Mail Stop 0306
December 22, 2004
Via U.S. Mail
Mr. Lewis Chew
Chief Financial Officer
2900 Semiconductor Drive
P.O. Box 58090
Santa Clara, California 95052
RE: National Semiconductor Corporation
Form 10-K for the fiscal year ended May 30, 2004
Form 8-K filed December 9, 2004
File No. 1-06453
Dear Mr. Chew:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise future
filings
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K as of May 30, 2004
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Policies and Estimates
1. Please supplementally tell us why you have not included stock
compensation issues and the related stock valuations as a critical
accounting policy.
Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Revenue Recognition
2. We note your programs with your distributors involving pricing
adjustments based on resales, scrap allowances and volume
incentives.
Please tell us and disclose in future filings the nature of each
of
these programs. Tell us and disclose in future filings how you
account for any measure the accruals for these programs and tell
us
why. Address why you believe that the amount of your sales is
fixed
and determinable when you provide pricing adjustments based on
resales. Supplementally provide us with a rollforward schedule, on
a
gross basis for each of these reserves for each period presented
in
your financial statements and through the latest interim period.
Has
your actual history of credit and allowances for each period been
consistent with the reserves provided? Please explain the basis
for
your response.
3. SAB Topic 13.A includes four criteria for when revenue
generally
is realized or realizable and earned, including persuasive
evidence
of an arrangement. While you list the other three criteria in your
revenue recognition policy, you do not state that you require
persuasive evidence of an arrangement before recognizing revenue?
Please tell us why your policy complies with GAAP and revise your
disclosure in future filings to explain.
4. We note in your business section (marketing and sales) that you
provide technical support to customers. Please supplementally and
in
future filings address how you account for this support service
and
how you comply with EITF 00-21.
5. Please tell us and revise future filings to disclose the nature
of
the return rights granted to customers resulting in reserves of
$151.3 million, $174.9 million, and $207.6 million in fiscal 2002,
2003, and 2004. Tell us and disclose in future filings how you
measure the amount of the accrual each period. Due to the
significance of the amount accrued (9.2%, 9.5% and 9.4% of gross
sales in 2002, 2003, and 2004) your discussion should be
sufficiently
detailed. Has your actual return history for each period been
consistent with the reserves provided? Please explain the basis
for
your response.
Non-marketable Investments
6. In future filings, please provide the disclosures required by
APB
18, paragraph 20 or tell us why you are not required to do so.
Note 3. Cost Reduction Programs and Restructuring of Operations
7. In future filings, please expand your tabular presentation of
expenses to reflect charges during the year as well as offsetting
items to the expense such as releases of estimates no longer
considered necessary. The presentation should be a supplement to
the
narrative and clearly illustrate the charges taken for each type
of
expense and what was removed from the expense for each fiscal year
presented and for each separate plan. The charge for each year
should clearly match the expense on the statement of operations.
Each year of expenses should be presented and reconciled to the
statement of operations in this manner until the restructuring
plan
is completed. Refer to SFAS 146, paragraph 20(b).
8. In a related matter please disclose in future filings the
estimated costs to complete the restructuring plans and the
progress
to date and expected completion date. Refer to SFAS 146,
paragraph
20(b).
9. Please supplementally tell us why you released $3.9 million
during
2004 from a total charge of $24.8 million. What occurred to cause
such a significant changes in this estimate?
10. We note that on the statement of operations your restructuring
charges are reflected in "Special Items." In future filings,
please
revise to provide captions that are descriptive of the significant
components of that item.
Note 5, Consolidated Financial Statement Details
11. Please supplementally provide further detail of the amounts
recorded in "Other income (expense), net" for fiscal years 2004
and
2003. The title "Net gain (loss) on marketable and other
investments, net" implies that the gains and losses on both
available
for sale and equity method investments are included in this
balance.
If so, please state separately in future filings. In your
response,
specifically address where the $11.6 million gain from note 2 is
reflected in 2003 (for available for sale securities) as well as
the
$11.6 million impairment loss in 2003 for non-marketable
investments.
Please provide specific detail for all other income/expense
categories and which investment (available for sale, equity
method,
non-marketable) the income or expense is in relation to.
Note 6, Goodwill and Intangible Assets
12. We see your $13.8 million impairment of technology licenses
due
to technology that is no longer utilized by the company. Please
supplementally tell us if the $13.8 million was the total value of
the license written off or if further amounts remain on the
balance
sheet. If you still have a balance related to this license please
explain why if the technology is no longer used and what charges
you
expect to incur in the future. In a related matter, if the
impairment occurred due to technology that was no longer in
service,
what effect did this have on your inventory? Do you have physical
inventory developed from this technology that is now obsolete?
Please advise.
Note 7, Asset Retirement Obligations
13. Please tell us and disclose in future filings the nature of
your
asset retirement obligations with respect to manufacturing
facilities. Explain to us in further detail why you do not have
the
ability to estimate the fair value of your liability as defined in
SFAS 143, paragraphs 3 - 10.
Note 9, Income Taxes
14. Supplementally and in future filings, please disclose the
nature
and amount of any significant item included in your "reserves and
accruals" item in your reconciliation of deferred tax assets.
15. We note your disclosure of $22.1 million of U.S. net operating
losses, $215.9 million of state net operating losses, $176.8
million
of U.S. credit carryovers, $98.9 million of state credit
carryovers
and non-U.S. NOLs and tax credits of $365.6 million. Please
supplementally reconcile these amounts to what is disclosed in the
reconciliation of deferred tax assets.
Note 10, Shareholders` Equity
16. We see that you had an "outstanding advance" with a financial
institution to repurchase shares of your common stock at a fixed
price. Please tell us and disclose in future filings the
significant
terms of the agreement. Tell us and disclose in future filings how
you accounted for this agreement and supplementally cite the
accounting literature you relied upon.
Note 14, Segment and Geographic Information
17. Please supplementally provide us with the following:
(A) A list of explanation of the organization and scope of the
financial information reviewed by your CODM.
(B) A list of identified operating segments. Please note that we
are
referring to identified and not reportable operating segments.
(C) An explanation of which of your identified operating segments
are
aggregated, including the reasons for the aggregation and why the
aggregation complies with paragraph 17 of SFAS 131. That is,
explain
why the aggregation is consistent with the objective and basic
principles of SFAS 131, why the segments have similar economic
characteristics, and why they meet each of the specified criteria.
Your response should address how you analyzed whether or not the
segments have similar economic characteristics and quantify the
measures you reviewed in making that determination.
(D) Explain how you measured the identified segments, as revised
for
aggregation, against the quantitative thresholds to determine if
they
are reportable segments. Specifically address paragraph 18(c) of
SFAS
131. We note that you present the majority of your segment assets
in
the "all others" category. Tell us why the majority of the assets
is
allocated to this category, considering the majority of the
revenues
are attributable to the analog segment.
(E) After you identified your reportable segments based on the
threshold criteria, explain whether and how you aggregated
segments
that do not meet the quantitative thresholds. Were a majority of
the
aggregation criteria met?
18. Please report the revenues from external customers for each
product and service or each group of similar products and services
unless it is impracticable to do so. If providing the information
is
impracticable, then please disclose that fact. See paragraph 37 of
SFAS 131.
19. In future filings, please provide disclosures about major
customers or tell us why you are not required to do so. We note
in
your business section under "Customers" that you have two large
distributors that accounted for 10% or more of your sales. Refer
to
SFAS 131, paragraph 39.
Form 8-K filed December 9, 2004
20. We note your disclosure of non-GAAP information "Net income
excluding special gain and tax benefit in fiscal 2005 and special
charges in fiscal 2004" and the related non-GAAP basic and fully
diluted earnings per share amounts. The adjustments presented to
net
income to arrive at the non-GAAP income, $7.0 million in 2004 and
$5.3 million in 2003 are not specifically identified and
explained.
Your reconciliation should clearly present the non-GAAP item
reconciled to the closest GAAP measure and the adjustments should
be
specifically identified and explained. In addition, you should
present a reconciliation for each non-GAAP measure. Please revise
future filings to comply. Also, your explanation of the reasons
for
the presentation of non-GAAP items should address all non-GAAP
items
presented.
* * * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
cover letter with your response that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please file
your cover letter on EDGAR. Please understand that we may have
additional comments after reviewing your responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy
of the disclosure in the filings reviewed by the staff to be
certain
that they have provided all information investors require. Since
the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Heather Tress, Staff Accountant, at (202)
824-
5263 or me at (202) 942-2861 if you have questions regarding
comments
on the financial statements and related matters. In this regard,
do
not hesitate to contact Daniel Gordon, Accounting Branch Chief, at
(202) 942-2813.
Sincerely,
Kate Tillan
Reviewing Accountant
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Mr. Lewis Chew
Chief Financial Officer
National Semiconductor Corporation
December 22, 2004
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