PART I.I	FINANCIAL INFORMATION
		Page No.
Item 1	Financial Statements:

	Consolidated Balance Sheets
	~~September 30, 2008~~ March 31, 2009 (unaudited) and December 31, ~~2007~~2008	3

	Consolidated Statements of Income (unaudited) for the
	~~Three months and nine~~ three months ended ~~September 30,~~March 31, 2009 and 2008 ~~and 2007~~	4

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2009 and 2008
	~~Nine months ended September 30, 2008 and 2007~~	5

	Notes to Consolidated Financial Statements	6

Item 2	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	17 21

Item 3	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	24 29

Item 4	Controls and Procedures	25 32

PART ~~II.~~II	OTHER INFORMATION

Item 1	Legal Proceedings	26 33

Item 1A	Risk Factors	26 33

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33 40

Item 5	Other Information	33 40

Item 6	Exhibits	34 41

	Signatures and Certifications	36 42

~~Item 1.~~

ITEM 1.

Financial Statements

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

September 30,
2008

December 31,
2007

Assets (unaudited)
Current assets:
Cash and cash equivalents
$ 213,665 $ 194,839
Short-term investments
61,919 93,838
Accounts receivable, net
123,096 131,282
Inventories, net
99,734 82,675
Prepaid expenses and other current assets
40,377 23,312
Deferred income tax, net
20,459 19,264
Total current assets
559,250 545,210
Long-term investments                                                                              10,154 —
Property and equipment, net                                                                              155,251 151,462
Goodwill, net                                                                              64,641 54,111
Intangible assets, net                                                                              44,844 40,357
Other long-term assets 28,168 27,672
Total assets
$ 862,308 $ 818,812

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$ 31,733 $ 36,187
Accrued compensation
31,003 25,778
Deferred revenue
42,076 36,091
Accrued expenses and other liabilities
10,320 10,437
Other taxes payable
23,379 16,843
Total current liabilities
138,511 125,336
Deferred income taxes                                                                              24,022 21,221
Other long-term liabilities 11,500 11,169
Total liabilities
174,033 157,726
Commitments and contingencies
Stockholders’ equity:
Preferred stock: par value $0.01; 5,000,000 shares authorized; none issued and outstanding
— —
Common Stock: par value $0.01; 180,000,000 shares authorized; 78,967,887 and 79,405,359 shares issued and outstanding, respectively
790 794
Additional paid-in capital
75,231 89,809
Retained earnings
602,872 563,418
Accumulated other comprehensive income
9,382 7,065
Total stockholders' equity
688,275 661,086
Total liabilities and stockholders' equity
$ 862,308 $ 818,812

	March 31, 2009		December 31, 2008
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	227,448	$	229,400
Short-term investments		14,044		6,220
Accounts receivable, net		90,917		121,548
Inventories, net		102,618		107,358
Prepaid expenses and other current assets		45,827		43,062
Deferred income taxes, net		22,430		21,435
Total current assets		503,284		529,023
Long-term investments		10,500		10,500
Property and equipment, net		150,793		154,477
Goodwill, net		64,168		64,561
Intangible assets, net		42,688		41,915
Other long-term assets		35,215		32,115
Total assets	$	806,648	$	832,591
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	25,129	$	30,876
Accrued compensation		19,408		22,012
Deferred revenue		44,965		45,514
Accrued expenses and other liabilities		13,298		18,848
Other taxes payable		10,269		13,481
Total current liabilities		113,069		130,731
Deferred income taxes		25,422		25,157
Other long-term liabilities		12,380		12,265
Total liabilities		150,871		168,153
Commitments and contingencies
Stockholders' equity:
Preferred stock: par value $0.01; 5,000,000 shares authorized; none issued and outstanding		—		—
Common stock: par value $0.01; 180,000,000 shares authorized; 77,173,376 and 77,193,063 shares issued and outstanding, respectively		772		772
Additional paid-in capital		42,972		39,673
Retained earnings		604,583		613,510
Accumulated other comprehensive income		7,450		10,483
Total stockholders’ equity		655,777		664,438
Total liabilities and stockholders’ equity	$	806,648	$	832,591

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

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007

Net sales                                                                      $ 215,038 $ 184,426 $ 618,430 $ 535,565
Cost of sales                                                                      53,537 46,219 154,227 132,439
Gross profit
161,501 138,207 464,203 403,126
Operating expenses:
Sales and marketing
79,362 66,116 233,427 194,974
Research and development
37,016 31,891 105,808 91,652
General and administrative
17,177 15,644 51,122 45,643
Total operating expenses
133,555 113,651 390,357 332,269

Operating income
27,946 24,556 73,846 70,857

Other income (expense):
Interest income
1,374 2,613 5,025 7,056
Net foreign exchange gain (loss)
(3,025 ) 98 (1,791 ) 628
Other income (expense), net
80 14 13 (138 )
Income before income taxes 26,375 27,281 77,093 78,403
Provision for income taxes                                                                      3,216 5,741 11,584 17,063

Net income
$ 23,159 $ 21,540 $ 65,509 $ 61,340

Basic earnings per share                                                                      $ 0.29 $ 0.27 $ 0.83 $ 0.77

Weighted average shares outstanding-basic 78,834 79,226 78,701 79,471

Diluted earnings per share                                                                      $ 0.29 $ 0.27 $ 0.82 $ 0.76

Weighted average shares outstanding-diluted 79,841 80,874 79,773 80,986

Dividends declared per share                                                                      $ 0.11 $ 0.10 $ 0.33 $ 0.24

	Three Months Ended
	March 31,
	2009			2008

Net sales:
Product	$	143,450		$	181,790
Software maintenance		14,349			11,128
Total net sales		157,799			192,918

Cost of sales:
Product	$	39,556		$	47,667
Software maintenance		1,327			1,402
Total cost of sales		40,883			49,069

Gross profit		116,916			143,849

Operating expenses:
Sales and marketing		68,826			73,517
Research and development		34,789			35,604
General and administrative		15,780			16,663
Total operating expenses		119,395			125,784

Operating income (loss)		(2,479	)		18,065

Other income (expense):
Interest income		589			2,137
Net foreign exchange gain (loss)		(702	)		1,548
Other income (expense), net		163			61
Income before income taxes		(2,429	)		21,811
Provision for (benefit from) income taxes		(2,787	)		4,195

Net income	$	358		$	17,616

Basic earnings per share	$	0.00		$	0.22

Weighted average shares outstanding – basic		77,277			78,840

Diluted earnings per share	$	0.00		$	0.22

Weighted average shares outstanding – diluted		77,436			79,825

Dividends declared per share	$	0.12		$	0.11

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

NATIONAL INSTRUMENTS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2009			2008
Cash flow from operating activities:
Net income	$	358		$	17,616
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,385			10,675
Stock-based compensation		5,082			4,739
Benefit from deferred income taxes		(1,486	)		(2,711	)
Tax expense (benefit from) stock option plans		242			(161	)
Changes in operating assets and liabilities:
Accounts receivable		30,631			5,112
Inventories		4,740			(7,099	)
Prepaid expenses and other assets		(5,766	)		(5,677	)
Accounts payable		(5,747	)		5,241
Deferred revenue		(549	)		3,574
Taxes and other liabilities		(11,084	)		(867	)
Net cash provided by operating activities		24,806			30,442

Cash flow from investing activities:
Capital expenditures		(3,004	)		(5,051	)
Capitalization of internally developed software		(3,114	)		(1,528	)
Additions to other intangibles		(1,340	)		(431	)
Acquisition, net of cash received		—			(17,055	)
Purchases of short-term and long-term investments		(11,850	)		(12,638	)
Sales and maturities of short-term and long-term investments		4,026			66,208
Purchases of foreign currency option contracts		—			(1,481	)
Net cash (used by) provided by investing activities		(15,282	)		28,024

Cash flow from financing activities:
Proceeds from issuance of common stock		7,237			10,197
Repurchase of common stock		(9,186	)		(49,081	)
Dividends paid		(9,285	)		(8,717	)
Tax expense (benefit from) stock option plans		(242	)		161
Net cash (used by) financing activities		(11,476	)		(47,440	)

Net change in cash and cash equivalents		(1,952	)		11,026
Cash and cash equivalents at beginning of period		229,400			194,839
Cash and cash equivalents at end of period	$	227,448		$	205,865

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

NATIONAL INSTRUMENTS CORPORATION

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Nine Months Ended
September 30,
2008 2007
Cash flow from operating activities:
Net income
$ 65,509 $ 61,340
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
27,901 27,964
Stock-based compensation
14,690 13,051
(Benefit from) deferred income taxes
3,008 (360 )
Tax benefit from stock option plans
(1,243 ) (2,391 )
Changes in operating assets and liabilities:

Accounts receivable, net
10,611 (4,056 )
Inventories
(16,954 ) (175 )
Prepaid expenses and other assets
(12,895 ) (14,186 )
Accounts payable
(4,791 ) 7,874
Deferred revenue
5,985 7,774
Taxes and other liabilities
14,138 16,797
Net cash provided by operating activities
105,959 113,632

Cash flow from investing activities:
Capital expenditures
(21,115 ) (18,109 )
Capitalization of internally developed software
(8,687 ) (7,736 )
Additions to other intangibles
(2,603 ) (4,962 )
Acquisition, net of cash received
(17,310 ) —
Purchases of short-term investments
(17,315 ) (62,968 )
Sales and maturities of short-term investments
39,080 120,530
Purchases of foreign currency option contracts
(2,784 ) —
Net cash provided by (used in) investing activities
(30,734 ) 26,755

Cash flow from financing activities:
Proceeds from issuance of common stock
26,628 27,454
Repurchase of common stock
(58,215 ) (67,957 )
Dividends paid
(26,055 ) (19,091 )
Tax benefit from stock option plans
1,243 2,391
Net cash used in financing activities
(56,399 ) (57,203 )

Changes in cash and cash equivalents                                                                                          18,826 83,184
Cash and cash equivalents at beginning of period                                                                                          194,839 100,287

Cash and cash equivalents at end of period                                                                                          $ 213,665 $ 183,471

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

~~NATIONAL INSTRUMENTS CORPORATION~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, ~~2007,~~2008, included in our annual report on Form 10-K, filed with the Securities and Exchange Commission. In our opinion, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary to present fairly our financial position at ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007,~~2008, and the results of our operations and cash flows for the three month ~~and nine month~~ periods ended ~~September 30, 2008~~March 31, 2009 and ~~2007, and the cash flows for the nine month periods ended September 30, 2008 and 2007.~~March 31, 2008. Operating results for the three month ~~and nine month periods~~period ended ~~September 30, 2008~~March 31, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2008.~~2009.

Certain prior year amounts have been reclassified to conform to the 2009 presentation as shown in the following tables:

	Three Months Ended March 31, 2008
	(unaudited)

Cost of sales as previously reported	$	48,247
Technical support costs previously reported as sales and marketing (a)		822
Cost of sales adjusted for reclassification	$	49,069

Sales and marketing as previously reported	$	74,339
Technical support costs as previously reported as sales and marketing (a)		(822	)
Sales and marketing adjusted for reclassification	$	73,517

(a)

We are separately reporting software maintenance revenue and cost of software maintenance revenue in our Consolidated Statements of Income. We have added this disclosure due to the increasing percentage of our revenue coming from software maintenance. As part of this expanded disclosure, some technical support costs previously reported as a component of sales and marketing expense are now reported as cost of software maintenance. This change has had no impact on our operating income, net income or earnings per share.

NOTE 2 – Earnings Per Share

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

The reconciliation of the denominators used to calculate basic EPS and diluted EPS for the three month ~~and nine month~~ periods ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007,~~ respectively, are as follows (in thousands):

	March 31,
	(unaudited)
	2009		2008
Weighted average shares outstanding-basic		77,277		78,840
Plus: Common share equivalents
Stock options, restricted stock units		159		985
Weighted average shares outstanding-diluted		77,436		79,825

Three Months Ended Nine Months Ended

September 30,

September 30,

(unaudited) (unaudited)
2008 2007 2008 2007

Weighted average shares outstanding-basic 78,834 79,226 78,701 79,471
Plus: Common share equivalents
Stock options, restricted stock units 1,007 1,648 1,072 1,515
Weighted average shares outstanding-diluted 79,841 80,874 79,773 80,986

Stock options to acquire ~~2,025,000~~5,495,000 shares and ~~1,198,000~~2,877,000 shares for the three ~~months~~month periods ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007, respectively, and 2,325,000 and 2,450,000 shares for the nine months ended September 30, 2008 and 2007,~~ respectively, were excluded in the computations of diluted EPS because the effect of including the stock options would have been anti-dilutive.

NOTE 3 – Cash, Cash Equivalents, Short-Term and Long-Term Investments

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

	As of March 31, 2009		As of December 31, 2008
	(unaudited)
Cash and cash equivalents:
Cash	$	71,188	$	100,967
Cash equivalents:
Debt securities		—		—
Time deposits		—		73,400
Money market accounts		156,260		55,033
Total cash and cash equivalents	$	227,448	$	229,400
Short-term investments:
Debt securities	$	14,044	$	6,220
Auction rate securities		—		—
Long-term investments:
Auction rate securities		8,343		6,964
Auction rate securities put option		257		1,636
Other long-term investments		1,900		1,900
Total investments	$	24,544	$	16,720
Total cash, cash equivalents and investments	$	251,992	$	246,120

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

	As of March 31, 2009
	(unaudited)

	Adjusted Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Debt securities	$	14,083	$	40	$	(79	)	$	14,044
Auction rate securities		8,600		—		(257	)		8,343
Auction rate securities put option		—		257		—			257
Other long-term investments		1,900		—		—			1,900
Total investments	$	24,583	$	297	$	(336	)	$	24,544

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

NOTE 34 – Fair Value Measurements

Effective January 1, 2008, we adopted Statement of Financial Accounting Standards ~~(SFAS)~~(“SFAS”) 157, Fair Value Measurements ~~(SFAS~~(SFAS 157). SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements. InEffective January 1, 2009, in accordance with Financial Accounting Standards Board ~~(FASB)~~(“FASB”) Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement ~~No.~~ 157 ~~(FSP 157-2)~~, we ~~will defer the adoption of~~adopted SFAS 157 for our nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring ~~basis, until January 1, 2009.~~basis. The ~~partial~~ adoption of SFAS ~~157~~157-2 did not have a material impact on our fair value measurements.

The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair ~~value.~~value (in thousands).

Fair Value Measurements at Reporting Date Using

Description

September 30, 2008

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

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Assets
Money Market Funds
$ 99,186 $ 99,186 $ — $ —
U.S. Treasury Bills
29,993 29,993 — —
Short-term investments available for sale
61,919 61,919 — —
Long-term investments available for sale
8,254 — — 8,254
Derivatives
15,247 — 15,247 —
Total Assets                                                     $ 214,599 $ 191,098 $ 15,247 $ 8,254

Liabilities
Derivatives
(142 ) — (142 ) —
Total Liabilities                                                     $ (142 ) $ — $ (142 ) $ —

				Fair Value Measurements at Reporting Date Using (unaudited)
Description	March 31, 2009			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Money Market Funds	$	156,260		$	156,260	$	—			—
Short-term investments available for sale		14,044			14,044		—			—
Long-term investments available for sale		8,600			—		—			8,600
Derivatives		20,094			—		20,094			—
Total Assets	$	198,998		$	170,304	$	20,094		$	8,600

Liabilities
Derivatives		(3,229	)		—		(3,229	)		—
Total Liabilities	$	(3,229	)	$	—	$	(3,229	)	$	—

Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)

Long-term investments available for sale
Beginning Balance, January 1, 2008 $ —
Total gains or (losses) (realized/unrealized)

Included in earnings
—
Included in other comprehensive income
(346 )
Purchases, issuances and settlements
—
Transfer in and/or out of Level 3
8,600
Ending Balance, September 30, 2008                                                                          $ 8,254

The amount of total gains or (losses) for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date $ —

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Long-term investments available for sale
	(unaudited)

Beginning Balance	$	8,600
Total gains or (losses) (realized/unrealized)
Included in earnings		257
Included in other comprehensive income		—
Total losses (realized/unrealized)
Included in earnings		(257	)
Included in other comprehensive income		—
Purchases, issuances and settlements		—
Transfer in and/or out of Level 3		—
Ending Balance	$	8,600

The amount of total gains or (losses) for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date		—
	$	—

Short-term investments ~~available for sale~~available-for-sale are valued using a market approach (Level 1) based on the quoted market prices of identical instruments when available or other observable inputs such as trading prices of identical instruments in inactive markets.

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 identical instruments.

Long-term investments reported using significant unobservable inputs (Level 3) are comprised of auction rate securities and are valued using discounted cash flow models which take into account market indexes for risk free rates of return, market rates of return for like securities, the credit rating of the underlying securities, government guarantees and call features where applicable as well as management judgment. The auction rate securities consist of education loan revenue bonds.

~~The securities transferred into~~included in Level 3 ~~during the nine months ended September 30, 2008, were transferred in~~are reported at their fair market value and consist of auction rate securities backed by education loan revenue bonds. One of our auction rate securities is from the Vermont Student Assistance Corporation and has a par value of $2.2 million. The other of our auction rate securities is from the New Hampshire Health and Education Facilities Authority and has a par value of $6.4 million. The ratings for these securities at March 31, 2009, were Baa1/A/AAA and Aaa/NR/AAA, respectively. We note that the ~~beginning~~bonds from the Vermont Student Assistance Corporation carried ratings of ~~the period. We have historically~~Aa3/A/AAA at December 31, 2008. Historically, we reported the fair market value of these securities at par as ~~any~~ differences between par value and the purchase price or settlement value ~~have~~were historically ~~been~~ comprised of accrued interest. Auction rate securities are variable rate debt instruments whose interest rates are typically reset approximately every 7 to 35 days. On April 13, 2009, and in prior auction periods beginning in February 2008, the auction process for these securities failed. Prior to the failure of the auction process, we had classified these investments as short-term but are now reporting them as long-term due to the fact that the underlying securities generally have longer dated contractual maturities which are in excess of the guidelines provided for in our corporate investment policy. The auction rate securities are classified as available-for-sale.

At ~~September~~March 31, 2009, we reported these long-term investments at their estimated fair market value of $8.3 million. In November 2008, we accepted the UBS Auction Rate Securities Rights (“the Rights”) agreement offered by UBS as a liquidity alternative to the failed auction process. This Rights agreement is related to the auction rates securities discussed above. The Rights agreement is a nontransferable right to sell our auction rate securities, at par value, back to UBS at any time during the period June 30, ~~2008,~~2010, through July 2, 2012. At March 31, 2009, we reported the Rights agreement at its estimated fair market value of $0.3 million. We continue to have the ability to hold the debt instruments to their ultimate maturity and have not made a determination as to whether we will exercise our right under the Rights agreement described above. As such, we have recorded the unrealized loss related to ~~these~~the auction rate securities and the unrealized gain related to the Rights agreement as a component of other ~~comprehensive~~ income (expense), in our Consolidated Statements of Income. The estimated fair market value of the Rights agreement is also included as ~~we have~~a component of our long-term investments.

The estimated fair market value of both the auction rate securities and the Rights agreement was determined ~~that~~using significant unobservable inputs (Level 3) as prescribed by SFAS 157, Fair Value Measurements. We considered many factors in determining the ~~impairment is temporary,~~fair market value of the auction rate securities as well as our corresponding Rights agreement at March 31, 2009, including the fact that ~~these~~the debt instruments underlying the auction rate securities have redemption features which call for redemption at 100% of par value, current credit curves for like securities and discount factors to account for the ~~fact~~illiquidity of the market for these securities.

NOTE 5 – Derivative Instruments and Hedging Activities

SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133(R),) requires companies to recognize all of their derivative instruments as either assets or liabilities in the 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, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

We have operations in over 40 countries. Approximately 57% of our revenues are generated outside the Americas. 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 options contracts) to 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 purchased options 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 protect against the risk that the ~~underlying debt continues~~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 ~~carry Aaa/AAA/AA ratings~~protect against the risk that the eventual dollar-net-cash outflows resulting from foreign currency operating and cost of revenue expenses will be adversely affected by changes in exchange rates.

In accordance with SFAS 133(R), we designate foreign currency forward and option contracts as cash flow hedges of forecasted revenues or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts. These derivatives are not designated as hedging instruments under SFAS 133(R). None of our derivative instruments contain a credit-risk-related contingent feature.

Cash flow hedges

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

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

We held forward contracts with a notional amount of $28.6 million dollar equivalent of Euro, $10.6 million dollar equivalent of British pound sterling, $32.1 million dollar equivalent of Japanese yen, $2.6 million dollar equivalent of South Korean won and $36.6 million dollar equivalent of Hungarian forint at March 31, 2009. We held forward contracts with a notional amount of $54.9 million dollar equivalent of Euro, $6.2 million dollar equivalent of British pound sterling, $18.9 million dollar equivalent of Japanese yen, $4.7 million dollar equivalent of South Korean won and $21.7 million dollar equivalent of Hungarian forint at December 31, 2008. These contracts are for terms up to 24 months.

We held option contracts with a notional amount of $95.5 million dollar equivalent of Euro at March 31, 2009. We held option contracts with a notional amount of $111.3 million dollar equivalent of Euro at December 31, 2008. These contracts are for terms up to 24 months.

At March 31, 2009, we expect to reclassify $7.8 million of gains and $264,000 of losses on derivative instruments from accumulated other comprehensive income to net sales during the next twelve months when the hedged international sales occur. At March 31, 2009, we expect to reclassify $114,000 of gains and $1.2 million of losses on derivative instruments from accumulated OCI to cost of sales and $83,000 of gains and $694,000 of losses on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged international expenses occur. Expected amounts are based on derivative valuations at March 31, 2009. Actual results may vary as a result of changes in the corresponding exchange rate subsequent to this date.

During the three months ended March 31, 2009, hedges with a notional amount of $14.4 million were determined to be ineffective. As a result, we recorded a net gain of $417,000 related to these hedges as a component of “net foreign exchange gain (loss)”. We did not record any ineffectiveness during the three months ended March 31, 2008.

Other Derivatives

Other derivatives not designated as hedging instruments under SFAS 133(R) 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 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 90 days. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item “net foreign exchange gain (loss)”. As of March 31, 2009 and December 31, 2008, we held forward contracts with a notional amount of $62.5 million and $67.1 million, respectively.

The following table presents the fair value of derivative instruments on our consolidated balance sheets and the ~~fact that we have the ability and currently have the intent to hold these securities to maturity. In February 2008, we reclassified these securities from short-term to long-term as the maturities~~effect of ~~the underlying debt exceeds one year, and continued to report them as long-term as~~derivative instruments on our Consolidated Statements of ~~September 30, 2008.~~Income.

Fair Values of Derivative Instruments (in thousands):

In thousands	Asset Derivatives
	March 31, 2009			December 31, 2008
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
		(unaudited)
Derivatives designated as hedging instruments under Statement 133(R)

Foreign exchange contracts – ST forwards	Prepaid expenses and other current assets	$	4,508	Prepaid expenses and other current assets	$	5,260

Foreign exchange contracts – LT forwards	Other long-term assets		4,362	Other long-term assets		2,654

Foreign exchange contracts – ST options	Prepaid expenses and other current assets		6,801	Prepaid expenses and other current assets		5,705

Foreign exchange contracts – LT options	Other long-term assets		3,172	Other long-term assets		3,838

Total derivatives designated as hedging instruments under Statement 133(R)		$	18,843		$	17,457

Derivatives not designated as hedging instruments under Statement 133(R)

Foreign exchange contracts – ST forwards	Prepaid expenses and other current assets	$	2,190	Prepaid expenses and other current assets	$	2,745

Total derivatives not designated as hedging instruments under Statement 133(R)		$	2,190		$	2,745

Total derivatives		$	21,033		$	20,202

	Liability Derivatives
	March 31, 2009				December 31, 2008
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
		(unaudited)
Derivatives designated as hedging instruments under Statement 133(R)

Foreign exchange contracts – ST forwards	Accrued expenses and other liabilities	$	(2,549	)	Accrued expenses and other liabilities	$	(1,803	)

Foreign exchange contracts – LT forwards	Other long-term liabilities		—		Other long-term liabilities		—

Foreign exchange contracts – ST options	Accrued expenses and other liabilities		—		Accrued expenses and other liabilities		—

Foreign exchange contracts – LT options	Other long-term liabilities		—		Other long-term liabilities		—

Total derivatives designated as hedging instruments under Statement 133(R)		$	(2,549	)		$	(1,803	)

Derivatives not designated as hedging instruments under Statement 133(R)

Foreign exchange contracts – ST forwards	Accrued expenses and other liabilities	$	(1,087	)	Accrued expenses and other liabilities	$	(3,280	)

Total derivatives not designated as hedging instruments under Statement 133(R)		$	(1,087	)		$	(3,280	)

Total derivatives		$	(3,636	)		$	(5,083	)

The following unaudited table shows the effect of derivative instruments on the Consolidated Statements of Income for the three-months ended March 31, 2009 and 2008 (in thousands):

Derivatives in Statement 133(R) Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) (in thousands)			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (in thousands)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	2009				2009				2009
Foreign exchange contracts – forwards and options	$	3,796		Net sales	$	2,633		Net foreign exchange gain (loss)	$	940

Foreign exchange contracts – forwards and options		(2,746	)	Cost of sales		(255	)	Net foreign exchange gain (loss)		(523	)

Foreign exchange contracts – forwards and options		(888	)	Operating expenses		(266	)	Net foreign exchange gain (loss)		—

Total	$	162			$	2,112			$	417

Derivatives not Designated as Hedging Instruments under Statement 133(R)	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
		2009
Foreign exchange contracts – forwards	Net foreign exchange gain/(loss)	$	3,089

Total		$	3,089

NOTE 46 – Inventories

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

September 30,
2008

December 31,
2007

(unaudited)
Raw materials $ 44,006 $ 40,521
Work-in-process 4,836 3,511
Finished goods 50,892 38,643
$ 99,734 $ 82,675

	March 31,		December 31,
	2009		2008
	(unaudited)

Raw materials	$	45,120	$	48,004
Work-in-process		2,109		4,150
Finished goods		55,389		55,204
	$	102,618	$	107,358

NOTE 57 – Intangibles

Intangibles at ~~September 30, 2008~~March 31, 2009 and December 31, ~~2007~~2008 are as follows:

September 30, 2008
(unaudited)
December 31, 2007

Gross Carrying Amount

Accumulated Amortization

Net
Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Capitalized software development costs $ 74,521 $ (58,561 ) $ 15,960 $ 65,834 $ (50,722 ) $ 15,112
Acquired technology 27,512 (15,877 ) 11,635 21,228 (12,976 ) 8,252
Patents 15,663 (4,325 ) 11,338 14,598 (3,789 ) 10,809
Other 11,633 (5,722 ) 5,911 10,919 (4,735 ) 6,184
$ 129,329 $ (84,485 ) $ 44,844 $ 112,579 $ (72,222 ) $ 40,357

	March 31, 2009							December 31, 2008
	(unaudited)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized software development costs	$	28,724	$	(13,453	)	$	15,271	$	25,610	$	(11,344	)	$	14,266
Acquired technology		27,418		(17,690	)		9,728		27,503		(16,804	)		10,699
Patents		17,371		(4,691	)		12,680		16,068		(4,506	)		11,562
Leasehold equipment and other		11,439		(6,430	)		5,009		11,401		(6,013	)		5,388
	$	84,952	$	(42,264	)	$	42,688	$	80,582	$	(38,667	)	$	41,915

Software development costs capitalized for the three ~~month periods~~months ended ~~September 30,~~March 31, 2009 and March 31, 2008 ~~and 2007~~ were ~~$1.1~~$3.1 million and ~~$1.7~~$1.5 million, ~~respectively, and related~~respectively. Capitalized software amortization expense was ~~$2.9~~$2.1 million and ~~$2.2~~$2.5 million ~~respectively. Software development costs capitalized~~ for the ~~nine month periods~~three months ended ~~September 30,~~March 31, 2009 and March 31, 2008, ~~and 2007 were $8.7 million and $7.7 million, respectively, and related amortization was $7.8 million and $6.5 million,~~ respectively. Amortization of capitalized software development costs is computed on an individual product basis for those products available for market and is recognized based on the product’s estimated economic life, generally three years. Patents are amortized using the straight-line method over their estimated period of benefit, generally ten to seventeen years. Total intangible assets amortization expenses were ~~$4.4~~$3.6 million and ~~$3.6~~$3.9 million for the three ~~month periods~~months ended ~~September 30,~~March 31, 2009 and March 31, 2008, ~~and 2007, respectively, and were $12.3 million and $10.5 million for the nine month periods ended September 30, 2008 and 2007,~~ respectively.

Acquired core technology isand intangible assets are amortized over ~~its~~their useful ~~life,~~lives, which ~~ranges~~range from three to eight years.

~~On February 1, 2008, we acquired all of the outstanding shares of microLEX which included $5.2 million of acquired technology. (See Note 12 of Notes to Consolidated Financial Statements~~).

~~For the three month periods ended September 30, 2008 and 2007, amortization~~ Amortization expense for intangible assets acquired was approximately ~~$1.1~~$1.0 million and ~~$798,000,~~$1.0 million for the three months ended March 31, 2009 and March 31, 2008, respectively, of which approximately ~~$937,000~~$887,000 and ~~$678,000~~$850,000 was recorded in cost of sales for the three months ended March 31, 2009 and March 31, 2008, respectively, and approximately ~~$139,000~~$126,000 and ~~$120,000~~$150,000 was recorded in operating expenses ~~respectively. For~~for the ~~nine month periods~~three months ended ~~September 30,~~March 31, 2009 and March 31, 2008, and 2007, amortization expense for intangible assets acquired was approximately $3.2 million and $2.4 million, respectively, of which approximately $2.7 million and $2.0 million was recorded in cost of sales, respectively, and approximately $449,000 and $360,000 was recorded in operating expenses, respectively. The estimated amortization expense of intangible assets acquired for the current fiscal year and in future years will be recorded in the consolidated ~~statement~~statements of income as follows (in thousands):

Fiscal Year

Cost of Sales
Acquisition related costs and amortization, net
Total

2008 $ 3,485 $ 562 $ 4,047
2009 3,300 502 3,802
2010 2,765 341 3,106
2011 2,121 214 2,335
Thereafter 1,212 206 1,418
Total $ 12,883 $ 1,825 $ 14,708

Fiscal Year	Cost of Sales		Acquisition related costs and amortization, net		Total

2009		3,300		502		3,802
2010		2,765		341		3,106
2011		2,121		214		2,335
2012		1,212		282		1,494
Thereafter
Total		9,398		1,339		10,737

NOTE 68 – Goodwill

The carrying amount of goodwill for ~~2008~~2009 is as follows:

Amount
(in thousands)

Balance as of December 31, 2007 $ 54,111
Acquisitions/purchase accounting adjustments 10,818
Divestitures —
Foreign currency translation impact (288 )
Balance as of September 30, 2008 $ 64,641

~~On February 1, 2008, we acquired all of the outstanding shares of microLEX which included $10.8 million of goodwill. (See Note 12 of Notes to Consolidated Financial Statements~~).

	Amount (in thousands)
Balance as of December 31, 2008	$	64,561
Acquisitions		—
Divestitures		—
Foreign currency translation impact		(393	)
Balance as of March 31, 2009 ��	$	64,168

The excess purchase price over the fair value of ~~the net~~ assets acquired is recorded as goodwill. As we have one operating segment, we allocate goodwill to one reporting unit for goodwill impairment testing. In accordance with SFAS 142, Goodwill and Other Intangible Assets, goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a ~~fair-value~~fair-value-based approach based on the market capitalization of the reporting unit. Our annual impairment test was performed onas of February 28, ~~2008.~~2009. No impairment of goodwill has been identified during the period presented. Goodwill is deductible for tax purposes in certain jurisdictions.

NOTE 79 – Income Taxes

~~We account for uncertain tax positions in accordance with~~In July 2006, the FASB issued FASB Interpretation (“FIN”) 48, Accounting for Uncertainty in Income Taxes – an interpretation of Statement of Financial Accounting Standards ~~109~~109.. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. We had ~~$8.8~~$9.5 million and $8.7 million of unrecognized tax benefits at ~~September 30,~~March 31, 2009 and March 31, 2008, ~~and $8.3 million at December 31, 2007,~~respectively, all of which would affect our effective income tax rate if recognized. We recorded gross increases in unrecognized tax benefits of $1.7 million and $2.2 million for the nine month periods ended September 30, 2008 and 2007, respectively, as a result of tax positions taken during the current period. We recorded a gross decrease in unrecognized tax benefits of $1.2 million for the nine months ended September 30, 2008, as a result of the lapse of the applicable statute of limitations. As of ~~September 30, 2008, we believe~~March 31, 2009, it is ~~reasonably possible~~deemed reasonable that we will recognize tax benefits in the amount of $1.6 million in the next twelve months due to the closing of open tax years. The nature of the uncertainty is related to deductions taken on returns that have not been examined by the applicable tax authority. Our continuing policy is to recognize interest and penalties related to income tax matters in income tax expense. As of ~~September 30, 2008 and December~~March 31, ~~2007,~~2009, we ~~had~~have approximately ~~$473,000 and $401,000~~$646,000 accrued for interest related to uncertain tax ~~positions, respectively.~~positions. We recognized no material adjustment to the liability for unrecognized income tax benefits. The tax years ~~2001~~2002 through ~~2007~~2008 remain open to examination by the major taxing jurisdictions to which we are subject.

Our provision for income taxes ~~reflects~~reflected an effective tax rate of ~~12% and 15%~~115% for the three ~~and nine~~ months ended ~~September 30, 2008, respectively,~~March 31, 2009, and ~~21% and 22%~~19% for the three ~~and nine~~ months ended ~~September 30, 2007, respectively.~~March 31, 2008. For the three ~~and nine~~ months ended ~~September 30, 2008,~~March 31, 2009, our effective tax rate ~~is lower~~was higher than the U.S. federal statutory rate of 35% ~~primarily~~ as a result of ~~reduced~~certain stock-based compensation expenses that do not result in a tax ~~rates~~deduction and are a greater percentage of net income in ~~certain foreign jurisdictions,~~the three months ended March 31, 2009, than they were during the same period in 2008. Non-deductible stock-based compensation expense accounted for 16 percentage points of the difference between the statutory rate and the effective rate. In addition, during the three months ended March 31, 2009, 18 percentage points of the difference was due to a valuation allowance related to the deferred tax assets for which tax benefits were previously recognized and 43 percentage points was due to the partial release of a deferred tax asset valuation allowance. The partial release of the valuation allowance had the effect of increasing our effective tax rate in the three months ended March 31, 2009, because we reported a net loss before taxes in that period. The increase in our effective tax rate for the three months ended March 31, 2009, compared to March 31, 2008, was primarily the result of the following; 13 percentage points due to an increase in non-deductible stock-based compensation expense as a percentage of net income, 20 percentage points due to a change in the valuation allowance related to deferred tax assets for which tax benefits were previously recognized and 53 percentage points due to the partial release of a ~~decrease in uncertain~~deferred tax ~~positions.~~asset valuation allowance. For the three ~~and nine~~ months ended ~~September 30, 2007,~~March 31, 2008, our effective tax rate was lower than the U.S. federal statutory rate of 35% primarily as a result of ~~the research credit,~~tax exempt interest, reduced tax rates in certain foreign jurisdictions, and tax exempt interest. The decreases in our tax rates for the three and nine months ended September 30, 2008, from the comparable prior periods is due to increased profits in foreign jurisdictions with reduced income tax rates, the partial release of a deferred tax asset valuation ~~allowance, and a decrease in uncertain tax positions due to the lapse of the applicable statute of limitations.~~allowance.

NOTE 810 – Comprehensive Income

Our comprehensive income is comprised of net income, foreign currency translation, ~~gains and losses and~~ unrealized gains and losses on forward and option contracts and securities available for sale. Comprehensive income for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2009 and March 31, 2008, ~~and 2007~~ was as follows (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Comprehensive income:
Net income
$ 23,159 $ 21,540 $ 65,509 $ 61,340
Foreign currency translation gains (losses)
(7,240 ) 3,557 (2,312 ) 4,896
Unrealized gains (losses) on derivative instruments
6,614 (331 ) 5,408 (190 )
Unrealized gains (losses) on securities available for sale
(182 ) 200 (778 ) 219
Total comprehensive income                                                                     $ 22,351 $ 24,966 $ 67,827 $ 66,265

	Three Months Ended
	March 31,
	(unaudited)
	2009			2008
Comprehensive income:
Net income	$	358		$	17,616
Foreign currency translation gains (losses), net of taxes		(2,775	)		5,703
Unrealized losses on derivative instruments, net of taxes		(78	)		(2,107	)
Unrealized (losses) on available for sale securities, net of taxes		(180	)		(355	)
Total comprehensive income	$	(2,675	)	$	20,857

NOTE 911 – Stock-Based Compensation Plans

Stock option plans

Our stockholders approved the 1994 Incentive Stock Option Plan (the “1994 Plan”) inon May 9, 1994. At the time of approval, 9,112,500 shares of our common stock were reserved for issuance under this plan. In 1997, an additional 7,087,500 shares of our common stock were reserved for issuance under this plan, and an additional 750,000 shares were reserved for issuance under this plan, as amended, in 2004. The 1994 Plan terminated in May 2005, except with respect to outstanding awards previously granted thereunder. Awards under the plan were either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or nonqualified options. The right to purchase shares 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 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 at the market price at the grant date. As part of the requirements of SFAS 123R, Share-Based Payment, ~~the Company is~~we are required to 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.

Transactions under all stock option plans are summarized as follows:

Number of shares under option

Weighted average
Exercise price

Outstanding at December 31, 2007                                                                            5,294,641 $ 24.47
Exercised
(889,427 ) 17.42
Canceled
(69,958 ) 27.15
Granted
— —
Outstanding at September 30, 2008                                                                            4,335,256 $ 25.88

	Number of shares under option			Weighted average Exercise price
Outstanding at December 31, 2008		4,272,567		$	25.97
Exercised		(249,969	)		12.72
Canceled		(66,567	)		29.12
Granted		—			—
Outstanding at March 31, 2009		3,956,031		$	26.76

The aggregate intrinsic value of stock options at exercise, represented in the table above, was ~~$10.6~~$1.5 million for the ~~nine~~three months ended ~~September 30, 2008.~~March 31, 2009. Total unrecognized stock-based compensation expense related to non-vested stock options was approximately ~~$7.2~~$5.0 million as of ~~September 30, 2008,~~March 31, 2009, related to approximately ~~553,000~~348,000 shares with a per share weighted average fair value of ~~$16.32.~~$16.75. We anticipate this expense to be recognized over a weighted average period of approximately ~~3.4~~4.3 years.

Outstanding and Exercisable by Price Range
As of September 30, 2008

Options Outstanding Options Exercisable

Range of Exercise prices

Number
outstanding
as of
09/30/2008

Weighted
average
remaining
contractual life

Weighted
average
exercise
price

Number
exercisable
as of
09/30/2008

Weighted
average
exercise price

$ 12.22 - $ 21.04 1,634,026 2.53 $ 19.26 1,443,676 $ 19.09
$ 21.25 - $ 30.71 1,470,684 5.04 $ 28.04 1,121,490 $ 27.95
$ 30.92 - $ 34.38 1,230,546 1.56 $ 32.08 1,217,715 $ 32.08
$ 12.22 - $ 34.38 4,335,256 3.11 $ 25.88 3,782,881 $ 25.90

		Outstanding and Exercisable by Price Range as of March 31, 2009

		Options Outstanding						Options Exercisable

Range of Exercise prices		Number outstanding as of 3/31/2009		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable as of 3/31/2009		Weighted average exercise price
$	12.36 – $ 21.04		1,333,833		2.43	$	20.63		1,224,727	$	20.64
$	21.25 – $ 29.85		1,353,962		4.58	$	27.89		1,125,849	$	27.82
$	30.51 – $ 34.38		1,268,236		1.23	$	31.99		1,257,424	$	31.99
$	12.36 – $ 34.38		3,956,031		2.78	$	26.76		3,608,000	$	26.84

The weighted average remaining contractual life of options exercisable as of ~~September 30, 2008~~March 31, 2009 was ~~2.87~~2.6 years. The aggregate intrinsic value of options outstanding as of ~~September 30, 2008~~March 31, 2009 was ~~$18.1~~$(32.1) million. The aggregate intrinsic value of options currently exercisable as of ~~September 30, 2008~~March 31, 2009 was ~~$15.7~~$(29.5) million. No options were granted in the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 as our ~~incentive option plan~~1994 Plan terminated in May 2005.

Restricted stock plan

Our stockholders approved the 2005 Incentive Plan ~~(“2005 Plan”) in~~on May 10, 2005. At the time of approval, 2,700,000 shares of our common stock were reserved for issuance under this plan, as well as the number of shares which had been reserved but not issued under the 1994 Plan (our incentive stock option plan which terminated in May 2005), and any shares that returned to the 1994 Plan as a result of termination of options or repurchase of shares issued under such plan. The 2005 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of restricted stock and restricted stock units (“RSUs”) to directors, executive officers and employees of the Company and its subsidiaries. Awards vest over a three, five or ten-year period, beginning on the date of grant. Vesting of ten year awards may accelerate based on the Company’s previous year’s earnings and growth but ten year awards cannot accelerate to vest over a period of less than five years. Shares available for grant at ~~September 30, 2008~~March 31, 2009 were ~~2,502,937.~~2,620,700. As part of the requirements of SFAS 123R, ~~Share-Based Payment~~, we are required to estimate potential forfeitures of ~~restricted stock units~~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.

Transactions under the ~~restricted stock plan~~2005 Incentive Plan are summarized as follows:

RSUs

Number of RSUs

Weighted Average Grant Price

Balance at December 31, 2007                                                                         1,841,634 $ 26.86
Granted
738,807 28.62
Vested
(320,301 ) 29.42
Canceled
(61,324 ) 28.16
Balance at September 30, 2008                                                                         2,198,816 $ 27.04

	RSUs
	Number of RSUs			Weighted Average Grant Price
Balance at December 31, 2008		2,165,228		$	26.99
Granted		24,725			19.77
Earned		—			—
Canceled		(9,761	)		27.23
Balance at March 31, 2009		2,180,192		$	26.90

Total unrecognized stock-based compensation expense related to non-vested ~~restricted stock units~~RSUs was approximately ~~$59.4~~$54.5 million as of ~~September 30, 2008,~~March 31, 2009, related to ~~2,198,816~~2,180,192 shares with a per share weighted average fair value of ~~$30.05.~~$26.90. We anticipate this expense to be recognized over a weighted average period of approximately ~~6.4~~7.0 years.

Employee stock purchase plan

Our employee stock purchase plan permits substantially all domestic employees and employees of designated subsidiaries to acquire our common stock at a purchase price of 85% of the lower of the market price at the beginning or the end of the ~~participation~~purchase period. ~~On December 21, 2005, our Compensation Committee amended the~~The plan has quarterly purchase periods ~~to be from semi-annual to quarterly beginning~~ on ~~November 1,~~ February 1, May 1, and ~~August~~November 1 of each year. ~~Following this amendment, the initial period commenced on April 1, 2006 and ended on July 31, 2006.~~ During ~~the~~our annual shareholders meeting held on May 7, 2007, shareholders approved an additional 3.0 million shares of common stock to be reserved for issuance under this plan. Employees may designate up to 15% of their compensation for the purchase of common stock. Common stock reserved for future employee purchases ~~aggregate 2,772,365~~aggregated 2,364,886 shares at ~~September 30, 2008. The number of shares~~March 31, 2009. Shares issued under this plan ~~for~~were 228,721 in the ~~nine~~three month period ended ~~September 30, 2008 was 501,225.~~March 31, 2009. The weighted average fair value of the employees’ purchase rights was ~~$23.52 per share~~$18.25 and was estimated using the Black-Scholes model with the following assumptions:

	~~2008~~2009
Dividend expense yield		0.3%
Expected life	3 months
Expected volatility		~~24%~~45%
Risk-free interest rate		~~4.7%~~1.7%

For the three months ended March 31, 2009 and ~~nine month periods ended September 30,~~March 31, 2008, ~~and 2007,~~ stock-based compensation recorded as a component of cost of sales, sales and marketing, research and development, and general and administrative was as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Stock-based compensation
Cost of sales                                                                   $ 295 $ 252 $ 810 $ 672
Sales and marketing                                                                   2,114 1,932 6,204 5,347
Research and development                                                                   1,867 1,719 5,160 4,673
General and administrative                                                                   800 770 2,351 2,104

Provision for income taxes                                                                   (1,364 ) (1,032 ) (3,588 ) (2,722 )
Total                                                                   $ 3,712 $ 3,641 $ 10,937 $ 10,074

	Three Months Ended
	March 31,
	(unaudited)
	2009			2008
Stock-based compensation
Cost of sales	$	310		$	244
Sales and marketing		2,185			2,007
Research and development		1,737			1,727
General and administrative		799			754

Provision for income taxes		(3,014	)		(1,083	)
Total	$	2,017		$	3,649

Authorized Preferred Stock and Preferred Stock Purchase Rights Plan

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

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

NOTE 1012 – Commitments and Contingencies

We offer a one-year limited warranty on most hardware products, which is included in the sales price of many of our products. Provision is made for estimated future warranty costs at the time of sale pursuant to SFAS 5, Accounting for Contingencies, for the estimated costs that may be incurred under the basic limited warranty. Our estimate is based on historical experience and product sales during this period.

The warranty reserve for the ~~nine~~three month periods ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007,~~ respectively, was as follows (in thousands):

Nine Months Ended
September 30,
(unaudited)
2008 2007
Balance at the beginning of the period $ 750 $ 867
Accruals for warranties issued during the period 1,219 1,206
Settlements made (in cash or in kind) during the period (1,272 ) (1,323 )
Balance at the end of the period $ 697 $ 750

	Three Months Ended
	March 31,
	(unaudited)
	2009			2008
Balance at the beginning of the period	$	952		$	750
Accruals for warranties issued during the period		496			436
Settlements made (in cash or in kind) during the period		(602	)		(414	)
Balance at the end of the period	$	846		$	772

As of ~~September 30, 2008,~~March 31, 2009, we have outstanding guarantees for payment of foreign operating leases, customs and foreign grants totaling approximately ~~$3.2~~$2.0 million.

As of ~~September 30, 2008,~~March 31, 2009, we have non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately ~~$7.4~~$7.7 million over the next twelve months.

NOTE 1113 – Segment Information

In accordance with SFAS 131, ~~Disclosure~~Disclosures about Segments of an Enterprise and Related Information, we determine operating segments using the management approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our operating segments. It also requires disclosures about products and services, geographic areas and major ~~customers, where applicable.~~customers.

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

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

Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Net sales:
Americas:
Unaffiliated customer sales
$ 97,021 $ 86,271 $ 269,527 $ 248,127
Geographic transfers
34,446 25,033 95,386 85,066
$ 131,467 $ 111,304 $ 364,913 $ 333,193

Europe:
Unaffiliated customer sales
$ 66,702 $ 52,041 $ 197,935 $ 160,070
Geographic transfers
54,985 41,184 151,755 117,781
$ 121,687 $ 93,225 $ 349,690 $ 277,851

Asia Pacific:
Unaffiliated customer sales
$ 51,315 $ 46,114 $ 150,968 $ 127,368
Eliminations                                                    (89,431 ) (66,217 ) (247,141 ) (202,847 )
$ 215,038 $ 184,426 $ 618,430 $ 535,565

Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
Operating income:
Americas                                                 $ 21,567 $ 20,129 $ 53,654 $ 57,039
Europe                                                 26,361 19,847 76,088 61,124
Asia Pacific                                                 17,034 16,471 49,912 44,346
Unallocated:
Research and development expenses (37,016 ) (31,891 ) (105,808 ) (91,652 )
$ 27,946 $ 24,556 $ 73,846 $ 70,857

Nine Months Ended
September 30,

(unaudited)
2008 2007
Interest income:
Americas                                                     $ 2,186 $ 3,854
Europe                                                     2,761 3,071
Asia Pacific                                                     78 131
$ 5,025 $ 7,056

	Three Months Ended March 31,
	(unaudited)
	2009			2008
Net sales:
Americas:
Unaffiliated customer sales	$	68,439		$	83,585
Geographic transfers		21,361			30,983
		89,800			114,568

Europe:
Unaffiliated customer sales		49,480			59,144
Geographic transfers		50,153			50,584
		99,633			109,728

Asia Pacific:
Unaffiliated customer sales		39,880			50,190
Eliminations		(71,514	)		(81,567	)

	$	157,799		$	192,919

	Three Months Ended March 31,
	(unaudited)
	2009			2008
Operating income (loss):
Americas	$	5,307		$	15,253
Europe		16,780			21,038
Asia Pacific		10,223			17,378
Unallocated:
Research and development expenses		(34,789	)		(35,604	)
	$	(2,479	)	$	18,065

September 30, December 31,
2008 2007
(unaudited)
Identifiable assets:
Americas $ 440,367 $ 421,249
Europe 348,510 310,608
Asia Pacific 73,431 86,955
$ 862,308 $ 818,812

	Three Months Ended March 31,
	(unaudited)
	2009		2008
Interest income:
Americas	$	294	$	1,056
Europe		274		1,050
Asia Pacific		21		31
	$	589	$	2,137

	March 31, 2009		December 31, 2008
	(unaudited)
Long-lived assets:
Americas	$	106,226	$	107,701
Europe		37,518		39,280
Asia Pacific		7,049		7,496
	$	150,793	$	154,477

Total sales outside the United States for the three ~~months~~month periods ended March 31, 2009 and ~~nine months ended September 30,~~ 2008 were ~~$127.7~~$96.2 million and ~~$374.9 million, respectively, and for the three months and nine months ended September 30, 2007 were $106.4 million and $316.8~~$116.7 million, respectively.

NOTE 1214 – Acquisitions

On February 1, 2008, we acquired all of the outstanding shares of microLEX Systems A/S, a premier provider of virtual instrumentation-based video, audio and mixed-signal test solutions. This acquisition was accounted for as a business combination. The total purchase price of the acquisition, which included legal and accounting fees, was $17.8 million in cash. The allocation of the purchase price was determined using the fair value of assets and liabilities acquired as of February 1, 2008. We funded the purchase price from existing cash balances. Our consolidated financial statements include the operating results from the date of acquisition. Pro-forma results orof operations have not been presented because the effects of those operations were not material. The ~~purchase price allocation is preliminary and is subject to future adjustment during the allocation period as defined in SFAS 141,~~ ~~Business Combinations. The~~ following table summarizes the initial allocation of the purchase price of microLEX (in thousands):

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

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

Goodwill is not deductible for tax purposes. Existing technology, non-competition agreements, trademarks and customer relationships have useful lives of 5 years, 3 years, 3 years, and 5 years, respectively, and will be amortized over these periods from the date of acquisition. These assets are not deductible for tax purposes.

NOTE 1315 – Recently Issued Accounting Pronouncements

In ~~September 2006,~~February 2008, the FASB issued ~~SFAS 157,~~ ~~Fair Value Measurements~~. This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies under other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. However, SFAS 157 is amended by Financial Statement Position ~~(FSP) FAS 157-1,~~ ~~Application of FASB Statement 157 to FASB Statement 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which excludes from the scope of this provision arrangements accounted for under SFAS 13,~~ ~~Accounting for Leases. SFAS 157 is also amended by FSP FAS~~(“FSP”) 157-2, Effective Date of FASB Statement ~~No.~~ 157,, which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. ~~In October 2008, SFAS 157 was amended again by FSP 157-3,~~ ~~Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active~~, which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. We adopted ~~SFAS 157~~FSP 157-2 on January 1, ~~2008, except~~2009 as ~~it applies to those nonfinancial assets~~required and ~~nonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption of SFAS 157~~concluded it did not have a material impact on our consolidated financial position or results of operations.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. We ~~also adopted~~are currently evaluating the requirements of FSP ~~157-3 on September 30, 2008 as required~~FAS 157-4 and ~~concluded it did~~have not ~~have a significant~~yet determined the impact on our consolidated financial ~~position or results of operations. (See Note 3 of Notes to Consolidated Financial Statements~~).

~~In February 2007, the FASB issued SFAS 159,~~ ~~The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement 115.~~ This standard permits an entity to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. This statement is effective for fiscal years beginning after November 15, 2007. We adopted SFAS 159 on January 1, 2008 as required. The adoption of SFAS 159 did not have a significant impact on our financial position or results of operations as we did not elect the fair value option for items within the scope of this statement.statements.

In December 2007, the FASB issued SFAS 141R, Business Combinations—a replacement of FASB Statement 141, which significantly changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective prospectively, except for certain retrospective adjustments to deferred tax balances, for fiscal years beginning after December 15, 2008. We ~~are currently evaluating the requirements of~~adopted SFAS ~~141R~~161 on January 1, 2009, as required and concluded it did not have ~~not yet determined the~~a significant impact on our consolidated financial ~~statements.~~position or results of operations.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities. This ~~Statement~~statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement ~~133~~133(R) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. We ~~are currently evaluating the requirements of~~adopted SFAS 161 on January 1, 2009, as required and concluded it did not have ~~not yet determined the~~a significant impact on our consolidated financial ~~statements.~~position or results of operations.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, Business Combinations, and other U.S. generally accepted accounting principles. The provisions of FSP FAS 142-3 are effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. We adopted FSP FAS 142-3 on January 1, 2009, as required and concluded it did not have a significant impact on our consolidated financial position or results of operations.

In April 2009, the FASB issued FSP FAS 115-2, Recognition and Presentation of Other-Than-Temporary Impairments. FSP FAS 115-2 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. We are currently evaluating the requirements of FSP FAS ~~142-3~~115-2 and have not yet determined the impact on our consolidated financial statements.

NOTE 1416 – Litigation

We filed a patent infringement action on January 25, 2001, in the U.S. District Court, Eastern District of Texas (Marshall Division) claiming that The MathWorks, Inc. ("MathWorks") infringed certain of our U.S. patents. On January 30, 2003, a jury found infringement by MathWorks of three of the patents involved and awarded us specified damages. On June 23, 2003, the District Court entered final judgment in favor of us and entered an injunction against MathWorks' sale of its Simulink and related products and stayed the injunction pending appeal. Upon appeal, the judgment and the injunction were affirmed by the U.S. Court of Appeals for the Federal Circuit (September 3, 2004). Subsequently the stay of injunction was lifted by the District Court. In November 2004, the final judgment amount of $7.4 million which had been held in escrow pending appeal was released to us.

An action was filed by MathWorks against us on September 22, 2004, in the U.S. District Court, Eastern District of Texas (Marshall Division), claiming that on that day MathWorks had released modified versions of its Simulink and related products, and seeking a declaratory judgment that the modified products do not infringe the three patents adjudged infringed in the District Court's decision of June 23, 2003 (and affirmed by the Court of Appeals on September 3, 2004). On November 2, 2004, MathWorks served the complaint on us. We filed an answer to MathWorks' declaratory judgment complaint, denying MathWorks' claims of non-infringement and alleging our own affirmative defenses. On January 5, 2005, the Court denied a contempt motion by us to enjoin the modified Simulink products under the injunction in effect from the first case. On January 7, 2005, we amended our answer to include counterclaims that MathWorks' modified products are infringing three of our patents, and requested unspecified damages and an injunction. MathWorks filed its reply to our counterclaims on February 7, 2005, denying the counterclaims and alleging affirmative defenses. On March 2, 2005, we filed a notice of appeal regarding the Court's denial of the contempt motion. On March 15, 2005, the Court stayed MathWorks’ declaratory judgment action, pending a decision on the appeal by the Court of Appeals for the Federal Circuit. On February 9, 2006, the Court of Appeals for the Federal Circuit affirmed the District Court’s January 2005 order. On November 22, 2006, the District Court lifted the stay. The case schedule has yet to be set in this action. During the fourth quarter of 2004, we accrued $4 million related to our probable loss from this contingency, which consists entirely of anticipated patent defense costs that are probable of being incurred. In the fourth quarter of 2006, we accrued an additional $600,000 related to this contingency. We charged approximately $1,500 against this accrual during the three months ended ~~September 30, 2008. We~~March 31, 2009. To date, we have charged a cumulative total of ~~$618,500~~$620,000 against this ~~accrual through September 30, 2008.~~accrual.

NOTE 1517 – Subsequent Event

On ~~October~~April 22, ~~2008, the Company’s~~2009, our Board of Directors declared a quarterly cash dividend of ~~$0.11~~$0.12 per common share, payable ~~on December~~June 1, ~~2008~~2009, to shareholders of record on ~~November 10, 2008.~~May 11, 2009.

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements contained herein regarding our future financial performance or operations (including, without limitation, statements to the effect that we “believe,” ~~“expect,” “plan,” “may,” “will,” “project,” “continue,”~~"expect," "plan," "may," "will," "project," "continue," or ~~“estimate”~~"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 ~~26,~~33, and the discussion below. Readers are also encouraged to refer to the documents regularly filed by us with the Securities and Exchange Commission, including our Annual Report on Form 10-K for further discussion of our business and the risks attendant thereto.

Overview

National Instruments Corporation (“we” or “our”) is a leading supplier of measurement and automation products that engineers and scientists use in a wide range of industries. These industries comprise a large and diverse market for design, control and test applications. We provide flexible application software and modular, multifunctional hardware that users combine with industry-standard computers, networks and third party devices to create measurement, automation and embedded systems, which we also refer to as “virtual instruments”. Our approach gives customers the ability to quickly and ~~cost effectively~~cost-effectively design, prototype and deploy unique ~~custom defined~~custom-defined solutions for their design, control and test application needs. We sell to a large number of customers in a wide variety of industries. No single customer accounted for more than 3% of our sales in the three ~~or nine month periods~~months ended ~~September 30, 2008~~March 31, 2009 or in the years 2008, 2007 ~~2006~~ or ~~2005.~~2006.

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

Expanding our broad customer ~~base:~~base

We strive to increase our already broad customer base by serving a large market on many computer platforms, through a global marketing and distribution network. We also seek to acquire new technologies and expertise from time to time in order to open new opportunities for our existing product portfolio. ~~While we continue our efforts to expand our customer base, we are also benefiting from our efforts to increase order size from both new and existing customers.~~

Maintaining a high level of customer ~~satisfaction:~~satisfaction

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

Leveraging external and internal ~~technology:~~technology

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

We sell into ~~the~~ test and measurement (“T&M”) and ~~the industrial automation (“IA”)~~industrial/embedded applications in a broad range of industries and as such are subject to the economic and industry forces which drive those markets. It has been our experience that the performance of these industries and our performance is impacted by general trends in industrial production for the global economy and by the specific performance of certain vertical markets that are intensive consumers of measurement technologies. Examples of these markets are semiconductor capital equipment, telecom, defense, aerospace, automotive and others. In assessing our business, ~~our management considers~~we consider the trends in the Global Purchasing Managers Index (“PMI”) published by JP Morgan, global industrial production as well as industry reports on the specific vertical industries that we target. The global industrial economy is currently in a recession. Many economists and other experts are predicting that this recession in the U.S. and global economies will likely continue through the remainder of 2009 and possibly beyond. We are unable to predict how long this recession will last. We expect our business to continue to be adversely impacted by this downturn in the U.S. and global economies.

We distribute our software and hardware products primarily through a direct sales organization. We also use independent distributors, OEMs, VARs, system integrators and consultants to market our products. We have sales offices in the United States and sales offices and distributors in key international markets. Sales outside of the Americas accounted for approximately ~~55% and 53%~~57% of our revenues in each of the three ~~month periods~~months ended ~~September 30, 2008~~March 31, 2009 and ~~2007, respectively.~~2008. 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~~foreign currency exchange rates. We expect that a significant portion of our total revenues will continue to be derived from international sales. ~~See~~(See Note 1113 of Notes to Consolidated Financial Statements for details concerning the geographic breakdown of our net sales, operating income, interest income and identifiable ~~assets.~~assets).

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

We believe that our long-term growth and success depends 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 and price/performance. Our success also is ~~dependant~~dependent on our ability to obtain and maintain patents and other proprietary rights related to technologies used in our products. We have engaged in litigation and will likely ~~will~~ 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.

Current business outlook

Many of the industries we serve have historically been cyclical and have experienced periodic downturns. Our customers across all industries and geographic regions demonstrated reduced order patterns beginning in the fourth quarter of 2008. We saw those reduced order patterns continue during the quarter ended March 31, 2009 as almost all of the world’s major industrial economies reported record or near record declines in industrial production, signaling severe contraction in the industrial economy. The difficult economic conditions were reflected in our order trends and revenue for the March 2009 quarter.

With the quarterly average of the global Purchasing Managers Index (PMI) reaching a record low of 36 for the first quarter of 2009, we saw the effect of the global recession worldwide. Although the average PMI reading of 36 for the first quarter of 2009 was a record low, we did see some stabilization of the PMI as the level for January 2009 was 35, 35.8 for February 2009 and 37.3 for March 2009. However, these PMI levels continue to indicate that the industrial economy was still declining rapidly through the end of March 2009 and that conditions will likely remain weak throughout 2009. Although the rapid decline in the PMI seems to have ended and we have seen the effect of this PMI stabilization on our daily order rate which has stabilized in absolute dollars, we cannot predict when these overall adverse business conditions will improve or when the economic downturn will end. Our primary financial goals are to maintain our financial strength and to take advantage of the opportunities this downturn may create. Our key strategies to achieving these goals are to maintain a stable gross margin and to optimize our operating expense cost structure while maintaining strong employee productivity.

During the three months ended March 31, 2009, we took additional steps to reduce our operating cost structure. For the remainder of 2009, we will continue to be prudent in managing our expenses by reducing discretionary expenses while sustaining our strategic investment in research and development and field sales. As a result, our spending plans for the full year 2009 have been ~~profitable~~reduced by approximately $25 million from our expected levels earlier this year and we are currently budgeting for a decrease in ~~every year since 1990. However, there can~~total operating expenses of approximately 10% for 2009 compared to 2008. Although this strategy was successful during the three months ended March 31, 2009, we cannot be ~~no assurance that our net sales will grow or~~certain that we will ~~remain profitable~~achieve the same level of success in future periods. Historically, 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 historical results of operations should not be relied upon as indications of future performance.

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

Results of Operations

The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items reflected in our consolidated statements of income:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2008 2007 2008 2007
Net sales:
Americas
45.1 % 46.8 % 43.6 % 46.3 %
Europe
31.0 28.2 32.0 29.9
Asia Pacific
23.9 25.0 24.4 23.8
Consolidated net sales
100.0 100.0 100.0 100.0
Cost of sales 24.9 25.1 24.9 24.7
Gross profit
75.1 74.9 75.1 75.3
Operating expenses:
Sales and marketing
36.9 35.8 37.7 36.4
Research and development
17.2 17.3 17.1 17.2
General and administrative
8.0 8.5 8.3 8.5
Total operating expenses
62.1 61.6 63.1 62.1
Operating income 13.0 13.3 12.0 13.2
Other income (expense):
Interest income
0.6 1.4 0.8 1.3
Net foreign exchange gain (loss)
(1.4 ) 0.1 (0.3 ) 0.1
Other income (expense), net
0.1 0.0 0.0 0.0
Income before income taxes 12.3 14.8 12.5 14.6
Provision for income taxes 1.5 3.1 1.9 3.2
Net income
10.8 % 11.7 % 10.6 % 11.4 %

	Three Months Ended
	March 31,
	2009			2008
Net sales:
Americas		43.4	%		43.3	%
Europe		31.3			30.7
Asia Pacific		25.3			26.0
Consolidated net sales		100.0			100.0
Cost of sales		25.9			25.4
Gross profit		74.1			74.6
Operating expenses:
Sales and marketing		43.6			38.1
Research and development		22.1			18.5
General and administrative		10.0			8.6
Total operating expenses		75.7			65.2
Operating income (loss)		(1.6	)		9.4
Other income (expense):
Interest income		0.4			1.1
Net foreign exchange gain (loss)		(0.4	)		0.8
Other income (expense), net		0.1			–
Income (loss) before income taxes		(1.5	)		11.3
Provision for (benefit from) income taxes		(1.7	)		2.2
Net income		0.2	%		9.1	%

Net ~~Sales.~~Sales ~~For the three months ended September 30, 2008, consolidated~~. Consolidated net sales ~~increased by $30.6~~were $157.8 million ~~or 17% to $215.0 million from $184.4~~and $192.9 million for the three ~~months~~month periods ended ~~September 30, 2007. For the nine months ended September 30,~~March 31, 2009 and 2008, consolidated net sales increased $82.9 million or 15% to $618.4 million from $535.6 million for the nine months ended September 30, 2007. The increases for the three and nine months ended September 30, 2008, compared to the comparable periods in 2007,respectively, a decrease of 18%. This decrease can ~~primarily~~ be attributed to ~~increased market acceptance~~declines in sales volume across all areas of our business. Instrument control products which comprise approximately 6% of our revenues, saw a year-over-year decline of 42%. Products in the areas of virtual instrumentation and graphical system design ~~products,~~ which ~~constitute the vast majority~~comprise approximately 94% of our ~~product portfolio, as well as the introduction~~revenues saw a year-over-year decline of new and upgraded products in all regions. These increases were offset slightly by the decrease in sales of our instrument control products, which we believe is reflective of the continued weakness of the Global PMI. During the three months ended September 30, 2008, the U.S. dollar experienced broad strengthening against most major currencies. However, compared to the three and nine months ended September 30, 2007, the U.S. dollar generally traded lower against most major currencies which also contributed to the overall increase in revenue compared to the same periods in 2007.

~~For the three and nine months ended September 30, 2008, sales in the Americas increased 12% and 9%, respectively, compared to the same periods in 2007.~~

16%. For the three months ended ~~September 30,~~March 31, 2008, ~~sales~~instrument control products comprised 9% of our revenues, while virtual instrumentation and graphical system design comprised 91% of our revenues. Our instrument control products are the most economically sensitive portion of our revenue, and we expect the year-over-year revenue trend in instrument control to continue to be very weak in the second quarter and third quarters of 2009. We did not take any significant action with regard to pricing during the three months ended March 31, 2009, and thus, the decrease in revenues is attributable to a decrease in customer orders.

Sales in the Americas were $68.4 million and $83.6 million for the three month periods ended March 31, 2009 and 2008, respectively, a decrease of 18%. Sales outside of the Americas, as a percentage of consolidated sales, ~~increased to 55% from 53%~~remained constant at 57% in ~~the same period in 2007 as a result of faster sales growth outside~~each of the ~~Americas~~three month periods ended March 31, 2009, and ~~the general weakness of the U.S. dollar against most major currencies compared to the same period~~2008. Sales in 2007. For the nine months ended September 30, 2008, sales outside of the Americas, as a percentage of consolidated sales, increased to 56% from 54% over the same period in 2007 due to a faster sales growth outside of the AmericasEurope were $49.5 million and ~~the general weakness of the U.S. dollar against most major currencies compared to the same period in 2007. Compared to the corresponding periods in 2007, our European sales increased by 28% to $66.7~~$59.1 million for the three ~~months~~month periods ended ~~September 30,~~March 31, 2009 and 2008, respectively, a decrease of 16%. Sales in Asia were $39.9 million and ~~increased 24% to $197.9~~$50.2 million for the ~~nine months~~three month periods ended ~~September 30, 2008. Sales in Asia Pacific increased by 11% to $51.3 million in the three months ended September 30,~~March 31, 2009, and 2008, ~~compared to the same period in 2007 and increased 19% to $151.0 million for the nine months ended September 30, 2008, compared to the same period in 2007.~~respectively, a decrease of 21%. 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 sales made by our direct sales offices in the Americas, outside of the United States, in Europe and in Asia Pacific are denominated in local currencies, and accordingly, the U.S. dollar equivalent of these sales is affected by changes in foreign currency exchange rates. For the three months ended ~~September 30, 2008,~~March 31, 2009, net of hedging results, the change in exchange rates had the effect of ~~increasing~~decreasing our consolidated sales by 6%$7.4 million or 4%, ~~increasing~~decreasing Americas sales by 1%$2.2 million or 3%, ~~increasing~~decreasing European sales by ~~16%~~$2.0 million or 3%, and ~~increasing~~decreasing sales in Asia Pacific by 5%$3.2 million or 6% compared to the three months ended September 30, 2007. For 2008 year-to-date sales, net of hedging results, the change in exchange rates had the effect of increasing our consolidated sales by 6%. Since most of our international operating expenses are also incurred in local currencies, the change in exchange rates had the effect of increasing our operating expenses by $5.1 million, or 4%, for the three months ended September 30, 2008 and by $16.0 million, or 4%, for the nine months ended September 30, 2008 compared to the comparable periods in 2007.March 31, 2008.

Gross Profit. As a percentage of sales, gross ~~profit remained constant at~~margin was 74% and 75% for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2009, and 2008, respectively. Gross margin decreased in the three months ended March 31, 2009, primarily as a result of reduced sales volumes compared to the same period in 2008. For the three months ended March 31, 2009, charges related to acquisition related intangibles and ~~September 30, 2007. There can be no assurance that we will maintain~~stock based compensation increased to $1.2 million from $1.1 million during the comparable period in 2008. For the three months ended March 31, 2009, the net impact of foreign currency exchange rates had the effect of decreasing our ~~historical margins~~cost of goods sold by $1.6 million or ~~that~~3%. For the three months ended March 31, 2008, the net impact of foreign currency exchange rates had the effect of increasing our ~~gross profit margin will not fluctuate in future periods. We believe our current manufacturing capacity is adequate to meet current needs.~~cost of goods sold by $992,000 or 2%.

Sales and Marketing. ~~For the three months ended September 30, 2008, sales~~Sales and marketing expenses ~~increased to $79.4~~were $68.8 million ~~from $66.1~~and $73.5 million ~~a 20% increase compared to~~for the three ~~months~~month periods ended ~~September 30, 2007. For the nine months ended September 30,~~March 31, 2009, and 2008, ~~sales and marketing expenses increased to $233.4 million from $195.0 million,~~respectively, a ~~20% increase compared to the nine months ended September 30, 2007.~~decrease of 6%. As a percentage of net sales, sales and marketing expenses were ~~37%~~44% and 38% ~~for~~over the ~~three and nine months ended September 30, 2008, compared to 36% and 36% for the three and nine months ended September 30, 2007, respectively.~~same periods. The ~~increase~~decrease in sales and marketing expense for the three ~~and nine~~ months ended ~~September 30, 2008, both~~March 31, 2009, was partly due to decreases in ~~absolute dollars~~discretionary spending of approximately $2.8 million compared to the comparable prior year period. These decreases were in the areas of travel and advertising. Also, during the three months ended March 31, 2009, the net impact of foreign currency exchange rates had the effect of decreasing our sales and marketing expense by $3.3 million or 4% compared to the same period in 2008. The increase in sales and marketing expense as a percentage of ~~sales, is consistent with our plan~~revenue was due to ~~make additional investments~~the 18% decrease in ~~our field sales force. During~~revenue during the three months ended ~~September 30, 2008, the U.S. dollar experienced broad strengthening against most major currencies. However,~~March 31, 2009, compared to the three ~~and nine~~ months ended ~~September 30, 2007, the U.S. dollar generally traded lower against most major currencies during the three and nine months ended September 30, 3008 which also contributed to the overall increase.~~March 31, 2008. We plan to continue to make ~~additional~~ investments in our field sales force ~~for~~during the remainder of 2009. However, due to the continued downturn in the industrial economy in 2009 and due to the fact that we cannot anticipate when this downturn might ease, our field sales expansion during the remainder of 2009 will likely be less than it was in 2008. We expect sales and marketing expenses in future periods to ~~increase in absolute dollars, and~~continue to fluctuate as a percentage of sales based on recruiting, marketing and advertising campaign costs associated with major new product releases and entry into new market areas, investment in web sales and marketing efforts, increasing product demonstration costs and the timing of domestic and international conferences and trade shows.

Research and Development. ~~For the three months ended September 30, 2008, research~~Research and development expenses ~~increased to $37.0~~were $34.8 million ~~from $31.9~~and $35.6 million ~~a 16% increase compared to~~for the three ~~months~~month periods ended ~~September 30, 2007. For the nine months ended September 30,~~March 31, 2009, and 2008, ~~research and development expenses increased to $105.8 million from $91.7 million,~~respectively, a ~~15% increase compared to the nine months ended September 30, 2007.~~decrease of 2%. As a percentage of net sales, research and development expenses ~~remained constant at 17% for~~were 22% and 19% over the ~~three and nine month periods ended September 30, 2008, and September 30, 2007.~~same periods. The increase in research and development ~~costs for~~expenses as a percentage of revenue was due to the 18% decrease in revenue during the three ~~and nine month periods~~months ended ~~September 30, 2008,~~March 31, 2009, compared to the ~~prior year periods, was primarily~~three months ended March 31, 2008. Overall expenses in research and development remained relatively constant due to ~~increased~~spending controls on discretionary items such as travel. To an extent, these cost controls were offset by an increase in personnel ~~costs from~~expenses due to a net increase of 82 people in our worldwide R&D group during the ~~hiring~~three months ended March 31, 2009, compared to the same period in 2008. In addition, during the three months ended March 31, 2009, the net impact of ~~additional product~~foreign currency exchange rates had the effect of decreasing our research and development ~~engineers as well as increased stock-based compensation.~~expense by $203,000 or 1% compared to the same period in 2008. We plan to continue ~~making a significant investment~~to make additional investments in our research and development group during the remainder of 2009. However, due to the continued downturn in ~~order~~the industrial economy and due to ~~remain competitive~~the fact that we cannot anticipate when this downturn might ease, our research and ~~support revenue growth.~~development expansion during 2009 will likely be less than it was in 2008.

We capitalize software development costs in accordance with SFAS 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. We amortize such costs over the related ~~product's~~product’s estimated economic ~~useful~~ life, generally three years, beginning when a product becomes available for general release. Software amortization expense included in cost of goods sold totaled ~~$2.9~~$2.1 million and ~~$2.2~~$2.5 million during the three month periods ended March 31, 2009 and 2008, respectively. Internally developed software costs capitalized during the three month periods ended March 31, 2009 and 2008, were $3.1 million and $1.5 million, respectively. Capitalization of internally developed software costs varies depending on the timing of when each project reaches technological feasibility and the length and scope of the development cycle of each individual project. (See Note 7 of Notes to Consolidated Financial Statements for a description of intangibles).

General and Administrative. General and administrative expenses were $15.8 million and $16.7 million for the three month periods ended ~~September 30,~~March 31, 2009 and 2008, ~~and 2007,~~ respectively, and $7.8 million and $6.5 million for the nine month periods ended September 30, 2008 and 2007, respectively. Internally developed software costs capitalized were $1.1 million and $1.7 million for the three month periods ended September 30, 2008 and 2007, respectively, and $8.7 million and $7.7 million for the nine month periods ended September 30, 2008 and 2007, respectively.

~~General and Administrative.~~ ~~For the three months ended September 30, 2008, general and administrative expenses increased to $17.2 million from $15.6 million,~~ a 10% increase compared to the three months ended September 30, 2007. For the nine months ended September 30, 2008, general and administrative expenses increased to $51.1 million from $45.6 million, a 12% increase compared to the nine months ended September 30, 2007.decrease of 5%. As a percentage of net sales, general and administrative expenses were ~~8% for~~10% and 9% over the same periods. The increase in general and administrative expenses as a percentage of revenue was driven by the 18% decrease in revenue during the three ~~and nine~~ months ended ~~September 30, 2008,~~March 31, 2009, compared to ~~9% for~~ the three ~~and nine~~ months ended ~~September 30, 2007.~~March 31, 2008. During the three months ended ~~September 30, 2008,~~March 31, 2009, the ~~U.S. dollar experienced broad strengthening against most major currencies. However,~~net impact of foreign currency exchange rates had the effect of decreasing our general and administrative expense by $602,000 or 4% compared to the three and nine months ended September 30, 2007, the U.S. dollar generally traded lower against most major currencies during the three and nine months ended September 30, 2008, which also contributed to the overall increasesame period in ~~absolute dollars.~~2008. We expect that general and administrative expenses in future periods will fluctuate in absolute dollars and as a percentage of revenue.

Interest ~~Income.~~Income ~~For the three months ended September 30, 2008, interest~~. Interest income ~~decreased to $1.4~~was $589,000 and $2.1 million from $2.6 million, a 47% decrease compared to the three months ended September 30, 2007. For the nine months ended September 30, 2008, interest income decreased to $5.0 million from $7.1 million, a 29% decrease compared to the nine months ended September 30, 2007. The decreases in interest income for the three month periods ended March 31, 2009 and ~~nine months ended September 30,~~ 2008, ~~were primarily due~~respectively, a decrease of 72%. The decrease is attributable to ~~lower interest rates compared to the three and nine months ended September 30, 2007.~~a decrease in invested funds as well as a significant decrease in investment yields. The ~~primary~~ source of interest income is from the investment of our cash and short-term and long-term investments. ~~Net cash provided by operating activities totaled $106.0 million and $113.6 million in the nine month periods ended September 30, 2008 and 2007, respectively.~~

Net Foreign Exchange Gain (Loss). ~~For~~Net foreign exchange gain (loss) was ($702,000) and $1.5 million for the three ~~months~~month periods ended ~~September 30,~~March 31, 2009 and 2008, we experienced net foreign exchange losses of $3.0 million compared to gains of $98,000 in the three months ended September 30, 2007. For the nine months ended September 30, 2008, we experienced a net foreign exchange loss of $1.8 million compared to gains of $628,000 for the nine months ended September 30, 2007.respectively. These results are attributable to movements in the foreign currency exchange rates between the U.S. dollar and ~~the local~~foreign currencies in countries ~~in which~~where our ~~subsidiaries are located. During the three months ended September 30, 2008,~~functional currency is not the U.S. ~~dollar increased by an average of 9% against the principal currencies for which we have foreign exchange exposures which contributed to the loss in three months ended September 30, 2008.~~dollar. 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 receivable positions to protect against the reduction in value caused by a fluctuation in foreign currency exchange rates. We typically hedge up to 90% of our outstanding foreign ~~currency-denominated~~denominated net receivables ~~in order to reduce our exposure to significant foreign currency fluctuations. We~~and typically limit the duration of ~~our “receivables”~~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 hedge item attributable to the hedged risk is recognized in current earnings under the line item net foreign exchange gain (loss).

~~We also utilize~~To 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 instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue and forecasted expenses denominated in foreign currencies with forward and option contracts. For forward contracts, ~~and~~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 ~~in order to reduce our exposure to fluctuations in future~~are purchased “at-the-money” or “out-of-the-money.” We purchase foreign currency ~~cash flows. We purchase these~~forward and option contracts for up to 100% of our forecasted exposures in selected currencies (primarily ~~the euro,~~in Euro, Japanese yen, British pound sterling and ~~pound sterling)~~Hungarian forint) and limit the duration of these contracts to 40 months or less. ~~Our foreign currency purchased option contracts are purchased “at-the-money” or “out-of-the-money.”~~ As a result, our hedging activities only partially address our risks from foreign currency transactions, and there can be no assurance that this strategy will be successful. We do not invest in contracts for speculative purposes. (See Note 5 of Notes to Consolidated Financial Statements for a description of our forward and purchased option contracts and hedged positions). Our hedging strategy reduced our foreign exchange losses by ~~$4.0~~$3.5 million ~~and $544,000 for~~during the three ~~and nine~~ months ended ~~September 30, 2008, respectively,~~March 31, 2009, and reduced our foreign exchange ~~gains~~gain by ~~$960,000 and $1.2~~$2.2 million ~~for~~during the three ~~and nine~~ months ended ~~September 30, 2007, respectively.~~March 31, 2008.

Provision for Income Taxes. Our provision for income taxes reflected an effective tax rate of ~~12% and 15%~~115% for the three ~~and nine~~ months ended ~~September 30, 2008, respectively,~~March 31, 2009, and ~~21% and 22%~~19% for the three ~~and nine~~ months ended ~~September 30, 2007, respectively.~~March 31, 2008. For the three ~~and nine~~ months ended ~~September 30, 2008,~~March 31, 2009, our effective tax rate ~~is lower~~was higher than the U.S. federal statutory rate of 35% ~~primarily~~ as a result of ~~reduced~~certain stock-based compensation expenses that do not result in a tax ~~rates~~deduction and are a greater percentage of net income in ~~certain foreign jurisdictions,~~the three months ended March 31, 2009, than they were during the same period in 2008. Non-deductible stock-based compensation expense accounted for 16 percentage points of the difference between the statutory rate and the effective rate. In addition, during the three months ended March 31, 2009, 18 percentage points of the difference was due to a valuation allowance related to the deferred tax assets for which tax benefits were previously recognized and 43 percentage points was due to the partial release of a deferred tax asset valuation allowance. The partial release of the valuation allowance had the effect of increasing our effective tax rate in the three months ended March 31, 2009, because we reported a net loss before taxes in that period. The increase in our effective tax rate for the three months ended March 31, 2009, compared to March 31, 2008, was primarily the result of the following; 13 percentage points due to an increase in non-deductible stock-based compensation expense as a percentage of net income, 20 percentage points due to a change in the valuation allowance related to deferred tax assets for which tax benefits were previously recognized and 53 percentage points due to the partial release of a ~~decrease in uncertain~~deferred tax ~~positions.~~asset valuation allowance. For the three ~~and nine~~ months ended ~~September 30, 2007,~~March 31, 2008, our effective tax rate was lower than the U.S. federal statutory rate of 35% primarily as a result of ~~the research credit,~~tax exempt interest, reduced tax rates in certain foreign jurisdictions, and tax exempt interest. The decreases in our tax rates for the three and nine months ended September 30, 2008, from the comparable prior year periods were due to increased profits in foreign jurisdictions with reduced income tax rates, the partial release of a deferred tax asset valuation ~~allowance, and a decrease in uncertain tax positions due to the lapse of the applicable statute of limitations.~~

In October 2008, the U.S. President signed into law the Emergency Economic Stabilization Act of 2008, which extended the research credit for two years with effect from January 1, 2008. The effects of this new legislation will be included in income for the period that includes the enactment date in accordance with SFAS 109, ~~Accounting for Income Taxes. This legislation will likely result in a decrease in our future effective income tax rate in the fourth quarter of 2008 and in 2009.~~allowance.

Liquidity and Capital Resources

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

	March 31, 2009		December 31, 2008		Increase/ (Decrease)
	(unaudited)
Working capital	$	390,215	$	398,292	$	(8,077	)
Cash and cash equivalents (1)		227,448		229,400		(1,952	)
Short-term investments (1)		14,044		6,220		7,824
Long-term investments		10,500		10,500		—
Total cash, cash equivalents, short and long-term investments	$	251,992	$	246,120	$	5,872

(1) Included in working capital

Our working capital and short-term investments decreased by $8.1 million during the three months ended March 31, 2009, compared to December 31, 2008, due to repurchases of shares of our common stock, dividend payments, capital expenditures ~~through cash flow from operations. At September 30, 2008, we had working capital~~and the net purchase of ~~approximately $420.7 million compared to $419.9 million at December 31, 2007. Net~~short-term and long-term investments, offset by cash provided by ~~operating activities for the nine month periods ended September 30, 2008 and 2007 totaled $106.0 million and $113.6 million, respectively.~~

Accounts receivable decreased to $123.1 million at September 30, 2008 from $131.3 million at December 31, 2007. At September 30, 2008, days sales outstanding decreased to 54 from 59 compared to September 30, 2007. Consolidated inventory balances increased to $99.7 million at September 30, 2008 from $82.7 million at December 31, 2007. Inventory turns remained constant at 2.4 for the three month periods ended September 30, 2008, and September 30, 2007. Cash used in the first nine months of 2008 for the purchase of property and equipment totaled $21.1 million, for the capitalization of internally developed software costs totaled $8.7 million, for additions to other intangibles totaled $2.6 million and for the acquisition of microLEX Systems A/S totaled $17.3 million net of cash received. (~~See Note 12 of Notes to Consolidated Financial Statements~~). Cash used in the first nine months of 2007 for the purchase of property and equipment totaled $18.1 million, for the capitalization of internally developed software costs totaled $7.7 million, for additions to other intangibles totaled $5.0 million.

Cash provided by the issuance of common stock totaled $26.6 million and $27.5 million for the first nine months of 2008 and 2007, respectively. The issuance of common stock was to employees under our Employee Stock Purchase Plan, our 1994 Incentive Plan and our 2005 Incentive Plan. Cash used for the repurchase of common stock totaled $58.2 million and $68.0 million for the first nine months of 2008 and 2007, respectively. Cash used for the payment of dividends totaled $26.1 million and $19.1 million for the first nine months of 2008 and 2007, respectively.

We currently expect to fund expenditures for our capital requirements as well as liquidity needs created by changes in working capital from a combination of available cash and short-term investment balances and internally generated funds. As of each of September 30, 2008 and 2007, we had no debt outstanding. We believe that our cash flow from operations and existing cash balances and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. Cash requirements for periods beyond the next twelve months will depend on our profitability, our ability to manage working capital requirements and our rate of growth.operations.

Our cash and cash equivalent balances are held in numerous ~~locations~~financial institutions throughout the world, including substantial amounts held outside of the U.S.;, however, the majority of our cash and investments that are located outside of the U.S. are denominated in the U.S. dollar. Most of the amounts held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal income taxes, less applicable foreign tax credits. In some countries repatriation of certain foreign balances is restricted by local laws. We have provided for the U.S. federal tax liability on these amounts for financial statement purposes, except for foreign earnings that are considered indefinitely reinvested outside of the U.S. Repatriation could result in additional U.S. federal income tax payments in future years. We utilize a variety of tax planning and financing strategies with the objective of having our worldwide cash available in the locations in which it is needed.

~~Financial Risk Management~~Cash Provided and (Used) in 2009 and 2008. Cash and cash equivalents decreased to $227.4 million at March 31, 2009 from $229.4 million at December 31, 2008. The following table summarizes the proceeds and (uses) of cash (in thousands):

	Three Months Ended March 31,
	2009			2008
	(unaudited)
Cash provided by operating activities	$	24,806		$	30,442
Cash (used by) provided by investing activities		(15,282	)		28,024
Cash (used by) investing activities		(11,476	)		(47,440	)
Net (decrease) increase in cash equivalents		(1,952	)		11,026
Cash and cash equivalents at beginning of year		229,400			194,839
Cash and cash equivalents at end of period	$	227,448		$	205,865

Our ~~international~~operating activities provided $24.8 million and $30.4 million for the three month periods ended March 31, 2009 and 2008, respectively, an 18% decrease. For the three months ended March 31, 2009, cash provided by operating activities was the result of $12.2 million in net non-cash operating expenses which consisted of depreciation and amortization, stock-based compensation, benefits from deferred income taxes, and by $12.2 million in net cash provided by changes in operating assets and liabilities, principally a $30.6 million decrease in accounts receivable. For the three months ended March, 31, 2008, cash provided by operating activities was the result of $17.6 million in net income and $12.5 million in net non-cash operating expenses which consisted of depreciation and amortization, stock-based compensation, and benefits from deferred income taxes.

Accounts receivable decreased to $90.9 million at March 31, 2009 from $121.5 million at December 31, 2008, as a result of lower sales ~~are~~levels during the three months ended March 31, 2009. This decrease in revenue also caused our days sales outstanding to increase to 61 days at March 31, 2009, compared to 57 days at December 31, 2008. We typically bill customers on an open account basis subject to ~~inherent risks, including fluctuations~~our standard net thirty day payment terms. If, in ~~local economies; fluctuations~~the longer term, our revenue increases, it is likely that our accounts receivable balance will also increase. Our accounts receivable could also increase if customers delay their payments or if we grant extended payment terms to customers, both of which are more likely to occur during challenging economic times when our customers may face issues gaining access to sufficient funding or credit.

Consolidated inventory balances decreased to $102.6 million at March 31, 2009 from $107.4 million at December 31, 2008. Inventory turns decreased to 1.5 per year for the three months ended March 31, 2009 compared to 2.1 per year at December 31, 2008. The decrease in ~~foreign currencies relative~~inventory during the three months ended March 31, 2009, was driven by a reduction in our manufacturing activities in response to the ~~U.S. dollar; difficulties~~continued slowdown in ~~staffing~~the industrial economy. Our inventory levels will continue to be determined based upon our anticipated demand for products and ~~managing foreign operations; greater difficulty in accounts receivable collection; costs and risks~~our need to keep sufficient inventory on hand to meet our customers’ demands. Such considerations are balanced against the risk of ~~localizing products for foreign countries; unexpected~~obsolescence or potentially excess inventory levels. Rapid changes in ~~regulatory requirements, tariffs~~industrial demand could have a significant impact on our inventory balances in future periods.

Investing activities used cash of $15.3 million during the three months ended March 31, 2009, which was the result of the net purchase of $7.8 million of short-term investments, the purchase of property and equipment of $3.0 million, capitalization of internally developed software of $3.1 million and the acquisition of other intangibles of $1.3 million. Investing activities provided cash of $28.0 million during the three months ended March 31, 2008, which was the result of the net sale of $53.6 million of short-term investments, offset by the purchase of property and equipment of $5.1 million, capitalization of internally developed software of $1.5 million and an acquisition, net of cash received of $17.1 million.

Financing activities used $11.5 million during the three months ended March 31, 2009, which was the result of $9.2 million used to repurchase our common stock and $9.3 million used to pay dividends to our shareholders, offset by $7.2 million received as a result of the issuance of our common stock from the exercise of stock options and our employee stock purchase plan. Financing activities used $47.4 million during the three months ended March 31, 2008, which was the result of $49.1 million used to repurchase our common stock and $8.7 million used to pay dividends to our shareholders, offset by $10.2 million received as a result of the issuance of our common stock from the exercise of stock options and our employee stock purchase plan.

From time to time our Board of Directors has authorized various programs to repurchase shares of our common stock depending on market conditions and other ~~trade barriers; difficulties~~factors. Under such programs, we repurchased a total of 489,307 shares of common stock at a weighted average price of $18.77 during the three months ended March 31, 2009 and 4,110,042 and 2,730,125 shares of our common stock at weighted average prices of $25.22 and $29.20 per share, in the ~~repatriation~~years ended December 31, 2008 and 2007, respectively.

On January 23, 2009, our Board of ~~earnings and burdens~~Directors approved a new share purchase plan which increased the aggregate number of ~~complying with a wide variety~~shares of ~~foreign laws. The vast majority of our sales outside of North America are denominated in local currencies, and accordingly,~~common stock that we are ~~subject~~authorized to the risks associated with fluctuations in currency rates. In particular, increases in the value of the dollar against foreign currencies decrease the U.S. dollar value of foreign sales requiring that we either increase our price in the local currency, which could render our product prices noncompetitive, or suffer reduced revenues and gross margins as measured in U.S. dollars. repurchase from 591,324 to 3.0 million. This repurchase plan does not have an expiration date.

During the three months ended ~~September 30, 2008,~~March 31, 2009, we received reduced proceeds from the ~~U.S. dollar experienced broad strengthening against most major currencies. However,~~exercise of stock options compared to the three ~~and nine~~ months ended ~~September 30, 2007,~~March 31, 2008. The timing and number of stock option exercises and the ~~U.S. dollar generally traded lower against most major currencies during the three~~amount of cash proceeds we receive through those exercises are not within our control, and ~~nine months ended September 30, 2008. This has had the effect of increasing our consolidated sales by 6%~~ in the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007. Since most of our international operating expenses are also incurred in local currencies, the change in exchange rates had the effect of increasing our operating expenses by $5.1 million over the same period. Currently, we are experiencing significant volatility in foreign currency exchange rates in many of the markets in which we do business. This has had a significant impact on the revaluation of our foreign currency denominated firm commitments and on our ability to forecast U.S. dollar equivalent revenues and expenses. If the local currencies in which we sell our products strengthen against the U.S. dollar,future we may ~~need to lower our prices~~not generate as much cash from the exercise of stock options as we have in the ~~local currency~~past. Moreover, it is now our practice to ~~remain competitive in our international markets~~issue restricted stock units and not stock options to eligible employees 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, as was the case during the three months ended September 30, 2008, 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. Our foreign currency hedging program includes both foreign currency forward and purchased option contracts to~~ reduce the ~~effect~~number of ~~exchange rate fluctuations. However, our hedging program will~~stock options available for exercise in the future. Unlike the exercise of stock options, the issuance of shares upon vesting of restricted stock units does not ~~eliminate all of our foreign exchange risks, particularly when market conditions experience this recent level of volatility. (See “Net Foreign Exchange Loss”).~~

~~Inventory Management~~

~~The marketplace for our products dictates that many of our products be shipped very quickly after an order is received. As a~~ result ~~we are required~~in any cash proceeds 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. 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.us.

~~Off-Balance Sheet Arrangements.~~Contractual Cash Obligations. ~~We have no debt or off-balance sheet debt.~~Purchase obligations primarily represent purchase commitments for customized inventory and inventory components. As of ~~September 30, 2008,~~March 31, 2009, we have ~~contractual~~non-cancelable purchase commitments with various suppliers of ~~general components and~~ customized inventory and inventory components totaling approximately $7.7 million. At December 31, 2008, we had non-cancelable purchase commitments with various suppliers of customized inventory and inventory components totaling approximately ~~$7.4~~$8.4 million.

Guarantees are related to payments of customs and foreign grants. As of ~~September 30, 2008,~~March 31, 2009, we have outstanding guarantees for payment of customs and foreign grants totaling approximately ~~$3.2~~$2.0 million. (~~See Note 10 of Notes to Consolidated Financial Statements~~). As of ~~September 30,~~December 31, 2008, we had outstanding guarantees for payment of customs and foreign grants totaling approximately $2.4 million.

Off-Balance Sheet Arrangements. We do not have any debt or off-balance sheet debt. As of March 31, 2009 and December 31, 2008, 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.

~~Market Risk~~Prospective Capital Needs. We believe that our existing cash, cash equivalents and marketable securities, together with cash generated from operations and from the exercise of employee stock options and the purchase of common stock through our employee stock purchase plan, will be sufficient to cover our working capital needs, capital expenditures, investment requirements, commitments, payment of dividends to our shareholders and repurchases of our common stock for at least the next 12 months. However, we may choose or be required to raise additional funds by selling equity or debt securities to the public or to selected investors, or by borrowing money from financial institutions. Historically, we have not had to rely on debt, public or private, to fund our operating, financing or investing activities. We could also choose or be required to reduce certain expenditures, such as payments of dividends or repurchases of our common stock. In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis on acceptable terms, if at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing shareholders 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.

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.

~~Foreign Currency Hedging Activities~~. Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in such exchange rates on our earnings and cash flow. Accordingly, we utilize purchased foreign currency option and forward contracts to hedge our exposure on anticipated transactions and firm commitments. The principal currencies hedged are the euro, British pound and Japanese yen. We monitor our foreign exchange exposures regularly to ensure the overall effectiveness of our foreign currency hedge positions. Currently, we are experiencing significant volatility in foreign currency exchange rates in many of the markets in which we do business. Therefore, 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 September 30, 2008, 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 $21.0 million. However, as we utilize foreign currency instruments for hedging anticipated and firmly committed transactions,Although we believe that ~~a loss in settlement value~~we have sufficient capital to fund our activities for at least the next 12 months, our future capital requirements may vary materially from those ~~instruments~~now planned. We anticipate that the amount of capital we will ~~be substantially offset by increases~~need in the ~~value of the underlying exposure.~~future will depend on many factors, including:

~~Investments.~~ The fair value of our investments in marketable securities at September 30, 2008 was $61.9 million. Investments with maturities beyond one year are generally 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. Our investment policy is to manage our investment portfolio to preserve principal and liquidity while maximizing the return on our investment portfolio through the investment of available funds. In response to current conditions in the credit markets, we have shifted our priority to capital preservation and liquidity and therefore have reduced our focus on the return on our investments. We diversify our marketable securities portfolio by investing in multiple types of investment-grade securities. Our investment portfolio is primarily invested in securities with at least an investment grade rating to control interest rate and credit risk as well as to provide for an immediate source of funds. Based on our investment portfolio and interest rates at September 30, 2008, a 100 basis point increase or decrease in interest rates would result in a decrease or increase of approximately $310,000 in the fair value of our investment portfolio. Although changes in interest rates may affect the fair value of our investment portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold.

·	general economic and political conditions and specific conditions in the markets we address, including the continuing volatility in the industrial economy, current general economic volatility and trends 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, particularly in the current global economic environment, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us;

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

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

·	the market acceptance of our products;

·	repurchases of our common stock;

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

·	litigation expenses, settlements and judgments;

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

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

·	royalties payable by or to us;

·	changes in our compensation policies;

·	capital improvements for new and existing facilities;

·	technological advances;

·	our competitors’ responses to our products and our anticipation of and responses to their products;

·	our relationships with suppliers and customers; and,

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

~~Our~~In addition, we may require additional capital to accommodate planned future long-term investments consist of Aaa/AAA/AA rated investments in auction rate securities that we originally purchased for $8.6 million. These auction rate securities consist of education loan revenue bonds. Auction rate securities are variable rate debt instruments whose interest rates are typically reset approximately every 7 to 35 days. On October 7, 2008,growth, hiring, infrastructure and in prior auction periods beginning in February 2008, the auction process for these securities failed. Historically, we had classified these investments as short-term but are now reporting them as “long-term” due to the fact that the underlying securities generally have longer dated contractual maturities. The auction rate securities are classified as available-for-sale. At September 30, 2008, we reported these long-term investments at their estimated fair-market value of $8.3 million. The estimated fair-market value was determined using significant unobservable inputs (Level 3) as prescribed by SFAS 157, ~~Fair Value Measurements~~. We have recorded the unrealized loss related to these securities as a component of other comprehensive income due to the fact that these securities have redemption features which call for redemption at 100% of par value, the fact that the underlying debt continues to carry Aaa/AAA/AA ratings and the fact that we have the ability and currently have the intent to hold these securities to maturity. (~~See Note 3 of Notes to Consolidated Financial Statements~~ ~~for additional discussion).~~facility needs.

Recently Issued Accounting Pronouncements

~~In September 2006, the FASB issued SFAS 157,~~ ~~Fair Value Measurements~~. This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies under other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after NovemberSee Note 15 ~~2007, and interim periods within those fiscal years. However, SFAS 157 is amended by Financial Statement Position (FSP) FAS 157-1,~~ ~~Application of FASB Statement 157 to FASB Statement 13 and Other~~– Recently Issued Accounting Pronouncements ~~That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which excludes from the scope of this provision arrangements accounted for under SFAS 13,~~ ~~Accounting for Leases. SFAS 157 is also amended by FSP FAS 157-2,~~ ~~Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value~~ in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. In October 2008, SFAS 157 was amended again by FSP 157-3, ~~Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active~~, which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. We adopted SFAS 157 on January 1, 2008, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption of SFAS 157 did not have a material impact on our consolidated financial position or results of operations. We also adopted FSP 157-3 on September 30, 2008 as required and concluded it did not have a significant impact on our consolidated financial position or results of operations. (~~See Note 3 of~~ Notes to Consolidated Financial ~~Statements~~).Statements.

~~In December 2007, the FASB issued SFAS 141R,~~ ~~Business Combinations—a replacement of FASB Statement 141~~, which significantly changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective prospectively, except for certain retrospective adjustments to deferred tax balances, for fiscal years beginning after December 15, 2008. We are currently evaluating the requirements of SFAS 141R and have not yet determined the impact on our consolidated financial statements.

~~In March 2008, the FASB issued SFAS 161,~~ ~~Disclosures about Derivative Instruments and Hedging Activities~~. This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. We are currently evaluating the requirements of SFAS 161 and have not yet determined the impact on our consolidated financial statements.

~~In April 2008, the FASB issued FSP FAS 142-3,~~ ~~Determination of the Useful Life of Intangible Assets.~~ ~~FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142,~~ ~~Goodwill and Other Intangible Assets.~~ The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, ~~Business Combinations~~, and other U.S. generally accepted accounting principles. The provisions of FSP FAS 142-3 are effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. We are currently evaluating the requirements of FSP FAS 142-3 and have not yet determined the impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Response to this item is included in “Item 2 ~~– Management’s~~- Management's Discussion and Analysis of Financial Conditions and Results of Operations –- Market Risk” above.

Financial Risk Management

Our international sales are subject to inherent risks, including fluctuations in local economies; fluctuations in foreign currencies relative to the U.S. dollar; difficulties in staffing and managing foreign operations; greater difficulty in accounts receivable collection; costs and risks of localizing products for foreign countries; unexpected changes in regulatory requirements, tariffs and other trade barriers; difficulties in the repatriation of earnings and burdens of complying with a wide variety of foreign laws. The vast majority of our sales outside of North America are denominated in local currencies, and accordingly, we are subject to the risks associated with fluctuations in currency rates. During the three months ended March 31, 2009, the U.S. dollar generally traded higher against other major currencies that impact our business. This had the effect of decreasing our consolidated sales by 4% compared to the same period in 2008. Since most of our international operating expenses are also incurred in local currencies, the change in exchange rates had the effect of decreasing our operating expenses by $4.1 million over the same period. Currently, we are experiencing significant volatility in foreign currency exchange rates in many of the markets in which we do business. This has had a significant impact on the revaluation of our foreign currency denominated firm commitments and on our ability to forecast U.S. dollar equivalent revenues and expenses. 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. Our foreign currency hedging program includes both foreign currency forward and purchased option contracts to reduce the effect of exchange rate fluctuations. However, our hedging program will not eliminate all of our foreign exchange risks, particularly when market conditions experience the recent level of volatility. (See “Net Foreign Exchange Gain (Loss)” in Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations).

Inventory Management

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

Market Risk

Cash, Cash Equivalents and Short-Term Investments

At March 31, 2009, we had $241.5 million in cash, cash equivalents and short-term investments. We maintain cash and cash equivalents with various financial institutions located in many countries throughout the world. Approximately $94.5 million or 39% of these amounts were held in domestic accounts with various financial institutions and $147.0 million or 61% was held in accounts outside of the U.S. with various financial institutions. At March 31, 2009, $71.2 million or 31% of our cash and cash equivalents was held in cash in various operating accounts throughout the world, and $156.3 million or 69% was held in money market accounts. The most significant of our operating accounts was our domestic operating account which held approximately $17.4 million or 5% of our total cash and cash equivalents at a bank that carried an Aa2 rating at March 31, 2009. Our short-term investment balance of $14.0 million was held in our investment accounts in the U.S. We maintain an investment portfolio of various types of security holdings and maturities. Pursuant to SFAS 157, Fair Value Measurements, cash equivalents and short-term investments available-for-sale are valued using a market approach (Level 1) based on the quoted market prices of identical instruments when available or other observable inputs such as trading prices of identical instruments in inactive markets. The goal of our investment policy is to manage our investment portfolio to preserve principal and liquidity while maximizing the return on our investment portfolio through the full investment of available funds. We place our cash investments in instruments that meet credit quality standards, as specified in our corporate investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. Other than our auction rate securities discussed below, at March 31, 2009, our cash equivalents and short-term investments carried ratings from the major credit rating agencies that were in accordance with our corporate investment policy. Our investment policy allows investments in the following; government and federal agency obligations, repurchase agreements (“Repos”), certificates of deposit and time deposits, corporate obligations, medium term notes and deposit notes, commercial paper including asset-backed commercial paper (“ABCP”), puttable bonds, general obligation and revenue bonds, money market funds, taxable commercial paper, corporate notes/bonds, municipal notes, municipal obligations, variable rate demand notes and tax exempt commercial paper. All such instruments must carry minimum ratings of A1/P1/F1, MIG1/VMIG1/SP1 and A2/A/A, as applicable, all of which are considered “investment grade”. Our investment policy for marketable securities requires that all securities mature in three years or less, with a weighted average maturity of no longer than 18 months with at least 10% maturing in 90 days or less.

We account for our investments in debt and equity instruments under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities and Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”), SFAS No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. Our investments are classified as available-for-sale and accordingly are reported at fair value, with unrealized gains and losses reported as other comprehensive income, a component of shareholders’ equity. Unrealized losses are charged against income when a decline in fair value is determined to be other than temporary. Investments with maturities beyond one year are classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The fair value of our short-term investments in marketable securities at March 31, 2009 and December 31, 2008 was $14.0 million and $6.2 million, respectively. The increase was primarily due to the net purchase of $7.8 million of short-term investments during the three months ended March 31, 2009, primarily to diversify our holdings from money market accounts to debt securities and to take advantage of higher yields associated with longer maturity debt securities. We follow the guidance provided by FSP FAS 115-1 to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net, in our Consolidated Statements of Income.

Long-Term Investments

Long-term investments are reported at their fair market value and consist of auction rate securities backed by education loan revenue bonds. One of our auction rate securities is from the Vermont Student Assistance Corporation and has a par value of $2.2 million. The other of our auction rate securities is from the New Hampshire Health and Education Facilities Authority and has a par value of $6.4 million. The ratings for these securities at March 31, 2009, were Baa1/A/AAA and Aaa/NR/AAA, respectively. We note that the bonds from the Vermont Student Assistance Corporation carried ratings of Aa3/A/AAA at December 31, 2008. Historically, we reported the fair market value of these securities at par as differences between par value and the purchase price or settlement value were historically comprised of accrued interest. Auction rate securities are variable rate debt instruments whose interest rates are typically reset approximately every 7 to 35 days. On April 13, 2009, and in prior auction periods beginning in February 2008, the auction process for these securities failed. Prior to the failure of the auction process, we had classified these investments as short-term but are now reporting them as long-term due to the fact that the underlying securities generally have longer dated contractual maturities which are in excess of the guidelines provided for in our corporate investment policy. The auction rate securities are classified as available-for-sale.

At March 31, 2009, we reported these long-term investments at their estimated fair market value of $8.3 million. In November 2008, we accepted the UBS Auction Rate Securities Rights (“the Rights”) agreement offered by UBS as a liquidity alternative to the failed auction process. This Rights agreement is related to the auction rates securities discussed above. The Rights agreement is a nontransferable right to sell our auction rate securities, at par value, back to UBS at any time during the period June 30, 2010, through July 2, 2012. At March 31, 2009, we reported the Rights agreement at its estimated fair market value of $0.3 million. We continue to have the ability to hold the debt instruments to their ultimate maturity and have not made a determination as to whether we will exercise our right under the Rights agreement described above. As such, we have recorded the unrealized loss related to the auction rate securities and the unrealized gain related to the Rights agreement as a component of other income (expense), in our Consolidated Statements of Income. The estimated fair market value of the Rights agreement is also included as a component of our long-term investments.

The estimated fair market value of both the auction rate securities and the Rights agreement was determined using significant unobservable inputs (Level 3) as prescribed by SFAS 157, Fair Value Measurements. We considered many factors in determining the fair market value of the auction rate securities as well as our corresponding Rights agreement at March 31, 2008, including the fact that the debt instruments underlying the auction rate securities have redemption features which call for redemption at 100% of par value, current credit curves for like securities and discount factors to account for the illiquidity of the market for these securities.

We do not consider these investments as liquid in the short-term and therefore continued to classify them as long-term investments at March 31, 2009. The auction rate market is not expected to provide liquidity for these securities in the foreseeable future. Should we need or desire to access the funds invested in those securities prior to their maturity or prior to our exercise period under the Rights agreement discussed above, we may be unable to find a buyer in a secondary market outside the auction process or if a buyer in a secondary market is found, we would likely realize a loss.

Interest Rate Risk

Investments in both fixed rate and floating rate instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in 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 the income statement due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of shareholders’ equity, net of tax.

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

In order to assess the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on our investment positions as of March 31, 2009, a 100 basis point increase or decrease in interest rates across all maturities would result in a $854,000 increase or decrease in the fair market value of the portfolio. As of December 31, 2008, a similar 100 basis point shift in the yield curve would have resulted in a $673,000 increase or decrease in the fair market value of the 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 March 31, 2009, due to the inherent limitations associated with predicting the changes in the timing and level of interest rates and our actual exposures and positions.

Current adverse economic conditions have had widespread negative effects on the financial markets. Due to credit concerns and the lack of liquidity in the short-term funding markets, we continue to maintain a large percentage of our portfolio in money market funds. This has negatively impacted and will likely to continue to negatively impact our investment income, particularly if yields continue to decline or stay at low levels.

Exchange Rate Risk

Our objective in managing our exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in such exchange rates on our earnings and cash flow. Accordingly, we utilize purchased foreign currency option and forward contracts to hedge our exposure on anticipated transactions and firm commitments. The principal currencies hedged are the Euro, British pound, Japanese yen, Korean won and Hungarian forint. We monitor our foreign exchange exposures regularly to help ensure the overall effectiveness of our foreign currency hedge positions. During the three months ended March 31, 2009, we continued to see significant volatility in foreign currency exchange rates in many of the markets in which we do business. Therefore, there can be no assurance that our foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchanges rates on our results of operations and financial position. Based on the foreign exchange instruments outstanding at March 31, 2009 and December 31, 2008, 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 $28.8 million and $30.6 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 5 of Notes to Consolidated Financial Statements for a further description of our derivative instruments and hedging activities).

Item 4. Controls and Procedures

Our Chief Executive Officer, Dr. James Truchard, and our Chief Financial Officer, Alex Davern, based on ~~the~~their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), required by paragraph (b) of Rule ~~13a-15~~13a – 15 or Rule ~~15d-15,~~15d – 15, as of ~~September 30, 2008,~~March 31, 2009, have concluded that our disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to us that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. We continue to enhance our internal control over financial reporting ~~by adding resources~~ in key functional areas with the goal of monitoring our operations at the level of documentation, segregation of duties, and systems security necessary, as well as transactional control procedures required under ~~the~~ Auditing Standard No. 5 issued by the Public Company Accounting Oversight Board. We discuss and disclose these matters to the audit committee of our board of directors and to our auditors. During the three months ended ~~September 30, 2008,~~March 31, 2009, there ~~was~~were no ~~change~~changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of the Rule ~~13a-15~~13a – 15 or Rule ~~15d-15~~15d – 15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We filed a patent infringement action on January 25, 2001, in the U.S. District Court, Eastern District of Texas (Marshall Division) claiming that The MathWorks, Inc. ~~("MathWorks"~~(“MathWorks”) infringed certain of our U.S. patents. On January 30, 2003, a jury found infringement by MathWorks of three of the patents involved and awarded us specified damages. On June 23, 2003, the District Court entered final judgment in favor of us and entered an injunction against MathWorks' sale of its Simulink and related products and stayed the injunction pending appeal. Upon appeal, the judgment and the injunction were affirmed by the U.S. Court of Appeals for the Federal Circuit (September 3, 2004). Subsequently the stay of injunction was lifted by the District Court. In November 2004, the final judgment amount of $7.4 million which had been held in escrow pending appeal was released to us.

An action was filed by MathWorks against us on September 22, 2004, in the U.S. District Court, Eastern District of Texas (Marshall Division), claiming that on that day MathWorks had released modified versions of its Simulink and related products, and seeking a declaratory judgment that the modified products do not infringe the three patents adjudged infringed in the District Court's decision of June 23, 2003 (and affirmed by the Court of Appeals on September 3, 2004). On November 2, 2004, MathWorks served the complaint on us. We filed an answer to MathWorks' declaratory judgment complaint, denying MathWorks' claims of non-infringement and alleging our own affirmative defenses. On January 5, 2005, the Court denied a contempt motion by us to enjoin the modified Simulink products under the injunction in effect from the first case. On January 7, 2005, we amended our answer to include counterclaims that MathWorks' modified products are infringing three of our patents, and requested unspecified damages and an injunction. MathWorks filed its reply to our counterclaims on February 7, 2005, denying the counterclaims and alleging affirmative defenses. On March 2, 2005, we filed a notice of appeal regarding the Court's denial of the contempt motion. On March 15, 2005, the Court stayed MathWorks’ declaratory judgment action, pending a decision on the appeal by the Court of Appeals for the Federal Circuit. On February 9, 2006, the Court of Appeals for the Federal Circuit affirmed the District Court’s January 2005 order. On November 22, 2006, the District Court lifted ~~its~~the stay. The case schedule has yet to be set in this action. During the fourth quarter of 2004, we accrued $4 million related to our probable loss from this contingency, which consists entirely of anticipated patent defense costs that are probable of being incurred. In the fourth quarter of 2006, we accrued an additional $600,000 related to this contingency. We charged approximately $1,500 against this accrual during the three months ended ~~September 30, 2008. We~~March 31, 2009. To date, we have charged a cumulative total of ~~$618,500~~$620,000 against this ~~accrual through September 30, 2008.~~accrual.

ITEM 1A. RISK FACTORS

Declining ~~general economic conditions~~General Economic Conditions and ~~fluctuations~~Fluctuations in the ~~global credit~~Global Credit and ~~equity markets may adversely affect our financial condition~~Equity Markets Have Adversely Affected Our Financial Condition and ~~results~~Results of ~~operations.~~Operations. Our business is sensitive to changes in general economic conditions, both in the U.S. and globally. Due to the ~~recent~~continued tightening of the credit markets and concerns regarding the availability of credit, our current or potential customers ~~may delay~~have delayed or ~~reduce~~reduced purchases of our products which ~~would~~has adversely ~~affect~~affected our revenues and therefore ~~harm~~harmed our business and results of operations. In addition, the ~~recent turmoil~~continuing uncertainty in the financial markets is likely to continue to have an adverse effect on the U.S. and world economies, which could continue to negatively impact the spending patterns of ~~business~~businesses including our current and potential customers. There can be no assurances that government responses to the disruptions in the financial markets will restore confidence in the U.S. and global markets. The global industrial economy is currently in a recession. Many economists and other experts are predicting athat this recession in the U.S. and global ~~economies.~~economies will likely continue through the remainder of 2009 and possibly beyond. We are unable to predict ~~whether~~how long this recession ~~will occur or how deep or how long it~~ will last. We expect our business to continue to be adversely impacted by ~~any~~this downturn in the U.S. orand global economies. In particular, our business has fluctuated in the past based on changes in the global Purchasing Managers Index (“PMI”). which by its measures has indicated a contracting industrial economy since September 2008. We are unable to predict ~~the~~when this contraction will end or how much it will negatively impact ~~that all of these recent changes in the markets will have on~~ our business in future periods. These negative market conditions, the uncertainty surrounding the extent to which our business will be harmed by them, as well as the uncertainty surrounding their depth and ~~these events~~length, make forecasting our results more difficult.

Concentrations of Credit Risk and Negative Conditions in the Global Financial Markets May Adversely Affect Our Financial Condition and Result of Operations. By virtue of our holdings of 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 have policies relating to initial credit rating requirements and to exposure limits to counterparties, which are designed to mitigate credit and liquidity risk. There can be no assurance, however, 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.

Negative Conditions in the Global Credit Markets Have Impaired the Liquidity of a Portion of Our Investment Portfolio. Our long-term investments consist of ~~Aaa/AAA/AA rated investments in~~ auction rate ~~securities.~~securities backed by education loan revenue bonds. One of our auction rate securities is from the Vermont Student Assistance Corporation and has a par value of $2.2 million. The other of our auction rate securities is from the New Hampshire Health and Education Facilities Authority and has a par value of $6.4 million. On April 13, 2009, and in prior auction periods beginning in February 2008, the auction process for these securities failed. These auction rate securities consist of education loan revenue bonds. At September 30, 2008, we recorded these securities at their estimated fair-market value of $8.3 million. The estimated fair-market value was determined using significant unobservable inputs (Level 3)are classified as ~~prescribed by SFAS 157,~~ ~~Fair Value Measurements~~. We have recorded the unrealized loss related to these securities as a component of other comprehensive income as based on the fact that these securities have redemption features which call for redemption at 100% of par value, the fact that the underlying debt continues to carry Aaa/AAA/AA ratings and the fact that we have the ability and currently have the intent to hold these securities to maturity. (~~See Note 3 of Notes to Consolidated Financial Statements~~ ~~for further discussion).~~available-for-sale. We do not consider these investments as liquid in the short-term and therefore ~~have classified~~continued to classify them as long-term ~~investments.~~investments at March 31, 2009. The auction rate market is not expected to provide liquidity for these securities in the foreseeable future. Should we need or desire to access the funds invested in those securities prior to their maturity or prior to our exercise period under our Rights agreement with UBS, we may be unable to find a buyer in a secondary market outside the auction process or if a buyer in a secondary market is found, we would likely realize a loss.

We Have Established a Budget and Variations From Our Budget Will Affect Our Financial Results. ~~We have~~During the fourth quarter of 2008, we established an operating budget for ~~2008.~~2009. Our ~~budget was~~budgets are established based on the estimated revenue from forecasted sales of our products which isare based on economic conditions in the markets in which we do business as well as the timing and volume of our new products and the expected penetration of both new and existing products in the marketplace. In response to the continued weakness of the global industrial economy, we have continued to revise our budgeted expenditures in order to respond to the continued adverse economic conditions and reduction in our revenues. Continued decreased demand for our products beyond that which we have anticipated in our revised budget for 2009, will likely result in decreased revenue and could require us to further revise our budget and reduce expenditures. Exceeding our established operating budget or failing to reduce expenditures in response to further decreases in revenue could have a material adverse effect on our operating results. Our spending ~~for the remainder of 2008~~ could exceed our ~~budget~~budgets due to a number of factors, including:

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

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

·	additional costs related to acquisitions, if any;

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

·	additional expenses related to intellectual property litigation; and/or

·	additional costs associated with our incremental investment in our field sales force.

Any future decreased demand for our products could result in decreased revenue and could require us to revise our budget and reduce expenditures. Exceeding our established operating budget or failing to reduce expenditures in response to any decrease in revenue could have a material adverse effect on our operating results.

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

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

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

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

·	changes in the mix of products sold;

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

·	~~pricing of our products;~~

·	fluctuations in foreign currency exchange rates;

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

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

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

During the three months ended ~~September 30, 2008, the U.S. dollar experienced broad strengthening against most major currencies. However, compared to the nine months ended September 30, 2007,~~March 31, 2009, the U.S. dollar generally traded ~~lower~~higher against most major currencies ~~which had~~compared to the ~~effect of increasing~~three months ended March 31, 2008. This caused our consolidated sales to decrease by 6%4% in the ~~nine months ended September 30, 2008~~first quarter of 2009 compared to the ~~nine months ended September 30, 2007.~~first quarter of 2008. 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 ~~as was the case during the three months ended September 30, 2008,~~ 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.

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

Our ~~Product~~ Revenues are Subject to Seasonal Variations. In recent 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 from the fourth quarter of the current year to the first quarter of the following year. This historical trend has been affected and may continue to be affected in the future by declines in the global industrial economy, the economic impact of larger orders as well as the timing of new product introductions and/or acquisitions, if any. For example, during the fourth quarter of 2008, we experienced a sequential decline in revenue from the third quarter of 2008 due to the severe contraction in the global industrial economy, which is contrary to the typical seasonality described above. In addition, our first quarter of 2009 had a sequential revenue decline from the fourth quarter of 2008, and the magnitude of the decline was greater than what has occurred in the past. We cannot predict when or if we will return to our typical historical revenue pattern. We believe the historical pattern of seasonality of our revenue results from the international mix of our revenue and the variability of the budgeting and purchasing cycles of our customers throughout each international region. In addition, our total operating expenses have in the past tended to increase in each successive quarter and have fluctuated as a percentage of revenue based on the seasonality of our revenue. During the three months ended March 31, 2009, we were able to reduce our operating costs when compared to the same period in 2008 and sequentially from the three months ended December 31, 2008. We can give no assurance that we will be able to continue to reduce our operating costs over the remainder of 2009 as we plan to sustain our strategic investments in research and development and field sales while limiting expense growth elsewhere.

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

Our Success Depends on New Product Introductions and Market Acceptance of Our Products. The market for our products is characterized by rapid technological change, evolving industry standards, changes in customer needs and frequent new product introductions, and is therefore highly dependent upon timely product innovation. Our success is dependent on our ability to successfully develop and introduce new and enhanced products on a timely basis to replace declining revenues from older products, and on increasing penetration in domestic and international markets. As has occurred in the past and as may be expected to occur in the future, we have experienced significant delays between the announcement and the commercial availability of new products. Any significant delay in releasing new products could have a material adverse effect on the ultimate success of a product and other related products and could impede continued sales of predecessor products, any of which could have a material adverse effect on our operating results. There can be no assurance that we will be able to introduce new products in accordance with announced release dates, that new products will achieve market acceptance or that any such acceptance will be sustained for any significant period. Failure of our new products to achieve or sustain market acceptance could have a material adverse effect on our operating results. Moreover, there can be no assurance that our international sales will continue at existing levels or grow in accordance with our efforts to increase foreign market penetration.

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

We Operate in Intensely Competitive Markets. The markets in which we operate are characterized by intense competition from numerous competitors, some of which are divisions of large corporations having far greater resources than we have, and we ~~expect to~~may face further competition from new market entrants in the future. A key competitor is Agilent Technologies Inc. (“Agilent”). Agilent offers its own line of instrument controllers, and also offers hardware and software products that provide solutions that directly compete with our virtual instrumentation products. Agilent is aggressively advertising and marketing products that are competitive with our products. Because of Agilent’s strong position in the instrumentation business, changes in its marketing strategy or product offerings could have a material adverse effect on our operating results.

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

·	new product introductions by competitors;

·	product pricing;

·	the impact of foreign exchange rates on ~~our~~ 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 our new product introductions;

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

·	the outcome of any material intellectual property litigation;

·	the financial strength of our competitors;

·	general market and economic conditions; and,

·	government actions throughout the world.

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

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

During the three months ended ~~September 30, 2008,~~March 31, 2009, we continued to devote resources to the ~~enhancement~~maintenance of systems to support the shipment of products from our manufacturing facility and warehouse in Hungary directly to customers worldwide, and to the continued development of our web offerings. There can be no assurance that we will not experience difficulties with ~~these new~~our systems. Difficulties with ~~these new~~our systems may interrupt our normal operations, including our ability to provide quotes, process orders, ship products, provide services and support to our customers, bill and track our customers, fulfill contractual obligations and otherwise run our business. Any disruption occurring with these systems may have a material adverse effect on our operating results. We plan to continue to devote resources to the systems that support shipment of product from our manufacturing facility and warehouse in Hungary directly to our customers worldwide, and to the continued development of our web offerings during ~~2008.~~2009. Any failure to successfully implement these initiatives could have a material adverse effect on our operating results.

We are Subject to Risks Associated with Our Centralization of Inventory and Distribution. Currently, shipments to our ~~European~~ customers worldwide are primarily sourced from our warehouse facility in Debrecen, Hungary. Shipments to almost all customers in the Americas were previously sourced from our warehouse in Austin, Texas. In July 2007, our Austin distribution operations were transferred to Debrecen, Hungary, and in October 2007, our Japanese distribution operations were also transferred to Debrecen, Hungary. Shipments to mostsome of our customers in ~~the rest of~~ Asia are currently made either out of local inventory managed by our branch operations in various Asian countries or from a centralized distribution point in Singapore. We will continue to devote resources to centralizing our distribution to a limited number of shipping points. Our planned centralization of inventory and distribution tofrom a limited number of shipping points is subject to inherent risks, including:

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

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

No assurance can be given that our efforts will be successful. Any difficulties with the centralization of distribution or delays in the implementation of the systems or processes to support this centralized distribution could result in interruption of our normal operation, including our ability to process orders and ship products to our customers. Any failure or delay in successfully centralizing our inventory in and distribution from our facility in Hungary could have a material adverse effect on our operating results.

A Substantial Majority of Our Manufacturing Capacity is Located in Hungary. Our Hungarian manufacturing and warehouse facility sources a substantial majority of our sales. During the ~~third quarter of 2006, we moved one of our two manufacturing lines in our Austin, Texas manufacturing facility to our manufacturing facility in Debrecen, Hungary. During 2007,~~three months ended March 31, 2009, we continued to ~~implement~~maintain and enhance the systems and processes that support the direct shipment of product orders to our customers worldwide from our manufacturing facility in ~~Hungary and are continuing to do so in 2008.~~Hungary. In order to ~~better insure~~enable timely shipment of products to our customers we ~~will~~also maintain the vast majority of our inventory at our Hungary ~~manufacturing~~warehouse facility. In addition to being subject to the risks of maintaining such a ~~concentrated~~concentration of manufacturing capacity and global inventory, this facility and its operation are also subject to risks associated with doing business internationally, including:

·	difficulty in managing manufacturing operations in a foreign country;

·	difficulty in achieving or maintaining product quality;

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

·	changes in the country’s political or economical conditions.

No assurance can be given that our efforts will be successful. Accordingly, a failure to deal with these factors could result in interruption in the facility’s operation or delays in expanding its capacity, either of which could have a material adverse effect on our operating results.

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

·	fluctuations in local economies;

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

·	difficulties in staffing and managing foreign operations;

·	greater difficulty in accounts receivable collection;

·	costs and risks of localizing products for foreign countries;

·	unexpected changes in regulatory requirements;

·	tariffs and other trade barriers;

·	difficulties in the repatriation of earnings; and,

·	the burdens of complying with a wide variety of foreign laws.

In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable to us such as the Foreign Corrupt Practices Act. Although we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors and agents, including those based in or from countries where practices which violate such U.S. laws may be customary, will not take actions in violation of our policies. Any violation of foreign or U.S. laws by our employees, contractors or agents, even if such violation is prohibited by our policies, could have a material adverse effect on our business. We must also comply with various import and export regulations. The application of these various regulations depends on the classification of our products which can change over time as such regulations are modified or interpreted. As a result, even if we are currently in compliance with applicable regulations, there can be no assurance that we will not have to incur additional costs or take additional compliance actions in the future. Failure to comply with these regulations could result in fines and/or termination of import and export privileges, which could have a material adverse effect on our operating results. Additionally, the regulatory environment in some countries is very restrictive as their governments try to protect their local economy and value of their local currency against the U.S. dollar. Sales made by our international direct sales offices are denominated in local currencies, and accordingly, the U.S. dollar equivalent of these sales is affected by changes in the foreign currency exchange rates. Net of hedging results, the change in exchange rates had the effect of ~~increasing~~decreasing our consolidated sales by 6%4% in the three months ended ~~September 30, 2008~~March 31, 2009, compared to the three months ended ~~September 30, 2007.~~March 31, 2008. Since most of our international operating expenses are also incurred in local currencies, the change in exchange rates had the effect of ~~increasing~~decreasing our operating expenses by ~~$5.1~~$4.1 million over ~~these~~this same ~~periods.~~period. Currently, we are experiencing significant volatility in foreign currency exchange rates in many of the markets in which we do business. This has had a significant impact on the revaluation of our foreign currency denominated firm commitments and on our ability to forecast U.S. dollar equivalent revenues and expenses. In the past, these dynamics have also adversely affected our revenue growth in international markets and will likely pose similar challenges in the future.

Our Income Tax Rate is Affected by Tax Benefits in Hungary. As a result of certain foreign investment incentives available under Hungarian law, the profit from our Hungarian operation was subject to a reduced income tax rate. This special tax status terminated on January 1, 2008, ~~upon~~with the merger of our Hungarian manufacturing operations with its Hungarian parent company. The tax position of our Hungarian operation continues to benefit from assets created by the restructuring of our operations in Hungary. We expect the profit from our Hungarian operation in future periods to result in the realization of a portion of these assets. Partial release of the valuation allowance on these assets resulted in income tax benefits of $1.1 million and $2.2 million for the three month periods ended March 31, 2009, and 2008, respectively. These benefits may not be available in the future due to changes in Hungary’s political condition and/or tax laws. The reduction or elimination of these tax benefits in Hungary or future changes in U.S. law pertaining to 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.

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

Our Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the United States. We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in these policies or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. ~~For example, beginning in the first quarter of fiscal 2006, with the adoption of SFAS 123R,~~ ~~Share-Based Payment~~, we now record a charge to earnings for employee stock option grants for all stock options unvested at December 31, 2005. This accounting pronouncement has had a material negative impact on our financial results. Technology companies generally, and our company specifically, have in the past relied on stock options as a major component of our employee compensation packages. Because we are required to expense options, beginning in 2005, we changed our equity compensation program to no longer grant options but instead grant restricted stock units.

Compliance With Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 is Costly and Challenging. As required by Section 302 of the Sarbanes-Oxley Act of 2002, this Form 10-Q contains our management’s certification of adequate disclosure controls and procedures as of ~~September 30, 2008.~~March 31, 2009. Our most recent 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, ~~2007.~~2008. Our most recent report on Form 10-K also contained an attestation and report by our auditors with respect to the effectiveness of our internal control over financial reporting under Section 404. While these assessments and reports did not reveal any material weaknesses in our internal control over financial reporting, compliance with Sections 302 and 404 is required for each future fiscal year end. We expect that the ongoing compliance with Sections 302 and 404 will continue to be both very costly and very challenging and there can be no assurance that material weaknesses will not be identified in future periods. Any adverse results from such ongoing compliance efforts could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Our Business Depends on the Continued Service of Key Management and Technical Personnel. Our success depends upon the continued contributions of our key management, sales, marketing, research and development and operational personnel, including Dr. Truchard, our Chairman and Chief Executive Officer, and other members of our senior management and key technical personnel. We have no agreements providing for the employment of any of our key employees for any fixed term and our key employees may voluntarily terminate their employment with us at any time. The loss of the services of one or more of our key employees in the future could have a material adverse effect on our operating results. We also believe our future success will depend upon our ability to attract and retain additional highly skilled management, technical, marketing, research and development, and operational personnel with experience in managing large and rapidly changing companies, as well as training, motivating and supervising employees. ~~As a result of the impact that the adoption of SFAS 123R,~~ ~~Share-Based Payment~~, in our first quarter of 2006 has had on our results of operations, we have changed our equity compensation program. We now grant fewer equity instruments and the type of equity instrument is restricted stock units rather than stock options, which may make it more difficult for us to attract or retain qualified management and technical personnel, which could have an adverse effect on our operating results. In addition, the recruiting environment for software engineering, sales and other technical professionals is very competitive. Competition for qualified software engineers is particularly intense and is likely to result in increased personnel costs. Our failure to attract or retain qualified software engineers could have an adverse effect on our operating results. We also recruit and employ foreign nationals to achieve our hiring goals primarily for engineering and software positions. There can be no guarantee that we will continue to be able to recruit foreign nationals at the current rate. There can be no assurance that we will be successful in retaining our existing key personnel or attracting and retaining additional key personnel. Failure to attract and retain a sufficient number of our key personnel could have a material adverse effect on our operating results.

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

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

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

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

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

The following table provides information as of ~~September 30, 2008~~March 31, 2009 with respect to the shares of common stock that we repurchased ~~by National Instruments~~ during the ~~third~~first quarter of ~~2008.~~2009.

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of a publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
January 1, 2009 to January 31, 2009		131,768	$	22.02		131,768		3,000,000
February 1, 2009 to February 29, 2009		—		—		—		3,000,000
March 1, 2009 to March 31, 2009		357,539	$	17.58		357,539		2,642,461
Total		489,307	$	18.77		489,307

Period

Total number of shares

Average price paid per share
Total number of shares purchased as part of a publicly announced plan or program
Maximum number of shares that may yet be purchased under the plan or program (1)

July 1, 2008 to July 31, 2008 — — — 2,730,050
August 1, 2008 to August 31, 2008 17,831 $ 32.03 17,831 2,712,219
September 1, 2008 to September 30, 2008 — — — 2,712,219
Total 17,831 17,831
For the past several years, we have maintained various stock repurchase programs. On January 23, 2009, our Board of Directors approved a new share repurchase plan that increased the aggregate number of shares of common stock that we are authorized to repurchase from 591,324 to 3.0 million. This repurchase plan does not have an expiration date.

~~(1)~~

For the past several years, we have maintained various stock repurchase programs. On April 25, 2008, our board of directors approved a new share repurchase plan that increased the aggregate number of shares of common stock that we are authorized to repurchase from 797,461 to 3.0 million. Our repurchase plan does not have an expiration date.

ITEM 5. OTHER INFORMATION

From time to time our directors, executive officers and other insiders may adopt stock trading plans pursuant to Rule 10b5-1(c) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Jeffrey L. Kodosky and James J. Truchard ~~and trusts related to such persons~~ have made periodic sales of our stock pursuant to such plans.

ITEM 6. EXHIBITS

3.1(2)	~~3.1(2)~~	Certificate of Incorporation, as amended, of the Company.
3.2(12)
	~~3.2(12)~~	Amended and Restated Bylaws of the Company.
3.3(4)
	~~3.3(4)~~	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company.
4.1(1)
	~~4.1(1)~~	Specimen of Common Stock certificate of the Company.
4.2(3)
	~~4.2(3)~~	Rights Agreement dated as of January 21, 2004, between the Company and EquiServe Trust Company, N.A.
10.1(1)
	~~10.1(1)~~	Form of Indemnification Agreement.
10.2(5)
	~~10.2(5)~~	1994 Incentive Plan, as amended.*
10.3(11)
	~~10.3(11)~~	1994 Employee Stock Purchase ~~Plan, as amended.~~Plan.*
10.4(6)
	~~10.4(6)~~	Long-Term Incentive ~~Program, as amended.~~Program.*
10.5(7)
	~~10.5(7)~~	2005 Incentive Plan.*
10.6(8)
	~~10.6(8)~~	National Instruments ~~Corporation's~~Corporation Annual Incentive ~~Program, as amended.~~Program.*
10.7(9)
	~~10.7(9)~~	2008 Annual Incentive Program Goals and Awards for the Named Executive Officers.*
10.8(10)
	~~10.8(10)~~	Form of Restricted Stock Unit Award Agreement (Non-Employee Director).*
10.9(10)
	~~10.9(10)~~	Form of Restricted Stock Unit Award Agreement (Performance Vesting).*
10.10(10)
	~~10.10(10)~~	Form of Restricted Stock Unit Award Agreement (Current Employee).*
10.11(10)
	~~10.11(10)~~	Form of Restricted Stock Unit Award Agreement (Newly Hired Employee).*

31.1	~~31.1~~	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
	~~31.2~~	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
	~~32.1~~	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	~~(1)~~	Incorporated by reference to the Company’s Registration Statement onof Form S-1 (Reg. No. 33-88386) declared effective March 13, 1995.
(2)
	~~(2)~~	Incorporated by reference to the same-numbered exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
(3)		Incorporated by reference to exhibit 4.1 filed with the Company’s Current Report on Form 8-K filed on January 28, 2004.
(4)	~~(3)~~	Incorporated by reference to the same-numbered exhibit filed with the Company’s Form 8-K ~~filed~~ on ~~January 28, 2004.~~

	~~(4)~~	~~Incorporated by reference to exhibit 4.1 filed with the Company’s Form 8-K on January 28,~~April 27, 2004.
(5)
	~~(5)~~	Incorporated by reference to the same-numbered exhibit filed with the Company’s Form 10-Q on August 5, 2004.
(6)
	~~(6)~~	Incorporated by reference to the same-numbered exhibit ~~99.1~~ filed with the Company’s Annual Report on Form ~~8-K filed on October 28, 2008.~~10-K for the fiscal year ended December 31, 2004.
(7)
	~~(7)~~	Incorporated by reference to exhibit A of the Company’s Proxy Statement dated and filed on April 4, 2005.
(8)
	~~(8)~~	Incorporated by reference to the exhibit ~~99.2~~10.1 filed with the Company’s Current Report on Form 8-K filed on ~~October 28, 2008.~~June 27, 2006.
(9)
	~~(9)~~	Incorporated by reference to the exhibit 99.1 filed with the Company’s Current Report on Form 8-K filed on March 25, 2008.
(10)
	~~(10)~~	Incorporated by reference to the same-numbered exhibit filed with the Company’s Form 10-Q on August 2, 2006.
(11)
	~~(11)~~	Incorporated by reference to ~~Appendix A of~~the same-numbered exhibit filed with the Company’s ~~Proxy Statement dated and filed~~Form 10-K on ~~April 2,~~February 20, 2007.
(12)
	~~(12)~~	Incorporated by reference to the same-numbered exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

*	*	Management Contract or Compensatory Plan or ~~Arrangement.~~Arrangement

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~~

Date: ~~November~~May 7, ~~2008~~2009	By:	/s/ Alex Davern
		Alex Davern
		Chief Financial Officer and Treasurer
		~~(principal~~(principal financial and accounting officer)

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

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

Class	Outstanding at ~~November~~May 6, ~~2008~~2009
Common Stock - $0.01 par value	~~79,192,938~~77,725,916

	September 30, 2008		December 31, 2007
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	213,665	$	194,839
Short-term investments		61,919		93,838
Accounts receivable, net		123,096		131,282
Inventories, net		99,734		82,675
Prepaid expenses and other current assets		40,377		23,312
Deferred income tax, net		20,459		19,264
Total current assets		559,250		545,210
Long-term investments		10,154		—
Property and equipment, net		155,251		151,462
Goodwill, net		64,641		54,111
Intangible assets, net		44,844		40,357
Other long-term assets		28,168		27,672
Total assets	$	862,308	$	818,812

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	31,733	$	36,187
Accrued compensation		31,003		25,778
Deferred revenue		42,076		36,091
Accrued expenses and other liabilities		10,320		10,437
Other taxes payable		23,379		16,843
Total current liabilities		138,511		125,336
Deferred income taxes		24,022		21,221
Other long-term liabilities		11,500		11,169
Total liabilities		174,033		157,726
Commitments and contingencies
Stockholders’ equity:
Preferred stock: par value $0.01; 5,000,000 shares authorized; none issued and outstanding		—		—
Common Stock: par value $0.01; 180,000,000 shares authorized; 78,967,887 and 79,405,359 shares issued and outstanding, respectively		790		794
Additional paid-in capital		75,231		89,809
Retained earnings		602,872		563,418
Accumulated other comprehensive income		9,382		7,065
Total stockholders' equity		688,275		661,086
Total liabilities and stockholders' equity	$	862,308	$	818,812

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008			2007		2008			2007

Net sales	$	215,038		$	184,426	$	618,430		$	535,565
Cost of sales		53,537			46,219		154,227			132,439
Gross profit		161,501			138,207		464,203			403,126
Operating expenses:
Sales and marketing		79,362			66,116		233,427			194,974
Research and development		37,016			31,891		105,808			91,652
General and administrative		17,177			15,644		51,122			45,643
Total operating expenses		133,555			113,651		390,357			332,269

Operating income		27,946			24,556		73,846			70,857

Other income (expense):
Interest income		1,374			2,613		5,025			7,056
Net foreign exchange gain (loss)		(3,025	)		98		(1,791	)		628
Other income (expense), net		80			14		13			(138	)
Income before income taxes		26,375			27,281		77,093			78,403
Provision for income taxes		3,216			5,741		11,584			17,063

Net income	$	23,159		$	21,540	$	65,509		$	61,340

Basic earnings per share	$	0.29		$	0.27	$	0.83		$	0.77

Weighted average shares outstanding-basic		78,834			79,226		78,701			79,471

Diluted earnings per share	$	0.29		$	0.27	$	0.82		$	0.76

Weighted average shares outstanding-diluted		79,841			80,874		79,773			80,986

Dividends declared per share	$	0.11		$	0.10	$	0.33		$	0.24

				Fair Value Measurements at Reporting Date Using
Description	September 30, 2008			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Money Market Funds	$	99,186		$	99,186	$	—		$	—
U.S. Treasury Bills		29,993			29,993		—			—
Short-term investments available for sale		61,919			61,919		—			—
Long-term investments available for sale		8,254			—		—			8,254
Derivatives		15,247			—		15,247			—
Total Assets	$	214,599		$	191,098	$	15,247		$	8,254

Liabilities
Derivatives		(142	)		—		(142	)		—
Total Liabilities	$	(142	)	$	—	$	(142	)	$	—

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Long-term investments available for sale
Beginning Balance, January 1, 2008	$	—
Total gains or (losses) (realized/unrealized)
Included in earnings		—
Included in other comprehensive income		(346	)
Purchases, issuances and settlements		—
Transfer in and/or out of Level 3		8,600
Ending Balance, September 30, 2008	$	8,254

The amount of total gains or (losses) for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—

	September 30, 2008 (unaudited)							December 31, 2007
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized software development costs	$	74,521	$	(58,561	)	$	15,960	$	65,834	$	(50,722	)	$	15,112
Acquired technology		27,512		(15,877	)		11,635		21,228		(12,976	)		8,252
Patents		15,663		(4,325	)		11,338		14,598		(3,789	)		10,809
Other		11,633		(5,722	)		5,911		10,919		(4,735	)		6,184
	$	129,329	$	(84,485	)	$	44,844	$	112,579	$	(72,222	)	$	40,357

	Amount (in thousands)
Balance as of December 31, 2007	$	54,111
Acquisitions/purchase accounting adjustments		10,818
Divestitures		—
Foreign currency translation impact		(288	)
Balance as of September 30, 2008	$	64,641

	Number of shares under option			Weighted average Exercise price
Outstanding at December 31, 2007		5,294,641		$	24.47
Exercised		(889,427	)		17.42
Canceled		(69,958	)		27.15
Granted		—			—
Outstanding at September 30, 2008		4,335,256		$	25.88

		Outstanding and Exercisable by Price Range
		As of September 30, 2008

		Options Outstanding						Options Exercisable
Range of Exercise prices		Number outstanding as of 09/30/2008		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable as of 09/30/2008		Weighted average exercise price
	$ 12.22 - $ 21.04		1,634,026		2.53	$	19.26		1,443,676	$	19.09
	$ 21.25 - $ 30.71		1,470,684		5.04	$	28.04		1,121,490	$	27.95
	$ 30.92 - $ 34.38		1,230,546		1.56	$	32.08		1,217,715	$	32.08
	$ 12.22 - $ 34.38		4,335,256		3.11	$	25.88		3,782,881	$	25.90

	Nine Months Ended September 30,
	(unaudited)
	2008		2007
Interest income:
Americas	$	2,186	$	3,854
Europe		2,761		3,071
Asia Pacific		78		131
	$	5,025	$	7,056

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Net sales:
Americas		45.1	%		46.8	%		43.6	%		46.3	%
Europe		31.0			28.2			32.0			29.9
Asia Pacific		23.9			25.0			24.4			23.8
Consolidated net sales		100.0			100.0			100.0			100.0
Cost of sales		24.9			25.1			24.9			24.7
Gross profit		75.1			74.9			75.1			75.3
Operating expenses:
Sales and marketing		36.9			35.8			37.7			36.4
Research and development		17.2			17.3			17.1			17.2
General and administrative		8.0			8.5			8.3			8.5
Total operating expenses		62.1			61.6			63.1			62.1
Operating income		13.0			13.3			12.0			13.2
Other income (expense):
Interest income		0.6			1.4			0.8			1.3
Net foreign exchange gain (loss)		(1.4	)		0.1			(0.3	)		0.1
Other income (expense), net		0.1			0.0			0.0			0.0
Income before income taxes		12.3			14.8			12.5			14.6
Provision for income taxes		1.5			3.1			1.9			3.2
Net income		10.8	%		11.7	%		10.6	%		11.4	%

Period	Total number of shares		Average price paid per share		Total number of shares purchased as part of a publicly announced plan or program		Maximum number of shares that may yet be purchased under the plan or program (1)
July 1, 2008 to July 31, 2008		—		—		—		2,730,050
August 1, 2008 to August 31, 2008		17,831	$	32.03		17,831		2,712,219
September 1, 2008 to September 30, 2008		—		—		—		2,712,219
Total		17,831				17,831