our ability to forecast our U.S. dollar equivalent revenues and expenses. In the past, these dynamics have also adversely affected our revenue growth in international markets and will likely pose similar challenges in the future. Our foreign currency hedging program includes both foreign currency forward and purchased option contracts to reduce the effect of exchange rate fluctuations. However, our hedging program will not eliminate all of our foreign exchange risks, particularly when market conditions experience the recent level of volatility.$556,000. (See “Net Foreign Exchange Gain (Loss)” and Note 4 – - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements)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 years ended December 31, 2012 and 2011).

38

---

Table of Contents

Inventory Management

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.

In recent years, we have made a concentrated effort to increase our revenue through the pursuit of orders with a value greater than $1.0 million. Fulfillment of these contracts can severely challenge our supply chain capabilities at the component acquisition, assembly and delivery stages. These contracts can also require us to develop specific product mitigation plans for product delivery constraints caused by unexpected or catastrophic situations to help assure quick production recovery and to comply with critical delivery commitments where severe contractual liabilities can be imposed on us if we fail to provide the quantity of products at the required delivery times. In order to mitigate the risks associated with these contractual requirements, we may choose to build inventory levels for certain parts or systems. Because our contracts with such customers may allow the customer to cancel or delay orders without liability, such actions expose our business to increased risk of inventory obsolescence.

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 December 31, 2009,2012, we had $289$335 million in cash, cash equivalents and short-term investments. We maintain cash and cash equivalents with various financial institutions located in many countries throughout the world. Approximately $114$28 million or 39%8% of these amounts were held in domestic accounts with various financial institutions and $175$307 million or 61%92% was held in accounts outside of the U.S. with various financial institutions. At December 31, 2009, $852012, $141 million or 42%87% of our cash and cash equivalents was held in cash in various operating accounts throughout the world, and $116$21 million or 58%13% was held in money market accounts. The most significant of our operating accounts was our domesticHong Kong operating account which held approximately $22$26 million or 11%16% of our total cash and cash equivalents at a bank that carried a A1 ratingA+/A2/AA- ratings at December 31, 2009.2012. Our short-term investment balance is comprised of $35$1.5 million or 1% held in our investment accounts in the U.S. and $52$172 million or 99% held in investment accounts of our foreign subsidiaries.

Short-term We have $25 million U.S. dollar equivalent of German government sovereign debt securitiesand $8 million U.S. dollar equivalent of corporate bonds that are denominated in Euro. Our German government sovereign debt holdings have a maximum maturity of 24 months and carry Aaa/AAA ratings.

We value our available-for-sale included auction rate securities backed by education loan revenue bonds. Oneshort term investments based on pricing from third party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. We classify all of our auction ratefixed income available-for-sale securities is fromas having Level 2 inputs. The valuation techniques used to measure the Vermont Student Assistance Corporation and has a parfair value of $2.2 million. The other of our auction rate securities isfinancial instruments having Level 2 inputs were derived from the New Hampshire Health and Education Facilities Authority and has a par value of $6.4 million. At December 31, 2009, we reported these auction rate securities at their estimated fairnon-binding market value of $8.2 million as a component of short-term debt securities available for sale. Weconsensus prices that are also a party to a UBS Auction Rate Securities Rights (the “Rights”) agreement. The Rights agreement is a nontransferable right to sell our auction rate securities, at par value, back to UBS at any time during the period June 30, 2010, through July 2, 2012. At December 31, 2009, we reported the Rights agreement at its estimated faircorroborated by observable market value of $423,000 as a component of short-term debt securities available for sale. See Note 3 – Fair value measurements in Notes to Consolidated Financial Statements for further discussion of our auction rate securities and our Rights agreement.

Due to the fact that our Rights agreement has an initial exercise date that is less than one year from now, we are now reporting our auction rate securities and the corresponding Rights agreement as short-term. We continue to have the ability to hold our auction rate securities to their ultimate maturities which are in excess of one year and we have not made a determination as to whether we will exercise our option under the Rights agreement or if we do choose to exercise our option, at what point during the period June 30, 2010 through July 2, 2012, we would exercise our option. We have recorded the unrealized loss related to the auction rate securities and the unrealized gain related to the Rights agreement as a component of other income (expense), in our Consolidated Statements of Income.

We do not anticipate that the auction rate market will provide liquidity for these securities in the foreseeable future. Should we need or desire to access the funds invested in those securities prior to their maturity or prior to our exercise period under the Rights agreement discussed above, we may be unable to find a buyer in a secondary market outside the auction process or if a buyer in a secondary market is found, we would likely realize a loss.

We maintain an investment portfolio of various types of security holdings and maturities. Pursuant to FASB ASC 820, cash equivalents and short-term investments available-for-sale are valued using a market approach (Level 1) based on thedata, quoted market prices of identicalfor similar instruments, when available or other observable inputspricing models, such as trading pricesdiscounted cash flow techniques. We believe these sources reflect the credit risk associated with each of identical instruments in inactive markets. The estimated fair market valueour available for sale short term investments.

39

---

Table of both the auction rate securities and the Rights agreement was determined using significant unobservable inputs (Level 3) as prescribed by FASB ASC 820.Contents

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. Other than our auction rate securities discussed above, at December 31, 2009, ourOur 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;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 320.320 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 in debt securities at December 31, 20092012 and December 31, 20082011 was $87$173 million and $6$224 million, respectively. The increasedecrease was due to the net purchasesale of $74$50 million of short-term investments and the transferwhich was used to fund payment of $8.6 relateddividends to our auction rate securitiesstockholders and our rights agreement from long-term investments to short-term investmentsacquisitions during the year ended December 31, 2009. The net purchasefourth quarter of $74 million of short term investments was done to diversify our holdings from money market accounts to debt securities and to take advantage of higher yields associated with longer maturity debt securities. 2012.

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.

Long-Term Investments

At December 31, 2008, our long-term investments consisted primarily of Aaa/A/AAA rated investments There were not any other than temporary impairments recognized in auction rate securities that we originally purchased for $8.6 million. These auction rate securities consist of education loan revenue bonds. Auction rate securities are variable rate debt instruments whose interest rates are typically reset approximately every 7 to 35 days. At December 31, 2008, we classified these investments as long-term due to the fact that the underlying securities have contractual maturities that are greater than one year. These contractual maturities are also in excess of the guidelines provided for in our corporate investment policy. The auction rate securities are classified as available-for-sale. At December 31, 2008, we reported these long-term investments at their estimated fair market value of $7.0 million. In November 2008, we accepted the Rights agreement offered by UBS as a liquidity alternative to the failed auction process. The Rights agreement is a nontransferable right to sell our auction rate securities, at par value, back to UBS at any timeother expense during the period June 30, 2010, through July 2, 2012. At December 31, 2008, we reported the Rights agreement at its estimated fair market value of $1.6 million. At December 31, 2008 he estimated fair market value of both the auction rate securities2012 and the Rights agreement was determined using significant unobservable inputs (Level 3) as prescribed by FASB ASC 820. These auction rate securities and the Rights agreement are now reported as a component of short-term investments as discussed above.

2011.

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 in part 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 theour 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’stockholders’ 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 or declining rates will likelyhas negatively impactimpacted 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 theour investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on our investment positions as of December 31, 2009,2012, a 100 basis point increase or decrease in interest rates across all maturities would result in a $614,000$844,000 increase or decrease in the fair market value of theour portfolio. As of December 31, 2008,2011, a similar 100 basis point shift in the yield curve would have resulted in a $50,000$1.9 million increase or decrease in the fair market value of theour 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 December 31, 20092012, due to the inherent limitations associated with predicting the changes in the timing and level of interest rates and our actual exposures and positions.

40

---

Table of Contents

Economic conditions in 2008 and 2009 had negative effects on

We continue to monitor the financial markets.  In response to these conditions, we shifted a larger percentagestability of our portfolio to money market funds, U.S. Treasuries and time deposits toward the end of 2008. This had a negative impact on our investment income in 2009. As we noted some stabilization in the financial markets, throughout 2009,particularly those in the European region and have taken steps to limit our direct and indirect exposure to these markets; however, we made net purchasescan give no assurance that we will not be negatively impacted by any adverse outcomes in those markets. We also continue to weigh the benefit of $74 million of short-term investments, primarily to diversify our holdings from money market accounts to debt securities and to take advantage ofthe higher yields associated with longer maturity debt securities. However, yields, even atmaturities against the interest rate risk and credit rating risk, also associated with these longer maturities remained at or near historic lows throughout 2009.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, Korean won 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 December 31, 20092012 and December 31, 2008,2011, 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 $22 million and $31$23 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 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is incorporated by reference to the Consolidated Financial Statements set forth on pages F-151 through F-3180 hereof.

Also see “Quarterly results of operations” on page 29.

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

There were no disagreements with accountants on accounting and financial disclosure for the year ended December 31, 2009.

2012.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer, Dr. James Truchard, and our Executive Vice President, 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,thereunder, 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 controlscontrol 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

41

---

Table 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.Contents

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors of the Company;directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’sour assets that could have a material effect on theour financial statements.

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.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009,2012, which was the end of our fiscal year. Management based its assessment on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our finance organization.

organization and our internal audit department.

Based on ourthis assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Our independent registered public accounting firm, Ernst & Young LLP, audited our consolidated financial statements, and independently assessed the effectiveness of our internal control over financial reporting. Ernst & Young LLP has issued their report, which is included in Part II, Item 8 of this Form 10-K.

Changes in Internal Control over Financial Reporting

During the three months ended December 31, 2009,2012, there was no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.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. The foregoing is provided for informational purposes and not in response to any particular requirement of Form 10-K.

42

---

Table of Contents

None.

---

PART III

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

herein as described below.

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information concerning our directors required by this Item pursuant to Item 401 of Regulation S-K will appear in our Proxy Statement under the section “Election of Directors” and such information is incorporated herein by reference.

The information concerning our executive officers required by this Item pursuant to Item 401 of Regulation S-K will appear in our Proxy Statement under the section “Executive Officers” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 405 of Regulation S-K regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, will appear in our Proxy Statement under the section “Section 16(a) Beneficial Ownership Reporting Compliance” and such information is incorporated herein by reference.

The information concerning our code of ethics that applies to our principal executive officer, our principal financial officer, our controller or person performing similar functions required by this Item pursuant to Item 406 of Regulation S-K will appear in our Proxy Statement under the section “Code of Ethics” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 407(c)(3) of Regulation S-K regarding material changes, if any, to procedures by which security holders may recommend nominees to our board of directors will appear in our Proxy Statement under the section “Deadline for Receipt of Stockholder Proposals” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 407(d)(4) and Item 407(d)(5) of Regulation S-K regarding our Audit Committee and our audit committee financial expert(s), respectively, will appear in our Proxy Statement under the heading “Corporate Governance” and such information is incorporated herein by reference.

ITEM 11.EXECUTIVE COMPENSATION

The information required by this Item pursuant to Item 402 of Regulation S-K regarding director compensation will appear in our Proxy Statement under the section “Board Compensation” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 402 of Regulation S-K regarding executive officer compensation, including our Compensation Discussion & Analysis, will appear in our Proxy Statement under the section “Executive Compensation” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 407(e)(4) of Regulation S-K will appear in our Proxy Statement under the section “Compensation Committee Interlocks and Insider Participation” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 407(e)(5) will appear in our Proxy Statement under the section “Compensation Committee Report” and such information is incorporated herein by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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.

The information required by this Item pursuant to Item 403 of Regulation S-K concerning security ownership of certain beneficial owners and management will appear in our Proxy Statement under the section “Security Ownership” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 201(d) of Regulation S-K concerning securities authorized for issuance under equity compensation plans will appear in our Proxy Statement under the section “Equity Compensation Plans Information” and such information is incorporated herein by reference.

43

---

Table of Contents

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

In addition, the

The information required by this Item pursuant to Item 404 of Regulation S-K will appear in our Proxy Statement under the section “Certain Relationships and Related Transactions” and such information is incorporated herein by reference.

The information required by this Item pursuant to Item 407(a) of Regulation S-K regarding the independence of our directors will appear in our Proxy Statement under the section “Corporate Governance” and such information is incorporated herein by reference.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

The information concerning principal accountant fees and services required by this Item is incorporated by reference to our Proxy Statement under the heading “Independent“Ratification of Independent Registered Public Accountants.Accounting Firm.”

The information concerning pre-approval policies for audit and non-audit services required by this Item is incorporated by reference to our Proxy Statement under the heading “Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors.”

44

---

Table of Contents

---

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	Documents Filed with Report

(a)Documents Filed with Report

1.         Financial Statements.

Report of Independent Registered Public Accounting Firm	F-2 F-1
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	F-3 F-2
Consolidated Balance Sheets	F-4 F-3
Consolidated Statements of Income	F-5 F-4
Consolidated Statements of Comprehensive Income	F-5
Consolidated Statements of Cash Flows	F-6
Consolidated Statements of Stockholders'Stockholders’ Equity	F-7
Notes to Consolidated Financial Statements	F-8

2.         Financial Statement Schedules.

All schedules are omitted because the required information is already included in our notes to our consolidated financial statements or because they are not applicable.

45

---

Table of Contents

None

3.         Exhibits.

Exhibit Number	Description
3.1(1)
3.1(2)	Certificate of Incorporation, as amended, of the Company.
3.2(2)
3.2(11)	Amended and Restated Bylaws of the Company.
3.3(3)
3.3(4)	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company.
4.1(4)
4.1(1)	Specimen of Common Stock certificate of the Company.
4.2(5)
4.2(3)	Rights Agreement dated as of January 21, 2004, between the Company and EquiServe Trust Company, N.A.
10.1(4)
10.1(1)	Form of Indemnification Agreement.
10.2(6)
10.2(5)	1994 Incentive Plan, as amended.*
10.3(7)
10.3(9)	1994 Employee Stock Purchase Plan.Plan, as amended.*
10.5(8)
10.5(7)	2005 Incentive Plan.*
10.6(8)	National Instruments Corporation Annual Incentive Program.*
10.7(6)	National Instruments Corporation Annual Incentive Program, as amended.*
10.6(9)		2005 Incentive Plan.*
10.8(10)  10.7(10)		2005 Form of Restricted Stock Unit Award Agreement (Non-Employee Director).*
10.8(11)
10.9(10)	2005 Form of Restricted Stock Unit Award Agreement (Performance Vesting).*
10.9(12)
10.10(10)	2005 Form of Restricted Stock Unit Award Agreement (Current Employee).*
10.10(13)
10.11(10)	2005 Form of Restricted Stock Unit Award Agreement (Newly Hired Employee).*
10.11(14)		2010 Incentive Plan.*
21.1  10.12(15)	Subsidiaries	2010 Form of the Company.Restricted Stock Unit Award Agreement (Non-Employee Director).*
10.13(16)		2010 Form of Restricted Stock Unit Award Agreement (Performance Vesting).*
23.1  10.14(17)	Consent	2010 Form of Independent Registered Public Accounting Firm.Restricted Stock Unit Award Agreement (Current Employee).*
10.15(18)		2010 Form of Restricted Stock Unit Award Agreement (Newly Hired Employee).*
24.0  31.1	Power of Attorney (included on page 41).
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
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
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.

(1)	Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. 33-88386) declared effective March 13, 1995.
101.INS		XBRL Instance Document **
(2) 101.SCH		XBRL Taxonomy Extension Schema Document **
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document **
101.DEF		XBRL Taxonomy Extension Definition 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'sCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
(2)
(3)	Incorporated by reference to exhibit 4.1 filed with the Company's Current Report on Form 8-K filed on January 28, 2004.
(4)	Incorporated by reference to the same-numbered exhibit filed with the Company's Form 8-K on April 27, 2004.
(5)	Incorporated by reference to the same-numbered exhibit filed with the Company's Form 10-Q on August 5, 2004.
(6)	Incorporated by reference to exhibit 99.2 filed with the Company's Current Report on Form 8-K filed on October 28, 2008.
(7)	Incorporated by reference to exhibit A of the Company's Proxy Statement dated and filed on April 4, 2005.
(8)	Incorporated by reference to exhibit 99.2 filed with the Company's Current Report on Form 8-K filed on October 22, 2008.
(9)	Incorporated by reference to exhibit 10.3 filed with the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.2007.
(3)
(10)	Incorporated by reference to the same-numbered exhibit filed with the Company'sCompany’s Registration Statement on Form 10-Q8-A on August 2, 2006.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.
(11) (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 AnnualCompany’s Form 10-Q on August 5, 2004.
(7)		Incorporated by reference to exhibit 10.1 filed with the Company’s Current Report on Form 10-K for the fiscal year ended December 31, 2007.8-K filed on May 16, 2011.
(8)		Incorporated by reference to exhibit 99.1 filed with the Company’s Current Report on Form 8-K filed on February 24, 2012.
* (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 exhibit 10.8 filed with the Company’s Form 10-Q on August 2, 2006.
(11)		Incorporated by reference to exhibit 10.9 filed with the Company’s Form 10-Q on August 2, 2006.
(12)		Incorporated by reference to exhibit 10.10 filed with the Company’s Form 10-Q on August 2, 2006.
(13)		Incorporated by reference to exhibit 10.11 filed with the Company’s Form 10-Q on August 2, 2006.
(14)		Incorporated by reference to exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed on May 17, 2010.
(15)		Incorporated by reference to exhibit 10.2 filed with the Company’s Current Report on Form 8-K filed on June 24, 2010.
(16)		Incorporated by reference to exhibit 10.3 filed with the Company’s Current Report on Form 8-K filed on June 24, 2010.
(17)		Incorporated by reference to exhibit 10.4 filed with the Company’s Current Report on Form 8-K filed on June 24, 2010.
(18)		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.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.

46

---

(b)

Exhibits

Table of Contents

See Item 15(a)(3) above.

(c)	Financial Statement Schedules

See Item 15(a)(2) above.

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Registrant
				Registrant
		NATIONAL INSTRUMENTS CORPORATION
February 19, 2013	BY:
February 17, 2010	By:	/s/ Dr. James J. Truchard
		Dr. James J. Truchard
		Chairman of the Board and President

POWER OF ATTORNEY

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

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

Signature		Capacity in Which Signed		Date
/s/ Dr. James J. Truchard		Chairman of the Board and President (Principal (Principal Executive Officer)		February 17, 2010 19, 2013
Dr. James J. Truchard
/s/ Alex M. Davern		EVP, Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)		February 17, 2010 19, 2013
Alex M. Davern
/s/ Jeffrey L. Kodosky		Director		February 17, 2010 19, 2013
Jeffrey L. Kodosky
/s/ Dr. Donald M. Carlton		Director		February 17, 201019, 2013
Dr. Donald M. Carlton
/s/ Charles J. Roesslein		Director		February 17, 201019, 2013
Charles J. Roesslein
/s/ Duy-Loan T. Le		Director		February 17, 201019, 2013
Duy-Loan T. Le
/s/ John K. Medica		Director		February 17, 201019, 2013
John K. Medica
/s/ John M. Berra		Director		February 19, 2013
John M. Berra

47

---

Table of Contents

---

NATIONAL INSTRUMENTS CORPORATION

INDEX TO FINANCIAL STATEMENTS

	Page No.
Financial Statements:		Page No.
Financial Statements:
Report of Independent Registered Public Accounting Firm		F-1
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		F-2
Report of Independent Registered Public Accounting Firm		F-3
Consolidated Balance Sheets as of December 31, 20092012 and 2008 2011	F-4  F-3
Consolidated Statements of Income for each of the Three Years in the period Ended December 31, 2009 2012		F-5  F-4
Consolidated Statements of Comprehensive Income for each of the Three Years in the period Ended December 31, 2012		F-5
Consolidated Statements of Cash Flows for each of the Three Years in the period Ended December 31, 2009 2012		F-6
Consolidated Statements of Stockholders'Stockholders’ Equity for each of the Three Years in the period Ended December 31, 2009 2012		F-7
Notes to Consolidated Financial Statements		F-8

All schedules are omitted because the required information is already included in our notes to our consolidated financial statements or because they are not applicable.

48

---

Table of Contents

---

Report of Independent Registered Public Accounting Firm

The Board of Directors and ShareholdersStockholders of National Instruments Corporation:

We have audited the accompanying consolidated balance sheets of National Instruments Corporation as of December 31, 20092012 and 2008,2011, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three fiscal years in the period ended December 31, 2009.2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of National Instruments Corporation at December 31, 20092012  and 2008,2011, and the consolidated results of theirits operations and theirits cash flows for each of the three fiscal years in the period ended December 31, 2009,2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), National Instruments CorporationCorporation’s internal control over financial reporting as of December 31, 2009,2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 201019, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Austin, Texas

February 19, 2013

---

Table of Contents

February 17, 2010

---

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and ShareholdersStockholders of National Instruments Corporation:

We have audited National Instruments Corporation’s internal control over financial reporting as of December 31, 2009,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). National Instruments Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, National Instruments Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of National Instruments Corporation as of December 31, 20092012 and 2008,2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 20092012 and our report dated February 17, 201019, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Austin, Texas

February 17, 201019, 2013

F-2

---

Table of Contents

---

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

		December 31,		December 31,
		2012		2011
Assets
Current assets:
Cash and cash equivalents	$	161,996	$	142,608
Short-term investments		173,166		223,504
Accounts receivable, net		187,060		157,056
Inventories, net		169,990		131,995
Prepaid expenses and other current assets		48,009		38,082
Deferred income taxes, net		27,479		26,304
Total current assets		767,700		719,549
Property and equipment, net		249,721		190,148
Goodwill		147,258		130,747
Intangible assets, net		93,913		83,866
Other long-term assets		26,177		29,984
Total assets	$	1,284,769	$	1,154,294
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	65,080	$	41,111
Accrued compensation		29,978		29,616
Deferred revenue - current		90,714		80,059
Accrued expenses and other liabilities		34,373		37,612
Other taxes payable		24,811		24,507
Total current liabilities		244,956		212,905
Deferred income taxes		47,630		43,186
Liability for uncertain tax positions		20,920		19,494
Deferred revenue - long-term		20,446		10,015
Other long-term liabilities		11,689		16,683
Total liabilities		345,641		302,283
Commitments and contingencies
Stockholders' equity:
Preferred stock:  par value $0.01; 5,000,000 shares authorized; none issued and outstanding		-		-
Common stock:  par value $0.01; 180,000,000 shares authorized; 122,878,690 and 120,677,143 shares issued and outstanding, respectively		1,229		1,207
Additional paid-in capital		532,845		471,830
Retained earnings		404,210		382,474
Accumulated other comprehensive income (loss)		844		(3,500)
Total stockholders’ equity		939,128		852,011
Total liabilities and stockholders’ equity	$	1,284,769	$	1,154,294

		December 31,
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	201,465			$	229,400
Short-term investments			87,196				6,220
Accounts receivable, net			103,957				121,548
Inventories, net			86,515				107,358
Prepaid expenses and other current assets			36,523				43,062
Deferred income taxes, net			16,522				21,435
Total current assets			532,178				529,023
Long-term investments			—				10,500
Property and equipment, net			153,265				154,477
Goodwill, net			64,779				64,561
Intangible assets, net			43,390				41,915
Other long-term assets			19,417				32,115
Total assets		$	813,029			$	832,591
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	23,502			$	30,876
Accrued compensation			14,934				22,012
Deferred revenue			57,242				45,514
Accrued expenses and other liabilities			8,560				18,848
Other taxes payable			14,181				13,481
Total current liabilities			118,419				130,731
Deferred income taxes			25,012				25,157
Liability for uncertain tax positions			11,062				9,364
Other long-term liabilities			4,116				2,901
Total liabilities			158,609				168,153
Commitments and contingencies
Stockholders’ equity:
Preferred stock: par value $0.01; 5,000,000 shares authorized; none issued and outstanding			—				—
Common stock: par value $0.01; 180,000,000 shares authorized; 77,367,874 and 77,193,063 shares issued and outstanding, respectively			774				772
Additional paid-in capital			336,446				300,352
Retained earnings			303,655				352,831
Accumulated other comprehensive income			13,545				10,483
Total stockholders’ equity			654,420				664,438
Total liabilities and stockholders’ equity		$	813,029			$	832,591

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

F-3

---

Table of Contents

---

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

		For the years ended December 31,
		2012		2011		2010
Net sales:
Product	$	1,054,849	$	955,613	$	807,386
Software maintenance		87,494		81,667		65,834
GSA accrual		1,349		(13,107)		-
Total net sales		1,143,692		1,024,173		873,220
Cost of sales:
Product		274,839		235,839		195,096
Software maintenance		5,435		5,125		4,987
Total cost of sales		280,274		240,964		200,083
Gross profit		863,418		783,209		673,137
Operating expenses:
Sales and marketing		431,468		388,768		319,606
Research and development		222,994		199,071		158,149
General and administrative		85,239		82,658		67,069
Acquisition related adjustment		6,783		-		-
Total operating expenses		746,484		670,497		544,824
Operating income		116,934		112,712		128,313
Other income:
Interest income		716		1,319		1,391
Net foreign exchange loss		(2,246)		(2,755)		(2,585)
Other (expense) income, net		(567)		(142)		993
Income before income taxes		114,837		111,134		128,112
Provision for income taxes		24,700		17,062		18,996
Net income	$	90,137	$	94,072	$	109,116
Basic earnings per share	$	0.74	$	0.79	$	0.93
Weighted average shares outstanding - basic		121,973		119,836		116,973
Diluted earnings per share	$	0.73	$	0.78	$	0.92
Weighted average shares outstanding - diluted		122,977		121,220		118,572
Dividends declared per share	$	0.56	$	0.40	$	0.35

		For the Years Ended December 31,
		2009				2008				2007
Net sales:
Product		$	623,736			$	765,441			$	701,589
Software maintenance			52,858				55,096				38,789
Total net sales			676,594				820,537				740,378
Cost of  sales:
Product			164,700				201,064				180,556
Software maintenance			5,184				6,045				4,711
Total cost of sales			169,884				207,109				185,267
Gross profit			506,710				613,428				555,111
Operating expenses:
Sales and marketing			269,267				307,409				264,060
Research and development			132,974				143,140				126,515
General and administrative			57,938				67,162				62,445
Total operating expenses			460,179				517,711				453,020
Operating income			46,531				95,717				102,091
Other income (expense):
Interest income			1,629				5,996				9,822
Net foreign exchange gain (loss)			734				(3,737	)			1,672
Other income (expense), net			1,351				161				(158	)
Income before income taxes			50,245				98,137				113,427
Provision for income taxes			33,160				13,310				6,394
Net income		$	17,085			$	84,827			$	107,033
Basic earnings per share		$	0.22			$	1.08			$	1.35
Weighted average shares outstanding - basic			77,520				78,567				79,468
Diluted earnings per share		$	0.22			$	1.07			$	1.32
Weighted average shares outstanding – diluted                                                                                                          ��			78,026				79,515				81,043
Dividends declared per share		$	0.48			$	0.44			$	0.34

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

F-4

---

Table of Contents

---

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

		For the years ended December 31,
		2012		2011		2010
Net income	$	90,137	$	94,072	$	109,116
Other comprehensive income, before tax and net of reclassification adjustments:
Foreign currency translation adjustment		2,231		(1,236)		(6,174)
Unrealized gain (loss) on securities available-for-sale		56		(1,017)		768
Unrealized gain (loss) on derivative instruments		3,247		(1,045)		(11,365)
Other comprehensive income (loss), before tax		5,534		(3,298)		(16,771)
Tax provision related to items of other comprehensive income		(1,190)		508		2,516
Other comprehensive income (loss), net of tax		4,344		(2,790)		(14,255)
Comprehensive income	$	94,481	$	91,282	$	94,861
The accompanying notes are an integral part of these financial statements.

F-5

---

Table of Contents

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		For the years ended December 31,
		2012		2011		2010
Cash flow from operating activities:
Net income	$	90,137	$	94,072	$	109,116
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		58,686		49,897		37,872
Stock-based compensation		27,796		23,219		18,795
Tax expense (benefit) from deferred income taxes		1,853		(8,581)		3,668
Tax benefit from stock option plans		(2,198)		(5,151)		(96)
Changes in operating assets and liabilities:
Accounts receivable		(26,007)		(21,957)		(22,923)
Inventories		(36,154)		(11,817)		(30,930)
Prepaid expenses and other assets		(7,037)		(1,350)		(20,411)
Accounts payable		23,419		5,573		9,630
Deferred revenue		21,050		16,953		14,408
Taxes, accrued expenses and other liabilities		(19,029)		29,041		25,929
Net cash provided by operating activities		132,516		169,899		145,058
Cash flow from investing activities:
Capital expenditures		(89,073)		(54,830)		(28,397)
Capitalization of internally developed software		(11,721)		(12,065)		(15,759)
Additions to other intangibles		(1,890)		(5,035)		(4,151)
Acquisitions, net of cash received		(25,481)		(73,558)		(4,218)
Purchases of short-term investments		(188,098)		(257,449)		(126,691)
Sales and maturities of short-term investments		238,436		166,104		82,672
Net cash used in investing activities		(77,827)		(236,833)		(96,544)
Cash flow from financing activities:
Proceeds from issuance of common stock		30,902		32,905		51,852
Repurchase of common stock		-		-		(41,862)
Dividends paid		(68,401)		(47,961)		(40,618)
Tax benefit from stock option plans		2,198		5,151		96
Net cash used in financing activities		(35,301)		(9,905)		(30,532)
Net change in cash and cash equivalents		19,388		(76,839)		17,982
Cash and cash equivalents at beginning of period		142,608		219,447		201,465
Cash and cash equivalents at end of period	$	161,996	$	142,608	$	219,447
Cash paid for interest and income taxes:
Interest	$	68	$	14	$	82
Income taxes	$	25,059	$	2,393	$	14,807

		For the Years Ended December 31,
		2009				2008				2007
Cash flow from operating activities:
Net income		$	17,085			$	84,827			$	107,033
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			38,365				37,103				36,605
Stock-based compensation			20,299				19,854				17,754
Tax expense/(benefit from) deferred income taxes			17,196				(4,475	)			(16,954	)
Tax expense/(benefit from) stock option plans			1,450				(1,213	)			(2,964	)
Changes in operating assets and liabilities:
Accounts receivable			17,591				12,159				(14,047	)
Inventories			20,843				(24,578	)			(5,537	)
Prepaid expenses and other assets			12,740				(10,340	)			(12,330	)
Accounts payable			(7,374	)			(5,648	)			4,186
Deferred revenue			11,728				9,423				13,883
Taxes and other liabilities			(14,272	)			4,706				19,743
Net cash provided by operating activities			135,651				121,818				147,372
Cash flow from investing activities:
Acquisitions, net of cash received			—				(17,310	)			—
Capital expenditures			(20,847	)			(25,771	)			(24,864	)
Capitalization of internally developed software			(12,583	)			(9,487	)			(8,263	)
Additions to other intangibles			(4,602	)			(3,010	)			(6,447	)
Purchases of short-term investments			(93,087	)			(9,061	)			(87,586	)
Sales and maturities of short-term investments			19,204				86,179				143,938
Purchases of foreign currency option contracts			—				(2,784	)			(2,242	)
Net cash provided by (used in) investing activities			(111,915	)			18,756				14,536
Cash flow from financing activities:
Proceeds from issuance of common stock			21,672				31,150				36,460
Repurchase of common stock			(34,585	)			(103,641	)			(79,728	)
Dividends paid			(37,308	)			(34,735	)			(27,052	)
Tax (expense)/benefit from stock option plans			(1,450	)			1,213				2,964
Net cash (used in) financing activities			(51,671	)			(106,013	)			(67,356	)
Net change in cash and cash equivalents			(27,935	)			34,561				94,552
Cash and cash equivalents at beginning of period			229,400				194,839				100,287
Cash and cash equivalents at end of period		$	201,465			$	229,400			$	194,839
Cash paid for interest and income taxes:
Interest		$	23			$	116			$	159
Income taxes		$	14,608			$	17,214			$	21,147

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

F-6

---

Table of Contents

---

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Common Stock Shares		Common Stock Amount		Additional-Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' Equity
Balance at December 31, 2009	116,051,811	$	1,161	$	336,059	$	303,655	$	13,545	$	654,420
Net income							109,116				109,116
Other comprehensive income (loss)									(14,255)		(14,255)
Issuance of common stock under employee plans, including tax benefits	3,788,994		38		51,814						51,852
Stock-based compensation					18,897						18,897
Repurchase and retirement of common stock	(2,089,098)		(21)		(6,051)		(35,790)				(41,862)
Business acquisition	153,268		1		2,998						2,999
Dividends paid							(40,618)				(40,618)
Disqualified dispositions					3,996						3,996
Balance at December 31, 2010	117,904,975	$	1,179	$	407,713	$	336,363	$	(710)	$	744,545
Net income							94,072				94,072
Other comprehensive income (loss)									(2,790)		(2,790)
Issuance of common stock under employee plans, including tax benefits	2,715,253		27		32,878						32,905
Stock-based compensation					23,106						23,106
Business acquisition	56,915		1		1,813						1,814
Dividends paid							(47,961)				(47,961)
Disqualified dispositions					6,320						6,320
Balance at December 31, 2011	120,677,143	$	1,207	$	471,830	$	382,474	$	(3,500)		852,011
Net income							90,137				90,137
Other comprehensive income (loss)									4,344		4,344
Issuance of common stock under employee plans, including tax benefits	2,201,547		22		30,879						30,901
Stock-based compensation					27,679						27,679
Dividends paid							(68,401)				(68,401)
Disqualified dispositions					2,457						2,457
Balance at December 31, 2012	122,878,690	$	1,229	$	532,845	$	404,210	$	844	$	939,128
										��
The accompanying notes are an integral part of these financial statements.

F-7

---

		Common Stock Shares				Common Stock Amount				Additional Paid-In Capital				Deferred Compensation				Retained Earnings				Accumulated Other Comprehensive Income/(Loss)				Total Stockholders’ Equity
Balance at December 31, 2006			79,883,837			$	799			$	207,808			$	—			$	385,480			$	2,499			$	596,586
Net income																			107,033								107,033
Foreign currency translation adjustment (net of $286 tax expense)																							4,483				4,483
Unrealized gain on securities available-for-sale (net of $13 tax expense)																							200				200
Unrealized loss on derivative instruments (net of $7 tax benefit)																							(117	)			(117	)
Total comprehensive income																											111,599
Issuance of common stock under employee    plans, including tax benefits			2,251,657				22				36,438																36,460
Stock-based compensation											17,754																17,754
Repurchase and retirement of common stock			(2,730,135	)			(27	)			(7,102	)							(72,599	)							(79,728	)
Dividends paid																			(27,052	)							(27,052	)
Disqualified dispositions											5,467																5,467
Balance at December 31, 2007			79,405,359			$	794			$	260,365			$	—			$	392,862			$	7,065			$	661,086
Net income																			84,827								84,827
Foreign currency translation adjustment (net of $681 tax benefit)																							(4,188	)			(4,188	)
Unrealized loss on securities available-for-sale (net of $82 tax benefit)																							(502	)			(502	)
Unrealized gain on derivative instruments (net of $1,320 tax expense)																							8,108				8,108
Total comprehensive income																											88,245
Issuance of common stock under employee    plans, including tax benefits			1,897,746				19				31,131																31,150
Stock-based compensation											19,854																19,854
Repurchase and retirement of common stock			(4,110,042	)			(41	)			(13,477	)							(90,123	)							(103,641	)
Dividends paid																			(34,735	)							(34,735	)
Disqualified dispositions											2,479																2,479
Balance at December 31, 2008			77,193,063			$	772			$	300,352			$	—			$	352,831			$	10,483			$	664,438
Net income																			17,085								17,085
Foreign currency translation adjustment (net of $1,799 tax expense)																							927				927
Unrealized gain on securities available-for-sale (net of $1,093 tax expense)																							563				563
Unrealized gain on derivative instruments (net of $3,053 tax expense)																							1,572				1,572
Total comprehensive income																											20,147
Issuance of common stock under employee    plans, including tax benefits			1,618,252				16				21,656																21,672
Stock-based compensation											20,574																20,574
Repurchase and retirement of common stock			(1,443,441	)			(14	)			(5,618	)							(28,953	)							(34,585	)
Dividends paid																			(37,308	)							(37,308	)
Disqualified dispositions											(518	)															(518	)
Balance at December 31, 2009			77,367,874			$	774			$	336,446			$	—			$	303,655			$	13,545			$	654,420

The accompanying notes are an integral part

Table of these financial statements.Contents

---

NATIONAL INSTRUMENTS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Operations and summary of significant accounting policies

National Instruments Corporation is a Delaware corporation. We provide flexible application software and modular, multifunction 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 offer hundreds of products used to create virtual instrumentation systems for general, commercial, industrial and scientific applications. Our products may be used in different environments, and consequently, specific application of our products is determined by the customer and generally is not known to us. We approach all markets with essentially the same products, which are used in a variety of applications from research and development to production testing, monitoring and industrial control. The following industries and applications are served by us worldwide: advanced research, automotive, commercial aerospace, computers and electronics, continuous process manufacturing, education, government/defense, medical research/pharmaceutical, power/energy, semiconductors, automated test equipment, telecommunications and others. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Principles of consolidation

The Consolidated Financial Statements include the accounts of National Instruments Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Beginning in the three month period ended June 30, 2012, we have separately reported our current and long-term deferred revenue. The separation has no impact on our total reported deferred revenue, total liabilities, or total stockholder’s equity for any period on our Consolidated Balance Sheets. We have historically recordedassessed the excess of the purchase price over the par or stated value of retired shares of our common stock as a reduction of additional paid-in capital. We completed our reviewmateriality of this accounting policy under FASB ASC 505, Equity (FASB ASC 505). Baseditem on this review, we have reclassified a portion of the excess of the purchase price over the par or stated value of retired shares of our common stock from a reduction of additional paid-in capital to a reduction of retained earnings. This reclassification did not have any impact on previously reported statements of income, earning per share amounts, statements of cash flows or total stockholders’ equity.periods and concluded the separation was not material. Certain prior year amounts from our Consolidated Statements of Stockholders’ Equity have been reclassified to conform to the 20092012 presentation as shown in the following table:

(In thousands)		December 31, 2011
Deferred revenue, as previously reported	$	90,074
Balances as reported in this Form 10-K:
Deferred revenue - current		80,059
Deferred revenue - long-term		10,015

		APIC				RE
2006 Beginning Balance
12/31/06 balance as previously reported		$	109,851			$	483,437
Cumulative reclassification of share repurchase			97,957				(97,957	)
12/31/06 balance as reported in current Form 10-K		$	207,808			$	385,480
2007 Activity
Repurchase and retirement of common stock as previously reported		$	(79,701	)		$	—
Reclassification of 2007 activity			72,599				(72,599	)
Repurchase and retirement of common stock as reported in current Form 10-K		$	(7,102	)		$	(72,599	)
2007 Ending Balance
12/31/07 balance as previously reported		$	89,809			$	563,418
Cumulative reclassification of share repurchase			170,556				(170,556	)
12/31/07 balance as reported in current Form 10-K		$	260,365			$	392,862
2008 Activity
Repurchase and retirement of common stock as previously reported		$	(103,600	)		$	—
Reclassification of 2008 activity			90,123				(90,123	)
Repurchase and retirement of common stock as reported in current Form 10-K		$	(13,477	)		$	(90,123	)
2008 Ending Balance
12/31/08 balance as previously reported		$	39,673			$	613,510
Cumulative reclassification of share repurchase			260,679				(260,679	)
12/31/08 balance as reported in current Form 10-K		$	300,352			$	352,831

Going forward, we will account for the retired shares of our common stock by recording the excess of the purchase price over par value as a reduction of retained earnings, to the extent that the excess of the purchase price over par value exceeds the original proceeds received from the issuance of the same shares of our common stock, as prescribed by FASB ASC 505.

Use of estimates

The preparation of our financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Although these estimates are based on management's best knowledge of current events and actions that may impact the company in the future, actual results may be materially different from the estimates.

Cash and cash equivalents

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

F-8

---

Table of Contents

Short-Term Investments

We maintain an investment portfolio of various types of security holdings and maturities. Pursuant to FASB ASC 820, cash equivalents and short-termvalue our available-for-sale short term investments available-for-sale are valued using the market approach (Level 1) based on unadjustedpricing from third party pricing vendors, who may use quoted prices in active markets for identical assets at(Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. We classify all of our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the measurement date. Ourfair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques. We believe these sources reflect the credit risk associated with each of our available for sale short term investments. Short-term investments available-for-sale consists of debt securities issued by states of the U.S. and political subdivisions of the U.S., corporate debt securities and debt securities issued by U.S. government corporations and agencies as well as debt securities issued by foreign governments. All short-term investments also include auction rate securities that we originally purchased for $8.6 million. These auction rate securities consistavailable-for-sale have contractual maturities of education loan revenue bonds. Auction rate securities are variable rate debt instruments whose interest rates are typically reset approximately every 7 to 35 days. In November 2008, we accepted the UBS Auction Rate Securities Rights (“the Rights”) agreement offered by UBS as a liquidity alternative to the failed auction process. The Rights agreement is a nontransferable right to sell our auction rate securities, at par value, back to UBS at any time during the period June 30, 2010, through July 2, 2012. The estimated fair market value of both the auction rate securities and the Rights agreement was determined using significant unobservable inputs (Level 3) as prescribed by FASB ASC 820.

We account for our investments in debt and equity instruments under FASB ASC 320. less than 24 months.

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 stockholders’ 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 in debt securities at December 31, 20092012 and December 31, 20082011 was $87$173 million and $6$224 million, respectively. The increasedecrease was due to the net purchasesale of $74$50 million of short-term investments and the transferwhich was used to fund payment of $8.6 relateddividends to our auction rate securitiesstockholders and our rights agreement from long-term investments to short-term investmentsacquisitions during the year endedfourth quarter of 2012. We have $25 million U.S. dollar equivalent of German government sovereign debt and $8 million U.S. dollar equivalent of corporate bonds that are denominated in Euro at December 31, 2009. The net purchase2012. Our German government sovereign debt holdings have a maximum maturity of $74 million of short term investments was done to diversify our holdings from money market accounts to debt securities24 months and to take advantage of higher yields associated with longer maturity debt securities. carry Aaa/AAA ratings.

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.

We did not identify or record any other-than-temporary impairments during 2012, 2011 and 2010.

Accounts Receivable, net

Accounts receivable are recorded net of allowanceallowances for sales returns of $1.9$2.1 million and $1.8$1.6 million at December 31, 20092012 and 2008,2011, respectively, and net of allowances for doubtful accounts of $2.7$2.8 million and $3.9$2.6 million at December 31, 20092012 and 2008,2011, respectively. A provision for estimated sales returns is made by reducing recorded revenue based on historical experience. We analyze historical returns, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of our sales returns allowance. Our allowance for doubtful accounts is based on historical experience. We analyze historical bad debts, customer concentrations, customer creditworthiness and current economic trends when evaluating the adequacy of our allowance for doubtful accounts.

(In thousands)
Year		Description		Balance at Beginning of Period		Provisions/ (Recapture)		Write-Offs/ (Recapture)		Balance at End of Period
2010	Allowance for doubtful accounts and sales returns		$	4,619	$	(578)	$	273	$	3,768
2011	Allowance for doubtful accounts and sales returns		$	3,768	$	385	$	(88)	$	4,241
2012	Allowance for doubtful accounts and sales returns		$	4,241	$	1,216	$	587	$	4,870

Year	Description		Balance at Beginning of Period				Provisions				Write-Offs				Balance at End of Period
2007	Allowance for doubtful accounts and sales returns		$	4,360			$	1,940			$	698			$	5,602
2008	Allowance for doubtful accounts and sales returns			5,602				447				367				5,682
2009	Allowance for doubtful accounts and sales returns			5,682				337				1,400				4,619

Inventories,

net

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

Inventory is shown net of adjustment for excess and obsolete inventories of $4.4$3.8million, $4.2 million and $4.4$3.3 million at December 31, 20092012, 2011 and 2008,2010, respectively.

F-9

---

Table of Contents

(In thousands)
Year		Description		Balance at Beginning of Period		Provisions		Write-Offs		Balance at End of Period
2010	Adjustment for excess and obsolete inventories		$	4,390	$	1,785	$	2,835	$	3,340
2011	Adjustment for excess and obsolete inventories		$	3,340	$	3,554	$	2,689	$	4,205
2012	Adjustment for excess and obsolete inventories		$	4,205	$	1,824	$	2,185	$	3,844

Long-Term Investments

At December 31, 2008, our long-term investments primarily consisted of auction rate securities that we originally purchased for $8.6 million as well as our Rights agreement with UBS. At December 31, 2008, we classified these investments as long-term due to the fact that the market for these securities was inactive, the underlying securities generally had contractual maturities that were in excess of the guidelines provided for in our investment policy, the fact that we had the ability to hold the debt instruments to their ultimate maturity and the fact that we had not made a determination as to whether we would exercise our rights under the Rights agreement. The auction rate securities were classified as available-for-sale. At December 31, 2008, we reported our auction rate securities at their estimated fair market value of $7.0 million and our Rights agreement at its estimated fair market value of $1.6 million. The estimated fair market value of both the auction rate securities and the Rights agreement was determined using significant unobservable inputs (Level 3) as prescribed by FASB ASC 820. These auction rate securities and the Rights agreement are now reported as a component of short-term investments as discussed above.

Property and equipment,

net

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

Intangible assets,

net

We capitalize costs related to the development and acquisition of certain software products. In accordance with FASB ASC 985, capitalizationCapitalization of costs begins when technological feasibility has been established and ends when the product is available for general release to customers. Technological feasibility for our products is established when the product is available for beta release. Amortization 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

We use the services of outside counsel to search for, document, and apply for patents. Those costs, along with any filing or application fees, are capitalized. Costs related to patents which are abandoned are written off. Once a patent is granted, the patent costs are amortized usingratably over the straight-line method over their estimated periodlegal life of benefit,the patent, generally ten to seventeen years.

At each balance sheet date, the unamortized costs for all intangible assets are reviewed by management and reduced to net realizable value when necessary.

Goodwill

The excess purchase price over the fair value of net assets acquired is recorded as goodwill. As we have one operating segment, we allocate goodwill to one reporting unit for goodwill impairment testing. In accordance with FASB ASC 350, Intangibles – Goodwill and Other (FASB ASC 350), 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, 2009.29, 2012. No impairment of goodwill has beenwas identified during the period presented.2012 and 2011. Goodwill is deductible for tax purposes in certain jurisdictions.

Concentrations of credit risk

We maintain cash and cash equivalents with various financial institutions located in many countries throughout the world. At December 31, 2009, $852012, $141 million or 42%87% of our cash and cash equivalents was held in cash in various operating accounts with financial institutions throughout the world, and $116$21 million or 58%13% was held in money market accounts. The most significant of our operating accounts was our domesticHong Kong operating account which held approximately $22$26 million or 11%16% of our total cash and cash equivalents at a bank that carried an A1 ratingA+/A2/AA- ratings at December 31, 2009.2012. From a geographic standpoint, approximately $78$26 million or 39%16% was held in various domestic accounts with financial institutions and $123$136 million or 61%84% was held in various accounts outside of the U. S.U.S. with financial institutions. At December 31, 2009,2012, our short-term investments consist of $35$25 million or 40%14% of foreign government bonds, $21$136 million or 24%79% of U.S. treasuries and agencies, $12 million or 14% of municipal bonds, $9 million or 10% of auction rate securities and our auction rate securities put option, $8 million or 9%4% of corporate notes, $1.5 million or 1% of municipal bonds, and $3 million or 3%2% in time deposits.

F-10

---

Table of Contents

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. With the exception of our auction rate security from the Vermont Student Assistance Corporation, at December 31, 2009, ourOur 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 actively monitor our investment portfolio to ensure compliance with our investment objective to preserve capital, meet liquidity requirements and maximize return on our investments. We do not require collateral or enter into master netting arrangements to mitigate our credit risk. (See Note 2 – Cash, cash equivalents, short-term and long-term investments in Notes to Consolidated Financial Statements for further discussion and analysis of our investments.)investments).

At December 31, 2009, we held foreign currency forward and option contracts with an aggregate notional amount of $148.4 million with various counterparties and with varying maturity dates. Our counterparties in our foreign currency forward and option contracts are major financial institutions. We do not anticipate nonperformance by these counterparties. (See Note 4 – Derivative instruments and hedging activities in Notes to Consolidated Financial Statements).

Concentration of credit risk with respect to trade accounts receivable is limited due to theour large number of customers and their dispersion across many countries and industries. The amount of sales to any individual customer did not exceed 3%7%, 4%, or 4% of revenue for the periods presented.years ended December 31, 2012, 2011, or 2010, respectively. The largest trade account receivable from any individual customer at December 31, 20092012 was approximately $1.9$15 million.

Key supplier risk

Our manufacturing processes use large volumes of high-quality components and subassemblies supplied by outside sources. Several of these components are available through sole or limited sources. Supply shortages of or quality problems in connection with some of these key components could require us to procure components from replacement suppliers, which would cause significant delays in fulfillment of orders and likely result in additional costs. In order to manage this risk, we maintain safety stock of some of these single sourced components and subassemblies and perform regular assessments of suppliers performance, grading key suppliers in critical areas such as quality and “on-time” delivery.

Revenue recognition

We derive revenue primarily from the sale/licensing of integratedsell test and measurement solutions that include hardware, and software solutions. Independent sales of application software licenses, include post contract supportand related services. In addition, training services are sold separately. The products and servicesOur sales are generally soldmade under standardized licensing andstandard sales arrangements with payment terms ranging from net 30 days in the United States to net 30 days and up to net 90120 days in some international markets. Approximately 83% of our product/license sales include both hardware and software in the customer arrangement, with a small percentage of sales including other services. We offer rights of return and standard warranties for product defects related to our products. The rights of return are generally for a period of up to 30 days after the delivery date. TheOur standard warranties cover periods ranging from 90 days to three years. We do not generally enter into contracts requiring product acceptance from the customer.

Revenue is recognized in accordance

In recent years, we have made a concentrated effort to increase our revenue through the pursuit of orders with a value greater than $1.0 million. These orders often include contract terms that vary substantially from our standard terms of sale including product acceptance requirements and product performance evaluations which create uncertainty with respect to the provisionstiming of FASB ASC 985,our ability to recognize revenue from such orders. These orders may also include most favored customer pricing, significant discounts, extended payment terms and volume rebates which also creates uncertainty with respect to the timing of our ability to recognize revenue from such orders.

Sales of application software licenses include post-contract support services. Other services include customer training, customer support, and extended warranties.

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the feeprice is fixed or determinable and collectability is probable. reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. For most of our hardware and software sales, title and risk of loss transfer upon delivery. For services we recognize revenue when the service is provided, except for extended warranties for which revenue is recognized ratably over the warranty period.

F-11

---

Table of Contents

We enter into certain arrangements wherein which we are obligated to deliver multiple products and/or services (“multiple elements”). In these transactions,These arrangements may include hardware, software, and services. On January 1, 2011, we allocateprospectively adopted accounting rules that changed the totalcriteria for separating consideration in multiple-deliverable arrangements.  These rules changed the application of the residual method of allocation and require that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method.  Revenue allocated to each element is then recognized when the basic revenue amongrecognition criteria for that element have been met. The relative selling price method allocates any discount in the elementsarrangement proportionally to each deliverable on the basis of each deliverable’s selling price. The selling price used for each deliverable will be based on vendor specificvendor-specific objective evidence (“VSOE”) if available, third–party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available. The adoption of fair valuethe 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 years ended December 31, 2012 and 2011.

Software revenue recognition rules are applied to software sold on a stand-alone basis, and to software sold as determined bypart of a multiple element arrangement with hardware where the sales price of each elementsoftware is not required to deliver the tangible product's essential functionality. Under these rules, when sold separately.

When VSOE of fair value is not available for a delivered element but is available for the undelivered element of a multiple element arrangements,arrangement, sales revenue is generally recognized on the date the product is shipped, using the residual method, under FASB ASC 985, with athe portion of revenue recorded as deferred (unearned) duethat is related to applicable undelivered elements. Undelivered elements for our multiple element arrangements with a customerrelated to software are generally restricted to post contract support and training and education. The amount of revenue allocated to these undelivered elements is based on the VSOE of fair value for those undelivered elements. Deferred revenue due to undelivered elements is recognized ratably on a straight-line basis over the service period or when the service is completed. When VSOE of fair value is not available for the undelivered element of a multiple element arrangement, sales revenue for the entire sales contract value is generally recognized ratably on a straight-line basis over the service period of the undelivered element, generally 12 months or when the service is completed in accordance with the subscription method under FASB ASC 985. Deferred revenue at December 31, 2009 and 2008 was $57 million and $46 million, respectively.

method.

The application of FASB ASC 985revenue recognition standards requires judgment, including whether a software arrangement includes multiple elements, and if so, whether VSOE of fair value exists for those elements. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and changes to a product’s estimated life cycle could materially impact the amount of our earned and unearned revenue. Judgment is also required to assess whether future releases of certain software represent new products or upgrades and enhancements to existing products.

Product revenue

Our product revenue is generated predominantly from the sales of measurement and automation products. Our products consist of application software and hardware components together with related driver software.

Software maintenance revenue

Software maintenance revenue is post contract customer support that provides the customer with unspecified upgrades/updates and technical support.

Shipping and handling costs

Our shipping and handling costs charged to customers are included in net sales, and the associated expense is recorded in cost of sales for all periods presented.

Warranty reserve

We offer a one-year limited warranty on most hardware products with aand extended two or three-year warrantywarranties 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 pursuant to FASB ASC 450, Contingencies (FASB ASC 450), 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.

sales.

The warranty reserve for the years ended December 31, 20092012, 2011 and 2008, respectively,2010 was as follows (in thousands):follows:

(In thousands)
		2012		2011		2010
Balance at the beginning of the period	$	1,271	$	921	$	921
Accruals for warranties issued during the period		2,270		2,954		1,993
Settlements made (in cash or in kind) during the period		(2,106)		(2,604)		(1,993)
Balance at the end of the period	$	1,435	$	1,271	$	921

F-12

---

		2009				2008
Balance at the beginning of the period		$	952			$	750
Accruals for warranties issued during the period			1,991				1,836
Settlements made (in cash or in kind) during the period			(2,022	)			(1,634	)
Balance at the end of the period		$	921			$	952

Table of Contents

Loss contingencies

We accrue for probable losses from contingencies including legal defense costs, on an undiscounted basis in accordance with FASB ASC 450, Contingencies (FASB ASC 450),  when such costs are considered probable of being incurred and are reasonably estimable. We periodically evaluate available information, both internal and external, relative to such contingencies and adjust this accrual as necessary.

Advertising expense

We expense costs of advertising as incurred. Advertising expense for the years ended December 31, 2009, 20082012, 2011 and 20072010 was $13.6$14.4 million, $19.3$14.7 million and $20.0$13.2 million, respectively.

Foreign currency translation

The functional currency for our international sales operations is the applicable local currency. The assets and liabilities of these operations are translated at the rate of exchange in effect on the balance sheet date and sales and expenses are translated at average rates. The resulting gains or losses from translation are included in a separate component of other comprehensive income. Gains and losses resulting from re-measuring monetary asset and liability accounts that are denominated in a currency other than a subsidiary’s functional currency are included in net foreign exchange gain (loss)loss and are included in net income.

Foreign currency hedging instruments

All of our derivative instruments are recognized on the balance sheet at their fair value. We currently use foreign currency forward and purchased option contracts to hedge our exposure to material foreign currency denominated receivables and forecasted foreign currency cash flows.

On the date the derivative contract is entered into, we designate the derivative as a hedge of the variability of foreign currency cash flows to be received or paid (“cash flow” hedge) or as a hedge of our foreign denominated net receivable positions (“other derivatives”). Changes in the fair value of derivatives that are designated and qualify as cash flow hedges under FASB ASC 815, Derivatives and Hedging (FASB ASC 815) and that are deemed to be highly effective are recorded in other comprehensive income. These amounts are subsequently reclassified into earnings in the period during which the hedged transaction is realized. The gain or loss on the other 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)”loss”. We do not enter into derivative contracts for speculative purposes.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions.transactions at the inception of the hedge. This process includes linking all derivatives that are designated as cash flow hedges to specific forecasted transactions. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the hedging instruments are highly effective in offsetting changes in cash flows of hedged items.

We prospectively discontinue hedge accounting if (1) it is determined that the derivative is no longer highly effective in offsetting changes in the fair value of a hedged item (forecasted transactions); or (2) the derivative is de-designated as a hedge instrument, because it is unlikely that a forecasted transaction will occur. When hedge accounting is discontinued, the derivative is sold and the resulting gains and losses are recognized immediately in earnings.

F-13

---

Table of Contents

Income taxes

We account for income taxes under the asset and liability method as set forth in FASB ASC 740, Income Taxes (FASB ASC 740).method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basesbasis 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.

Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position or our results of operations. In estimating future tax consequences, all expected future events are considered other than enactments of changes in tax laws or rates. 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. Our continuing policy is to recognize interest and penalties related to income tax matters in income tax expense.

Earnings per share

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

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the years ended December 31, 2009, 20082012, 2011 and 2007, respectively,2010 are as follows (in thousands):follows:

	Years ended December 31,
(In thousands)	2012		2011		2010
Weighted average shares outstanding-basic	121,973		119,836		116,973
Plus: Common share equivalents
Stock options, restricted stock units	1,004		1,384		1,599
Weighted average shares outstanding-diluted	122,977		121,220		118,572

		Years Ended December 31,
		2009				2008				2007
Weighted average shares outstanding-basic��			77,520				78,567				79,468
Plus: Common share equivalents
Stock options, restricted stock units			506				948				1,575
Weighted average shares outstanding-diluted			78,026				79,515				81,043

Stock optionsawards to acquire ­­­2,711,976, 2,402,934986,503, 477,019 and 2,304,078322,896 shares for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively, 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.

Stock-based compensation

Effective January 1, 2006, we adopted FASB ASC 718, CompensationWe account for stock-based compensation plans, which are more fully described in Note 11 – StockStockholders’ Equity and Stock-Based Compensation (FASB ASC 718),  using a fair-value method and recognize the modified-prospective-transition method. Under this method, prior periods are not restated. Under this transition method, stock compensation cost recognized beginning January 1, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested asexpense in our Consolidated Statement of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FASB ASC 718, and (b) compensation cost for all share-based payments granted on or subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of FASB ASC 718.Income.

Comprehensive income

Our comprehensive income is comprised of net income, foreign currency translation and unrealized gains and losses on forward and option contracts and securities available-for-sale. Comprehensive income for 2009, 20082012, 2011 and 20072010 was $20.1$94.5 million, $88.2$91.3 million and $111.6$94.9 million, respectively.

F-14

---

Table of Contents

Recently Issued Accounting Pronouncements

In April 2009,January 2010, the FASB updated FASB ASC 820, providingFair Value Measurements and Disclosures (FASB ASC 820) that requires additional guidance for estimatingdisclosures and clarifies existing disclosures regarding fair value when the volumemeasurements. 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 activitydisaggregation 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 asset or liability have significantly decreased. This update also includes guidance on identifying circumstances that indicate a transaction is not orderly.disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which were effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the update on AprilJanuary 1, 20092010 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.

In September 2009,May 2011, the FASB updated FASB ASC 105, Generally Accepted Accounting Principles (FASB ASC 105)820 that resulted in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (IFRSs). Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The update establishes the FASB Standards Accounting Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASBamendments are to be applied to nongovernmental entitiesprospectively and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. This update isare effective for financial statements issued forduring interim and annual periods endingbeginning after SeptemberDecember 15, 2009.2011. We adopted the update on July 1, 2009, as required in the first quarter of 2012 and concluded it did not have a material impact on our consolidated financial position or results of operations.

In October 2009,June 2011, the FASB updated FASB ASC 605, Revenue Recognition220, Comprehensive Income (FASB ASC 605)220) that amendedgives an entity the criteriaoption to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for separating consideration in multiple-deliverable arrangements.other comprehensive income, and a total amount for comprehensive income. 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 isupdate does not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments will change the applicationitems that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The update does not change the residual methodoption for an entity to present components of allocationother comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. The update does not affect how earnings per share is calculated or presented. The update should be applied retrospectively and require that arrangement consideration be allocated atis effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discountupdate as required in the arrangement proportionally to each deliverable onfirst quarter of 2012, and concluded that the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements.

In October 2009, the FASB updated FASB ASC 985, Software (FASB ASC 985) that changes the accounting model for revenue arrangements that include both tangible products and software elements. Tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality are no longer within the scope of the software revenue guidance in Subtopic 985-605. In addition, the amendments require that hardware components of a tangible product containing software components always be excluded from the software revenue guidance. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial statements.

Note 2 – Cash, cash equivalents, short-term and long-term investments

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

		As of December 31, 2009				As of December 31, 2008
Cash and cash equivalents:
Cash		$	85,612			$	100,967
Cash equivalents:
Time deposits			—				73,400
Money market accounts			115,853				55,033
Total cash and cash equivalents		$	201,465			$	229,400
Short-term investments:
Municipal bonds		$	12,549			$	6,220
Corporate bonds			7,587				—
U.S. treasuries and agencies			21,033				—
Foreign government bonds			34,674				—
Time deposits			2,753				—
Auction rate securities			8,177				—
Auction rate securities put option			423				—
Total short-term investments			87,196				6,220
Long-term investments:
Auction rate securities			—				6,964
Auction rate securities put option			—				1,636
Other long-term investments			—				1,900
Total investments		$	87,196			$	16,720
Total cash, cash equivalents and investments		$	288,661			$	246,120

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

		As of December 31, 2009
		Adjusted Cost				Gross Unrealized Gain				Gross Unrealized Loss				Cumulative Translation Adjustment				Fair Value
Municipal bonds		$	12,491			$	58			$	—			$	—			$	12,549
Corporate bonds			7,478				110				(1	)			—				7,587
U.S. treasuries and agencies			21,080				—				(47	)			—				21,033
Foreign government bonds			36,105				76				—				(1,507	)			34,674
Time deposits			2,753				—				—				—				2,753
Auction rate securities			8,600				—				(423	)			—				8,177
Auction rate securities put option			—				423				—				—				423
Total investments		$	88,507			$	667			$	(471	)		$	(1,507	)		$	87,196

		As of December 31, 2008
		Adjusted Cost				Gross Unrealized Gain				Gross Unrealized Loss				Fair Value
Municipal securities		$	6,199			$	28			$	(7	)		$	6,220
Auction rate securities			8,600				—				(1,636	)			6,964
Auction rate securities put option			—				1,636				—				1,636
Other long-term investments			1,900				—				—				1,900
Total investments		$	16,699			$	1,664			$	(1,643	)		$	16,720

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

		As of December 31, 2009
		Adjusted Cost				Fair Value
Due in less than 1 year		$	44,029			$	43,267
Due in 1 to 5 years			44,478				43,929
Total investments		$	88,507			$	87,196

		As of December 31, 2009
Due in less than 1 year		Adjusted Cost				Fair Value
Municipal bonds		$	4,103			$	4,110
Corporate bonds			5,384				5,473
U.S. treasuries and agencies			5,065				5,057
Foreign government bonds			18,124				17,274
Time deposits			2,753				2,753
Auction rate securities			8,600				8,177
Auction rate securities put option			—				423
Total investments		$	44,029			$	43,267

		As of December 31, 2009
Due in 1 to 5 years		Adjusted Cost				Fair Value
Municipal bonds		$	8,388			$	8,439
Corporate bonds			2,094				2,114
U.S. treasuries and agencies			16,015				15,976
Foreign government bonds			17,981				17,400
Time deposits			—				—
Auction rate securities			—				—
Auction rate securities put option			—				—
Total investments		$	44,478			$	43,929

Note 3 – Fair value measurements

FASB ASC 820, clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements. Effective January 1, 2009, we adopted FASB ASC 820 for our nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. The adoption of FASB ASC 820 did not have a material impact on our financial position or results of operations; however, the adoption resulted in an additional statement of comprehensive income. In December 2011, the FASB deferred the effective date for the amendment issued in June 2011 regarding the presentation of reclassifications of items out of accumulated other comprehensive income. This update deferred the implementation requirement to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amended guidance specifies that entities should continue to report reclassifications out of accumulated other comprehensive income consistent with presentation requirements in effect before the update in June 2011.

In September 2011, the FASB updated FASB ASC 350, Goodwill and Other (FASB ASC 350) that gives an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value measurements as we didof a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not have any itemsmore likely than not that were measured atthe fair value onof a nonrecurring basisreporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments are effective for the year endedannual and interim goodwill impairment tests performed for fiscal years beginning after December 31, 2009. In April 2009, FASB ASC 820 was updated to provide additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. The update also includes guidance on identifying circumstances that indicate a transaction is not orderly.15, 2011. We adopted the update on April 1, 2009as required in the first quarter of 2012 and concluded it did not have a material impact on our fair value measurements.

consolidated financial position or results of operations.

Note 2 – Cash, cash equivalents and short-term investments

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

(In thousands)		As of December 31, 2012
				Gross		Gross		Cumulative
		Adjusted Cost		Unrealized Gain		Unrealized Loss		Translation Adjustment		Fair Value
Cash	$	141,340	$	-	$	-	$	-	$	141,340
Money Market Accounts		20,656		-		-		-		20,656
Municipal bonds		1,465		1		-		-		1,466
Corporate bonds		8,708		-		(20)		(910)		7,778
U.S. treasuries and agencies		135,953		-		(28)		-		135,925
Foreign government bonds		27,947		57		-		(2,919)		25,085
Time deposits		2,912		-		-		-		2,912
Cash, cash equivalents, and short-term investments	$	338,981	$	58	$	(48)	$	(3,829)	$	335,162

F-15

---

Table of Contents

(In thousands)		As of December 31, 2011
				Gross		Gross		Cumulative
		Adjusted Cost		Unrealized Gain		Unrealized Loss		Translation Adjustment		Fair Value
Cash	$	106,431	$	-	$	-	$	-	$	106,431
Money Market Accounts		22,677		-		-		-		22,677
Municipal bonds		12,381		11		-		-		12,392
Corporate bonds		18,631		-		(67)		-		18,564
U.S. treasuries and agencies		170,926		2		(9)		-		170,919
Foreign government bonds		36,460		240		(1)		(4,482)		32,217
Time deposits		2,912		-		-		-		2,912
Cash, cash equivalents, and short-term investments	$	370,418	$	253	$	(77)	$	(4,482)	$	366,112

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

(In thousands)		As of December 31, 2012
		Adjusted Cost		Fair Value
Due in less than 1 year	$	65,586	$	62,831
Due in 1 to 5 years		111,399		110,335
Total available-for-sale debt securities	$	176,985	$	173,166
Due in less than 1 year		Adjusted Cost		Fair Value
Corporate bonds	$	-	$	-
U.S. treasuries and agencies		46,458		46,449
Foreign government bonds		16,216		13,470
Time deposits		2,912		2,912
Total available-for-sale debt securities	$	65,586	$	62,831
Due in 1 to 5 years		Adjusted Cost		Fair Value
Municipal bonds	$	1,465	$	1,466
Corporate bonds		8,708		7,778
U.S. treasuries and agencies		89,495		89,476
Foreign government bonds		11,731		11,615
Total available-for-sale debt securities	$	111,399	$	110,335

Note 3 – 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 liquid 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:

F-16

---

Table of Contents

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 and are categorized usingsummarized below:

(In thousands)		Fair Value Measurements at Reporting Date Using
Description		December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents available for sale:
Money Market Funds	$	20,656	$	20,656	$	-	$	-
U.S. treasuries and agencies		-		-		-		-
Short-term investments available for sale:
Municipal bonds		1,466		-		1,466		-
Corporate bonds		7,778		-		7,778		-
U.S. treasuries and agencies		135,925		-		135,925		-
Foreign government bonds		25,085		-		25,085		-
Time deposits		2,912		2,912		-		-
Derivatives		4,246		-		4,246		-
Total Assets	$	198,068	$	23,568	$	174,500	$	-
Liabilities
Derivatives	$	(2,804)	$	-	$	(2,804)	$	-
Total Liabilities	$	(2,804)	$	-	$	(2,804)	$	-
(In thousands)		Fair Value Measurements at Reporting Date Using
Description		December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents available for sale:
Money Market Funds	$	22,677	$	22,677	$	-	$	-
U.S. Treasuries and Agencies		13,500		-		13,500		-
Short-term investments available for sale:
Municipal bonds		12,392		-		12,392		-
Corporate bonds		18,564		-		18,564		-
U.S. treasuries and agencies		157,419		-		157,419		-
Foreign government bonds		32,217		-		32,217		-
Time deposits		2,912		2,912		-		-
Derivatives		4,297		-		4,297		-
Total Assets	$	263,978	$	25,589	$	238,389	$	-
Liabilities
Derivatives	$	(4,542)	$	-	$	(4,542)	$	-
Total Liabilities	$	(4,542)	$	-	$	(4,542)	$	-

F-17

---

Table of Contents

We value our available-for-sale short term investments based on pricing from third party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. We classify all of our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value hierarchy. The fair value hierarchy has three levels based onof our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques. We believe these sources reflect the reliabilitycredit risk associated with each of the inputs used to determine fair value.

						Fair Value Measurements at Reporting Date Using
Description		December 31, 2009				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Money Market Funds		$	115,853			$	115,853			$	—			$	—
Short-term investments available-for-sale			87,196				78,596				—				8,600
Derivatives			11,016				—				11,016				—
Total Assets		$	214,065			$	194,449			$	11,016			$	8,600
Liabilities
Derivatives		$	(318	)		$	—			$	(318	)		$	—
Total Liabilities		$	(318	)		$	—			$	(318	)		$	—

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Short-term investments available-for-sale
Beginning Balance, January 1, 2008		$	8,600
Total gains (realized/unrealized)
Included in earnings			423
Included in other comprehensive income			—
Total losses (realized/unrealized)
Included in earnings			(423	)
Included in other comprehensive income			—
Purchases, issuances and settlements			—
Transfer in and/or out of Level 3			—
Ending Balance, December 31, 2009		$	8,600
The amount of total gains or (losses) for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date		$	—

our available for sale short term investments. 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 inactive markets. Short-term investments available-for-sale consistconsists of debt securities issued by states of the U.S. and political subdivisions of the states,U.S., corporate debt securities and debt securities issued by U.S. government corporations and agencies.agencies as well as debt securities issued by foreign governments. All short-term investments available-for-sale have contractual maturities of less than 24 months.

Derivatives include foreign currency forward and option contracts. Our foreign currency forward contracts are valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. Our foreign currency option contracts are valued using a market approach based on the quoted market prices which are derived from observable inputs including current and future spot rates, interest rate spreads as well as quoted market prices of identicalsimilar instruments.

Short-term debt securities available-for-sale included We consider counterparty credit risk in Level 3 are reported at their fair market value and consist of auction rate securities backed by education loan revenue bonds. Onethe valuation of our auction rate securities is fromderivatives. Counterparty credit risk did not impact the Vermont Student Assistance Corporation and has a par value of $2.2 million. The othervaluation of our auction rate securities is from the New Hampshire Health and Education Facilities Authority and has a par value of $6.4 million. The ratings for these securitiesderivatives at December 31, 2009,2012 and 2011. There were Baa3/A/AAA and Aaa/NR/AAA, respectively. Historically, we reported the fair market valuenot any transfers in or out of these securities at par as differences between par value and the purchase priceLevel 1 or settlement value were historically comprised of accrued interest. Auction rate securities are variable rate debt instruments whose interest rates are typically reset approximately every 7 to 35 days. On January 15, 2010, and in prior auction periods beginning in February 2008, the auction process for these securities failed. At December 31, 2009, we reported these as short-term investments at their estimated fair market value of $8.2 million.

In November 2008, we accepted the UBS Auction Rate Securities Rights (the “Rights”) agreement offered by UBS as a liquidity alternative to the failed auction process. This Rights agreement is related to the auction rates securities discussed above. The Rights agreement is a nontransferable right to sell our auction rate securities, at par value, back to UBS at any timeLevel 2 during the period June 30, 2010, through July 2, 2012. At December 31, 2009, we reported the Rights agreement at its estimated fair market value of $423,000 as a component of short-term debt securities available for sale.

Due to the fact that our Rights agreement has an initial exercise date that is less than one year from now, we are now reporting our auction rate securities and the corresponding Rights agreement as short-term. We continue to have the ability to hold our auction rate securities to their ultimate maturities which are in excess of one year and we have not made a determination as to whether we will exercise our option under the Rights agreement or if we do choose to exercise our option, at what point during the period June 30, 2010 through July 2, 2012, we would exercise our option. However, due to the fact that our Rights agreement has an initial exercise date that is less than one year from now, we are now reporting our auction rate securities and the corresponding Rights agreement as short-term. We have recorded the unrealized loss related to the auction rate securities and the unrealized gain related to the Rights agreement as a component of other income (expense), in our Consolidated Statements of Income.

The estimated fair market value of both the auction rate securities and the Rights agreement was determined using significant unobservable inputs (Level 3) as prescribed by FASB ASC 820. We considered many factors in determining the fair market value of the auction rate securities as well as our corresponding Rights agreement at December 31, 2009, including the fact that the debt instruments underlying the auction rate securities have redemption features which call for redemption at 100% of par value, current credit curves for like securities and discount factors to account for the illiquidity of the market for these securities. During the year ended December 31, 2009, we2012.

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

We did not makehave any changes to our valuation techniques or related inputs.

items that were measured at fair value on a nonrecurring basis at December 31, 2012 and December 31, 2011.

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

Note 4 – Derivative instruments and hedging activities

FASB ASC 815 requires companies to

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

We have operations in over 40 countries. Sales outside of the Americas as a percentageaccounted for 60% of consolidated sales were 57% and 57%our revenues for each of the years ended December 31, 20092012 and 2008, respectively.2011. 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.

In accordance with FASB ASC 815, we

We designate foreign currency forward and purchased option contracts as cash flow hedges of forecasted revenues or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts. These derivativescontracts that are not designated as hedging instruments under FASB ASC 815.instruments. None of our derivative instruments contain a credit-risk-related contingent feature.

F-18

---

Table of Contents

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, South Korean won and Hungarian forint) and limit the duration of these contracts to 40 months or less.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“OCI”) and reclassified into earnings in the same line item (net sales, operating expenses, or cost of sales) associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings or expenses during the current period and are classified as a component of “net foreign exchange gain (loss)”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 athe following notional amountamounts:

(In thousands)		US Dollar Equivalent
		As of December 31, 2012		As of December 31, 2011
Euro	$	84,770	$	60,992
Japanese yen		42,209		43,569
Korean won		-		3,309
Hungarian forint		36,005		28,189
Total forward contracts notional amount	$	162,984	$	136,059

The contracts in the foregoing table had contractual maturities of $28.6 million dollar equivalent of Euro, $4.0 million dollar equivalent of British pound sterling, $24.4 million dollar equivalent of Japanese yen, and $17.8 million dollar equivalent of Hungarian forint36 months or less at December 31, 2009. These contracts are for terms of up to 24 months. 2012 and December 31, 2011.

At December 31, 2008, we held forward contracts with a notional amount of $54.9 million dollar equivalent of Euro, $6.2 million dollar equivalent of British pound sterling, $18.9 million dollar equivalent of Japanese yen, $4.7 million dollar equivalent of South Korean won and $21.7 million dollar equivalent of Hungarian forint.

We held purchased option contracts with a notional amount of $28.4 million dollar equivalent of Euro at December 31, 2009. These contracts are for terms of up to 12 months. At December 31, 2008, we held purchased option contracts with a notional amount of $111.3 million dollar equivalent of Euro.

At December 31, 2009,2012, we expect to reclassify $2.8$1.6 million of gains on derivative instruments from accumulated other comprehensive income to net sales during the next twelve months when the hedged international sales occur. At December 31, 2009, we expect to reclassify $3.7 millionoccur, $34,000 of gains on derivative instruments from accumulated OCI to cost of sales when the cost of sales are incurred and $2.0 million$65,000 of gains on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged internationaloperating expenses occur. Expected amounts are based on derivative valuations at December 31, 2009.2012. Actual results may vary as a result of changes in the corresponding exchange rate subsequent to this date.

During the year ended December 31, 2009, hedges with a notional amount of $22.8 million were determined to be ineffective. As a result, we recorded a net gain of $1.2 million related to these hedges as a component of “net foreign exchange gain (loss)” during the year ended December 31, 2009.

We did not record any gains or losses due to the ineffectiveness offrom our hedges during the year ended December 31, 2008.

2012.

Other Derivatives

Other derivatives not designated as hedging instruments under FASB ASC 815 consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated net receivable or net payable positions to 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 90120 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)”loss”. As of December 31, 20092012 and December 31, 2008,2011, we held foreign currency forward contracts with a notional amount of $45.2$69.0 million and $67.1$53.8 million, respectively.

Effective January 1, 2009, we adopted the updated disclosure requirements of FASB ASC 815.

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

F-19

---

Table of Contents

Fair Values of Derivative Instruments (in thousands):Instruments:

	Asset Derivatives
	December 31, 2012				December 31, 2011
(In thousands)
	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	$	2,956		Prepaid expenses and other current assets	$	2,500
Foreign exchange contracts - LT forwards	Other long-term assets		1,046		Other long-term assets		190
Total derivatives designated as hedging instruments		$	4,002			$	2,690
Derivatives not designated as hedging instruments
Foreign exchange contracts - ST forwards	Prepaid expenses and other current assets	$	244		Prepaid expenses and other current assets	$	1,607
Total derivatives not designated as hedging instruments		$	244			$	1,607
Total derivatives		$	4,246			$	4,297

	Liability Derivatives
	December 31, 2012				December 31, 2011
(In thousands)
	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	$	(1,292)		Accrued expenses and other liabilities	$	(2,007)
Foreign exchange contracts - LT forwards	Other long-term liabilities		(798)		Other long-term liabilities		(1,770)
Total derivatives designated as hedging instruments		$	(2,090)			$	(3,777)
Derivatives not designated as hedging instruments
Foreign exchange contracts - ST forwards	Accrued expenses and other liabilities	$	(714)			$	(765)
Total derivatives not designated as hedging instruments		$	(714)			$	(765)
Total derivatives		$	(2,804)			$	(4,542)

In thousands	Asset Derivatives
	December 31, 2009					December 31, 2008
	Balance Sheet Location		Fair Value			Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments under FASB ASC 815
Foreign exchange contracts – ST forwards	Prepaid expenses and other current assets		$	7,947		Prepaid expenses and other current assets		$	5,260
Foreign exchange contracts – LT forwards	Other long-term assets			274		Other long-term assets			2,654
Foreign exchange contracts – ST options	Prepaid expenses and other current assets			1,821		Prepaid expenses and other current assets			5,705
Foreign exchange contracts – LT options	Other long-term assets			—		Other long-term assets			3,838
Total derivatives designated as hedging instruments under FASB ASC 815			$	10,042				$	17,457
Derivatives not designated as hedging instruments under FASB ASC 815
Foreign exchange contracts – ST forwards	Prepaid expenses and other current assets		$	974		Prepaid expenses and other current assets		$	2,745
Total derivatives not designated as hedging instruments under FASB ASC 815			$	974				$	2,745
Total derivatives			$	11,016				$	20,202

	Liability Derivatives
	December 31, 2009					December 31, 2008
	Balance Sheet Location		Fair Value			Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments under FASB ASC 815
Foreign exchange contracts – ST forwards	Accrued expenses and other liabilities		$	—		Accrued expenses and other liabilities		$	(1,803	)
Foreign exchange contracts – LT forwards	Other long-term liabilities			—		Other long-term liabilities			—
Foreign exchange contracts – ST options	Accrued expenses and other liabilities			—		Accrued expenses and other liabilities			—
Foreign exchange contracts – LT options	Other long-term liabilities			—		Other long-term liabilities			—
Total derivatives designated as hedging instruments under FASB ASC 815			$	—				$	(1,803	)
Derivatives not designated as hedging instruments under FASB ASC 815
Foreign exchange contracts – ST forwards	Accrued expenses and other liabilities		$	(318	)	Accrued expenses and other liabilities		$	(3,280	)
Total derivatives not designated as hedging instruments under FASB ASC 815			$	(318	)			$	(3,280	)
Total derivatives			$	(318	)			$	(5,083	)

The following table showstables present the effect of derivative instruments on ourthe Consolidated Statements of Income for the yearyears ended December 31, 2009 (in thousands):2012 and 2011, respectively:

December 31, 2012
(In thousands)
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	$	30	Net sales	$	2,852	Net foreign exchange gain (loss)	$	-
Foreign exchange contracts - forwards and options		2,036	Cost of sales		402	Net foreign exchange gain (loss)		-
Foreign exchange contracts - forwards and options		1,086	Operating expenses		259	Net foreign exchange gain (loss)		-
Total	$	3,152		$	3,513		$	-

F-20

---

Derivatives in FASB ASC 815 Cash Flow Hedging Relationship		Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) (in thousands)			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (in thousands)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)		Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
		2009					2009					2009
Foreign exchange contracts – forwards and options		$	(6,304	)	Net sales		$	1,399		Net foreign exchange gain (loss)		$	1,132
Foreign exchange contracts – forwards and options			2,055		Cost of sales			(74	)	Net foreign exchange gain (loss)			(41	)
Foreign exchange contracts – forwards and options			1,427		Operating expenses			517		Net foreign exchange gain (loss)			81
Total		$	(2,822	)			$	1,842				$	1,172

Table of Contents

December 31, 2011
(In thousands)
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	$	3,980	Net sales	$	(3,855)	Net foreign exchange gain (loss)	$	-
Foreign exchange contracts - forwards and options		(2,889)	Cost of sales		1,378	Net foreign exchange gain (loss)		-
Foreign exchange contracts - forwards and options		(1,396)	Operating expenses		556	Net foreign exchange gain (loss)		-
Total	$	(305)		$	(1,921)		$	-

Derivatives not Designated as Hedging Instruments under FASB ASC 815	Location of Gain (Loss) Recognized in Income on Derivative		Amount of Gain (Loss) Recognized in Income on Derivative
			2009
Foreign exchange contracts – forwards	Net foreign exchange gain/(loss)		$	(1,669	)
Total			$	(1,669	)

(In thousands)
Derivatives not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income
			December 31, 2012		December 31, 2011
Foreign exchange contracts - forwards	Net foreign exchange (loss)/gain	$	(2,076)	$	951
Total		$	(2,076)	$	951

Note 5 – Inventories

Inventories, net at December 31, 2012 and December 31, 2011, consist of the following (in thousands):following:

(In thousands)		December 31, 2012		December 31, 2011
Raw materials	$	78,244	$	56,139
Work-in-process		8,566		5,708
Finished goods		83,180		70,148
	$	169,990	$	131,995

F-21

---

		December 31,
		2009				2008
Raw materials		$	42,121			$	48,004
Work-in-process			2,042				4,150
Finished goods			42,352				55,204
		$	86,515			$	107,358

Table of Contents

Note 6 – Property and equipment

Property and equipment at December 31, 2012 and December 31, 2011, consist of the following (in thousands):following:

		December 31,		December 31,
(In thousands)		2012		2011
Land	$	27,751	$	23,730
Buildings		203,879		156,317
Furniture and equipment		240,413		206,557
		472,043		386,604
Accumulated depreciation		(222,322)		(196,456)
	$	249,721	$	190,148

		December 31,
		2009				2008
Land		$	17,076			$	7,210
Buildings			138,367				136,802
Furniture and equipment			154,558				144,979
			310,001				288,991
Accumulated depreciation			(156,736	)			(134,514	)
		$	153,265			$	154,477

Depreciation expense for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, was $22.3$25.9 million, $20.9$21.6 million and $22.2$21.0 million, respectively.

Note 7 – Intangibles

Intangibles at December 31, 20092012 and 2008 areDecember 31, 2011 were as follows:

(In thousands)		December 31, 2012						December 31, 2011
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized software development costs	$	45,064	$	(23,450)	$	21,614	$	44,198	$	(20,718)	$	23,480
Acquired technology		89,876		(42,562)		47,314		67,918		(32,210)		35,708
Patents		24,046		(9,398)		14,648		21,875		(7,992)		13,883
Other		27,421		(17,084)		10,337		24,614		(13,819)		10,795
	$	186,407	$	(92,494)	$	93,913	$	158,605	$	(74,739)	$	83,866

		2009												2008
		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Capitalized software development costs		$	38,928			$	(20,455	)		$	18,473			$	25,610			$	(11,344	)		$	14,266
Acquired technology			28,022				(20,967	)			7,055				27,503				(16,804	)			10,699
Patents			19,033				(5,377	)			13,656				16,068				(4,506	)			11,562
Other			12,577				(8,371	)			4,206				11,401				(6,013	)			5,388
		$	98,560			$	(55,170	)		$	43,390			$	80,582			$	(38,667	)		$	41,915

Software development costs capitalized during 2009, 20082012, 2011 and 20072010 were $13.3$12.2 million, $9.5$12.6 million and $8.3$16.5 million, respectively, and related amortization was $9.1$14.1 million, $10.3$13.4 million and $8.9$10.7 million, respectively. Included in these capitalized costs for the years ended December 31, 2009, 2008,2012, 2011 and 20072010, were costs related to stock based compensation of $734,000, $451,000$519,000, $539,000 and $422,000,$719,000, respectively. We have conformed the prior year balances related to capitalized software development costs to the current year presentation, which is net of fully amortized assets.

Amortization of capitalized software development costs is computed on an individual product basis for those products available for market and is recognized based on the product’s estimated economic life, generally three years. Acquired intangible assets which include acquired technology and other are amortized over their useful lives, which range from three to eight years. Patents are amortized using the straight-line method over their estimated period of benefit, generally ten to seventeen years. Total intangible assets amortization expenses were $16.5$28.1 million, $16.2$25.5 million and $14.4$17.9 million for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively.

Capitalized software development costs, acquired technology, patents and other havehad weighted-average useful lives of 2.21.5 years, 1.82.5 years, 5.34.0 years, and 1.82.0 years, respectively, as of December 31, 2009.2012. The estimated future amortization expense related to intangible assets as of December 31, 2009 is2012 was as follows:

		Amount
		(In thousands)
2013	$	34,892
2014		21,787
2015		15,445
2016		9,220
2017		4,928
Thereafter		7,641
	$	93,913

F-22

---

		Amount (in thousands)
2010		$	18,097
2011			12,986
2012			7,187
2013			1,868
2014			1,186
Thereafter			2,066
		$	43,390

Acquisition intangibles are amortized over their useful lives, which range from three to eight years. Amortization expense for acquisition intangibles was approximately $3.9 million and $4.2 million for 2009 and 2008, respectively,

Table of which approximately $3.4 million and $3.6 million was recorded in cost of sales and approximately $503,000 and $580,000 was recorded in operating expenses for 2009 and 2008, respectively.Contents

       The estimated amortization expense of acquisition intangibles in future years will be recordedoverall increase in our acquired technology and other intangible assets can be attributed to our acquisitions in 2012. See Note 16 – Acquisitions of Notes to Consolidated Financial Statements of Income as follows (in thousands):

Fiscal Year		Cost of Sales				Acquisition related costs and amortization, net				Total
2010		$	2,701			$	369			$	3,070
2011			2,160				221				2,381
2012			1,126				206				1,332
2013			87				75				162
Thereafter			—				—				—
Total		$	6,074			$	871			$	6,945

for additional discussion related to these acquisitions.

Note 8 – Goodwill

The carrying amount of goodwill for 20082011 and 20092012 are as follows:

		Amount
		(In thousands)
Balance as of December 31, 2010	$	70,278
Acquisitions/purchase accounting adjustment		60,728
Foreign currency translation impact		(259)
Balance as of December 31, 2011	$	130,747
Purchase price adjustments		(1,623)
Acquisitions		17,987
Foreign currency translation impact		147
Balance as of December 31, 2012	$	147,258

		Amount (in thousands)
Balance as of December 31, 2007		$	54,111
Acquisitions/purchase accounting adjustments			10,818
Divestitures			—
Foreign currency translation impact			(368	)
Balance as of December 31, 2008		$	64,561
Acquisitions/purchase accounting adjustments			—
Divestitures			—
Foreign currency translation impact			218
Balance as of December 31, 2009		$	64,779

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. In accordance with FASB ASC 350, goodwillGoodwill 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, 2009.29, 2012. No impairment of goodwill has beenwas identified during the period presented.2012 and 2011. Goodwill is deductible for tax purposes in certain jurisdictions.

       See Note 16 – Acquisitions of Notes to Consolidated Financial Statements for additional discussion related to acquisitions in 2011 and 2012.

Note 9 – Income taxes

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

(In thousands)		Years Ended December 31,
		2012		2011		2010
Domestic	$	24,100	$	6,488	$	31,801
Foreign		90,737		104,646		96,311
	$	114,837	$	111,134	$	128,112

		Years Ended December 31,
		2009				2008				2007
Domestic		$	34,953			$	15,921			$	31,685
Foreign			15,292				82,216				81,742
		$	50,245			$	98,137			$	113,427

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

(In thousands)		Years Ended December 31,
		2012		2011		2010
Current tax expense:
U.S. federal	$	24,538	$	19,381	$	14,605
State		1,217		1,180		779
Foreign		10,544		8,568		3,752
Total current	$	36,299	$	29,129	$	19,136
Deferred tax expense (benefit):
U.S. federal	$	(10,305)	$	(12,790)	$	1,545
State		53		(234)		(39)
Foreign		(1,347)		957		(1,646)
Total deferred	$	(11,599)	$	(12,067)	$	(140)
Change in valuation allowance		-		-		-
Total provision	$	24,700	$	17,062	$	18,996

F-23

---

		Years Ended December 31,
		2009				2008				2007
Current tax expense:
U.S. federal		$	3,117			$	14,631			$	15,957
State			136				1,391				1,155
Foreign			13,760				18,910				9,925
Total current			17,013				34,932				27,037
Deferred tax expense (benefit):
U.S. federal			9,920				(11,008	)			628
State			387				(373	)			(156	)
Foreign			(2,864	)			(1,570	)			(2,783	)
Total deferred			7,443				(12,951	)			(2,311	)
Change in valuation allowance			8,704				(8,671	)			(18,332	)
Total provision		$	33,160			$	13,310			$	6,394

Table of Contents

Deferred tax liabilities (assets) at December 31, 20092012 and 20082011 as follows (in thousands):follows:

(In thousands)		December 31,
		2012		2011
Capitalized software	$	7,432	$	7,933
Depreciation and amortization		15,404		16,910
Intangible assets		9,920		-
Unrealized gain on derivative instruments		709		105
Undistributed earnings of foreign subsidiaries		8,437		9,024
Gross deferred tax liabilties		41,902		33,972
Operating loss carryforwards		(86,285)		(61,148)
Intangible assets		-		(10,800)
Vacation and other accruals		(5,895)		(6,432)
Inventory valuation and warranty provisions		(11,773)		(10,724)
Doubtful accounts and sales provisions		(1,229)		(1,084)
Unrealized exchange loss		(1,664)		(33)
Deferred revenue		(3,987)		(1,991)
Accrued rent expenses		(219)		(132)
GSA accrual		-		(4,831)
10% minority stock investment		(932)		(915)
Stock-based compensation		(5,471)		(4,640)
Research and development tax credit carryforward		(2,421)		(4,562)
Foreign tax credit carryforward		-		(1,006)
Other		(561)		(518)
Gross deferred tax assets		(120,437)		(108,816)
Valuation allowance		91,649		79,864
Net deferred tax liability	$	13,114	$	5,020

		December 31,
		2009				2008
Capitalized software		$	5,978			$	4,615
Depreciation and amortization			10,577				9,536
Unrealized gain on derivative instruments			—				4,153
Undistributed earnings of foreign subsidiaries			9,278				10,075
Gross deferred tax liabilities			25,833				28,379
Operating loss carryforwards			(57,422	)			(43,360	)
Intangible assets			(44,159	)			(58,987	)
Vacation and other accruals			(3,700	)			(4,890	)
Inventory valuation and warranty provisions			(6,702	)			(12,665	)
Doubtful accounts and sales provisions			(1,088	)			(1,512	)
Unrealized exchange loss			(917	)			(1,345	)
Deferred revenue .			(853	)			(71	)
Accrued rent expenses			(111	)			(117	)
Accrued legal expenses			(710	)			(1,466	)
Unrealized loss on derivative instruments			(242	)			—
10% minority stock investment			(900	)			(920	)
Stock-based compensation			(4,483	)			(5,353	)
Research and development tax credit carryforward			(2,054	)			—
Foreign tax credit carryforward			(1,775	)			—
Other			(657	)			(783	)
Gross deferred tax assets			(125,773	)			(131,469	)
Valuation allowance			99,862				85,815
Net deferred tax liability (asset)		$	(78	)		$	(17,275	)

A reconciliation of income taxes at the U.S. federal statutory income tax rate to theour effective tax rate follows:

	Years Ended December 31,
	2012		2011		2010
U.S. federal statutory rate	35	%	35	%	35	%
Foreign taxes (less) than federal statutory rate	(5)		(7)		(9)
Research and development tax credits	-		(3)		(3)
Enhanced deduction for certain research and development expenses	(15)		(16)		(10)
State income taxes, net of federal tax benefit	1		1		1
Employee share-based compensation	2		1		-
Intercompany profit	2		3		1
Nondeductible acquisition costs	2		-		-
Other	-		1		-
Effective tax rate	22	%	15	%	15	%

		Years Ended December 31,
		2009				2008				2007
U.S. federal statutory tax rate			35	%			35	%			35	%
Domestic production activities			—				—				(1	)
Foreign taxes (less) than federal statutory rate			(6	)			(9	)			(14	)
Change in valuation allowance			17				(9	)			(16	)
Research and development tax credit			(4	)			(2	)			(1	)
Tax exempt interest			—				(1	)			(1	)
State income taxes, net of federal tax benefit			1				1				1
Employee share-based compensation			7				2				2
Intercompany profit			15				(5	)			—
Other			1				2				1
Effective tax rate			66	%			14	%			6	%

Certain prior year amounts in the reconciliation

As of income taxes at the U.S. federal statutory income tax rate to the effective tax rate have been reclassified to conform to the 2009 presentation as shown in the following tables:

2008 foreign taxes (less) than federal statutory rate as reported in prior year Form 10-K			(14	)
Reclassification (a)			5
2008 foreign taxes (less) than federal statutory rate as reported in current year Form 10-K			(9	)
2008 intercompany profit as reported in prior year Form 10-K			—
Reclassification (a)			(5	)
2008 intercompany profit as reported in current year Form 10-K			(5	)

(a) These amounts represent income taxes on intercompany profit previously included in foreign taxes (less) than the federal statutory rate and reclassified to intercompany profit for comparability to corresponding amounts reported in 2009. The reclassification did not have any impact on our total income tax expense.

For the year ended December 31, 2009,2012, we generatedhad a federal net operating loss carryforward of approximately $3.3$4.2 million which expires in the year 2030, and federal tax creditscredit carryforwards of approximately $3.8 million. The federal net operating loss$2.4 million which can be carried back twoforward and expires during the years and the federal tax credits can be carried back one year.

2019 to 2030. These carryforwards are subject to limitations following a change in ownership.

As of December 31, 2009, eleven2012, 15 of our subsidiaries havehad available, for income tax purposes, foreign net operating loss carryforwards of an aggregate of approximately $286$445 million, of which $12.1$7.9 million expireexpires during the years 2011 - - 20182017 to 2022 and $273.9$437 million of which may be carried forward indefinitely. Our tax valuation allowance relates primarily to our ability to realize certain of these foreign net operating loss carryforwards and benefits of tax deductible goodwill in excess of book goodwill.

F-24

---

We maintain a manufacturing facility in Hungary. As a result

Table of certain foreign investment incentives available under Hungarian law, the profit from our Hungarian operation was subject to a reduced income tax rate. This special tax status terminated on January 1, 2008, with the merger of our Hungary manufacturing operations with its Hungarian parent company. The merger was effective on January 1, 2008. The aggregate tax benefit of the exemption was $8.7 million for the year ended December 31, 2007.Contents

In 2003, we restructured the organization of our manufacturing operation in Hungary. The tax deductible goodwill in excess of book goodwill created by this restructuring resulted in our being required to record a gross deferred tax asset of $91.0$91 million. Because we did not expect to have sufficient taxable income in the relevant jurisdiction in future periods to realize the benefit of this deferred tax asset, a full valuation allowance was established. Following the approval of the merger of our Hungarian manufacturing operation with its Hungarian parent company in December 2007, we released $9.7 million, $8.7 million and $18.3 million in 2009, 2008 and 2007, respectively, of the valuation allowance previously established for the excess tax deductible goodwill to reflect the tax benefit we expected to realize in future periods.

For the year 2009, we expected to recognize an additional tax benefit of $9.7 million related to these assets.

Effective January 1, 2010, a new tax law in Hungary providesprovided for an enhanced deduction for the qualified research and development expenses of NI Hungary Software and Hardware Manufacturing Kft. ("(“NI Hungary"Hungary”). During the three months ended December 31, 2009, we obtained confirmation of the application of this new tax law for the qualified research and development expenses of NI Hungary. Based on the application of this new tax law to the qualified research and development expense of NI Hungary, we no longer expect to have sufficient future taxable income in Hungary to realize the benefits of these tax assets. As such, we recorded an income tax charge of $21.6 million during the three months ended December 31, 2009, $18.4 million of which was related to a valuation allowance on the previously recognized assets created by the restructuring and $3.2 million of which was related to tax benefits from other assets that we will no longer be able to realize as a result of this change. We do not expect to realize the tax benefit of the remaining assets created by the restructuring and therefore we havehad a full valuation allowance of $98.2 million against those assets at December 31, 2009.

2012.

We have not provided for U.S. federal income and foreign withholding taxes on approximately $267.5$568 million of certain non-U.S. subsidiaries’ undistributed earnings as of December 31, 2009.2012. These earnings would become subject to taxes of approximately $85.7$188 million, if they were actually or deemed to be remitted to the parent company as dividends or if we should sell our stock in these subsidiaries. We intend to permanently reinvest the undistributed earnings.

We adopted the provisions of FASB ASC 740, on January 1, 2007. FASB ASC 740 clarifies the accountingaccount for uncertainty in income taxes recognized in an entity'sour financial statements and prescribes ausing prescribed recognition thresholdthresholds and measurement attributeattributes for financial statement disclosure of tax positions taken or expected to be taken on aour tax return.returns. We recognized no material adjustment to the liability for unrecognized income tax benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows (in thousands):follows:

(In thousands)		2012		2011
Balance at beginning of period	$	19,494	$	14,953
Additions based on tax positions related to the current year		3,150		6,300
Additions for tax positions of prior years		1,764		1,908
Reductions as a result of settlement with taxing authorities		(285)		-
Reductions as a result the lapse of the applicable statute of limitations		(2,256)		(3,667)
Reduction for tax positions of prior years		(947)		-
Balance at end of period	$	20,920	$	19,494

		2009				2008
Balance at beginning of period		$	9,364			$	8,273
Additions based on tax positions related to the current year			2,060				1,946
Additions for tax positions of prior years			1,272				366
Reductions as a result of the lapse of the applicable statute of limitations			(1,634	)			(1,221	)
Balance at end of period		$	11,062			$	9,364

All of our unrecognized tax benefits at December 31, 20092012 would affect our effective income tax rate if recognized. As of December 31, 2009, it is deemed reasonably possible that the Company will recognize tax benefits in the amount of $2.3 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty relates to deductions taken on returns that have not been examined by the applicable tax authority.

We recognize interest and penalties related to income tax matters in income tax expense. During the years ended December 31, 20092012 and 2008,2011, we recognized interest expense related to uncertain tax positions of approximately $506,000$782,000 and $365,000,$627,000, respectively.

The tax years 20022005 through 20092012 remain open to examination by the major taxing jurisdictions in which we file income tax returns. The Internal Revenue Service commenced an examination of our US income tax return for 2008 in the fourth quarter of 2012 as a result of a refund claim filed for that year. The IRS has not proposed any adjustments as of December 31, 2012. As the statute of limitations has expired for 2008 and any assessment would be limited to the amount of the refund claim, we do not anticipate any potential adjustment would result in a material change to our financial position.

Note 10 – Comprehensive income

Our comprehensive income is comprised of net income, foreign currency translation, unrealized gains and losses on forward and option contracts and securities classified as available-for-sale. The accumulated other comprehensive income/(loss), net of tax, as of December 31, 2012 and December 31, 2011, consisted of the following:

		December 31, 2012
(In thousands)		Currency translation adjustment		Investments		Derivative instruments		Accumulated other comprehensive income
Balance as of December 31, 2011	$	(1,543)	$	(664)	$	(1,293)	$	(3,500)
Current-period other comprehensive income		2,231		56		3,247		5,534
Income tax expense		(480)		(12)		(698)		(1,190)
Balance as of December 31, 2012	$	208	$	(620)	$	1,256	$	844

F-25

---

Table of Contents

		December 31, 2011
(In thousands)		Currency translation adjustment		Investments		Derivative instruments		Accumulated other comprehensive income
Balance as of December 31, 2010	$	(497)	$	196	$	(409)	$	(710)
Current-period other comprehensive loss		(1,236)		(1,017)		(1,045)		(3,298)
Income tax benefit		190		157		161		508
Balance as of December 31, 2011	$	(1,543)	$	(664)	$	(1,293)	$	(3,500)

Note 1011 – Stockholders’ equity and stock-based compensation

Stock option plans

Our stockholders approved the 1994 Incentive Stock Option Plan (the “1994 Plan”) on May 9, 1994. At the time of approval, 9,112,50013,668,750 shares of our common stock were reserved for issuance under this plan. In 1997, an additional 7,087,50010,631,250 shares of our common stock were reserved for issuance under this plan, and an additional 750,0001,125,000 shares were reserved for issuance under this plan as amended, in 2004. The 1994 Plan terminated in May 2005, except with respect to outstanding awards previously granted thereunder. there under.

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 atwith an exercise price which was equal to the market price of our common stock at the grant date. As part of the requirements of FASB ASC 718, we are required toWe 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 year ended December 31, 2012, we did not make any changes in accounting principles or methods of estimates related to the 1994 Plan.

Transactions under all stock option plans are summarized as follows:

	Number of shares under option		Weighted average exercise price
Outstanding at December 31, 2009	5,567,254	$	17.95
Exercised	(2,291,757)	$	17.55
Canceled	(941,049)	$	20.93
Granted	-	$	-
Outstanding at December 31, 2010	2,334,448	$	17.15
Exercised	(932,895)	$	15.94
Canceled	(84,337)	$	16.23
Granted	-	$	-
Outstanding at December 31, 2011	1,317,216	$	18.07
Exercised	(237,146)	$	16.59
Canceled	(26,945)	$	17.07
Granted	-	$	-
Outstanding at December 31, 2012	1,053,125	$	18.44
Options exercisable at December 31:
2010	2,138,886	$	17.07
2011	1,270,775	$	18.06
2012	1,034,559	$	18.44

F-26

---

		Number of shares under option				Weighted average exercise price
Outstanding at December 31, 2006			6,914,673			$	22.49
Exercised			(1,515,107	)			15.22
Canceled			(104,925	)			27.33
Granted			—				—
Outstanding at December 31, 2007			5,294,641			$	24.47
Exercised			(925,743	)			17.30
Canceled			(96,331	)			26.98
Granted			—				—
Outstanding at December 31, 2008			4,272,567			$	25.97
Exercised			(379,630	)			15.40
Canceled			(181,434	)			26.80
Granted			—				—
Outstanding at December 31, 2009			3,711,503			$	26.93
Options exercisable at December 31:
2007			4,368,972			$	24.17
2008			3,812,334				26.00
2009			3,493,574				26.94

Table of Contents

The aggregate intrinsic value of stock options at exercise, represented in the table above, was $2.3$2.4 million, $11.0$13.0 million and $22.3$12.0 million for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively. Total unrecognized stock-based compensation expense related to non-vested stock options was approximately $2.5 million$72,600 as of December 31, 2009,2012, related to approximately 218,00018,600 shares with a per share weighted average fair value of $17.50.$11.79. We anticipate this expense to be recognized over a weighted average period of approximately 4.31.2 years.

				Outstanding and Exercisable by Price Range as of December 31, 2012
				Options Outstanding						Options Exercisable
	Range of Exercise Prices			Number outstanding as of 12/31/2012		Weighted average remaining contractual life		Weighted average exercise price		Number exerciseable as of 12/31/2012		Weighted average exercise price
$	13.41 - 15.09			243,751		1.15	$	14.14		238,451	$	14.14
$	15.09 - 19.69			108,544		1.19	$	18.30		108,544	$	18.30
$	19.69 - 21.67			700,830		1.22	$	19.95		687,564	$	19.95
$	13.41 - 21.67			1,053,125		1.20	$	18.44		1,034,559	$	18.44

				Outstanding and Exercisable by Price Range as of December 31, 2009
				Options Outstanding												Options Exercisable
Range of Exercise prices				Number outstanding as of 12/31/2009				Weighted average remaining contractual life				Weighted average exercise price				Number exercisable as of 12/31/2009				Weighted average exercise price
	$16.08 – $21.95				1,238,441				1.74			$	20.69				1,188,337			$	20.71
	$22.30 – $29.85				1,257,625				3.90			$	28.15				1,098,218			$	28.08
	$30.51 – $34.38				1,215,437				0.41			$	32.02				1,207,019			$	32.02
	$16.08 – $34.38				3,711,503				2.04			$	26.93				3,493,574			$	26.94

The weighted average remaining contractual life of options exercisable as of December 31, 20092012 was 1.91.2 years. The aggregate intrinsic value of options outstanding as of December 31, 20092012 was $9.4$7.8 million. The aggregate intrinsic value of options currently exercisable as of December 31, 20092012 was $8.8$7.6 million. No options were granted in the years ended December 31, 2009, 20082012, 2011 and 2007 as our incentive option plan terminated in May 2005.

2010.

Restricted stock plan

Our stockholders approved our 2005 Incentive Plan (the “2005 Plan”) on May 10, 2005. At the time of approval, 2,700,0004,050,000 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, providesprovided 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. SharesThe 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 the forfeiture or termination of options or RSUs or repurchases 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. At December 31, 2012, there were 3,871,389 shares available for grant at December 31, 2009 were 2,089,302. As part ofunder the requirements of FASB ASC 718, we are required to2010 Plan.

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 year ended December 31, 2012, we did not make any changes in accounting principles or methods of estimates related to the 2010 Plan.

F-27

---

Table of Contents

Transactions under the 2005 Planour Restricted Stock Plans are summarized as follows:

	RSUs
	Number of RSUs		Weighted average grant price
Outstanding at December 31, 2009	3,456,651	$	17.65
Granted	294,030	$	22.60
Earned	(680,188)	$	23.05
Canceled	(74,196)	$	18.47
Outstanding at December 31, 2010	2,996,297	$	17.97
Granted	1,370,666	$	30.14
Earned	(860,598)	$	30.30
Canceled	(84,843)	$	20.82
Outstanding at December 31, 2011	3,421,522	$	22.75
Granted	1,311,105	$	26.81
Earned	(841,918)	$	27.19
Canceled	(85,435)	$	23.15
Outstanding at December 31, 2012	3,805,274	$	24.62

		RSUs
		Number of RSUs				Weighted Average Grant Price
Balance at January 1, 2007			1,324,933			$	26.77
Granted			801,780			$	27.90
Earned			(209,303	)		$	27.85
Canceled			(75,776	)		$	27.64
Balance at December 31, 2007			1,841,634			$	26.86
Granted			763,182			$	28.51
Earned			(320,251	)		$	29.42
Canceled			(119,337	)		$	28.19
Balance at December 31, 2008			2,165,228			$	26.99
Granted			604,083			$	21.80
Earned			(407,156	)		$	22.04
Canceled			(57,721	)		$	27.88
Balance at December 31, 2009			2,304,434			$	26.48

Total unrecognized stock-based compensation expense related to non-vested RSU’sRSUs was approximately $57.1$89.3 million as of December 31, 2009,2012, related to 2,304,4343,805,274 shares with a per share weighted average fair value of $26.48.$24.62. We anticipate this expense to be recognized over a weighted average period of approximately 7.37.4 years.

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. At our annual shareholders meeting held on May 7, 2007, our shareholders approved an additional 3 million shares of common stock to be reserved for issuance under this plan. Employees may designate up to 15% of their compensation for the purchase of common stock under this plan.  CommonOn May 10, 2011, our stockholders approved an additional 3,000,000 shares for issuance under our employee stock purchase plan, and at December 31, 2012, we had 2,557,655 shares of common stock reserved for future employee purchases aggregated 1,755,071 shares at December 31, 2009. Shares issuedissuance under this plan were 838,536 inplan. During the year ended December 31, 2009.2012, we issued 1,122,483 shares under this plan. The weighted average fair valuepurchase price of the employees’ purchase rights for these shares was $19.05$21.84 per share and was estimated using the Black-Scholes model with the following assumptions:

	2012		2011		2010
Dividend expense yield	0.5%		0.4%		0.4%
Expected life	3 months		3 months		3 months
Expected volatility	40%		44%		25%
Risk-free interest rate	0.1%		0.1%		0.1%

		2009				2008				2007
Dividend expense yield			0.5%				0.3%				0.3%
Expected life		3 months				3 months				3 months
Expected volatility			45%				26%				23%
Risk-free interest rate			0.8%				3.8%				5.0%

During the year ended December 31, 2012, we did not make any changes in accounting principles or methods of estimates related to the employee stock purchase plan.

Weighted average, grant date fair value of purchase rights granted under the Employee Stock Purchase Plan are as follows:

	Number of Shares		Weighted average fair value
2010	1,011,765	$	4.35
2011	940,703	$	6.56
2012	1,122,483	$	5.93

		Number of shares				Weighted average fair value
2007			549,719			$	6.19
2008			679,983				5.86
2009			838,536				5.75

Stock-based compensation included in total cost of sales and operating expenses for the years ended December 31, 2009, 2008 and 2007 are summarized as follows (in thousands):

		2009				2008				2007
Stock-based compensation
Total cost of sales		$	1,284			$	1,063			$	911
Sales and marketing			8,774				8,479				7,322
Research and development			7,236				7,121				6,435
General and administrative			3,005				3,084				2,866
Provision for income taxes			(3,765	)			(4,601	)			(3,839	)
Total		$	16,534			$	15,146			$	13,695

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,  

F-28

---

Table of Contents

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 December 31, 2012 and December 31, 2011.

Stock repurchases and retirements

Since 1998,

       From time to time, our Board of Directors approvedhas authorized various programs to repurchase shares of our common stock depending on market conditions and other factors. Under such programs, we maintained various stock repurchase programs. Pursuant to these plans we had purchased and retiredrepurchased a total of 7,354,9662,089,098 shares for approximately $184.9 million from 1998 throughof our common stock at a weighted average price of $20.04 per share, in the year ended December 31, 2007. During 2008, we purchased an additional 4,110,042 share for approximately $103.6 million. At December 31, 2008, there were 723,092 shares available for repurchase under the plan approved in2010. On April 2008. On January 23, 2009,21, 2010, our Board of Directors approved a new share repurchase planprogram that increased the aggregate number of shares of common stock that we are authorized to purchaserepurchase from 591,3241,011,147 to 3.0 million. During 2009, we purchased an additional 1,443,441 shares for approximately $34.64.5 million. At December 31, 2009,2012, there were 1,688,3273,932,245 shares remaining available for repurchase under the plan approved in January 2009. Our sharethis plan. This repurchase plan does not have an expiration date.

We did not repurchase any shares of our common stock under this plan in the years ended December 31, 2012 and December 31, 2011.

Note 1112 – Employee retirement plan

We have a defined contribution retirement plan pursuant to Section 401(k) of the Internal Revenue Code. Substantially all domestic employees with at least 30 days of continuous service are eligible to participate and may contribute up to 15% of their compensation. The Board of Directors has elected to make matching contributions equal to 50% of employee contributions, which may be applied to a maximum of 6% of each participant’s compensation. Employees are eligible for matching contributions after one year of continuous service. Company contributions vest immediately. Our policy prohibits participants from direct investment in shares of our common stock within the plan. Company contributions charged to expense were $3.9$5.3 million, $3.7$4.7 million and $3.3$4.4 million in 2009, 20082012, 2011 and 2007,2010, respectively.

Note 1213 – Segment information

In accordance with FASB ASC 280, Segment Reporting (FASB ASC 280), weinformation

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 productsIn the fourth quarter of 2012, we created a new geographical territory in three geographic regions.Asia, resulting in four regions: Americas, Europe, East Asia and Emerging Asia Rest of World (ROW). 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 threefour 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):follows:

(In thousands)		Years ended December 31,
		2012		2011		2010
Net sales:
Americas	$	454,616	$	411,006	$	359,895
Europe		297,572		308,619		261,118
East Asia		282,512		215,500		180,713
Emerging Asia ROW		108,992		89,048		71,494
	$	1,143,692	$	1,024,173	$	873,220
		Years ended December 31,
		2012		2011		2010
Operating income:
Americas	$	41,266	$	55,140	$	71,339
Europe		135,600		142,533		131,691
East Asia		125,879		85,005		66,414
Emerging Asia ROW		37,183		29,105		17,018
Unallocated:
Research and development expenses		(222,994)		(199,071)		(158,149)
	$	116,934	$	112,712	$	128,313
		Years ended December 31,
		2012		2011		2010
Interest income:
Americas	$	177	$	408	$	588
Europe		432		771		699
East Asia		23		23		14
Emerging Asia ROW		84		117		90
	$	716	$	1,319	$	1,391
				December 31,
				2012		2011
Long-lived assets:
Americas			$	120,329	$	110,153
Europe				48,465		47,000
East Asia				3,428		4,728
Emerging Asia ROW				77,499		28,267
			$	249,721	$	190,148

F-29

---

		Years Ended December 31,
		2009				2008				2007
Net sales:
Americas:
Unaffiliated customer sales		$	292,999			$	355,878			$	331,482
Geographic transfers			86,145				132,563				115,709
			379,144				488,441				447,191
Europe:
Unaffiliated customer sales			210,188				267,373				230,940
Geographic transfers			189,076				204,282				159,992
			399,264				471,655				390,932
Asia Pacific:
Unaffiliated customer sales			173,407				197,286				177,956
Eliminations			(275,221	)			(336,845	)			(275,701	)
		$	676,594			$	820,537			$	740,378

Table of Contents

		Years Ended December 31,
		2009				2008				2007
Operating income:
Americas		$	46,816			$	71,467			$	76,292
Europe			87,250				105,748				92,469
Asia Pacific			45,439				61,642				59,845
Unallocated:
Research and development expenses			(132,974	)			(143,140	)			(126,515	)
		$	46,531			$	95,717			$	102,091

		Years Ended December 31,
		2009				2008				2007
Interest income:
Americas		$	803			$	2,603			$	5,138
Europe			727				3,291				4,485
Asia Pacific			99				102				199
		$	1,629			$	5,996			$	9,822

		December 31,
		2009				2008
Long-lived assets:
Americas		$	100,489			$	107,701
Europe			36,555				39,280
Asia Pacific			16,221				7,496
		$	153,265			$	154,477

Total sales outside the United StatesU.S. for 2009, 20082012, 2011 and 20072010 were $412.7$721.7 million, $499.3$645.7 million and $437.0$543.7 million, respectively.

Note 1314 – Commitments, contingencies and leases

We have commitments under non-cancelable operating leases primarily for office facilities throughout the world. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. Future minimum lease payments as of December 31, 2009,2012, for each of the next five years are as follows (in thousands):follows:

		Amount
		(In thousands)
2013	$	17,096
2014		14,042
2015		12,132
2016		8,030
2017		5,011
Thereafter		7,019
	$	63,330

2010		$	14,415
2011			9,898
2012			6,982
2013			4,611
2014			3,665
Thereafter			12,130
		$	51,701

Rent expense under operating leases was approximately $12.3$17.1 million, $11.7$16.3 million and $10.2$13.5 million for the years ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively.

As of December 31, 2009,2012, we have non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $6.5$7.3 million over the next twelve months.

F-30

---

Table of Contents

As of December 31, 2009,2012, we have outstanding guarantees for payment of customs and foreign grants totaling approximately $5.2$5.0 million, which are generally payable over the next twelve months.

From November 1999 to May 2011, we sold products to the U.S. government under a contract with the General Services Administration ("GSA"). Our previous contract with GSA contained a price reduction or "most favored customer" pricing provision. During 2011 and 2012, we had been in discussions with GSA regarding our compliance with this pricing provision and provided GSA with information regarding our pricing practices. In 2011, GSA conducted an on-site review of our GSA pricing practices and orally informed us that GSA did not agree with our previous determination of the potential non-compliance amount. GSA subsequently requested that we conduct a further analysis of the non-compliance amount based upon a methodology that GSA proposed. This analysis resulted in calculated overpayments (including added interest) by GSA to us of approximately $13.1 million.

During the quarter ended September 30, 2011, we established an accrual for $13.1 million which represented the amount of the loss contingency that was reasonably estimable at that time. On June 6, 2012, we entered into a Settlement Agreement with GSA and paid approximately $11.8 million in settlement of the foregoing matters. Due to the complexities of conducting business with GSA, the relatively small amount of revenue we realized from our previous 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. To date, we have not experienced any material adverse impact on our results of operations as a result of the cancellation of our previous GSA contract.

Note 1415 – Litigation

We filedare not currently a patent infringement action on January 25, 2001,party to any material litigation. However, in the U.S. District Court, Eastern District of Texas (Marshall Division) claiming that The MathWorks, Inc. (“MathWorks”) infringed certainordinary course of our U.S. patents. On January 30, 2003, a jury found infringement by MathWorksbusiness, we are involved in legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of three of the patents involved and awarded us specified damages. On September 23, 2003, the District Court entered final judgment in favor of us and entered an injunction against MathWorks’ sale of its Simulink and related products and stayed the injunction pending appeal. Upon appeal, the judgment and the injunction were affirmed by the U.S. Court of Appeals for the Federal Circuit (September 3, 2004). Subsequently the stay of injunction was lifted by the District Court. In November 2004, the final judgment amount of $7.4 million which had been held in escrow pending appeal was released to us.

An action was filed by MathWorks against us on September 22, 2004, in the U.S. District Court, Eastern District of Texas (Marshall Division), claiming that on that day MathWorks had released modified versions of its Simulink and related products, and seeking a declaratory judgment that the modified products do not infringe the three patents adjudged infringed in the District Court's decision of September 23, 2003 (and affirmed by the Court of Appeals on September 3, 2004). On November 2, 2004, MathWorks served the complaint on us.them. We filed an answer to MathWorks’ declaratory judgment complaint, denying MathWorks’ claims of non-infringement and alleging our own affirmative defenses. On January 5, 2005, the Court denied a contempt motion by us to enjoin the modified Simulink products under the injunction in effectalso periodically receive notifications from the first case. On January 7, 2005, we amended our answer to include counterclaims that MathWorks’ modified products are infringing three of our patents, and requested unspecified damages and an injunction. MathWorks filed its reply to our counterclaims on February 7, 2005, denying the counterclaims and alleging affirmative defenses. On March 2, 2005, we filed a notice of appeal regarding the Court's denial of the contempt motion. On March 15, 2005, the Court stayed MathWorks’ declaratory judgment action, pending a decision on the appeal by the Court of Appeals for the Federal Circuit. On February 9, 2006, the Court of Appeals for the Federal Circuit affirmed the District Court’s January 2005 order. On November 22, 2006, the District Court lifted the stay. The case schedule has yet to be set in this action. During the fourth quarter of 2004, we accrued $4 millionvarious third parties related to our probable loss from this contingency, which consists entirelyalleged infringement of anticipated patent defense costs that are probablepatents or intellectual property rights, commercial disputes or other matters. No assurances can be given with respect to the extent or outcome of being incurred. any future litigation or dispute.

Note 16 – Acquisitions

In the fourth quarter of 2006, we accrued an additional $600,000 related to this contingency. During the third quarter of 2009, we reduced the accrual by $2 million to reflect a decrease in the estimated costs that are probable of being incurred in this action. To date, we have charged a cumulative total of $623,000 against this accrual. At December 31, 2009, the remaining accrual was $2 million.

Note 15 – Acquisitions

On February 1, 2008,2012, we acquired allthree privately held companies, including Signalion. The companies acquired included a wireless product company with a focus on test and measurement, a network measurements company with an emphasis on next-generation characterization and analysis tools for the high-frequency electronics and communication market, and a leading electrical engineering products company serving students, universities and OEMs worldwide with technology based educational design tools. These acquisitions are expected to accelerate the deployment of the outstanding shares of microLEX Systems ApS, (“microLEX”) a premier provider of virtual instrumentation-based video, audioour RF and mixed-signal test solutions. This acquisition was accounted for as a business combination.wireless technologies, accelerate our expansion into digital and embedded education, gain access to fast turn, low cost development and manufacturing capabilities, and increase our position in semiconductor academic programs. The combined purchase price of the acquisition, which included legalacquisitions was $42 million consisting of $25 million cash, net of $5 million cash received, and accounting fees, was $17.8$12 million in cash. future cash payments. We funded the cash portion of the purchase price from existing cash balances.

The allocation of the purchase price was determined using the fair value of assets and liabilities acquired as of February 1, 2008. We funded the purchase price from existing cash balances.respective closing dates. Our consolidated financial statements include the operating results from the date of acquisition. Pro-forma results orof operations have not been presented because the effects of those operations were not material.  The following table summarizes the allocation of the purchase price of microLEX (in thousands):these acquisitions:

		Amount
		(In thousands)
Net tangible assets acquired	$	8,099
Amortizable intangible assets		24,137
Deferred tax liability		(7,899)
Goodwill		17,987
Total	$	42,324

Goodwill		$	10,818
Acquired core technology			5,201
Non-competition agreements			159
Trademarks			119
Customer relationships			354
Current assets acquired			3,057
Long-term assets acquired			20
Current liabilities assumed			(486	)
Deferred tax liabilities			(1,458	)
Total assets acquired		$	17,784

Goodwill is not deductible for tax purposes. Existing technology, non-competition agreements, trademarks, and customer relationshipsAmortizable intangible assets have useful lives of 4 months to 5 years 3 years, 3 years, and 5 years, respectively, from the date of acquisition. These assets are not deductible for tax purposes.purposes for two of the three acquisitions. 

F-31

---

Table of Contents

Note 16 – Quarterly results (unaudited)

AWR Corporation

On June 30, 2011, we acquired all of the outstanding shares of AWR Corporation (AWR), a privately held company that is a leading supplier of electronic design automation software for designing radio frequency and high-frequency components and systems for the semiconductor, aerospace and defense, communications and test equipment industries. The following quarterly results have been derivedacquisition is expected to improve customer productivity through increased interoperability between upfront design and validation and production test functions. The purchase price of the acquisition was $66 million consisting of $54 million in cash and a three-year earn-out arrangement. We funded the purchase price from unauditedexisting cash balances. The range of potential undiscounted payments that we could be required to make under the earn-out arrangement is between $0 and $29 million and are payable if AWR achieves certain revenue and operating income targets. The fair value of the earn-out arrangement was estimated at $12 million using the income approach, the key assumptions which included probability-weighted revenue and operating expense growth projections. In July 2012, the Company paid the amount due to the former AWR shareholders based on the first earn-out year performance of AWR. The amount paid was $3.3 million, and it is being recorded as a reduction of the earn-out liability. We re-measure the fair value of the earn-out liability each quarter. In the fourth quarter of 2012, we adjusted the acquisition earn out accrual by $6.8 million as AWR’s performance exceeded our prior expectations.

The allocation of the purchase price was determined using the fair value of assets and liabilities acquired as of June 30, 2011. The finalization of our purchase price allocation during the three months ended June 30, 2012 resulted in an increase in acquired deferred tax assets and a decrease in goodwill of approximately $1.6 million. Our consolidated financial statements that, ininclude the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. The operating results for any quarter arefrom the date of acquisition.  Pro-forma results of operations have not necessarily indicativebeen presented because the effects of those operations were not material. The following table summarizes the allocation of the results to be expectedpurchase price of AWR:

		Amount
		(In thousands)
Net tangible assets acquired	$	10,718
Amortizable intangible assets		31,685
Deferred tax liability		(8,387)
Goodwill		32,379
Total	$	66,395

Goodwill is not deductible for any future period. The unaudited quarterly financial data for eachtax purposes. Amortizable intangible assets have useful lives of 5 years from the date of acquisition.

Phase Matrix Inc.

On May 20, 2011, we acquired all of the eight quartersoutstanding shares of Phase Matrix, Inc. (PMI), a privately held company that designs and manufactures radio frequency and microwave test and measurement instruments, subsystems and components. The acquisition is expected to speed our deployment of high-performance RF and wireless technologies to our production test and R&D customers. The purchase price of the acquisition was $40.7 million consisting of $38.9 million in cash and $1.8 million in shares of our common stock. We funded the twocash portion of the purchase price from existing cash balances.

The allocation of the purchase price was determined using the fair value of assets and liabilities acquired as of May 20, 2011. Our consolidated financial statements include the operating results from the date of acquisition. Pro-forma results of operations have not been presented because the effects of those operations were not material. The following table summarizes the allocation of the purchase price of Phase Matrix, Inc.:

		Amount
		(In thousands)
Net tangible assets acquired	$	5,624
Amortizable intangible assets		8,331
Goodwill		26,725
Total	$	40,680

Goodwill is deductible for tax purposes. Amortizable intangible assets have useful lives which range from 9 months to 8 years ended December 31, 2009from the date of acquisition. These assets are as follows (in thousands, except per share data):also deductible for tax purposes.

F-32

---

Table of Contents

		Three Months Ended
		Mar. 31, 2009				Jun. 30, 2009				Sep. 30, 2009				Dec. 31, 2009
Net sales		$	157,799			$	152,163			$	165,035			$	201,597
Gross profit			116,916				111,677				123,136				154,981
Operating income			(2,479	)			2,341				10,688				35,981
Net income			358				4,430				9,931				2,366
Basic earnings per share		$	0.00			$	0.06			$	0.13			$	0.03
Weighted average shares outstanding-basic			77,277				77,556				77,653				77,589
Diluted earnings per share		$	0.00			$	0.06			$	0.13			$	0.03
Weighted average shares outstanding-diluted			77,436				77,824				78,103				78,325
Dividends declared per share		$	0.12			$	0.12			$	0.12			$	0.12

		Three Months Ended
		Mar. 31, 2008				Jun. 30, 2008				Sep. 30, 2008				Dec. 31, 2008
Net sales		$	192,918			$	210,474			$	215,038			$	202,107
Gross profit			143,849				157,034				160,531				152,014
Operating income			18,065				27,834				27,946				21,872
Net income			17,616				24,734				23,159				19,318
Basic earnings per share		$	0.22			$	0.32			$	0.29			$	0.25
Weighted average shares outstanding-basic			78,840				78,484				78,834				78,110
Diluted earnings per share		$	0.22			$	0.31			$	0.29			$	0.25
Weighted average shares outstanding-diluted			79,825				79,549				79,841				78,522
Dividends declared per share		$	0.11			$	0.11			$	0.11			$	0.11

Note 17 – Subsequent events

In accordance with FASB ASC 855, Subsequent Events (FASB ASC 855), we

We have evaluated subsequent events through February 17, 2010, the date the financial statements were issued.

On January 22, 2010,31, 2013, our Board of Directors declared a quarterly cash dividend of $0.13$0.14 per common share, payable March 1, 2010,11, 2013, to shareholdersstockholders of record on February 8, 2010.19, 2013.

F-33

---

From January 29, 2010 to February 12, 2010, we have repurchased 683,832 shares of our common stock at an average price of $29.97 under our share repurchase plan. The maximum number of shares that may yet be purchased under our plan is 1,004,495. Our purchase plan does not have an expiration date.