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 February 28, 1999
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
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(Exact name of registrant as specified in its charter)
DELAWARE 95-2095071
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(State of incorporation) (I.R.S. Employer Identification Number)
2900 Semiconductor Drive, P.O. Box 58090
Santa Clara, California 95052-8090
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(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 February 28, 1999.
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Common stock, par value $0.50 per share 167,970,413
NATIONAL SEMICONDUCTOR CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months and Nine Months
Ended February 28, 1999 and March 1, 1998 3
Condensed Consolidated Statements of Other
Comprehensive Income(Loss) (Unaudited) for the
Three Months and Nine Months Ended February 28,
1999 and March 1, 1998 4
Condensed Consolidated Balance Sheets (Unaudited)
as of February 28, 1999 and May 31, 1998 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended February 28,
1999 and March 1, 1998 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18-19
Signature 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
------------------ -------------------
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $ 500.1 $ 650.1 $1,479.8 $2,026.7
Operating costs and expenses:
Cost of sales 345.0 414.0 1,176.7 1,246.7
Research and development 119.3 128.9 354.3 358.9
Selling, general and
administrative 82.3 90.9 240.2 274.7
Special items:
Merger costs - - - 30.0
Restructuring of operations - - 12.5 -
In-process R&D charge - 5.2 - 7.7
------- ------ -------- -------
Total operating costs
and expenses 546.6 639.0 1,783.7 1,918.0
------- ------ -------- -------
Operating income(loss) (46.5) 11.1 (303.9) 108.7
Interest income(expense), net (0.3) 4.7 (0.5) 19.8
Other income, net 10.5 13.9 2.5 23.2
------- ------- -------- -------
Income(loss) before
income taxes (36.3) 29.7 (301.9) 151.7
Income tax provision(benefit) (9.1) 7.4 (75.5) 37.9
------- ------ -------- -------
Net income(loss) $(27.2) $ 22.3 $(226.4) $ 113.8
======= ====== ======== =======
Earnings(loss) per share:
Basic $(0.16) $ .14 $(1.36) $ .70
Diluted $(0.16) $ .13 $(1.36) $ .68
Weighted average shares:
Basic 167.5 164.5 166.6 163.5
Diluted 167.5 167.3 166.6 167.7
Income(loss) used in basic
and diluted earnings(loss)
per share calculation $(27.2) $ 22.3 $(226.4) $ 113.8
See accompanying Notes to Condensed Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME(LOSS) (Unaudited)
(in millions)
Three Months Ended Nine Months Ended
------------------ ------------------
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
1999 1998 1999 1998
-------- -------- -------- --------
Net income(loss) $ (27.2) $ 22.3 $ (226.4) $ 113.8
Other comprehensive
income(loss), net of tax:
Unrealized gain(loss) on
available-for-sale
securities (0.1) (0.1) - 2.0
Reclassification adjustment
for realized gain included
in net income - (1.2) - (6.3)
-------- -------- -------- --------
Comprehensive income(loss) $ (27.3) $ 21.0 $ (226.4) $ 109.5
======== ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
Feb. 28, May 31,
1999 1998
ASSETS -------- --------
Current assets:
Cash and cash equivalents $ 457.8 $ 460.8
Short-term marketable investments 105.2 112.4
Receivables, net 199.9 208.5
Inventories 189.6 283.9
Deferred tax assets 132.1 166.2
Other current assets 40.2 76.4
-------- --------
Total current assets 1,124.8 1,308.2
Property, plant and equipment 2,948.7 2,939.7
Less accumulated depreciation (1,340.2) (1,283.9)
-------- --------
Net property, plant and equipment 1,608.5 1,655.8
Other assets 162.7 136.7
-------- --------
Total assets $2,896.0 $3,100.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings and current
portion of long-term debt $ 43.3 $ 53.9
Accounts payable 225.5 237.0
Accrued expenses 307.8 310.9
Income taxes 153.8 191.8
-------- --------
Total current liabilities 730.4 793.6
Long-term debt 444.3 390.7
Deferred income taxes 1.4 4.4
Other non-current liabilities 55.9 53.1
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Total liabilities 1,232.0 1,241.8
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Commitments and contingencies
Shareholders' equity:
Common stock 84.0 82.7
Additional paid-in capital 1,243.0 1,212.8
Retained earnings 349.4 575.8
Accumulated other comprehensive loss (12.4) (12.4)
-------- --------
Total shareholders' equity 1,664.0 1,858.9
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Total liabilities and shareholders' equity $2,896.0 $3,100.7
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions) Nine Months Ended
--------------------
Feb. 28, Mar. 1,
1999 1998
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Cash flows from operating activities:
Net income(loss) $(226.4) $ 113.8
Adjustments to reconcile net income(loss)
with net cash provided by operations:
Depreciation and amortization 297.3 217.7
(Gain)loss on investments 0.1 (8.9)
Tax benefit associated with stock options 0.5 17.7
Loss on disposal of equipment 42.9 9.4
Provision for loss on note receivable 1.6 -
Non-cash special charges 12.5 37.7
Other, net 0.7 (3.7)
Changes in certain assets and liabilities, net:
Receivables 8.6 (3.9)
Inventories 94.3 (76.7)
Other current assets 36.2 (3.7)
Accounts payable and accrued expenses (28.6) (48.2)
Current and deferred income taxes (45.0) 0.7
Other non-current liabilities 2.8 2.5
-------- --------
Net cash provided by operating activities 197.5 254.4
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (260.4) (513.9)
Sale and maturity of marketable investments 131.4 1,001.6
Purchase of marketable investments (124.2) (1,034.9)
Sale of investments 0.1 16.2
Business acquisition, net of cash acquired - (8.3)
Other, net (10.3) (14.1)
-------- --------
Net cash used by investing activities (263.4) (553.4)
-------- --------
Cash flows from financing activities:
Proceeds from bank borrowing 77.5 100.4
Repayment of debt (34.5) (137.2)
Issuance of common stock, net 19.9 53.7
-------- --------
Net cash provided by financing activities 62.9 16.9
-------- --------
Net change in cash and cash equivalents (3.0) (282.1)
Adjustment to conform pooling of interest for
cash and cash equivalents at beginning of year - 17.6
Cash and cash equivalents at beginning of period 460.8 897.8
-------- --------
Cash and cash equivalents at end of period $ 457.8 $ 633.3
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments 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 the
fiscal year ended May 31, 1998.
Earnings Per Share:
A reconciliation of the shares used in the computation for basic and
diluted earnings per share follows:
Three Months Ended Nine Months Ended
-------------------- --------------------
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
(in millions) 1999 1998 1999 1998
------- -------- -------- --------
Net income(loss) used for
basic and diluted
earnings per share $ (27.2) $ 22.3 $ (226.4) $ 113.8
======= ======== ======== ========
Number of shares:
Weighted average common
shares outstanding used for
basic earnings per share 167.5 164.5 166.6 163.5
Effect of dilutive
securities:
Stock options - 2.8 - 4.2
------- -------- -------- --------
Weighted average common
and potential common shares
outstanding used for
diluted earnings per share 167.5 167.3 166.6 167.7
======= ======== ======== ========
As of February 28, 1999, there were options outstanding to purchase 29.9
million shares of the Company's common stock with a weighted-average
exercise price of $15.28, which could potentially dilute basic earnings
per share in the future, but which were not included in the computation
of diluted earnings per share as their effect was antidilutive. As of
February 28, 1999, the Company also had outstanding $258.8 million of
convertible subordinated notes, which are convertible into approximately
6.0 million shares of common stock. These notes were not assumed to be
converted in the computation of diluted earnings per share because they
were antidilutive in all periods presented.
Comprehensive Income:
Beginning in fiscal 1999, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive
income and its components. SFAS No. 130 requires the Company to include
unrealized gains or losses on the Company's available-for-sale
securities and minimum pension liability, which were previously reported
as separate components of shareholder's equity, in other comprehensive
income.
The components of accumulated other comprehensive loss are as follows:
Feb. 28, May 31,
(in millions) 1999 1998
------- --------
Unrealized gain on available-for-sale
securities, net of tax $ 0.1 $ 0.1
Minimum pension liability (12.5) (12.5)
------- -------
$ (12.4) $ (12.4)
======= =======
Note 2. Restructuring of Operations
In October 1998, the Company announced plans to consolidate its wafer
manufacturing operations in Greenock, Scotland and to seek investors to
acquire and operate the facility in Greenock as an independent foundry
business. This action was prompted by continued weakness in the
semiconductor market, which resulted in overall lower capacity
utilization of the Company's manufacturing facilities. The Company
engaged the services of an investment banker to assist in seeking a
potential investor to acquire and operate the Greenock facility. The
Company will close its 4-inch wafer fabrication facility ("Fab 1") in
Greenock and consolidate Fab 1 manufacturing into its 6-inch wafer
fabrication facility on the same site. The Company will also move some
of the Greenock capacity and related processes to its manufacturing
facility in Arlington, Texas. This action will reduce the Greenock
workforce by approximately 600 employees and is expected to be completed
by the third quarter of fiscal 2000. The Greenock assets have been
treated as assets to be held and used since they cannot be removed
immediately from operations. In connection with the closure of Fab 1,
the Company recorded a restructuring charge of $21.3 million in its
second quarter ended November 29, 1998. The charge included $11.9
million for severance, $3.9 million for costs associated with the
dismantling of Fab 1 and approximately $5.5 million for other related
exit costs. To date the Company has paid no amounts for severance or
other related exit costs. Included in accrued expenses at February 28,
1999, is $21.3 million related to the actions previously described.
Other costs associated with this action, which include process transfer
costs and employee retention bonuses, are being charged to operations as
incurred. Operating loss for the three months ended February 28, 1999,
included $3.3 million related to process transfer costs and $2.7 million
related to employee retention bonuses. The Company also incurred
accelerated depreciation on the Greenock assets of approximately $9.5
million for the three months ended February 28, 1999.
The charge for consolidating Greenock was offset by an $8.8 million
release of excess reserves related to certain prior restructure actions.
The release included $2.8 million of severance, $2.3 million of asset
write-offs and $3.7 million of other exit costs. The release of excess
reserves was prompted by the completion during the quarter of remaining
actions associated with the closure of the Company's 5-inch and 6-inch
wafer fabrication facilities in Santa Clara, California and a worldwide
workforce reduction plan. The timing of these actions was consistent
with the timetable previously announced in April 1998. In addition, the
Company was able to sell or transfer to its other manufacturing
facilities substantially all of the surplus assets from the 5-inch and
6-inch wafer fabrication facilities.
The net restructure charge is reported as a special item in the
statement of operations for the nine months ended February 28, 1999.
Note 4. Consolidated Financial Statement Detail
The components of inventories were:
Feb. 28, May 31,
(in millions) 1999 1998
------- -------
Raw materials $ 18.9 $ 19.3
Work in process 107.2 176.0
Finished goods 63.5 88.6
------- -------
Total inventories $ 189.6 $ 283.9
======= =======
Components of other interest
Income(expense), net and other
income, net, were:
Three Months Ended Nine Months Ended
------------------ -----------------
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
1999 1998 1999 1998
------- ------- ------- ------
Interest income(expense), net
- -----------------------------
Interest income $ 7.1 $ 12.1 $ 20.6 $ 38.7
Interest expense $ (7.4) $ (7.4) $ (21.1) $ (18.9)
------- ------- ------- -------
Interest income(expense), net $ (0.3) $ 4.7 $ (0.5) $ 19.8
======= ======= ======= =======
Other income, net
- -----------------
Net intellectual property income $ 10.5 $ 11.7 $ 10.9 $ 14.3
Gain(loss)on investments, net - 1.8 (0.1) 10.3
Other - 0.4 (8.3) (1.4)
------- ------- ------- -------
Total other income, net $ 10.5 $ 13.9 $ 2.5 $ 23.2
======= ======= ======= =======
Note 5. Statement of Cash Flow Information
Nine Months Ended
--------------------
Feb. 28, Mar. 1,
(in millions) 1999 1998
------- -------
Supplemental Disclosure of Cash Flow
Information
Cash paid(refunded) for:
Interest $ 21.5 $ 23.6
Income taxes (42.1) .1
Interest on tax settlements 2.9 17.8
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock for employee benefit plans $ 1.3 $ 2.5
Issuance of restricted stock 2.5 17.7
Unrealized gain on available-for-sale
securities - (4.3)
Restricted stock cancellation 1.4 .2
Note 6. One-Time Charge Associated with Contract Termination
On September 25, 1998, the Company announced that it had reached
agreement with International Business Machines Corporation ("IBM") for
termination of the wafer manufacturing and marketing agreement that
previously existed between its Cyrix Corporation ("Cyrix") subsidiary and
IBM. Under terms of the agreement, the Company's Cyrix subsidiary has
been relieved of its obligations to purchase wafers from IBM and IBM has
ceased the competitive sale of Cyrix-designed processors to customers
other than National. In addition, Cyrix transferred to IBM ownership of
certain assets that physically resided at an IBM facility. As a result
of the contract termination and asset transfers, the Company incurred a
one-time charge of $48.6 million recorded in cost of sales in the nine
months ended February 28, 1999. The one-time charge included $30.6
million for the write-off of manufacturing assets transferred to IBM and
$18 million for the write-off of prepaid wafer purchases and other costs
associated with terminating the original agreement.
Note 7. Contingencies
In fiscal 1997 and 1999, the Company received notices of assessment from
the Malaysian Inland Revenue Department totaling 199.9 million Malaysian
ringitts ($52.6 million). The issues giving rise to the assessments
primarily relate to intercompany transfer pricing for the Company's
manufacturing operations in Malaysia for fiscal year 1985 through 1993.
In February 1999, the Company reached an agreement in substance with the
Malaysian Inland Revenue Department to settle all outstanding
assessments. The Company anticipates that the amount of the final
assessments will be covered by previously established reserves.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview The Company recorded net sales of $500.1 million and $1,479.8
million for the third quarter and first nine months of fiscal 1999,
respectively. This represents a 23.1 percent and 27.0 percent decrease from
net sales of $650.1 million and $2,026.7 million, respectively, for the same
periods of fiscal 1998. Lower sales were caused by significant price
reductions in the Cyrix M II line of products due to increased competition and
availability of new higher speed processor products from competitors, and the
lack of successful new product introductions from the Company's networks
division. Lower sales were also heavily driven by a general slowdown in new
orders the Company experienced beginning in the second half of fiscal 1998
through the third quarter of fiscal 1999. Economic uncertainties in Japan and
the Asia Pacific region that prevailed during the first half of calendar 1998,
partially contributed to the slowdown in new orders.
A net loss of $27.2 million and $226.4 million was recorded for the third
quarter and first nine months of fiscal 1999, respectively, compared to net
income of $22.3 million and $113.8 million for the same periods of fiscal
1998. The net loss was primarily attributable to lower sales and margin
erosion mainly due to lower factory utilization. Results for the first nine
months of fiscal 1999 included a $21.3 million charge in the second quarter
for restructuring of operations related to the announced consolidation of its
wafer manufacturing operations in Greenock, Scotland (See Restructuring of
Operations). This restructure charge was offset by an $8.8 million release in
the second quarter of excess reserves related to certain prior restructure
actions, which were substantially completed. The net restructure charge is
reported as a special item in the statement of operations. The Company also
recorded a one-time charge of $48.6 million in the second quarter for costs
associated with the termination of a wafer manufacturing and marketing
agreement between its Cyrix subsidiary and IBM (See Note 6). This charge is
included in cost of sales for the first nine months of fiscal 1999. Special
items in the comparable first nine months of fiscal 1998 included acquisition
related charges of $7.7 million for in-process research and development, plus
a $30.0 million charge related to certain merger and related expenses in
connection with the acquisition of Cyrix Corporation.
Sales The decline in sales was a result of both lower volume and price
erosion in most of the Company's product areas. Sales for analog products
declined in the third quarter and first nine months of fiscal 1999 by 11.1
percent and 19.4 percent, respectively, from sales for the same periods of
fiscal 1998. General weakness experienced by the Company since the second
half of fiscal 1998 in the PC and communications product related markets
contributed to the overall decline in sales for the Company's analog products.
Industry-wide excess capacity caused average analog selling prices to decline
sequentially in each of the three fiscal quarters in 1999, which more than
offset sequential volume increases in the second and third quarter of fiscal
1999. Analog unit volume in the third quarter of fiscal 1999 was actually
higher than in the third quarter of fiscal 1998. Price pressure caused by a
significant shift toward manufacturing lower cost PCs in the PC industry and
weakness in the communications markets also caused lower sales for wide area
networks ("WAN") products and certain other PC related peripheral products.
Sales for WAN products (including application specific wireless communication
products) declined 17.3 percent and 11.1 percent in the third quarter and
first nine months of fiscal 1999, respectively, from the same periods of
fiscal 1998. The decline reflected lower unit shipments while unit prices
generally remained flat. Despite the decline in year to date fiscal 1999
sales, sales for WAN products in the current quarter grew significantly over
sales for the previous second quarter. Sales for network products declined
63.2 percent and 65.8 percent in the third quarter and first nine months of
fiscal 1999, respectively, over sales for the same periods of fiscal 1998, as
the Company continued to experience declining shipments and price erosion in
its existing mature portfolio of ethernet products. The Company's failure to
introduce successful new network products during fiscal 1998 was the primary
cause of the sharp drop in fiscal 1999 sales for networks products. Unit
volume of Cyrix M II products increased in the third quarter of fiscal 1999,
causing an increase in sales of 27.9 percent over sales for the third quarter
of fiscal 1998. Cyrix sales for the first nine months of fiscal 1999 declined
5.8 percent from sales for the first nine months of fiscal 1998, although unit
volume increased. Despite growth in the overall market demand for sub-$1,000
PCs, which is the target market for Cyrix M II products, Cyrix volume and
average selling prices were negatively impacted by highly competitive pricing
trends as well as higher speed processor offerings by competitors in
comparison to Cyrix products. Sales for certain other PC related peripheral
products declined approximately 51 percent and 48 percent in the third quarter
and first nine months of fiscal 1999, respectively, compared to the same
periods of fiscal 1998.
Gross Margin Gross margin as a percentage of sales declined to 31.0
percent and 20.5 percent for the third quarter and first nine months of fiscal
1999, respectively, compared to 36.3 percent and 38.5 percent for the same
periods in fiscal 1998. Excluding the effect of the one-time charge related
to the IBM contract termination, gross margin for the first nine months of
fiscal 1999 was 23.8 percent. The primary factors contributing to the decline
in gross margin continued to be lower factory utilization combined with price
erosion, particularly in the Cyrix microprocessor products. While the IBM
action has enabled the Company to ramp-up its own microprocessor manufacturing
and more fully utilize the capacity available in its 0.35/0.25 micron wafer
fabrication facility in Maine, factory utilization declined from 82 percent
for the third quarter of fiscal 1998 to 64 percent for the third quarter of
fiscal 1999. With the exception of Maine, the Company continued to run its
other manufacturing facilities at reduced capacity utilization rates in order
to manage inventory levels and control cost. Until the Company completes the
closure of its 4-inch wafer fabrication facility in Greenock and moves this
capacity and related processes to its other manufacturing facilities, overall
factory utilization will continue to run lower due to declining capacity
utilization in the Greenock facility. Despite an overall decline from fiscal
1998, factory utilization in the third quarter of fiscal 1999 increased
slightly over the rate of 62 percent for the second quarter. This increase
together with a better mix of higher margin analog and wireless product
shipments contributed to quarterly sequential improvement in gross margin for
the third quarter of fiscal 1999.
Research and Development Research and Development ("R&D") expense for
the third quarter and first nine months of fiscal 1999 decreased 11.0 percent
and 3.3 percent, respectively, from the comparable periods of fiscal 1998.
R&D expenses for the third quarter of fiscal 1998 included a $5.2 million
special charge for in-process R&D related to the acquisition of technology
from Gulbransen Corporation. For the first nine months of fiscal 1998, R&D
expenses included an additional $2.5 million special charge for in-process R&D
related to the acquisition of Future Integrated Systems, Inc. Excluding the
effect of these special charges from the comparable fiscal 1998 periods, R&D
expenses in the third quarter and first nine months of fiscal 1999 decreased
7.4 percent and 1.3 percent, respectively. The decrease in R&D reflects the
Company's efforts to better align its R&D spending with current business
conditions. Overall, the Company's R&D expenses continue to be heavily
focused on advanced submicron CMOS process technology, which is consistent
with one of the Company's stated strategic imperatives. The Company has also
invested resources in the development of Cyrix microprocessor-based products.
Its efforts have been focused on the development of new microprocessor cores
and the integration of those cores with the Company's other technological
capabilities in order to develop system-on-a-chip products aimed at the
emerging information appliances market. The Company also continues to invest
resources in the development of new analog and mixed-signal technology based
products for applications in the personal systems, communications and consumer
markets. R&D spending for fiscal 1999 for process technology continued to
grow over the fiscal 1998 spending levels. However, this growth was offset by
a decline in spending for product development as part of management's
alignment of spending with current business conditions. Through the first
nine months of fiscal 1999, the Company devoted approximately 33 percent of
its R&D effort towards the development of process technology and 67 percent
towards new product development.
Selling, General and Administrative Selling, general and administrative
("SG&A") expenses for the third quarter and first nine months of fiscal 1999
decreased by 9.5 percent and 12.6 percent, respectively, from the same periods
in fiscal 1998. The decrease reflects certain cost reduction actions taken by
the Company to reduce its overall cost structure in response to weakened
business conditions from the second half of fiscal 1998 through the current
quarter.
Restructuring of Operations In October 1998, the Company announced plans to
consolidate its wafer manufacturing operations in Greenock, Scotland and to
seek investors to acquire and operate the facility in Greenock as an
independent foundry business. This action was prompted by continued weakness
in the semiconductor market, which resulted in overall lower capacity
utilization of the Company's manufacturing facilities. The Company engaged
the services of an investment banker to assist in seeking a potential investor
to acquire and operate the Greenock facility. The Company will close its 4-
inch wafer fabrication facility ("Fab 1") in Greenock and consolidate Fab 1
manufacturing into its 6-inch wafer fabrication facility on the same site.
The Company will also move some of the Greenock capacity and related processes
to its manufacturing facility in Arlington, Texas. This action will reduce
the Greenock workforce by approximately 600 employees and is expected to be
completed by the third quarter of fiscal 2000. The Greenock assets have been
treated as assets to be held and used since they cannot be removed immediately
from operations. In connection with the closure of Fab 1, the Company
recorded a restructuring charge of $21.3 million in its second quarter ended
November 29, 1998. The charge included $11.9 million for severance, $3.9
million for costs associated with the dismantling of Fab 1 and approximately
$5.5 million for other related exit costs. To date the Company has paid no
amounts for severance or other related exit costs. Included in accrued
expenses at February 28, 1999, is $21.3 million related to the actions
previously described.
Other costs associated with this action, which include process transfer
costs and employee retention bonuses, are being charged to operations as
incurred. Operating loss for the three months ended February 28, 1999,
included $3.3 million related to process transfer costs and $2.7 million
related to employee retention bonuses. The Company also incurred
accelerated depreciation on the Greenock assets of approximately $9.5
million for the three months ended February 28, 1999. An additional
$17-$22 million of process transfer costs, $7 million of employee
retention bonuses and accelerated depreciation of approximately $9.5
million per quarter are still expected to be charged to future
operations. These additional charges are expected to be incurred
through the third quarter of fiscal 2000 when the Company expects the
Fab 1 closure and process transfers to be completed.
The charge for consolidating Greenock was offset by an $8.8 million release of
excess reserves related to certain prior restructure actions. The release
included $2.8 million of severance, $2.3 million of asset write-offs and $3.7
million of other exit costs. The release of excess reserves was prompted by
the completion during the first nine months of fiscal 1999 of remaining
actions associated with the closure of the Company's 5-inch and 6-inch wafer
fabrication facilities in Santa Clara, California and a worldwide workforce
reduction plan. The timing of these actions was consistent with the timetable
previously announced in April 1998. In addition, the Company was able to sell
or transfer to its other manufacturing facilities substantially all of the
surplus assets from the 5-inch and 6-inch wafer fabrication facilities. The
net restructure charge is reported as a special item in the statement of
operations for the nine months ended November 29, 1998.
Interest Income and Interest Expense Net interest expense was $0.3
million and $0.5 million for the third quarter and first nine months of fiscal
1999, respectively, compared to net interest income of $4.7 million and $19.8
million for the same periods in fiscal 1998. Net interest expense was
primarily attributable to less interest earned on lower cash balances while
interest expense was relatively consistent between periods. Capitalized
interest associated with capital expansion projects had no effect on interest
expense quarter to quarter. For the first nine months of fiscal 1999, the
Company capitalized $0.2 million of interest associated with capital expansion
projects, which was recorded in the first quarter. This compares to $5.4
million of interest capitalized for the first nine months of fiscal 1998,
which was also recorded in the first quarter.
Other Income/Expense, Net Other income, net was $10.5 million and $2.5
million for the third quarter and first nine months of fiscal 1999,
respectively. This compares to other income, net of $13.9 million and $23.2
million for the same periods in fiscal 1998. For the third quarter of fiscal
1999, other income, net included $10.5 million of net intellectual property
income primarily related to a significant licensing agreement with a Korean
firm. This compares to other income, net for the third quarter of fiscal
1998, which included $11.7 million of net intellectual property income related
to a significant licensing agreement with another Korean firm, as well as
smaller ongoing royalty receipts. Other income, net for the third quarter of
fiscal 1998 also included a $1.8 million gain from investments primarily
arising from the sale of stock from the Company's investment holdings and a
$0.4 million gain from foreign currency forward contracts. Other income, net
for the first nine months of fiscal 1999 included an additional $0.4 million
of net intellectual property income for a total $10.9 million and a $0.3
million gain on the sale of technology. This was offset by a $7.0 million
settlement of disputes involving intellectual property rights and a $1.7
million net loss on equity investments primarily attributable to the write-
down of an investment to net realizable value. This compares to other income,
net for the first nine months of fiscal 1998, which included $14.3 million of
net intellectual property income and a $10.3 million net gain from the sale of
stock from the Company's investment holdings. This was offset by a net loss
of $1.4 million from foreign currency forward contracts.
Income Tax Provision/Benefit Income tax benefit for fiscal 1999 is based on
the Company's expected effective tax rate of 25 percent.
Financial Condition During the first nine months of fiscal 1999, cash and
cash equivalents decreased by $3.0 million compared to a $282.1 million
decrease for the first nine months of fiscal 1998. A reduction in capital
expenditures for fiscal 1999 from the level expended in fiscal 1998 was a
primary factor in this overall improvement. The Company's investment in
property, plant and equipment in fiscal 1999 was $260.4 million compared to a
$513.9 million investment in fiscal 1998. The increase in cash generated from
financing activities of $62.9 million in fiscal 1999 over cash generated from
financing activities of $16.9 million in fiscal 1998 was also a contributing
factor. Although proceeds from debt of $77.5 million in fiscal 1999 were
lower compared to proceeds from debt of $100.4 million in fiscal 1998, debt
repayments were also substantially lower in fiscal 1999, declining from $137.2
million in fiscal 1998, which included the redemption of $126.4 million of the
5.5% convertible subordinated notes to $34.5 million in the current year.
This was offset by less cash generated from operating activities of $197.5
million in fiscal 1999 compared to $254.4 million in fiscal 1998. Operating
cash was negatively impacted by the losses incurred in fiscal 1999, but was
positively impacted by the Company's efforts to manage working capital.
Significantly reduced inventories and large tax refunds were the most notable
outcomes of these efforts.
Management foresees substantial cash outlays for plant and equipment
throughout fiscal 1999 with primary focus on capacity expansion in the Maine
8-inch wafer fabrication facility, next generation process capability and
implementation and expansion of in-house assembly and test capacity for Cyrix
microprocessors. Total capital expenditures in fiscal 1999 are expected to be
significantly lower than in fiscal 1998. Existing cash and investment
balances, together with existing lines of credit, are expected to be
sufficient to finance planned fiscal 1999 capital investments.
Outlook The statements contained in this Outlook and in the Financial
Condition section of Management's Discussion and Analysis are forward looking
based on current expectations and management's estimates. Actual results may
differ materially from those set forth in these forward looking statements.
In addition to the risk factors discussed in the Financial Condition and
Outlook sections of Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 24 through 28 of the Company's
1998 Annual Report on Form 10-K for the fiscal year ended May 31, 1998 filed
with the Securities and Exchange Commission, the following factors may also
affect the Company's operating results for fiscal 1999:
Business conditions for the semiconductor industry and the Company remained
weak through the winter quarter as new orders declined in the post holiday
season. Although the Company experienced a general decline in new orders, new
orders for analog products improved. In particular, new orders for wireless
products showed significant improvement near the end of the quarter. This
increase in order rates resulted in sequential quarterly improvement of sales
in fiscal 1999 for these product areas. The Company believes its business in
these areas is strong and growing and anticipates this improvement to continue
into the spring. However, the Company still remains cautious about its future
outlook, particularly with respect to the PC processor marketplace and its
impact on the Cyrix business. The Company also continued to see a very high
order turns environment in the third quarter causing a lack of forward
visibility into the spring quarter. Moreover, the Company has entered the
fourth quarter with a lower backlog level than it has experienced in any
previous quarter of fiscal 1999. There is no assurance that the improvement
in order rates will continue for any duration of time. Based on current
conditions, the Company expects to incur a loss for the fourth quarter of
fiscal 1999.
The Company's focus also has shifted toward the consumer segment of the PC
market since the acquisition of Cyrix. As a result, the Company faces the
risk that its overall business will be affected by the higher degree of
seasonality associated with the consumer segment. Based on a growing supply
of microprocessor products in the PC industry, the Company anticipates a more
aggressive pricing environment for its microprocessor business during calendar
1999. The Company will also experience increased pressure to rapidly release
new processors with higher operating speeds to respond to growing competition
in the sub-$1,000 PC market. The Company's inability to endure future price
competition or to release new processors in a timely fashion will cause an
unfavorable impact on future sales and results of operations. The Company's
inability to provide a full range of speeds in processors will also have an
unfavorable impact on its competitive position in the market.
The Company's future sales and results of operations may also be unfavorably
affected by the following additional factors. Since the spring quarter of
fiscal 1998, the Company has devoted efforts to develop new network products
based on digital signal processing technology in order to recover its market
position in the networks business. The Company's sales and results of
operations may be affected by unforeseen obstacles or schedule delays, and
customer acceptance. The Company anticipates the development of the
MacPhyter, the first of those products, to generate sales late in the first
quarter of fiscal 2000. The Company also continues to evaluate its
discretionary spending and management is committed to take necessary actions
to align its costs with current business conditions. While such actions are
expected to benefit the cost structure for future ongoing operations, certain
actions may have an unfavorable impact on the Company's operating results in
the near term.
Unless new orders substantially improve from the rate of orders currently
experienced, the Company will continue to run its manufacturing facilities at
reduced capacity utilization rates to manage inventories and reduce cost.
Consequently, gross margin will continue to be adversely affected. The
Company will align the level of wafer starts in its 8-inch wafer fabrication
facility in Maine, primarily to support business demand for Cyrix products.
Should the Company be unsuccessful in growing its Cyrix business as planned,
the level of wafer starts in the Maine facility will be unfavorably affected.
The Company will also continue to aggressively transfer processes from the 4-
inch wafer fabrication facility in Greenock into the 6-inch wafer fabrication
facility on the same site. Some of the capacity and related processes will
also be moved to the Company's manufacturing facility in Arlington, Texas.
These actions are expected to improve future capacity utilization. In the
short-term, the Company will incur incremental transfer costs and accelerated
depreciation related to the 4-inch wafer fabrication facility closure. As a
result, the Company does not expect any significant improvement in gross
margin for the fourth quarter of fiscal 1999.
As previously discussed, the Company announced plans to consolidate its wafer
manufacturing operations in Greenock, Scotland and to seek investors to
acquire and operate the facility as an independent foundry business. If the
Company encounters unexpected delays or other problems related to these
planned actions, future operating results may be unfavorably affected. The
Company may also be unsuccessful in seeking investors to acquire the
operations under terms acceptable to the Company. Retention of the
manufacturing operations may have an unfavorable impact on the Company's
future operating results. It is also difficult to predict the final impact on
the Company's future operating results of the planned spinout, since the
structure and timing have not yet been determined. A final price lower than
originally estimated will have an unfavorable impact on the Company's future
operating results.
The following supplements the discussion included in the Outlook section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1998 Annual Report on Form 10-K for the fiscal
year ended May 31, 1998, related to the Company's efforts to undertake year
2000 projects. To date the Company has devoted a substantial portion of its
year 2000 efforts evaluating, modifying and testing its critical business
applications, manufacturing tools and computer systems to be year 2000 ready
by the beginning of calendar 1999. The Company has also devoted considerable
effort to assessing its supply and customer base to monitor the potential
impact of year 2000 issues that are outside the Company's direct control.
Although substantial progress has been made, not all related activities have
been fully completed. Failure to successfully complete year 2000 projects
could cause significant disruption to operations. Such disruptions may
include, but are not limited to, interruption of manufacturing activities, and
inability to process invoices, payments or other systematic business
transactions. The Company believes that the largest remediation effort and
greatest risk from year 2000 issues arise from its manufacturing and logistics
operations. Failure to successfully implement year 2000 modifications in
manufacturing tools and related systems could result in the inability to
manufacture and deliver products to customers. Projects related to the
Company's manufacturing processes are expected to be completed by June 1999.
The Company is also currently evaluating its exposure to contingencies related
to the year 2000 issues for products it has sold. The Company believes that
its products do not directly contain century counters that provide calendar
year functions. However, customers may use the Company's products in
conjunction with customer supplied software over which the Company has no
control that may perform non-compliant year 2000 date computations. As a
result, there is a risk of litigation associated with the use of such products
by customers. Such risks include all the uncertainties and cost associated
with litigation. While there can be no assurance that unforeseen problems
will not be encountered, the Company expects that all critical year 2000
remediation projects will be completed on schedule. Because of its focus in
ensuring the remediation projects are on schedule, the Company has not yet
fully developed contingency plans to address all alternative solutions in the
event the Company fails to successfully make any of its critical systems year
2000 ready. The Company has begun to develop contingency plans directed at
mission-critical systems and process and will finalize these plans as it
completes its remediation efforts. At that time, the Company believes it will
be better able to identify any deficiencies and appropriately develop specific
contingency plans.
The forward looking statements discussed or incorporated by reference in this
outlook section involve a number of risks and uncertainties. Other risks and
uncertainties include, but are not limited to, the general economy, regulatory
and international economic conditions, the changing environment of the
semiconductor industry, competitive products and pricing, growth in the PC and
communications industries, the effects of legal and administrative cases and
proceedings, and such other risks and uncertainties as may be detailed from
time to time in the Company's SEC reports and filings.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in the Company's Annual Report on Form
10-K for the year ended May 31, 1998 and to the subheading "Financial
Market Risks" under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 28 of the
Company's Annual Report on Form 10-K for the year ended May 31, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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Except as noted below, there have been no material developments in
the legal proceedings reported in Item 3 in the Company's Annual Report
on Form 10-K for the year ended May 31, 1998.
In the Cyrix class action lawsuit, a motion to dismiss the amended
complaint was heard in January 1999. The motion was granted in part,
and the case is now proceeding to discovery.
In February 1999, the Company reached an agreement in substance
with the Malaysian Inland Revenue Department to settle all outstanding
assessments. The Company anticipates that the amount of the final
assessments will be covered by previously established reserves.
On January 15, 1999, a class action lawsuit claiming damages for
personal injury was filed in California state court against the Company
by nine present and former employees. The complaint alleges that cancer
and reproductive harm were caused to employees exposed to chemicals in
the workplace. The Company has not yet been served with the complaint.
The Company believes the action is without merit, and, if served,
intends to contest it vigorously.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
3.1 Second Restated Certificate of Incorporation of the Company as
amended (incorporated by reference from the Exhibits to the
Company's Registration Statement on Form S-3 Registration NO. 33-
52775, which became effective March 22, 1994); Certificate of
Amendment of Certificate of Incorporation dated September 30, 1994
(incorporated by reference from the Exhibits to the Company's
Registration Statement on Form S-8 Registration No. 333-09957,
which became effective August 12, 1996).
3.2 By Laws of the Company (incorporated by reference from the Exhibits
to the Company's Form 10-Q for the quarter ended August 30, 1998
filed October 2, 1998).
4.1 Rights Agreement (incorporated by reference from the Exhibits to
the Company's Registration Form 8-A filed August 10, 1988). First
Amendment to the Rights Agreement (incorporated by reference from
the Exhibits to the Amendment No. 1 to the Company's Registration
Statement on Form 8-A filed December 11, 1995). Second Amendment
to the Rights Agreement dated as of December 17, 1996 (incorporated
by reference from the Exhibits to the Company's Amendment No. 2 to
the Registration Statement on Form 8-A filed January 17, 1997).
4.2 Form of Common Stock Certificate (incorporated by reference from
the Exhibits to the Company's Registration Statement on Form S-3
Registration No. 33-48935, which became effective October 5, 1992).
4.3 Indenture dated as of September 15, 1995 (incorporated by reference
from the Exhibits to the Company's Registration Statement on Form
S-3 Registration No. 33-63649, which became effective November 6,
1995).
4.4 Form of Note (incorporated by reference from the Exhibits to the
Company's Registration Statement on From S-3 Registration No. 33-
63649, which became effective November 6, 1995).
4.5 Indenture dated as of May 28, 1996 between Cyrix Corporation
("Cyrix") and Bank of Montreal Trust Company as Trustee
(incorporated by reference from the Exhibits to Cyrix's
Registration Statement on Form S-3 Registration No. 333-10669,
which became effective August 22, 1996).
4.6 Registration Rights Agreements dated as of May 28, 1996 between
Cyrix and Goldman, Sachs & Co. (incorporated by reference from the
Exhibits to Cyrix's Registration Statement on Form S-3 Registration
No. 333-10669, which became effective August 22, 1996).
10.1 Management Contract or Compensatory Plan or Agreement: Settlement
Agreement and General Release with Robert M. Penn, dated February
9, 1999.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ending February
28, 1999.
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: April 9, 1999 /s/ Lewis Chew
----------------------------------
Lewis Chew
Vice President and Controller
Signing on behalf of the registrant
and as principal accounting officer
Exhibit 10.1
SETTLEMENT AGREEMENT AND GENERAL RELEASE
This Settlement Agreement and General Release (hereinafter
"Agreement") is entered into this 9th day of February, 1999("Effective
Date"), by and between Robert M. Penn (hereinafter "Employee") and
National Semiconductor Corporation (hereinafter "Company").
WHEREAS, Employee and the Company have agreed that Employee's
active employment at the Company will be terminated effective as of
February 1, 2000; and
WHEREAS, Company desires to provide termination benefits to
Employee in connection with the termination on the terms specified
herein; and
WHEREAS, Company and Employee acknowledge that the termination
benefits specified herein are greater than Employee would otherwise be
entitled to upon termination of his employment; and
WHEREAS, Company and Employee desire to settle fully and finally
all differences between them;
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, Employee and Company agree as follows:
1. Effective as of February 1, 1999 ("Resignation Date"),
Employee shall resign as an active employee and shall be relieved of any
further obligations to perform services as an employee on behalf of the
Company. Employee agrees to resign all positions held by Employee in the
Company or any of its subsidiaries on or before the Resignation Date.
2. Subject to the limitation set forth below, from and after the
Resignation Date, as consideration for this Agreement and in lieu of any
other severance payment, the Company will continue to pay Employee's
salary (at current levels and less any withholdings required by law) and
all associated benefits (for those individuals covered at the Resignation
Date), including but not limited to those benefits listed on Exhibit A
but specifically excluding vacation accrual, as if Employee were an
active employee for an additional period of one year, ending on the one
year anniversary of the Resignation Date (which date shall be referred to
as the "Termination Date"). If Employee accepts full-time employment
(not including consulting) prior to the Termination Date, Employee shall
so notify Company's Vice President, Human Resources. In such case,
Company shall pay to Employee in a lump sum the amount of additional
salary (but not benefits) that would otherwise have been paid to Employee
through the Termination Date. In the event of the untimely death of
Employee prior to the Termination Date, the Company shall pay to
Employee's beneficiary or estate in a lump sum the amount of additional
salary (but not benefits) that would otherwise have been paid to Employee
through the Termination Date, provided said sum has not already been paid
to Employee. The Company's internal records shall reflect that
Employee's employment terminated as a result of voluntary resignation on
the date that salary and benefits end.
3. Employee will be eligible for an Executive Officer Incentive
Plan ("EOIP") award for fiscal year 1999. Employee's accomplishment
score for fiscal 1999 shall be the average of all Executive Staff scores
and Employee's Target Incentive level will be 65%. The EOIP Award for
fiscal 1999, if any, will be paid in accordance with the provisions of
the EOIP at the same time all other EOIP participants receive their
payments. The EOIP Award for fiscal 1999 shall not be subject to any
discretionary adjustment. Employee shall not be eligible for an EOIP
award for fiscal year 2000.
4. Until the Termination Date, Employee will receive any and all
benefits that may become due under the Change of Control Employment
Agreement dated April 24, 1998 entered into by Employee with the Company.
Effective the Termination Date, said Change of Control Employment
Agreement shall be terminated, Employee shall receive no benefits
thereunder and the Company shall have no liability thereunder.
5. Employee intends to retire on the Termination Date and will
provide customary notice of same to the Company's Chief Financial
Officer.
6. On the Termination Date, Company shall pay Employee any
accrued vacation pay to which Employee was entitled under the Company's
vacation program as of February 1, 1999; vacation accrual will cease for
Employee on February 1, 1999. Employee will be entitled to retirement
treatment with respect to other benefits on or after the Termination Date
as summarized in Exhibit B.
7. Employee acknowledges and agrees that the total amount
received under this Agreement constitutes adequate consideration for his
covenants and obligations set forth herein, it being an amount over and
above any entitlements, severance or otherwise that he has, or may have
had, by reason or his employment or separation of employment with NSC.
8. Employee agrees to return all Company property, credit cards,
documents or other materials or equipment that have been furnished to him
by the Company by the Resignation Date. Employee acknowledges that he
has complied with and will continue to comply with the terms of the
National Semiconductor Employment Agreement signed by him with the
Company.
9. Employee acknowledges that he has had twenty-one (21) days
to consider the terms of this Agreement. If Employee signs this
Agreement prior to the expiration of the twenty-one (21) day review
period, he does so in express waiver of his right to exercise such
review period. Once signed by Employee, Employee shall have an
additional seven (7) days to withdraw Employee's approval of this
Agreement. If Employee withdraws his approval, this Agreement will be
void and Employee will not be entitled to receive any benefits
hereunder.
10. Employee, on behalf of himself, his representatives, heirs,
successors and assigns does hereby completely release and forever
discharge the Company and its representatives, heirs, successors and
assigns, (its being understood that, for the purposes of this paragraph,
the Company shall also include its affiliated, related or subsidiary
corporations or divisions and its and their present and former
shareholders, officers, directors, agents, employees, and attorneys),
from all claims, rights, demands, actions, obligations, liabilities and
causes of action of any and every kind, nature and character whatsoever,
known or unknown, which Employee may now have, or has ever had, against
the Company based upon any act or omission by the Company prior to the
date of execution of this Agreement by the parties, including, but not
limited to: (1) any and all claims for damages, declaratory or injunctive
relief or attorneys' fees, arising from or in any way related to
Employee's employment by Company or the termination thereof, whether
based on tort, contract (express or implied), or any federal, state or
local law, statute or regulation, including, but not limited to, claims
of unlawful age discrimination based on the Age Discrimination in
Employment Act or the California Fair Employment and Housing Act; (2) all
claims filed or caused to be filed in any court of law or before any
state or federal administrative agency before execution of this
Agreement; and (3) all claims to attorneys fees, however incurred,
including without limitation, fees incurred in connection with any
released claims and review of this Agreement. Released claims shall not
include any claims arising from acts or omissions occurring after the
date of execution of this Agreement. This paragraph does not waive any
indemnification rights Employee may have whether as an employee or an
officer, pursuant to Labor Code Section 2802, Company By-Laws or Company
policy, including any indemnification rights in the event of a
shareholder lawsuit. This paragraph does not waive any rights either
party may have against the other for failure to perform its obligations
under this Agreement.
11. It is understood and agreed that the preceding Paragraph is a
full and final Release covering all known as well as all unknown or
unanticipated injuries, debts, claims or damages to Employee including,
without limitation, those arising from or in any way related to
Employee's employment by Company or the termination thereof. Therefore,
each party waives any and all rights or benefits which it may now have,
or in the future may have, under the terms of Section 1542 of the
California Civil Code which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
12. It is understood and agreed that the furnishing of the
consideration for this Agreement shall not be construed or deemed as an
admission of liability or responsibility of the Company for any purpose.
Employee and Company agree that this Agreement is being entered into
solely for the purpose of avoiding further expense and inconvenience from
defending against any claims, rights, demands, actions, obligations,
liabilities and causes of action. Liability for any and all claims is
expressly denied by the Company.
13. Employee shall not initiate or cause to be initiated against
Company any suit, action, investigation, audit, compliance review or
proceeding of any kind, or participate in same, individually or as a
representative or member of a class, under any contract (express or
implied), law, statute or regulation, federal state or local, pertaining
in any manner whatsoever to the claims, rights, demands, actions,
obligations, liabilities, and causes of action herein released,
including, without limitation, those relating to his employment by
Company or the termination thereof. This paragraph does not prevent
Employee from testifying under compulsion of legal process.
14. It is understood and agreed that this Agreement and each and
every provision thereof shall be confidential and shall not be disclosed
directly or indirectly by Employee to any other person, firm,
organization or other entity, of any and every type, public or private,
for any reason, at any time without the prior written request or consent
of Company unless required by law. Employee shall not disclose directly
or indirectly to any person or organization, except as expressly
permitted herein, that Employee received any sum of money from Company
as a result of the termination of his employment with Company. It is
further understood and agreed that it shall not constitute a breach of
this Agreement for Employee to disclose the terms thereof to his
immediate family and to his attorney and his financial advisor and/or
accountant; provided, however, that Employee shall be obliged to use his
best efforts to assure that such persons do not disclose this Agreement
or any provision thereof or the fact that Employee received any sum of
money from Company as a result of the termination of Employee's
employment with Company. It is understood and agreed that it shall not
constitute a breach of this Agreement for Employee or Company to respond
to any unsolicited inquiry by stating only that Employee and Company
resolved their differences in a mutually-satisfactory manner. Company
shall make reasonable efforts to maintain the confidentiality of this
Agreement and its contents and shall not disclose this Agreement or its
contents, directly or indirectly, to any of Company's employees or
agents, unless such persons have a work- related need to know or unless
required by law. Notwithstanding anything in this paragraph, it is
understood that this Agreement and its terms may be required to be
disclosed in the Company's filings with the Securities and Exchange
Commission, and may become public as a result thereof. In this event,
Employee may respond to any inquiries resulting from the disclosure.
15. Employee represents that he has had an opportunity to be
represented by counsel of his own choosing in the negotiation and
preparation of this Agreement, that he has had an adequate opportunity
to consider the Agreement, that he has carefully read the Agreement,
that he is fully aware of and understands its contents and its legal
effect, that the preceding paragraphs recite the sole consideration for
this Agreement, that all agreements and understandings between Employee
and Company are embodied, referenced and expressed herein, and that he
enters into this Agreement voluntarily, without coercion, and based on
his own judgment and not in reliance upon any oral or written
representations or promises made by Company, other than those contained
or referenced herein.
16. This Agreement may not be amended or modified in any manner
except upon written agreement by the parties.
17. Should any provision of this Agreement be held invalid or
illegal, such illegality shall not invalidate the entire Agreement.
Rather, this Agreement shall be construed as if it did not contain the
illegal part, and the rights and obligations of the parties shall be
construed and enforced accordingly.
18. With respect to any matters under this Agreement that are
governed by state law, the parties agree that this Agreement shall be
construed and governed by the laws of the State of California. The
language of all parts of this Agreement shall in all cases be construed
as a whole, according to its fair meaning, and not strictly for or
against any party.
19. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
EMPLOYEE NATIONAL SEMICONDUCTOR CORPORATION
By: /s/ ROBERT M. PENN /s/ RICHARD A. WILSON
Robert M. Penn
Title: Vice President Human Resources
EXHIBIT A
BENEFITS COVERED BY PARAGRAPH 2
Medical and Dental Insurance
Retirement and Savings Program
Benefit Restoration Plan (Deferred Compensation, Excess
401(k) Match, Excess Benefit)
Employee Stock Purchase Plan
Stock Option Plan
Executive Financial Counseling Expense Reimbursement
Executive Medical Examination Expense Reimbursement
Long Term Disability Insurance
Short Term Disability Insurance
Accidental Death & Dismemberment Insurance
Dependent (Spouse and Child) Life Insurance
Life Insurance
EXHIBIT B
SUMMARY OF BENEFITS AVAILABLE UPON RETIREMENT
The following summarizes the benefits and options available to all
employees in connection with termination of employment at National
Semiconductor Corporation ("NSC") by reason of retirement:
1. Company medical benefits end on the last day of the month in which
employment ends. Medical benefits can be maintained under COBRA
for a period of 18 months starting the first of the month following
termination of employment. If you are over 60 and have worked at
NSC for at least five years, coverage can be provided under COBRA
until you are 65. Under present law, you are able to obtain 18
months of medical coverage under COBRA by paying 102% of the rate
paid by the Company for your coverage (note that this amount is
more than what is withheld from your check for medical coverage).
2. Company dental benefits also end on the last day of the month in
which employment ends. Dental benefits can be maintained under
COBRA for a period of 18 months starting the first of the month
following termination of employment by paying 102% of the rate paid
by the Company for your dental benefits. If you are over 60 and
have worked at NSC for at least five years, coverage can be
provided under COBRA until you are 65.
3. Life insurance coverage ends on the last day of employment. Under
the life insurance program effective 1-1-97, the coverage can be
ported to an individual policy. Contact the Human Resources
Service Center for details.
4. Disability plan coverage ends on the last day of employment. There
is no option available to convert disability coverage to an
individual plan.
5. Participation in the Stock Purchase Plan ends on the last day of
employment. Payroll deductions for that quarter will be refunded
to you.
6. You are eligible for retirement treatment for payout in
installments over a period of ten years of any previously deferred
Key Employee Bonus Plan ("KEBP") and Key Employee Incentive Plan
("KEIP") or Executive Officer Incentive Plan ("EOIP") payouts if
you are at least 55 and your age plus years of service equals at
least 65. The KEBP was in effect until 1992 and the KEIP and EOIP
were in effect thereafter. If you want to receive these payouts in
installments, you must sign the letter attached as Exhibit C and
return it to George Macko in the HR Controller's office. KEBP is
paid in installments beginning in January following retirement and
KEIP/EOIP is paid in installments beginning one year and one month
after retirement. An assumed interest rate is used to annuitize
the amount in each account and each installment will be the same,
except the last installment, which will make adjustments to account
for fluctuations in actual interest rates over the 10 years.
Remember that KEBP, KEIP and EOIP are not held in plan trusts and
your accounts are shown as accrued liabilities on the books of the
Company. Taxes will be withheld from KEBP, KEIP and EOIP payments.
7. In the Retirement and Savings Program ("RASP"), your accounts will
receive the Company's contribution to the Profit Sharing Plan for
the fiscal year in which retirement occurs. Matches to the Savings
Plus 401(k) Plan will be made through the quarter in which
retirement occurs. You are eligible to receive a distribution of
your RASP accounts, but you may also leave your RASP accounts
intact until you reach age 65 or roll your RASP accounts to an
individual retirement account (IRA). Contact the Human Resources
Service Center for more detailed information on your distribution
options.
8. If you are at least 55 years old and your age plus years of service
with the Company totals at least 65, you are eligible for
retirement treatment and payout of your Benefit Restoration Plan
("BRP") account in ten installments. If you wish to receive the
BRP in installments, please complete and return Exhibit D to George
Macko in the HR Controller's office. If you do not want to receive
the BRP in installments, the entire account will be paid to you
within thirty (30) days of your termination. If you receive the
BRP in installments, the first installment will be paid within
thirty (30) days of termination and the rest of the installments
will be paid annually beginning 13 months thereafter. If
installment treatment is elected, the account will be annuitized
with an assumed interest rate and the final installment will be
adjusted to reflect actual interest rates over the 10 years, just
as the bonus/incentive accounts are. Taxes will be withheld from
BRP payments.
9. You are eligible for retirement treatment of your stock options if
you are at least 55 and your age plus years of service equals at
least 65. You will receive a letter from Stock Administration
explaining your options. If you sign and return the letter,
options granted at least six months prior to the date of
termination of employment will continue to vest and you will have
five (5) years from the termination of employment to exercise the
options (as long as the option does not expire prior to that date).
Taxes will still need to be paid by you when the options are
exercised and the income will be reported as W-2 income to the IRS.
EXHIBIT C
Don Macleod
Executive Vice President, Finance
NATIONAL SEMICONDUCTOR CORPORATION
P.O. Box 58090
Santa Clara, CA 95052-8090
Re: Bonus Plan - Notice of Retirement
Dear Don:
I hereby certify that I meet the requirements for retirement
treatment on the payout of my deferred Key Employee Bonus Plan ("KEBP")
and Key Employee Incentive Plan ("KEIP") and/or Executive Officer
Incentive Plan ("EOIP") accounts, in that I have reached the age of at
least fifty-five (55) and the sum of my age plus years of service with
the Company equals at least sixty-five (65).
I hereby further certify that I do not intend to engage in a full-
time vocation. I request that my KEBP and KEIP accounts be paid in
installments in accordance with the terms of the relevant plans.
Very truly yours,
Employee Name & Signature
Instructions: Sign and return to George Macko, HR Controller, at Mail
Stop 10-465.
EXHIBIT D
Don Macleod
Executive Vice President, Finance
NATIONAL SEMICONDUCTOR CORPORATION
P.O. Box 58090
Santa Clara, CA 95052-8090
Re: Benefit Restoration Plan - Notice of Retirement
Dear Don:
I hereby certify that I meet the requirements for retirement
treatment on the payout of my Benefit Restoration Plan ("BRP") account,
in that I have reached the age of at least fifty-five (55) and the sum of
my age plus years of service with the Company equals at least sixty-five
(65). I request that my BRP account be paid in installments in
accordance with the terms of the BRP.
Very truly yours,
Employee Name & Signature
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