7
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 27, 2000
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
---
For the transition period from __________ to __________
Commission File Number: 1-6453
NATIONAL SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2095071
-------- ----------
(State of incorporation) (I.R.S. Employer Identification Number)
2900 Semiconductor Drive, P.O. Box 58090
Santa Clara, California 95052-8090
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 721-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Outstanding at August 27, 2000
------------------- ------------------------------
Common stock, par value $0.50 per share 178,589,384
<PAGE>
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 27, 2000 and August 29, 1999 3
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the Three Months Ended August 27, 2000 and August 29, 1999 4
Condensed Consolidated Balance Sheets (Unaudited) as of August 27, 2000
and May 28, 2000 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended August 27, 2000 and August 29, 1999 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16-17
Signature 18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
Aug. 27, Aug. 29,
2000 1999
------------- -------------
<S> <C> <C>
Net sales $640.8 $481.8
Operating costs and expenses:
Cost of sales 301.4 296.7
Research and development 103.7 115.1
Selling, general and administrative 100.6 76.0
Special items 6.4 -
------------- -------------
Total operating costs and expenses 512.1 487.8
Operating income (loss) 128.7 (6.0)
Interest income (expense), net 14.1 (1.4)
Other income, net 37.5 57.0
------------- -------------
Net income before income taxes 180.3 49.6
Income tax expense 36.1 2.5
------------- -------------
Net income $144.2 $ 47.1
============= =============
Earnings per share:
Basic $ 0.81 $ 0.28
Diluted $ 0.74 $ 0.25
Weighted-average shares:
Basic 178.1 170.3
Diluted 195.8 185.4
Income used in basic and diluted
earnings per share calculation $144.2 $ 47.1
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited)
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
Aug. 27, Aug. 29,
2000 1999
----------------- ----------------
<S> <C> <C>
Net income $144.2 $ 47.1
Other comprehensive income, net of tax:
Reclassification adjustment for realized
gain included in net income (17.7) -
Unrealized gain on
available-for-sale securities 53.2 172.3
----------------- ----------------
Comprehensive income $179.7 $219.4
================= ================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
Aug. 27, May 28,
2000 2000
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 836.5 $ 778.8
Short-term marketable investments 30.3 71.1
Receivables, net 278.4 258.6
Inventories 196.0 192.9
Deferred tax assets 125.7 125.7
Other current assets 60.2 40.5
------------------- ------------------
Total current assets 1,527.1 1,467.6
Net property, plant and equipment 804.2 803.7
Long-term cash investments 58.8 -
Long-term marketable investments 50.0 12.7
Other assets 104.9 98.2
------------------- ------------------
Total assets $2,545.0 $2,382.2
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 31.7 $ 31.4
Accounts payable 176.3 194.5
Accrued expenses 268.6 315.1
Income taxes 111.4 86.7
------------------- ------------------
Total current liabilities 588.0 627.7
Long-term debt 44.1 48.6
Other non-current liabilities 66.3 62.6
------------------- ------------------
Total liabilities 698.4 738.9
------------------- ------------------
Commitments and contingencies
Shareholder's equity
Common stock 89.3 88.8
Additional paid-in capital 1,418.4 1,395.3
Retained earnings 330.9 186.7
Accumulated other comprehensive
income (loss) 8.0 (27.5)
------------------- ------------------
Total shareholders' equity 1,846.6 1,643.3
------------------- ------------------
Total liabilities and shareholders' equity $2,545.0 $2,382.2
=================== ==================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
Three Months Ended
Aug. 27, Aug. 29,
2000 1999
-------------------------- ---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $144.2 $ 47.1
Adjustments to reconcile net income
with net cash provided by (used by) operations:
Depreciation and amortization 59.3 72.6
Gain on investments (36.1) (48.4)
Loss on disposal of equipment 0.8 3.7
Donation of equity securities 20.5 -
Non-cash special items 6.4 -
Other, net (1.0) 7.4
Changes in certain assets and liabilities, net:
Receivables (19.8) (36.8)
Inventories (3.1) (4.6)
Other current assets (20.5) (1.9)
Accounts payable and accrued expenses (63.1) (77.7)
Current and deferred income taxes 24.7 12.6
Other liabilities 3.7 1.5
-------------------------- ---------------------------
Net cash provided by (used by) operating activities 116.0 (24.5)
-------------------------- ---------------------------
Cash flows from investing activities:
Purchase of property, plant; and equipment (51.0) (21.7)
Sale and maturity of marketable investments 2.1 61.3
Purchase of marketable investments (20.0) (62.5)
Proceeds from sale of investment 21.3 52.2
Business acquisitions, net of cash acquired (24.9) -
Purchase of investments and other, net (0.3) (1.8)
-------------------------- ---------------------------
Net cash provided by (used by) investing activities (72.8) 27.5
-------------------------- ---------------------------
Cash flows from financing activities:
Repayment of debt (4.2) (19.0)
Issuance of common stock, net 18.7 26.2
-------------------------- ---------------------------
Net cash provided by financing activities 14.5 7.2
-------------------------- ---------------------------
Net change in cash and cash equivalents 57.7 10.2
Cash and cash equivalents at beginning of period 778.8 418.7
-------------------------- ---------------------------
Cash and cash equivalents at end of period $836.5 $428.9
========================== ===========================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
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. Throughout the notes to the condensed consolidated financial
statements, National Semiconductor Corporation and its majority-owned
subsidiaries may be referred to as 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 28, 2000.
Earnings Per Share:
A reconciliation of the shares used in the computation for basic and diluted
earnings per share follows:
<TABLE>
<CAPTION>
Three Months Ended
Aug. 27, Aug. 29,
(in millions) 2000 1999
---------------- ---------------
<S> <C> <C>
Net income used for basic
and diluted earnings per share $144.2 $ 47.1
================ ===============
Number of shares:
Weighted-average common shares outstanding
used for basic earnings per share 178.1 170.3
Effect of dilutive securities:
Stock options 17.7 15.1
---------------- ---------------
Weighted-average common and potential
common shares outstanding used for
diluted earnings per share 195.8 185.4
================ ===============
</TABLE>
As of August 27, 2000, there were options outstanding to purchase 8.6 million
shares of common stock with a weighted-average exercise price of $59.54, which
could potentially dilute basic earnings per share in the future, but were not
included in diluted earnings per share as their effect was antidilutive. As of
August 29, 1999, options outstanding to purchase 2.9 million shares of the
company's common stock with a weighted-average exercise price of $30.24 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 were convertible into
approximately 6.0 million shares of common stock. The notes were not assumed to
be converted in the computation of diluted earnings per share because they were
antidilutive. The notes were paid off during fiscal 2000 and therefore had no
effect on the computation of diluted earnings per share as of August 27, 2000.
<PAGE>
<TABLE>
<CAPTION>
Note 2. Consolidated Financial Statement Detail
The components of inventories were:
Aug. 27, May 28,
(in millions) 2000 2000
------------------ ----------------
<S> <C> <C>
Raw materials $ 17.2 $ 16.6
Work in process 111.0 112.0
Finished goods 67.8 64.3
------------------ ----------------
Total inventories $ 196.0 $ 192.9
================== ================
The components of accumulated other comprehensive income (loss), net of tax,
were:
Aug. 27, May 28,
(in millions) 2000 2000
------------------ ----------------
Unrealized gain on
available-for-sale securities $ 39.2 $ 3.7
Minimum pension liability (31.2) (31.2)
------------------ ----------------
$ 8.0 $ (27.5)
================== ================
The components of special items were:
Three Months Ended
Aug. 27, Aug. 29,
(in millions) 2000 1999
------------------ -----------------
In-process research and development charge $ 4.1 $ -
Restructuring of operations 2.3 -
------------------ -----------------
$ 6.4 $ -
================== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Components of Interest income (expense), net and Other income, were:
Three Months Ended
Aug. 27, Aug. 29,
(in millions) 2000 1999
------------------ -----------------
<S> <C> <C>
Interest income (expense), net
Interest income $ 15.4 $ 5.9
Interest expense (1.3) (7.3)
------------------ -----------------
Interest income (expense), net $ 14.1 $ (1.4)
================== =================
Other income, net
Net intellectual property income $ 1.4 $ 6.8
Gain on investments 36.1 48.4
Other - 1.8
------------------ -----------------
Total other income, net $ 37.5 $ 57.0
================== =================
</TABLE>
Included in gain on investments for the first quarter of fiscal 2001 is a gain
of $20.5 million from the distribution of equity securities that were a part of
the company's investment portfolio. The securities were donated to establish the
National Semiconductor Foundation. The expense associated with the donation also
totaled $20.5 million and is included in selling, general and administrative
expenses for the first quarter of fiscal 2001.
<TABLE>
<CAPTION>
Note 3. Statement of Cash Flow Information
Three Months Ended
Aug. 27, Aug. 29,
(in millions) 2000 1999
---------------- ----------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid (refunded) for:
Interest $ 1.1 $ 3.1
Income taxes $ 11.4 $ (10.0)
Supplemental Schedule of Non-cash Investing
and Financing Activities:
Issuance of stock for employee benefit plans $ 4.1 $ 0.9
Issuance of restricted stock $ 1.7 $ -
Issuance of common stock in connection
with the settlement of a promissory note $ - $ 5.0
Change in unrealized gain on available-for-sales
securities $ 35.5 $ 172.3
</TABLE>
<PAGE>
Note 4. Restructuring of Operations
In connection with its consolidation of the wafer manufacturing operations in
Greenock, Scotland, the company recorded a $2.3 million restructuring charge
during the first quarter of fiscal 2001. The charge represents additional
severance costs associated with the termination of the remaining employees
expected to depart with the closure of the 4-inch wafer fabrication facility.
During the quarter, higher than expected salaries due to unexpected overtime
hours were earned by terminating employees. The actual salaries earned directly
impact the computation of the amount of severance these employees have a right
to receive upon effective termination. The closure of the 4-inch wafer
fabrication facility and the transfer of products and processes to the 6-inch
wafer fabrication facility on the same site was substantially completed by the
end of September. During the first quarter of fiscal 2001, the company paid $1.7
million in severance to 39 terminated employees in connection with the facility
closure.
During the quarter, the company also paid $1.8 million of other exit-related
costs, primarily related to restructuring actions announced in May 1999.
Included in accrued liabilities at August 27, 2000, is $17.3 million related to
severance and other exit costs for all restructuring actions discussed in Note 3
to the consolidated financial statements for fiscal 2000 that were not yet
completed as of August 27, 2000. These restructuring costs primarily represent
facility clean-up costs and lease obligations, as well as approximately $3.2
million of remaining severance related to the closure of the Greenock 4-inch
wafer fabrication facility. The timing of actual departure of employees and
payment of severance may occur in different accounting periods due to minimum
termination notification periods. Severance is usually paid on the effective
date of termination.
Note 5. Acquisition
In July 2000, the company acquired the business and assets of Vivid
Semiconductor, Inc. a flat-panel display design firm based in Chandler, Arizona.
The addition of Vivid's technologies and expert analog engineering resources is
expected to expand National's strengths in creating silicon solutions for the
flat-panel display market. The acquisition was accounted for using the purchase
method with a purchase price of $25.1 million in cash. In connection with the
acquisition, the company recorded a $4.1 million in-process research and
development charge, which is included as a component of special items in the
condensed consolidated statement of operations. The amount allocated to the
in-process research and development charge was determined through an established
valuation technique used in the high technology industry and expensed upon
acquisition, because technological feasibility had not been established and no
alternative uses exist. Research and development costs to bring the products to
technological feasibility are not expected to have a material impact on future
operating results. The remainder of the purchase price was allocated to net
assets of $1.3 million and intangible assets of $19.7 million based on fair
market values. The intangible assets primarily include goodwill to be amortized
over its useful life of 5 years.
<PAGE>
Note 6. Segment Information
The following table presents information related to the company's reportable
segments:
<TABLE>
<CAPTION>
Information Cyrix
Analog Appliance Business All Total
Segment Segment Unit Others Eliminations Consolidated
----------- -------------- ----------- ---------- ---------------- ----------------
Three months ended August 27, 2000:
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 461.2 $ 65.7 $ - $ 113.9 $ - $ 640.8
Inter-segment sales - 0.1 - - (0.1) -
----------- -------------- ----------- ---------- ---------------- ----------------
Net sales $ 461.2 $ 65.8 $ - $ 113.9 $ (0.1) $ 640.8
=========== ============== =========== ========== ================ ================
Segment income (loss)
before income
taxes $ 158.6 $ (18.5) $ - $ 40.2 $ 180.3
=========== ============== =========== ========== ================
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
=========== ============== =========== ========== ================
</TABLE>
<PAGE>
Item 2. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The company recorded net sales of $640.8 million for the first quarter of fiscal
2001, representing a 33 percent increase from net sales of $481.8 million for
the comparable quarter of fiscal 2000. This growth was primarily attributable to
continued improvement in market conditions for the semiconductor industry. Net
income was $144.2 million for the first quarter of fiscal 2001, compared to net
income of $47.1 million for the corresponding period of fiscal 2000. Although
the improvement in operating results reflects the effect of the company's
decision in May 1999 to exit the Cyrix PC processor business, growth in sales of
higher margin analog products and improvement in manufacturing efficiency were
also key contributors. Included in net income for the first quarter of fiscal
2001 were special items totaling $6.4 million. The special items represented an
in-process R&D charge of $4.1 million related to an acquisition (See Note 5) and
a restructuring charge of $2.3 million related to the consolidation of the
manufacturing facility in Greenock, Scotland (See Note 4). For the first quarter
of fiscal 2000, net income included a $48.4 million gain from the sale of
Fairchild Semiconductor stock, as part of Fairchild Semiconductor's initial
public offering.
Sales
The following discussion is based on the company's operating segments described
in Note 12 to the consolidated financial statements included in the Annual
Report on Form 10K for the year ended May 28, 2000.
The increase in overall sales for the first quarter of fiscal 2001 was a result
of significantly higher volumes, while average selling prices were relatively
flat for most of the company's products. The Analog segment, whose sales now
represent 72 percent of the company's total sales, drove the growth in sales.
For the first quarter of fiscal 2001, analog product sales grew 38 percent over
sales for the comparable quarter of fiscal 2000. This growth was primarily
attributable to significantly higher unit volume, while average selling prices
increased slightly. Analog segment sales were particularly strong in the
wireless cellular markets. Sales for interface products grew by 65 percent,
while sales for application-specific wireless communications products,
amplifiers, audio and power management products all grew by more than 45 percent
over sales for the comparable period of fiscal 2000. Sales in the first quarter
of fiscal 2001 for the Information Appliance segment grew 26 percent over sales
for the comparable quarter of fiscal 2000 primarily due to higher unit volume as
average selling prices remained flat. This comparison excludes sales of the
Cyrix PC microprocessor unit, which the company sold in September 1999. Network
product sales declined by 12 percent from sales for fiscal 2000. Although the
company introduced new products employing new digital signal processing
technology in the second half of fiscal 2000, minimal shipments of these new
products and decreasing demand for mature ethernet products contributed to the
sales decline. The decrease in unit shipments more than offset marginal
increases in average selling prices for network products.
Gross Margin
Gross margin as a percentage of sales increased to 53 percent for the first
quarter of fiscal 2001 from 38 percent for the same period of fiscal 2000. The
increase in gross margin for fiscal 2001 was primarily driven by improved
product mix, as the company shipped more high contribution analog and wireless
products, combined with improved factory utilization. With the installed
capacity in Maine being fully utilized, wafer fabrication capacity utilization
for the first quarter of fiscal 2001 reached 97 percent. This compares to 61
percent for the same period of fiscal 2000, which reflected the effect of lower
capacity utilization in Maine due to the company's decision to exit the Cyrix PC
microprocessor business in May 1999.
<PAGE>
Research and Development
Total research and development expenses of $107.8 million for the first quarter
of fiscal 2001, which included the effect of a $4.1 million in-process R&D
charge related to the acquisition in the quarter of Vivid Semiconductor,
declined 6 percent from R&D expenses for the same period of fiscal 2000.
Excluding the charge for Vivid, R&D expenses for the first quarter of fiscal
2001 declined 10 percent. The primary factor affecting the decrease in R&D
expense is the absence of expenses associated with the former 8-inch development
wafer fabrication facility in Santa Clara, California. The closure of this
facility, which was announced in May 1999, was completed by the end of the first
quarter of fiscal 2000. The company continues to invest resources to develop new
cores and integrate those cores with its other technological capabilities to
create system-on-a-chip products aimed at the emerging information appliance
market. It also continues to invest in the development of new analog and
mixed-signal technology-based products for applications in the wireless
communications, personal systems and consumer markets, as well as in the process
technologies needed to support those products. For the first quarter of fiscal
2001, the company devoted approximately 82 percent of its R&D effort towards new
product development and 18 percent towards the development of process
technology. Compared to the comparable period of fiscal 2000, this represents a
9 percent increase in spending for new product development and a 43 percent
decrease in spending for process technology.
Selling, General and Administrative
Selling, general and administrative expenses increased 32 percent for the first
quarter of fiscal 2001 from SG&A expenses for the same period of fiscal 2000.
Included in SG&A expenses for the first quarter of fiscal 2001 is an expense of
$20.5 million associated with the distribution of equity securities that were
part of the company's investment portfolio, which were donated to establish the
National Semiconductor Foundation. Excluding this expense, SG&A expenses for the
first quarter of fiscal 2001 increased 5 percent over SG&A expenses for the same
period of fiscal 2000. This increase is primarily attributable to increases in
payroll and employee benefit expenses, including incentive programs related to
the company's profitability.
Restructuring of Operations
In connection with its consolidation of the wafer manufacturing operations in
Greenock, Scotland, the company recorded a $2.3 million restructuring charge
during the first quarter of fiscal 2001. The charge represents additional
severance costs associated with the termination of the remaining employees
expected to depart with the closure of the 4-inch fabrication facility. Further
detail and discussion of other activity for the first quarter of fiscal 2001
related to restructuring actions is described in Note 4 to the condensed
consolidated financial statements.
Interest Income and Interest Expense
Net interest income was $14.1 million for the first quarter of fiscal 2001
compared to net interest expense of $1.4 million for the same quarter of fiscal
2000. Both higher average cash balances and slightly higher interest rates in
fiscal 2001 contributed to an increase in interest income. Interest expense for
fiscal 2001 was significantly lower than the same quarter of fiscal 2000 due to
the redemption of the company's $258.8 million convertible subordinated notes,
which were repaid in November 1999.
Other Income, Net
Other income, net was $37.5 million for the first quarter of fiscal 2001,
compared to $57.0 million for the same quarter of fiscal 2000. The components of
other income, net for the first quarter of fiscal 2001 included a net gain of
$36.1 million from the company's equity investments and $1.4 million of net
intellectual property income. The net gain from equity investments included a
gain of $20.5 million from the distribution of equity securities that were part
of the company's investment portfolio, which were donated to establish the
National Semiconductor Foundation. An expense for the same amount associated
with the donation is included in SG&A expenses for the first quarter of fiscal
2001. This compares to other income, net for the first quarter of fiscal 2000,
which included a gain of $48.4 million from the sale of a portion of the
company's investment in Fairchild stock, $6.8 million of net intellectual
property income and other miscellaneous income of $1.8 million.
Income Tax Expense
The company recorded income tax expense of $36.1 million in the first quarter of
fiscal 2001, compared to $2.5 million in the first quarter of fiscal 2000. This
is based on the company's expected effective tax rate of 20 percent for fiscal
2001, which is a combination of U.S. alternative minimum tax and foreign tax
expense. This compares to a 2 percent effective tax rate for fiscal 2000, which
primarily represented foreign income tax expense, as U.S. taxable income was
offset by net operating loss carryforwards.
Financial Condition
During the first quarter of fiscal 2001, cash and cash equivalents increased by
$57.7 million compared to an increase of $10.2 million for the first quarter of
fiscal 2000. The primary sources contributing to the improvement are described
below.
For the first quarter of fiscal 2001, operating activities generated cash of
$116.0 million while operating activities used cash of $24.5 million in the
first quarter of fiscal 2000. The primary contributor to the improvement in
operating cash for fiscal 2001 was the increase in net income, which more than
offset the negative impact from changes in working capital. For fiscal 2001, the
negative impact from changes in working capital was also less than in fiscal
2000 as increases in receivables and inventories were lower.
The company's investing activities used cash of $72.8 million in the first
quarter of fiscal 2001, while they generated cash of $27.5 million for the first
quarter of fiscal 2000. Use of cash in the first quarter of fiscal 2001
primarily related to the company's investment in property, plant and equipment
of $51.0 million and a business acquisition of $24.9 million (See Note 5).In
comparison the company's investment in property, plant and equipment was $21.7
million for the first quarter of fiscal 2000. That amount was more than offset
by the proceeds of $52.2 million from the sale of Fairchild stock.
The company's financing activities generated cash of $14.5 million for the first
quarter of fiscal 2001, compared to $7.2 million for the first quarter of fiscal
2000. For the first quarter of fiscal 2001, the company received $18.7 million
from the issuance of common stock under employee benefit plans and repaid $4.2
million of general debt. A reduction in debt repayment in fiscal 2001 was the
result of a significant decrease in company's total debt from the redemption of
the company's $258.8 million convertible subordinated notes, which were repaid
in November 1999. For the first quarter of fiscal 2000, the company received
$26.2 million from the issuance of common stock under employee benefit plans
while it repaid $19.0 million of general debt.
Management foresees substantial cash outlays for plant and equipment throughout
the remainder of fiscal 2001, with primary focus on capacity expansion in its
wafer manufacturing, assembly and test facilities, based upon expected future
unit volume increases. As a result, the fiscal 2001 capital expenditure level is
expected to be significantly higher than the fiscal 2000 level. Existing cash
and investment balances, together with existing lines of credit, are expected to
be sufficient to finance planned fiscal 2001 capital investments.
Outlook
The statements contained in this outlook section and within certain sections 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 Results of Operations on
pages 22 through 24 of the company's 2000 Annual Report on Form 10-K for the
fiscal year ended May 28, 2000 filed with the Securities and Exchange
Commission, the following factors may also affect the company's operating
results for fiscal 2001:
Market conditions continued to be strong for National through the end of the
first quarter of fiscal 2001, despite the usual summer slowdown experienced in
Europe. New orders grew sequentially over the May quarter and sales grew
sequentially for the fifth consecutive quarter. The wireless handset market
continues to be an important part of the company's growth, as new integrated
chipsets are being developed to allow greater penetration in the overall market.
Although end market unit growth for wireless handsets continued to be very high,
the timing of future growth expectations for the remainder of calendar 2000 is
subject to a high level of uncertainty. The expected growth of unit builds by
some of National's key wireless customers has been reduced during calendar 2000.
Other customers' growth has increased but is dependent on gains in market share,
which cannot be assured. Due to recent component shortages, some customers have
built up their inventories. The rate in which these inventories are reduced and
customer reorders are received in the short-term will have an effect on
shipments for the current quarter. As a result, the company remains cautious on
near-term trends in its wireless-related business. In addition, since the end of
the first quarter of fiscal 2001, certain personal computer companies have made
public announcements indicating less demand than expected. This softening could
negatively impact the rate of orders received from National's customers who
serve the PC market. The level of revenue expected for the second quarter is
dependent on meeting a specified level of fill orders, which are orders received
and shippable in the same quarter. If the company is unable to achieve the
specified level of fill orders, it will be unable to achieve the level of
revenue growth expected for the second quarter of fiscal 2001.
If the factors discussed above, combined with general semiconductor market
conditions, result in a decline in the growth of new orders received, the
company may be unable to achieve the level of revenue growth expected for the
remainder of fiscal 2001 and operating results will be unfavorably affected.
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.
<PAGE>
ITEM 3. QUANTITATIVE 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 28, 2000 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 28, 2000 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. There have been no material changes
from the information reported in these sections.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 1, 1988, the U.S. Customs Service liquidated a number of duty drawback
claims previously filed by the company. In connection with the liquidation, the
Customs Service denied the payment of drawback that had been previously paid to
the company and issued bills to the company in the amount of $2.5 million
seeking repayment of the accelerated drawback. The company filed protests of the
liquidations in September 1988. The protests were denied in March 1996. The
company sought judicial review of the denial in the Court of International
Trade. As a prerequisite to filing the summons for judicial review, the Company
had paid the denied duties and associated interest totaling $5.2 million. The
company and Customs Service reached a settlement of this matter in July 2000.
The settlement provided for complete termination of the matter and a payment to
the company in the amount of $182,648.82 plus associated interest.
As reported in the company's Form 10-K for the fiscal year ended May 28, 2000,
the federal securities class action suit initially filed in November 1997 by
Goodman Epstein, a former Cyrix shareholder, on behalf of himself and other
Cyrix shareholders, went to trial in June 2000 and a jury returned a verdict in
favor of the company and other defendants on July 11, 2000. In return for the
company's agreement not to seek costs associated with the litigation, plaintiff
has agreed not to appeal the case. The period for filing an appeal has expired.
The case is now finally concluded.
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). Certificate of
Amendment of Certificate of Incorporation dated September 22, 2000.
3.2 By-Laws of the company (incorporated by reference from the Exhibits to the
company's Form 10-K for fiscal year ended May 28,2000 filed August 3,
2000).
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:
Fiscal Year 2001 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 27, 2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL SEMICONDUCTOR CORPORATION
Date: October 10, 2000 /s/ Lewis Chew
--------------
Lewis Chew
Vice President and Controller
Signing on behalf of the registrant
and as principal accounting officer
