UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINTON, 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 November 28, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number: 1-6453
NATIONAL SEMICONDUCTOR CORPORATION
----------------------------------
(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 November 28, 1999.
------------------- ---------------------------------
Common stock, par value $0.50 per share 172,958,061
<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 and Six Months
Ended November 28, 1999 and November 29, 1998 3
Condensed Consolidated Statements of
Comprehensive Income(Loss) (Unaudited) for the
Three Months and Six Months Ended November 28, 1999
and November 29, 1998 4
Condensed Consolidated Balance Sheets (Unaudited)
as of November 28, 1999 and May 30, 1999 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended
November 28, 1999 and November 29, 1998 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19-20
Signature 21
<PAGE>
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 Six Months Ended
------------------ -------------------
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $ 513.9 $ 510.1 $ 995.7 $ 979.7
Operating costs and expenses:
Cost of sales 281.5 417.1 578.2 831.7
Research and development 85.0 112.9 200.1 235.0
Selling, general and
administrative 75.1 84.9 151.1 157.9
Special items:
Restructuring of operations (3.1) 12.5 (3.1) 12.5
Gain on disposition of Cyrix
PC processor business (26.8) - (26.8) -
------- ------ -------- -------
Total operating costs
and expenses 411.7 627.4 899.5 1,237.1
------- ------ -------- -------
Operating income(loss) 102.2 (117.3) 96.2 (257.4)
Interest income(expense), net 1.6 (0.3) 0.2 (0.2)
Other income(expense), net 0.2 (8.3) 57.2 (8.0)
------- ------- -------- -------
Income(loss) before
income taxes and
extraordinary item 104.0 (125.9) 153.6 (265.6)
Income tax provision(benefit) 5.2 (31.5) 7.7 (66.4)
------- ------ -------- -------
Net income(loss) before
extraordinary item 98.8 (94.4) 145.9 (199.2)
Extraordinary loss on early
extinguishment of debt, net
of taxes of $0.4 million 6.8 - 6.8 -
------- ------ -------- -------
Net income(loss) $ 92.0 $ (94.4) $ 139.1 $ (199.2)
======= ====== ======== =======
Earnings(loss) per share
before extraordinary item:
Basic $ 0.57 $ (0.57) $ 0.85 $ (1.20)
Diluted $ 0.52 $ (0.57) $ 0.78 $ (1.20)
Earnings(loss) per share:
Basic $ 0.53 $ (0.57) $ 0.81 $ (1.20)
Diluted $ 0.49 $ (0.57) $ 0.74 $ (1.20)
Income(loss) used in basic
and diluted earnings(loss)
per share calculation $ 92.0 $ (94.4) $ 139.1 $ (199.2)
Weighted average common shares outstanding:
Basic 172.2 166.6 171.3 166.2
Diluted 189.5 166.6 187.5 166.2
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME(LOSS) (Unaudited)
(in millions)
Three Months Ended Six Months Ended
------------------ ------------------
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
1999 1998 1999 1998
-------- -------- -------- --------
Net income(loss) $ 92.0 $ (94.4) $ 139.1 $ (199.2)
Other comprehensive
income(loss), net of tax:
Unrealized gain(loss) on
available-for-sale
securities 13.8 (0.1) 186.1 0.1
-------- -------- -------- --------
Comprehensive income(loss) $ 105.8 $ (94.5) $ 325.2 $ (199.1)
======== ======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
Nov. 28, May 30,
1999 1999
ASSETS -------- --------
Current assets:
Cash and cash equivalents $ 402.8 $ 418.7
Short-term marketable investments 59.2 107.2
Receivables, net 218.9 171.9
Inventories 157.6 141.3
Deferred tax assets 117.9 117.9
Other current assets 36.8 32.2
-------- --------
Total current assets 993.2 989.2
Property, plant and equipment 2,265.9 2,319.1
Less accumulated depreciation (1,458.0) (1,403.1)
-------- --------
Net property, plant and equipment 807.9 916.0
Other assets 307.3 139.1
-------- --------
Total assets $2,108.4 $2,044.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings and current
portion of long-term debt $ 48.5 $ 49.3
Accounts payable 157.0 189.8
Accrued expenses 328.6 348.1
Income taxes payable 96.1 77.8
-------- --------
Total current liabilities 630.2 665.0
Long-term debt 124.1 416.3
Other non-current liabilities 66.0 62.2
-------- --------
Total liabilities 820.3 1,143.5
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock 86.5 84.5
Additional paid-in capital 1,313.2 1,253.1
Retained deficit (295.0) (434.1)
Accumulated other comprehensive
income(loss) 183.4 (2.7)
-------- --------
Total shareholders' equity 1,288.1 900.8
-------- --------
Total liabilities and shareholders' equity $2,108.4 $2,044.3
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions) Six Months Ended
--------------------
Nov. 28, Nov. 29,
1999 1998
------- -------
Cash flows from operating activities:
Net income(loss) $ 139.1 $(199.2)
Adjustments to reconcile net income(loss)
with net cash provided by operations:
Depreciation and amortization 137.7 187.4
(Gain)loss on investments (48.4) 0.1
Tax benefit associated with stock options - 0.4
Loss on disposal of equipment 5.0 35.5
Non-cash special items (29.9) 12.5
Other, net 2.9 (1.4)
Changes in certain assets and liabilities, net:
Receivables (42.0) 2.5
Inventories (21.7) 104.2
Other current assets (4.6) 28.1
Accounts payable and accrued expenses (60.5) (31.2)
Income taxes payable 18.3 (32.2)
Other liabilities 3.8 0.3
------- -------
Net cash provided by operating activities 99.7 107.0
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (58.7) (156.1)
Sale of equipment 8.1 -
Sale and maturity of marketable investments 137.0 73.3
Purchase of marketable investments (89.0) (64.7)
Sale of investments 52.2 0.1
Disposition of Cyrix PC processor business 70.0 -
Purchase of investments and other, net 2.2 (5.9)
------- -------
Net cash provided by (used by)
investing activities 121.8 (153.3)
------- -------
Cash flows from financing activities:
Proceeds from bank borrowing - 10.0
Redemption of 6.5% convertible subordinated notes (265.8) -
Repayment of debt (22.1) (16.3)
Issuance of common stock, net 50.5 12.9
------- -------
Net cash provided by (used by)
financing activities (237.4) 6.6
------- -------
Net change in cash and cash equivalents (15.9) (39.7)
Cash and cash equivalents at beginning of period 418.7 460.8
------- -------
Cash and cash equivalents at end of period $ 402.8 $ 421.1
======= =======
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 ("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:
For all periods presented, there were no adjustments to net income(loss)
reported in the condensed consolidated statements of operations for
determining net income(loss) used for basic and diluted earnings per
share. A reconciliation of the shares used in the computation for basic
and diluted earnings per share follows:
Three Months Ended Six Months Ended
-------------------- --------------------
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
(in millions) 1999 1998 1999 1998
------- -------- -------- --------
Number of shares:
Weighted average common
shares outstanding used for
basic earnings per share 172.2 166.6 171.3 166.2
Effect of dilutive
securities:
Stock options 17.3 - 16.2 -
------- -------- -------- --------
Weighted average common
and potential common shares
outstanding used for
diluted earnings per share 189.5 166.6 187.5 166.2
======= ======== ======== ========
As of November 28, 1999 and November 29, 1998, there were options
outstanding to purchase 0.5 million shares of the Company's common stock
with a weighted-average exercise price of $35.10 and 29.9 million shares
of the Company's common stock with a weighted average exercise price of
$15.29, respectively, which could potentially dilute basic earnings per
share in the future. These options were not included in the computation
of diluted earnings per share as their effect was antidilutive.
Comprehensive Income:
The components of accumulated other comprehensive income (loss) net of
tax, were:
Nov. 28, May 30,
(in millions) 1999 1999
------- --------
Unrealized gain on available-for-sale
securities, net of tax $ 208.4 $ 22.3
Minimum pension liability (25.0) (25.0)
------- -------
$ 183.4 $ (2.7)
======= =======
<PAGE>
Note 2. Consolidated Financial Statement Detail
The components of inventories were:
Nov. 28, May 30,
(in millions) 1999 1999
------- --------
Raw materials $ 13.1 $ 13.0
Work in process 103.0 81.0
Finished goods 41.5 47.3
------- -------
Total inventories $ 157.6 $ 141.3
======= =======
Components of interest income(expense),
net and other income(expense), net were:
Three Months Ended Six Months Ended
------------------ ------------------
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
(in millions) 1999 1998 1999 1998
-------- -------- -------- --------
Interest income(expense)
- ------------------------
Interest income $ 7.6 $ 6.5 $ 13.5 $ 13.5
Interest expense (6.0) (6.8) (13.3) (13.7)
-------- -------- -------- --------
Interest income(expense), net $ 1.6 $ (0.3) $ 0.2 $ (0.2)
======== ======== ======== ========
Other income(expense)
- ---------------------
Net intellectual property income $ 0.1 $ 0.1 $ 6.9 $ 0.4
Gain(loss)on investments, net 0.1 (0.1) 48.5 (0.1)
Other - (8.3) 1.8 (8.3)
-------- -------- -------- --------
Total other income
(expense), net$ 0.2 $ (8.3) $ 57.2 $ (8.0)
======== ======== ======== ========
Note 3. Statement of Cash Flow Information
Six Months Ended
--------------------
Nov. 28, Nov. 29,
(in millions) 1999 1998
------- -------
Supplemental Disclosure of Cash Flow
Information
Cash paid(refunded) for:
Interest $ 16.5 $ 14.1
Income taxes $ (11.0) $ (42.2)
Interest on tax settlements $ - $ 2.9
Supplemental Schedule of Noncash Investing
and Financing Activities
Issuance of stock for employee benefit plans $ 0.3 $ 1.3
Issuance of restricted stock $ 0.9 $ 0.7
Issuance of common stock in connection with the
settlement of a promissory note $ 5.0 $ -
Issuance of common stock in connection with the
conversion of subordinated notes $ 0.1 $ -
<PAGE>
Note 4. Restructuring of Operations:
In connection with the restructuring actions announced in fiscal 1999,
the Company paid $19.0 million in severance to terminated employees
during the first six months ended November 28, 1999. Payment was made
to 156 employees terminated in the worldwide workforce reduction action,
236 employees terminated in connection with the closure of the Company's
8-inch development wafer fabrication facility located in Santa Clara,
California and 364 employees terminated in connection with the Company's
decision to exit the PC processor business. In connection with the sale
of the PC processor business (discussed in the following paragraph), 103
of these terminated employees were hired by VIA Technologies, Inc.
("VIA"). The Company also paid $3.7 million for other exit-related
costs during the same period primarily related to the closure activity
of the Santa Clara wafer fabrication facility.
In September 1999, the Company completed the sale of the assets of the
PC processor business to VIA, a Taiwanese company. The sale included
the Company's MII x86 compatible processor and successor products.
National retained 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 processor-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 close of the transaction and the
remaining $5.0 million in December 1999. The Company recorded a gain on
the sale of $26.8 million in the second quarter of fiscal 2000.
As part of the final processor sale arrangement, the Company may also
receive future royalties of up to $92.0 million, which are to be earned
based on future sales of products by VIA under the terms of a separate
licensing agreement. These royalties will be accounted for in current
operating results if and when they are earned. To date, no royalties
have been recorded by the Company.
In September 1999, the Company also announced it would 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. As a result,
the Company recorded a $3.1 million reduction to its restructure reserve
related to a penalty that the Company is no longer expected to incur.
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. In connection with the closure of the 4-inch wafer
fabrication facility, the Company paid $3.8 million in severance to 193
terminated employees during the first six months ended November 28,
1999. The Company currently expects the remainder of employee
terminations resulting from the facility closure to be completed in the
fourth quarter of fiscal 2000. All other actions associated with the
closure of the 4-inch wafer fabrication facility are also expected to be
completed by spring, a slippage of approximately six months from the
original timetable.
<PAGE>
Included in accrued liabilities at November 28, 1999, is $49.8 million
related to severance and other exit costs for restructuring actions, as
discussed in the previous paragraphs, that were not yet completed as of
the end of the second quarter. The timing of actual departure of
employees and payment of severance may occur in different accounting
periods due to minimum notification periods prior to the effective date
of termination. Severance is generally paid on the effective date of
termination.
Note 5. 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 November 28, 1999:
Sales to
unaffiliated
customers $368.8 $ 59.5 $ - $ 85.6 $ - $ 513.9
Inter-segment
sales - 0.1 - - (0.1) -
------ ------ ------ ------ ------ ------
Net sales $368.8 $ 59.6 $ - $ 85.6 $ (0.1) $ 513.9
====== ====== ====== ====== ====== ======
Segment income
(loss)before
income taxes
and extraordinary
item $106.8 $ (24.6) $ - $ 21.8 $ 104.0
====== ======= ====== ====== ======
Three months ended November 29, 1998:
Sales to
unaffiliated
customers $281.7 $ 58.1 $ 67.2 $103.1 $ - $ 510.1
Inter-segment
sales - 0.1 - - (0.1) -
------ ------- ------ ------- ------ -------
Net sales $281.7 $ 58.2 $ 67.2 103.1 $ (0.1) $ 510.1
====== ======= ====== ======= ====== =======
Segment income
(loss) before
income taxes
and extraordinary
item $ 9.4 $ (44.1) $ (9.7) $(81.5) $(125.9)
====== ======= ====== ======= =======
<PAGE>
Information Cyrix Total
Analog Appliance Business All Elimin- Consoli-
Group Group Unit Others ations dated
------- ---------- ------- ------- ------ -------
Six months ended November 28, 1999:
Sales to
unaffiliated
customers $702.2 $ 111.5 $ 18.6 $163.4 $ - $ 995.7
Inter-segment
sales - 0.2 - - (0.2) -
------ ------ ------ ------ ------ ------
Net sales $702.2 $ 111.7 $ 18.6 $163.4 $ (0.2) $ 995.7
====== ====== ====== ====== ====== ======
Segment income
(loss)before
income taxes
and extraordinary
items $189.3 $ (53.8) $(22.6) $ 40.7 $ 153.6
====== ====== ====== ====== ======
Six months ended November 29, 1998:
Sales to
unaffiliated
customers $555.5 $ 110.7 $101.5 $212.0 $ - $ 979.7
Inter-segment
sales - 0.2 - - (0.2) -
------ ------- ------ ------- ------ -------
Net sales $555.5 $ 110.9 $101.5 212.0 $ (0.2) $ 979.7
====== ======= ====== ======= ====== =======
Segment loss
before income
taxes and
extraordinary
item $(19.5) $(110.0) $(45.7) $(90.4) $(265.6)
====== ======= ====== ======= =======
The measurement of segment income(loss) before income taxes and
extraordinary item 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. For fiscal 2000, these expenses and amounts allocated to
segments, are significantly lower as a result of the restructuring and
other actions the Company announced in May 1999.
Note 6. Extraordinary Loss on Early Extinguishment of Debt:
On November 12, 1999, the Company paid $265.8 million from its existing
cash balance to redeem substantially all of the outstanding amounts
related to its $258.8 million, 6.5 percent convertible subordinated
notes due 2002 ("Notes"). Pursuant to the terms of the Note Indenture,
the Notes were redeemed at a price of 102.786 percent of the principal
amount. Holders of the Notes also received accrued interest through
November 11, 1999. In connection with the redemption, the Company
recorded a $6.8 million extraordinary loss, net of income taxes of $0.4
million, in the second quarter of fiscal 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company recorded net sales of $513.9 million and $995.7 million for
the second quarter and first six months of fiscal 2000, respectively.
This represents a 0.7 percent and a 1.6 percent increase from net sales
of $510.1 million and $979.7 million, respectively, for the same periods
of fiscal 1999. This growth was primarily attributable to continued
improvement in market conditions for the semiconductor industry. The
Company experienced better than expected growth in new orders throughout
the second quarter for all regions, led by strong order increases in the
Asia Pacific region and Japan.
Net income of $92.0 million and $139.1 million was recorded for the
second quarter and first six months of fiscal 2000, respectively,
compared to net loss of $94.4 million and $199.2 million for the same
periods of fiscal 1999. The improvement in operating results reflects
the Company's decision to exit the Cyrix PC processor business, growth
in sales of non-PC processor products and benefits of cost reduction
actions that were announced in May 1999. Sales growth excluding the PC
processor products was 16 percent and 11 percent for the second quarter
and first six months of fiscal 2000, respectively, over sales for the
comparable fiscal 1999 periods, led by sales for analog products.
In September 1999, the Company completed the sale of the assets of the
PC processor business to VIA, a Taiwanese company. Net income for the
second quarter and first six months of fiscal 2000 included a $26.8
million pretax gain from this sale. Also included in net income for the
second quarter and first six months of fiscal 2000 was a $3.1 million
pretax special gain and an extraordinary loss of $6.8 million (net of
taxes of $0.4 million). The special gain arose from the reduction of
the restructure reserve associated with the Company's Greenock
operations (see Note 4 to the condensed consolidated financial
statements). The extraordinary loss was recorded in connection with the
redemption of the Company's 6.5 percent convertible subordinated notes
due 2002 (see Note 6 to the condensed consolidated financial
statements). Net income for the first six months of fiscal 2000 also
included a $48.4 million pretax gain from the sale of Fairchild
Semiconductor ("Fairchild") stock held by the Company, as part of
Fairchild's initial public offering in August 1999. Pretax special
items included in the comparable quarter and first six months of fiscal
1999 included a $21.3 million charge for restructure actions related to
the consolidation of the Company's wafer manufacturing operations in
Greenock, Scotland. This charge was partially offset by an $8.8 million
reduction of reserves related to certain prior restructure actions,
which were substantially completed during the same period. In the
second quarter of fiscal 1999, the Company also recorded a charge of
$48.6 million in cost of sales associated with the termination of a
wafer manufacturing and marketing agreement between Cyrix and IBM.
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 72 percent of the Company's total sales, drove the growth in
sales. Sales for analog products grew 31 percent and 26 percent in the
second quarter and first six months of fiscal 2000, respectively, over
sales for the same periods of fiscal 1999. Unit volume increases
exceeded 60 percent in both the second quarter and first six months of
fiscal 2000 over last year's comparable periods, but were partially
<PAGE>
offset by lower average selling prices caused by ongoing price erosion
as well as a changing mix of products. For the second quarter of fiscal
2000, analog sales were particularly strong in the wireless cellular
markets, led by application-specific wireless, amplifier and power
management products, which grew 103 percent, 75 percent and 53 percent,
respectively.
Sales for the Information Appliance Group, excluding the Cyrix personal
computer ("PC") processor unit, grew slightly by 2 percent in the second
quarter over sales for the same quarter in fiscal 1999, while remaining
relatively flat year over year for the first six months. Despite a unit
volume increase, average selling prices were eroded by strong
competition and efforts to gain market share, as the group focused on
information appliance partners in the set-top box, webpad and thin
client markets. This represents a shift from fiscal 1999, when PC-
related markets were the Company's focus for information appliances.
Network product sales declined in the second quarter and first six
months of fiscal 2000 by 22 percent and 20 percent, respectively, from
the same periods in fiscal 1999. Although the Company introduced new
products employing new digital signal processing technology in the
second quarter of fiscal 2000, minimal shipments of these new products
and decreasing demand for mature ethernet products caused the 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 improved to 45.2 percent and 41.9
percent, respectively, in the second quarter and first half of fiscal
2000, respectively, compared to 18.2 percent and 15.1 percent in the
same periods of fiscal 1999. Excluding the effect of the charge related
to the IBM contract termination, gross margin for the second quarter and
first six months of fiscal 1999 was 27.8 percent and 20.1 percent,
respectively. The increase in gross margin was driven primarily by a
change in product mix, as PC processor sales were replaced by analog
product sales, and increased factory utilization, particularly at the
Arlington and Greenock manufacturing facilities. Wafer fabrication
capacity utilization for the second quarter reached 74 percent compared
to 62 percent for the same period in fiscal 1999. Capacity utilization
for the current quarter included lower activity in Maine due to the
decision to exit the PC processor business. This compares to the second
quarter of fiscal 1999, when capacity utilization at Maine was higher
due to the ramp-up of production activity beginning in that quarter.
Excluding the effect of Maine, wafer fabrication capacity utilization
was 86 percent for the second quarter of fiscal 2000 compared to 55
percent 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.
Research and Development
Research and Development ("R&D") expenses in the second quarter and
first six months of fiscal 2000 declined 25 percent and 15 percent,
respectively, from R&D expenses for the comparable periods of fiscal
1999. The Company's exit from the PC processor business has reduced R&D
spending for product development, as well as the underlying advanced
CMOS process development spending. Meanwhile, the Company continues to
invest resources to develop new cores and integrate 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 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. Through the first six
months of fiscal 2000, the Company devoted approximately 25 percent of
its R&D effort towards the development of process technology and 75
percent towards new product development. In absolute terms, this
<PAGE>
represents a decrease of 61 percent in spending for process technology,
while spending for product development remained relatively flat. The
shift in spending 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 second
quarter and first six months of fiscal 2000 decreased 12 percent and 4
percent, respectively, over SG&A expenses for the same periods of fiscal
1999. The reduction in expenses, particularly beginning in the second
quarter of fiscal 2000, reflects the benefits achieved from the cost
reduction actions announced in May 1999. These cost savings were
partially offset by an increase in payroll and employee benefit
expenses. For the year-to-date comparatives, SG&A expenses included
recoveries in the first quarter of fiscal 1999 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 fiscal 2000 periods presented in the
financial statements.
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 in
September 1999. The Company also announced that it would 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. As a result
of this decision, the Company recorded a $3.1 million reduction to its
restructure reserve related to the original plan of action. For more
complete information related to these actions, see Note 4 to the
Condensed Consolidated Financial Statements.
Interest Income and Interest Expense
Net interest income was $1.6 million and $0.2 million for the second
quarter and first six months of fiscal 2000, respectively, while the
Company incurred net interest expense of $0.3 million and $0.2 million
for the comparable periods of fiscal 1999. Higher interest rates
provided greater interest earnings on lower cash balances in the second
quarter and first six months of fiscal 2000 compared to the same periods
of fiscal 1999. The increase in interest income more than offset lesser
interest expense on lower average debt balances. Interest expense
decreased in the quarter and year-to-date periods of fiscal 2000 despite
the effect of the capitalization of $0.4 million of interest associated
with capital expansion projects in fiscal 1999. The decrease in
interest expense was mainly attributable to the redemption of the
Company's $258.8 million convertible subordinated notes, which were
repaid in November 1999.
Other Income/Expense, Net
Other income, net was $0.2 million and $57.2 million for the second
quarter and first six months of fiscal 2000, respectively, compared to
other expense of $8.3 million and $8.0 million for the same periods of
fiscal 1999. Other income, net for the second quarter of fiscal 2000
included $0.1 million of net intellectual property income and a $0.1
million gain on the sale of investments. This compares to other
expense, net for the second quarter of fiscal 1999, which included a
$7.0 million settlement of intellectual property rights. Other items
included in that period were a $1.7 million net loss on equity
investment attributable to the write-down of an investment to net
realizable value that offset a $0.3 million gain on the sale of
technology and $0.1 million from net intellectual property income. In
addition to the items previously described for the second quarter of
fiscal 2000, other income, net for the first six months of fiscal 2000
included a gain of $48.4 million from the sale of a portion of the
Company's investment in Fairchild stock. Also included for the same
period was an additional $6.8 million of net intellectual property
<PAGE>
income primarily related to two separate licensing agreements and other
miscellaneous income of $1.8 million. This compares to other expense,
net for the first six months of fiscal 1999, which included an
additional $0.3 million of net intellectual property income in addition
to the items previously described for the second quarter of fiscal 1999.
Income Tax Provision/Benefit
The Company recorded income tax expense of $5.6 million and $8.1
million, respectively, in the second quarter and first half of fiscal
2000. This compares to an income tax benefit of $31.5 million and $66.4
million for the comparable periods in fiscal 1999. For the first half
of fiscal 2000 the Company's effective tax rate is 5 percent, primarily
representing foreign income tax expense.
Financial Condition
During the first six months of fiscal 2000, cash and cash equivalents
decreased by $15.9 million compared to a $39.7 million decrease for the
first six months of fiscal 1999. The primary factor contributing to the
decrease for fiscal 2000 was payment of $265.8 million to redeem the
Company's 6.5 percent convertible subordinated notes, offset by cash
flows generated from operating activities of $99.7 million and investing
activities of $121.8 million as described further in the following
paragraphs.
Cash provided by operating activities was $99.7 million in the first six
months of fiscal 2000, compared to $107.0 million generated in the
comparable period of fiscal 1999. Although operating cash was
positively affected by net income earned in the first six months of
fiscal 2000, it was negatively impacted by a decrease in working
capital. The decrease in working capital was attributable to increases
in receivables and inventories, compared to a significant decrease of
inventories in the first half of fiscal 1999.
The Company's investing activities generated $121.8 million of cash for
the first six months of fiscal 2000, compared to a usage of cash in the
comparable period of fiscal 1999 of $153.3 million. Proceeds of $52.2
million from the sale of Fairchild stock and $70.0 million from the sale
of the Cyrix PC processor business were the primary contributors to cash
generated from investing activities for fiscal 2000. Cash used in
investing activities in the comparable period of fiscal 1999 was
primarily attributable to the Company's investment in property, plant
and equipment of $156.1 million. In fiscal 2000, investment in
property, plant and equipment of $58.7 million was offset by net cash
generated from the Company's short-term investments.
The Company's financing activities used $237.4 million of cash in the
first six months of fiscal 2000, compared to $6.6 million of cash
provided by financing activities in the comparable period of fiscal
1999. In addition to the effect from the redemption of the 6.5 percent
convertible subordinated notes, the Company repaid $22.1 million of
general debt and received $50.5 million from the issuance of common
stock under employee benefit plans. In the first half of fiscal 1999
the Company received $12.9 million from the issuance of common stock
under employee benefit plans and $10.0 million from a bank borrowing,
while it repaid $16.3 million of general debt.
The significant increase in other assets and accumulated other
comprehensive income was attributable to an unrealized gain related
mostly to the Company's remaining investment in Fairchild stock.
Although management foresees continued significant 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.
Existing cash and investment balances, together with existing lines of
credit, are expected to be sufficient to finance planned fiscal 2000
capital investments.
<PAGE>
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:
Market conditions for the semiconductor industry continued to improve
throughout the second quarter of fiscal 2000. The Company experienced
better than expected growth in new orders, which resulted in overall
growth in sales. The analog business was especially healthy,
particularly in the cellular markets where sales for amplifier, power
management and application-specific wireless products were strong.
Although the Company believes this trend will continue through fiscal
2000, it is possible that this is only temporary. Unless new orders
continue to improve, 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. As the Company shifts its product
focus toward consumer markets for mobile phone handsets, personal
computers and peripherals and information appliance products,
seasonality will also have a greater impact on sales. In the fiscal
third quarter, new orders typically drop off reflecting slower post
holiday season activity. Although the Company expects to experience
some seasonal slowdown in order rates in its third quarter, it believes
it will still achieve sales growth over the second quarter of fiscal
2000 based on orders already in place.
In connection with the sale of the Cyrix PC processor business to VIA,
National and VIA entered into a manufacturing agreement whereby 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. While the Company continues to be receptive to any
potential investor with interest to buy a majority interest in the Maine
manufacturing facility, it also plans to steadily increase manufacturing
activity at that plant 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
increased demand for certain analog integrated circuit products
resulting from improved market conditions. Future demand may not be
sufficient to fill the capacity at these manufacturing facilities,
leaving future gross margin unfavorably affected. The Company currently
expects to complete all actions associated with the closure of the 4-
inch wafer fabrication facility in Greenock by spring 2000. Until the
closure is completed, the Company will be unable to fully benefit from
the impact of the related manufacturing cost reductions. Therefore, the
Company may be unable to achieve the gross margin level expected for the
remainder of fiscal 2000.
In December 1999, the Company announced that it purchased Algorex, Inc,
a provider of high-performance digital signal processing products,
architecture and software for wireless communications systems. The
acquisition will be accounted for using the purchase method with a
purchase price of $21.5 million. In connection with the acquisition, a
certain portion of the purchase price will be expensed as in-process R&D
in the third quarter of fiscal 2000.
<PAGE>
Year 2000 Readiness Program
The following provides a year 2000 update 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.
Through the first week of calendar year 2000, the Company completed the
transition from calendar year 1999 to 2000 with no reported significant
impact to the Company's operations. The Company will continue to
evaluate year 2000 related exposures at its suppliers and customers over
the next several weeks. The Company will also continue to monitor its
systems, facilities and products to ensure that latent defects do not
manifest themselves over the next few months. Such follow-up will be
encompassed into normal monitoring of Company performance.
Year 2000 project costs and resource consumption are estimated at $20
million, of which approximately $19 million had been incurred through
the second quarter of fiscal year 2000. Approximately 40 percent of
costs were related to internal staff costs with the remaining 60 percent
for hardware and software upgrade costs that were incremental to ongoing
operating expenses. Monitoring costs past January 1, 2000 are not
expected to be significant.
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. 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 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 22 of the
Company's Annual Report on Form 10-K for the year ended May 30, 1999.
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) The Registrant's Annual Meeting was held on September 24, 1999.
(b) The following directors were elected at the Meeting:
AUTHORITY
DIRECTOR FOR WITHHELD
-------- --- ---------
Brian L. Halla 148,719,036 3,612,899
Gary P. Arnold 149,144,615 3,187,320
Robert J. Frankenburg 148,966,299 3,365,636
E. Floyd Kvamme 148,387,697 3,944,238
Modesto A. Maidique 145,836,972 6,494,963
Edward R. McCracken 149,131,444 3,200,491
Donald E. Weeden 149,144,521 3,187,414
(c) The following matters were voted upon at the Meeting:
(i) On a proposal to approve the addition of 5,000,000 shares of
Common Stock to the Employees Stock Purchase Plan:
FOR: 212,560,639 AGAINST: 30,060,589 ABSTAIN: 710,707
---------------- ------------------- ----------------
(ii) On a proposal to approve the criteria for the goals for the
Executive Officer Incentive Plan:
FOR: 145,543,986 AGAINST: 5,787,738 ABSTAIN: 1,000,211
---------------- ------------------ ------------------
(iii) On a proposal to approve an amendment to the Director Stock
Option Plan to increase the annual grants to 10,000 shares:
FOR: 99,908,444 AGAINST: 51,343,827 ABSTAIN: 1,079,664
--------------- ------------------- ------------------
<PAGE>
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 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 From S-3 Registration No. 33-
63649, which became effective November 6, 1995).
4.5 Indenture dated as of May 28, 1996 between Cyrix Corporation
("Cyrix") and Bank of Montreal Trust Company as Trustee
(incorporated by reference from the Exhibits to Cyrix's
Registration Statement on Form S-3 Registration No. 333-10669,
which became effective August 22, 1996).
4.6 Registration Rights Agreements dated as of May 28, 1996 between
Cyrix and Goldman, Sachs & Co. (incorporated by reference from the
Exhibits to Cyrix's Registration Statement on Form S-3 Registration
No. 333-10669, which became effective August 22, 1996).
10.1 National Semiconductor Corporation Benefit Restoration Plan, as
Amended through January 1, 2000
<PAGE>
Financial Data Schedule
(b) Reports on Form 8-K
A report on form 8-K was filed September 17, 1999 announcing the sale of
assets of the Company's Cyrix personal computer ("PC") processor
business to VIA. The sale included the Company's MII x86 compatible
processor and successor products. The Company retained the integrated
Media GX processor, which forms the core of the Company's new Geode
family of solutions for the information appliance market. Total
proceeds from the transaction were $75.0 million, of which $8.2 million
represented reimbursement to the Company for certain employee retention
costs that were incurred by the Company solely as a result of closing
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 received in
December 1999. The Company recorded a $26.8 million gain on the sale in
the second quarter of fiscal 2000.
The following unaudited pro forma financial statements were included in
the report:
(a) Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of May 30, 1999.
(b) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended May 30, 1999.
The unaudited pro forma financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on form 10-K for the
year ended May 30, 1999.
<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: January 11, 2000 /s/ Lewis Chew
----------------------------------
Lewis Chew
Vice President and Controller
Signing on behalf of the registrant
and as principal accounting officer
<PAGE>
NATIONAL SEMICONDUCTOR CORPORATION
BENEFIT RESTORATION PLAN
PLAN DOCUMENT
As Amended through January 1, 2000
<PAGE>
BENEFIT RESTORATION PLAN - PLAN DOCUMENT
As Amended through January 1, 2000
THIS BENEFIT RESTORATION PLAN ("Plan") originally adopted by National
Semiconductor Corporation, a corporation organized and existing under
the laws of the State of Delaware, (hereinafter referred to as the
"Employer") effective as of June 1, 1992, as hereby amended effective as
of January 1, 2000:
WITNESSETH:
WHEREAS, the Employer desires to establish a benefit restoration income
plan for the exclusive benefit of certain participants in the National
Semiconductor Corporation Retirement and Savings Program ("RASP") so as
to reward them for their loyal and faithful service to the Employer and
to aid them in increasing their economic security by providing
additional funds at retirement with respect to those benefits that are
reduced because of the limitations of sections 401(a)(17), 402(g),
401(k) and 415 of the Internal Revenue Code of 1986; and
WHEREAS, the Employer has been authorized by its Board of Directors to
adopt 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 1
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 and subaccounts established
pursuant to Section 3.05 of the Plan.
1.02 "Annual Matching Restoration Amount" shall mean the amount
determined in accordance with Section 3.04 of the Plan.
1.03 "Annual Profit Sharing Restoration Amount" shall mean the amount
determined in accordance with Section 3.02 of the Plan.
1.04 "Annual Savings Restoration Amount" shall mean the amount
determined in accordance with Section 3.03 of the Plan.
1.05 "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 person(s) designated as the beneficiaries by the
Participant under the RASP, and, if none, the Participant's
estate.
1.06 "Benefits" shall mean the value of the Participant's Account as
credited to the investment options selected by the Participant
from among the options authorized by the Committee from time to
time under the Plan as reflected in the records of the
Participants Accounts as described in Sections 3.05 and 3.06.
1.07 "Board" shall mean the Board of Directors of National
Semiconductor Corporation.
1.08 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.09 "Committee" shall mean The Retirement and Savings Program
Administrative Committee, as determined by the Board.
1.10 "Compensation" shall mean Compensation as defined in the RASP
without giving any effect to the limitations imposed by Section
401(a)(17) of the Code, as now or hereafter in effect.
1.11 "Elected Contribution" shall mean the amount the Participant
agrees to defer under this Plan pursuant to procedures
established by the Committee up to the maximum permitted deferral
pursuant to Section 3.03 of the Plan.
1.12 "Employer" shall mean National Semiconductor Corporation.
1.13 "Interest" shall mean the rate for long-term A-rated corporate
bonds, reported by the investment banking firm of Salomon
Brothers of New York City (or such other investment banking firm
as the Committee may specify) during the first week of each Plan
Year. Until January 1, 2000, the interest rate will be reset at
the beginning of each Plan Year. Effective January 1, 2000, an
Interest rate shall no longer be credited to the Participant's
Accounts but the Participant shall be entitled to his Benefits as
defined herein.
1.14 "Participant" shall mean an employee of the Employer
participating in the RASP, who satisfies the eligibility
requirements of Section 2.01 of the Plan and such other
conditions that are established from time to time by the
Committee, including a condition relating to the amount of the
employee's basic compensation or regular rate of compensation for
the Plan Year.
1.15 "Plan" shall mean the National Semiconductor Corporation Benefit
Restoration Plan, as amended from time to time.
1.16 "Plan Year" shall mean the twelve consecutive month period ending
on the last fiscal day of the Employer's fiscal year and in which
period the records of this Plan are kept.
1.17 "RASP" shall mean the National Semiconductor Corporation
Retirement and Savings Program.
1.18 Capitalized Terms not defined herein shall have the meaning
attributed to them in the RASP.
<PAGE>
ARTICLE II
Eligibility
2.01 Eligibility
A Participant shall be eligible to receive an Annual Profit Sharing
Restoration Amount in any Plan Year in which he qualifies for an
allocation of the Employer's Annual Profit Sharing Contribution under
the RASP but the amount of the benefit to which he is entitled is
reduced by reason of the application of the limitations set forth in
Sections 401(a)(17) or 415(c)(1)(A) of the Code. A Participant shall be
eligible to receive an Annual Savings Restoration Amount in any Plan
Year in which he makes the maximum permitted deferral under the RASP, as
determined by the Committee, and his Compensation is in excess of an
amount determined by the Committee for such Plan Year. A Participant
shall be eligible to receive an Annual Matching Restoration Amount in
any Plan Year in which his Compensation exceeds the limitations set
forth in Section 401(a)(17) of the Code and he elects to defer at least
6% of his Compensation under Section 5.02 A. of the RASP.
2.02 Enrollment
An eligible individual is automatically enrolled in the Annual Profit
Sharing Restoration Amount portion of this Plan.
Eligible Participants may enroll in the Plan for purposes of the Annual
Savings Restoration Amount by November 30, or other date that is
specified by the Committee ("enrollment date") prior to the end of the
calendar year of any year, to be effective as of January 1, of the next
succeeding calendar year, by using the telephone response system
established for this purpose.
Once a Participant has enrolled in the Plan the election made by the
Participant shall remain in effect until the Participant modifies or
revokes his election. Any modification or revocation by the Participant
must be made by the enrollment date of the calendar year preceding the
effective date of such modification or revocation. An employee who
becomes eligible after an enrollment date will be required to wait until
the next enrollment date to participate in the Annual Savings
Restoration Amount portion of the Plan.
<PAGE>
ARTICLE III
Benefits
3.01 Benefits
The maximum Benefits under this Plan to which an eligible Participant
shall be entitled shall be equal to the sum of the vested Annual Profit
Sharing Restoration Amount, the Annual Savings Restoration Amount, and
the Annual Matching Restoration Amount, plus earnings and losses
credited to the Participant's Accounts in accordance with Sections 3.05
and 3.06.
3.02 Annual Profit Sharing Restoration Amount
The Annual Profit Sharing Restoration Amount to which an eligible
Participant shall be entitled shall be an amount equal to the
difference, if any, between (a) and (b) below:
(a) The amount of the Employer's Annual Profit Sharing
Contribution, which would have been allocated to a
Participant under the RASP if the Annual Profit Sharing
Contribution were determined pursuant to Section 5.01 B.3.
of the RASP and the allocation were determined pursuant to
Section 6.03 A. of the RASP without giving any effect to
the limitations imposed by Sections 401(a)(17) and 415 of
the Code, as now or hereafter in effect; less
(b) The amount of the Employer's Annual Profit Sharing
Contribution allocated to the Participant under the RASP.
3.03 Annual Savings Restoration Amount
The maximum Annual Savings Restoration Amount from which an eligible
Participant may make an Elected Contribution shall be equal to 30% of
the Participant's Compensation beginning as of the pay date immediately
following the pay date in which the Participant makes the maximum
contributions to the RASP permitted under Section 402(g) of the Code.
The Participant may elect any whole percentage of such Compensation
between 0% and 30%. The Participant's Annual Savings Restoration Amount
shall be equal to the Participant's Elected Contribution.
3.04 Annual Matching Restoration Amount
The Annual Matching Restoration Amount to which an eligible Participant
shall be entitled shall be an amount equal to the difference, if any,
between (a) and (b) below:
(a) The lesser of (1) 6% of the Participant's Compensation,
without giving any effect to the limitations imposed by
Section 401(a)(17) of the Code, as now or hereafter in
effect, or (2) the limit imposed by Section 402(g) of the
Code; and
(b) 6% of the Participant's Compensation as limited by Section
401(a)(17) of the Code,
multiplied by 50%, or any other percentage as the Board may determine
for a given Plan Year under Section 5.03 of the RASP. Notwithstanding
the foregoing, to the extent that the matching contribution that would
otherwise be made on behalf of a Participant under Section 5.03 of the
RASP is reduced in accordance with the requirements of Section 401(m) of
the Code, such Participant's Annual Matching Restoration Amount shall be
likewise limited in accordance with rules established by the Committee.
3.05 Participant's Account
The Employer 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. When appropriate, a Participant's Account
shall consist of a profit sharing restoration subaccount, a savings
restoration subaccount, and a matching restoration subaccount. Such
Accounts shall be kept for recordkeeping purposes only. Any Accounts
maintained in trust by the Employer 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.
3.06 Allocation to Participant Account
The Participant's Annual Savings Restoration Amount shall be credited to
the Participant's Account as of the pay date such amount would have been
paid to such Participant as remuneration for services, and the
Participant's Annual Profit Sharing Restoration Amount and Annual
Matching Restoration Amount shall be credited to the Participant's
Account as of the last day of a Plan Year. 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. Effective
January 1, 2000, each Participant may advise the Committee in accordance
with procedures established by the Committee, on how he wishes his
Accounts to be allocated among the investment options authorized by the
Committee and such Participant's Accounts shall be credited with
earnings and losses at such time and in such manner as determined in the
sole discretion of the Committee and shall reflect the allocation of
investments made thereunder. The Participant may change his investment
allocation in accordance with procedures established by the Committee.
Notwithstanding the foregoing, the Committee reserves the right to
determine the options and specific process for making investments
without regard to the advice received from Participants.
3.07 Vested Percentage
Notwithstanding anything herein to the contrary, a Participant shall be
100% vested at all times in the amounts credited to his savings
restoration subaccount and his matching restoration subaccount. A
Participant shall be vested in the amount credited to his profit sharing
restoration subaccount to the same extent as the Participant is vested
in his Profit Sharing Account, in accordance with Article VIII of the
RASP; provided, however, that forfeited amounts shall not be reallocated
among Plan Participants but shall be restored to the forfeiting
Participant upon reemployment, to the extent a forfeiture would have
been restored under the procedures set forth in Article VIII of the
RASP.
<PAGE>
ARTICLE IV
Distribution of Benefit
4.01 Separation from Service
Except as provided in Section 4.03, Benefits shall be distributed upon
termination of employment for any reason (including retirement,
disability, death, or reduction-in-force).
Benefits shall be distributed in a lump sum only, unless the Participant
is eligible to retire under Section 9.01 of the RASP and elects to
receive part or all of the Benefits in installments pursuant to this
Section. An election to receive installment payments under the Plan
must be filed with the Committee at least ninety (90) days prior to the
date of the Participant's termination due to retirement, or no more than
thirty (30) days after notice to the Participant that his employment is
being terminated in a reduction-in-force in which the Participant
qualifies for retirement under Section 9.01 of the RASP (these dates are
hereinafter referred to as the "election date"). Such election shall be
irrevocable at the time it is made, or if later, on the election date.
If the Benefits are payable in installments, such installments will be
paid annually over a period selected by the Participant but shall not
exceed ten (10) years. The first installment shall be made as soon as
is administratively feasible after the event giving rise to the
distribution and all subsequent installments shall be paid at the
beginning of each subsequent calendar year as soon as is
administratively feasible. To the extent Benefits are not paid in
installments, the account balance will be paid in a lump sum in the
month following the event giving rise to the distribution, or as soon as
is administratively feasible.
4.02 Beneficiary Entitlement
In the event a Participant entitled to installment payments dies before
receiving all Benefits under the Plan, the unpaid balance will be paid
in a lump sum to such Participant's Beneficiary as soon as is
administratively feasible following the Participant's death.
4.03 Disposition of Employer Assets on Subsidiary or Line of Business
A Participant whose employment will terminate with the Employer due to
the disposition of substantially all of the assets of a line of business
or the disposition of the Employer's interest in a subsidiary will no
longer remain an active Participant under the Plan; provided, however,
such Participant may elect, prior to the disposition of assets or
subsidiary, to continue the deferral of Benefits under the Plan as if
employment with the new employer were employment with the Employer and
Benefits under the Plan shall be distributed upon the Participant's
termination of employment with the new employer.
4.04 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 Committee.
<PAGE>
ARTICLE V
Administration; Amendments and Termination; Rights Against the Company
5.01 Administration
The Committee shall administer this Plan. With respect to the Plan, the
Committee shall have, and shall exercise and perform, all the powers,
rights, authorities and duties set forth in the RASP with the same
effect as if set forth in full herein with respect to this Plan. Except
as expressly set forth herein, any determination or decision by 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 Employer, solely, and without the approval of the Committee or 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 Employer has established this Plan with the bonafide 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 Employer's control may make it impossible or inadvisable to
continue the Plan. Therefore, the Employer, 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
continue to receive such Benefits, and all other Participants and
Beneficiaries shall remain entitled to receive the Benefits promised
under the Plan immediately prior to the termination of the Plan.
5.03 Rights Against the Employer
The establishment of this Plan shall not be construed as giving to any
Participant, Beneficiary, employee or any person whomsoever, any legal,
equitable or other rights against the Employer, 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 Employer or giving any employee
the right to be retained in the employment of the Employer. All
employees and 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 Employer to terminate this Plan or any
benefit hereunder, the rights of a Participant hereunder shall be solely
those of an unsecured creditor of the Employer.
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, anticipation, encumbrance,
garnishment, attachment, execution or levy of any kind, whether
voluntary or involuntary. Any attempt to alienate, sell, transfer,
assign, pledge, 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 UNITED STATES AND 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 Employer's intention that this Plan be a Top Hat Plan, defined
as an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees, as provided in Sections 201(2), 301(a)(3), and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as
amended from time to time. The Employer 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 Employer's general creditors in the event of the
insolvency or bankruptcy of the Employer, and (ii) notwithstanding the
creation or funding of any such trust(s), the Employer 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 Employer.
6.07 Divestment for Cause
Notwithstanding any other provisions of this Plan to the contrary, the
right of any Participant, former Participant or Beneficiary of either to
receive or to have paid to any other person, or the right of any such
other person to receive any Benefits attributable to the Annual Profit
Sharing Restoration Amount or the Annual Matching Restoration Amount,
shall be forfeited, if such Participant's employment with the Employer
is terminated because of or the Participant is discovered to have
engaged in fraud, embezzlement, dishonesty against the Employer,
obtaining funds or property under false pretenses, assisting a
competitor without permission, or interfering with the relationship of
the Employer 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 from the Employer or the
payment of Benefits under the Plan. If payment has been made, such
payment shall be restored to the Employer by the Participant or
Beneficiary.
<PAGE>
ERISA Rights
This Plan is intended to provide benefits for a select group of highly-
compensated employees within the meaning of the Employee Retirement
Income Security Act of 1974 (ERISA). However, it is not subject to most
of the requirements or protection of ERISA nor is the Plan eligible for
insurance under Title IV of ERISA. Furthermore, the Plan is considered
to be an unfunded, non-qualified plan for purposes of complying with the
Internal Revenue Code.
Participants who believe their Benefits under the Plan have been denied,
in whole or in part, should file a claim with the Retirement and Savings
Program Administrative Committee. Claims will be reviewed using the same
procedures as those described in the Summary Plan Description for the
RASP
The following information identifies the benefit plan described in this
booklet and gives other important administrative data.
<PAGE>
Plan Name:
- ----------
The Benefit Restoration Plan
Plan Sponsor: Employer I.D. Number (EIN):
- ------------- ---------------------------
National Semiconductor Corporation EIN: 95-2095071
2900 Semiconductor Drive
P.O.Box 58090
Santa Clara, CA 95052-8090
(408) 721-2383
Plan Number:
- ------------
005
Plan Year:
- ----------
The twelve consecutive month period ending on May 31. Plan records are
maintained on the basis of this Plan Year.
Plan Administrator:
- -------------------
Retirement and Savings Program Administrative Committee
C/o Retirement Plans Administration
National Semiconductor Corporation
2900 Semiconductor Drive
P. O. Box 58090 M/S 14-195
Santa Clara, CA 95052-8090
(408) 721-2383
Type of Plan:
- -------------
The Plan is a non-qualified deferred compensation plan for selected key
employees of National Semiconductor Corporation.
Agent for Service of Legal Process:
- -----------------------------------
Legal process should be served on the Employer's Corporate Secretary or
the Plan Administrator in care of the Retirement Plans Administration
Office at the Employer's address.
Funding Medium:
- ---------------
The Plan is unfunded and Benefits are paid from the Plan sponsor's
general assets.
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<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAY-28-2000 MAY-28-2000
<PERIOD-END> NOV-28-1999 NOV-28-1999
<CASH> 402 402
<SECURITIES> 59 59
<RECEIVABLES> 218 218
<ALLOWANCES> 0 0
<INVENTORY> 157 157
<CURRENT-ASSETS> 154 154
<PP&E> 2265 2265
<DEPRECIATION> 1458 1458
<TOTAL-ASSETS> 2108 2108
<CURRENT-LIABILITIES> 630 630
<BONDS> 190 190
0 0
0 0
<COMMON> 86 86
<OTHER-SE> 1201 1201
<TOTAL-LIABILITY-AND-EQUITY> 2108 2108
<SALES> 513 995
<TOTAL-REVENUES> 513 995
<CGS> 281 578
<TOTAL-COSTS> 281 578
<OTHER-EXPENSES> 130 321
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1 0
<INCOME-PRETAX> 104 153
<INCOME-TAX> 5 7
<INCOME-CONTINUING> 98 145
<DISCONTINUED> 0 0
<EXTRAORDINARY> 6 6
<CHANGES> 0 0
<NET-INCOME> 92 139
<EPS-BASIC> .53 .81
<EPS-DILUTED> .49 .74
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