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Delaware (State or other jurisdiction of incorporation or organization) | 74-1871327 (I.R.S. Employer Identification Number) | ||
11500 North MoPac Expressway Austin, Texas | 78759 | ||
(address of principal executive offices) | (zip code) | ||
683-0100
| Title of Each Class | Name of Each Exchange on Which Registered | ||
Common Stock, $0.01 par value | The NASDAQ Stock Market, LLC | ||
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Item 1A. | ||||
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Our Approach to Measurement and Automation
NI provides powerful, flexible technology solutions that accelerate productivity and drive rapid innovation. From daily tasks to grand challenges, NI helps engineers and scientists overcome complexity to exceed expectations. Customers in numerous industries—from healthcare and automotive to consumer electronics and particle physics, from 5G to the Industrial Internet of Things and the connected car—use NI’s integrated hardware and software platform.
become a solution for prototyping the next generation of communications systems in 5G wireless.
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Products, Technology and Services
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Machine Vision/Image Acquisition. Our machine vision platform includes a range of hardware platform options, from embedded NI Smart Cameras that integrate the sensor and processor in a single package to plug-in boards for PCI and PXI systems. We offer two scalable software options for use across the entire NI vision hardware portfolio. A user can configure a system with NI Vision Builder for Automated Inspection, an easy-to-use, stand-alone package for machine vision, or program it using the NI Vision Development Module, a comprehensive library of imaging functions. With NI Vision hardware, a user can build high-performance, PC based systems using the latest processor techniques with NI Frame Grabbers, save on cost and space by combining an image sensor and real-time embedded processors into one rugged, industrial package with NI Smart Cameras, or harness multicore performance with fanless designs, connectivity to multiple cameras and reconfigurable digital I/O with NI Vision systems.
Production Test Systems
In addition to modular software and hardware components that engineers combine to create systems, NI also offers complete, enclosed PXI-based systems targeted to specific applications.
NI Wireless Test System. Built on PXI, multicore, and FPGA technologies, the NI Wireless Test System (“WTS”) offers industry-leading measurement speed to help our customers improve test throughput and lower the cost of wireless manufacturing test for devices such as mobile phones, tablets, data cards, and modules. With industry-leading measurement speed and the flexibility to engage in multi-standard, multiple device under test (“DUT”), and parallel test, the WTS integrates easily into a manufacturing line using ready-to-run reference test sequences, integrated DUT control, and remote automation control for quicker and more cost-effective system deployment.
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NI Education Platform
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NI Services
2015.
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We actively market our products in higher education environments, and we identify many colleges, universities and trade and technical schools as key accounts. We offer special academic pricing and products to enable universities to utilize our products in their classes and laboratories. We believe our prominence in the higher education area can contribute to our future success because students gain experience using our products before they enter the work force.
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| success in developing new products; |
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As of December 31, 2016, we employed 2,176 people in research and development.
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Backlog is a measure of orders that are received but that are not shipped to customers at the end of a quarter. We typically ship products shortly following the receipt of an order. Accordingly, our backlog typically represents less than 5 days sales. Backlog should not be viewed as an indicator of our future sales.
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We Have Established a Budget and Variations From Our Budget Will Affect Our Financial Results.We have an operating budget for 2017. Our budget was established basedmaterial adverse effect on the estimated revenue fromultimate success of a product and other related products and could impede continued sales of ourpredecessor products, which are based on anticipated economic conditions in the markets in which we do business as well as the timing and volumeany of our new products and the expected penetration of both new and existing products in the marketplace. If demand for our products during 2017 is less than the demand we anticipated in setting our 2017 budget, our operating results could be negatively impacted.
If we exceed our budgeted level of expenses or if we cannot reduce expenditures in response to a decrease in net sales, our operating results could be adversely affected. Our spending could exceed our budget due to a number of factors, including:
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Our Financial Performance is Subject to Risks Associated with Changes in the Value of the U.S. Dollar versus Local Currencies. The vast majority of our sales outside of the U.S. 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. 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. We cannot predict to what degree or how long the recent 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 net sales and expenses and on the effectiveness of our hedging programs. In the past, these dynamics have also adversely affected our net sales growth in international markets and may pose similar challenges in the future. See “Results of Operations” in this Form 10-K for further discussion on the effect that changes in the foreign currency exchange rates have had on our operating results. See “Current business outlook” in this Form 10-K for information regarding recent business conditions.
In addition, the announcement of Brexit caused significant short-term volatility in the foreign currency markets and an approximately 14% devaluation of the GBP against the U.S. dollar. The ongoing uncertainty surrounding the implementation of Brexit, including the conditions and timing of the exit negotiation period, and uncertainty in relation to the relationship of the U.K with the remaining members of the E.U. (including in relation to trade) has caused and is likely to continue to cause continued volatility in the foreign currency markets. The continuing uncertainty following the U.K. vote may lead to broader negative business sentiment resulting in less demand for our products which would negatively impact our net sales and results of operations.
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Our Current Domestic Cash Position May Not Be Sufficient to Fund our Domestic Cash Needs in the Next Twelve Months and We May Need to Borrow Additional Amounts Under our Loan Agreement, Seek Funding from External Sources or Repatriate Foreign Earnings. Our Loan Agreement (the “Loan Agreement”) with Wells Fargo Bank provides for a $125 million unsecured revolving line of credit. Proceeds of loans made under the Loan Agreement mayThere can be used for working capital and other general corporate purposes. (See “Note 14—Debt” in Notes to Consolidated Financial Statements for additional discussion of the Loan Agreement). We may choose to borrow additional funds against our line of credit in future periods to have sufficient domestic cash to fund continued dividends to our stockholders, to fund potential acquisitions, to purchase shares under our board authorized share repurchase program or other domestic general corporate purposes without the need to repatriate foreign cash, asno assurance that we intend to permanently reinvest our undistributed earnings for the foreseeable future. Future dividends are subject to approval and declaration by our Board of Directors, and our share repurchase program does not obligate us to acquire any specific number of shares.
We may also seek to pursue additional financing or to raise additional funds by selling equity or debt to the public or in private transactions. If we elect to raise additional funds, we may notwill be able to obtainintroduce new products in accordance with announced release dates, that our new products will achieve market acceptance or that any such funds on a timely basis or on acceptable terms, if at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentagesacceptance will be sustained for any significant period. Failure of our existing stockholders would be reduced. In addition, the equitynew products to achieve or debt securities that we issue may have rights, preferences or privileges senior to those of our common stock. 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 likelysustain market acceptance could have a material adverse effect on our effective tax rateoperating results.
the accounting changes).
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TableOur Manufacturing Capacity, and a Substantial Majority of Contents
Fulfillment of these contracts can challenge our supply chain capabilities at the component acquisition, assembly and delivery stages. Our contracts with such customers may allow the customer to cancel or delay orders without liability which exposes our business and financial results to significant risk. These contracts can require us to develop specific product mitigation plans for product delivery constraints caused by unexpected or catastrophic situations to help assure quick production recovery. We attempt to manage this risk but there can be no assurance that we will be successful in our efforts. These customers may demand most favored customer pricing, significant discounts, extended payment terms and volume rebates and such terms can adversely impact our net sales, margins and financial results and may also negatively impact our days sales outstanding to the extent these orders become a larger proportion of our overall net sales. These customers may request broad indemnity obligations and large direct and consequential damage provisions in the event their contracts with us are breached, and these provisions may expose us to risk and liabilities in excess of our standard terms and conditions of sale.
In addition, these larger orders are more volatile, are subject to greater discount variability and may contract at a faster pace during an economic downturn. We attempt to manage these risks but there can be no assurance that we will be successful in our efforts.
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Our Success Depends on New Product Introductions and Market Acceptance of Our Products. The market for our products is characterizednegatively impacted by rapid technological change, evolving industry standards, changesany adverse outcomes 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 internationalthose 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 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 Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the U.S. 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 (“FASB”) and the Securities and Exchange Commission. A change in these policies or interpretations could have a significant effect on our reported financial results, may retroactively affect previously reported results could cause unexpected financial reporting fluctuations,be negatively impacted.
vendors increasing their sales prices.
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Our Income Tax Rate could be Adversely Affected by the Expiration of a Tax Holiday in Malaysia.Profits from our manufacturing facility in Penang, Malaysia are free of tax under a 15 year tax holiday effective January 1, 2013. If we fail to satisfy the conditions of the tax holiday, this tax benefit may be terminated early. The expiration of the tax holiday in Malaysia Our Business is Dependent on Key Suppliers and Distributors and Disruptions in these Businesses Could Adversely Affect our Business and Results of Operations.Our manufacturing processes use large volumes of high-quality components and subassemblies supplied by outside sources. Several of these We May Experience Component Shortages that May Adversely Affect Our Business and Result of Operations.As has occurred in the past and as may be expected to occur in the future, supply shortages of components used in our products, including limited source components, can result in significant additional costs and inefficiencies in manufacturing. If we are unsuccessful in resolving any such component shortages in a timely manner, we will experience a significant impact on the timing of revenue, a possible loss of revenue, or an increase in manufacturing costs, any of which would have a material adverse impact on our operating results. government actions throughout the world. There can be no assurance that we will be able to compete successfully in the future. 16Our Quarterly Results are Subject to Fluctuations Due to Various 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:including, but not limited to: ·fluctuations in foreign currency exchange rates; ·changes in global economic conditions;
fluctuations in foreign currency exchange rates; ·changes in the amount of revenue derived from very large orders (including orders from our largest customer) and the pricing, margins, and other terms of such orders;
changes in global economic conditions; ·changes in the capacity utilization including at our facility in Malaysia;
changes in the amount of revenue derived from very large orders (including orders from our very large customers) and the pricing, margins, and other terms of such orders; ·changes in the mix of products sold;
changes in the capacity utilization including at our facility in Malaysia;·the availability and pricing of components from third parties (especially limited sources);
changes in the mix of products sold; ·the difficulty in maintaining margins, including the higher margins traditionally achieved in international sales;
the availability and pricing of components from third parties (especially limited sources); ·changes in pricing policies by us, our competitors or suppliers;
the difficulty in maintaining margins, including the higher margins traditionally achieved in international sales; ·the timing, cost or outcome of any future intellectual property litigation or commercial disputes;
changes in pricing policies by us, our competitors or suppliers; ·delays in product shipments caused by human error or other factors; or,
the timing, cost or outcome of any future intellectual property litigation or commercial disputes; ·disruptions in transportation channels. delays in product shipments caused by human error or other factors; or,disruptions in transportation channels. 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 any acquisitions. In addition, revenue derived from very large orders, including those from our largest customer, have had 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 volatility in timing and amount, greater discount variability, lower gross margins, and may contract at a faster pace during economic downturns.Our Acquisitions are Subject to a Number of Related Costs and Challenges that Could Have a Material Adverse Effect on Our Business and Results of Operations. In recent years, we have completed several acquisitions. 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 any of our acquisitions could harm our business. The existing products previously sold by entities we have acquired may be of a lesser quality than our products 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.Our Tax Returns and Other Tax Matters are Subject to Examination by the U.S. Internal Revenue Service and Other Tax Authorities and Governmental Bodies and the Results of These Examinations Could Have a Material Adverse Effect on Our Financial Condition.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. These uncertain tax positions are subject to examination by the U.S. Internal Revenue Service and other tax authorities. There can be no assurance as to the outcome of any future examinations. If the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be materially adversely affected. Our tax years 2008 through 20162017 remain open to examination by the major taxing jurisdictions to which we are subject.Tax Law Changes in Hungary Could Have a Negative Impact on our Effective Tax Rate, Earnings and Results of Operations. The profit from our Hungarian operationoperations benefits from the fact that it is subject to an effective income tax rate that is lower than the U.S. federal statutory tax rate of 35%.rate. Our earnings in Hungary are subject to a statutory tax rate of 19%9%. In addition, effective January 1, 2010, certain qualified research and development expenses in Hungary became eligible for an enhanced tax deduction. These tax benefits may not be available in future years due to changes in political conditions in Hungary or changes in tax laws in Hungary or in the U.S. The reduction or elimination of these benefits in Hungary or future changes in U.S. law pertaining to the taxation of foreign earnings could result in an increase in our future effective income tax rate which could have a material adverse effect on our operating results. (See “Note 9 – Income taxes” of Notes to Consolidated Financial Statements for additional discussion regarding the impact of these matters on our income taxes).17or future changes in U.S. law pertaining to the taxation of foreign earnings could have a material adverse effect on our operating results. (See “Note 9 – Income taxes” of Notes to Consolidated Financial Statements for additional discussion regarding the impact of this tax holiday on our income taxes).Our Manufacturing Capacity, and a Substantial Majority of our Warehousing and Distribution Capacity is Located Outside of the U.S. We manufacture substantially all of our product volume at our facilities in Debrecen, Hungary and Penang, Malaysia. In order to enable timely shipment of products to our customers we maintain the substantial majority of our inventory at our 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:·the volatility of the Hungarian forint and the Malaysian ringgit relative to the U.S. dollar; ·changing and potentially unstable political environments; ·significant and frequent changes in corporate tax laws; ·difficulty in managing manufacturing operations in foreign countries; ·challenges in expanding capacity to meet increased demand; ·difficulty in achieving or maintaining product quality; ·interruption to transportation flows for delivery of components to us and finished goods to our customers; ·restrictive labor codes; and, ·increasing labor costs. 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 the 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:·burdens of complying with additional or more complex VAT and customs regulations; and, ·concentration of inventory increasing the risks associated with fire, natural disasters and logistics disruptions to customer order fulfillment. Difficulties arising from 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 Manufacturing Facility in Penang, Malaysia Could Adversely Affect our Gross Margin, Results of Operations and Earnings if Anticipated Demand is Not Achieved. Our facility in Malaysia is intended to support our long term manufacturing and warehousing capacity needs. If demand for our products does not grow as expected or if it contracts in future periods, we will have excess warehousing and manufacturing capacity which will cause an increase in overhead that will likely negatively impact our gross margins and results of operations in future periods.componentsitems are only available through limited sources. Limited source componentsitems purchased include custom ASICs, chassis and other components. We have in the past experienced delays and quality problems in connection with limited source components,items, and there can be no assurance that these problems will not recur in the future. Accordingly, our failure to receive componentsitems from limited suppliers could result in a material adverse effect on our net sales and operating results. In the event that any of our limited source suppliers experience significant financial or operational difficulties due to adverse global economic conditions or otherwise, our business and operating results would likely be adversely impacted until we are able to secure another source for the required materials.In some countries, we use distributors to support our sales channels. In the event that any of our distributors experience significant financial or operational difficulties due to adverse global economic conditions or if we experience disruptions in the use of these distributors, our business and operating results would likely be adversely impacted until we are able to secure another distributor or establish direct sales capabilities in the affected market. 18Concentrations 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 emerging markets. 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.
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Adoption of Complex Health Care Legislation and Related Regulations and Financial Reform Have Increased our Operating Costs and Adversely Affected 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 have increased the costs of providing health care to our employees as well as caused us to incur additional administrative burdens and costs to comply with certain provisions of this legislation. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act has resulted in increased costs to us as a result of fees as well as incremental efforts we have had to undertake to comply with provisions of this law which are applicable to our derivative contracts or other financial instruments. In addition to the fees and efforts we have already incurred and undertaken to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act, we may incur additional costs in future periods as new rules are published and become effective.
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 newthird-party operating systems of third parties on which our products are based often contain bugs or errors that canerrors. Our products operate in conjunction with third-party products and components across a broad ecosystem. As has occurred in the past and as may be expected to occur in the future, our products, or products or components in conjunction with which they operate, may contain design flaws. These flaws, or fixes to these flaws, may have a negative impact on the performance of our products, which could result in additional costs, liability claims, reduced salesrevenue, or causeharm to our support costs to increase, eitherreputation or competitive position, any of which could have a material adverse impact on our operating results.
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, 2016. This annual report on Form 10-K also contains a report by our management on our internal control over financial reporting including an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016 and 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 Our Proprietary Rights and We Have Been Subject to Intellectual Property Litigation. Our success depends on our ability to obtain and maintain patents and other proprietary rights relative to the technologies used in our principal products. Despite our efforts to protect our proprietary rights, unauthorized parties may have in the past infringed or violated certain of our intellectual property rights. We from time to time engage in litigation to protect our intellectual property rights. In monitoring and policing our intellectual property rights, we have been and may be required to spend significant resources. We from time to time may be notified that we are infringing certain patent or intellectual property rights of others. There can be no assurance that any future intellectual property dispute or litigation will not result in significant 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 Business Depends on the Continued Service of Our Key Management and Technical Personnel. Our success depends upon the continued contributions of our key management, sales, marketing, research and development and operational personnel including Alex Davern, our President and Chief Executive Officer, and other members of our senior management and key technical personnel. In connection with his promotion to Chief Executive Officer in January 2017, we entered into an employment agreement with Mr. Davern. We have no other 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. The market for hiring and retaining certain technical personnel, including software engineers, has become more competitive and intense in recent years. Failure to attract a sufficient number of qualified technical personnel, including software engineers or retain our key personnel could have a material adverse effect on our operating results.
Our 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 operations in the U.S., Hungary, and 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.
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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, bodily harm or property damage. 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” and electronically displayed 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.
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High Low 2016 First Quarter 2016 $ $ Second Quarter 2016 Third Quarter 2016 Fourth Quarter 2016 2015 First Quarter 2015 $ $ Second Quarter 2015 Third Quarter 2015 Fourth Quarter 2015 See Item 12 for information regarding securities authorized for issuance under our equity compensation plans. 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 National Instruments Nasdaq Russell 2000 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, - - - November 1, - - - December 1, - - - Total - - - For the years ended December 31, (in thousands, except per share data) 2016 2015 2014 2013 2012 Statements of Income Data: Net sales: Americas $ $ $ $ $ EMEIA APAC Consolidated net sales Cost of sales: Gross profit Operating expenses: Sales and marketing Research and development General and administrative Acquisition related adjustment - - - Total operating expenses Operating income Other income (expense): Interest income Net foreign exchange loss Other (expense) income, net Income before income taxes Provision for income taxes Net income $ $ $ $ $ Basic earnings per share $ $ $ $ $ Weighted average shares outstanding - basic Diluted earnings per share $ $ $ $ $ Weighted average shares outstanding - diluted Cash dividends declared per common share $ $ $ $ $ December 31, (in thousands) 2016 2015 2014 2013 2012 Balance Sheet Data: Cash and cash equivalents $ $ $ $ $ Short-term investments Working capital (1) Total assets Long-term debt, net of current portion - - - Total stockholders' equity (1) Effective December 31, 2015, our working capital includes the effects of the adoption of ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, requiring all deferred tax assets and liabilities and any related valuation allowance to be classified as non-current on our Consolidated Balance Sheets. Prior periods were not retrospectively adjusted. 2015. Years ended December 31, 2016 2015 2014 Net sales: Americas % % % EMEIA APAC Consolidated net sales Cost of sales Gross profit Operating expenses: Sales and marketing Research and development General and administrative Total operating expenses Operating income Other income (expense): Interest income Net foreign exchange loss Other expense, net - - Income before income taxes Provision for income taxes Net income % % % 2015 Years ended December 31, ($ in millions) 2016 Change 2015 Change 2014 Product sales Software maintenance sales Total net sales $ Years ended December 31, ($ in millions) 2016 Change 2015 Change 2014 Americas $ Percentage of total net sales EMEIA $ Percentage of total net sales APAC $ Percentage of total net sales Year Ended December 31, 2015 Change Impact of changes in foreign currency exchange rates on net sales Year Ended December 31, 2016 ($ In millions) GAAP Dollars Percentage Dollars Percentage GAAP Americas $ (2.3%) (3.5) (0.7%) EMEIA $ 2.5% (29.5) (7.2%) APAC $ 14.0% (7.9) (2.5%) Total net sales $ 3.6% (40.9) (3.3%) Year Ended December 31, 2014 Change Impact of changes in foreign currency exchange rates on net sales Year Ended December 31, 2015 ($ In millions) GAAP Dollars Percentage Dollars Percentage GAAP Americas $ 3% (2.5%) EMEIA $ 8.6% (9.4%) APAC $ 0.6% (5.3%) Total net sales $ 4.1% (5.5%) Years Ended December 31, ($ in millions) 2016 Change 2015 Change 2014 Gross Profit $ $ $ $ Gross Profit as a percentage of net sales Years Ended December 31, ($ in thousands) 2016 Change 2015 Change 2014 Sales and marketing $ 2% $ $ $ Percentage of total net sales Research and development $ 5% Percentage of total net sales General and Administrative $ 5% Percentage of total net sales Total operating expenses $ 3% Percentage of total net sales 2016. Provision for Income Taxes. For the years ended December 31, 2017, 2016, Effective tax rate for % Increased profits in foreign jurisdictions with reduced income tax rates Change in enhanced deduction for certain research and development expenses Change in intercompany prepaid tax asset Change in Remeasurement of U.S. deferred tax balance % Effective tax rate for % Change in valuation allowance Change in enhanced deduction for certain research and development expenses Change in intercompany prepaid tax asset Change in Other Effective tax rate for % Three months ended (in thousands, except per share data) March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 Net sales $ Gross profit Operating income Net income Basic earnings per share $ Weighted average shares outstanding - basic Diluted earnings per share $ Weighted average shares outstanding - diluted Dividends declared per share $ Three months ended (in thousands, except per share data) March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 Net sales $ Gross profit Operating income Net income Basic earnings per share $ Weighted average shares outstanding - basic Diluted earnings per share $ Weighted average shares outstanding - diluted Dividends declared per share $ Three Months Ended December 31, Years Ended December 31, (In thousands) 2016 2015 2016 2015 Stock-based compensation Cost of sales $ $ $ $ Sales and marketing Research and development General and administrative Provision for income taxes Total $ $ $ $ Three Months Ended December 31, Years Ended December 31, (In thousands) 2016 2015 2016 2015 Amortization of acquisition intangibles Cost of sales $ $ $ $ Sales and marketing Research and development Other income, net - - Provision for income taxes Total $ $ $ $ Three Months Ended December 31, Years Ended December 31, (In thousands) 2016 2015 2016 2015 Acquisition transaction costs, restructuring charges, and other Cost of sales $ $ $ $ Sales and marketing Research and development General and administrative Foreign exchange loss1 - Other income (loss), net2 - Provision for income taxes Total $ $ $ $ (1) Foreign exchange losses on acquisitions were $94 and $3,111 for the years ended December 31, 2016 and 2015, respectively. (2) Taxes levied on the transfer of acquired intellectual property were $2,475 and $0 for the years ended December 31, 2016 and 2015, respectively. Impairment charges recognized on a cost-method investment were $0 and $1,000 for the years ended December 31, 2016 and December 31, 2015 respectively. Increase/ (In thousands) December 31, 2016 December 31, 2015 (Decrease) Working capital $ $ $ Cash and cash equivalents (1) Short-term investments (1) Total cash, cash equivalents and short-term investments $ $ $ (1) Included in working capital investments. 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 short-term investments that are located outside of the U.S. are denominated in the U.S. dollar with the exception of (In thousands) December 31, 2016 2015 Cash provided by operating activities $ $ Cash used by investing activities Cash used by financing activities Net change in cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period $ $ stock. From time to time, our Board of Directors has authorized various programs program). Payments due by period (In thousands) Total 2017 2018 2019 2020 2021 Beyond Long-term debt $ $ - $ - $ - $ $ - $ - Capital lease obligation - - - - - - - Operating leases Total contractual obligations $ $ $ $ $ $ $ The following summarizes our other commercial commitments as of December 31, (In thousands) Total 2017 2018 2019 2020 2021 Beyond Guarantees $ $ $ - $ - $ - $ - $ - Purchase obligations - - - - - Total commercial commitments $ $ $ - $ - $ - $ - $ - Although we believe that we have sufficient capital to fund our operating 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: required levels of research and development and other operating costs; our business, product, capital expenditure and research and development plans, and product and technology roadmaps; acquisitions of other businesses, assets, products or technologies; the overall levels of sales of our products and gross profit margins; the levels of inventory and accounts receivable that we maintain; general economic and political uncertainty and specific conditions in the markets we address, including any volatility in the industrial economy in the various geographic regions in which we do business; the inability of certain of our customers who depend on credit to have access to their traditional sources of credit to finance the purchase of products from us, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us; capital improvements for facilities; repurchases of our common stock; our relationships with suppliers and customers; and the level of stock purchases under our employee stock purchase plan. Critical Accounting Policies Revenue recognition The revenues allocated to the software-related elements are recognized based on software industry specific revenue recognition guidance, as noted above. The revenues allocated to the non-software related elements are recognized based on the nature of the element provided. We estimate BESP by considering internal factors such as historical pricing practices and gross margin objectives, as well as market conditions such as competitor pricing strategies, customer demands and geography, and regularly review these assumptions. Estimating allowances, specifically the allowance for doubtful accounts and the adjustment for excess and obsolete inventories Accounting for costs of computer software 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 Accounting for income taxes jurisdictions. 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 timely 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 help mitigate the risks associated with these contractual requirements, we may pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. PART III 4.1(4) Specimen of Common Stock certificate of the Company. 10.1(4) Form of Indemnification Agreement. Incorporated by reference to exhibit 10.1 filed with the Company’s Form 8-K filed on December 16, 2016. Incorporated by reference to exhibit C of the Company’s Proxy Statement filed on April 1, 2015. Incorporated by reference to exhibit 10.1 filed with the Company’s Form 8-K filed on October 30, 2015. Incorporated by reference to exhibit 10.25 filed with the Company’s Form 10-Q filed on May 2, 2016. Incorporated by reference to exhibit 10.26 filed with the Company’s Form 10-Q filed on May 2, 2016. Incorporated by reference to exhibit 10.27 filed with the Company’s Form 10-Q filed on October 31, 2016. Incorporated by reference to exhibit 10.29 filed with the Company’s Form 10-Q filed on May 1, 2017. † Confidential treatment has been granted for portions of this exhibit. These portions have been omitted and submitted separately with the Securities and Exchange Commission. Registrant NATIONAL INSTRUMENTS CORPORATION February BY: /s/ Alex M. Davern Alex M. Davern President and Chief Executive Officer Date /s/ Alex M. Davern February Alex M. Davern February John C. Roiko /s/ James J. Truchard Chairman of the Board February Dr. James J. Truchard /s/ Gerhard P. Fettweis Director February Dr. Gerhard P. Fettweis /s/ John M. Berra Director February John M. Berra /s/ Jeffrey L. Kodosky Director February Jeffrey L. Kodosky /s/ Duy-Loan T. Le Director February Duy-Loan T. Le /s/ Michael E. McGrath Director February Michael E. McGrath /s/ Charles J. Roesslein Director February Charles J. Roesslein Financial Statements: Report of Independent Registered Public Accounting Firm Corporation We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. statements December 31, December 31, 2016 2015 Assets Current assets: Cash and cash equivalents $ $ Short-term investments Accounts receivable, net Inventories, net Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Intangible assets, net Other long-term assets Total assets $ $ Liabilities and stockholders' equity Current liabilities: Accounts payable $ $ Accrued compensation Deferred revenue - current Accrued expenses and other liabilities Other taxes payable Total current liabilities Long-term debt Deferred income taxes Liability for uncertain tax positions Deferred revenue - long-term Other long-term liabilities Total liabilities 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; 360,000,000 shares authorized; 129,202,979 and 127,471,604 shares issued and outstanding, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) income Total stockholders’ equity Total liabilities and stockholders’ equity $ $ For the years ended December 31, 2016 2015 2014 Net sales: Product $ $ $ Software maintenance Total net sales Cost of sales: Product Software maintenance Total cost of sales Gross profit Operating expenses: Sales and marketing Research and development General and administrative Total operating expenses Operating income Other income (expense): Interest income Net foreign exchange loss Other expense, net Income before income taxes Provision for income taxes Net income $ $ $ Basic earnings per share $ $ $ Weighted average shares outstanding - basic Diluted earnings per share $ $ $ Weighted average shares outstanding - diluted Dividends declared per share $ $ $ NATIONAL INSTRUMENTS CORPORATION For the years ended December 31, 2016 2015 2014 Net income $ $ $ Other comprehensive income, before tax and net of reclassification adjustments: Foreign currency translation adjustment Unrealized (loss) gain on securities available-for-sale Unrealized gain on derivative instruments Other comprehensive income (loss), before tax Tax provision related to items of other comprehensive income Other comprehensive income (loss), net of tax Comprehensive income $ $ $ The accompanying notes are an integral part of these financial statements. For the years ended December 31, 2016 2015 2014 Cash flow from operating activities: Net income $ $ $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Stock-based compensation Tax (benefit) expense from deferred income taxes Tax benefit from stock option plans Purchase price adjustment - - Changes in operating assets and liabilities (net of effects of acquisitions): Accounts receivable Inventories Prepaid expenses and other assets Accounts payable Deferred revenue Taxes, accrued benefit (expenses) and other liabilities Net cash provided by operating activities Cash flow from investing activities: Capital expenditures Capitalization of internally developed software Additions to other intangibles Acquisitions, net of cash received - Purchases of short-term investments Sales and maturities of short-term investments Net cash used in investing activities Cash flow from financing activities: Proceeds from revolving line of credit - Principal payments on revolving line of credit - Proceeds from issuance of common stock Repurchase of common stock - Dividends paid Tax benefit from stock option plans Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ $ $ Supplemental disclosures: Equity consideration issued in business combinations $ - - Interest $ $ $ Income taxes $ $ $ Common Stock Shares Common Stock Amount Additional-Paid in Capital Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total Stockholders' Equity Balance at December 31, 2013 $ $ $ $ $ Net income - - - - Other comprehensive loss, net of tax - - - Issuance of common stock under employee plans, including tax benefits - - Stock-based compensation - - - - Business acquisition Repurchase of common stock Dividends paid - - - - Disqualified dispositions - - - - Balance at December 31, 2014 $ $ $ $ $ Net income - - - - Other comprehensive loss, net of tax - - - Issuance of common stock under employee plans, including tax benefits - - Stock-based compensation - - - - Business acquisition Repurchase of common stock Dividends paid - - - - Disqualified dispositions - - - - Balance at December 31, 2015 $ $ $ $ $ Net income - - - - Other comprehensive income, net of tax - - - Issuance of common stock under employee plans, including tax benefits - - Stock-based compensation - - - - Business acquisition - - - Repurchase of common stock Dividends paid - - - - Balance at December 31, 2016 $ $ $ $ $ The accompanying notes are an integral part of these financial statements. 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 on our available-for-sale securities during 2017, 2016, 2015. (In thousands) Year Description Balance at Beginning of Period Provisions Write-Offs Balance at End of Period 2014 Allowance for doubtful accounts and sales returns $ $ $ $ 2015 Allowance for doubtful accounts and sales returns $ $ $ 2016 Allowance for doubtful accounts and sales returns $ $ $ (In thousands) Year Description Balance at Beginning of Period Provisions Write-Offs Balance at End of Period 2014 Adjustment for excess and obsolete inventories $ $ $ $ 2015 Adjustment for excess and obsolete inventories $ $ $ 2016 Adjustment for excess and obsolete inventories $ $ $ The excess purchase price over the fair value of net assets acquired is recorded as goodwill. We have one operating segment and one reporting unit. 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. 2017 (in millions): The warranty reserve for the years ended December 31, 2017, 2016, (In thousands) 2016 2015 2014 Balance at the beginning of the period $ $ $ Accruals for warranties issued during the period Accruals related to pre-existing warranties Settlements made (in cash or in kind) during the period Balance at the end of the period $ $ $ Earnings per share Years ended December 31, (In thousands) 2016 2015 2014 Weighted average shares outstanding-basic Plus: Common share equivalents Stock options, RSUs Weighted average shares outstanding-diluted Adopted Accounting Pronouncements Additionally, we expect the new standard will impact the way we allocate the transaction price for arrangements with separately-priced extended warranty offerings. consolidated financial statements. Note2– (In thousands) As of December 31, 2016 Gross Gross Cumulative Adjusted Cost Unrealized Gain Unrealized Loss Translation Adjustment Fair Value Cash $ $ - $ - $ $ Money Market Accounts - - - Corporate bonds Time deposits - - - Cash, cash equivalents, and short-term investments $ $ $ $ $ (In thousands) As of December 31, 2015 Gross Gross Cumulative Adjusted Cost Unrealized Gain Unrealized Loss Translation Adjustment Fair Value Cash $ $ - $ - $ $ Money Market Accounts - - - Corporate bonds U.S. treasuries and agencies - - Time deposits - - Cash, cash equivalents, and short-term investments $ $ $ $ $ (In thousands) As of December 31, 2016 Adjusted Cost Fair Value Due in less than 1 year $ $ Due in 1 to 5 years Total available-for-sale debt securities $ $ Due in less than 1 year Adjusted Cost Fair Value Corporate bonds $ Time deposits Total available-for-sale debt securities $ $ Due in 1 to 5 years Adjusted Cost Fair Value Corporate bonds Total available-for-sale debt securities $ $ (In thousands) Fair Value Measurements at Reporting Date Using Description December 31, 2016 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 $ - - Short-term investments available for sale: Corporate bonds - - Time deposits - Derivatives - - Total Assets $ $ $ $ - Liabilities Derivatives $ - - Total Liabilities $ $ - $ $ - (In thousands) Fair Value Measurements at Reporting Date Using Description December 31, 2015 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 $ $ $ - $ - Short-term investments available for sale: Corporate bonds - - U.S. treasuries and agencies - - Time deposits - - Derivatives - - Total Assets $ $ $ $ - Liabilities Derivatives $ $ - $ $ - Total Liabilities $ $ - $ $ - 2017. 2016. We have operations in over 50 countries. Sales outside of the Americas accounted for approximately 61%, (In thousands) U.S. Dollar Equivalent As of December 31, 2016 As of December 31, 2015 Chinese yuan $ $ Euro Japanese yen Hungarian forint British pound - Malaysian ringgit Total forward contracts notional amount $ $ At December 31, The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets and the effect of derivative instruments on our Consolidated Statements of Income. Asset Derivatives December 31, 2016 December 31, 2015 (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 $ Prepaid expenses and other current assets $ Foreign exchange contracts - LT forwards Other long-term assets Other long-term assets - Total derivatives designated as hedging instruments $ $ Derivatives not designated as hedging instruments Foreign exchange contracts - ST forwards Prepaid expenses and other current assets $ Prepaid expenses and other current assets $ Total derivatives not designated as hedging instruments $ $ Total derivatives $ $ Liability Derivatives December 31, 2016 December 31, 2015 (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 $ Accrued expenses and other liabilities $ Foreign exchange contracts - LT forwards Other long-term liabilities Other long-term liabilities Total derivatives designated as hedging instruments $ $ Derivatives not designated as hedging instruments Foreign exchange contracts - ST forwards Accrued expenses and other liabilities $ $ Total derivatives not designated as hedging instruments $ $ Total derivatives $ $ December 31, 2016 (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 $ Net sales $ Net foreign exchange gain (loss) $ - Foreign exchange contracts - forwards and options Cost of sales Net foreign exchange gain (loss) - Foreign exchange contracts - forwards and options Operating expenses Net foreign exchange gain (loss) - Total $ $ $ - December 31, 2015 (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 $ Net sales $ Net foreign exchange gain (loss) $ - Foreign exchange contracts - forwards and options Cost of sales Net foreign exchange gain (loss) - Foreign exchange contracts - forwards and options Operating expenses Net foreign exchange gain (loss) - Total $ $ $ - (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, 2016 December 31, 2015 Foreign exchange contracts - forwards Net foreign exchange (loss)/gain $ $ Total $ $ Note5– Inventories (In thousands) December 31, 2016 December 31, 2015 Raw materials $ $ Work-in-process Finished goods Total $ $ December 31, December 31, (In thousands) 2016 2015 Land $ $ Buildings Furniture and equipment Accumulated depreciation Total, net $ $ (In thousands) December 31, 2016 December 31, 2015 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Capitalized software development costs $ $ $ $ $ $ Acquired technology Patents Other Total $ $ $ $ $ $ Capitalized software development costs, acquired technology, patents and other intangible assets had weighted-average useful lives of Amount (In thousands) 2017 $ 2018 2019 2020 2021 Thereafter Total $ 2016. (In thousands) Years Ended December 31, 2016 2015 2014 Domestic $ $ $ Foreign Total $ $ $ (In thousands) Years Ended December 31, 2016 2015 2014 Current tax expense: U.S. federal $ $ $ State Foreign Total current $ $ $ Deferred tax expense (benefit): U.S. federal $ $ $ State Foreign Total deferred $ $ $ Change in valuation allowance - Total provision $ $ $ (In thousands) December 31, 2016 2015 Capitalized software $ $ Depreciation and amortization Intangible assets Inventory valuation and warranty provisions - Unrealized exchange gain - Unrealized gain on derivative instruments - Undistributed earnings of foreign subsidiaries Gross deferred tax liabilities Operating loss carryforwards Vacation and other accruals Inventory valuation and warranty provisions - Doubtful accounts and sales provisions Unrealized exchange loss - Deferred revenue Accrued legal expenses Unrealized loss on derivative instruments - 10% minority stock investment Stock-based compensation Research and development tax credit carryforward Capital loss carryforward - Foreign tax credit carryforward Cumulative translation adjustment on undistributed earnings - Other Gross deferred tax assets Valuation allowance Net deferred tax liability $ $ Years Ended December 31, 2016 2015 2014 U.S. federal statutory rate % % % Foreign taxes greater (less) than federal statutory rate Research and development tax credits Enhanced deduction for certain research and development expenses State income taxes, net of federal tax benefit Employee share-based compensation Change in intercompany prepaid tax asset Change in valuation allowance - - Domestic production activities deduction - - Decrease in unrecognized tax benefits - - Amortization of intangible assets - - Meals and Entertainment - - - Other Effective tax rate % % % (In thousands) 2016 2015 Balance at beginning of period $ $ Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions as a result of the closing of open tax periods - Balance at end of period $ $ Earnings from our operations in Malaysia are free of tax under a tax holiday effective January 1, 2013. This tax holiday expires in 2027. If we fail to satisfy the conditions of the tax holiday, this tax benefit may be terminated early. The tax holiday resulted in income tax benefits of December 31, 2016 (In thousands) Currency translation adjustment Investments Derivative instruments Accumulated other comprehensive income (loss) Balance as of December 31, 2015 $ $ $ $ Current-period other comprehensive income Reclassified from accumulated OCI into income - - Income tax benefit (expense) Balance as of December 31, 2016 $ $ $ $ December 31, 2015 (In thousands) Currency translation adjustment Investments Derivative instruments Accumulated other comprehensive income (loss) Balance as of December 31, 2014 $ $ $ $ Current-period other comprehensive income Reclassified from accumulated OCI into income - - Income tax (benefit) expense Balance as of December 31, 2015 $ $ $ $ Number of shares under option Weighted average exercise price per share Outstanding at December 31, 2013 $ Exercised $ Canceled $ Granted - $ - Outstanding at December 31, 2014 $ Exercised $ Canceled $ Granted - $ - Outstanding at December 31, 2015 - $ - Exercised - $ - Canceled - $ - Granted - $ - Outstanding at December 31, 2016 - $ - Options exercisable at December 31: 2014 $ 2015 - $ - 2016 - $ - The aggregate intrinsic value of stock options at exercise 2017. Our stockholders approved our 2010 Incentive Plan (the “2010 Plan”) on May 11, 2010. At the time of approval, 3,000,000 shares of our common stock were reserved for issuance under this plan, as well as the 3,362,304 shares of common stock that were reserved but not issued under the 1994 Plan and the 2005 Plan as of May 11, 2010, and any shares that are returned to the 1994 Plan and the 2005 Plan as a result of forfeiture or termination of options or RSUs or repurchase of shares issued under these plans. The 2010 Plan provided for the granting of incentive awards in the form of restricted stock and RSUs to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. There were 2,518,416 shares of common stock that were reserved but not issued under the 2010 Plan as of May 12, 2015. 2017. RSUs Number of RSUs Weighted average grant price per share Outstanding at December 31, 2013 $ Granted $ Earned $ Canceled $ Outstanding at December 31, 2014 $ Granted $ Earned $ Canceled $ Outstanding at December 31, 2015 $ Granted $ Earned $ Canceled $ Outstanding at December 31, 2016 $ Employee stock purchase plan 2016 2015 2014 Dividend expense yield Expected life 3 months 3 months 3 months Expected volatility Risk-free interest rate Number of Shares Weighted average fair value per share 2014 $ 2015 $ 2016 $ AuthorizedPreferred Stock and Preferred Stock Purchase Rights Plan 2017. (In thousands) Years ended December 31, 2016 2015 2014 Net sales: Americas $ $ $ EMEIA APAC Total $ $ $ The Loan Agreement contains customary events of default including, among other things, payment defaults, breaches of covenants or representations and warranties, cross-defaults with certain other indebtedness, bankruptcy and insolvency events, judgment defaults and change in control events, subject to grace periods in certain instances. Upon an event of default, the lender may declare all or a portion of the outstanding obligations payable by us to be immediately due and payable and exercise other rights and remedies provided for under the Loan Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Loan Agreement at a per annum rate of interest equal to 2.00% above the otherwise applicable interest rate. Amount (In thousands) 2017 $ 2018 2019 2020 2021 Thereafter Total $ Other AcquisitionsITEM 1B.UNRESOLVED STAFF COMMENTSNone.ITEM 2.PROPERTIESWe own approximately 145 acres of land in the Austin, Texas area. Our principal corporate and research and development activities are conducted in three buildings we own in Austin, Texas; 232,000 square foot and 140,000 square foot office facilities, 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.Our principal manufacturing activities are conducted in Debrecen, Hungary and Penang, Malaysia. We own a 306,000 square foot manufacturing, distribution and general and administrative facility in Debrecen, Hungary and a 314,000 square foot manufacturing, research and development, and general and administrative facility in Penang, Malaysia. In total, we hold a 99 year lease on 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. National Instruments Corporation (UK) Limited, United Kingdom, owns a 29,270 square foot office building in Newbury, UK.As of December 31, 2016,2017, we also leased a number of sales and support offices in the U.S. and various countries throughout the world. We believe our existing facilities are adequate to meet our current requirements.ITEM 3.LEGAL PROCEEDINGSWe are not currently a party to any material litigation. However, in the ordinary course of our business, we are involved in a limited number of legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. We also periodically receive notifications from various third parties related to alleged infringement of patents or intellectual property rights, commercial disputes or other matters. No assurances can be given with respect to the extent or outcome of any future litigation or dispute. ITEM 4.MINE SAFETY DISCLOSURESNot applicable.22PART IIPAITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESOur common stock began trading on The NASDAQ Stock Market under the symbol NATI effective March 13, 1995. 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:30.26 26.89 30.13 25.94 29.46 26.92 31.08 27.20 32.85 29.31 32.92 28.36 29.80 27.10 31.54 27.55 High Low 2017 First Quarter 2017 $ 32.81 $ 30.37 Second Quarter 2017 40.35 31.79 Third Quarter 2017 43.50 38.87 Fourth Quarter 2017 45.88 41.53 2016 First Quarter 2016 $ 30.26 $ 26.89 Second Quarter 2016 30.13 25.94 Third Quarter 2016 29.46 26.92 Fourth Quarter 2016 31.08 27.20 At the close of business on February 10, 2017,9, 2018, there were approximately 362333 holders of record of our common stock and approximately 31,62436,704 beneficial holders of our common stock.We believe factors such as quarterly fluctuations in our results of operations, announcements by us or our competitors, changes in earnings estimates by analysts or changes in our financial guidance, technological innovations, new product introductions, governmental regulations, actions, or litigation, 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. The dividends were paid on the dates set forth below:Dividend Amount2016March 7, 2016$0.20 June 6, 20160.20 September 6, 20160.20 December 5, 20160.20 2015March 9, 2015$0.19 June 1, 20150.19 August 30, 20150.19 November 30, 20150.19 Dividend Amount 2017 March 6, 2017 $ 0.21 June 5, 2017 $ 0.21 September 5, 2017 $ 0.21 December 4, 2017 $ 0.21 2016 March 7, 2016 $ 0.20 June 6, 2016 $ 0.20 September 6, 2016 $ 0.20 December 5, 2016 $ 0.20 Our policy as to whether any future dividends will be paid, and if so, the amount, will be based on, among other considerations, our balance of domesticavailable cash, our ability to obtain external financing through aour 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. Future dividends are subject to approval and declaration by our Board of Directors.On January 25, 2017,24, 2018, our Board of Directors declared a quarterly cash dividend of $0.21$0.23 per common share, payable on March 6, 2017,5, 2018, to stockholders of record on February 13, 2017.12, 2018.23Performance GraphThe following graph compares the cumulative total return to holders of NI’s common stock from December 31, 20112012 to December 31, 20162017 to the cumulative return over such period of the (i) Nasdaq Composite Index, and (ii) Russell 2000 Index, and (iii) Russell 2500 Index. We usepreviously used the Russell 2000 Index in our performance graph due to the fact that we havewere not been able to identify a published industry or line of business index that we believebelieved appropriately reflectsreflected our industry or line of business. Due to the increasing size of our market capitalization, we determined that the Russell 2500 Index is a more appropriate benchmark than the Russell 2000 index as the average market capitalization is the closest in the Russell family of indices to our market capitalization as of December 31, 2017. In accordance with SEC requirements, we are including both indices during this transitional year. We considered that some of our primary competitors are or were 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 a sufficient number of public companies with multiple years of trading history as a standalone company that we believe are principally in the same line of business as we are.The graph assumes that $100 was invested on December 31, 20112012 in NI’s common stock and in each of the other twothree 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.
100 102 128 127 120 133 100 117 165 189 202 220 100 116 162 169 162 196 
12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 National Instruments 100 126 125 119 131 181 Nasdaq 100 140 161 172 187 244 Russell 2500 100 137 147 142 167 195 Russell 2000 100 139 146 139 169 193 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.2420162017 to October 31, 20161,134,247 20162017 to November 30, 20161,134,247 20162017 to December 31, 20161,134,247 1,134,247 (1)For the past several years, we have maintained various stock repurchase programs. At December 31, 2016,(1) For the past several years, we have maintained various stock repurchase programs. At December 31, 2017, there were 1,134,247 shares available for repurchase under the plan approved on April 21, 2010. This repurchase plan does not have an expiration date. Unregistered Sales of Equity SecuritiesNone.25ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATAThe 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.”482,039 496,746 495,951 483,603 455,024 389,843 409,119 412,401 390,301 368,744 356,297 319,591 335,510 298,654 319,924 1,228,179 1,225,456 1,243,862 1,172,558 1,143,692 313,121 316,956 318,132 305,243 280,274 915,058 908,500 925,730 867,315 863,418 461,236 452,262 461,845 447,800 431,468 235,706 225,131 227,433 234,796 222,994 98,390 93,935 91,265 87,418 85,239 (1,316) 6,783 795,332 771,328 780,543 768,698 746,484 119,726 137,172 145,187 98,617 116,934 1,122 1,403 1,133 679 716 (4,632) (7,075) (2,250) (2,578) (2,246) (1,581) (221) (69) 450 (567) 114,635 131,279 144,001 97,168 114,837 31,901 36,017 17,668 16,655 24,700 82,734 95,262 126,333 80,513 90,137 0.64 0.74 0.99 0.65 0.74 128,453 127,997 127,030 124,558 121,973 0.64 0.74 0.99 0.64 0.73 129,008 128,668 127,997 125,571 122,977 0.80 0.76 0.60 0.56 0.56
26 For the years ended December 31, (in thousands, except per share data) 2017 2016 2015 2014 2013 Statements of Income Data: Net sales: Americas $ 504,626 $ 482,039 $ 496,746 $ 495,951 $ 483,603 EMEIA 408,625 389,843 409,119 412,401 390,301 APAC 376,135 356,297 319,591 335,510 298,654 Consolidated net sales 1,289,386 1,228,179 1,225,456 1,243,862 1,172,558 Cost of sales: 328,324 313,121 316,956 318,132 305,243 Gross profit 961,062 915,058 908,500 925,730 867,315 Operating expenses: Sales and marketing 477,921 461,236 452,262 461,845 447,800 Research and development 231,761 235,706 225,131 227,433 234,796 General and administrative 105,602 98,390 93,935 91,265 87,418 Acquisition related adjustment — — — — (1,316 ) Total operating expenses 815,284 795,332 771,328 780,543 768,698 Operating income 145,778 119,726 137,172 145,187 98,617 Other income (expense): Interest income 2,276 1,122 1,403 1,133 679 Net foreign exchange gain (loss) 892 (4,632 ) (7,075 ) (2,250 ) (2,578 ) Other (expense) income, net (1,566 ) (1,581 ) (221 ) (69 ) 450 Income before income taxes 147,380 114,635 131,279 144,001 97,168 Provision for income taxes 94,969 31,901 36,017 17,668 16,655 Net income $ 52,411 $ 82,734 $ 95,262 $ 126,333 $ 80,513 Basic earnings per share $ 0.40 $ 0.64 $ 0.74 $ 0.99 $ 0.65 Weighted average shares outstanding - basic 130,300 128,453 127,997 127,030 124,558 Diluted earnings per share $ 0.40 $ 0.64 $ 0.74 $ 0.99 $ 0.64 Weighted average shares outstanding - diluted 131,387 129,008 128,668 127,997 125,571 Cash dividends declared per common share $ 0.84 $ 0.80 $ 0.76 $ 0.60 $ 0.56 285,283 251,129 274,030 230,263 161,996 73,117 81,789 197,163 163,149 173,166 574,572 559,525 700,163 603,240 522,744 1,496,564 1,453,856 1,455,491 1,343,551 1,284,769 25,000 37,000 1,114,219 1,081,721 1,117,496 1,023,084 939,128 27 December 31, (in thousands) 2017 2016 2015 2014 2013 Balance Sheet Data: Cash and cash equivalents $ 290,164 $ 285,283 $ 251,129 $ 274,030 $ 230,263 Short-term investments 121,888 73,117 81,789 197,163 163,149 Working capital (1) 624,835 574,572 559,525 700,163 603,240 Total assets 1,566,434 1,496,564 1,453,856 1,455,491 1,343,551 Long-term debt, net of current portion — 25,000 37,000 — — Total stockholders' equity 1,128,021 1,114,219 1,081,721 1,117,496 1,023,084 (1) Effective December 31, 2015, our working capital includes the effects of the adoption of ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, requiring all deferred tax assets and liabilities and any related valuation allowance to be classified as non-current on our Consolidated Balance Sheets. Prior periods were not retrospectively adjusted.ITEM 7. MANAGEMENT’SMANAGEMENT’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 and Section 21E of the Exchange Act. Any statements contained herein regarding our future financial performance, operations, or other activities (including, without limitation, statements to the effect that we “believe,” “expect,” “plan,”, ”intend''intend to”,“may,” “will,” “project,” “anticipate”, “continue,” or “estimate” or other variations thereof or comparable terminology or the negative thereof) should be considered forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors including those set forth under the heading “Risk Factors” beginning on page 13, 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 We design, manufacture and sell tools to engineers and scientists that accelerate productivity, innovation and discovery. Our platform-based approach to engineering provides an integrated software and hardware platform that speeds the development of systems needing measurement and control. We believe our long-term vision and focus on technology supports the success of our customers, employees, partners, suppliers and 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%, 3%, or 5% of our sales in each of the years ended 2017, 2016, 2015, and 2014, respectively.The key strategies that we focus on in running our business are the following:Expanding our broad customer base We strive to increase our already broad customer base and to grow our large order business 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 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 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 high quality and reliability, and that our products provide cost-effective solutions for our customers. Leveraging external and internal technology Our product strategy is to provide superior products by leveraging generally available technology, supporting open architectures on multiple platforms and by leveraging our core technologies such as custom ASICs across multiple products.We sell into test and measurement and industrial/embedded applications in a broad range of industries and are subject to the economic and industry forces that drive those markets. It has been our experience that the performance of these industries and our performance are 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 advanced research, automotive, automated test equipment, consumer electronics, commercial aerospace, computers and electronics, continuous process manufacturing, education, government/defense, medical research/pharmaceutical, power/energy, semiconductors, and telecommunications.Leveraging a worldwide sales, distribution and manufacturing network We distribute and sell our software and hardware products primarily through a direct sales organization. We also use independent distributors, OEMs, VARs, system integrators and consultants to market and sell our products. We have sales offices in the U.S. and sales offices and distributors in key international markets. Sales outside of the Americas accounted for approximately 61% of our revenues in each of 2017 and 2016 and 59% of our revenues in 2015 and 60% of our revenues in 2014.2015. 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 13 – Segment and geographic information of Notes to Consolidated Financial Statements for details concerning the geographic breakdown of our net sales and long-lived assets). 28We manufacture substantially all of our product volume at our facilities in Debrecen, Hungary and Penang, Malaysia. In 2017, our site in Malaysia is expected to produceproduced approximately 35% of our global production and our site in Hungary is expected to produce approximatelyproduced 65% of our global production. 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. Most of our electronic circuit card assemblies, modules and chassis are manufactured in house, although contractors are used from time to time. The majority of our electronic cable assemblies are produced by contractors; however, we do manufacture some on an exception basis. Our software duplication, technical manuals and product support documentation isare primarily produced by contractors. Delivering high quality, reliable productsWe believe that our long-term growth and success depend on delivering high quality software and hardware products on a timely basis. Accordingly, we focus significant efforts on research and development. We focus our research and development efforts on enhancing existing products and developing new products that incorporate appropriate features and functionality to be competitive with respect to technology, price and performance. Our success also depends on our ability to obtain and maintain patents and other proprietary rights related to technologies used in our products. We have engaged in litigation and where necessary, will likely engage in future litigation to protect our intellectual property rights. In monitoring and policing our intellectual property rights, we have been and may be required to spend significant resources.Our operating results fluctuate from period to period due to changes in global economic conditions and a number of other factors. As a result, we believe our historical results of operations should not be relied upon as indications of future performance. There can be no assurance that our net sales will grow or that we will remain profitable in future periods.Current business outlook Many of the industries we serve have historically been cyclical and have experienced periodic downturns. In assessing our business, we consider the trends in the Global Purchasing Managers’ Index (“PMI”), global industrial production as well as industry reports on the specific vertical industries that we target. In the three month period ended December 31, 2016,2017, the average of the PMI was 52.354.0 and the average of the new order element of the PMI was 53.1,55.1, both indicating accelerating expansion. For January 2017,2018, the most recent PMI reading was 52.7,54.4, slightly above the most recent quarterly average and consistent with the December 20162017 reading of 52.7.54.5. For January 2017,2018, the new order element of the PMI was 53.9,55.4, also above the most recent quarterly average, and above the December 2016 new order element reading of 53.7.average. During the three month period ended December 31, 2016,2017, the PMI in the U.S. and the Eurozone maintained readings above 50. We are unable to predict whether the industrial economy, as measured by the PMI, will remain above the neutral reading of 50, strengthen or contract during 2017.We are encouraged by improving trends2018.During 2017, we saw broad based improvement in the industrial economy in early 2017 as well as continuing success in the market for semiconductor test systems. However, the ongoing uncertainty created by volatile currency markets and continued weakness in the PC and energy sectors remain concerning as we look ahead to 2017. During 2016, weeconomy. We saw a sharp and broad appreciation of the U.S. dollar against many of the currencies in which we do business with the U.S. dollar index trading at or near a fourteen year high. The strength of the U.S. dollar is expected to continue to have a negative impact on the U.S. dollar equivalentrevenue growth across most of our foreign currency denominated sales. For the first quarter of 2017, we expect the strong U.S. dollar will reduce the U.S. dollar equivalent of our foreign currency denominated sales by as much as 1%. The ongoing uncertainty created by volatile currency markets, a prolonged period of low oil prices, the new U.S. presidential administration,product lines and continued weakness in the PC industry, alone or in combination, may continue to have a material adverse effect on our revenues and the financial results of our operations. In addition, we remain concerned about the geopolitical and fiscal instability in the Middle East and some Emerging Marketsacross most geographies where we do business. These factors as well as othersDuring 2017, we may not contemplate could havesaw a material adverse effectminor impact on the spending patterns of businesses including our current and potential customers which could have a material adverse effect our revenues and our results of operations. Other factors that could adversely influence demandoperations from currency fluctuations. During early 2018, we are seeing significant appreciation of the value of the local currency against the U.S. dollar in many of the currency markets where we do business, particularly the Euro and Chinese yuan. In addition, the broad based strength of the overall industrial economy and the PMI are encouraging. We are optimistic about our long-term position in the industry through the sustained differentiation we deliver to our customers through our platform-based approach.We delivered record revenue for 2017 while improving our products include unemployment, laboroperating profitability compared to 2016. During 2017, we took steps to reduce our overall employee headcount by approximately 2% in an effort to improve efficiencies and healthcare costs, access to credit, consumer and business confidence,rebalance our resources on higher return activities. We incurred $12 million in severance and other macroeconomic factors that could have a negative impact on capital investment and spending behavior.29Results of Operations The following table sets forth, for the periods indicated, the percentage of net sales represented by geographic region and by certain items reflected in our Consolidated Statements of Income: 39.2 40.5 39.8 31.7 33.4 33.2 29.1 26.1 27.0 100.0 100.0 100.0 25.5 25.9 25.6 74.5 74.1 74.4 37.6 36.9 37.1 19.2 18.4 18.3 8.0 7.6 7.3 64.8 62.9 62.7 9.7 11.2 11.7 0.1 0.1 0.1 (0.4) (0.6) (0.2) (0.1) 9.3 10.7 11.6 2.6 2.9 1.4 6.7 7.8 10.2 Years ended December 31, 2017 2016 2015 Net sales: Americas 39.1 % 39.2 % 40.5 % EMEIA 31.7 31.7 33.4 APAC 29.2 29.1 26.1 Consolidated net sales 100.0 100.0 100.0 Cost of sales 25.5 25.5 25.9 Gross profit 74.5 74.5 74.1 Operating expenses: Sales and marketing 37.1 37.6 36.9 Research and development 18.0 19.2 18.4 General and administrative 8.2 8.0 7.6 Total operating expenses 63.3 64.8 62.9 Operating income 11.3 9.7 11.2 Other income (expense): Interest income 0.2 0.1 0.1 Net foreign exchange gain (loss) 0.1 (0.4 ) (0.6 ) Other expense, net (0.1 ) (0.1 ) — Income before income taxes 11.4 9.3 10.7 Provision for income taxes 7.4 2.6 2.9 Net income 4.1 % 6.7 % 7.8 % Figures may not sum due to rounding.Results of Operations for the years ended December 31, 2017, 2016, 2015, and 2014Net Sales. The following table sets forth our net sales for the years ended December 31, 2017, 2016, 2015, and 20142015 along with the changes between the corresponding periods.1,116.7 0.3% 1,113.6 (2.6%) 1,143.0 111.5 (0.3%) 111.9 11% 100.9 1,228.2 0.2% 1,225.5 (1.5%) 1,243.9 Years ended December 31, ($ in millions) 2017 Change 2016 Change 2015 Product sales $ 1,173.5 5.1% $ 1,116.7 0.3% $ 1,113.6 Software maintenance sales 115.9 3.9% 111.5 (0.4)% 111.9 Total net sales $ 1,289.4 5.0% $ 1,228.2 0.2% $ 1,225.5 In 2017, product and software maintenance sales increased compared to 2016. The increase in product sales during 2017 is attributable to increased sales volume, particularly for large orders greater than $20,000, across all geographic regions. The increase in our large orders is discussed in more detail below. The increase in software maintenance sales during 2017 can primarily be attributed to increases in the annual renewal rate for our software maintenance arrangements. In 2016 product and software maintenance sales were relatively flat compared to 2015. In 2015 compared to 2014, the decrease in product sales was due to a sharp and broad appreciation of the U.S. dollar in many of the markets in which we do business. Software maintenance sales grew at a faster rate than our overall net sales during 2015, primarily due to increased growth of our enterprise licensing agreements.We do not typically maintain a large amount of order backlog as orders typically translate to sales quickly. As such, any weakness in orders typically has a pronounced impact on our net sales in the short term.The factors that most significantly impacted our net sales were the year over year change in orders from our largest customer and the year over year adverse impact of changes in the foreign currency exchange markets, both discussed in more detail below.30Large orders, defined as orders with a value greater than $100,000, increased by 7%15% year over year during 20162017 compared to a year over year decreaseincrease of 2%7% in 2015. During 2016, orders from our largest customer increased by $3 million compared to 2015. During 2015, orders from this customer decreased by $31 million compared to 2014. Excluding the impact of our largest customer, large orders grew by 6%, 12% and 9% during 2016, 2015, and 2014, respectively. Orders from our largest customer are discussed in more detail below.2016. Large orders were 23%25%, 23%, and 22%23% of our total orders for the years ended December 31, 2017, 2016, and 2015, and 2014, respectively. Larger orders are more volatile, are subject to greater discount variability and may contract at a faster pace during an economic downturn.With respect A significant factor in the continued expansion of our large orders in the twelve months ended December 31, 2017, compared to the comparable period in 2016 was strong demand for our largest customer, we are serving several different applications for this customer, each involving the use of LabVIEWautomated test products, 5G prototyping solutions and the NI PXI platform. semiconductor test systems. During 2016,2017, we received new orders totaling $32$29 million from thisour largest customer and recognized $34$28 million in revenue related to orders from this customer. During 2015,2016, we received $28$32 million in new orders from our largest customer and recognized net revenue of $29$34 million related to orders from this customer.The following table sets forth our net sales by geographic region for the years ended December 31, 2017, 2016, 2015, and 20142015 along with the changes between the corresponding periods and the region’s percentage of total net sales.482.1 (3.0%) 496.8 0.2% 496.0 39% 41% 40% 389.8 (4.7%) 409.1 (0.8%) 412.4 32% 33% 33% 356.3 11.5% 319.6 (4.7%) 335.5 29% 26% 27% Years ended December 31, ($ in millions) 2017 Change 2016 Change 2015 Americas $ 504.6 4.7% $ 482.1 (3.0)% $ 496.8 Percentage of total net sales 39 % 39 % 41 % EMEIA $ 408.6 4.8% $ 389.8 (4.7)% $ 409.1 Percentage of total net sales 32 % 32 % 33 % APAC $ 376.1 5.6% $ 356.3 11.5% $ 319.6 Percentage of total net sales 29 % 29 % 26 % We expect sales outside of the Americas to continue to represent a significant portion of our revenue. We intend to continue to expand our international operations by increasing our presence in existing markets, adding a presence in some new geographical markets and continuing the use of distributors to sell our products in some countries. Almost all of the sales made by our direct sales offices in the Americas (excluding the U.S.), EMEIA, and APAC are denominated in local currencies, and accordingly, the U.S. dollar equivalent of these sales is affected by changes in foreign currency exchange rates. In order to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency fluctuations between periods, we compare the percentage change in our results from period to period using constant currency calculations. To calculate the change in constant currency, current and comparative prior period results for entities reporting in currencies other than U.S. Dollars are converted into U.S. Dollars at constant exchange rates (i.e. the average rates in effect during the years ended December 31, 20152016 and 2014,2015, respectively). The following tables present this information, along with the impact of changes in foreign currency exchange rates on sales denominated in local currencies, for the years ended December 31, 2017 and 2016, and 2015, respectively.
in Constant Dollars
Net Sales
Net Sales496.8 (11.2) 482.1 409.1 10.2 389.8 319.6 44.6 356.3 1,225.5 43.6 1,228.2 Year Ended December 31, 2016 Changein Constant Dollars Impact of changes in foreign currency exchange rates on net sales Year Ended December 31, 2017 ($ In millions) GAAP Net Sales Dollars Percentage Dollars Percentage GAAP Net Sales Americas $ 482.1 $ 22.2 4.6% $ 0.3 0.1% $ 504.6 EMEIA 389.8 20.0 5.1% (1.2 ) (0.3)% 408.6 APAC 356.3 20.7 5.8% (0.9 ) (0.2)% 376.1 Total net sales $ 1,228.2 $ 62.9 5.1% $ (1.8 ) (0.1)% $ 1,289.4 31Figures may not sum due to rounding.
in Constant Dollars
Net Sales
Net Sales496.0 13.0 (12.2) 496.8 412.4 35.5 (38.8) 409.1 335.5 2.0 (17.9) 319.6 1,243.9 50.5 (68.9) 1,225.5 Year Ended December 31, 2015 Changein Constant Dollars Impact of changes in foreign currency exchange rates on net sales Year Ended December 31, 2016 ($ In millions) GAAP Net Sales Dollars Percentage Dollars Percentage GAAP Net Sales Americas $ 496.8 $ (11.2 ) (2.3)% $ (3.5 ) (0.7)% $ 482.1 EMEIA 409.1 10.2 2.5% (29.5 ) (7.2)% 389.8 APAC 319.6 44.6 14.0% (7.9 ) (2.5)% 356.3 Total net sales $ 1,225.5 $ 43.6 3.6% $ (40.9 ) (3.3)% $ 1,228.2 To help protect against changes in the U.S. dollar equivalent value caused by fluctuations in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales, we hedge portions of our forecasted revenue denominated in foreign currencies with average rate forward contracts. (See Note 4 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impactedimpact on our consolidated sales for 20162017 and 2015)2016). Gross Profit.The following table sets forth our gross profit and gross profit as a percentage of net sales for the years ended December 31, 2017, 2016, 2015, and 20142015 along with the percentage changes in gross profit for the corresponding periods.We continue to focus on cost control and cost reduction measures throughout our manufacturing cycle. Years Ended December 31, 2017 Change 2016 Change 2015 915.1 0.7% 908.5 (1.9%) 925.7 $ 961.1 5.0% $ 915.1 0.7% $ 908.5 74.5% 74.1% 74.4% 74.5 % 74.5 % 74.1 % During the years ended December 31, 20162017 and 20152016, the change in exchange rates had the effect of decreasing our cost of sales by $3.0$0.8 million and $10.5$3.0 million, respectively. 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 hedge portions of our forecasted costs of sales denominated in foreign currencies with average rate forward contracts. During the year ended December 31, 20162017 and 2015,2016, these hedges had the effect of increasing our cost of sales by $1.9$1.2 million and $2.3$1.9 million, respectively. (See Note 4 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impacted on our consolidated sales for 20162017 and 2015)2016). Operating Expenses.The following table sets forth our operating expenses for the years ended December 31, 2017, 2016, 2015, and 20142015 along with the percentage changesbetween the corresponding periods and the line item as a percentage of total net sales.461,236 452,262 (2%) 461,845 38% 37% 38% 235,706 225,131 (1%) 227,433 19% 18% 18% 98,390 93,935 3% 91,265 8% 8% 7% 795,332 771,328 (1%) 780,543 65% 63% 63% 32The increase in our operating expenses in 2017 was primarily the result of Contents$34 million in higher personnel-related expenses due to increased variable compensation in regions with strong sales growth, accrual of an expected payment under our annual company profit sharing program, an increase in our employer matching contribution for our defined contribution retirement plan, and $16 million in severance and other related costs associated with our restructuring initiative. Building and equipment costs also increased by $4 million compared to 2016. These increases were partially offset by a decrease in software development costs of $10 million due to an increase in capitalization of software development costs compared to the year ending December 31, 2016 and a $6 million decrease in marketing and outside services. Additionally, the year over year change in exchange rates had the effect of decreasing our operating expenses by $1.4 million.The increase in our operating expenses in 2016 was due to higher personnel related expenses of $32.5 million due to increased variable compensation in regions with strong local currency growth as well as raises for eligible employees, and increased building and outside services expenses of $4.2 million. This was partially offset by a decrease of $9.2 million due to the net impact of changes in foreign currency exchange rates and a decrease in travel expenses of $2.3 million related to cost-savings initiatives implemented in the second half of 2016.In 2015, the net impact of changes in foreign currency exchange rates decreased our operating expense by $38 million. This was partially offset by higher personnel related expenses of $18 million, higher expenses for building and equipment of $11 million, and additional travel costs of $4 million. The increase in personnel costs was driven by an increase in headcount as well as raises for eligible employees. In addition, a $6 million decrease in operating expenses related to software development which coincides with the $6 million increase in our capitalized software compared to the year ended December 31, 2014.The increase in our capitalized software is consistent with our focus on new product development to support future growth in our business. We capitalize software development costs when technological feasibility has been established and amortize those costs as a component of cost of sales once the corresponding product is available for general release to customers. (See Note 1 – Operations and summary of significant accounting policies and Note 7 – Intangible assets of Notes to Consolidated Financial Statements for further discussion related to the capitalization and amortization of software development costs.)We believe that our long-term growth and success depends on developing high quality software and hardware products on a timely basis. We are focused on leveraging recent investments in research and development and in our field sales force and taking actions to help ensure that those resources are focused in areas and initiatives that will contribute to future growth in our business. The decreaseincrease in sales and marketing expenses in 20152017 was primarily driven by a decrease$11 million in severance and other costs related to our restructuring initiative as well as an increase in commissions due to lowerhigher sales volume compared to 2014 as well as a $6.6 million decrease related to the net impact of changes in foreign currency exchange rates.Operating Income. For the years ended December 31, 2017, 2016, 2015, and 2014,2015, operating income was $146 million, $120 million and $137 million, and $145 million, respectively, an increase of 22% in 2017, following a decrease of 13% in 2016, following a decrease of 6% in 2015.2016. As a percentage of net sales, operating income was 10%11%, 11%10% and 12%11%, respectively, over the three year period. The decreasechanges in operating income in absolute dollars and as a percent of sales in 2016 and 2015, is2017 are attributable to the factors discussed in Net Sales, Gross Profit and Operating Expenses above.Interest Income. Interest income was $2.3 million, $1.1 million $1.4 million and $1.1$1.4 million for the years ended December 31, 2017, 2016, and 2015, and 2014, respectively, an increase of 103% in 2017, following a decrease of 20% in 2016, following an increase of 24% in 2015.2016. We continue to see loware seeing improving yields for high quality investment alternatives that comply with our corporate investment policy. We expect yields in these types of investments to increase moderately in 2017.2018. Net Foreign Exchange Loss.Gain/(Loss). Net foreign exchange lossgain/(loss) was $0.9 million, $(4.6) million, $(7.1) million, and $(2.3)$(7.1) million for the years ended December 31, 2017, 2016, 2015, and 2014,2015, respectively. These results are attributable to movements in the foreign currency exchange rates between the U.S. dollar and foreign currencies in subsidiaries for which our functional currency is not the U.S. dollar. During 2017, there was a moderately stronger U.S. dollar during the first nine months of the year and a moderately weaker U.S. dollar during the last three months of the year when compared year over year to 2016, resulting in a modest decrease in our U.S. dollar equivalent revenues and expenses in 2017, when compared year over year to 2016. During 2016 and 2015, there was sharp volatility in the exchange rates between the U.S. dollar and most of the major currencies in the markets in which we do business and such volatility was characterized by a broad and sharp strengthening of the U.S. dollar against most currencies. In 2015 net foreign exchange loss included a $3.1 million loss on Euro cash holdings that were subsequently used to fund our acquisition of M2 and its wholly-owned subsidiary, Micropross. We cannot predict the direction or degree of future volatility in these exchange rates. In the past, we have noted that significant volatility in foreign currency exchange rates in the markets in which we do business has had a significant impact on the revaluation of our foreign currency denominated firm commitments, on our ability to forecast our U.S. dollar equivalent revenues and expenses and on the effectiveness of our hedging programs. In the past, these dynamics have also adversely affected our revenue growth in international markets and may pose similar challenges in the future. We recognize the local currency as the functional currency in virtually all of our international subsidiaries.We utilize foreign currency forward contracts to hedge our foreign denominated net foreign currency balance sheet positions to help protect against the change in value caused by a fluctuation in foreign currency exchange rates. We typically hedge up to 90% of our outstanding foreign denominated net receivable or payable positions and typically limit the duration of these foreign currency forward contracts to approximately 90 days. The gain or loss on these derivatives as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings under the line item “Net foreign exchange loss”. Our hedging strategy decreased our foreign exchange gains by $(5.9) million and decreased our foreign exchange losses by $1.9 million, and $4.3 million in 2017, 2016, and $2.5 million in 2016, 2015, and 2014, respectively. (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).332015, and 2014,2015, our provision for income taxes reflected an effective tax rate of 28%64%, 27%28% and 12%27%, respectively. The factors that caused our effective tax rates to change year-over-year are detailed in the table below:Years ended December 31,December 31,201527 28(6)(5)% Change in valuation allowance1 5 (1)% -)% amortizationstate income taxes, net of intangible assets(1 )% Other-)% (10 )% Transition tax on deferred foreign income 54 % Foreign tax on undistributed earnings 3 % Effective tax rate for 2016201728 64Years ended December 31,December 31,201412 27DecreasedIncreased profits in foreign jurisdictions with reduced income tax rates1 (6) (1)11 52 —unrecognized tax benefits11 11 —201527 28(See Note 9 – Income taxes of Notes to Consolidated Financial Statements for further discussion regarding changes in our effectiveThe Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act. However, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. We have recognized a provisional amount of $69.9 million, which is included as a component of income tax expense from continuing operations. Our estimates may be affected as we gain a more thorough understanding of the tax law. We will continue to make and refine our calculations as additional analysis is completed.For additional discussion about our income taxes including the effect of the Tax Cuts and Jobs Act, 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 income tax rate of 35% to our effective tax rate). 34Tablerate, and other tax matters, see Note 9 - Income taxes of ContentsQuarterly results of operationsThe following quarterly results have been derived from our 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, 20162017 and December 31, 20152016 are as follows:287,177 306,105 306,365 328,532 211,031 228,597 229,630 245,800 13,844 27,267 29,364 49,251 9,298 19,800 24,487 29,149 0.07 0.15 0.19 0.23 127,595 128,282 128,815 129,108 0.07 0.15 0.19 0.23 128,103 128,746 129,047 129,503 0.20 0.20 0.20 0.20 Three months ended (in thousands, except per share data) March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 289,513 301,791 299,812 334,340 $ 300,106 $ 318,609 $ 320,921 $ 349,751 213,177 225,116 222,646 247,561 223,582 236,149 237,170 264,160 20,133 34,687 32,351 50,001 22,318 28,631 37,515 57,312 15,004 24,942 23,178 32,138 Net income (loss) 18,148 25,155 33,389 (24,282 ) 0.12 0.19 0.18 0.25 $ 0.14 $ 0.19 $ 0.26 $ (0.19 ) 128,040 128,682 127,935 127,341 129,438 130,197 130,660 130,886 0.12 0.19 0.18 0.25 $ 0.14 $ 0.19 $ 0.25 $ (0.18 ) 128,676 129,337 128,229 127,798 130,108 131,117 131,617 132,113 0.19 0.19 0.19 0.19 $ 0.21 $ 0.21 $ 0.21 $ 0.21 35 Three months ended (in thousands, except per share data) March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 Net sales $ 287,177 $ 306,105 $ 306,365 $ 328,532 Gross profit 211,031 228,597 229,630 245,800 Operating income 13,844 27,267 29,364 49,251 Net income 9,298 19,800 24,487 29,149 Basic earnings per share $ 0.07 $ 0.15 $ 0.19 $ 0.23 Weighted average shares outstanding - basic 127,595 128,282 128,815 129,108 Diluted earnings per share $ 0.07 $ 0.15 $ 0.19 $ 0.23 Weighted average shares outstanding - diluted 128,103 128,746 129,047 129,503 Dividends declared per share $ 0.20 $ 0.20 $ 0.20 $ 0.20 Other operational information We believe that the following additional unaudited operational metrics assist investors in assessing our operational performance relative to others in our industry and to our historical results. The following tables provide details with respect to the amount of GAAP charges related to stock-based compensation, amortization of acquisition intangibles, acquisition related transaction costs, restructuring charges, foreign exchange loss on acquisitions, taxes levied on the transfer of acquired intellectual property, and acquisition-related fair value adjustments that were recorded in the line items indicated below (in thousands).568 509 2,210 1,936 2,636 2,701 11,057 11,003 2,131 2,240 8,876 9,004 859 888 3,623 3,544 (1,125) (1,870) (7,322) (7,289) 5,069 4,468 18,444 18,198 Three Months Ended December 31, Years Ended December 31, 2017 2016 2017 2016 Stock-based compensation 1,725 3,080 9,346 10,938 $ 714 $ 568 $ 2,628 $ 2,210 497 740 2,638 2,039 3,035 2,636 11,559 11,057 273 316 1,088 1,299 2,462 2,131 9,014 8,876 93 542 General and administrative 1,585 859 5,944 3,623 855 (1,398) 2,162 (4,867) (2,934 ) (1,125 ) (10,322 ) (7,322 ) 3,350 2,831 15,234 9,951 $ 4,862 $ 5,069 $ 18,823 $ 18,444 74 296 327 1,269 42 123 183 123 170 198 818 198 50 593 367 1,035 3,111 94 3,111 1,000 2,475 1,000 (94) (1,453) (1,452) (1,843) 242 3,868 2,812 4,893 Three Months Ended December 31, Years Ended December 31, (In thousands) 2017 2016 2017 2016 Amortization of acquisition intangibles Cost of sales $ 1,444 $ 1,725 $ 6,092 $ 9,346 Sales and marketing 529 497 2,009 2,638 Research and development 204 273 1,017 1,088 Provision for income taxes (491 ) 855 (2,148 ) 2,162 Total $ 1,686 $ 3,350 $ 6,970 $ 15,234 36(1) Foreign exchange losses on acquisitions were $0 and $94 for the years ended December 31, 2017 and 2016, respectively.(2) Taxes levied on the transfer of Contentsacquired intellectual property were $0 and $2,475 for the years ended December 31, 2017 and 2016, respectively.Liquidity and Capital Resources Working Capital, Cash and Cash Equivalents and Short-term Investments. Cash, cash equivalents and short-term investments increased by $25 million to $358 million atOverviewAt December 31, 2016 from $3332017, we had $412 million at December 31, 2015. The following table presents our working capital, cash and cash equivalents and short-term investments: 574,572 559,525 15,047 285,283 251,129 34,154 73,117 81,789 (8,672) 358,400 332,918 25,482 During the year ended December 31, 2016, our working capital increased by $15 million. Overall, current assets increased by $35 million while current liabilities increased by $20 million. The increase in our current assets was primarily driven by a $25 million increase in cash, cash equivalents and short-term investments, an $8 million increase in inventories, and a $12 million increase in accounts receivable partially offset by an $11 million decrease in prepaid expenses and other assets. The overall increases in working capital during 2016 compared to 2015, can be primarily attributed to the deployment of significantly more cash for acquisitions and stock repurchases in 2015 compared to 2016.Accounts receivable increased by $13 million to $229 million at December 31, 2016, from $216 million at December 31, 2015. Days sales outstanding (“DSO”) increased to 66 days at December 31, 2016, compared to 62 days at December 31, 2015. The increase in accounts receivable can be attributed to the year over year increase in DSO. Our DSO continues to be negatively impacted by accounts in Russia and other countries where the currency devaluation against the U.S. dollar has been significant.Inventory increased by $9 million to $194 million at December 31, 2016, from $185 million at December 31, 2015. Inventory turns were 1.7 and 1.8 at December 31, 2016 and December 31, 2015, respectively. The increase in our inventory balance was a result of less than anticipated sales volume in the fourth quarter of 2016. Prepaid expenses and other current assets decreased $11 million to $54 million at December 31, 2016, from $65 million at December 31, 2015. The fair value of our derivatives designated as hedging instruments increased by $15 million which was offset by a $25 million decrease related to the timing of payments of U.S. federal taxes as well as value added taxes (“VAT”) in various jurisdictions and insurance and maintenance contracts. (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)$4.4$5 million U.S. dollar equivalent of corporate bonds that are denominated in Euro. Our short-term investments do not include any foreign sovereign debt. At December 31, 2016, we had $358 million inThe following table presents the geographic distribution of our cash, cash equivalents, and short-term investments. Approximately $46 million or 13%investments as of these amounts were held in domestic accounts with various financial institutions and $312 million or 87% was held in accounts outside of the U.S. with various financial institutions. At December 31, 2016, we had cash and cash equivalents of $285 million of which $46 million or 16% was held in domestic accounts and $239 million or 84% was held in various accounts of our foreign subsidiaries. At December 31, 2016, we had short-term investments of $73 million which was all held in investment accounts of our foreign subsidiaries. Most of the amounts held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal income taxes, less applicable foreign tax credits. We have provided for the U.S. federal tax liability on these amounts for financial statement purposes, except for foreign earnings that are considered indefinitely reinvested outside of the U.S. Repatriation could result in additional U.S. federal income tax payments in future years. 2017 (in millions): Domestic International Total Cash and Cash Equivalents $63 $227 $290 22% 78% Short-term Investments $— $122 $122 —% 100% Cash, Cash Equivalents and Short-term Investments $63 $349 $412 15% 85% 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.The following table presents our working capital, cash and cash equivalents and short-term investments: 37(1) Included in working capitalOur principal sources of ContentsCash Provided byliquidity include cash, cash equivalents, and (Used in)marketable securities, as well as the cash flows generated from our operations. We also have additional borrowing capacity under our Loan Agreement. Proceeds of loans made under the Loan Agreement may be used for working capital and other general corporate purposes. The primary drivers of the net increase in the years endedworking capital between December 31, 2016 and December 31, 2015.2017 were:Cash, cash equivalents, and short-term investments increased by $54 million . Additional analysis of the changes in our cash flows for the year ended December 31, 2017 compared to the year ended December 31, 2016 are discussed below.Accounts receivable increased by $20 million. Days sales outstanding (“DSO”) remained relatively flat at 68 days at December 31, 2017, compared to 66 days at December 31, 2016.Inventory decreased by $9 million to $185 million at December 31, 2017, from $194 million at December 31, 2016. Inventory turns were 1.7 at each of December 31, 2017 and December 31, 2016.Prepaid expenses and other current assets decreased by $5 million which was primarily related to a $6 million decrease in the fair value of our foreign currency forward exchange contracts and the timing of prepaid insurance and maintenance.Accrued compensation increased by $16 million which can be attributed to severance costs arising from our restructuring initiative and a future payment under our company profit sharing plan.The current portion of deferred revenue increased by $5 million, primarily due to the effect of foreign currency translation.Other current liabilities decreased by $9 million which was primarily related to income tax payments.Other taxes payable decreased by $3 million primarily related to the timing of payments for VAT and other indirect taxes.Analysis of Cash FlowThe following table summarizes the proceeds and (uses) of cash: 195,840 162,637 (70,503) (78,392) (91,183) (107,146) 34,154 (22,901) 251,129 274,030 285,283 251,129 For years ended December 31, 2016 and 2015, cash(In thousands) December 31, 2017 2016 2015 Cash provided by operating activities $ 224,442 $ 200,199 $ 169,065 Cash used by investing activities (122,410 ) (70,503 ) (78,392 ) Cash used by financing activities (106,299 ) (91,625 ) (108,113 ) Effect of exchange rate changes on cash 9,148 (3,917 ) (5,461 ) Net change in cash equivalents 4,881 34,154 (22,901 ) Cash and cash equivalents at beginning of year 285,283 251,129 274,030 Cash and cash equivalents at end of period $ 290,164 $ 285,283 $ 251,129 Operating Activities Cash provided by operating activities was $196 million and $163 million, respectively. The year over year increase was primarily related to a $26 million decrease in income taxes paid and a $20 million decrease related to the timing of payments for prepaid and other operating assets and liabilities which was partially offset by a $13 million decrease in net income.Investing activities used cash of $71 million during the year ended December 31, 2016, as a result of payments related2017 increased by $24 million compared to capital expenditures of $45the same period in 2016. This increase was primarily due to the $26 million and capitalization of internally developed software and other intangibles of $35 million, all of which was partially offset by the net sale or maturity of $9 million of short-term investments. Capital expenditures duringincrease in our operating income.Investing Activities Cash used for investing activities for the year ended December 31, 2016 included payments for leasehold improvements, computers, equipment and furniture and fixtures2017 increased by $52 million compared to support operations throughout our business. Investing activities used cashthe same period in 2016. This was primarily attributable to a net purchase of $78short-term investments of $48 million compared to a net sale of short-term investments of $9 million during the same period in 2016, to take advantage of favorable increases in the yields offered by short-term investments that comply with our investment policy. Cash outflows related to capitalized software development also increased by $10 million which was offset by a decrease in capital expenditures of $14 million compared to the same period in 2016.Financing Activities Cash used by financing activities increased by $15 million for the year ended December 31, 2015, as2017 compared to the same period in 2016. This was primarily due to a result of payments$7 million increase in cash outflows related to the increase in our acquisitions for aggregatequarterly dividend and a $13 million increase in cash consideration of $126 million, capital expenditures of $34 million, and capitalization of internally developed software and other intangibles of $34 million, all of which was partially offset by the net sale or maturity of $115 million of short-term investments. Capital expenditures during the year ended December 31, 2015 included payments for the construction of our new general and administrative building in Debrecen, Hungary, leasehold improvements, computers, equipment and furniture and fixturesoutflows related to support operations throughout our business.Financing activities used cash of $91 million during the year ended December 31, 2016, which was the result of $103 million used to pay dividends to our stockholders, $6 million used to repurchase 0.2 million shares of our common stock at an average price of $27.25 per share, and $12 million in net repayments under our revolving line of credit,Loan Agreement, offset by $29$6 million received from the issuancedecrease in cash outflows related to 2016 repurchases of our common stock from our employee stock purchase plan. Financing activities used cash of $107 million during the year ended December 31, 2015, which was a result of $98 million used to pay dividends to our stockholders, $75 million used to repurchase 2.6 million shares of our common stock at an average price of $29.04 per share, offset by $37 million in net borrowings under our revolving line of credit and $28 million received from the issuance of our common stock from the exercise of employee stock options and from our employee stock purchase plan.tofor our repurchase of shares of our common stock depending on market conditions and other factors. Under the current program, we did not repurchase any shares during the year ended December 31, 2017. (See Note“Note 11 – Authorized shares of common and preferred stock and stock-based compensation plansplans” of Notes to Consolidated Financial Statements for additional information ondiscussion about our equity compensation plans and share repurchase program.)Contractual Cash Obligations. The following summarizes our contractual cash obligations as of December 31, 2016:2017:25,000 25,000 54,613 18,665 14,107 10,428 6,086 2,576 2,751 79,613 18,665 14,107 10,428 31,086 2,576 2,751 38 Payments due by period (In thousands) Total 2018 2019 2020 2021 2022 Beyond Long-term debt $ — $ — $ — $ — $ — $ — $ — Tax payable (1) 88,603 7,088 7,088 7,088 7,088 7,088 53,163 Capital lease obligations — — — — — — — Operating leases 77,304 20,012 15,696 10,875 7,853 5,298 17,570 Total contractual obligations $ 165,907 $ 27,100 $ 22,784 $ 17,963 $ 14,941 $ 12,386 $ 70,733 (1) Represents one-time transition tax payable related to known amounts of cash taxes payable in future years as a result of the Tax Act. For further information, refer to Note 9 - Income Taxes of Notes to Consolidated Financial Statements 2016:2,968 2,968 6,779 6,779 9,747 9,747 (In thousands) Total 2018 2019 2020 2021 2022 Beyond Guarantees $ 2,629 $ 2,629 $ — $ — $ — $ — $ — Purchase obligations 9,123 9,123 — — — — — Total commercial commitments $ 11,752 $ 11,752 $ — $ — $ — $ — $ — 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, 2016,2017, we had non-cancelable operating lease obligations of approximately $55$77 million compared to $56$55 million at December 31, 2015.2016. Rent expense under operating leases was $20 million for each of the years ended December 31, 2017, 2016, and 2015, and 2014, respectively.Purchase obligations primarily represent purchase commitments for customized inventory and inventory components. As of December 31, 2017, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $9.1 million over the next twelve months. At December 31, 2016, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $6.8 million over the next twelve months. million.At December 31, 2015, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $7 million.At December 31, 2016,2017, we had outstanding guarantees for payment of customs and foreign grants totaling approximately $3$2.6 million. At December 31, 2015,2016, we had outstanding guarantees for payment of customs, foreign grants and potential customer disputes totaling approximately $4$3 million.Loan Agreement.On May 9, 2013, we entered into a Loan Agreement (the “Loan Agreement”) with Wells Fargo Bank (the “Lender”). On October 29, 2015, we entered into a First Amendment to Loan Agreement (the “Amendment”) with the Lender, which amended our Loan Agreement to among other things, (i) increase the unsecured revolving line of credit from $50 million to $125 million, (ii) extend the maturity date of the line of credit from May 9, 2018 to October 29, 2020, and (iii) provide us with an option to request increases to the line of credit of up to an additional $25 million in the aggregate, subject to consent of the Lender and terms and conditions to be mutually agreed between us and the Lender. Proceeds of loans made under the Loan Agreement may be used for working capital and other general corporate purposes. We may prepay the loans under the Loan Agreement in whole or in part at any time without premium or penalty. Certain of our existing and future material domestic subsidiaries are required to guaranty our obligations under the Loan Agreement. We may choose to borrow additional funds against this line of credit in future periods to have sufficient domestic cash to fund continued dividends to our stockholders, to fund potential acquisitions or other domestic general corporate purposes without the need to repatriate foreign earnings. (See Note 14 – Debt of Notes to Consolidated Financial Statements for additional details on our revolving line of credit).Off-Balance Sheet Arrangements. We do not have any off-balance sheet debt. At December 31, 2016,2017, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.Prospective Capital Needs.We believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations as well as from the purchase of common stock through our employee stock purchase plan, and available borrowings under our Loan Agreement will be sufficient to cover our working capital needs, capital expenditures, investment requirements, commitments, payment of dividends to our stockholders and repurchases of our common stock for at least the next 12 months, althoughmonths. The enactment of the useTax Cuts and Jobs Act of certain of our funds for domestic purposes may require2017 will allow us to repatriate a majority of our foreign earnings which would be subjectcash for domestic needs without additional taxation and to the U.S. federal statutory tax rate of 35%.meet our capital deployment initiatives. We may also seek to pursue additional financing or to raise additional funds by selling equity or debt to the public or in private transactions.transactions from time to time. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis or 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 stockholders would be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of our common stock. Although it is our intent to permanently reinvest our undistributed earnings for the foreseeable future, 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.39·payment of dividends to our stockholders;
payment of dividends to our stockholders;·difficulties and the high tax costs associated with the repatriation of earnings;···········Recently Issued Accounting Pronouncements See Note 1 – Operations and summary of significant accounting policies for discussion regarding recently issued accounting pronouncements.40The 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:·We sell test and measurement solutions that include hardware, software licenses, and related services. Our sales are generally made under standard sales arrangements with payment terms ranging from net 30 days in the U.S. to net 30 days and up to net 180 days in some international markets. 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. Our standard warranties cover periods ranging from 90 days to three years. Our standard sales arrangements do not require product acceptance from the customer.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 timing of 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, all of which also may create uncertainty with respect to the amount and timing of revenue recognized 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 price is fixed or determinable, and collectability is 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 shipment. 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 apply the separation guidance under U.S. GAAP for contracts with multiple deliverables. We analyze revenue arrangements with multiple deliverables to determine whether the deliverables should be divided into more than one unit of accounting. For contracts with more than one unit of accounting, we allocate the consideration we receive among the separate units of accounting based on their relative selling prices, which we determine based on prices of the deliverables as sold on a stand-alone basis, or if not sold on a stand-alone basis, the prices we would charge if sold on a stand-alone basis. We recognize revenue for each deliverable based on the revenue recognition policies described below.For software arrangements that include multiple elements, including perpetual software licenses and undelivered items (e.g., software maintenance; subscriptions/term licenses), we allocate and defer revenue for the undelivered items based on vendor specific objective evidence (“VSOE”) of the fair value of the undelivered elements, and recognize revenue on the perpetual license using the residual method. We base VSOE of each element on the price for which the undelivered element is sold separately. We determine fair value of the undelivered elements based on historical evidence of our stand-alone sales of these elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist for undelivered items, we recognize the entire arrangement fee ratably over the applicable performance period.A portion of our revenues are generated from the sale of systems that contain software components that operate together with our hardware platform to provide the essential functionality of the system. When sold in a multiple element arrangement, these systems are considered non-software deliverables, so we can allocate the arrangement fee based upon relative selling price of each element. When applying the relative selling price method, we determine the selling price of each element using best estimate of selling price (“BESP”), because VSOE and third-party evidence (TPE)("TPE") are not available.41The application of 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.
Recent Updates to Revenue Recognition·Estimating allowances for sales returnsIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which became effective for us beginning January 1, 2018. For additional information on the new revenue recognition guidance and the expected impact of adoption, see Note 1 – Operations and summary of significant accounting policies of Notes to Consolidated Financial Statements.Estimating allowances for sales returnsThe 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. Our allowance for sales returns was $1.8$2.1 million and $1.9$1.8 million at December 31, 20162017 and 2015,2016, 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.·In addition to estimating an allowance for sales returns, we must also make estimates about the uncollectability of our accounts receivable. 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 $1.9$2.9 million and $2.5$1.9 million at December 31, 20162017 and 2015,2016, respectively. We also write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and estimatednet realizable value based on assumptions of future demand and market conditions. Our allowance for excess and obsolete inventories was $12.6$16.4 million and $10.1$12.6 million at December 31, 20162017 and 2015,2016, 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.·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, 20162017 and 2015,2016, unamortized capitalized software development costs were $86 million and $65 million, respectively.Valuation of long-lived and $50 million, respectively.42intangible assets·Valuation of long-lived and intangible assetsFebruary 28, 2016.November 30, 2017. No impairment of goodwill and long-lived and intangible assets was identified during 20162017 and 2015.2016. Goodwill is deductible for tax purposes in certain jurisdictions. We have one operating segment and one reporting unit. Factors considered important which could trigger an impairment review include the following:·significant underperformance relative to expected historical or projected future operating results;
•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 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,
•significant negative industry or economic trends; and,·our market capitalization relative to net book value.•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, 20162017 and 2015,2016, we had goodwill of approximately $267 million and $253 million, and $258 million, respectively.·We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basisbases of assets and liabilities and their reported amounts. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized. We had a valuation allowance of $78 million and $62 million at December 31, 2017 and December 31, 2016, respectively. A majority of the valuation allowance is related to the deferred tax assets of National Instruments Hungary Kft. (“NI Hungary”). The decrease in the valuation allowance from 2015 to 2016 was primarily due to the revaluation of NI Hungary’s gross deferred tax assets following the reduction in the Hungarian corporate income tax rate from 19% to 9%.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.Our effective tax rate was lower than the U.S. federal statutory rate primarily due to earnings taxed at lower rates in foreign jurisdictions. Our earnings in Hungary are subject to a statutory tax rate of 19%9%. 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. The tax position of our Hungarian operations resulted in income tax benefits of $4$16.1 million and $15$4 million for the years ended December 31, 2017 and 2016, and 2015, respectively. Earnings from our operations in Malaysia are free of tax under a tax holiday effective January 1, 2013. This tax holiday expires in 2027. If we fail to satisfy the conditions of the tax holiday, this tax benefit may be terminated early. The tax holiday resulted in income tax benefits of $3.3$5.5 million and $3.4$3.3 million for the years ended December 31, 2017 and 2016, respective1y. The impact of the tax holiday on a per share basis for the years ended December 31, 2017 and 2015,2016 was a benefit of $0.04 and $0.03 per share, respectively.No other taxing jurisdictions had a significant impact on our effective tax rate. We have not entered into any advanced pricing or other agreements with the Internal Revenue Service with regard to any foreign jurisdictionsOur effective tax rate was lower than the U.S. federal statutory rate during 2015 and 2016 primarily due to earnings taxed at lower rates in foreign jurisdictions. The Tax Cuts and Jobs Act, which was enacted in December 2017, had a substantial impact on our income tax expense for the year ended December 31, 2017. For additional discussion about our income taxes including the effect of the Tax Cuts and Jobs Act, 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.·Loss contingenciesLoss contingenciesWe accrue for probable losses from contingencies including legal defense costs, on an undiscounted basis, 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 our 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.43TableCosts related to exit or disposal activities incurred as part of Contents Restructuring activities associated with assets would be recorded as an adjustment to the basis of the asset, not as a liability. When we commit to a plan to abandon a long-lived asset before the end of its previously estimated useful life, we accelerate the recognition of depreciation to reflect the use of the asset over its shortened useful life.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 the U.S. are denominated in local currencies, and accordingly, the U.S. dollar equivalent of these sales is affected by changes in the foreign currency exchange rates. The change in exchange rates had the effect of decreasing our consolidated sales by $1.8 million in the year ended December 31, 2017, and by $41 million in the year ended December 31, 2016, and by $69 million in the year ended December 31, 2015.2016. Because 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 $1.4 million in the year ended December 31, 2017, and by $9.2 million in the year ended December 31, 2016, and by $38 million in2016. During 2017, there was a moderately stronger U.S. dollar during the first nine months of the year ended December 31, 2015. During 2016, there was continued volatility in the exchange rates between theand a moderately weaker U.S. dollar and mostduring the last three months of the major currenciesyear compared year-over-year to 2016, resulting in the marketsa modest decrease in which we do business and such volatility was characterized by a continued strengthening of theour U.S. dollar against most currencies. We cannot predictequivalent revenues and expenses in 2017, when compared year-over-year to what degree or how long this volatility in the foreign currency exchange markets will continue.2016. 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 recent periods, these dynamics have also adversely affected our revenue growth in international markets and will likely pose similar challenges in the near 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. To help protect against the change in the value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales and expenses over the next one to two years, we have a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue, cost of sales and operating expenses denominated in foreign currencies with foreign currency forward 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, Chinese yuan, British pound, Malaysian ringgit 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 the year ended December 31, 2017, our hedges had the effect of decreasing our consolidated sales by $0.5 million, increasing our cost of sales by $1.2 million, and increasing our operating expenses by $1.2 million. During the year ended December 31, 2016, our hedges had the effect of increasing our consolidated sales by $1.3 million, increasing our cost of sales by $1.9 million, and increasing our operating expenses by $1.9 million. During the year ended December 31, 2015, our hedges had the effect of increasing our consolidated sales by $24 million, increasing our cost of sales by $2.3 million, and increasing our operating expenses by $2.0 million. (See Note 4 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impacted on our consolidated sales, cost of sales and operating expenses for the years ended December 31, 20162017 and 2015)2016). Inventory Management The markets for our products dictate 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 may be 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.44choose 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, 2016,2017, we had $358$412 million in cash, cash equivalents and short-term investments. See Liquidity and Capital Resources above for further discussion regarding our cash, cash equivalents and short-term investments.We report our available-for-sale short-term investments at fair value. (See Note 3 – Fair value measurements of Notes to Consolidated Financial Statements for a further description of the fair value measurement of our short term investments).The goal of our investment policy is to manage our investment portfolio to preserve principal and liquidity while maximizing the return on our investment portfolio through the full investment of available funds. We place our cash investments in instruments that meet credit quality standards, as specified in our corporate investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. Our cash equivalents and short-term investments carried ratings from the major credit rating agencies that were in accordance with our corporate investment policy. Our investment policy allows investments in the following: government and federal agency obligations, repurchase agreements (“Repos”), certificates of deposit and time deposits, corporate obligations, medium term notes and deposit notes, commercial paper including asset-backed commercial paper (“ABCP”), puttable bonds, general obligation and revenue bonds, money market funds, taxable commercial paper, corporate notes/bonds, municipal notes, municipal obligations variable rate demand notes and tax exempt commercial paper. All such instruments must carry minimum ratings of A1/P1/F1, MIG1/VMIG1/SP1 and A2/A/A, as applicable, all of which are considered “investment grade.” Our investment policy for marketable securities requires that all securities mature in five years or less, with a weighted average maturity of no longer than 24 months with at least 10% maturing in 90 days or less.We account for our investments in debt and equity instruments under FASB ASC 320 Investments – Debt and Equity Securities (FASB ASC 320). Our investments are classified as available-for-sale and accordingly are reported at fair value, with unrealized gains and losses reported as other comprehensive income, a component of 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 at December 31, 2017 and 2016 and 2015 was $73$122 million and $82$73 million, respectively. This decreaseincrease was due to our net sale or maturitypurchase of $9$48 million of short-term investments. 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. During the fourth quarter of 2015, we recorded a non-cash charge of $1 million (recorded in other, net) for the impairment of a cost-method investment.Interest Expense RiskWe are exposed to interest rate fluctuations in the normal course of our business, including through our Loan Agreement. The interest payments on the Loan Agreement consist of a variable-rate of interest.45Interest Income RiskInvestments in both fixed rate and floating rate instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in the fair value of our publicly traded debt investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. However, because any debt securities we hold are classified as available-for-sale, no gains or losses are realized in our income statement due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. In a rising interest rate environment, as short-term investments mature, reinvestment occurs at more favorable market rates. Given the short-term nature of certain of our investments, the current interest rate environment of rising rates may favorably impact our investment income.In order to assess the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of our investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on our investment positions as of December 31, 2017, a 100 basis point increase or decrease in interest rates across all maturities would have resulted in approximately a $2.8 million increase or decrease in the fair market value of our portfolio. As of December 31, 2016, a similar 100 basis point increase or decrease in interest rates across all maturities would result in approximately a $1.3 million increase or decrease in the fair market value of our portfolio. As of December 31, 2015, a similar 100 basis point increase or decrease in interest rates across all maturities would result in approximately a $802,000 increase or decrease in the fair market value of our portfolio. Such losses would only be realized if we sold the investments prior to maturity or if there is an other-than-temporary impairment. Actual future gains and losses associated with our investments may differ from the sensitivity analyses performed as of December 31, 2016,2017, due to the inherent limitations associated with predicting the changes in the timing and level of interest rates and our actual exposures and positions. We continue to monitor the stability of the financial markets, particularly those in the developing economies 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. We also continue to weigh the benefit of the higher yields associated with longer maturities against the interest rate risk and credit rating risk, also associated with these longer maturities when making these decisions. We cannot predict when or to what degree interest rates and investment yields will rise. If yields rise modestly, our investment income may be favorably 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. 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, 20162017 and December 31, 2015,2016, 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 $25 million and $16 million.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 DATAThe information required by this item is incorporated by reference to the Consolidated Financial Statements and Notes to Consolidated Financial Statements beginning on page F-1 hereof. Also see “Quarterly results of operations” on page 35.None.ITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and Procedures Based on an evaluation under the supervision and with the participation of our management, our President and Chief Executive Officer, Alex Davern and our Interim Chief Financial Officer, John Roiko,Karen Rapp, have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), were effective as of December 31, 2016,2017, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Interim 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.Inherent Limitations Over Internal Controls Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Our internal control over financial reporting includes those policies and procedures that:(i) (ii) (iii) Management, including our Chief Executive Officer and Interim Chief Financial Officer, does not expect that the our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.Management Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). We conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2016,2017, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on our internal control over financial reporting, which appears in Part II, Item 8 of this Form 10-K.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during the three months ended December 31, 2016,2017, which were identified in connection with our evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B.OTHER INFORMATIONFrom 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 Exchange Act. 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.47Certain 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 as described below.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe 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 COMPENSATIONThe 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 MATTERSThe 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.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe 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.48ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information concerning principal accountant fees and services required by this Item is incorporated by reference to our Proxy Statement under the heading “Ratification of Independent Registered Public 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.”PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)Documents Filed with Report1.Financial Statements.(a) Documents Filed with Report 1. Financial Statements.2.Financial Statement Schedules.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.applicable49EXHIBITS3.1(1)10.210.310.4(10.4(7)5)10.5(10.5(8)6)10.6(10.6(9)7)10.7(10.7(10)8)10.8(10.8(11)9)10.9(10.9(12)10)10.10(10.10(13)11)10.11(10.11(14)12)10.12(10.12(15)13)10.13(10.13(16)14)10.14(10.14(17)15)10.15(10.15(18)16)10.16(10.16(19)17)10.17(10.17(20)18)10.18(10.18(21)19)10.19(10.19(22)20)10.21(10.21(24)22)10.22(10.22(25)23)10.23(10.23(26)24)10.24(10.24(27)25)10.25(10.25(28)26)10.26(10.26(29)27)10.27(10.27(30)28)10.28(10.28(31)29) 21.150(25) Incorporated by reference to exhibit 10.22 filed with the Company’s Form 10-Q filed on July 31, 2015. (26) (27) (28) (29) (30) (31) ** Management Contract or Compensatory Plan or Arrangement 51ITEM 16. FORM 10-K SUMMARYNone.SIGNATURESPursuant 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.16, 2017POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alexander M. Davern and John C. Roiko,Karen Rapp, 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, 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.SignatureSignature Capacity in Which Signed Director, President and Chief Executive Officer(Principal Executive Officer)16, 2017/s/ Karen Rapp Executive Vice President and Chief Financial Officer(Principal Financial Officer)February 22, 2018 Karen Rapp /s/ John C. Roiko Vice President and Interim Chief FinancialAccounting Officer(Principal Financial and Accounting Officer)16, 201716, 201716, 201716, 2017DirectorFebruary 16, 2017Dr. Donald M. Carlton16, 201716, 201716, 201716, 2017INDEX TO FINANCIAL STATEMENTSPage No.Financial Statements:Page No. F-2F-2F-3F-3Consolidated Balance Sheets as of December 31, 20162017 and 20152016F-4F-4F-5F-5F-6F-6F-7F-7F-8F-8F-9F-9All schedules are omitted because the required information is already included in our notes to our consolidated financial statements or because they are not applicable.F-1The Board of Directors and Stockholders of National Instruments Corporation:Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of National Instruments Corporation (the Company) as of December 31, 20162017 and 2015, and2016, 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, 2016. 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, 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) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2018 expressed an unqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. 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 includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.In our opinion,/s/ Ernst & Young LLPWe have served as the financial statements referred to above present fairly, in all material respects, the consolidated financial positionCompany’s auditor since 2005.Austin, TexasFebruary 22, 2018Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of National Instruments Corporation at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.Opinion on Internal Control over Financial ReportingWe also have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), National Instruments Corporation’s internal control over financial reporting as of December 31, 2016,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and2013 framework (the COSO criteria). In our report dated February 16, 2017 expressed an unqualified opinion, thereon./s/ Ernst & Young LLPAustin, TexasFebruary 16, 2017F-2Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of National Instruments Corporation:We have audited National Instruments Corporation’sCorporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,2017, based on criteria establishedCOSO criteria.We also have audited, in Internal Control—Integrated Framework issued byaccordance with the Committee of Sponsoring Organizationsstandards of the Treadway Commission (2013 framework)Public Company Accounting Oversight Board (United States) (PCAOB), (the COSO criteria). National Instruments Corporation’sthe consolidated balance sheets of the Company as of December 31, 2017 and 2016, 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, 2017, and the related notes and our report dated February 22, 2018 expressed an unqualified opinion thereon.Basis for OpinionThe Company’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 the Effectiveness of Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’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).PCAOB. 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.Definition and Limitations of Internal Control Over Financial ReportingA 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, 2016, 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, 2016 and 2015, 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, 2016 of National Instruments Corporation and our report dated February 16, 2017 expressed an unqualified opinion thereon./s/ Ernst & Young LLPAustin, TexasFebruary 16, 201722, 2018F-3CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) 285,283 251,129 73,117 81,789 228,686 216,244 193,608 185,197 53,953 65,381 834,647 799,740 260,456 257,853 253,197 257,718 108,663 108,196 39,601 30,349 1,496,564 1,453,856 48,800 50,970 27,743 27,956 115,577 112,283 32,997 11,756 34,958 37,250 260,075 240,215 25,000 37,000 45,386 44,673 11,719 11,974 29,752 27,708 10,413 10,565 382,345 372,135 1,292 1,275 771,346 717,705 376,202 400,831 (34,621) (38,090) 1,114,219 1,081,721 1,496,564 1,453,856 December 31, 2017 December 31, 2016 Assets Current assets: Cash and cash equivalents $ 290,164 $ 285,283 Short-term investments 121,888 73,117 Accounts receivable, net 248,825 228,686 Inventories, net 184,592 193,608 Prepaid expenses and other current assets 48,621 53,953 Total current assets 894,090 834,647 Property and equipment, net 249,715 260,456 Goodwill 266,783 253,197 Intangible assets, net 123,293 108,663 Other long-term assets 32,553 39,601 Total assets $ 1,566,434 $ 1,496,564 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses $ 49,733 $ 48,800 Accrued compensation 43,309 27,743 Deferred revenue - current 120,638 115,577 Other current liabilities 23,782 32,997 Other taxes payable 31,793 34,958 Total current liabilities 269,255 260,075 Long-term debt — 25,000 Deferred income taxes 33,609 45,386 Income tax payable - long-term 81,515 — Liability for uncertain tax positions 10,158 11,719 Deferred revenue - long-term 33,742 29,752 Other long-term liabilities 10,134 10,413 Total liabilities 438,413 382,345 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; 360,000,000 shares authorized; 130,978,947 and 129,202,979 shares issued and outstanding, respectively 1,310 1,292 Additional paid-in capital 829,979 771,346 Retained earnings 313,241 376,202 Accumulated other comprehensive loss (16,509 ) (34,621 ) Total stockholders’ equity 1,128,021 �� 1,114,219 Total liabilities and stockholders’ equity $ 1,566,434 $ 1,496,564 The accompanying notes are an integral part of the financial statements. F-4CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) 1,116,703 1,113,590 1,143,000 111,476 111,866 100,862 1,228,179 1,225,456 1,243,862 306,730 311,226 312,623 6,391 5,730 5,509 313,121 316,956 318,132 915,058 908,500 925,730 461,236 452,262 461,845 235,706 225,131 227,433 98,390 93,935 91,265 795,332 771,328 780,543 119,726 137,172 145,187 1,122 1,403 1,133 (4,632) (7,075) (2,250) (1,581) (221) (69) 114,635 131,279 144,001 31,901 36,017 17,668 82,734 95,262 126,333 0.64 0.74 0.99 128,453 127,997 127,030 0.64 0.74 0.99 129,008 128,668 127,799 0.80 0.76 0.60 For the years ended December 31, 2017 2016 2015 Net sales: Product $ 1,173,476 $ 1,116,703 $ 1,113,590 Software maintenance 115,910 111,476 111,866 Total net sales 1,289,386 1,228,179 1,225,456 Cost of sales: Product 318,863 306,730 311,226 Software maintenance 9,461 6,391 5,730 Total cost of sales 328,324 313,121 316,956 Gross profit 961,062 915,058 908,500 Operating expenses: Sales and marketing 477,921 461,236 452,262 Research and development 231,761 235,706 225,131 General and administrative 105,602 98,390 93,935 Total operating expenses 815,284 795,332 771,328 Operating income 145,778 119,726 137,172 Other income (expense): Interest income 2,276 1,122 1,403 Net foreign exchange gain (loss) 892 (4,632 ) (7,075 ) Other expense, net (1,566 ) (1,581 ) (221 ) Income before income taxes 147,380 114,635 131,279 Provision for income taxes 94,969 31,901 36,017 Net income $ 52,411 $ 82,734 $ 95,262 Basic earnings per share $ 0.40 $ 0.64 $ 0.74 Weighted average shares outstanding - basic 130,300 128,453 127,997 Diluted earnings per share $ 0.40 $ 0.64 $ 0.74 Weighted average shares outstanding - diluted 131,387 129,008 128,668 Dividends declared per share $ 0.84 $ 0.80 $ 0.76 The accompanying notes are an integral part of these financial statements.F-5CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME (in thousands) 82,734 95,262 126,333 (5,697) (19,240) (21,218) 210 701 (380) 13,166 (19,012) 7,692 7,679 (37,551) (13,906) 4,210 (11,125) 308 3,469 (26,426) (14,214) 86,203 68,836 112,119 F-682,734 95,262 126,333 73,390 73,329 70,206 25,832 25,489 25,759 (5,430) 11,019 (3,240) (442) (967) (1,242) 1,585 (12,441) (11,760) (21,649) (8,412) (8,381) (943) 14,211 (13,126) (16,864) (2,170) (9,003) 1,989 5,338 5,656 14,910 21,645 (4,881) (149) 195,840 162,637 195,110 (44,425) (33,987) (44,944) (31,859) (31,356) (25,781) (2,342) (2,811) (2,834) (549) (125,612) (39,097) (36,063) (123,849) 47,769 151,437 89,835 (70,503) (78,392) (107,573) 15,000 54,000 (27,000) (17,000) 28,907 27,785 31,275 (5,635) (75,255) (102,897) (97,643) (76,287) 442 967 1,242 (91,183) (107,146) (43,770) 34,154 (22,901) 43,767 251,129 274,030 230,263 285,283 251,129 274,030 13,778 520 287 144 2,902 29,038 28,003 For the years ended December 31, 2017 2016 2015 Net income $ 52,411 $ 82,734 $ 95,262 Other comprehensive income, before tax and net of reclassification adjustments: Foreign currency translation adjustment 24,470 (5,697 ) (19,240 ) Unrealized (loss) gain on securities available-for-sale (120 ) 210 701 Unrealized (loss) gain on derivative instruments (9,488 ) 13,166 (19,012 ) Other comprehensive income (loss), before tax 14,862 7,679 (37,551 ) Tax (benefit) provision related to items of other comprehensive income (3,250 ) 4,210 (11,125 ) Other comprehensive income (loss), net of tax 18,112 3,469 (26,426 ) Comprehensive income $ 70,523 $ 86,203 $ 68,836 The accompanying notes are an integral part of these financial statements.F-7CONSOLIDATED STATEMENTS OF CASH FLOWS( in thousands) For the years ended December 31, 2017 2016 2015 Cash flow from operating activities: Net income $ 52,411 $ 82,734 $ 95,262 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 72,695 73,390 73,329 Stock-based compensation 29,145 25,832 25,489 Tax (benefit) expense from deferred income taxes (5,774 ) (5,430 ) 11,019 Purchase price adjustment — 1,585 — Changes in operating assets and liabilities (net of effects of acquisitions): Accounts receivable (15,269 ) (14,131 ) (10,709 ) Inventories 10,154 (9,205 ) (9,342 ) Prepaid expenses and other assets 1,971 17,421 (11,111 ) Accounts payable and accrued expenses 1,584 (2,506 ) (9,828 ) Deferred revenue 1,791 8,864 6,493 Taxes, accrued compensation, and other current liabilities 75,734 21,645 (1,537 ) Net cash provided by operating activities 224,442 200,199 169,065 Cash flow from investing activities: Capital expenditures (30,256 ) (44,425 ) (33,987 ) Capitalization of internally developed software (41,662 ) (31,859 ) (31,356 ) Additions to other intangibles (2,384 ) (2,342 ) (2,811 ) Acquisitions, net of cash received — (549 ) (125,612 ) Purchases of short-term investments (87,735 ) (39,097 ) (36,063 ) Sales and maturities of short-term investments 39,627 47,769 151,437 Net cash used in investing activities (122,410 ) (70,503 ) (78,392 ) Cash flow from financing activities: Proceeds from revolving line of credit — 15,000 54,000 Principal payments on revolving line of credit (25,000 ) (27,000 ) (17,000 ) Proceeds from issuance of common stock 29,094 28,907 27,785 Repurchase of common stock — (5,635 ) (75,255 ) Dividends paid (109,551 ) (102,897 ) (97,643 ) Other (842 ) — — Net cash used in financing activities (106,299 ) (91,625 ) (108,113 ) Effect of exchange rate changes on cash 9,148 (3,917 ) (5,461 ) Net change in cash and cash equivalents 4,881 34,154 (22,901 ) Cash and cash equivalents at beginning of period 285,283 251,129 274,030 Cash and cash equivalents at end of period $ 290,164 $ 285,283 $ 251,129 Supplemental disclosures: Equity consideration issued in business combinations $ — — 13,778 Interest $ 478 $ 520 $ 287 Income taxes paid $ 38,033 $ 2,902 $ 29,038 The accompanying notes are an integral part of these financial statements.NATIONAL INSTRUMENTS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share data)125,690,240 1,257 604,330 414,947 2,550 1,023,084 126,333 126,333 (14,214) (14,214) 2,159,031 21 31,254 31,275 26,242 26,242 (76,287) (76,287) 1,063 1,063 127,849,271 1,278 662,889 464,993 (11,664) 1,117,496 95,262 95,262 (26,426) (26,426) 1,846,070 18 27,767 27,785 25,891 25,891 367,481 4 13,774 13,778 (2,591,218) (25) (13,449) (61,781) (75,255) (97,643) (97,643) 833 833 127,471,604 1,275 717,705 400,831 (38,090) 1,081,721 82,734 82,734 3,469 3,469 1,894,151 19 28,888 28,907 25,920 25,920 44,004 (206,780) (2) (1,167) (4,466) (5,635) (102,897) (102,897) 129,202,979 1,292 771,346 376,202 (34,621) 1,114,219 F-8 Common Stock Shares Common Stock Amount Additional-Paid in Capital Retained Earnings Accumulated Other Comprehensive Income/(Loss) Total Stockholders' Equity Balance at December 31, 2014 127,849,271 1,278 662,889 464,993 (11,664 ) 1,117,496 Net income — — — 95,262 — 95,262 Other comprehensive loss, net of tax — — — (26,426 ) (26,426 ) Issuance of common stock under employee plans, including tax benefits 1,846,070 18 27,767 — — 27,785 Stock-based compensation — — 25,891 — — 25,891 Business acquisition 367,481 4 13,774 13,778 Repurchase of common stock (2,591,218 ) (25 ) (13,449 ) (61,781 ) (75,255 ) Dividends paid — — — (97,643 ) — (97,643 ) Disqualified dispositions — — 833 — — 833 Balance at December 31, 2015 127,471,604 1,275 717,705 400,831 (38,090 ) 1,081,721 Net income — — — 82,734 — 82,734 Other comprehensive income, net of tax — — — 3,469 3,469 Issuance of common stock under employee plans, including tax benefits 1,894,151 19 28,888 — — 28,907 Stock-based compensation — — 25,920 — — 25,920 Business acquisition 44,004 — — — Repurchase of common stock (206,780 ) (2 ) (1,167 ) (4,466 ) (5,635 ) Dividends paid — — — (102,897 ) — (102,897 ) Balance at December 31, 2016 129,202,979 $ 1,292 $ 771,346 $ 376,202 $ (34,621 ) $ 1,114,219 Net income — — — 52,411 — 52,411 Other comprehensive income, net of tax — — — 18,112 18,112 Issuance of common stock under employee plans, including tax benefits 1,775,968 18 29,076 — — 29,094 Stock-based compensation — — 29,557 — — 29,557 Adoption of ASU 2016-16 — — (5,821 ) (5,821 ) Dividends paid — — — (109,551 ) — (109,551 ) Balance at December 31, 2017 130,978,947 $ 1,310 $ 829,979 $ 313,241 $ (16,509 ) $ 1,128,021 The accompanying notes are an integral part of Contentsthese financial statements.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Operations and summary of significant accounting policiesNational 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 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, automated test equipment, automotive, commercial aerospace, computers and electronics, consumer 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 U.S. generally accepted accounting principles.Principles of consolidationThe Consolidated Financial Statements include the accounts of National Instruments Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.ReclassificationsAs of December 31, 2017, we revised the presentation of Note 2 - Short-term investments of Notes to Consolidated Financial Statements. Certain amountsappearing in theprior previous year’s warranty footnotedisclosures of short-term investments have been reclassified to conform to the current year’s presentation.Starting January 1, 2017, we began separately presenting the effect of exchange rate changes on cash and cash equivalents in our consolidated statements of cash flows due to growing operations in foreign currency environments. Amounts in the comparable prior periods have been reclassified to conform to the current period presentation. The reclassifications resulted in the disaggregation of the amount attributable to the “Effect of exchange rate changes on cash” of $(3.9) million and $(5.5) million, with a corresponding increase to “Net cash provided by operating activities”, for the twelve months ended December 31, 2016 and 2015, respectively. We believe the reclassification is immaterial to the consolidated financial statements.Use of estimatesThe 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 equivalentsCash and cash equivalents include cash and highly liquid investments with maturities of three months or less at the date of acquisition.Short-Term InvestmentsWe value our available-for-sale short-term investments based on pricing from third party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. We classify all of our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques. We believe all of these sources reflect the credit risk associated with each of our available-for-sale short-term investments. Short-term investments available-for-sale consistsconsist 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 organizations and agencies as well as debt securities issued by foreign governments.agencies. All short-term investments available-for-sale have contractual maturities of less than 5752 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, 20162017 and December 31, 20152016 was $73$122 million and $82$73 million, respectively. The decreaseincrease was due to the net salespurchase of $9$48 million of short-term investments. We had $4.4$5.0 million U.S. dollar equivalent of corporate bonds that were denominated in Euro at December 31, 2016. 2017. F-92015, and 2014. Accounts Receivable, netAccounts receivable are recorded net of allowances for sales returns of $1.8$2.1 million and $1.9$1.8 million at December 31, 20162017 and 2015,2016, respectively, and net of allowances for doubtful accounts of $1.9$2.9 million and $2.5$1.9 million at December 31, 20162017 and 2015,2016, 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 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.4,431 760 393 4,798 4,798 536 968 4,366 4,366 1,024 1,682 3,708 (In thousands) Year Description Balance at Beginning of Period Provisions Write-Offs Balance at End of Period 2015 Allowance for doubtful accounts and sales returns $ 4,798 $ 536 $ 968 $ 4,366 2016 Allowance for doubtful accounts and sales returns $ 4,366 $ 1,024 1,682 $ 3,708 2017 Allowance for doubtful accounts and sales returns $ 3,708 $ 1,642 359 $ 4,991 Inventories, netInventories are stated at the lower-of-cost or market.net realizable value. 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 $16.4 million, $12.6 million $10.1 million and $9.6$10.1 million at December 31, 2017, 2016 and 2015, and 2014, respectively.5,459 5,812 1,673 9,598 9,598 3,087 2,631 10,054 10,054 5,793 3,208 12,639 (In thousands) Year Description Balance at Beginning of Period Provisions Write-Offs Balance at End of Period 2015 Adjustment for excess and obsolete inventories $ 9,598 $ 3,087 $ 2,631 $ 10,054 2016 Adjustment for excess and obsolete inventories $ 10,054 $ 5,793 3,208 $ 12,639 2017 Adjustment for excess and obsolete inventories $ 12,639 $ 7,130 3,322 $ 16,447 Property and equipment, netProperty and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from twenty to forty years for buildings, and three to 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, netWe 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. 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 to six years.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 ratably over the legal life of 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.F-10Goodwill OurWe have historically performed our annual goodwill impairment test was performed as of February 28 2016. of each year. For the annual impairment test as of February 28, 2017, we performed a qualitative assessment of whether it was more likely than not that our reporting unit's fair value was less than its carrying amount. After completing the assessment, we determined that it was more likely than not that the estimated fair value of the reporting unit exceeded the carrying amount and that no impairment existed as of the assessment date. If we had concluded otherwise, a quantitative goodwill impairment test would have been required, which would have included a determination of the fair value of the reporting unit and a comparison of the fair value to its carrying value.Effective for the annual goodwill impairment test for 2018 and for future testing, we will perform the required annual test as of November 30 of each year rather than on February 28. We reperformed our annual goodwill impairment testing as of November 30, 2017 and determined that it was more likely than not that the estimated fair value of the reporting unit exceeded the carrying amount and that no impairment existed as of the assessment date. We do not believe that the change in the date of the annual goodwill impairment test is a material change in the method of applying an accounting principle nor do we expect that it will result in any delay, acceleration or impact to the results of the impairment testing. We believe this date is preferable because it aligns with the timing of our annual planning process which largely occurs during the fourth quarter. Retrospective application to prior periods is impracticable as we are unable to objectively determine, without the use of hindsight, the assumptions that would be used in those earlier periods.No impairment of goodwill was identified during 20162017 and 2015.2016. Goodwill is deductible for tax purposes in certain jurisdictions.Concentrations of credit riskWe maintain cash and cash equivalents with various financial institutions located in many countries throughout the world. At December 31, 2016, $2172017, we had $412 million or 76% of ourin cash, cash equivalents and short-term investments. Our cash and cash equivalents wasequivalent balances are held in cash in various operating accounts withnumerous financial institutions throughout the world, and $69including substantial amounts held outside of the U.S., however, the majority of our short-term investments that are located outside of the U.S. are denominated in the U.S. dollar with the exception of $5 million or 24% was heldU.S. dollar equivalent of corporate bonds that are denominated in money market accounts.Euro. The most significant of our operating accounts was our domestic Wells FargoHungarian Citibank operating account which held approximately $11$17 million or 4%6% of our total cash and cash equivalents at a bank that carried A/A2/AA-Baa1/BBB+/A ratings at December 31, 2016. From a2017.The following table presents the geographic standpoint, approximately $46 million or 16%distribution of our cash, was held in various domestic accounts with financial institutionscash equivalents, and $239 million or 84% was held in various accounts outsideshort-term investments as of the U.S. with financial institutions. At December 31, 2016, our short-term investments consisted of $71 million or 98% in corporate notes, and $1.8 million or 2% in time deposits. Domestic International Total Cash and Cash Equivalents $63 $227 $290 22% 78% Short-term Investments $— $122 $122 —% 100% Cash, Cash Equivalents and Short-term Investments $63 $349 $412 15% 85% The goal of our investment policy is to manage our investment portfolio to preserve principal and liquidity while maximizing the return on our investment portfolio through the full investment of available funds. We place our cash investments in instruments that meet credit quality standards, as specified in our corporate investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. Our cash equivalents and short-term investments carried ratings from the major credit rating agencies that were in accordance with our corporate investment policy. Our investment policy allows investments in the following: government and federal agency obligations, repurchase agreements (“Repos”), certificates of deposit and time deposits, corporate obligations, medium term notes and deposit notes, commercial paper including asset-backed commercial paper (“ABCP”), puttable bonds, general obligation and revenue bonds, money market funds, taxable commercial paper, corporate notes/bonds, municipal notes, municipal obligations variable rate demand notes and tax exempt commercial paper. All such instruments must carry minimum ratings of A1/P1/F1, MIG1/VMIG1/SP1 and A2/A/A, as applicable, all of which are considered “investment grade”. Our investment policy for marketable securities requires that all securities mature in five years or less, with a weighted average maturity of no longer than 24 months with at least 10% maturing in 90 days or less. (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).Concentration of credit risk with respect to trade accounts receivable is limited due to our large number of customers and their dispersion across many countries and industries. No single customer accounted for more than 3%, 3%, or 5%3% of sales for the years ended December 31, 2017, 2016, 2015, and 2014,2015, respectively. The largest trade account receivable from any individual customer at December 31, 20162017 was approximately $4$2.7 million.Key supplier riskOur manufacturing processes use large volumes of high-quality components and subassemblies supplied by outside sources. Several of these componentsitems are available through sole or limited sources. Supply shortages or quality problems in connection with some of these key componentsitems could require us to procure componentsitems 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 recognitionWe sell test and measurement solutions that include hardware, software licenses, and related services. Our sales are generally made under standard sales arrangements with payment terms ranging from net 30 days in the U.S. to net 30 days and up to net 120180 days in some international markets. 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. Our standard warranties cover periods ranging from 90 days to three years. Our standard sales arrangements do not require product acceptance from the customer.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 timing of 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, all of which may create uncertainty with respect to the amount and timing of revenue recognized from such orders.Sales of application software licenses include post-contract support services. Other services include customer training, customer support, and extended warranties.F-11We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is 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 shipment. 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 apply the separation guidance under U.S. GAAP for contracts with multiple deliverables. We analyze revenue arrangements with multiple deliverables to determine whether the deliverables should be divided into more than one unit of accounting. For contracts with more than one unit of accounting, we allocate the consideration we receive among the separate units of accounting based on their relative selling prices, which we determine based on prices of the deliverables as sold on a stand-alone basis, or if not sold on a stand-alone basis, the prices we would charge if sold on a stand-alone basis. We recognize revenue for each deliverable based on the revenue recognition policies described below.For software arrangements that include multiple elements, including perpetual software licenses and undelivered items (e.g., software maintenance; subscriptions/term licenses), we allocate and defer revenue for the undelivered items based on vendor specific objective evidence (“VSOE”) of the fair value of the undelivered elements, and recognize revenue on the perpetual license using the residual method. We base VSOE of each element on the price for which the undelivered element is sold separately. We determine fair value of the undelivered elements based on historical evidence of our stand-alone sales of these elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist for undelivered items, we recognize the entire arrangement fee ratably over the applicable performance period.A portion of our revenues are generated from the sale of systems that contain software components that operate together with our hardware platform to provide the essential functionality of the system. When sold in a multiple element arrangement, these systems are considered non-software deliverables, so we can allocate the arrangement fee based upon relative selling price of each element. When applying the relative selling price method, we determine the selling price of each element using best estimate of selling price (“BESP”), because VSOE and third-party evidence (“TPE”) are not available.The revenues allocated to the software-related elements are recognized based on software industry specific revenue recognition guidance, as noted above. The revenues allocated to the non-software related elements are recognized based on the nature of the element provided. We estimate BESP by considering internal factors such as historical pricing practices and gross margin objectives, as well as market conditions such as competitor pricing strategies, customer demands and geography, and regularly review these assumptions.The application of 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.Product revenueOur 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 revenueSoftware maintenance revenue is post contract customer support that provides the customer with unspecified upgrades/updates and technical support.Shipping and handling costsOur shipping and handling costs charged to customers are included in net sales, and the associated expense is recorded in cost of sales.Warranty reserveWe offer a one-year limited warranty on most hardware products which is included in the terms of sale of such products. We also offer optional extended warranties on our hardware products for which the related revenue is recognized ratably over the warranty period. Provision is made for estimated future warranty costs at the time of the sale for the estimated costs that may be incurred under the limited warranty. Our estimate is based on historical experience and product sales during the period.F-122015, and 20142015 was as follows:1,755 1,885 1,764 2,454 1,834 2,956 1,258 (263) (246) (2,781) (1,701) (2,589) 2,686 1,755 1,885 (In thousands) 2017 2016 2015 Balance at the beginning of the period $ 2,686 $ 1,755 $ 1,885 Accruals for warranties issued during the period 2,644 2,454 1,834 Accruals related to pre-existing warranties 274 1,258 (263 ) Settlements made (in cash or in kind) during the period (2,758 ) (2,781 ) (1,701 ) Balance at the end of the period $ 2,846 $ 2,686 $ 1,755 Loss contingenciesWe accrue for probable losses from contingencies including legal defense costs, on an undiscounted basis, 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 expenseWe expense costs of advertising as incurred. Advertising expense for the years ended December 31, 2017, 2016, and 2015 and 2014 was $12$11 million, $12 million, and $14$12 million, respectively.Foreign currency translationThe 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 lossgain (loss) and are included in net income.Foreign currency hedging instrumentsAll 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 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 loss”gain (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 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.Income taxesWe account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax 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. 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.F-13Basic 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 years ended December 31, 2017, 2016, 2015, and 20142015 are as follows:128,453 127,997 127,030 555 671 769 129,008 128,668 127,799 Years ended December 31, (In thousands) 2017 2016 2015 Weighted average shares outstanding-basic 130,300 128,453 127,997 Plus: Common share equivalents RSUs 1,087 555 671 Weighted average shares outstanding-diluted 131,387 129,008 128,668 Stock awards to acquire 32,400 shares, 10,900 shares, 292,400 shares, and 19,400292,400 shares for the years ended December 31, 2017, 2016, 2015, and 2014,2015, respectively, were excluded in the computations of diluted EPS because the effect of including the stock awards would have been anti-dilutive.Stock-based compensationWe account for stock-based compensation plans, which are more fully described in Note 11 – Authorized shares of common and preferred stock and stock-based compensation plans, using a fair-value method and recognize the expense in our Consolidated Statement of Income.Comprehensive incomeOur 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 in 2017, 2016, and 2015 and 2014 was $71 million, $86 million and $69 million, and $112 million, respectively.Recently issued and adopted accounting pronouncementsIn May 2014,October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16, Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory. The standard is intended to address diversity in practice and complexity in financial reporting, particularly for intra-entity transfers of intellectual property. We early adopted ASU 2016-16 effective January 1, 2017. Using the modified retrospective method, the impact of the adoption of the standard was to increase our deferred tax assets by $0.4 million, decrease other assets, net by $6.2 million and decrease retained earnings by $5.8 million. The adoption of the amendments had the effect of increasing our diluted earnings per share by $0.01 and $0.04 for the three and twelve months ended December 31, 2017, respectively.In March 2016, the FASB issued ASU 2016- 09, Improvements to Employee Share-Based Payment Accounting , which requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase a greater number of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. We adopted ASU 2016-09 effective January 1, 2017 as follows:•Our adoption of the amendments related to accounting for excess tax benefits resulted in the recognition of $3.2 million of excess tax benefits within income taxes rather than additional paid in capital for the twelve months ended December 31, 2017.•We elected to retrospectively apply the changes in presentation to the statements of cash flows and no longer classify excess tax benefits as a financing activity, which increased net cash provided by operating activities and reduced net cash provided by financing activities by an immaterial amount for the twelve months ended December 31, 2017.•We elected to account for forfeitures as they occur using a modified retrospective transition method. The adoption of this one-time accounting policy election did not have a material impact on our financial statements.In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory(Topic 330). The amendments require that reporting entities measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using the first-in, first-out or average cost basis. We adopted ASU 2015-11 as of January 1, 2017 and the guidance was applied prospectively. We determined there were no changes to disclosure, financial statement presentation, or valuation of inventory as a result of adoption.Recently Issued Accounting PronouncementsIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers.Customers (Topic 606). The update is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2017 and early adoption is permitted for annual reporting periods, and interim periods within that period, beginning after December 31, 2016. We intend to adoptadopted this standard as of January 1, 2018 by applying the modified retrospective transition method. Consequently, the cumulative effect of applying the standard will be recognized in the first quarter of 2018.We anticipate ASU 2014-09 could have a material impact on our consolidated financial statements, and we continue to make progress in assessing the potential impacts of the standard, including any impacts from recently issued amendments. We have reached conclusions on our key accounting matters related to the new standard. We will continue to monitor and assess the impact of changes to the standard and interpretationsbelieve adoption of the new standard will generally result in revenue recognition earlier or at the same time as they become available.prior US GAAP. The most significant impact of the standard relates to our accounting for certain software arrangements. We primarily license revenue. Specifically,software on a perpetual basis. However, we also license software under enterprise agreements which includes an unlimited quantity of certain software licenses for a fixed-term bundled with software maintenance, technical support, and a specified amount of training and service credits. Currently, we defer revenue for software licensed under our enterprise agreements and certain perpetual arrangements due to a lack of vendor specific objective evidence (“VSOE”) for certain elements in the contract. Under the new standard, we expectare no longer required to establish VSOE to recognize software license revenue separately from the other elements, and we will be able to recognize software license revenue once the customer obtains control of the license, which will generally occur at the timestart of contract execution rather than over the contractual term for most of our enterprise agreements that include software term licenses, software maintenance, training, and support.each license term. Due to the complexity of certain of our enterprise agreement contracts, the actual revenue recognition treatment required under the new standard will be dependent on contract-specific terms, and may vary in some instances from recognition at the time of billing.We adopted the new revenue recognition guidance effective January 1, 2018, by recognizing the cumulative effect of initially applying the new standard as an increase to the opening balance of retained earnings. We expect this adjustment to be less than $10 million, with an immaterial impact to our net income on an ongoing basis.In October 2016,August 2017, the FASB issued ASU 2016-16,2017-12, Intra-Entity TransfersDerivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU simplifies certain aspects of Assets Other Than Inventory.hedge accounting and improves disclosures of hedging arrangements through the elimination of the requirement to separately measure and report hedge ineffectiveness. The purposeASU generally requires the entire change in the fair value of ASU 2016-16 isa hedging instrument to simplifybe presented in the same income tax accountingstatement line as the hedged item in order to align financial reporting of an intra-entity transferhedge relationships with economic results. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on the date of an asset other than inventoryadoption using a modified retrospective approach. The presentation and to record its effect when the transfer occurs. Thedisclosure requirements must be applied prospectively. Our effective date for adoption of this guidance is effective for annual reporting periodsour fiscal year beginning after December 15, 2017, including interim reporting periods within those annual reporting periods and early adoption is permitted. We are currently assessing the potential impact of the adoption of ASU 2016-16 on have on our Consolidated Financial Statements and related disclosures.F-14In March 2016, FASB issued ASU 2016-09, Compensation - Stock Compensation , which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. The update is effective for annual and interim periods beginning after December 31, 2016 and early adoption is permitted.January 1, 2019. We are currently evaluating the effect that the updated standardthis guidance will have on our Consolidated Financial Statements and related disclosures.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC840, Leases.ASC 840, Leases. The guidance requires lessees to recognize most lease liabilities on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The update states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The update is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the effect that the updated standard will have on our Consolidated Financial Statementsconsolidated financial statements and related disclosures.Other UpdatesThe FASB also issued Based on our initial assessment, we expect that the following Accounting Standards Updates which are not expected toadoption of this standard will have a material impact on our financial condition,balance sheet but that it will not have a material impact on our ongoing results of operations or cash flows upon adoption:·Update 2017-04operations. We do not expect to adopt the new standard prior to the required effective date.—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment·Update 2017-01—Business Combinations (Topic 805): Clarifying the Definition of a Business·Update 2016-18—Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)·Update 2016-17—Consolidation (Topic 810): Interests Held through Related Parties That Are under Common ControlCash, cash equivalents and short-termShort-term investments The following tables summarize unrealized gains and losses related to our cash, cash equivalents, and short-term investments designated as available-for-sale:217,112 (406) 216,706 68,577 68,577 72,986 89 (182) (1,536) 71,357 1,760 1,760 360,435 89 (182) (1,942) 358,400 165,251 (1,551) 163,700 87,429 87,429 69,442 2 (281) (1,119) 68,044 4,419 (2) 4,417 9,326 2 9,328 335,867 4 (283) (2,670) 332,918 (In thousands) As of December 31, 2017 Adjusted Cost GrossUnrealized Gain Gross Unrealized Loss Fair Value Corporate bonds $ 120,341 $ 182 $ (395 ) $ 120,128 Time deposits 1,760 — — 1,760 Short-term investments $ 122,101 $ 182 $ (395 ) $ 121,888 F-15(In thousands) As of December 31, 2016 Adjusted Cost Gross
Unrealized Gain Gross Unrealized Loss Fair Value Corporate bonds $ 71,450 $ 89 $ (182 ) $ 71,357 Time deposits 1,760 — — 1,760 Short-term investments $ 73,210 $ 89 $ (182 ) $ 73,117 The following tables summarize the contractual maturities of our short-term investments designated as available-for-sale:32,761 32,747 41,985 40,370 74,746 73,117 31,001 30,987 1,760 1,760 32,761 32,747 41,985 40,370 41,985 40,370 (In thousands) As of December 31, 2017 Adjusted Cost Fair Value Due in less than 1 year $ 17,862 $ 17,824 Due in 1 to 5 years 104,239 104,064 Total available-for-sale debt securities $ 122,101 $ 121,888 Due in less than 1 year Adjusted Cost Fair Value Corporate bonds $ 16,102 $ 16,064 Time deposits 1,760 1,760 Total available-for-sale debt securities $ 17,862 $ 17,824 Due in 1 to 5 years Adjusted Cost Fair Value Corporate bonds 104,239 104,064 Total available-for-sale debt securities $ 104,239 $ 104,064 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 advantageous market that market participants may 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. Fair value measurement is determined based on the lowest level input that is significant to the fair value measurement. The three values of the fair value hierarchy are the following: Level 1 –Quoted prices in active markets for identical assets or liabilities Level 2 –Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3 –Inputs that are not based on observable market data Assets and liabilities measured at fair value on a recurring basis are summarized below:68,577 68,577 71,357 71,357 1,760 1,760 15,113 15,113 156,807 70,337 86,470 (8,199) (8,199) (8,199) (8,199) F-16(In thousands) Fair Value Measurements at Reporting Date Using Description December 31, 2017 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 $ 61,423 $ 61,423 $ — $ — U.S. Treasuries and agencies 39,461 — 39,461 — Short-term investments available for sale: Corporate bonds 120,128 — 120,128 — Time deposits 1,760 1,760 — Derivatives 7,232 — 7,232 — Total Assets $ 230,004 $ 63,183 $ 166,821 $ — Liabilities Derivatives $ (12,743 ) — (12,743 ) — Total Liabilities $ (12,743 ) $ — $ (12,743 ) $ — 87,429 87,429 68,044 68,044 4,417 4,417 9,328 9,328 1,231 1,231 170,449 96,757 73,692 (8,746) (8,746) (8,746) (8,746) (In thousands) Fair Value Measurements at Reporting Date Using Description December 31, 2016 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 $ 68,577 $ 68,577 $ — $ — Short-term investments available for sale: Corporate bonds 71,357 — 71,357 — Time deposits 1,760 1,760 — — Derivatives 15,113 — 15,113 — Total Assets $ 156,807 $ 70,337 $ 86,470 $ — Liabilities Derivatives $ (8,199 ) $ — $ (8,199 ) $ — Total Liabilities $ (8,199 ) $ — $ (8,199 ) $ — We value our available-for-sale short-term investments based on pricing from third party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. We classify all of our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques. We believe all of these sources reflect the credit risk associated with each of our available-for-sale short-term investments. Short-term investments available-for-sale consists of debt securities issued by states of the U.S. and political subdivisions of the U.S., corporate debt securities and debt securities issued by U.S. government organizations and agencies. All short-term investments available-for-sale have contractual maturities of less than 5752 months. Derivatives include foreign currency forward and option contracts. Our foreign currency forward contracts are valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. Our foreign currency option contracts are valued using a market approach based on the quoted market prices which are derived from observable inputs including current and future spot rates, interest rate spreads as well as quoted market prices of similar instruments. We consider counterparty credit risk in the valuation of our derivatives. However, counterparty credit risk did not impact the valuation of our derivatives during the year ended December 31, 2016.2017. There were not any transfers in or out of Level 1 or Level 2 during the year ended December 31, 2016. Our short-term investments do not include any foreign sovereign debt. The majority of our short-term investments that are located outside of the U.S. are denominated in the U.S. dollar with the exception of $4.4$5.0 million U.S. dollar equivalent of corporate bonds that are denominated in Euro.We did not have any items that were measured at fair value on a nonrecurring basis at December 31, 20162017 and December 31, 2015. The carrying value of net accounts receivable, accounts payable, and long-term debt contained in the Consolidated Balance Sheets approximates fair value.Note4– Derivative instruments and hedging activities We recognize all of our derivative instruments as either assets or liabilities in our statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. F-1759%61%, and 60%59% of our revenues during the years ended December 31, 2017, 2016, 2015, and 2014,2015, respectively. Our activities expose us to a variety of market risks, including the effects of changes in foreign currency exchange rates. These financial risks are monitored and managed by us as an integral part of our overall risk management program. We maintain a foreign currency risk management strategy that uses derivative instruments (foreign currency forward and purchased option contracts) to help protect our earnings and cash flows from fluctuations caused by the volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to our operations and competitive position, since exchange rate changes may affect our profitability and cash flow, and the business or pricing strategies of our non-U.S. based competitors.The vast majority of our foreign sales are denominated in the customers’ local currency. We purchase foreign currency forward and option contracts as hedges of forecasted sales that are denominated in foreign currencies and as hedges of foreign currency denominated receivables. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash inflows resulting from such sales or firm commitments will be adversely affected by changes in exchange rates. We also purchase foreign currency forward contracts as hedges of forecasted expenses that are denominated in foreign currencies. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash outflows resulting from foreign currency operating and cost of revenue expenses will be adversely affected by changes in exchange rates.We designate foreign currency forward and purchased option contracts as cash flow hedges of forecasted revenues or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts that are not designated as hedging instruments. None of our derivative instruments contain a credit-risk-related contingent feature.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 three 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, Malaysian ringgit, British pound, Chinese yuan, 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 loss”gain (loss)”. Hedge effectiveness of foreign currency forwards and purchased option contracts designated as cash flow hedges are measured by comparing the hedging instrument’s cumulative change in fair value from inception to maturity to the forecasted transaction’s terminal value. We held forward contracts with the following notional amounts:27,414 26,548 123,522 30,867 44,982 4,119 57,077 38,836 4,342 42,510 40,249 295,505 144,961 (In thousands) U.S. Dollar Equivalent As of December 31, 2017 As of December 31, 2016 Chinese yuan $ 39,197 $ 27,414 Euro 177,406 123,522 Japanese yen 22,857 44,982 Hungarian forint 41,296 57,077 British pound 9,931 — Malaysian ringgit 28,287 42,510 Total forward contracts notional amount $ 318,974 $ 295,505 The contracts in the foregoing table had contractual maturities of 24 months or less and 36 months or less at December 31, 20162017 and December 31, 2015. 2016, respectively.F-182016,2017, we expect to reclassify $9.4$6.0 million of gainslosses on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $2.3$1.4 million of lossesgains on derivative instruments from accumulated OCI to cost of sales when the cost of sales are incurred and $2.3$1.4 million of lossesgains on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged operating expenses occur. Expected amounts are based on derivative valuations at December 31, 2016.2017. Actual results may vary as a result of changes in the corresponding exchange rates subsequent to this date. The gains and losses recognized in earnings due to hedge ineffectiveness were not material for fiscal years 2017, 2016, 2015, and 20142015 and are included as a component of net income.Other Derivatives Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated net receivable or net payable positions to protect against the change in value caused by a fluctuation in foreign currency exchange rates. We typically attempt to hedge up to 90% of our outstanding foreign denominated net receivables or net payables and typically limit the duration of these foreign currency forward contracts to approximately 120 days. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item “net foreign exchange loss.gain (loss).” As of December 31, 20162017 and December 31, 2015,2016, we held foreign currency forward contracts with a notional amount of $63 million and $60 million, and $97 million, respectively. F-19Fair Values of Derivative Instruments:9,378 391 3,866 13,244 391 1,869 840 1,869 840 15,113 1,231 Asset Derivatives December 31, 2017 December 31, 2016 Balance Sheet Location Fair Value Balance Sheet Location Fair Value (4,672) (4,653) Prepaid expenses and other current assets $ 4,707 Prepaid expenses and other current assets $ 9,378 (3,352) (3,613) Other long-term assets 2,339 Other long-term assets 3,866 (8,024) (8,266) $ 7,046 $ 13,244 (175) (480) Prepaid expenses and other current assets $ 187 Prepaid expenses and other current assets $ 1,869 (175) (480) $ 187 $ 1,869 (8,199) (8,746) $ 7,233 $ 15,113 F-20 Liability Derivatives December 31, 2017 December 31, 2016 (In thousands) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives designated as hedging instruments Foreign exchange contracts - ST forwards Other current liabilities $ (7,487 ) Other current liabilities $ (4,672 ) Foreign exchange contracts - LT forwards Other long-term liabilities (3,959 ) Other long-term liabilities (3,352 ) Total derivatives designated as hedging instruments $ (11,446 ) $ (8,024 ) Derivatives not designated as hedging instruments Foreign exchange contracts - ST forwards Other current liabilities $ (1,297 ) Other current liabilities $ (175 ) Total derivatives not designated as hedging instruments $ (1,297 ) $ (175 ) Total derivatives $ (12,743 ) $ (8,199 ) The following tables present the effect of derivative instruments on our Consolidated Statements of Income for the years ended December 31, 2017 and 2016, and 2015, respectively:12,894 1,280 (128) (1,924) 400 (1,854) 13,166 (2,498) December 31, 2017 (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 $ (22,788 ) Net sales $ (544 ) Net foreign exchange gain (loss) $ — Foreign exchange contracts - forwards 6,968 Cost of sales (1,165 ) Net foreign exchange gain (loss) — Foreign exchange contracts - forwards 6,332 Operating expenses (1,239 ) Net foreign exchange gain (loss) — Total $ (9,488 ) $ (2,948 ) $ — (14,140) 23,736 (1,951) (2,279) (2,921) (2,029) (19,012) 19,428 December 31, 2016 (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 $ 12,894 Net sales $ 1,280 Net foreign exchange gain (loss) $ — Foreign exchange contracts - forwards (128 ) Cost of sales (1,924 ) Net foreign exchange gain (loss) — Foreign exchange contracts - forwards 400 Operating expenses (1,854 ) Net foreign exchange gain (loss) — Total $ 13,166 $ (2,498 ) $ — 1,911 4,273 1,911 4,273 (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, 2017 December 31, 2016 Foreign exchange contracts - forwards Net foreign exchange gain/(loss) $ (5,891 ) $ 1,911 Total $ (5,891 ) $ 1,911 Gains or losses recognized in OCI on the effective portion of our derivatives are reported net of gains or losses reclassified from accumulated OCI into income.F-21Inventories, net at December 31, 2017 and December 31, 2016 consist of the following:92,906 94,816 9,125 10,819 91,577 79,562 193,608 185,197 (In thousands) December 31, 2017 December 31, 2016 Raw materials $ 91,513 $ 92,906 Work-in-process 8,938 9,125 Finished goods 84,141 91,577 Total $ 184,592 $ 193,608 Note 6 – Property and equipmentProperty and equipment at December 31, 20162017 and December 31, 2015,2016, consist of the following:32,928 32,949 210,188 207,977 353,535 320,410 596,651 561,336 (336,195) (303,483) 260,456 257,853 (In thousands) December 31, 2017 December 31, 2016 Land $ 33,016 $ 32,928 Buildings 217,533 210,188 Furniture and equipment 368,107 353,535 618,656 596,651 Accumulated depreciation (368,941 ) (336,195 ) Total, net $ 249,715 $ 260,456 Depreciation expense for the years ended December 31, 2017, 2016, 2015, and 2014,2015, was $40 million, $38$40 million and $38 million, respectively.Note 7 – Intangibleassets Intangible assets at December 31, 20162017 and December 31, 20152016 are as follows:103,887 (39,180) 64,707 80,682 (30,434) 50,248 94,124 (79,485) 14,639 93,976 (69,908) 24,068 31,513 (17,573) 13,940 30,221 (14,941) 15,280 42,848 (27,471) 15,377 43,201 (24,601) 18,600 272,372 (163,709) 108,663 248,080 (139,884) 108,196 (In thousands) December 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Capitalized software development costs $ 116,691 $ (30,345 ) $ 86,346 $ 103,887 $ (39,180 ) $ 64,707 Acquired technology 96,198 (87,341 ) 8,857 94,124 (79,485 ) 14,639 Patents 33,163 (19,931 ) 13,232 31,513 (17,573 ) 13,940 Other 45,565 (30,707 ) 14,858 42,848 (27,471 ) 15,377 Total $ 291,617 $ (168,324 ) $ 123,293 $ 272,372 $ (163,709 ) $ 108,663 Software development costs capitalized in 2017, 2016, and 2015 and 2014 were $33$43 million, $33 million, and $27$33 million, respectively, and related amortization expense was $22 million, $19 million, $18 million, and $15$18 million, respectively. Capitalized software development costs for the years ended December 31, 2017, 2016, 2015, and 20142015 included costs related to stock based compensation of $1.3$1.8 million, $1.3 million and $1.2$1.3 million, respectively. The related amounts in the table above are 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 to six years. Acquired technology and other intangible assets are amortized over their useful lives, which range from two to eight years. Patents are amortized using the straight-line method over their estimated period of benefit, generally 10 to 17 years. Total intangible assets amortization expenses were $34 million, $35 million, $36 million, and $32$36 million for the years ended December 31, 2017, 2016, and 2015, and 2014, respectively.F-223.13.0 years, 2.0 years, 2.93.0 years, and 4.34.4 years, respectively, as of December 31, 2016.2017. The estimated future amortization expense related to intangible assets as of December 31, 20162017 was as follows:38,943 24,220 19,209 10,554 4,382 11,355 108,663 Amount (In thousands) 2018 $ 30,349 2019 26,191 2020 16,198 2021 7,808 2022 4,342 Thereafter 38,405 Total $ 123,293 Note 8 – Goodwill TheA reconciliation of the beginning and ending carrying amounts of goodwill for 2014, 2015, and 2016 areis as follows:Amount(In thousands)Balance as of December 31, 2014$144,325 Acquisitions116,635 Foreign currency translation impact(3,242)Balance as of December 31, 2015$257,718 Acquisitions419 Purchase price adjustments(1,585)Foreign currency translation impact(3,355)Balance as of December 31, 2016$253,197 Amount (In thousands) Balance as of December 31, 2015 $ 257,718 Acquisitions 419 Purchase price adjustments (1,585 ) Foreign currency translation impact (3,355 ) Balance as of December 31, 2016 $ 253,197 Acquisitions — Purchase price adjustments — Foreign currency translation impact 13,586 Balance as of December 31, 2017 $ 266,783 The excess purchase price over the fair value of assets acquired is recorded as goodwill. We have one operating segment and one reporting unit. 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, 2016.November 30, 2017. No impairment of goodwill was identified during 20162017 and 2015.2016. Goodwill is deductible for tax purposes in certain jurisdictions.See Note 17 – Acquisitions of Notes to Consolidated Financial Statements for additional discussion related to our acquisitions in 2015.Note 9 – Income taxes The components of income before income taxes are as follows:43,418 50,102 50,893 71,217 81,177 93,108 114,635 131,279 144,001 F-23(In thousands) Years Ended December 31, 2017 2016 2015 Domestic $ 46,308 $ 43,418 $ 50,102 Foreign 101,072 71,217 81,177 Total $ 147,380 $ 114,635 $ 131,279 The provision for income taxes charged to operations is as follows:13,579 12,678 11,292 1,251 446 1,302 22,631 11,874 8,314 37,461 24,998 20,908 2,373 14,148 (2,330) 323 747 (42) (8,126) (3,114) (868) (5,430) 11,781 (3,240) (130) (762) 31,901 36,017 17,668 (In thousands) Years Ended December 31, 2017 2016 2015 Current tax expense: U.S. federal $ 91,043 $ 13,579 $ 12,678 State 348 1,251 446 Foreign 9,352 22,631 11,874 Total current $ 100,743 $ 37,461 $ 24,998 Deferred tax expense (benefit): U.S. federal $ (4,796 ) $ 2,373 $ 14,148 State (151 ) 323 747 Foreign (827 ) (8,126 ) (3,114 ) Total deferred $ (5,774 ) $ (5,430 ) $ 11,781 Change in valuation allowance — (130 ) (762 ) Total provision $ 94,969 $ 31,901 $ 36,017 Deferred tax liabilities (assets) at December 31, 20162017 and 20152016 were as follows:22,694 17,303 15,535 15,858 15,285 21,839 1,000 1,324 1,827 8,917 8,924 64,258 66,248 (65,230) (108,073) (6,744) (5,963) (1,862) (919) (1,209) (3,408) (9,249) (10,146) (533) (486) (2,756) (916) (1,273) (6,043) (5,824) (396) (1,440) (395) (203) (320) (393) (636) (480) (96,927) (137,970) 61,679 101,837 29,010 30,115 F-24(In thousands) December 31, 2017 2016 Capitalized software $ 18,361 $ 22,694 Depreciation and amortization 12,927 15,535 Intangible assets 11,647 15,285 Cumulative translation adjustment on undistributed earnings 385 — Unrealized exchange gain 1,338 — Unrealized gain on derivative instruments — 1,827 Undistributed earnings of foreign subsidiaries 5,330 8,917 Gross deferred tax liabilities 49,988 64,258 Operating loss carryforwards (81,701 ) (65,230 ) Vacation and other accruals (6,242 ) (6,744 ) Inventory valuation and warranty provisions (2,279 ) (1,862 ) Doubtful accounts and sales provisions (804 ) (919 ) Unrealized exchange loss — (3,408 ) Deferred revenue (7,316 ) (9,249 ) Accrued expenses (495 ) (533 ) Unrealized loss on derivative instruments (924 ) — 10% minority stock investment — (916 ) Stock-based compensation (4,540 ) (6,043 ) Research and development tax credit carryforward (297 ) (396 ) Capital loss carryforward (463 ) (395 ) Foreign tax credit carryforward (130 ) (203 ) Cumulative translation adjustment on undistributed earnings — (393 ) Other (1,118 ) (636 ) Gross deferred tax assets (106,309 ) (96,927 ) Valuation allowance 77,504 61,679 Net deferred tax liability $ 21,183 $ 29,010 A reconciliation of income taxes at the U.S. federal statutory income tax rate to our effective tax rate follows:35 35 35 (7) (1) (2) (3) (3) (2) (2) (7) (8) 1 1 1 1 1 1 1 1 (1) (1) (1) (10) 1 1 1 (1) 28 27 12 Years Ended December 31, 2017 2016 2015 U.S. federal statutory rate 35 % 35 % 35 % Foreign taxes greater (less) than federal statutory rate (12 ) (7 ) (1 ) Research and development tax credits (3 ) (3 ) (3 ) Enhanced deduction for certain research and development expenses (3 ) (2 ) (7 ) State income taxes, net of federal tax benefit — 1 1 Employee share-based compensation — 1 1 Change in intercompany prepaid tax asset (2 ) 1 1 Change in valuation allowance — — (1 ) Amortization of intangible assets 1 1 — Remeasurement of U.S. deferred tax balance (10 ) — — Transition tax on deferred foreign income 54 — — Foreign tax on undistributed foreign earnings 3 — — Other 1 1 1 Effective tax rate 64 % 28 % 27 % The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. As of December 31, 2016,2017, we have not completed our accounting for the tax effects of enactment of the Act. However, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. We have recognized a provisional amount of $69.9 million, which is included as a component of income tax expense from continuing operations. We will continue to make and refine our calculations as additional analysis is completed. Our estimates may also be affected as we gain a more thorough understanding of the tax law.Provisional AmountsDeferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional benefit recorded related to the remeasurement of our deferred tax balance was $15.1 million.Transition Tax: The one-time transition tax is based on our total post-1986 earnings and profits (“E&P”) that we previously deferred from US income taxes. We recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries, resulting in an increase in income tax expense of $79.7 million. We have not yet completed our calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from US federal taxation and finalize the amounts held in cash or other specified assets.As of December 31, 2017, unremitted earnings from our foreign subsidiaries were approximately $867 million and have been included in our computation of the transition tax. We recorded a provisional amount of $5.3 million for foreign withholding and distribution taxes on these earnings as these amounts are not expected to be indefinitely reinvested. We have not provided additional income taxes for any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable.As of December 31, 2017, we had a federal net operating loss carryforward of $1.8$0.4 million which expires in the years 20322034 to 2034,2035, a federal capital loss carryforward of $2.1 million which expires during the years 2018 to 2021, and federal tax credit carryforwards of $0.6$0.4 million which expire during the years 2021 to 2035.2034. Certain of these carryforwards are subject to limitations following a change in ownership.As of December 31, 2016, 112017, 13 of our subsidiaries had available, for income tax purposes, foreign net operating loss carryforwards of an aggregate of approximately $690$884.0 million, of which $676$875 million expires during the years 2020 to 20252026 and $14$9 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.Effective January 1, 2010, a new tax law in Hungary provided 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 do not expect to have sufficient future taxable income in Hungary to realize the benefits of NI Hungary’s deferred tax assets. Therefore, we had a full valuation allowance against those assets at December 31, 2016.We have not provided for U.S. federal income and foreign withholding taxes on approximately $739 million of certain non-U.S. subsidiaries’ undistributed earnings as of December 31, 2016. These earnings would become subject to taxes of approximately $225 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 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. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:12,496 11,070 2,296 1,225 435 201 (3,508) 11,719 12,496 All of our unrecognized tax benefits at December 31, 2016 would affect our effective income tax rate if recognized. As of December 31, 2016, it is reasonably possible that we will recognize tax benefits in the amount of $3.6 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty is related to deductions taken on returns that have not been examined by the applicable tax authority. We recognize interest and penalties related to income tax matters in income tax expense. During each of the years ended December 31, 2016 and 2015, we recognized interest expense related to uncertain tax positions of approximately $0.4 million and $0.2 million, respectively. F-25The tax years 2008 through 2016 remain open to examination by the major taxing jurisdictions to which we are subject. The Internal Revenue Service (“IRS”) concluded an examination of our U.S. income tax returns for 2010 and 2011 in the third quarter of 2014.$3.3$5.5 million and $3.4$3.3 million for the years ended December 31, 20162017 and 2015, respective1y.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. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:(In thousands) December 31, 2017 December 31, 2016 Balance at beginning of period $ 11,719 $ 12,496 Additions based on tax positions related to the current year 1,763 2,296 Additions for tax positions of prior years 399 435 Reductions as a result of the closing of open tax periods (3,723 ) (3,508 ) Balance at end of period $ 10,158 $ 11,719 All of our unrecognized tax benefits at December 31, 2017 would affect our effective income tax rate if recognized. As of December 31, 2017, it is reasonably possible that we will recognize tax benefits in the amount of $1.5 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty is related to deductions taken on returns that have not been examined by the applicable tax authority. We recognize interest and penalties related to income tax matters in income tax expense. During each of the years ended December 31, 2017 and 2016, we recognized interest expense related to uncertain tax positions of approximately $0.4 million.The tax years 2008 through 2017 remain open to examination by the major taxing jurisdictions to which we are subject. The Internal Revenue Service ("IRS") concluded an examination of our U.S. income tax returns for 2010 and 2011 in the third quarter of 2014.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, net of tax, for the years ended December 31, 20162017 and 2015,2016, consisted of the following: (31,871) (857) (5,362) (38,090) (5,697) 210 10,668 5,181 2,498 2,498 394 (22) (4,582) (4,210) (37,174) (669) 3,222 (34,621) (17,304) (1,399) 7,039 (11,664) (19,240) 701 416 (18,123) (19,428) (19,428) 4,673 (159) 6,611 11,125 (31,871) (857) (5,362) (38,090) December 31, 2017 (In thousands) Currency translation adjustment Investments Derivative instruments Accumulated other comprehensive income (loss) Balance as of December 31, 2016 $ (37,174 ) $ (669 ) $ 3,222 $ (34,621 ) Current-period other comprehensive income (loss) 24,470 (120 ) (6,540 ) 17,810 Reclassified from accumulated OCI into income — — (2,948 ) (2,948 ) Income tax benefit (expense) (13 ) 7 3,256 3,250 Balance as of December 31, 2017 $ (12,717 ) $ (782 ) $ (3,010 ) $ (16,509 ) December 31, 2016 (In thousands) Currency translation adjustment Investments Derivative instruments Accumulated other comprehensive income (loss) Balance as of December 31, 2015 $ (31,871 ) $ (857 ) $ (5,362 ) $ (38,090 ) Current-period other comprehensive income (loss) (5,697 ) 210 10,668 5,181 Reclassified from accumulated OCI into income — — 2,498 2,498 Income tax benefit (expense) 394 (22 ) (4,582 ) (4,210 ) Balance as of December 31, 2016 $ (37,174 ) $ (669 ) $ 3,222 $ (34,621 ) Note 11 – Authorized shares of common and preferred stock and stock-based compensation plans Authorized shares of common and preferred stockFollowing approval by the Company’s Board of Directors and stockholders, on May 14, 2013, the Company’s certificate of incorporation was amended to increase the authorized shares of common stock by 180,000,000 shares to a total of 360,000,000 shares. As a result of this amendment, the total number of shares which the Company is authorized to issue is 365,000,000 shares, consisting of (i) 5,000,000 shares of preferred stock, par value $.01$0.01 per share, and (ii) 360,000,000 shares of common stock, par value $.01$0.01 per share.Stock option plans Our stockholders approved the 1994 Incentive Stock Option Plan (the “1994 Plan”) in May 1994. At the time of approval, 13,668,750 shares of our common stock were reserved for issuance under this plan. In 1997, an additional 10,631,250 shares of our common stock were reserved for issuance under this plan, and an additional 1,125,000 shares were reserved for issuance under this plan in 2004. The 1994 Plan terminated in May 2005, except with respect to outstanding awards previously granted thereunder. There have been no outstanding awards under the 1994 Plan since 2015. F-26Awards under the plan were either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or nonqualified options. The right to purchase shares under the options vests over a five to ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and revenue growth but shares cannot accelerate to vest over a period of less than five years. Stock options must be exercised within ten years from date of grant. Stock options were issued with an exercise price which was equal to the market price of our common stock at the grant date. We estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. During the year ended December 31, 2016, 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:287,408 18.62 (215,403) 18.77 (42,530) 19.99 29,475 15.51 (28,193) 15.52 (1,282) 15.09 29,475 15.51 represented in the table above, was $0, $0.4 million$0 and $2.5$0.4 million for the years ended December 31, 2017, 2016, 2015, and 2014,2015, respectively. There was no unrecognized stock-based compensation expense related to non-vestedunvested stock options as of December 31, 2016 Restricted stock plans Our stockholders approved our 2005 Incentive Plan (the “2005 Plan”) in May 2005. At the time of approval, 4,050,000 shares of our common stock were reserved for issuance under this plan, as well as the number of shares which had been reserved but not issued under the 1994 Plan (our incentive stock option plan which terminated in May 2005), and any shares that returned to the 1994 Plan as a result of termination of options or repurchase of shares issued under such plan. The 2005 Plan provided for the granting of incentive awards in the form of restricted stock and RSUs to directors, executive officers and employees of the Company and its subsidiaries. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten10 year awards may accelerate based on the Company’s previous year’s earnings and growth but ten10 year awards cannot accelerate to vest over a period of less than five5 years. The 2005 Plan terminated on May 11, 2010, except with respect to outstanding awards previously granted thereunder. There were 3,362,304 shares of common stock that were reserved but not issued under the 1994 Plan and the 2005 Plan as of May 11, 2010. F-27Our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”) on May 12, 2015. At the time of approval, 3,000,000 shares of our common stock were reserved for issuance under this plan, as well as the 2,518,416 shares of common stock that were reserved but not issued under the 2010 Plan, and any shares that were returned to the 1994, 2005, and the 2010 Plans as a result of the forfeiture or termination of options or RSUs or repurchase of shares issued under these plans. The 2015 Plan provides for the 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, four, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. There were 4,853,6543,840,255 shares available for grant under the 2015 Plan at December 31, 2016. We estimate potentialadopted ASU 2016-09 Improvements to Employee Share-Based Accounting for the year ended December 31, 2017.In accordance with ASU 2016-09, we elected to adjust compensation expense recorded as 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.occur. During the year ended December 31, 2016,2017, we did not make any other changes in accounting principles or methods of estimates related to the 2010 and 2015 Plans. Transactions under our 2010 Plan and 2015 Plan are summarized as follows:3,506,562 26.23 394,143 28.46 (822,269) 27.31 (233,017) 27.04 2,845,419 26.90 951,265 31.39 (709,724) 28.60 (200,219) 28.39 2,886,741 28.64 791,932 28.02 (676,322) 27.57 (196,150) 28.73 2,806,201 28.76 RSUs Number of RSUs Weighted average grant price per share Outstanding at December 31, 2014 2,845,419 $ 26.90 Granted 951,265 $ 31.39 Earned (709,724 ) $ 28.60 Canceled (200,219 ) $ 28.39 Outstanding at December 31, 2015 2,886,741 $ 28.64 Granted 791,932 $ 28.02 Earned (676,322 ) $ 27.57 Canceled (196,150 ) $ 28.73 Outstanding at December 31, 2016 2,806,201 $ 28.76 Granted 1,205,920 $ 34.57 Earned (666,786 ) $ 28.05 Canceled (192,371 ) $ 29.73 Outstanding at December 31, 2017 3,152,964 $ 31.07 Total unrecognized stock-based compensation expense related to non-vested RSUs was approximately $93.4$70.6 million as of December 31, 2016,2017, related to 2,806,2013,152,964 shares with a per share weighted average fair value of $28.76.$31.07. We anticipate this expense to be recognized over a weighted average period of approximately 5.344.29 years.F-28Our employee stock purchase plan permits substantially all domestic employees and employees of designated subsidiaries to acquire our common stock at a purchase price of 85% of the lower of the market price at the beginning or the end of the purchase period. The plan has quarterly purchase periods generally beginning on February 1, May 1, August 1 and November 1 of each year. Employees may designate up to 15% of their compensation for the purchase of common stock under this plan. On May 13, 2014,9, 2017, our stockholders approved an additional 3,000,000 shares for issuance under our employee stock purchase plan, and at December 31, 2016,2017, we had 933,0512,867,897 shares of common stock reserved for future issuance under this plan. We issued 1,217,8291,065,154 shares under this plan in the year ended December 31, 2016.2017. The weighted average purchase price of the employees’shares under this plan was $28.11 per share. The grant date fair value of the purchase rights was $23.74 per share and was estimated using the Black-Scholes model with the following assumptions: 0.700% 0.625% 0.5% 22% 21% 27% 0.15% 0.02% 0.04% 2017 2016 2015 Dividend expense yield 0.650 % 0.700 % 0.625 % Expected life 3 months 3 months 3 months Expected volatility 18 % 22 % 21 % Risk-free interest rate 0.48 % 0.15 % 0.02 % 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 per share 2015 1,108,153 $ 5.58 2016 1,217,829 $ 5.37 2017 1,065,154 $ 6.80 During the year ended December 31, 2016,2017, we did not make any changes in accounting principles or methods of estimates with respect 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:1,121,709 6.05 1,108,153 5.58 1,217,829 5.37 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 which expired on May 10, 2014. There were no shares of preferred stock issued and outstanding as of December 31, 2016. Stock repurchases and retirementsFrom time to time, our Board of Directors has authorized various programsa program to repurchase shares of our common stock depending on market conditions and other factors. We did not make any purchases under this program during the threetwelve months ended December 31, 2016. Under the current program, we repurchased a total of 90,913 shares of our common stock at a weighted average price per share of $29.66 during the three months ended December 31, 2015.2017. We repurchased a total of 206,780 shares and 2,591,218 shares of our common stock at a weighted average price per share of $27.25 and $29.04 during the twelve months ended December 31, 2016 and 2015, respectively.2016. At December 31, 2016,2017, there were 1,134,247 shares remaining available for repurchase under this program. This repurchase program does not have an expiration date.At December 31, 2016,2017, there were no options outstanding as all remaining options were either exercised or expired during the twelve month period ended December 31, 2015. As such, we will not generate any proceeds from stock option exercises in the future Note 12 – Employee retirement planWe 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 to such plan. The Board of Directors has elected to make matching contributions equal to 50% of employee contributions, which maycould be applied to a maximumup to 8% of each participant’s compensation during 2017 and up to 6% of each participant’s compensation.participant's compensation during 2016 and 2015. 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 $9.5 million, $7.1 million and $6.8 million in 2017, 2016, and $6.3 million in 2016, 2015, and 2014, respectively. Note 13 – Segment and geographic informationWe operate as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, who is our chief executive officer, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker evaluates our financial information and resources and assesses the performance of these resources on a consolidated basis. Since we operate in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements and the notes thereto. Total net sales by the major geographic areas in which we operate, are as follows:482,039 496,746 495,951 389,843 409,119 412,401 356,297 319,591 335,510 1,228,179 1,225,456 1,243,862 (In thousands) Years Ended December 31, 2017 2016 2015 Net sales: Americas $ 504,626 $ 482,039 $ 496,746 EMEIA 408,625 389,843 409,119 APAC 376,135 356,297 319,591 Total $ 1,289,386 $ 1,228,179 $ 1,225,456 Based on the billing location of the customer, total sales outside the U.S. for years ended December 31, 2017, 2016, and 2015 and 2014 were $816 million, $773 million, and $762 million, and $780 million, respectively.Total property and equipment, net, outside the U.S. for the years ended December 31, 2017, 2016, and 2015 and 2014 were $132 million, $133 million, and $138 million, and $145 million, respectively. Note 14 - DebtOn May 9, 2013, we entered into a Loan Agreement (the “Loan Agreement”) with Wells Fargo Bank (the “Lender”). The Loan Agreement provided for a $50 million unsecured revolving line of credit with a scheduled maturity date of May 9, 2018 (the “Maturity Date”). On October 29, 2015, we entered into a First Amendment to Loan Agreement (the “Amendment”) with the Lender, which amended our Loan Agreement to among other things, (i) increase the unsecured revolving line of credit from $50.0 million to $125.0 million, (ii) extend the Maturity Date of the line of credit from May 9, 2018 to October 29, 2020, and (iii) provide us with an option to request increases to the line of credit of up to an additional $25.0 million in the aggregate, subject to consent of the Lender and terms and conditions to be mutually agreed between us and the Lender.The loans bear interest, at our option, at a base rate determined in accordance with the Loan Agreement, plus a spread of 0.0%0% to 0.5%, or a LIBOR rate plus a spread of 1.125% to 2.0%, in each case with such spread determined based on a ratio of consolidated indebtedness to EBITDA, determined in accordance with the Loan Agreement. Principal, together with all accrued and unpaid interest, is due and payable on the Maturity Date. We are also obligated to pay a quarterly commitment fee, payable in arrears, based on the available commitments at a rate of 0.175% to 0.300%, with such rate determined based on the ratio described above. The Loan Agreement contains customary affirmative and negative covenants. The affirmative covenants include, among other things, delivery of financial statements, compliance certificates and notices; payment of taxes and other obligations; maintenance of existence; maintenance of properties and insurance; and compliance with applicable laws and regulations. The negative covenants include, among other things, limitations on indebtedness, liens, mergers, consolidations, acquisitions and sales of assets, investments, changes in the nature of the business, affiliate transactions and certain restricted payments. The Loan Agreement also requires us to maintain a ratio of consolidated indebtedness to EBITDA equal to or less than 3.25 to 1.00, and a ratio of consolidated EBITDA to interest expense greater than or equal to 3.00 to 1.00, in each case determined in accordance with the Loan Agreement. As of December 31, 2016,2017, we were in compliance with all covenants in the Loan Agreement.F-30Proceeds of loans made under the Loan Agreement may be used for working capital and other general corporate purposes. We may prepay the loans under the Loan Agreement in whole or in part at any time without premium or penalty. Certain of our existing and future material domestic subsidiaries are required to guaranty our obligations under the Loan Agreement.As of December 31, 2016,2017, we had outstanding $25$0 million in borrowings under this revolving line of credit. During the years ended December 31, 20162017 and 2015,2016, we incurred interest expense related to our outstanding borrowings of $457,000 and $534,000, respectively. As of December 31, 2017 and $245,000, respectively, based on a weighted average2016, our weighted-average annual interest rate on the line of 1.6%credit was 2.4% and 1.4%1.6%, respectively. Note 15 – Commitments and Contingencies 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, 2016,2017, for each of the next five years are as follows:18,665 14,107 10,428 6,086 2,576 2,751 54,613 Amount (In thousands) 2018 $ 20,012 2019 15,696 2020 10,875 2021 7,853 2022 5,298 Thereafter 17,570 Total $ 77,304 Rent expense under operating leases was approximately $20 million for each of the years ended December 31, 2017, 2016, and 2015, and 2014, respectively.As of December 31, 2016,2017, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately $6.8$9.1 million over the next twelve months. As of December 31, 2016,2017, we had outstanding guarantees for payment of customs and foreign grants totaling approximately $3$2.6 million, which are generally payable over the next twelve months. Note 16– Litigation We are not currently a party to any material litigation. However, in the ordinary course of our business, we are involved in a limited number of legal actions, both as plaintiff and defendant, and could incur uninsured liability in any one or more of them. We also periodically receive notifications from various third parties related to alleged infringement of patents or intellectual property rights, commercial disputes or other matters. No assurances can be given with respect to the extent or outcome of any future litigation or dispute.Note 17–AcquisitionsMicroprossOn October 23, 2015, we completed the acquisition of M2, a privately held French holding company and its wholly-owned subsidiary, Micropross, a supplier of software-based test systems for Near Field Communications (NFC), smart cards, and wireless charging test systems, pursuant to an Agreement for the Sale and Purchase of Shares (the “Purchase Agreement”). Under the terms of the Purchase Agreement, the purchase price of the transaction was approximately $99 million, which included $89 million cash consideration paid directly to existing shareholders and $10.4 million of consideration which was paid by issuing an aggregate of 367,481 shares of our common stock. We also assumed and repaid $5 million of existing Micropross borrowings, net of cash received. The results of operations of Micropross are included in our consolidated financial statements from the date of acquisition.The allocation of the purchase price was determined using the fair value of assets and liabilities acquired as of October 23, 2015.F-31During thetwelve month period ending December 31,2015, we acquiredfour additionalbusinesses, all of which were treated as business combinations. The totalpurchase price for these four acquisitions was approximately $36millionwhich consisted of $31 million cash, net of $1.5 million in cash received, $1.1 million in cash obligations incurred to former owners, $3.4$3.4 million inshares of our common stock, and $0.2 million of a previously-held interest in an equity-method investee.The acquiredbusinessesincluded a leading designer, manufacturer, and provider of data acquisition solutions for the test and measurement marketplace, a technology innovator and leading supplier of high-performance FPGA prototyping and deployment products for advanced wireless research, wirelessinfrastructure and military/defense applications and a PXI modular instruments hardware product line.Our consolidated financial statements include the operating results from the dates of acquisition.The allocation of the purchase price was determined using the fair value of assets and liabilities acquired as of the acquisition dates.Pro-forma Results of OperationsPro-forma results of operationshave not been presented because the effects of the acquired operations were not material individually or in the aggregate. We finalized the purchase price allocation for the Micropross acquisition during the fourth quarter of 2016. These measurement period adjustments included $0.9 million related to the write-down to fair value of acquired deferred revenue and $0.7 million related to the step-up to fair value of acquired inventory. The $1.6 million increase in identifiable net assets acquired was offset by a decrease in goodwill. The income statement impact for 2015 related to these fair value adjustments was not significant and the entire $1.6 million adjustment was recognized in earnings during the fourth quarter of 2016 in accordance with ASU 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments.We allocate the fair value of the purchase consideration of the Company’s acquisitions to the tangible assets, intangible assets, including in-process research and development (“IPR&D”), if any, and liabilities assumed, based on estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When a project underlying reported IPR&D is completed, the corresponding amount of IPR&D is amortized over the asset’s estimated useful life. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred in “Selling, General, and Administrative” in the Consolidated Statements of Operations. The following table summarizes the finalized aggregate purchase price allocation of our 2015 acquisitions as of December 31, 2016 (in thousands):Purchase PriceCash consideration paid to former shareholders$121,944 Issuance of common stock13,778 Fair value of previously held interest in equity method investee214 Future payment obligations1,139 Non-Cash Consideration15,131 Total Purchase Price$137,075 Net Assets AcquiredFair value of debt assumed and cash received$(3,668)Fair value of tangible net assets acquired (excluding debt assumed and cash received)2,721 Fair value of identifiable intangible assets acquired30,783 Goodwill115,050 Deferred Tax Assets/(Liabilities)(7,811)Total Net Assets Acquired$137,075 Purchase Price Cash consideration paid to former shareholders $ 121,944 Issuance of common stock 13,778 Fair value of previously held interest in equity method investee 214 Future payment obligations 1,139 Non-Cash Consideration 15,131 Total Purchase Price $ 137,075 Net Assets Acquired Fair value of debt assumed and cash received $ (3,668 ) Fair value of tangible net assets acquired (excluding debt assumed and cash received) 2,721 Fair value of identifiable intangible assets acquired 30,783 Goodwill 115,050 Deferred Tax Assets/(Liabilities) (7,811 ) Total Net Assets Acquired $ 137,075 Goodwill is not deductible for tax purposes for two of our five acquisitions. Amortizable intangible assets have useful lives of 2 years to 5 years from the date of acquisition. These assets are not deductible for tax purposes for two of our five acquisitions.Note 18 - RestructuringDuring 2017, we took steps to reduce our overall employee headcount by approximately 2% as of the end of December 31, 2017, in an effort to minimize job duplication or evaluate where we should shift and centralize activities, improve efficiencies, and rebalance our resources on higher return activities. The timing and scope of any future headcount reductions will vary.A summary of the charges in the consolidated statement of operations resulting from our restructuring activities is shown below:(In thousands) Year Ended 2017 Cost of sales 1,208 Research and development 2,990 Sales and marketing 10,968 General and Administration 1,898 Total restructuring and other related costs 17,064 Total restructuring and other one-time charges incurred through December 31, 2017 related to this initiative were $17.1 million, of which $15.6 million related to employee severance and facility exit costs and $1.5 million related to asset impairment and accelerated depreciation.A summary of balance sheet activity related to the restructuring activity is shown below:Restructuring Liability Balance as of December 31, 2016 — Income statement expense 17,064 Asset write-downs and accelerated depreciation (1,479 ) Cash payments (10,177 ) Balance as of December 31, 2017 5,408 F-The restructuring liability of $5.4 million32Note 1819 – Subsequent events On January 25, 2017,24, 2018, our Board of Directors declared a quarterly cash dividend of $0.21$0.23 per common share, payable on March 6, 2017,5, 2018, to stockholders of record on February 13, 2017.12, 2018. 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