UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 28, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to ____.
Commission File Number: 1-6453
NATIONAL SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2095071
(State of incorporation) (I.R.S. Employer Identification Number)
2900 Semiconductor Drive, P.O. Box 58090
Santa Clara, California 95052-8090
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 721-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title of Each Class Outstanding at August 28, 1994
Common stock, par value $0.50 per share 122,972,368
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
INDEX
Part I. Financial Information Page No.
Condensed Consolidated Balance Sheets (Unaudited)
as of August 28, 1994 and May 29, 1994 3
Condensed Consolidated Statements of
Operations (Unaudited) for the Three Months
Ended August 28, 1994 and August 29, 1993 4
Condensed Consolidated Statements of
Cash Flows (Unaudited) for the Three Months
Ended August 28, 1994 and August 29, 1993 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
Part II. Other Information
Legal Proceedings 11
Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit 11.0 -- Additional Fully Diluted Calculation
of Earnings per Share 13
<PAGE>
PART I. FINANCIAL INFORMATION
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
Aug. 28, May 29,
1994 1994
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 352.6 $ 398.1
Short-term marketable investments 83.9 68.7
Receivables, net 278.6 289.0
Inventories 224.6 212.7
Other current assets 48.2 47.9
------- -------
Total current assets 987.9 1,016.4
Property, plant and equipment 1,788.5 1,765.6
Less accumulated depreciation 1,106.4 1,097.6
------- -------
Net property, plant and equipment 682.1 668.0
Long-term marketable investments - 20.9
Other assets 44.4 42.4
------- -------
Total assets $1,714.4 $1,747.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9.1 $ 15.6
Accounts payable 179.6 213.7
Accrued expenses 228.9 264.6
Income taxes 80.6 83.5
------- -------
Total current liabilities 498.2 577.4
Long-term debt 12.1 14.5
Deferred income taxes 18.9 18.6
Other non-current liabilities 35.1 31.5
------- -------
Total liabilities 564.3 642.0
------- -------
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock 0.2 0.2
Common stock 61.5 61.4
Additional paid-in capital 913.6 912.7
Retained earnings 197.1 140.9
Unrealized losses on securities
available for sale (.1) -
Treasury stock, at cost (22.2) (9.5)
------- -------
Total shareholders' equity 1,150.1 1,105.7
------- -------
Total liabilities and shareholders' equity $1,714.4 $1,747.7
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
Three Months Ended
------------------
Aug. 28, Aug. 29,
1994 1993
------ ------
Net sales $553.8 $558.9
Operating costs and expenses:
Cost of sales 320.6 330.6
Research and development 65.9 63.1
Selling, general and administrative 98.1 101.7
------ ------
Total operating costs and expenses 484.6 495.4
------ ------
Operating income 69.2 63.5
Interest income, net 4.5 1.7
------ ------
Income before income taxes and cumulative
effect of accounting change 73.7 65.2
Income taxes 14.7 13.0
------ ------
Net income before cumulative effect of
accounting change 59.0 52.2
Cumulative effect of accounting change - 4.9
------ ------
Net income $ 59.0 $ 57.1
====== ======
Primary earnings per common share before
cumulative effect of accounting change $ 0.44 $ 0.39
Cumulative effect of accounting change -- 0.04
------ ------
Primary earnings per common share $ 0.44 $ 0.43
====== ======
Fully diluted earnings per common share
before cumulative effect of accounting change $ 0.42 $ 0.37
Cumulative effect of accounting change -- 0.04
----- -----
Fully diluted earnings per common share $ 0.42 $ 0.41
====== ======
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions) Three Months Ended
--------------------
Aug. 28, Aug. 29,
1994 1993
------ ------
OPERATIONS:
Net Income $ 59.0 $ 57.1
Adjustments to reconcile net income
with net cash provided (used) by operations:
Depreciation and amortization 40.1 39.5
Cumulative effect of accounting change - (4.9)
Other, net 2.2 (0.6)
Changes in certain assets and liabilities, net:
Receivables 10.4 (13.9)
Inventories (11.9) (8.9)
Other current assets (0.3) (4.5)
Accounts payable and accrued expenses (67.3) (19.4)
Current and deferred income taxes (2.6) 9.5
Other non-current liabilities 5.0 1.3
------ ------
Net cash provided by operating activities 34.6 55.2
------ ------
INVESTING:
Purchases of property, plant and equipment (54.7) (48.2)
Proceeds from the sale and maturity of
marketable investments 270.8 83.5
Purchase of marketable investments (265.2) (79.5)
Proceeds from sale of investments - 2.5
Purchase of investments and other, net (3.6) -
------ ------
Net cash used by investing activities (52.7) (41.7)
------ ------
FINANCING:
Repayment of debt (8.9) (2.9)
Issuance of common stock, net 1.0 5.8
Purchase of treasury stock (16.7) -
Payment of preferred dividends (2.8) (5.3)
------ ------
Net cash used by financing activities (27.4) (2.4)
------ ------
Net change in cash and cash equivalents (45.5) 11.1
Cash and cash equivalents at beginning of period 398.1 277.4
------ -------
Cash and cash equivalents at end of period $352.6 $288.5
====== =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1.2 $ 1.1
Cash paid for income taxes $ 16.5 $ 2.9
Supplemental disclosure, non-cash items:
Issuance of stock for employee benefit plans $ 4.0 $ 2.0
Increase in inventory due to cumulative
effect of accounting change $ - $ 4.9
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Summary of Significant Accounting Policies
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments (except as discussed in Note 2 and Note 3),
necessary to present fairly the financial position and results of
operations of National Semiconductor Corporation and its subsidiaries
("National" or the "Company"). Interim results of operations are not
necessarily indicative of the results to be expected for the full year.
This report should be read in conjunction with the consolidated
financial statements and notes thereto included in the annual report on
Form 10-K for fiscal year ended May 29, 1994.
Securities held-to-maturity and available-for-sale: Effective the
beginning of fiscal 1995, the Company prospectively adopted Statement of
Financial Accounting Standards No. 115 (FAS 115) "Accounting for Certain
Investments in Debt and Equity Securities." The effect of adopting FAS
115 was not material to the consolidated financial statements. Prior to
implementing FAS 115, the Company's investments were carried at the
lower of cost or market value. Under FAS 115, the Company has
classified its investments in certain debt and equity securities as
"held-to-maturity" or "available-for-sale".
Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are recorded as either short-term or long-
term on the balance sheet based upon the contractual maturity date and
are stated at amortized cost.
Marketable equity securities and debt securities not classified as held-
to-maturity are classified as available-for-sale. Available-for-sale
securities are recorded as short-term securities on the balance sheet
and are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of shareholders' equity. The
amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity, which
is included in interest income. Realized gains and losses and declines
in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. The cost of securities sold
is based on the specific identification method.
Effective the beginning of fiscal 1995, the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits Other than Pensions" ("FAS 112");
the adoption did not have a material impact on the Company's financial
statements.
Note 2. Results of Operations
Included within selling, general and administrative expense is net
intellectual property income of $4.6 million for the first quarter of
fiscal 1995 compared to $1.4 million in the first quarter of 1994. In
addition, selling, general and administrative expense for the first
quarter of fiscal 1994 included a $6.5 million charge for the
consolidation of sales and marketing facilities, primarily in Japan.
<PAGE>
Note 3. Investment Securities
The following is a summary of available-for-sale securities and held-to-
maturity securities at May 30, 1994:
Gross Estimated
Amortized Unrealized Fair
(In millions) Cost Losses Value
------- ------ -------
Available-for-sale securities:
U.S. Treasury securities and
obligations of U.S. government
agencies $43.7 $.2 $43.5
U.S. corporate debt securities 7.4 - 7.4
Foreign corporate debt securities 3.0 - 3.0
----- --- ------
Total available-for-sale securities $54.1 $.2 $53.9
===== === ====
Held-to-maturity securities:
U. S. corporate debt securities $15.9 $ - $15.9
Foreign government securities 3.9 - 3.9
Foreign corporate debt securities 16.2 - 16.2
---- --- ----
Total held-to-maturity securities $36.0 $ - $36.0
==== === ====
The amortized cost and estimated fair value of debt securities at May
30, 1994, by contractual maturity, are shown below. Balance sheet
classification of certain available-for-sale securities may differ from
contractual maturities because management views its available-for-sale
portfolio as available for use in its current operations.
Estimated
Amortized Fair
(in millions) Cost Value
------- -------
Available-for-Sale
Due in one year or less $33.1 $33.0
Due after one year through three years 21.0 20.9
----- ----
$54.1 $53.9
==== ====
The entire held-to-maturity portfolio is due in one year or less.
Note 4. Components of Inventories
The components of inventories were:
Aug. 28, May 29,
(in millions) 1994 1994
------ ------
Raw materials $ 17.4 $ 17.3
Work in process 126.5 129.4
Finished goods 80.7 66.0
----- ------
Total inventories $ 224.6 $ 212.7
====== ======
<PAGE>
Note 5. Earnings per Share Data
Three Months Ended
------------------
Aug. 28, Aug. 29,
1994 1993
------ ------
Primary earnings per share:
Primary income used in per common share
calculation (reflecting preferred dividends) $ 56.2 $ 51.8
====== ======
Weighted average common shares and
common share equivalents outstanding 129.1 119.5
====== ======
Fully Diluted:
Net income $ 59.0 $ 57.1
====== ======
Weighted average fully diluted shares 141.5 140.4
====== ======
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS
Sales for the three months ended August 28, 1994 were $553.8 million
compared to sales of $558.9 million during the comparable period in the
prior year. Net income for the first quarter of fiscal 1995 was $59.0
million compared to fiscal 1994 first quarter results of $57.1 million,
which included a $4.9 million gain due to the cumulative effect of a
change in accounting for inventory costs.
Sales Net sales for the quarter were relatively flat from a year ago
led by a slowdown in sales of bipolar logic products, super I/O chip
sets, and certain other logic devices used in desktop PC's, mainframes
and central office switches. In addition, current quarter sales reflect
the effects of continued efforts to prune older commodity logic products
and replace them with higher margin products serving vertical markets.
Bipolar logic product sales are down to 8 percent of net sales in the
current quarter compared to 13 percent in the first quarter of last
year. CMOS and other advanced logic product sales have increased 10
percent from the previous year to account for 7 percent of net sales.
Analog and mixed signal product sales, which include standard linear
products, analog telecom and wireless chips, mass storage devices, local
area network chips and many other mixed signal solutions, continue to
grow and represent 56 percent of net sales compared to 52 percent a year
ago. End user markets for the Company's products are diversified, but
are focused in personal computers, automotive, telecommunication and
switching systems, and mass storage. Sales decreased slightly quarter
over quarter in both the Company's Standard Products Group ("SPG"),
which represents approximately 70 percent of the Company's net sales,
and in the Communications and Computing Group ("CCG"), which represents
approximately 30 percent of the Company's net sales. The improvement in
sales in Europe, Japan, and domestic regions was offset by the slowdown
in Southeast Asia.
Gross Margin Gross margin rose to 42.1 percent of sales in the first
quarter of fiscal 1995 compared to 40.8 percent of sales a year ago.
The improvement in the current quarter reflects the continued shift in
the product portfolio towards higher margin analog and mixed signal
products and increased utilization of wafer fabrication capacity
(approximately 88 percent in 1995 versus 83 percent in 1994). Gross
margins for analog and mixed signal products exceeded 50 percent in the
current quarter, reflecting a two percentage point increase from a year
ago. Effective the first quarter of fiscal 1994, the Company reclassed
certain period expenses from cost of sales to research and development
expense or to selling, general and administrative expense. These
reclassifications were made to more closely align the Company with
industry practices.
Research and Development Research and development ("R&D") expenses
were up slightly as a percentage of sales quarter over quarter at 11.9
percent for the quarter ended August 28, 1994 versus 11.3 percent for
the quarter ended August 29, 1993. The Company continues to direct its
R&D efforts toward high growth target markets in automotive, personal
computers, mass storage, business communications, and telecommunications
markets.
<PAGE>
Selling, General and Administrative Selling, general and
administrative ("SG&A") expenses were $98.1 million, or 17.7 percent of
sales, in the first quarter of fiscal 1995, compared to $101.7 million,
or 18.2 percent of sales in the first quarter of fiscal 1994. SG&A
expenses included net intellectual property income of $4.6 million and
$1.4 million in the first quarter of fiscal 1995 and 1994, respectively.
In addition, a $6.5 million charge for the consolidation of sales and
marketing facilities in Japan was included in fiscal 1994 SG&A expenses.
Exclusive of the above items, SG&A expenses were $102.7 million or 18.5
percent of sales and $96.6 million or 17.3 percent of sales for the
first quarter of fiscal 1995 and 1994, respectively. The increase in
SG&A expense both in absolute dollars and as a percentage of sales is
primarily due to annual merit increases in salaries for all employees,
additional product advertising and promotional costs, and increased
costs for certain employee benefit plans.
Interest Income and Interest Expense Net interest income for the
quarter ended August 28, 1994, was $4.5 million compared to $1.7 million
for the first quarter of fiscal 1994. The increase in net interest
income relates to an increase in the cash and investment balance coupled
with higher average interest rates. In addition, interest expense has
decreased as the Company continues to pay down its debt.
Income Taxes The effective tax rate for fiscal 1995 is 20 percent
compared to 15 percent for fiscal 1994. The increase in the annual
effective tax rate primarily relates to the exhaustion of certain net
operating loss and tax credit carry forwards.
Foreign Operations The Company has manufacturing facilities in
Southeast Asia and Europe and sales offices throughout the United
States, Southeast Asia, Europe, and Japan. A portion of the
transactions at these facilities are denominated in local currency,
which exposes the Company to risk from exchange rate fluctuations. The
Company's risk exposure from expenses at foreign manufacturing
facilities is concentrated in pound sterling, Singapore dollar and
Malaysian ringitt. Net non-U.S. dollar denominated asset and liability
positions are hedged, where practical, using forward exchange and
purchased option contracts. The Company's risk exposure from foreign
revenue is limited to the Japanese yen and major European currencies,
primarily Deutsche marks, French francs and Italian lira. The Company
hedges up to 100 percent of the notional value of outstanding customer
orders denominated in foreign currency using forward exchange contracts
and over-the-counter foreign currency options. A portion of anticipated
foreign sales commitments is, at times, hedged using purchased option
contracts which have an original maturity of one year or less.
Financial Condition Cash and cash equivalents decreased $45.5
million in the quarter ended August 28, 1994, as compared to an increase
of $11.1 million in the prior year's comparable quarter. The
significant change resulted from operating activities which provided
$34.6 million of cash in the first quarter of fiscal 1995 compared to
$55.2 million in the first quarter of fiscal 1994 due primarily to
increased cash used for accounts payable and accrued liabilities offset
partially by a decrease in the accounts receivable balance. Investing
activities used $52.7 million in the current quarter, consisting
primarily of the purchase of property, plant, and equipment. Financing
activities used a net of $27.4 million in cash, related primarily to the
repayment of debt and the purchase of 940,000 shares of treasury stock.
The Board of Directors authorized the repurchase of up to 3.5 million
<PAGE>
shares of common stock at current market prices prior to the end of
calendar 1994, of which a total of approximately 1.5 million shares had
been repurchased as of August 28, 1994. In June 1994, a letter of
intent was signed to repurchase the equity interest in two facilities
previously sold and leased back. The terms of this transaction are
currently under negotiation. Cash used in this transaction could range
from $32 million to $100 million. Management believes existing cash and
investment balances, existing lines of credit, cash provided by
operations, and cash generated from issuance of stock to employees will
be sufficient to fund anticipated capital expenditures and other
investing and financing activities through the foreseeable future.
Outlook Despite continued improvement in the financial results,
future trends for revenue and profitability continue to be difficult to
predict. Risks and uncertainties facing the Company include business
conditions and the rate of growth in the personal computer industry and
the general economy; competitive factors and price pressures; market
acceptance and timing of new products; and international economic
conditions. The Company believes sales and gross margins as a
percentage of sales in the foreseeable future will be comparable to the
first quarter. Operating expenses as a percentage of sales are expected
to remain at existing levels. National continues to pursue
opportunities to leverage its intellectual property; however, the timing
and amount of future licensing income cannot be forecast with certainty
at this time.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - -------------------------
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended May 29, 1994, which
information is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
--------
11.0 Additional Fully Diluted Calculation of Earnings Per Share
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fiscal quarter ended
August 28, 1994.
<PAGE>
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 SEMICONDUCTOR CORPORATION
Date: October 3, 1994 /s/ DONALD MACLEOD
------------------
Donald Macleod
Senior Vice President, Finance
Signing on behalf of the registrant
and as principal financial officer
<PAGE>
Exhibit 11.0
Page 1 of 1
NATIONAL SEMICONDUCTOR CORPORATION
ADDITIONAL FULLY DILUTED CALCULATION OF EARNINGS PER SHARE
(in millions, except per share amounts)
Three Months Ended
------------------
Aug. 28, Aug. 29,
1994 1993
------ ------
Net Income $ 59.0 $ 57.1
====== ======
Number of shares:
Weighted average common
shares outstanding 122.4 110.3
Weighted average common
equivalent shares 6.7 9.2
----- -----
Weighted average common and
common equivalent shares 129.1 119.5
Additional weighted average common
equivalent shares assuming
full dilution (a) .1 .5
Shares issuable from
assumed conversion
of preferred shares 12.2 20.4
----- -----
Weighted average common and
common equivalent shares
assuming full dilution 141.4 140.4
===== =====
Income per share
assuming full dilution $ 0.42 $ 0.41
(a) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contradictory to paragraph 40 of APB Opinion
No. 15 because it produces an anti-dilutive result for the three months
ended August 28, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Accounts receivable balance is shown net of allowance consistent with the
balance sheet presentation. Interest expense amount is shown net consistent
with the income statement presentation.
</LEGEND>
<CIK> 0000070530
<NAME> NATIONAL SEMICONDUCTOR
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