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 29, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-6453
NATIONAL SEMICONDUCTOR CORPORATION
----------------------------------
(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 August 29, 1999
- ------------------- ------------------------------
Common stock, par value $0.50 per share 171,518,970
NATIONAL SEMICONDUCTOR CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months Ended August
29, 1999 and August 30, 1998 3
Condensed Consolidated Statements of
Comprehensive Income(Loss) (Unaudited) for the
Three Months Ended August 29, 1999 and August 30, 1998 4
Condensed Consolidated Balance Sheets (Unaudited)
as of August 29, 1999 and May 30, 1999 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended August
29, 1999 and August 30, 1998 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
Part II. Other Information
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19-20
Signature 21
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
------------------
Aug. 29, Aug. 30,
1999 1998
-------- --------
Net sales $ 481.1 $ 469.6
Operating costs and expenses:
Cost of sales 296.7 414.6
Research and development 115.1 122.1
Selling, general and administrative 76.0 73.0
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Total operating costs and expenses 487.8 609.7
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Operating loss (6.0) (140.1)
Interest income(expense), net (1.4) 0.1
Other income 57.0 0.3
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Net income(loss) before income taxes 49.6 (139.7)
Income tax expense (benefit) 2.5 (34.9)
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Net income(loss) $ 47.1 $(104.8)
======= ======
Earnings(loss) per share:
Basic $ 0.28 $ (0.63)
Diluted $ 0.25 $ (0.63)
Weighted average shares:
Basic 170.3 165.8
Diluted 185.4 165.8
Income(loss) used in basic and diluted
earnings(loss) per share calculation $ 47.1 $(104.8)
See accompanying Notes to Condensed Consolidated Financial
Statements
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME(LOSS) (Unaudited)
(in millions)
Three Months Ended
------------------
Aug. 29, Aug. 30,
1999 1998
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Net income(loss) $ 47.1 $(104.8)
Other comprehensive income, net of tax:
Unrealized gain on
available-for-sale securities 172.3 0.2
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Comprehensive income(loss) $ 219.4 $(104.6)
======= =======
See accompanying Notes to Condensed Consolidated Financial
Statements
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
Aug. 29, May 30,
1999 1999
ASSETS -------- --------
Current assets:
Cash and cash equivalents $ 428.9 $ 418.7
Short-term marketable investments 108.4 107.2
Receivables, net 208.7 171.9
Inventories 145.9 141.3
Deferred tax assets 117.9 117.9
Other current assets 34.1 32.2
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Total current assets 1,043.9 989.2
Property, plant and equipment 2,348.2 2,319.1
Less accumulated depreciation (1,482.5) (1,403.1)
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Net property, plant and equipment 865.7 916.0
Other assets 302.9 139.1
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Total assets $2,212.5 $2,044.3
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings and current
portion of long-term debt $ 48.2 $ 49.3
Accounts payable 138.2 189.8
Accrued expenses 322.1 348.1
Income taxes payable 90.4 77.8
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Total current liabilities 598.9 665.0
Long-term debt 393.4 416.3
Other non-current liabilities 63.7 62.2
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Total liabilities 1,056.0 1,143.5
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Commitments and contingencies
Shareholders' equity:
Common stock 85.8 84.5
Additional paid-in capital 1,288.1 1,253.1
Retained deficit (387.0) (434.1)
Accumulated other
comprehensive income (loss) 169.6 (2.7)
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Total shareholders' equity 1,156.5 900.8
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Total liabilities and
shareholders' equity $2,212.5 $2,044.3
======= =======
See accompanying Notes to Condensed Consolidated Financial
Statements
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions) Three Months Ended
--------------------
Aug. 29, Aug. 30,
1999 1998
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Cash flows from operating activities:
Net income(loss) $ 47.1 $(104.8)
Adjustments to reconcile net income(loss)
with net cash used by operations:
Depreciation and amortization 72.6 89.5
Gain on sale of investment (48.4) -
Loss on disposal of equipment 3.7 1.7
Tax benefit associated with stock options - 0.2
Other, net 7.4 -
Changes in certain assets and liabilities, net:
Receivables (36.8) (4.7)
Inventories (4.6) 74.4
Other current assets (1.9) 7.8
Accounts payable and accrued expenses (77.7) (52.1)
Income taxes payable 12.6 (18.7)
Other liabilities 1.5 (0.8)
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Net cash used by operating activities (24.5) (7.5)
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Cash flows from investing activities:
Purchase of property, plant and equipment (21.7) (73.9)
Sale and maturity of marketable investments 61.3 33.3
Purchase of marketable investments (62.5) (22.8)
Proceeds from sale of investment 52.2 -
Purchase of investments and other, net (1.8) (9.4)
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Net cash provided by (used by)
investing activities 27.5 (72.8)
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Cash flows from financing activities:
Repayment of debt (19.0) (9.5)
Issuance of common stock, net 26.2 5.2
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Net cash provided by (used by)
financing activities 7.2 (4.3)
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Net change in cash and cash equivalents 10.2 (84.6)
Cash and cash equivalents
at beginning of period 418.7 460.8
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Cash and cash equivalents at end of period $ 428.9 $ 376.2
======= =======
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 30, 1999.
Earnings Per Share:
A reconciliation of the shares used in the computation for basic
and diluted earnings per share follows:
Three Months Ended
-------------------
Aug. 29, Aug. 30,
(in millions) 1999 1998
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Net income(loss) used for basic
and diluted earnings per share $ 47.1 $ (104.8)
====== ======
Number of shares:
Weighted average common shares outstanding
used for basic earnings per share 170.3 165.8
Effect of dilutive securities:
Stock options 15.1 -
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Weighted average common and potential
common shares outstanding used for
diluted earnings per share 185.4 165.8
====== ======
For the three months ended August 29, 1999, there were options
outstanding to purchase 2.9 million shares of the Company's common
stock with a weighted-average exercise price of $30.24, which
could potentially dilute basic earnings per share in the future,
but which were not included in the computation of diluted earnings
per share because their effect was antidilutive. As of August 29,
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.
The components of accumulated other comprehensive income (loss),
net of tax, were:
Aug. 29, May 30,
(in millions) 1999 1999
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Unrealized gain on
available-for-sale securities $ 194.6 $ 22.3
Minimum pension liability (25.0) (25.0)
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$ 169.6 $ (2.7)
====== ======
Note 2. Consolidated Financial Statement Detail
The components of inventories were:
Aug. 29, May 30,
(in millions) 1999 1999
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Raw materials $ 12.4 $ 13.0
Work in process 90.9 81.0
Finished goods 42.6 47.3
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Total inventories $ 145.9 $ 141.3
====== ======
Components of Interest income(expense),
net and Other income, were: Three Months Ended
(in millions) -------------------
Aug. 29, Aug. 30,
1999 1998
-------- --------
Interest income(expense), net
- -----------------------------
Interest income $ 5.9 $ 7.0
Interest expense $ (7.3) $ (6.9)
-------- --------
Interest income(expense), net $ (1.4) $ 0.1
======== ========
Other income
- --------------------------
Net intellectual property income $ 6.8 $ 0.3
Gain on investment 48.4 -
Other 1.8 -
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Total other income $ 57.0 $ 0.3
======= =======
Note 4. Statement of Cash Flow Information
Three Months Ended
--------------------
Aug. 29, Aug. 30,
1999 1998
(in millions) ------- -------
Supplemental Disclosure of Cash Flow
Information
Cash paid(refunded) for:
Interest $ 3.1 $ 2.9
Income taxes $ (10.0) $ (22.0)
Interest on tax settlements $ - $ 1.6
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock for
employee benefit plans $ 0.9 $ 1.3
Issuance of restricted stock $ - $ 0.7
Issuance of common stock in connection
with the settlement of a promissory note $ 5.0 $ -
Note 5. Restructuring of Operations
The following discussion summarizes the activity that occurred during
the first three months ended August 29, 1999 that was associated with
the Company's restructuring actions announced in fiscal 1999:
During the first quarter of fiscal 2000, the Company paid $13.6 million
in severance to employees terminated as a result of the restructuring
actions announced in May 1999. Payment was made to 156 employees
terminated in the worldwide workforce reduction action, 216 employees
terminated in connection with the closure of the Company's 8-inch
development wafer fabrication facility located in Santa Clara,
California and 173 employees terminated in connection with the Company's
decision to exit the PC processor business. Although most of the
employees affected by the restructuring actions had departed by the end
of the first quarter of fiscal 2000, the Company expects some additional
employees to depart over the next fiscal quarter. Additionally, the
timing of actual departure and payment of severance may occur in
different accounting periods, since departing employees may continue to
receive regular salaries during a minimum 30-day notification period
prior to their effective termination date. Severance is generally paid
to terminated employees on the effective date of termination. The
Company also paid $0.3 million for other exit-related costs during the
same quarter.
In September 1999, the company completed the sale of the assets of the
PC processor business to VIA Technologies Inc. ("VIA"), a Taiwanese
company. The sale included the Company's MII x86 compatible processor
and successor products. National will retain the integrated Media GX
processor, which forms the core of the Company's new Geode family of
solutions for the information appliance market. Assets sold included
inventories, land, buildings and equipment, primarily located in
Richardson, Texas; Arlington, Texas; Mesa, Arizona; and Santa Clara,
California. Some PC-related manufacturing assets in Singapore were also
included. Proceeds from this transaction were $75.0 million, of which
$8.2 million represented reimbursement to National for certain employee
retention costs incurred by the Company solely as a result of completing
the sale. The remaining $66.8 million represented payment for the
assets sold. The Company received cash of $70.0 million upon the
closing of the transaction, with the remaining $5.0 million due in
December 1999. The Company expects to record a gain on the sale of
approximately $25-$30 million in the second quarter of fiscal 2000 after
determining final transaction costs associated with the sale.
As part of the final processor sale arrangement, the Company may also
receive future royalties up to $92.0 million, which are to be earned
based on future sales of products by VIA under the terms of a separate
license agreement. These royalties will be accounted for in current
operating results if and when they are earned.
In September 1999, the Company also announced it would now retain full
ownership of its semiconductor manufacturing facility in Greenock,
Scotland and ceased its efforts to seek an investor to acquire and
operate that facility as an independent foundry business. The Company
will continue to consolidate its manufacturing lines in Greenock as
previously planned by closing the 4-inch wafer fabrication facility and
transferring products and processes to the 6-inch wafer fabrication
facility on the same site, as well as to other National facilities.
During the first quarter of fiscal 2000, the Company paid $3.1 million
in severance to 163 terminated employees in connection with the closure
of the 4-inch wafer fabrication facility. The Company also expects the
remainder of employee terminations to occur in phases over the next two
fiscal quarters. All actions associated with the closure of the 4-inch
wafer fabrication facility are now expected to be completed by spring,
which is reasonably in line with the original timetable.
Included in accrued liabilities at August 29, 1999, is $61.6 million
related to severance and other exit costs for restructuring actions that
were not yet completed as of August 29, 1999.
Note 6. Segment Information
The following table presents information related to the Company's
reportable segments:
Information Cyrix Total
Analog Appliance Business All Elimin- Consoli-
Group Group Unit Others ations dated
------- ---------- ------- ------- ------ -------
Three months ended August 29, 1999:
Sales to
unaffiliated
customers $333.4 $ 52.0 $ 18.6 $ 77.8 - $481.8
Inter-segment
sales - 0.1 - - $ (0.1) -
------ ------ ------ ------ ------ ------
Net sales $333.4 $ 52.1 $ 18.6 $ 77.8 $ (0.1) $481.8
====== ====== ====== ====== ====== ======
Segment income
(loss)before
income taxes $ 82.5 $(29.2) $(22.6) $ 18.9 $ 49.6
====== ====== ===== ===== ======
Three months ended August 30, 1998:
Sales to
unaffiliated
customers $273.8 $ 52.6 $ 34.3 $108.9 $ 469.6
Inter-segment
sales - 0.1 - - $(0.1) -
------ ------- ------ ------- ------- -------
Net sales $273.8 $ 52.7 $ 34.3 108.9 $(0.1) $ 469.6
====== ======= ====== ======= ======= =======
Segment loss
before income
taxes $(28.9) $(65.9) $(36.0) $ (8.9) $(139.7)
====== ======= ====== ======= =======
The measurement of segment income (loss) before income taxes includes an
allocation of depreciation expense for the Company's shared
manufacturing facilities contained in each segment's product standard
cost. For fiscal 1999 segment income (loss) before income taxes of each
reportable segment include allocations of expenses associated with the
Company's manufacturing facility in Maine, expenses associated with
activity of the development wafer fabrication facility in Santa Clara
and expenses incurred at corporate headquarters. Allocations of these
expenses for fiscal 2000 are significantly lower as a result of the
outcome of the actions the Company announced in May 1999. The Company
also changed its basis of allocation for fiscal 2000.
Note 7. Other Subsequent Events
In October 1999, the Company announced that it will redeem all
outstanding notes of its $258.8 million, 6.5 percent convertible
subordinated notes due 2002 ("Notes") on November 12, 1999. The
notice of the Note redemption was sent to all registered holders
of the Notes on October 7, 1999. Pursuant to the terms of the
Note Indenture, the Notes will be redeemed at a price of 102.786
percent of the principal amount. Holders of the Notes will also
receive accrued interest through November 11, 1999. The right to
convert the Notes into Company common stock with a conversion
price of $42.78 will expire on November 10, 1999. In connection
with the redemption, the Company will incur an extraordinary loss
of $9.6 million in the second quarter of fiscal 2000. No tax
benefit will be recognized for the extraordinary item.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company recorded net sales of $481.8 million for the first quarter
of fiscal 2000, a 2.6 percent increase from net sales of $469.6 million
for the same quarter of fiscal 1999. This growth was primarily
attributable to improvement in market conditions for the semiconductor
industry. The Company experienced better than expected growth in new
orders throughout the summer quarter led by strong order recoveries in
the Asia Pacific region and Japan. Net income of $47.1 million was
recorded for the first quarter of fiscal 2000, compared to a net loss of
$104.8 million for the first quarter of fiscal 1999. Included in net
income for the first quarter of fiscal 2000 was a $48.4 million pretax
gain from the sale of Fairchild Semiconductor ("Fairchild") stock, as
part of Fairchild's initial public offering, while the net loss for the
same quarter of fiscal 1999 did not include any significant special
items.
Sales
The following discussion is based on the Company's operating segments
described in Note 12 of the Annual Report on Form 10-K for the year
ended May 30, 1999.
The increase in overall sales was a result of significantly higher
volumes, which more than offset lower average selling prices across the
Company's product offerings. The Analog Group, whose sales now
represent close to 70 percent of the Company's total sales, drove the
growth in sales. Sales for analog products grew 22 percent in the first
quarter of fiscal 2000 over sales for the same quarter of fiscal 1999.
Although the success of small product packaging contributed to this
growth, their lower average selling prices combined with price
competition on other analog products offset an increase of almost 60
percent in unit volume for the first quarter of fiscal 2000 over last
year's first quarter. Analog sales were particularly strong in the
cellular markets, led by power management and application-specific
wireless products, which grew 48 percent and 34 percent, respectively.
Sales for the Information Appliance Group, excluding the Cyrix personal
computer ("PC") processor unit, fell slightly by 1 percent in the first
quarter of fiscal 2000 from sales for the same quarter in fiscal 1999.
The decrease was caused by strong competition and customer mix changes,
as the group shifted focus from more traditional personal computer
manufacturers to information appliance partners in the set-top box,
webpad and thin client areas. Sales for Cyrix PC processor products
decreased 46 percent in the first quarter of fiscal 2000 from the same
quarter last year as the Company essentially completed its previously
announced exit from the PC processor business. Network product sales
also declined in the first quarter of fiscal 2000 by 17 percent over the
same period in fiscal 1999, due to a drop in unit shipments for mature
ethernet products and the lack of shipments of new products employing
new digital signal processing technology.
Gross Margin
Gross margin as a percentage of sales improved to 38 percent in the
first quarter of fiscal 2000 compared to 12 percent in the first quarter
of fiscal 1999. Higher factory utilization resulting from increased
orders, particularly at the Arlington and Greenock manufacturing
facilities, primarily contributed to gross margin improvement. Wafer
fabrication capacity utilization for the first quarter of fiscal 2000
was 61 percent compared to 41 percent for the first quarter of fiscal
1999. The Company's manufacturing facility in Maine continued to run at
a lower capacity utilization rate since the decision to exit the PC
processor business was announced. Excluding the effect of Maine, wafer
fabrication capacity utilization was 71% for the first quarter of fiscal
2000 compared to 44% for the same quarter of last year. A significant
decrease in depreciation expense also contributed to gross margin
improvement. The decrease in depreciation was a result of impairment
losses recorded in May 1999 on capital assets in Maine, as well as on
Cyrix PC processor related assets in Richardson, Texas and Singapore.
Research and Development
Research and Development ("R&D") expenses in the first quarter of fiscal
2000 declined 6 percent from R&D expenses for the first quarter of
fiscal 1999. Exiting the PC processor business has reduced R&D spending
for product development as well as the underlying advanced CMOS process
development. Meanwhile, the Company continues to invest resources in
developing new cores and integrating those cores with the Company's
other technological capabilities to create system-on-a-chip products
aimed at the emerging information appliance 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, as well as in the process
technologies needed to support those products. For the first quarter of
fiscal 2000, the Company devoted approximately 30 percent of its R&D
effort towards the development of process technology and 70 percent
towards new product development. This represents a decrease of 20
percent in spending for process technology, while spending for product
development increased slightly by 2 percent. This shift reflects
management's decision to realign its strategic research development
programs to focus on its analog and information appliance businesses.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses in the first
quarter of fiscal 2000 increased slightly by 4 percent over SG&A
expenses for the first quarter of fiscal 1999. While the Company's
spending for the first quarter of fiscal 2000 reflects some cost savings
from the cost reduction actions announced in May 1999, mostly related to
the workforce reduction, the full effect of cost savings from these
actions has not yet been realized, since these actions continued to be
carried out during the course of the first quarter. Cost savings were
partially offset by an increase in payroll and employee benefit
expenses. SG&A expenses for the first quarter of fiscal 1999 also
included recoveries derived from service fees paid by Fairchild under
the transition services agreement entered into when the Company
completed its disposition of Fairchild. Since that agreement terminated
during fiscal 1999, there was no such recovery reflected in SG&A
expenses for the first quarter of fiscal 2000.
Restructuring of Operations
In connection with its decision to exit the PC processor business, the
Company completed the sale of the assets of that business to VIA
Technologies, Inc. ("VIA"), a Taiwanese company, in September 1999.
In September 1999, the Company also announced it would now retain full
ownership of its semiconductor manufacturing facility in Greenock,
Scotland and ceased its efforts to seek an investor to acquire and
operate that facility as an independent foundry business. See Note 5 to
the Condensed Consolidated Financial Statements for more complete
information.
Interest Income and Interest Expense
Net interest expense was $1.4 million for the first quarter of fiscal
2000 compared to net interest income of $0.1 million for fiscal 1999.
The decrease in interest income was attributed to less interest earned
as a result of slightly lower interest rates, combined with higher
interest expense associated with higher average debt balances. In
addition, interest expense for the first quarter of fiscal 1999 reflects
the capitalization of $0.4 million of interest associated with capital
expansion projects during that quarter.
Other Income/Expense, Net
Other income, net was $57.0 million for the first quarter of fiscal
2000, compared to $0.3 million for the first quarter of fiscal 1999.
Included in the first quarter of fiscal 2000 is a gain of $48.4 million
from the sale of a portion of the Company's investment in Fairchild
stock and $6.8 million of net intellectual property income primarily
related to two separate licensing agreements. Also included in fiscal
2000 were proceeds of $1.3 million from the settlement of an insurance
claim and a gain of $0.5 million from the sale of a business unit. This
compares to other income, net for the first quarter of fiscal 1999,
which included $0.3 million of net intellectual property income.
Income Tax Provision/Benefit
The Company recorded an income tax expense of $2.5 million in the first
quarter of fiscal 2000, compared to an income tax benefit of $34.9
million in the first quarter of fiscal 1999. For the first quarter of
fiscal 2000, the Company's effective tax rate is 5 percent, primarily
representing foreign income tax expense.
Financial Condition
During the first quarter of fiscal 2000, cash and cash equivalents
increased by $10.2 million compared to a $84.6 million decrease in the
first quarter of fiscal 1999. The primary factors contributing to the
increase for the first quarter of fiscal 2000 were the receipt of $52.2
million in proceeds from the sale of Fairchild stock, combined with a
reduction in capital expenditures. The Company's investment in
property, plant and equipment in the first quarter of fiscal 2000 was
$21.7 million compared to $73.9 million in the comparable quarter of
fiscal 1999. The significant increase in other assets and accumulated
other comprehensive income was primarily attributable to an unrealized
gain related to the Company's remaining investment in Fairchild stock.
Cash used by operating activities was $24.5 million in the first quarter
of fiscal 2000 compared to $7.5 million used in the first quarter of
fiscal 1999. Although operating cash was positively affected by net
income earned in the first quarter of fiscal 2000, it was negatively
impacted by a decrease in working capital. The decrease in working
capital was attributable to increased receivables while inventories
remained relatively unchanged for the first quarter of fiscal 2000. In
fiscal 1999, inventories decreased significantly in the first quarter.
The Company's financing activities provided cash of $7.2 million in the
first quarter of fiscal 2000 compared to cash used of $4.3 million in
the comparable quarter of fiscal 1999. In fiscal 2000, the Company
received $26.2 million from the issuance of common stock under employee
benefit plans and repaid $19.0 million of general debt. In fiscal 1999,
the Company received $5.2 million from the issuance of common stock
while it repaid $9.5 million of general debt.
Although management foresees substantial cash outlays for plant and
equipment through fiscal 2000, the expenditure level is expected to be
lower than the fiscal 1999 level of $300 million. As announced in
October 1999, the Company will redeem all outstanding notes of its 6.5
percent convertible subordinated notes due 2002, which will require
approximately $259 million to be paid on November 12, 1999. Existing
cash and investment balances, together with existing lines of credit,
are expected to be sufficient to finance both planned fiscal 2000
capital investments and the redemption of the convertible subordinated
notes. The Company also received $70.0 million of the sales proceeds
from VIA in September 1999 as a result of the completion of the sale of
the Cyrix PC processor business. The remaining $5.0 million of sales
proceeds is expected to be received in December 1999.
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 estimate. 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 21 through 27
of the Company's 1999 Annual Report on Form 10-K for the fiscal year
ended May 30, 1999 filed with the Securities and Exchange Commission,
the following factors may also affect the Company's operating results
for fiscal 2000:
As market conditions for the semiconductor industry improved throughout
the summer quarter, the Company experienced better than expected growth
in new orders, which resulted in overall growth in sales for the first
quarter of fiscal 2000 over the first quarter of fiscal 1999. The
analog business was especially healthy, particularly in the cellular
markets where sales for power management and application-specific
wireless products were strong. While the Company believes this trend
will continue into the forthcoming second quarter of fiscal 2000, its
duration is more uncertain. There is the risk that the improvement in
market conditions may just be temporary and seasonal. As the Company
shifts its product focus toward consumer markets for mobile phone
handsets, personal computers and peripherals and information appliance
products seasonality will have a greater impact on sales. Also, as the
Company approaches the end of the calendar year, its third fiscal
quarter has typically been affected by the holiday season and it is
premature to determine the impact for fiscal 2000. Unless the
improvement in new orders continues, the Company may be unable to attain
the level of revenue growth expected for the remainder of fiscal 2000
and operating results will be unfavorably affected.
In connection with the sale of the Cyrix PC processor business to VIA,
National and VIA entered into a manufacturing agreement where National
will serve as the manufacturing partner for VIA's chipsets for x86
processor based computers. This arrangement is expected, in part, to
improve the capacity utilization in the Company's 8-inch wafer
manufacturing facility in South Portland, Maine, which had been
negatively impacted as a result of the decision to exit the Cyrix PC
processor business. The Company continues to seek a potential investor
to buy a majority interest in the Maine manufacturing facility, but it
also plans to steadily increase manufacturing activity at that plant
through the end of the year from both manufacturing for its own needs
and third party foundry business. The Company has also announced it
will retain full ownership of the wafer manufacturing facility in
Greenock, Scotland and has increased production activity there to meet
the demand for certain analog integrated circuit products that has
occurred as market conditions have improved. There is a risk that
future demand may not be sufficient to fill the capacity at these
manufacturing facilities, leaving future gross margin unfavorably
affected. The Company now expects to complete all actions associated
with the closure of the 4-inch wafer fabrication facility in Greenock by
spring. Further delay in completing the closure may have an unfavorable
impact on the Company's future gross margin, as well as future operating
results.
Although the recent earthquake that occurred in Taiwan caused some
disruptions in the global electronic supply chain, the Company's
business has so far been only minimally affected. The Company has not
yet experienced any significant order cancellation or serious delays in
shipments to affected customers. There also has been no significant
impact on the Company's wafer supply from Taiwan. It is too early,
however, to predict the ultimate impact of the earthquake on the
Company's future operations, in particular on its customer order
patterns, which may adjust to changing supply conditions from other
suppliers dependent on wafer supply from Taiwan.
Year 2000 Readiness Program
The following provides a year 2000 update by project area and
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 1999 Annual Report on Form 10-K for the
fiscal year ended May 30, 1999;
Business Systems - Critical business systems remediation is complete.
The Company has moved to its fiscal 2000 accounting calendar without
incident. The Company expects to have adequate time during the balance
of calendar 1999 to complete remediation of noncritical systems.
Manufacturing Systems - The project is virtually complete with the
remaining remediation efforts scheduled to be complete in October 1999.
Engineering Systems - Critical computing platform and local area network
inventory, testing and remediation are complete.
Desktop Computing - The Company has completed testing of every desktop
system to ensure year 2000 compliance. Final compliance monitoring will
continue through the remainder of calendar 1999.
Information Technology Infrastructure - Network devices and servers are
year 2000 ready. Nonstandard hardware, software, protocols and
applications have been removed from the network and computing
environments.
Facilities - The facilities project is substantially complete.
Suppliers' Products and Readiness - All of the designated key suppliers
have responded to our inquiries with 95 percent meeting our criteria.
The Company has evaluated plans and assigned a risk factor to the
readiness projects of suppliers who provide materials and services
critical to operations. These risk assessments are being used for vendor
specific contingency planning.
Company Products - The Company has made year 2000 compliance information
for products available to customers on the Company's Web site. To date
the Company has not received notification from any of its customers that
any of its products perform noncompliant year 2000 functions. The
Company will continue to evaluate exposures to contingencies related
to the year 2000 for its products.
With remediation efforts now substantially complete, the Company's focus
is now on contingency planning. Management remains confident in the
Company's ability to transition to the year 2000 without incident, but
will establish contingency plans in the event of unforeseen critical
failures. The Company believes that its most likely worst-case year 2000
impact will relate to problems with systems of third party suppliers and
customers, over which the Company has less control, than with the
Company's internal systems or products. Failures with the Company's
infrastructure providers and vendors could result in the inability to
manufacture and deliver products to customers. Contingency planning for
supplier issues include identifying and qualifying second sources for
critical components, increasing inventory levels of certain products
above normal stocking levels, and deploying strategic inventory
quantities geographically. Many of the critical contingency plans for
the Company's internal systems are extensions of existing business
continuity programs and have been in place since the start of the year
2000 readiness program. The Company's business continuity program was
successfully tested in May and September 1999.
Year 2000 project costs and resource consumption are estimated at $20
million, of which approximately $18 million has been incurred to date.
Approximately 40 percent of costs are related to internal staff costs
with the remaining 60 percent for hardware and software upgrade costs
that are incremental to ongoing operating expenses. Testing will
continue through the remainder of 1999 and the beginning of 2000 to
ensure the continued compliance of all elements of the Company's year
2000 program.
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 30, 1999 and to the subheading
"Financial Market Risks" under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on
page 21 of the Company's Annual Report on Form 10-K for the year
ended May 30, 1999 and in Note 1, "Summary of Significant
Accounting Policies," and Note 2, "Financial Instruments," in the
Notes to the Consolidated Financial Statements included in Item 8.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
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 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(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 Registration Statement on Form S-8 Registration No. 333-
77195, which became effective April 28, 1999).
4.1 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).
4.2 Rights Agreement (incorporated by reference from the Exhibits to
the Company's Registration Statement on Form 8-A filed August 10, 1988).
First Amendment to the Rights Agreement dated as of October 31, 1995
(incorporated by reference from the Exhibits to the Company's Amendment
No. 1 to the 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).
4.3 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 Form 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 Agreement 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: Director
Deferral Plan
10.2 Management Contract or Compensatory Plan or Agreement: Directors
Stock Option Plan
10.3 Management Contract or Compensatory Plan or Agreement: Fiscal Year
2000 Executive Officer Incentive Plan Agreement.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended August 29,
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: October 12, 1999 /s/ Lewis Chew
-----------------------
Lewis Chew
Vice President and Controller
Signing on behalf of the registrant
and as principal accounting officer
Exhibit 10.1
DIRECTOR DEFERRAL PLAN - PLAN DOCUMENT
THIS DIRECTOR DEFERRAL PLAN ("Plan") is hereby adopted by National
Semiconductor Corporation, a corporation organized and existing under
the laws of the State of Delaware, (hereinafter referred to as the
"Company") effective as of October 1, 1999.
WITNESSETH:
WHEREAS, the Company desires to establish a Plan to provide a means by
which Directors may elect to defer the receipt of their fees or
retainer;
WHEREAS, the Plan is intended to be unfunded and is maintained primarily
for the purpose of providing deferred compensation; and
WHEREAS, the Board has adopted this Plan in order to provide for the
benefits specified;
NOW, THEREFORE, in consideration of the premises herein contained, it is
hereby declared as follows:
ARTICLE I
Definitions
When used herein, the words and phrases defined hereinafter shall have
the following meaning unless a different meaning is clearly required by
the context.
1.01 "Account" shall mean the Accounts established pursuant to Section
3.02 of the Plan.
1.02 "Beneficiary" shall mean the person or persons last designated by
a Participant, by written notice filed with the Committee, to receive a
Plan benefit upon his or her death. In the event a Participant fails to
designate a person or persons as provided above or if no Beneficiary so
designated survives the Participant, then for all purposes of this Plan,
the Beneficiary shall be the Participant's estate.
1.03 "Board" shall mean the Board of Directors of National
Semiconductor Corporation.
1.04 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.05 "Committee" shall mean The Retirement and Savings Program
Administrative Committee of the Company, as determined by the Board.
1.06 "Company" shall mean National Semiconductor Corporation.
1.07 "Director" shall mean a member of the Board who is not an
employee of the Company and earns meeting fees during the Plan Year or a
fee or retainer for the Plan Year.
1.08 "Elective Deferral" shall mean the amount the Participant agrees
to defer under this Plan pursuant to procedures established by the
Committee.
1.09 "Entry Date" shall mean October 1 of each year; provided,
however, for a newly elected Director, the first Entry Date shall be the
earlier of thirty (30) days following his or her election or October 1.
1.10 "Interest" shall mean the rate for long-term A-rated corporate
bonds reported by the investment banking firm of Salomon Smith Barney of
New York City (or such other investment banking firm as the Committee
may specify) during the first week of each Plan Year. The interest rate
will be reset at the beginning of each Plan year.
1.11 "Participant" shall mean a Director who elects to make an
Elective Deferral under the Plan.
1.12 "Plan Year" shall mean the twelve consecutive month period
beginning on October 1; provided, however, that the first Plan Year
shall be a short year beginning October 1, 1999.
ARTICLE II
Participation
2.01 Commencement of Participation.
A Director shall become a Participant in the Plan on the first Entry
Date as of which he or she makes an Elective Deferral.
2.02 Election.
Prior to an Entry Date, a Participant may make an Elective Deferral of
any whole percentage or whole dollar amount of fees, including meeting
fees, or retainer payable to him or her in cash for the remainder of the
Plan Year. A Participant who desires to make Elective Deferrals shall
complete and file an enrollment form with the Committee, pursuant to
rules prescribed by the Board. Once a Participant has enrolled in the
Plan, the election made shall remain in effect from Plan Year to Plan
Year until, pursuant to rules prescribed by the Board, the Participant
modifies or revokes his or her election. If a Participant revokes his
or her election during a Plan Year, the Participant cannot reinstate his
or her election until the Entry Date for the next Plan Year.
ARTICLE III
Benefits
3.01 Benefits.
The benefits under this Plan to which a Participant or Beneficiary shall
be entitled shall be equal to the sum of the Elective Deferrals, plus
Interest on such amounts.
3.02 Accounts.
The Company shall create and maintain adequate records to reflect the
interest of each Participant in the Plan. Such records shall be in the
form of individual Accounts. Such Accounts shall be kept for
recordkeeping purposes only and shall not be construed as providing for
assets to be held in trust or escrow or any other form of asset
segregation for the Participant or Beneficiary to whom benefits are to
be paid pursuant to the terms of the Plan.
3.03 Allocation to Participant Account and Interest.
The Participant's Elective Deferrals shall be credited to the
Participant's Account as of the date such amount would have been paid to
such Participant as remuneration for services, and the Participant's
balance in his Account shall be credited with Interest at such times and
in such manner as determined in the sole discretion of the Committee.
3.04 Vested Percentage.
Notwithstanding anything herein to the contrary, a Participant shall be
100% vested at all times in the amount credited to his Account.
ARTICLE IV
Distribution of Benefits
4.01 Separation from Service.
The balance in the Participant's Account shall be distributed in a lump
sum upon the earlier of his or her termination as a Director for any
reason (including retirement, disability or death) or a date preselected
by the Participant either upon commencement of participation under the
Plan or upon such date or dates as may be determined by the Board.
4.02 Hardship.
Payment of part or all of the benefits under this Plan may be
accelerated in the case of severe hardship, which shall mean an
emergency or unexpected situation in the Participant's financial
affairs, including, but not limited to, illness or accident involving
the Participant or any of the Participant's dependents. All payments in
case of hardship must be approved by the Board.
ARTICLE V
Administration; Amendments and Termination; Rights Against the Company
5.01 Administration.
The Board shall administer this Plan, but may choose to delegate
administration of this Plan to the Committee. Except as expressly set
forth herein, any determination or decision by the Board or the
Committee shall be conclusive and binding on all persons who at any time
have or claim to have any interest whatever under this Plan.
5.02 Amendment and Termination Prior to a Change in Control.
The Board, solely, and without the approval of any Participant or
Beneficiary, shall have the right to amend this Plan at any time and
from time to time, by resolution adopted by it. Any such amendment
shall become effective upon the date stated therein. Notwithstanding
the foregoing, no amendment shall adversely affect the rights of any
Participant or Beneficiary who was previously receiving benefits under
this Plan to continue to receive such benefits or of all other
Participants and Beneficiaries to receive the benefits promised under
the Plan immediately prior to the later of the effective date or the
date of adoption of the amendment.
The Company has established this Plan with the bona fide intention and
expectation that from year to year it will deem it advisable to continue
it in effect. However, circumstances not now foreseen or circumstances
beyond the Company's control may make it impossible or inadvisable to
continue the Plan. Therefore, the Board, in its sole discretion,
reserves the right to terminate the Plan in its entirety at any time;
provided, however, that in such event any Participant or Beneficiary who
was receiving benefits under this Plan as of the termination date, shall
remain entitled to receive the benefits promised under the Plan
immediately prior to the termination of the Plan.
5.03 Rights Against the Company.
The establishment of this Plan shall not be construed as giving to any
Participant, Beneficiary, or any person whomsoever, any legal, equitable
or other rights against the Company, or its officers, directors, agents
or shareholders, except as specifically provided for herein, or its
giving to any Participant any equity or other interest in the assets,
business or shares of the Company or giving any Director the right to be
retained. All Participants shall be subject to discharge to the same
extent that they would have been if this Plan had never been adopted.
Subject to the rights of the Board to terminate this Plan or any benefit
hereunder, the rights of a Participant hereunder shall be solely those
of an unsecured creditor of the Company.
ARTICLE VI
General and Miscellaneous
6.01 Spendthrift Clause.
No right, title or interest of any kind in the Plan shall be
transferable or assignable by any Participant or Beneficiary or any
other person or be subject to alienation, encumbrance, garnishment,
attachment, execution or levy of any kind, whether voluntary or
involuntary. Any attempt to alienate, sell, transfer, assign, garnish,
attach or otherwise encumber or dispose of any interest in the Plan
shall be void.
6.02 Severability.
In the event that any provision of this Plan shall be declared illegal
or invalid for any reason, said illegality or invalidity shall not
affect the remaining provisions of this Plan but shall be fully
severable, and this Plan shall be construed and enforced as if said
illegal or invalid provision had never been inserted herein.
6.03 Construction of Plan.
The article and section headings and numbers are included only for
convenience of reference and are not to be taken as limiting or
extending the meaning of any of the terms and provisions of this Plan.
Whenever appropriate, words used in the singular shall include the
plural or the plural may be read as the singular.
6.04 Gender.
The personal pronoun of the masculine gender shall be understood to
apply to women as well as men except where specific reference is made to
one or the other.
6.05 Governing Law.
THE VALIDITY AND EFFECT OF THIS PLAN AND THE RIGHTS AND OBLIGATIONS OF
ALL PERSONS AFFECTED HEREBY SHALL BE CONSTRUED AND DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
ITS OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
6.06 Unfunded Top Hat Plan.
It is the Company's intention that this Plan is exempt from the Employee
Retirement Income Security Act of 1974, as amended from time to time
because it does not cover employees as that term is used in such Act but
even if the Act applied this Plan would be a Top Hat Plan as defined in
Section 201(2), 301(a)(3), and 401(a)(1) of such Act. The Company may
establish and fund one or more trusts for the purpose of paying some or
all of the benefits promised to Participants and Beneficiaries under the
Plan; provided however, that (i) any such trust(s) shall at all times be
subject to the claims of the Company's general creditors in the event of
the insolvency or bankruptcy of the Company, and (ii) notwithstanding
the creation or funding of any such trust(s), the Company shall remain
primarily liable for any obligation hereunder. Notwithstanding the
establishment of any such trust(s), the Participants and Beneficiaries
shall have no preferred claim on, or any beneficial ownership interest
in, any assets of any such trust or of the Company.
6.07 Divestment for Cause.
Notwithstanding any other provisions of this Plan to the contrary, the
right of any Participant, former Participant or Beneficiary either to
receive or to have paid to any other person, any benefits hereunder,
shall be forfeited, if such Participant is discovered to have engaged in
fraud, embezzlement, dishonesty against the Company, obtaining funds or
property under false pretenses, assisting a competitor without
permission, or interfering with the relationship of the Company or any
subsidiary or affiliate thereof with a customer. A Participant's or
Beneficiary's benefits shall be forfeited for any of the above reasons
regardless of whether such act is discovered prior to or subsequent to
the Participant's termination as a Director or the payment of benefits
under the Plan. If payment has been made, such payment shall be
restored to the Company by the Participant or Beneficiary.
Exhibit 10.2
NATIONAL SEMICONDUCTOR CORPORATION
DIRECTOR STOCK OPTION PLAN
(as amended effective September 24, 1999)
1. PURPOSE
The purposes of the Director Stock Option Plan (the "Plan") of National
Semiconductor Corporation (the "Corporation") are to promote the
recruiting and retention of highly qualified individuals to serve in the
capacity of non-employee members of the Board of Directors of the
Corporation ("Directors") and to strengthen the commonality of interest
between Directors and stockholders.
2. NON-QUALIFIED OPTIONS
It is intended that options to purchase shares of the Corporation's $.50
par value common stock (the "Common Stock") granted under this Plan shall
constitute non-qualified or non-statutory stock options, and not
incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended.
3. STOCK SUBJECT TO THE PLAN
There will be reserved for issue upon the exercise of options granted
under the Plan 1,000,000 shares of the Corporation's Common Stock,
subject to adjustment as provided in Paragraph 7, which may be unissued
shares, reacquired shares, or shares bought on the market. If any option
which shall have been granted shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares shall again
become available for the purposes of the Plan (unless the Plan shall have
been terminated).
4. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the
Corporation, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. Grants of options
under the Plan and the amount and nature of the awards to be granted
shall be automatic and non-discretionary in accordance with Paragraph 6.
5. ELIGIBILITY
Options may be granted only to non-employee Directors.
6. TERMS OF OPTION AND OPTION AGREEMENTS
Each option shall be evidenced by a written agreement in such form as the
Board of Directors shall from time to time approve, which agreements
shall comply with and be subject to all of the applicable following
provisions:
(a) The purchase price under each option granted shall be 100% of fair
market value on the date of grant. The fair market value on the date of
grant shall be the opening price of the Common Stock on the New York
Stock Exchange on such date (or if there shall be no trading on such
date, then on the first previous date on which there was such trading).
(b) Options shall be granted automatically and without further action
by the Board of Directors to all eligible Directors as follows: (i) on
the date of the adoption of the Plan by the Corporation's stockholders,
each eligible Director shall be granted an option to purchase 10,000
shares of Common Stock; (ii) each person who becomes an eligible
Director after the date of adoption of the Plan shall be granted an
option to purchase 10,000 shares of Common Stock on the date of the
appointment of such person to the Board of Directors; and (iii) each
eligible Director shall be granted an additional option to purchase
10,000 shares of Common Stock on the date of each subsequent election of
such person to the Board of Directors by the stockholders.
(c) The term of the non-qualified stock options granted under this Plan
shall be ten years and one day from the date the option was granted.
(d) Options shall become fully exercisable six months after the date of
grant.
(e) An option may not be exercised to any extent, either by the person
to whom it was granted, or by any person after his death, unless the
person to whom the option was granted has remained as a Director of the
Corporation for not less than six months from the date when the option
was granted.
(f) The Corporation, during the terms of options granted under the
Plan, at all times will keep available the number of shares of stock
required to satisfy such options.
(g) The Corporation will seek to obtain from each regulatory commission
or agency having jurisdiction such authority as may be required to issue
and sell shares of stock to satisfy such options. Inability of the
Corporation to obtain from any such regulatory commission or agency
authority which counsel for the Corporation deems necessary for the
lawful issuance and sale of its stock to satisfy such options shall
relieve the Corporation from any liability for failure to issue and sell
stock to satisfy such options pending the time when such authority is
obtained or is obtainable.
(h) Neither a person to whom an option is granted nor his legal
representative, heir, legatee, or distributee, shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares subject to such option unless and until he has exercised his
option pursuant to the terms thereof.
(i) An option shall not be transferable except by will or by the laws
of descent and distribution, and during the lifetime of the person to
whom the option is granted he alone may exercise it.
(j) An option shall terminate and may not be exercised if the person to
whom it is granted ceases to be a Director of the Corporation, except
(subject nevertheless to the last sentence of this subparagraph (j)):
(1) if his status as a Director is terminated for any reason other than
(i) retirement, (ii) permanent disability, or (iii) death, he may
exercise his option to the extent that he was entitled to exercise such
option at the date of such termination at any time within a period of
three (3) months following the date of such termination, or if he shall
die within the period of three (3) months following the date of such
termination without having exercised such option, his option may be
exercised within a period of one year following his death by the person
or persons to whom his rights under the option pass by will or by the
laws of descent or distribution but only to the extent exercisable at the
date of such termination; or (2) if his status as a Director is
terminated by (i) retirement, (ii) permanent disability, or (iii) death,
his option may be exercised in accordance with its terms and conditions
at any time within a period of five (5) years following the date of such
termination by him, or in the event of his death, by the persons to whom
his rights under the option shall pass by will or by the laws of descent
or distribution. Nothing contained in this subparagraph (j) is intended
to extend the stated term of the option and in no event may an option be
exercised by anyone after the expiration of its stated term.
(k) Nothing in this Plan or in any option granted hereunder shall
confer on any optionee any right to continue as a Director of the
Corporation.
(l) If an option agreement is not executed by the optionee and returned
to the Corporation on or prior to ninety (90) days after the date the
option is granted, such option shall terminate.
(m) The following definitions shall apply for purposes of this Plan:
(1) "retirement": termination as a Director after reaching age sixty-five
(65) or after reaching age fifty-five (55) and the optionee's age plus
years of service as a Director is sixty-five (65) or more;
(2) "permanent disability": a permanent and total incapacity to perform
any services as a Director.
7. ADJUSTMENT IN NUMBER OF SHARES AND IN OPTION PRICE
In the event there is any change in the shares of the Corporation through
the declaration of stock dividends or a stock split-up, or through
recapitalization resulting in share split-ups, or combinations or
exchanges of shares, or otherwise, the number of shares available for
option, as well as the shares subject to any option and the option price
thereof, shall be appropriately adjusted, provided that the number of
shares subject to any option shall always be a whole number.
8. PAYMENT OF PURCHASE PRICE AND WITHHOLDING TAXES
(a) The purchase price for all shares purchased pursuant to options
exercised must be either paid in full in cash, or paid in full in Common
Stock of the Corporation and valued at fair market value on the date of
exercise or a combination of cash and Common Stock. Fair market value on
the date of exercise is the opening price of the Common Stock on the New
York Stock Exchange on such date, or if there shall be no trading on such
date, then on the first previous date on which there was such trading.
(b) All or part of required withholding taxes that may be due upon the
exercise of an option, up to the highest marginal rates then in effect,
may be paid by the withholding of shares otherwise issuable upon exercise
of the option. Option shares withheld in payment of such taxes shall be
valued at the fair market value of the Corporation's Common Stock on the
date of exercise as defined herein.
9. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN
(a) The Board may amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for
any other purpose permitted by law; provided, however, that the
provisions of Paragraphs 5, 6(a), 6(b), 6(c), 6(d), 6(e) and 6(j) of the
Plan may not be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended,
the Employee Retirement Income Security Act, or the rules thereunder.
The Board will seek stockholder approval of an amendment if determined to
be required by or advisable under regulations of the Securities and
Exchange Commission or the Internal Revenue Service, the rules of any
stock exchange on which the Corporation's stock is listed or other
applicable law or regulation.
(b) The Plan shall continue in effect unless sooner terminated. An
option may not be granted while the Plan is suspended or after it is
terminated.
(c) Subject to the limitations of Paragraph 9, the rights and
obligations under any options granted while the Plan is in effect shall
not be altered or impaired by amendment, suspension or termination of the
Plan, except with the consent of the person to whom the option was
granted or to whom rights under an option shall have passed by will or by
the laws of descent and distribution.
10. EFFECTIVE DATE
The Plan shall become effective on June 26, 1997, subject to approval by
the stockholders of the Corporation within twelve months after such date.
No option shall be granted under the Plan until the Plan has been
approved by the stockholders of the Corporation.
Exhibit 10.3
NATIONAL SEMICONDUCTOR CORPORATION
2000 EXECUTIVE OFFICER INCENTIVE PLAN AGREEMENT
ARTICLE 1
Definitions
Whenever used in the Agreement, unless otherwise indicated, the following
terms shall have the respective meanings set forth below:
Agreement: This Executive Officer Incentive Plan Agreement.
Award: The amount to be paid to a Plan Participant.
Award Date: The date set by the Committee for payment of Awards,
usually approximately forty days after the Company makes public its
consolidated financial statements for the fiscal year.
Base Salary: Generally, the annualized base remuneration received by a
Participant from the Company at the end of the fiscal year. Base Salary
includes salary continuation and sick leave paid by the Company.
Extraordinary items, including but not limited to prior awards,
relocation expenses, international assignment allowances and tax
adjustments, sales incentives, amounts recognized as income from stock or
stock options, disability benefits (whether paid by the Company or a
third party) and other similar kinds of extra or additional remuneration
are excluded from the computation of Base Salary.
Company: National Semiconductor Corporation ("NSC"), a Delaware
corporation, and any other corporation in which NSC controls directly or
indirectly fifty percent (50%) or more of the combined voting power of
voting securities, and which has adopted this Plan.
Committee: A committee comprised of directors of National who are not
employees of the Company, as more fully defined in the Executive Officer
Incentive Plan.
Disability: Inability to perform any services for the Company and
eligible to receive disability benefits under the standards used by the
Company's disability benefit plan or any successor plan thereto.
Executive Officer: An officer of the Company who is subject to the
reporting and liability provisions of Section 16 of the Securities and
Exchange Act of 1934.
Incentive Levels: Percentage of Base Salary assigned to a Participant
as a Target Award.
Participant: An Executive Officer designated as a Participant in
accordance with the provisions of Article 3.
Performance Goal: Factors considered and scored to determine the amount
of a Participant's Award, which shall be based on one or more of the
business criteria listed in Section 5(b) of the Plan. Individual
Performance Goals may have two levels of performance as follows:
(i) Target -- Expected performance, as established by the Committee,
reflecting a degree of difficulty which has a reasonable probability of
achievement.
(ii) Stretch -- Better than Target performance and reflecting a greater
degree of difficulty.
Corporate financial Performance Goals will also have a Threshold level of
performance, which will be a minimum acceptable level of performance.
Retirement: Permanent termination of employment with the Company, and
(a) the Participant's age is either sixty-five (65) or age is at least
fifty-five (55) and age plus years of service in the employ of the
Company is sixty-five (65) or more, and (b) the retiring Participant
certifies to the Vice President-Finance of the Company that he or she
does not intend to engage in a full-time vocation.
Target Award: The Award, expressed as a percentage of Base Salary at
the assigned Incentive Level, that may be earned by a Participant for
achievement of the Target level of performance.
All capitalized terms used in this Agreement and not otherwise defined
herein have the meanings assigned to them in the Executive Officer
Incentive Plan.
ARTICLE 2
Effective Date
The Agreement will become effective as of May 30, 1999, to be effective
for the Company's fiscal year 2000.
ARTICLE 3
Eligibility for Plan Participation
A. Within ninety (90) days after the commencement of the Company's
fiscal year, the Committee shall designate those Executive Officers who
shall be Plan Participants for the fiscal year and their respective
Incentive Levels.
B. Participants will be notified once the Committee has designated
Participants for the fiscal year. Continued participation will be re-
evaluated by the Committee annually pursuant to Article 3A supra at the
beginning of each fiscal year.
C. Newly hired Executive Officers and persons who are promoted to
Executive Officers may be added as Participants to the Plan by the
Committee during the fiscal year. Such Participants will receive a
prorated Award based on time of participation in the Plan.
D. Participants may be removed from the Plan during the fiscal year at
the discretion of the Committee. Participants so removed will receive a
prorated Award based on length of participation in the Plan.
ARTICLE 4
Target Awards/Incentive Levels
A. Each Participant will be assigned an Incentive Level with associated
Target Awards expressed as percentages of the Participant's Base Salary.
B. In the event that a Participant changes positions during the Plan
Period and the change results in a change in Incentive Level, whether due
to promotion or demotion, the Incentive Level will be prorated to reflect
the time spent in each position.
ARTICLE 5
Plan Performance Goals
A. Performance Goals and associated weights will be established by the
Committee within ninety (90) days after the start of the fiscal year.
Each individual Performance Goal will have a defined Target level of
performance and may have defined Stretch levels as well. Corporate
financial Performance Goals will have defined Threshold, Target and
Stretch levels of performance. All Participants will be given the same
corporate financial Performance Goals. Performance Goals and their
associated weights may change from one fiscal year to another fiscal year
to reflect the Company's operational and strategic goals, but must be
based on one or more of the business criteria listed in Section 5(b) of
the Plan.
Actual Award amounts may range between 0% and 200% of Target based on
actual achievement on Performance Goals. Each Performance Goal will be
scored at the end of the fiscal year. The sum of the scoring on the
Performance Goals will determine the total performance level for the
year.
ARTICLE 6
Calculation and Payment of Awards
A. A Participant's Award will be calculated as a percentage of Base
Salary as follows:
1) The Participant's Target Award is determined prior to the beginning
of the fiscal year.
2) The performance of each Participant is scored at the end of the
fiscal year, with the sum of the scoring on each Performance Goal
determining the total performance level.
3) The total performance level shall be multiplied by the Participant's
Incentive Level. No one individual Award may exceed 200% of the
Participant's Target Award amount.
4) The Committee may adjust Awards to reflect discretion it deems
appropriate. As a result, some or all Award amounts may be adjusted to
reflect the exercise of the Committee's discretion.
B. The Committee will score the performance of the Plan Participants.
Awards will be paid only after the Committee certifies in writing that
the ratings on the Performance Goals have been attained.
C. Awards will be paid in cash on or about the Award Date.
D. Awards will reflect the Participant's Base Salary in effect at the
end of the fiscal year. Participants who take an unpaid leave of absence
during the fiscal year for good cause shown to the satisfaction of the
Committee will have their Awards prorated to reflect actual pay earned
during the fiscal year.
E. Any Awards that are prorated for any reason under the terms of the
Plan or this Agreement will be prorated based on the effective date of
the change that resulted in the proration.
ARTICLE 7
Termination of Employment
A. To be eligible to receive an Award, the Participant must be employed
by the Company on the last day of the fiscal year. A Participant whose
employment has terminated prior to that date will forfeit the Award,
except as otherwise provided in this Article 7.
B. If a Participant's employment is terminated during the fiscal year
by Disability, Retirement, or death, the Participant will receive an
Award reflecting the Participant's performance and actual period of full-
time employment during the fiscal year.
C. Unless local law or regulation provides otherwise, payments of
Awards made upon termination of employment by death shall be made on the
Award Date to: (a) beneficiaries designated by the Participant; if none,
then (b) to a legal representative of the Participant; if none, then (c)
to the persons entitled thereto as determined by a court of competent
jurisdiction.
D. Participants whose employment is terminated by reduction in force
during the fiscal year will receive no Award. If a Participant's
employment is terminated by reduction in force after the fiscal year but
before the Award Date, the Participant will receive the Award on the
Award Date.
E. The Committee reserves the right to reduce an Award to reflect a
Participant's absence from work during a fiscal year. Unless the absence
is for a medical leave, worker's compensation leave, or family leave, a
Participant absent on the Award Date will not receive an Award until he
or she returns from the absence and satisfies the Committee the absence
was for good cause shown.
F. The right of a Participant to receive an Award, including Awards
deferred pursuant to the provisions of Article 8, shall be forfeited if
the Participant's employment is terminated for good cause shown such as
acts of moral turpitude, a reckless disregard of the rights of other
employees or because of or the Participant is discovered to have engaged
in fraud, embezzlement, dishonesty against the Company, obtaining funds
or property under false pretenses, assisting a competitor without
permission, or interfering with the relationship of the Company with a
customer. A Participant's Award will be forfeited for any of the above
reasons regardless of whether such act is discovered prior to or
subsequent to the Participant's termination of employment or payment of
an Award. If an Award has been paid, such payment shall be repaid to the
Company by the Participant.
ARTICLE 8
Deferral of Awards
A. If permitted by local law and regulations, a Participant is entitled
to make an irrevocable election to defer receipt of all or any portion of
any Award. For any fiscal year, the Notice of Election must be completed
prior to thirty (30) days before the end of the fiscal year. Notices of
Election are not self-renewing and must be completed for each fiscal year
if deferral is desired for the applicable fiscal year.
B. For each Participant who elects deferral, the Company will establish
and maintain book entry accounts which will reflect the deferred Award
and any interest credited to the account.
C. For deferred Awards, Participant deferred accounts will be credited
each Award Date with interest set at the rate for long-term A-rated
corporate bonds, as reported by the investment banking firm of Salomon
Smith Barney Inc of New York City (or such other investment banking firm
as the Committee may specify) during the first week of each calendar
year. The interest rate will be reset at the beginning of each calendar
year. Interest will begin to accrue on the Award Date and will be
credited each Award Date until the date payment is actually made. If a
Participant's Award is distributed at any time other than on an Award
Date, the Participant's account will be credited with interest until the
date of distribution.
D. Participants will not receive deferred Awards until the earlier of
termination of employment for any reason (including Retirement,
Disability, or death) or a date pre-selected by the Participant. The
account balance will be paid in a lump sum in the month following the
earlier of termination of employment for any reason or the pre-selected
date unless installment payments are permitted and have been elected as
follows: Upon termination of employment by reason of Retirement or
Disability, a Participant who has previously elected to defer an Award
may irrevocably elect to have the balance of the deferred Award plus
accrued interest paid to the Participant in periodic, annual installments
over a period of ten (10) years. Payments shall commence or be made
annually on a day that is within thirty (30) days of the anniversary date
following the Participant's Retirement or Disability.
E. Subject to Section 7.F., if the Participant's employment is
terminated for any reason other than death, Disability or Retirement, the
Participant will be paid the entire account balance in a lump sum in the
month after termination, less any sums due the Company. If a Participant
has requested installment payments and dies either before or after
distribution has begun, the unpaid balance will be paid in a lump sum in
the month following the Participant's death, less any sums due the
Company.
F. Payment of part or all of the deferred Award may be accelerated in
the case of severe hardship for good cause shown to the satisfaction of
the Committee, which shall mean an emergency or unexpected situation
including, but not limited to, illness or accident involving the
Participant or any of the Participant's dependents. All payments in case
of hardship must be specifically approved by the Committee.
G. No Participant may assign, pledge or borrow against his or her
account except as provided in this Agreement.
H. If permitted by local law and regulations, the Participant may
designate a beneficiary to receive deferred Awards in the event of the
Participant's death. The Participant's beneficiary may be changed
without the consent of any prior beneficiary except as follows: In those
jurisdictions where spouses are granted rights by law in a Participant's
earnings, if the Participant is married at the time of designation, the
Participant's spouse must consent to the beneficiary designation and any
change in beneficiary. If no beneficiary is chosen or the beneficiary
does not survive the Participant, the Award account balance will be paid
in accordance with the terms of Article 7C or as otherwise required by
local law or regulation.
ARTICLE 9
Interpretations and Rule-Making
The Committee shall have the sole right and power to: (i) interpret the
provisions of the Agreement, and resolve questions thereunder, which
interpretations and resolutions shall be final and conclusive; (ii) adopt
such rules and regulations with regard to the administration of the Plan
as are consistent with the terms of the Plan and the Agreement, and (iii)
generally take all action to equitably administer the operation of the
Plan and this Agreement.
ARTICLE 10
Declaration of Incentives, Amendment, or Discontinuance
The Committee may on or before the Award Date: (i) determine not to make
any Awards to any or all Participants for any Plan Period; (ii) make any
modification or amendment to this Agreement for any or all Participants
provided such modification or amendment is in accordance with the terms
of the Plan; or (iii) discontinue this Agreement for any or all
Participants provided such modification or amendment is otherwise in
accordance with the Plan.
ARTICLE 11
Miscellaneous
A. Except as provided in Article 8 H, no right or interest in the Plan
is transferable or assignable except by will or the laws of descent and
distribution.
B. Participation in this Plan does not guarantee any right to continued
employment and the Committee and management reserve the right to dismiss
Participants for any reason whatsoever. Participation in one fiscal year
does not guarantee a Participant the right to participation in any
subsequent fiscal year.
C. The Company reserves the right to deduct from all Awards under this
Plan any sums due the Company as well as any taxes or other amounts
required by law to be withheld with respect to Award payments.
D. Awards that are deferred under Article 8 constitute an unfunded Plan
of deferred compensation. As such, any amounts payable thereunder will
be paid out of the general corporate assets of the Company and shall not
be transferred into a trust or otherwise set aside. All accounts under
the Plan will be for bookkeeping purposes only and shall not represent a
claim against specific assets of the Company. The Participant will be
considered a general creditor of the Company and the obligation of the
Company is purely contractual and shall not be funded or secured in any
way.
E. Maintenance of financial information relevant to measuring
performance during the fiscal year will be the responsibility of the
Chief Financial Officer of the Company.
F. The provisions of the Plan shall not limit, or restrict, the right
or power of the Committee to continue to adopt such other plans or
programs, or to make salary, bonus, incentive, or other payments, with
respect to compensation of Executive Officers, as in its sole judgment it
may deem proper.
G. Except to the extent superseded by federal law, this Agreement shall
be construed in accordance with the laws of the State of California.
H. No member of the Company's board of directors or any officer,
employee, or agent of the Company shall have any liability to any person,
firm or corporation based on or arising out of this Agreement or the
Plan.
I. Any dispute relating to or arising from this Agreement shall be
determined by binding arbitration by a three member panel chosen under
the auspices of the American Arbitration Association and acting pursuant
to its Commercial Rules, sitting in San Jose, California. The panel may
assess all fees, costs and other expenses, including reasonable counsel
fees, as the panel sees fit. Notwithstanding the parties' election to
use arbitration to resolve disputes under this Agreement, nothing
contained in that election shall preclude either party, if the
circumstances warrant, from seeking extraordinary relief, such as
injunction and attachment, from any court of competent jurisdiction in
California.
17
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