July 27, 2006 at 16:00 PM EDT
National Instruments Reports Record Quarterly Revenue of $160 Million; Revenue for the First Half of 2006 Up 16 Percent in U.S. Dollars and 20 Percent in Local Currency

National Instruments (Nasdaq:NATI) today reported record revenue in Q2 2006 of $160 million, a 14 percent USD increase over Q2 2005 and an equivalent 16 percent increase in local currency. Generally Accepted Accounting Principles (GAAP) fully diluted earnings per share (EPS) for Q2 2006 was 21 cents with GAAP net income of $17 million, up 13 percent from Q2 2005. Non-GAAP fully diluted EPS was 25 cents with non-GAAP net income of $20.5 million, up 33 percent from Q2 2005. Non-GAAP results exclude the impact of stock-based compensation and the impact of the amortization of acquisition-related intangibles. A reconciliation of GAAP to non-GAAP results is included as a part of this press release.

For the first half of 2006, the company reported revenue growth of 16 percent in USD terms and 20 percent in local currency. In addition, the company reported GAAP net income of $29.6 million, up 13 percent, and non-GAAP net income of $36.6 million, up 38 percent year-over-year.

"We are pleased with the results for the first half of 2006, as we saw revenue growth of 20 percent in local currency with strong operating leverage," said Dr. James Truchard, NI president and CEO. "At NIWeek, Aug. 8-10, we will highlight how NI LabVIEW, graphical system design and PXI Express will help further our expansion into key application areas."

NI continues to have a very strong balance sheet, with $211 million in net cash and short-term investments as of June 30, 2006. The company also announced today a dividend of 6 cents per share on its common stock payable on Aug. 28, 2006, to shareholders of record on Aug. 7, 2006.

Q2 2006 Highlights

-- Record quarterly revenue of $160 million, up 14 percent year-over-year

-- Quarterly GAAP net income of $17 million, up 13 percent year-over-year

-- Quarterly non-GAAP net income of $20.5 million, up 33 percent year-over-year

-- GAAP operating margin of 13 percent and non-GAAP operating margin of 16 percent

-- Strong sales of software, PXI, modular instruments and distributed I/O products

-- Cash and short-term investments of $211 million

"In Q2 last year, we saw very strong sequential growth in both revenue and earnings. Given these tough compares, we are pleased to have delivered 14 percent year-over-year revenue growth in U.S. dollar terms and 16 percent in local currency," said Alex Davern, NI CFO. "Our goal of driving operating leverage continued to pay off in Q2 with a 33 percent increase in non-GAAP net income, and we are well-positioned for a significant increase in operating margin for the full year."

Geographically, the growth of revenue in U.S. dollar terms for Q2 2006 compared to Q2 2005 was as follows: up 16 percent in the Americas, up 6 percent in Europe and up 19 percent in Asia, equaling overall growth of 14 percent. In local currency terms, revenue was up 15 percent in Europe and up 21 percent in Asia, for an overall local currency growth of 16 percent.

Looking at Q2 revenue growth in U.S. dollars in more detail, sales of NI instrument control products were up 10 percent year-over-year. Management believes this is indicative of continued improvement in the test and measurement market in Q2. The first-year impact of acquisitions added $4.4 million in revenue in Q2. This is lower than Q1 2006, as NI passed the first anniversary of the acquisition of Measurement Computing Corporation, during the first quarter. Sales of the rest of the NI product portfolio, in other words, NI virtual instrumentation products, were up 11 percent year-over-year. NI growth in Q2 was driven by the success of new products, especially in the areas of software, data acquisition, PXI, modular instruments and distributed I/O.

Guidance for Q3 2006

For Q3 2006, NI currently expects revenue to be in the range of $157 million to $164 million and non-GAAP gross margins to be approximately 75 percent. The company currently expects GAAP fully diluted EPS to be in the range of 16 cents to 21 cents per share and expects non-GAAP fully diluted EPS to be in the range of 21 cents to 26 cents per share.

In Q3 2006, the company expects the impact of stock-based compensation to be 4 cents per share and the impact of the amortization of acquisition-related intangibles to be 1 cent per share. A reconciliation of the company's Q3 2006 guidance on a GAAP basis to its guidance on its non-GAAP basis is included as part of this press release.

Accounting for Stock-Based Compensation

In accordance with SFAS123R, the company began expensing all stock-based compensation in its GAAP results for all periods beginning after Jan. 1, 2006. This includes the impact of the company's current restricted stock and employee stock purchase plans, in addition to its unvested options outstanding under its stock option plans.

Non-GAAP Earnings Presentation and Non-GAAP Earnings Guidance

In addition to disclosing results determined in accordance with GAAP, the company also discloses non-GAAP operating results that exclude certain charges. In this press release, the company has presented its results for Q2 2006 and its guidance for Q3 2006 on a GAAP and non-GAAP basis. When presenting non-GAAP results, the company includes a reconciliation of the non-GAAP results to the results under GAAP as part of the press release.

Management believes that including the non-GAAP results assists investors in assessing the company's operational and cash-flow performance. The company presents these non-GAAP results as a complement to results provided in accordance with GAAP, and they should not be regarded as a substitute to GAAP. Management uses non-GAAP measures to plan and forecast future periods, to establish operational goals, to compare with its business plan and individual operating budgets and to allocate resources. Management also considers such non-GAAP results to be an important supplemental measure of its performance.

In line with common industry practice and to help enable comparability with other technology companies, the company's non-GAAP presentation excludes the impact of both stock-based compensation under the new accounting standard SFAS123R and the amortization of acquisition-related intangibles. Other companies may calculate non-GAAP results differently than the company, limiting its usefulness as a comparative measure.

Interested parties can listen to a conference call today, July 27, 2006, beginning at 4:00 p.m. CDT, at www.ni.com/call. Replay information is available by calling 719-457-0820, confirmation code #1047037, from July 27, 2006, at 7:00 p.m. CDT, through Aug. 3, 2006, at midnight CDT.

This release contains "forward-looking statements," including statements related to expansion in key application areas, expected revenue and gross margin for Q3 2006, estimated Q3 2006 GAAP and non-GAAP EPS and estimated Q3 2006 EPS impact of stock-based compensation and acquisition-related intangibles. These statements are subject to a number of risks and uncertainties, including the risk of adverse changes in the global economy, delays in the release of new products, fluctuations in customer demand for NI products, manufacturing inefficiencies and foreign exchange fluctuations. Actual results may differ materially from the expected results. The company directs readers to documents filed with the SEC for other risks associated with the company's future performance.

About National Instruments

For 30 years, National Instruments (www.ni.com) has been a technology pioneer and leader in virtual instrumentation -- a revolutionary concept that has changed the way engineers and scientists in industry, government and academia approach measurement and automation. Leveraging PCs and commercial technologies, virtual instrumentation increases productivity and lowers costs for test, control and design applications through easy-to-integrate software, such as NI LabVIEW, and modular measurement and control hardware for PXI, PCI, PCI Express, USB and Ethernet. Headquartered in Austin, Texas, NI has more than 3,900 employees and direct operations in nearly 40 countries. For the past seven years, FORTUNE magazine has named NI one of the 100 best companies to work for in America. Readers may obtain investment information from the company's investor relations department by calling 512-683-5090, e-mailing nati@ni.com or visiting www.ni.com/nati.

The condensed consolidated balance sheets and statements of income follow.

LabVIEW, National Instruments, NI, ni.com and NIWeek are trademarks of National Instruments. Other product and company names listed are trademarks or trade names of their respective companies.

                         National Instruments
                 Condensed Consolidated Balance Sheets
                            (in thousands)


                                              June 30    December 31
                                                2006         2005
                                             -----------  -----------
                                             (unaudited)
ASSETS
------
Current assets:
  Cash and cash equivalents                     $54,666      $55,864
  Short-term investments                        156,486      119,846
  Accounts receivable, net                      103,503       95,733
  Inventories, net                               82,421       62,827
  Other current assets                           34,032       28,036
                                             -----------  -----------
  Total current assets                          431,108      362,306

Property and equipment, net                     142,355      144,330
Goodwill, net                                    53,409       52,533
Intangibles, net                                 41,108       43,602
Other long-term assets                            5,030        5,565
                                             -----------  -----------
Total assets                                   $673,010     $608,336
                                             ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
  Accounts payable                              $34,230      $30,832
  Accrued expenses and other liabilities         67,146       56,788
                                             -----------  -----------
  Total current liabilities                     101,376       87,620

Deferred income taxes, net                       16,866       16,866
                                             -----------  -----------
  Total liabilities                             118,242      104,486
                                             -----------  -----------

Stockholders' equity:
 Preferred stock                                      -            -
 Common stock                                       797          793
 Additional paid-in capital                     102,729       91,430
 Deferred stock-based compensation                    -      (16,547)
 Retained earnings                              449,992      429,859
 Other                                            1,250       (1,685)
                                             -----------  -----------
  Total stockholders' equity                    554,768      503,850
                                             -----------  -----------
  Total liabilities and stockholders' equity   $673,010     $608,336
                                             ===========  ===========


                         National Instruments
              Condensed Consolidated Statements of Income
                 (in thousands, except per share data)
                              (unaudited)


                                                         Three Months
                                                         Ended June 30
                                   2006
                               --------------

                       GAAP     Amortization  Stock-Based   Non-GAAP
                               of Acquisition Compensation
                                Intangibles
 Net sales           $160,123             $-           $-   $160,123
 Cost of sales         40,852           (677)        (177)    39,998
                    ---------- -------------- ------------ ----------
 Gross profit         119,271            677          177    120,125
                    ---------- -------------- ------------ ----------

Sales and marketing    57,580           (114)      (1,477)    55,989
Research and
 development           27,397             (9)      (1,258)    26,130
General and
 administrative        13,373              -         (563)    12,810
Patent litigation          10              -            -         10
                    ---------- -------------- ------------ ----------
Total operating
 expenses              98,360           (123)      (3,298)    94,939

Operating income       20,911            800        3,475     25,186

Interest income         1,681              -            -      1,681
Foreign currency
 gain/(loss)              149              -            -        149
Other income, net         (82)             -            -        (82)
                    ---------- -------------- ------------ ----------

Income before
 income taxes          22,659            800        3,475     26,934
Provision for
 income taxes           5,638            254          591      6,483
                    ---------- -------------- ------------ ----------

 Net income           $17,021           $546       $2,884    $20,451
                    ========== ============== ============ ==========

Earnings per share:
  Basic                 $0.21                                  $0.26
                    ==========                             ==========
  Diluted               $0.21                                  $0.25
                    ==========                             ==========

Weighted average
 shares
 outstanding:

  Basic                79,611                                 79,611
                    ==========                             ==========
  Diluted              81,653                                 81,653
                    ==========                             ==========

Dividends declared
 per share              $0.06                                  $0.06
                    ---------- -------------- ------------ ----------


                                   2005
                               --------------

                       GAAP     Amortization  Stock-Based   Non-GAAP
                               of Acquisition Compensation
                                Intangibles
 Net sales           $140,822             $-           $-   $140,822
 Cost of sales         36,713           (352)           -     36,361
                    ---------- -------------- ------------ ----------
 Gross profit         104,109            352            -    104,461
                    ---------- -------------- ------------ ----------

Sales and marketing    52,327            (74)           -     52,253
Research and
 development           22,307            (65)           -     22,242
General and
 administrative        11,857              -            -     11,857
Patent litigation      (1,475)             -            -     (1,475)
                    ---------- -------------- ------------ ----------
Total operating
 expenses              85,016           (139)           -     84,877

Operating income       19,093            491            -     19,584

Interest income           853              -            -        853
Foreign currency
 gain/(loss)             (238)             -            -       (238)
Other income, net          61              -            -         61
                    ---------- -------------- ------------ ----------

Income before
 income taxes          19,769            491            -     20,260
Provision for
 income taxes           4,745            118            -      4,863
                    ---------- -------------- ------------ ----------

 Net income           $15,024           $373           $-    $15,397
                    ========== ============== ============ ==========

Earnings per share:
  Basic                 $0.19                                  $0.20
                    ==========                             ==========
  Diluted               $0.19                                  $0.19
                    ==========                             ==========

Weighted average
 shares
 outstanding:

  Basic                78,303                                 78,303
                    ==========                             ==========
  Diluted              80,190                                 80,190
                    ==========                             ==========

Dividends declared
 per share              $0.05                                  $0.05
                    ---------- -------------- ------------ ----------


                         National Instruments
              Condensed Consolidated Statements of Income
                 (in thousands, except per share data)
                              (unaudited)


                                                         Six Months
                                                        Ended June 30
                                   2006
                               --------------

                       GAAP     Amortization  Stock-Based   Non-GAAP
                               of Acquisition Compensation
                                Intangibles
Net sales            $314,875             $-           $-   $314,875
Cost of sales          82,357         (1,343)        (283)    80,731
                    ---------- -------------- ------------ ----------
Gross profit          232,518          1,343          283    234,144
                    ---------- -------------- ------------ ----------

Sales and marketing   113,980           (228)      (2,958)   110,794
Research and
 development           55,379            (18)      (2,655)    52,706
General and
 administrative        26,385              -       (1,153)    25,232
Patent litigation          37              -            -         37
                    ---------- -------------- ------------ ----------
Total operating
 expenses             195,781           (246)      (6,766)   188,769

Operating income       36,737          1,589        7,049     45,375

Interest income         2,934              -            -      2,934
Foreign currency
 (loss)                  (237)             -            -       (237)
Other income, net         107              -            -        107
                    ---------- -------------- ------------ ----------

Income before
 income taxes          39,541          1,589        7,049     48,179
Provision for
 income taxes           9,918            513        1,127     11,558
                    ---------- -------------- ------------ ----------

 Net income           $29,623         $1,076       $5,922    $36,621
                    ========== ============== ============ ==========

Earnings per share:
  Basic                 $0.37                                  $0.46
                    ==========                             ==========
  Diluted               $0.36                                  $0.45
                    ==========                             ==========

Weighted average
 shares
 outstanding:

  Basic                79,334                                 79,334
                    ==========                             ==========
  Diluted              81,591                                 81,591
                    ==========                             ==========

Dividends declared
 per share              $0.12                                  $0.12
                    ---------- -------------- ------------ ----------



                                   2005
                               --------------

                       GAAP     Amortization  Stock-Based   Non-GAAP
                               of Acquisition Compensation
                                Intangibles
Net sales            $270,562             $-           $-   $270,562
Cost of sales          69,077           (352)           -     68,725
                    ---------- -------------- ------------ ----------
Gross profit          201,485            352            -    201,837
                    ---------- -------------- ------------ ----------

Sales and marketing   103,900            (87)           -    103,813
Research and
 development           42,690           (158)           -     42,532
General and
 administrative        23,120              -            -     23,120
Patent litigation      (1,500)             -            -     (1,500)
                    ---------- -------------- ------------ ----------
Total operating
 expenses             168,210           (245)           -    167,965

Operating income       33,275            597            -     33,872

Interest income         1,838              -            -      1,838
Foreign currency
 (loss)                  (766)             -            -       (766)
Other income, net          75              -            -         75
                    ---------- -------------- ------------ ----------

Income before
 income taxes          34,422            597            -     35,019
Provision for
 income taxes           8,262            143            -      8,405
                    ---------- -------------- ------------ ----------

 Net income           $26,160           $454           $-    $26,614
                    ========== ============== ============ ==========

Earnings per share:
  Basic                 $0.33                                  $0.34
                    ==========                             ==========
  Diluted               $0.32                                  $0.33
                    ==========                             ==========

Weighted average
 shares
 outstanding:

  Basic                78,735                                 78,735
                    ==========                             ==========
  Diluted              81,086                                 81,086
                    ==========                             ==========

Dividends declared
 per share              $0.10                                  $0.10
                    ---------- -------------- ------------ ----------


        Reconciliation of GAAP to non-GAAP Guidance for Q3 2006
                    Diluted Net Earnings per Share


                                                         Q3 2006
-------------------------------------------------    ----------------
Range of diluted GAAP net earnings per share           $0.16-0.20
-------------------------------------------------    ----------------
Estimated stock-based compensation                        $0.04
-------------------------------------------------    ----------------
Estimated amortization of acquired intangibles            $0.01
-------------------------------------------------    ----------------
Range of diluted non-GAAP net earnings per share       $0.21-0.26
-------------------------------------------------    ----------------

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