SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal quarter ended: June 30,1996 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________________ to
________________
Commission file number: 0-25426
NATIONAL INSTRUMENTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1871327
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6504 Bridge Point Parkway
Austin, Texas 78730
------------- -----
(address of principal (zip code)
executive offices)
Registrant's telephone number, including area code: (512) 338-9119
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 26, 1996
----- ----------------------------
Common Stock - $0.01 par value 21,589,483
NATIONAL INSTRUMENTS CORPORATION
INDEX
Page No
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets
June 30, 1996 (unaudited) and December 31, 1995...............3
Consolidated Statements of Income (unaudited)
Three months and six months ended June 30, 1996 and 1995......4
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1996 and 1995 ......................5
Consolidated Statements of Stockholders' Equity (unaudited)
Six months ended June 30, 1996 ...............................6
Notes to Consolidated Financial Statements....................7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................8
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders.........15
Item 5 Other Information...........................................15
Item 6 Exhibits and Reports on Form 8-K............................16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
1996 1995
---------- ----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents..................... $ 23,575 $ 12,016
Short-term investments........................ 38,508 37,765
Accounts receivable, net...................... 32,429 28,789
Inventories, net.............................. 13,343 15,295
Prepaid expenses and other current assets..... 6,391 6,788
----- -----
Total current assets...................... 114,246 100,653
Property and equipment, net....................... 32,254 32,596
Intangibles and other assets...................... 4,957 3,853
----- -----
Total assets............................. $ 151,457 $ 137,102
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............. $ 1,995 $ 2,137
Accounts payable.............................. 10,368 9,783
Accrued expenses and other liabilities........ 9,990 7,313
Taxes payable................................. 7,304 6,874
----- -----
Total current liabilities................. 29,657 26,107
Long-term debt, net of current portion............ 9,718 11,603
Deferred income taxes............................. 629 656
--- ---
Total liabilities......................... 40,004 38,366
------ ------
Commitments and contingencies -- --
Stockholders' equity:
Common Stock: par value $.01; 60,000,000
shares authorized; 21,586,966 and 21,471,896
shares issued and outstanding, respectively. 216 215
Additional paid-in capital........................ 43,431 41,277
Retained earnings................................. 67,992 57,104
Other............................................. (186) 140
---- ---
Total stockholders' equity................ 111,453 98,736
------- ------
Total liabilities and stockholders' equity $ 151,457 $ 137,102
========= =========
The accompanying notes are an integral part of these financial statements.
-3-
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
Net sales.......................$50,241 $40,477 $96,649 $80,321
Cost of sales................... 12,762 9,829 24,028 19,655
------ ----- ------ ------
Gross profit............... 37,479 30,648 72,621 60,666
------ ------ ------ ------
Operating expenses:
Sales and marketing......... 18,077 16,467 35,642 31,945
Research and development.... 6,852 5,071 11,827 9,939
General and administrative.. 4,388 3,673 8,562 6,905
----- ----- ----- -----
Total operating expenses... 29,317 25,211 56,031 48,789
------ ------ ------ ------
Operating income......... 8,162 5,437 16,590 11,877
Other income (expense):
Interest income, net........ 314 340 571 352
Foreign exchange
(loss) gain, net........... (287) 579 (665) 1,001
---- --- ---- -----
Income before income taxes. 8,189 6,356 16,496 13,230
Provision for income taxes...... 2,784 2,414 5,608 5,094
----- ----- ----- -----
Net income.................$ 5,405 $ 3,942 $10,888 $ 8,136
======= ======= ======= =======
Earnings per share.............. $0.25 $0.18 $0.50 $0.40
===== ===== ===== =====
Weighted average
shares outstanding............. 21,938 21,529 21,780 20,244
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
-4-
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
Cash flow from operating activities:
Net income ...................................... $ 10,888 $ 8,136
Adjustments to reconcile net income to cash
provided by operating activities
Charges to income not requiring cash outlays:
Depreciation and amortization ............... 4,248 3,123
Charge for in-process research & development. 1,000 --
Changes in operating assets and liabilities:
Increase in accounts receivable ............. (3,684) (4,414)
Decrease (increase) in inventory ............ 1,772 (2,098)
Decrease (increase) in prepaid
expense and other assets ................... 369 (1,684)
Increase in current liabilities ............. 3,888 677
----- ---
Net cash provided by operating activities........ 18,481 3,740
------ -----
Cash flow from investing activities:
Payments for acquisition of Georgetown Systems,
net of cash received ........................... (700) --
Capital expenditures ............................ (3,228) (9,606)
Additions to intangibles ........................ (972) (260)
Purchases of short-term investments ............. (21,688) (48,766)
Sales of short-term investments ................. 20,873 15,308
------ ------
Net cash used in investing activities .......... (5,715) (43,324)
------ -------
Cash flow from financing activities:
(Repayments of) borrowings from debt ............ (2,002) 3,976
Net proceeds from issuance of common stock ...... 926 39,647
--- ------
Net cash (used in)provided by
financing activities .......................... (1,076) 43,623
------ ------
Effect of translation rate changes on cash ........ (131) 288
---- ---
Net increase in cash and cash equivalents ......... 11,559 4,327
Cash and cash equivalents at beginning of period... 12,016 7,526
------ -----
Cash and cash equivalents at end of period ........ $ 23,575 $ 11,853
======== ========
The accompanying notes are an integral part of these financial statements.
-5-
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Additional
Common Stock Common Paid-In Retained
(Share) Stock Capital Earnings Other Total
----------- ------ ---------- --------- ------ ---------
Balance at
December 31, 1995 21,471,896 $ 215 $ 41,277 $ 57,104 $ 140 $ 98,736
Net income ........ -- -- -- 10,888 -- 10,888
Issuance in
connection with
acquisition ..... 60,916 1 1,228 -- -- 1,229
Issuance under
employee plans .. 54,154 -- 926 -- -- 926
Unrealized loss
on short-term
investments ..... -- -- -- -- (72) (72)
Foreign currency
translation
adjustment....... -- -- -- -- (254) (254)
---------- ------- ---------- ---------- ------- --------
June 30, 1996 ... 21,586,966 $ 216 $ 43,431 $ 67,992 $ (186) $111,453
========== ======= ========== ========== ======= =========
The accompanying notes are an integral part of these financial statements.
-6-
NATIONAL INSTRUMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1995, included in the Company's annual report on Form 10-K, filed
with the Securities and Exchange Commission. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(consisting only of normal recurring items) considered necessary to present
fairly the financial position of National Instruments Corporation and its
consolidated subsidiaries at June 30, 1996 and December 31, 1995, the results of
operations for the three-month and six-month periods ended June 30, 1996 and
1995, and the cash flows for the six-month periods ended June 30, 1996 and 1995.
Operating results for the three-month and six-month periods ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
NOTE 2 - Earnings Per Share
Earnings per share are computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding (if dilutive)
during each period. Common share equivalents include stock options. The number
of common share equivalents outstanding relating to stock options is computed
using the treasury stock method.
NOTE 3 - Inventories
Inventories consist of the following (in thousands):
June 30, December 31,
1996 1995
------------------- --------------------
Raw materials $ 6,252 $ 8,101
Work-in-process 929 719
Finished goods 6,162 6,475
------------------- --------------------
$ 13,343 $ 15,295
=================== ====================
NOTE 4 - Acquisition
On April 1, 1996, the Company acquired all of the issued and outstanding shares
of common stock of Georgetown Systems, Inc. ("GSI") for an aggregate purchase
price of approximately $2.0 million, paid with 60,916 unregistered shares of the
Company's common stock and $764,000 in cash. The acquisition was accounted for
as a purchase. The results of GSI's operations have been combined with those of
the Company since the date of acquisition.
The Company recorded a $1.0 million charge against earnings for the write-off of
in-process GSI research and development technology that had not reached the
working model stage and has no alternative future use. If this charge had not
been taken, net income for the quarter ended June 30, 1996 would have been $6.1
million or $0.28 per share and net income for the six-month period ended June
30, 1996 would have been $11.5 million or $0.53 per share. The Company also
recorded $920,000 of capitalized software development costs related to the
acquisition, which are included in intangibles and other assets and are being
amortized on a straight line basis over 3 years.
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to the Issues and Outlook section and
financial statement line item discussions below. Readers are also encouraged to
refer to the Company's Annual Report on Form 10-K for further discussion of the
Company's business and the risks and opportunities attendant thereto.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statements of income:
Three Months Six Months
Ended Ended
June 30, June 30,
-------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales:
North America 57.2% 57.5% 56.9% 55.9%
Europe 28.9 30.4 28.6 31.9
Asia Pacific 13.9 12.1 14.5 12.2
---- ---- ---- ----
Consolidated net sales 100.0 100.0 100.0 100.0
Cost of sales 25.4 24.3 24.9 24.5
---- ---- ---- ----
Gross profit 74.6 75.7 75.1 75.5
---- ---- ---- ----
Operating expenses:
Sales and marketing 36.0 40.7 36.9 39.8
Research and development 13.6 12.5 12.2 12.4
General and administrative 8.7 9.1 8.8 8.5
--- --- --- ---
Total operating expenses 58.3 62.3 57.9 60.7
---- ---- ---- ----
Operating income 16.3 13.4 17.2 14.8
Other income (expense):
Interest income, net 0.6 0.8 0.6 0.4
Foreign exchange (loss)
gain, net (0.6) 1.4 (0.7) 1.2
---- --- ---- ---
Income before income taxes 16.3 15.6 17.1 16.4
Provision for income taxes 5.5 5.9 5.8 6.3
--- --- --- ---
Net income 10.8% 9.7% 11.3% 10.1%
==== === ==== ====
NET SALES. Consolidated net sales represent gross sales less discounts,
returns and adjustments. Consolidated net sales increased by $9.8 million or 24%
for the three months ended June 30, 1996 to $50.2 million from $40.5 million for
the three months ended June 30, 1995, and increased $16.3 million or 20% to
$96.6 million for the six months ended June 30, 1996 from $80.3 million for the
comparable 1995 period. The increase in sales is primarily attributable to the
expansion of sales and marketing efforts, particularly in the Asia Pacific
market; the introduction of new and upgraded products; increased market
acceptance of the Company's products; and an expanding customer base.
-8-
North American sales for the quarter and six months ended June 30, 1996
increased 23% over the comparable 1995 periods. Compared to 1995, the Company's
European net sales increased by 18% to $14.5 million for the quarter ended June
30, 1996 and by 8% to $27.6 million for the six months ended June 30, 1996. Net
sales in Asia Pacific increased by 43% to $7.0 million in the quarter ended June
30, 1996 compared to 1995 and by 44% to $14.1 million for the six months ended
June 30, 1996. Products released late in the first quarter contributed to the
European sales growth in the second quarter of 1996 and the disruptions
previously experienced in connection with the centralization of European
inventory have been largely mitigated as all but two branches have been
centralized. The sales increase in the Asia Pacific region is attributable to
increased customer acceptance of localized products and support, particularly in
Japan, and to the Company's new sales offices in Hong Kong, South Korea and
Taiwan which opened in late 1994 and early 1995. The Company expects sales
outside of North America to continue to represent a significant, and possibly
increasing, portion of its revenue.
International sales are subject to inherent risks, including fluctuations
in local economies, difficulties in staffing and managing foreign operations,
greater difficulty in accounts receivable collection, costs and risks of
localizing products for foreign countries, unexpected changes in regulatory
requirements, tariffs and other trade barriers, difficulties in the repatriation
of earnings and the burdens of complying with a wide variety of foreign laws.
Sales made by the Company's direct sales offices in Europe and Asia Pacific are
denominated in local currencies, and accordingly, the US dollar equivalent of
these sales is affected by changes in the value of the US dollar. Between the
second quarter of 1995 and the second quarter of 1996 the weighted average value
of the US Dollar increased by 8%, causing an equivalent decrease in the US
dollar value of the Company's foreign currency sales and expenses. This weighted
average is calculated as the percentage change in the value of the currency
relative to the dollar, multiplied by the proportion of international sales
recorded in the particular currency. If the weighted average value of the dollar
in the second quarter of 1996 had been the same as that in the second quarter of
1995, the Company's sales for the second quarter of 1996 would have been $52.2
million. If the weighted average value of the dollar in the six months ended
June 30, 1996 had been the same as that in the six months ended June 30, 1995,
the Company's year-to-date sales would have been $98.8 million. Since most of
the Company's international operating expenses are also incurred in local
currencies the change in exchange rates has a corresponding effect on operating
expenses. If the current trend in the value of the dollar continues throughout
1996, it will continue to have the effect of lowering the US dollar equivalent
of international sales and operating expenses.
GROSS PROFIT. Cost of goods sold consists primarily of the costs of
components and subassemblies, amortization of software development costs,
freight, labor and manufacturing overhead. As a percentage of net sales, gross
profit decreased to 74.6% for the second quarter of 1996 from 75.7% for the
second quarter of 1995 and decreased to 75.1% for the first six months of 1996
from 75.5% for the comparable period a year ago. The lower margin for the second
quarter of 1996 compared to the second quarter of 1995 is attributable to the
foreign exchange effect on sales during the second quarter of 1996 as discussed
above and start-up costs from the outsourcing of software duplication to a
third-party vendor. The decrease in the US dollar equivalent of international
sales results in a lower margin which is offset, to a much smaller extent, by
the decline in international costs of goods sold.
-9-
The marketplace for the Company's products dictates that many of the
Company's products be shipped very quickly after an order is received. As a
result, the Company is required to maintain significant inventories. Therefore,
inventory obsolescence is a risk for the Company due to frequent engineering
changes, shifting customer demand, the emergence of new industry standards and
rapid technological advances including the introduction by the Company, or its
competitors, or products embodying new technology. While the Company maintains
valuation allowances for excess and obsolete inventory and management continues
to monitor the adequacy of such valuation allowances, there can be no assurance
that such valuation allowances will be sufficient.
SALES AND MARKETING. Sales and marketing expenses consist of salaries and
commissions, customer support, advertising and promotional expenses. Sales and
marketing expenses for the second quarter of 1996 increased to $18.1 million, a
10% increase, as compared to the second quarter of 1995, and increased 12% to
$35.6 million for the first six months of 1996 from the comparable 1995 period.
As a percentage of net sales, sales and marketing expenses decreased to 36.0%
for the second quarter of 1996 from 40.7% for the second quarter of 1995 and
decreased to 36.9% for the first six months of 1996 from 39.8% for the first six
months of 1995. The increase in these expenses in absolute dollar amounts is
primarily attributable to programs designed to increase the Company's presence
in both the European and the Asia Pacific markets, including increases in
international sales and marketing personnel and increased sales and marketing
activities in these markets, as well as increases in United States sales and
marketing personnel. Overall sales and marketing personnel increased from 455 at
June 30, 1995 to 515 at June 30, 1996, with increases primarily in the European
and US sales forces. The Company expects sales and marketing expenses in future
periods to increase in absolute dollars, and to fluctuate as a percentage of
sales based on initial marketing and advertising campaign costs associated with
major new product releases, the opening of new sales offices and the timing of
domestic and international conferences and trade shows.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of personnel costs and overhead costs relating to occupancy and
equipment depreciation. Research and development expenses increased to $6.9
million for the quarter ended June 30, 1996, a 35% increase, as compared to $5.1
million for the three months ended June 30, 1995, and increased 19% to $11.8
million for the six months ended June 30, 1996 from the comparable 1995 period.
As a percentage of net sales, research and development expenses represented
13.6% and 12.5% for the second quarters ended June 30, 1996 and 1995,
respectively, and 12.2% and 12.4% for the six months ended June 30, 1996 and
1995, respectively. The increase in the absolute dollar amounts of research and
development expenses is primarily attributable to a $1.0 million charge for the
write-off of in-process research and development technology of Georgetown
Systems, Inc. ("GSI"), a company acquired on April 1, 1996, that had not reached
the working model stage and has no alternative future use. This amount was
written off in accordance with generally accepted accounting principles
requiring the expensing of such research and development acquired. Excluding the
effect of the GSI charge, research and development expenses have declined as a
percentage of revenue during the six-month period as compared to 1995 which is
due to the capitalization of LabVIEW 4.0 development costs during the first
quarter of 1996. The Company believes that a significant, on-going investment
in research and development is required to remain competitive.
-10-
The Company capitalizes software development costs in accordance with the
Statement of Financial Accounting Standards No. 86. The Company amortizes such
costs over the related product's estimated economic useful life, generally three
years beginning when a product becomes available for general release.
Amortization expense totaled $428,000 and $301,000 for the quarter ended June
30, 1996 and 1995, respectively, and $713,000 and $604,000 during the six months
ended June 30, 1996 and 1995, respectively. The increase in amortization expense
is due primarily to amortization of development costs capitalized as a result of
the GSI acquisition. Software development costs capitalized were $1.2 million
and $200,000 for the quarter ended June 30, 1996 and 1995, respectively, and
$1.9 million and $200,000 for the first six months of 1996 and 1995,
respectively. The amounts capitalized in the second quarter and first six months
of 1996 include $920,000 of software development costs related to the GSI
acquisition. In the six-month period ended June 30, 1996, amounts capitalized
also include development costs of LabVIEW 4.0.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
personnel costs for administration, finance, information systems, human
resources and general management, as well as legal and auditing services.
General and administrative expenses for the second quarter ended June 30, 1996
increased 19% to $4.4 million from $3.7 million for the comparable prior year
period. For the first six months of 1996, general and administrative expenses
increased 24% to $8.6 million from $6.9 million for the first six months of
1995. As a percentage of net sales, general and administrative expenses
decreased to 8.7% for the quarter ended June 30, 1996 from 9.1% for the second
quarter of 1995. During the first six months of 1996, general and administrative
expenses increased as a percentage of sales to 8.8% from 8.5% for the comparable
prior year period. The Company's general and administrative expenses have
increased in absolute dollars primarily due to the costs of support for its
worldwide management information system in the US and Europe which will continue
to affect general and administrative expense. Implementation of the management
information system for European operations began in October 1995, in conjunction
with the centralization of European warehousing and administrative operations.
This project is expected to be completed in early 1997. The Company expects to
eventually achieve a worldwide management information system that will allow for
the consolidation of common functions, reduced costs, and improvements in the
ability to deliver product worldwide. No assurance can be given that the
Company's efforts will be successful. As a result of these and other factors,
the Company expects that general and administrative expense in future periods
will increase in absolute amounts as the worldwide implementation continues and
will fluctuate as a percentage of net sales.
INTEREST INCOME, NET. Interest income, net in the second quarter of 1996
decreased to $314,000 from $340,000 in the second quarter of 1995 and increased
to $571,000 for the first six months of 1996 from $352,000 for the first six
months of 1995. Interest income for the six months ended June 30, 1996 has
increased as a result of the investment of the proceeds from the Company's
initial public offering.
FOREIGN EXCHANGE (LOSS) GAIN, NET. Net foreign exchange losses recognized
in the second quarter of 1996 were ($287,000) compared to net foreign exchange
gains of $579,000 recognized in the second quarter of 1995. Net foreign exchange
losses of ($665,000) were recognized for the first six months of 1996 compared
with net foreign exchange gains of $1.0 million for the first six months of
1995. These results are attributable to movements between the US dollar and the
local currencies in countries in which the Company's sales subsidiaries are
located. The Company recognizes the local currency as the functional currency of
its international subsidiaries. The net losses in 1996 are a result of the
strengthening of the US dollar against local currencies, primarily the Japanese
Yen.
-11-
The Company enters into foreign currency forward exchange contracts against
a majority of its intercompany foreign currency-denominated receivables in order
to reduce its exposure to significant foreign currency fluctuations. This
hedging strategy only partially addresses the Company's risks in foreign
currency transactions as the Company does not currently hedge anticipated
transactions. There can be no assurance that this strategy will be successful.
The Company's hedging strategy has reduced the foreign exchange losses recorded
by $444,000 during the six-month period ended June 30, 1996. If the
strengthening of the US dollar continues throughout 1996, the Company could
experience significant foreign exchange losses due to the foreign exchange risks
that are not addressed by the Company's hedging strategy. The Company typically
limits the duration of its foreign exchange contracts to 90 days and does not
invest in contracts for speculative purposes.
PROVISION FOR INCOME TAXES. The provision for income taxes reflects an
effective tax rate of 34% and 39% for the six months ended June 30, 1996 and
1995, respectively, and an effective tax rate of 34% and 38% for the quarters
ended June 30, 1996 and 1995, respectively. The decrease in the effective rate
resulted from income tax benefits attributable to the Company's foreign sales
corporation, utilization of foreign net operating loss carryforwards and higher
nontaxable interest income. At June 30, 1996, eleven of the Company's
subsidiaries had available, for income tax purposes, foreign net operating loss
carryforwards of approximately $1.3 million, of which $940,000 expire between
1996 and 2006. The remaining $340,000 of loss carryforwards may be carried
forward indefinitely to offset future taxable income in the related tax
jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital resources through cash
flow from operations and, to a lesser degree, through borrowings from financial
institutions. At June 30, 1996, the Company had working capital of approximately
$84.6 million compared to $74.5 million at December 31, 1995. The increase in
working capital is reflected by the increase in cash and cash equivalents of
$11.6 million from December 31, 1995 to June 30, 1996, because of positive cash
flow from operating activities.
Accounts receivable increased to $32.4 million at June 30, 1996, from $28.8
million at Dec. 31, 1995, as a result of higher sales levels. Receivable days
outstanding were 59 at June 30, 1996 and Dec. 31, 1995. In the event that days
sales outstanding significantly lengthen, the Company's cash could be adversely
affected. Inventory turns of 4.0 represent an improvement over turns of 2.7 at
December 31, 1995 and indicate the Company's continuing improvements in
inventory management occurring at the manufacturing facility in Austin, Texas as
well as the centralized European warehouse in Amsterdam.
Cash used for investing activities in the first six months of 1996 includes
$3.2 million for the purchase of property and equipment, capitalization of
software development costs of $972,000 which excludes $920,000 of capitalized
software acquired on a non-cash basis, net short-term investment purchases of
$815,000 and the purchase of GSI for $700,000. The Company is currently in the
preliminary stages of design and development for an office building to be
located next to the new manufacturing facility which was completed in Austin,
Texas in June, 1995. It is currently anticipated that a portion of the
construction costs will be paid out of the Company's existing working capital
with the remaining costs being funded through credit from the Company's current
financial institutions. The Company estimates that capital expenditures for the
new building will range from $25 million to $30 million. The Company intends to
spend less than 10% of such building expenses during 1996 with the remainder to
be spent throughout 1997 and 1998. The Company has entered into firm commitments
of approximately $2.0 million for building design and site development costs.
The Company is not committed to spend the remaining amounts and the actual level
of spending may vary depending on a variety of factors including decisions on a
final design plan, progress of the Company's third-party contractors, and
availability of resources.
-12-
The Company currently expects to fund expenditures for capital requirements
as well as liquidity needs created by changes in working capital from a
combination of available cash and short-term investment balances, internally
generated funds, and financing arrangements with its current financial
institutions. The Company has a $31.7 million credit agreement with NationsBank
of Texas, N.A. which consists of (i) an $8.0 million revolving line of credit,
(ii) a $7.5 million line of credit for new equipment purchases, (iii) a $3.9
million loan to finance equipment purchased prior to 1993, (iv) a $3.8 million
loan to finance the Company's existing real estate and (v) an $8.5 million loan
for the purchase of real estate and the construction costs of the new
manufacturing facility. As of June 30, 1996, the Company had no outstanding
balances under the revolving and new equipment lines of credit, $975,000, $3.4
million and $7.3 million, under such other credit facilities, respectively.
During the second quarter, the Company negotiated one-year extensions on its
existing lines of credit. The revolving line of credit expires on June 30, 1998
and the new equipment line of credit is available for draws until June 30, 1997.
The Company's credit agreements contain certain financial covenants and
restrictions as to various matters, including the bank's prior approval of
mergers and acquisitions. Borrowings under the line of credit are collateralized
by substantially all of the Company's assets.
The Company believes that it's cash flow from operations, if any, existing
cash balances and short-term investments and available credit under the
Company's existing credit facilities, will be sufficient to meet its cash
requirements for at least the next twelve months.
ISSUES AND OUTLOOK
FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly operating
results have fluctuated in the past and may fluctuate significantly in the
future due to a number of factors, including: changes in the mix of products
sold; the availability and pricing of components from third parties (especially
sole sources); the timing of orders; level of pricing of international sales;
fluctuations in foreign currency exchange rates; the difficulty in maintaining
margins, including the higher margins traditionally achieved in international
sales; and changes in pricing policies by the Company, its competitors or
suppliers. As has occurred in the past and as may be expected to occur in the
future, new software products of the Company or new operating systems of third
parties on which the Company's products are based, often contain bugs or errors
that can result in reduced sales and/or cause the Company's support costs to
increase, having a material adverse impact on the Company's operating results.
In addition, the Company's results of operations may be adversely affected by
lower sales levels in Europe which typically occur in the summer months and
adversely impact the third quarter of the Company's fiscal year. Furthermore,
the Company serves a number of industries such as semiconductors,
telecommunications, aerospace, defense and automotive which are cyclical in
nature. Downturns in these industries, including the recent decline in the
semiconductor industry, could have a material adverse effect on the Company's
operating results.
In recent years, the Company's revenues have been characterized by
seasonality, with revenues typically being relatively constant in the first,
second and third quarters, growing in the fourth quarter. If this historical
pattern continues, revenues for the third quarter of 1996 would not
significantly exceed revenues for the second quarter of 1996. The Company
believes the seasonality of its revenue results from the budgeting and
purchasing cycles of its customers. In addition, total operating expenses have
in the past tended to be higher in the third quarter of each year. If this
historical pattern continues, net income for the third quarter of 1996 will be
less than that in the first and second quarters of 1996.
-13-
MANAGEMENT INFORMATION SYSTEMS. The Company does not currently have an
integrated world-wide management information system. While the Company is in the
process of implementing a new world-wide system, the deficiencies in its
existing information resources have at times inhibited management's ability to
manage certain aspects of the Company's operations in a timely manner. The
Company has implemented all of the US components of the new world-wide system.
Implementation began for European operations during October 1995 and will
continue throughout 1996 in conjunction with the Company's plan to centralize
European warehouse and administrative operations. As of June 1996, the Company
has transitioned eleven of its thirteen European subsidiaries to a centralized,
third-party warehouse in Amsterdam which represents the successful transition of
the significant portion of the Company's European inventory balances. The
Company's Asia Pacific operations are currently using a proprietary management
information system. Until the new world-wide system can be implemented in this
region, the growth of the Company's Japanese operations may be inhibited by the
deficiencies of the proprietary system. In addition, no assurance can be given
that the Company's world-wide implementation efforts will be successful. The
failure to receive adequate, accurate and timely financial information could
inhibit management's ability to make effective and timely decisions.
NEW PRODUCT INTRODUCTIONS AND MARKET ACCEPTANCE. The market for the
Company's products is characterized by rapid technological change, evolving
industry standards, changes in customer needs and frequent new product
introductions, and is therefore highly dependent upon timely product innovation.
The Company's success is dependent in part on its ability to successfully
develop and introduce new and enhanced products on a timely basis to replace
declining revenues from older products, and on increasing penetration in
international markets. There can be no assurance that the Company will be able
to introduce new products on a timely basis, that new products will achieve
market acceptance or that any such acceptance will be sustained for any
significant period. Moreover, there can be no assurance that the Company's
efforts to increase international market penetration will be successful.
OPERATION IN INTENSELY COMPETITIVE MARKETS. The markets in which the
Company operates are characterized by intense competition from numerous
competitors, and the Company expects to face further competition from new market
entrants in the future. The Company believes its ability to compete successfully
depends on a number of factors both within and outside its control, including:
product pricing, quality and performance; success in developing new products;
adequate manufacturing capacity and supply of components and materials;
efficiency of manufacturing operations; effectiveness of sales and marketing
resources and strategies; strategic relationships with other suppliers; timing
of new product introductions by the Company and its competitors; protection of
the Company's products by effective use of intellectual property laws; general
market and economic conditions; and government actions throughout the world.
There can be no assurance that the Company will be able to compete successfully
in the future.
VOLATILE STOCK MARKET. The market price of the Company's common stock could
be subject to significant fluctuations due to the inherent volatility of the
technology industry. In addition, the stock market has recently experienced
significant price fluctuations, which often have been unrelated to the operating
performance of the specific companies whose stocks are traded. Broad market
fluctuations, as well as economic conditions generally and in the technology
industry specifically, may adversely affect the market price of the Company's
common stock.
-14-
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held on May 14, 1996.
(b) The following three directors were elected at the meeting to serve
a term of three years:
William C. Nowlin, Jr.
L. Wayne Ashby
Dr. Donald M. Carlton
The following directors are continuing to serve their terms:
Dr. James J. Truchard
Jeffrey L. Kodosky
Dr. Peter T. Flawn
Gerald T. Olson
(c) The matters voted upon at the meeting and results of the voting
with respect to those matters were as follows:
For Withheld
--- --------
(1) Election of directors:
William C. Nowlin, Jr. 19,974,599 15,320
L. Wayne Ashby 19,975,199 14,720
Dr. Donald M. Carlton 19,974,336 15,583
For Against Abstain
--- ------- -------
(2) Ratification of Price 19,978,008 386 11,525
Waterhouse LLP as the
Company's independent
public accountants for
the fiscal year ending
December 31, 1996.
The foregoing matters are described in detail in the Company's
definitive proxy statement dated April 4, 1996, for the Annual Meeting
of Stockholders held on May 14, 1996.
ITEM 5. OTHER INFORMATION
Director Jim A. Smith left the Board of Directors of the Company to
accept the position of Executive Vice President and Chief Financial
Officer for Alamo Group, Inc. (Seguin, Texas) effective June 10, 1996.
Mr. Smith served on the Compensation and Audit Committees of the
Company's Board of Directors. William C. Nowlin, Jr. has been elected
to replace Mr. Smith on those committees.
-15-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Loan Agreements dated as of June 27, 1996 between
the Company and NationsBank of Texas, N.A. as amended
and supplemented.
11.1 Computation of Earnings Per Share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1996.
-16-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL INSTRUMENTS CORPORATION
Registrant
/s/ Joel B. Rollins
- - ------------------------------------------------
BY: Joel B. Rollins
Vice President, Finance, Chief Financial
Officer and Treasurer (principal financial and
accounting officer)
Dated: July 30, 1996
-17-
NATIONAL INSTRUMENTS CORPORATION
INDEX TO EXHIBITS
Exhibit No. Description
- - ----------- -----------
10.1 Loan Agreements dated as of June 27, 1996 between
the Company and NationsBank of Texas, N.A. as
amended and supplemented
11.1 Statement Regarding Computation of Earnings per
Share