Exhibit 13.0
NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
(in millions, except per share amounts)
May 28, May 29, May 30, May 31, May 26,
Years Ended 1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net sales $2,379.4 $2,295.4 $2,013.7 $1,717.5 $1,701.8
Net income (loss) $ 264.2 $ 264.0 $ 130.3 $ (120.1) $ (151.4)
Net earnings (loss) per share:
Primary $2.02 $ 2.02 $ 0.98 $ (1.24) $ (1.56)
Fully diluted $1.92 $ 1.87 $ 0.98 $ (1.24) $ (1.56)
Weighted average common
and common equivalent
shares outstanding:
Primary 125.2 121.4 115.9 104.6 103.4
Fully diluted 137.5 141.4 115.9 104.6 103.4
Research and development
expense $ 283.1 $ 257.8 $ 229.2 $ 208.9 $ 198.6
Capital additions $ 478.8 $ 270.7 $ 235.1 $ 189.4 $ 109.8
Current ratio 1.72 1.76 1.67 1.26 1.47
Debt-to-equity ratio 7.5% 2.7% 5.7% 8.4% 7.0%
Number of employees
(in thousands) 22.4 22.3 23.4 27.2 29.8
(See Appendix to Graphs)
NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT
5 YEAR SELECTED FINANCIAL DATA
(in millions, except per share amounts)
Years Ended
-----------------------------------------------
May 28, May 29, May 30, May 31, May 26,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
OPERATING RESULTS
Net sales $2,379.4 $2,295.4 $2,013.7 $1,717.5 $1,701.8
Operating costs
and expenses 2,064.8 2,002.8 1,866.7 1,839.9 1,854.4
------- ------- ------- ------- --------
Operating income (loss) 314.6 292.6 147.0 (122.4) (152.6)
Interest income, net 14.6 10.9 2.9 5.4 3.6
------- ------- ------- ------- --------
Income (loss) before
income taxes and
cumulative effect
of accounting change 329.2 303.5 149.9 (117.0) (149.0)
Income taxes 65.0 44.4 19.6 3.1 1.3
------- ------- ------- ------- -------
Income (loss) from
continuing operations
before cumulative
effect of accounting
change 264.2 259.1 130.3 (120.1) (150.3)
======= ======= ======= ======= =======
Net income (loss) $ 264.2 $ 264.0 $ 130.3 $(120.1) $(151.4)
======= ======= ======= ======= =======
Net income (loss) used in
primary earnings per common
share calculation (reflecting
preferred dividends):
Income (loss) from
continuing operations
before cumulative effect
of accounting change $253.0 $ 240.4 $ 113.2 $(130.1) $(160.3)
Net income (loss) $253.0 $ 245.3 $ 113.2 $(130.1) $(161.4)
======= ======= ======= ======= =======
Earnings (loss) per common share:
From continuing operations
before cumulative effect
of accounting change:
Primary $2.02 $ 1.98 $ 0.98 $ (1.24) $ (1.55)
Fully diluted $1.92 $ 1.83 $ 0.98 $ (1.24) $ (1.55)
Net income (loss):
Primary $2.02 $ 2.02 $ 0.98 $ (1.24) $ (1.56)
Fully diluted $1.92 $ 1.87 $ 0.98 $ (1.24) $ (1.56)
======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding:
Primary 125.2 121.4 115.9 104.6 103.4
Fully diluted 137.5 141.4 115.9 104.6 103.4
======= ======= ======= ======= =======
FINANCIAL POSITION AT YEAR-END
Working capital $ 492.4 $ 439.0 $ 336.6 $ 122.0 $ 196.1
Total assets $2,235.7 $1,747.7 $1,476.5 $1,148.9 $1,190.7
Long-term debt $ 82.5 $ 14.5 $ 37.3 $ 33.9 $ 19.9
Total debt $ 106.1 $ 30.1 $ 47.9 $ 45.4 $ 46.0
Shareholders' equity $1,406.7 $1,105.7 $ 837.4 $ 539.4 $ 658.3
======= ======= ======= ======= =======
OTHER DATA
Research and development
expense $ 283.1 $ 257.8 $ 229.2 $ 208.9 $ 198.6
Capital additions $ 478.8 $ 270.7 $ 235.1 $ 189.4 $ 109.8
Number of employees
(in thousands) 22.4 22.3 23.4 27.2 29.8
======= ======= ======= ======= =======
National has paid no cash dividends on its common stock in any of the years
presented above.
See Note 4 to the Consolidated Financial Statements regarding certain
reclassifications of expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
National recorded sales of $2.4 billion in 1995 compared to $2.3 billion
in 1994 and $2.0 billion in 1993. Net income for the fiscal year just
ended was $264.2 million compared to $264.0 million in 1994 and $130.3
million in 1993. Net results in 1995 include income of $5.5 million
from the release of restructuring reserves as compared to a $4.9 million
gain from a change in accounting (see Note 4) and a $2.6 million
restructuring release (see Note 3) both recognized in 1994. The
significant increase in net income for both 1995 and 1994 over 1993 is
due to increased sales and improved gross margins.
(See Appendix to Graphs)
Sales
Sales increased 4 percent in 1995 over 1994. During 1995, sales in the
first half of the year were comparable to the first half of 1994.
Beginning in the third quarter of 1995, sales increased 5 percent over
the comparable period a year earlier and in the fourth quarter of 1995,
sales were up 10 percent as additional capacity came on line to support
increased demand for the Company's products. In addition, customer
orders increased significantly in 1995, especially in the second half.
In 1995 and 1994, the Company's Standard Products Group ("SPG")
comprised 72 percent of total sales while the Company's Communications
and Computing Group ("CCG") comprised 28 percent. This is in contrast
to 1993 when SPG made up 70 percent of total Company sales and CCG 30
percent. After the end of 1995, the Company dissolved the group
structure, in part to allow better reporting alignment with its target
markets. The sales discussion/information that follows is based on the
operation divisions as currently structured.
The Company experienced significant growth in its Analog and Mixed
Signal business unit as sales increased approximately 11 percent.
However, in the Company's more mature divisions, both unit shipments and
pricing decreases contributed to a 17 percent decrease year-on-year in
Bipolar and CMOS Logic and Memory products. Most of the remaining
business units were flat year-on-year with average price decreases
offset by volume increases. For 1995 in aggregate, Analog and Mixed
Signal products represented 56 percent of total Company sales as
compared to 53 percent in 1994. In comparison, Bipolar and CMOS Logic
and Memory products made up 22 percent of total Company revenue for 1995
as compared to 26 percent in 1994.
Fiscal 1995 sales increased by 13 percent and 8 percent in Europe
and Japan over 1994. Due to overall weakness in the dollar, the dollar
value of foreign currency sales increased favorably in both Europe and
Japan, contributing approximately one-half of the increase in reported
sales. Sales in the United States and Asia were essentially flat over
1994. Overall, the Americas, Europe, Japan and Asia regions accounted
for 43%, 24%, 9% and 24% of sales, respectively, in 1995. In 1994, the
regions accounted for 44%, 22%, 9% and 25% of Company sales,
respectively.
Sales increased 14 percent in 1994 over 1993. Unit increases in
volume and modest price increases across most business units contributed
to the rise in sales. The Analog and Mixed Signal business unit
experienced a 13 percent increase in 1994 sales over 1993. At the same
time, older commodity Bipolar and CMOS Logic and Memory products
experienced a similar increase as product shortages and steady or rising
demand contributed to increased prices and unit shipments. For 1994, in
aggregate, Analog and Mixed Signal sales comprised 53 percent of total
Company revenue comparable with 1993. In comparison, Bipolar and CMOS
Logic and Memory product sales made up 26 percent of Company revenue in
1994 as compared to 25 percent in 1993.
Sales increased from 1993 to 1994 in all geographic regions, with
Europe at 20 percent, Asia at 19 percent, and the Americas at 8 percent.
Within the Asia region, Japan increased 27 percent. Overall, the
Americas, Europe, Japan and Asia regions accounted for 47%, 20%, 8%, and
25% of sales, respectively in 1993.
Although future business conditions are difficult to predict, the
Company's focus on major customers in the personal systems,
communications, industrial and consumer markets will continue for the
foreseeable future. In 1996, the Company expects to increase revenues
as it continues its emphasis in Analog and Mixed Signal market
opportunities. The Company expects to grow at or above market rates in
particular segments of Analog and Mixed Signal, but will not necessarily
match overall market growth due to slowing growth or declines in older
products such as Logic and Memory.
Gross Margin
Gross Margin as a percentage of sales remained essentially flat at 41.8
percent in 1995 compared to 41.8 percent in 1994 and 35.5 percent in
1993 (see Note 4). Higher unit volumes and firm pricing in Analog and
Mixed Signal products were offset by pricing declines in older,
commodity products and in some cases, unit shipments declined as well.
Overall gross margins remained relatively constant for most operating
divisions. Wafer capacity utilization approached 90 percent for most of
the year, but margins were adversely impacted by the inability to match
manufacturing capacity with rising product demand.
The improvement in 1994 gross margin over 1993 was driven by
improved sales mix through the introduction of newer, higher margin
products, as well as reduced offerings of older products. In addition,
wafer capacity utilization improved across fiscal 1994 and the Company
benefited during 1994 from many of the restructuring activities
initiated in previous fiscal years.
Management believes wafer capacity utilization will continue to
remain at comparable levels in 1996 as compared to 1995 even as the
Company makes significant additional investments in plant and equipment.
In addition, the Company continues to realign current manufacturing
capacity with higher growth and higher margin Analog and Mixed Signal
products. While business conditions and overall market pricing have a
major influence on gross margin, the Company's planned expansion and
modernization of current facilities, improvements in manufacturing
efficiency and introduction of new products are expected to result in a
modest improvement in gross margin in 1996.
(See Appendix to Graphs)
Research and Development
Research and development ("R&D") expenses were $283.1 million for fiscal
1995, or 11.9 percent of sales, compared to $257.8 million in fiscal
1994, or 11.2 percent of sales and $229.2 million in 1993, or 11.4
percent of sales. The dollar increase in fiscal 1995 is primarily
attributable to increased spending in process development, incremental
spending for analog intensive products and for design tools. The
Company expects to increase R&D to approximately 13.0 percent of sales
in fiscal 1996 as the Company invests in process technology, better
integration of its design tools and continued product development.
(See Appendix to Graphs)
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses decreased to
$402.7 million, or 16.9 percent of sales from $411.3 million, or 17.9
percent of sales in 1994 and $339.2 million, or 16.8 percent in 1993.
SG&A expenses in 1995 include net intellectual property income of $28.7
million compared to $15.9 million in 1994 and $43.7 million in 1993. In
addition, 1995 results include $6.9 million in gains realized on the
sale of equity investments as compared to $2.2 million in similar gains
in 1994 and a writedown of $4.7 million in 1993 of a minority
investment. SG&A in 1994 included a charge of $10.1 million for the
consolidation of sales and marketing facilities in the Company's
International Business Group. In 1993, the Company incurred $11.9
million for tax case related legal expenses (see Note 7) and $10.1
million to centralize sales and logistics facilities within the
Company's International Business Group. The Company continues to pursue
opportunities to leverage its intellectual property, however, the timing
and amount of future licensing income cannot be forecast with certainty
at this time.
Exclusive of the above items, SG&A expenses were $438.3 million or
18.4 percent of sales in 1995, compared to $419.3 million in 1994 or
18.3 percent of sales and $356.2 million or 17.7 percent of sales in
1993. The modest increase in SG&A in 1995 over 1994 is primarily
attributable to increases in sales support and marketing activities.
The increase in 1994 SG&A over 1993 was caused primarily by increased
contributions to certain employee compensation and benefit plans,
including the employee retirement and savings program, as well as
additional product advertising and related promotional costs.
Interest Income and Interest Expense
Net interest income was $14.6 million for 1995 compared to $10.9 million
in 1994 and $2.9 million in 1993. Interest income has increased due
primarily to higher average rates on investments in 1995 as compared to
1994. Interest expense has also increased from 1994 despite lower
average outstanding debt due primarily to prepayment premiums of $2.5
million paid in conjunction with the early buyout of debt associated
with the repurchase of the Company's Arlington, Texas facility and the
sale of a building held by a German subsidiary. Net interest income was
higher in 1994 compared to 1993 due primarily to higher average cash and
investment balances combined with a decrease in interest expense.
(See Appendix to Graphs)
Income Tax Expense
Income tax expense for 1995 was $65.0 million compared to $44.4 million
in 1994 and $19.6 million in 1993. The effective tax rate in 1995 is 20
percent as compared to 15 percent and 13 percent in 1994 and 1993,
respectively. The increases in the effective tax rates over the last
three years are primarily attributable to the exhaustion of certain net
operating loss carryforwards in various tax jurisdictions. The annual
tax rate is expected to rise from 1995 levels as the Company continues
to exhaust net operating loss carry forwards and other tax credits.
Foreign Operations
The Company has manufacturing facilities in Southeast Asia and Europe
and sales offices throughout the United States, Southeast Asia, Europe,
and Japan. A portion of the transactions at these facilities are
denominated in local currency, which exposes the Company to risk from
exchange rate fluctuations. The Company's risk exposure from expenses
at foreign manufacturing facilities is concentrated in pound sterling,
Singapore dollar and Malaysian ringgit. Net non-U.S. dollar denominated
asset and liability positions are hedged, where practical, using forward
exchange and purchased option contracts. The Company's risk exposure
from foreign revenue is limited to the Japanese yen and major European
currencies, primarily deutsche marks, French francs and Italian lira.
The Company hedges up to 100 percent of the notional value of
outstanding customer orders denominated in foreign currency using
forward exchange contracts and over-the-counter foreign currency
options. A portion of anticipated foreign sales commitments is, at
times, hedged using purchased option contracts which have an original
maturity of one year or less.
The Semiconductor Industry
The semiconductor industry is characterized by rapid technological
change and frequent introduction of new technology leading to more
complex and powerful products. The result is a cyclical environment
with short product life, price erosion and high sensitivity to the
overall business cycle. In addition, substantial capital and R&D
investment is required to support products and manufacturing processes.
The Company may experience periodic fluctuations in its operating
results because of industry wide conditions. These uncertainties can
have a significant impact on the Company's operating results. To
address these uncertainties, the Company focuses on developing target
markets in Analog and Mixed Signal, achieving high manufacturing
utilization, and emphasizing rapid design of leading edge products.
(See Appendix to Graphs)
Financial Condition
As of May 28, 1995, cash and short-term investments totaled $467.4
million, essentially unchanged from May 29, 1994. Cash generated from
operating activities was $428.8 million in 1995, down slightly from
$433.7 million in 1994 principally as a result of increases in
inventories and receivables offset by taxes and related items.
Cash used for investing activities was $450.4 million in 1995
compared to $295.5 million in 1994. Capital expenditures increased
substantially during 1995 from $270.7 million to $478.8 million as the
Company continued to invest in property, plant and equipment to expand
its manufacturing capabilities and modernize existing plants. Capital
expenditures in both 1994 and 1995 included continued expansion of a
CMOS fabrication facility in Arlington, Texas, an analog fabrication
facility in Greenock, Scotland, expansion of the Company's bipolar and
CMOS wafer capacity in South Portland, Maine and upgrading of assembly
and test facilities in Asia. In addition, the Company spent
approximately $86 million in 1995 to repurchase the equity interest in
its Arlington, Texas facility and a research facility in Santa Clara,
California, both of which had been sold and leased back prior to 1990.
The Company expects fiscal 1996 expenditures to be significantly above
1995 levels and directed toward process improvements, capacity
expansion, continued modernization of existing plants and development of
an 8-inch prototype wafer fabrication line.
The Company's financing activities provided cash of $43.8 million
in 1995 principally from issuance of debt and common stock under
employee benefit plans offset by repayment of debt and the purchase of
treasury stock. Proceeds from the issuance of debt include fourth
quarter borrowings to fund expansion and modernization of facilities and
assumption of debt associated with the repurchase of the two facilities
previously sold and leased back. Cash used in financing activities
during 1995 other than for repayment of debt included the repurchase of
3,115,600 shares of common stock on the open market for $50.4 million,
net of issuances for certain employee benefit plans. The Company also
purchased 500,000 shares of common stock in 1994. The Company is
authorized by the Board of Directors to repurchase up to 3.5 million
shares of common stock at current market prices prior to the end of
calendar 1995. During 1994, net cash used in financing activities was
$17.5 million which consisted primarily of cash paid for repayment of
debt, purchases of treasury stock and payment of preferred dividends
offset by issuances of common stock.
Management foresees significant increased cash outlays for plant
and equipment throughout 1996. Existing cash and investment balances,
together with existing lines of credit, are felt to be sufficient in the
immediate future to finance capital investments. Management is
confident that additional lines of credit or sources of financing to
supplement current cash balances and cash flows from operating
activities can be arranged if needed.
Outlook
Despite continued improvement and profitability in the financial
results, future trends for revenue and profitability continue to be
difficult to predict. Risks and uncertainties facing the Company
include business conditions and the rate of growth in the personal
computer industry and the general economy; competitive factors and price
pressures; market acceptance and timing of new products; capacity
limitations; and international economic conditions. The Company
believes gross margins as a percentage of sales will experience modest
improvement in 1996 as new capacity comes on line and demand continues
for its higher margin Analog and Mixed Signal products. Operating
expenses as a percentage of sales are expected to remain at existing
levels. National continues to pursue opportunities to leverage its
intellectual property; however, the timing and amount of future
licensing income cannot be forecast with certainty at this time. In
addition, the Company continues to pursue opportunities to develop joint
venture partnerships or potential acquisitions which enhance its product
portfolio in Analog and Mixed Signal products. Similarly, the Company
continues to critically evaluate product lines and divisions where short
or long term prospects do not coincide with its overall strategic
direction. In these cases, the Company will consider dispositions of
assets or business entities as necessary.
NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
May 28, May 29,
1995 1994
ASSETS ------- -------
Current assets:
Cash and cash equivalents $ 420.3 $ 398.1
Short-term marketable investments 47.1 68.7
Receivables, net 318.0 289.0
Inventories 263.0 212.7
Deferred tax assets 77.4 -
Other current assets 52.5 47.9
------- -------
Total current assets 1,178.3 1,016.4
Property, plant and equipment, net 962.4 668.0
Long-term marketable investments 20.2 20.9
Other assets 74.8 42.4
------- -------
Total assets $2,235.7 $1,747.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 23.6 $ 15.6
Accounts payable 272.0 213.7
Accrued expenses 230.7 264.6
Income taxes 159.6 83.5
------- -------
Total current liabilities 685.9 577.4
Long-term debt 82.5 14.5
Deferred income taxes 20.1 18.6
Other non-current liabilities 40.5 31.5
------- -------
Total liabilities $ 829.0 $ 642.0
------- -------
Commitments and contingencies
Shareholders' equity:
Preferred Stock of $0.50 par value. Authorized
1,000,000 shares. Convertible preferred stock:
Issued and outstanding 345,000 shares
in 1995 and 1994 (liquidation
preference of $172.5) $ 0.2 $ 0.2
Common stock of $0.50 par value. Authorized
300,000,000 shares. Issued and outstanding
122,800,405 in 1995; 122,800,095 in 1994 63.1 61.4
Additional paid-in capital 992.3 912.7
Retained earnings 411.0 140.9
Treasury Stock, at cost: 3,094,896 shares
in 1995; 500,000 shares in 1994 (59.9) (9.5)
------- -------
Total shareholders' equity $1,406.7 $1,105.7
------- -------
Total liabilities and shareholders' equity $2,235.7 $1,747.7
======== ========
==================================
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Years Ended
--------------------------------
May 28, May 29, May 30,
1995 1994 1993
-------- -------- --------
Net sales $ 2,379.4 $ 2,295.4 $2,013.7
Operating costs and expenses:
Cost of sales 1,384.5 1,336.3 1,298.3
Research and development 283.1 257.8 229.2
Selling, general and administrative 402.7 411.3 339.2
Restructuring of operations (5.5) (2.6) -
------- ------- -------
Total operating costs
and expenses 2,064.8 2,002.8 1,866.7
------- ------- -------
Operating income 314.6 292.6 147.0
Interest income, net 14.6 10.9 2.9
------- ------- -------
Income before income taxes and
cumulative effect of accounting
change 329.2 303.5 149.9
Income taxes 65.0 44.4 19.6
------- ------- -------
Income before cumulative
effect of accounting change 264.2 259.1 130.3
Cumulative effect of accounting change - 4.9 -
------- ------- -------
Net income $ 264.2 $ 264.0 $ 130.3
======== ======== ========
Earnings per share before cumulative
effect of accounting change:
Primary $ 2.02 $ 1.98 $ 0.98
Fully diluted 1.92 1.83 0.98
======= ======= ======
Earnings per share:
Primary $ 2.02 $ 2.02 $ 0.98
Fully diluted 1.92 1.87 0.98
======= ======= ======
Weighted average shares:
Primary 125.2 121.4 115.9
Fully diluted 137.5 141.4 115.9
======= ======== =======
Net income used in primary earnings
per common share calculation
(reflecting preferred dividends) $ 253.0 $ 245.3 $ 113.2
======= ======== ========
=====================================
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions, except per share amounts)
Preferred Stock
------------------
Convert- Addi-
ible Treas- tional Retained
Exchange- Convert- Common ury Paid-In Earnings
able ible Stock Stock Capital (Deficit) Total
--------- -------- ------ ------- ------- -------- -------
Balances at
May 31, 1992 $ 0.1 $ - $ 53.2 $ - $703.7 $(217.6) $539.4
Net income - - - - - 130.3 130.3
Issuance of
convertible
preferred shares - 0.2 - - 166.6 - 166.8
Convertible
preferred
dividends of
$32.50 per share - - - - - (7.1) (7.1)
Convertible
exchangeable
preferred
dividends of
$40.00 per share - - - - - (10.0) (10.0)
Issuance of
common stock
under option and
purchase plans - - 1.7 - 16.3 - 18.0
- ------------------------------------------------------------------------
Balances at
May 30, 1993 0.1 0.2 54.9 - 886.6 (104.4) 837.4
Net income - - - - - 264.0 264.0
Redemption and
conversion of
convertible
exchangeable
preferred
shares (0.1) - 4.1 - (5.3) - (1.3)
Convertible
preferred
dividends of
$32.50 per share - - - - - (11.2) (11.2)
Convertible
exchangeable
preferred
dividends of
$40.00 per share - - - - - (7.5) (7.5)
Acquisition of
treasury stock - - - (9.5) - - (9.5)
Issuance of
common stock
under option,
purchase, and
profit sharing
plans and tax
benefit of $2.0 - - 2.4 - 31.4 - 33.8
- ------------------------------------------------------------------------
Balances at
May 29, 1994 - 0.2 61.4 (9.5) 912.7 140.9 1,105.7
Net income - - - - - 264.2 264.2
Convertible
preferred
dividends of
$32.50 per share - - - - - (11.2) (11.2)
Acquisition of
treasury stock - - - (50.4) - - (50.4)
Issuance of
common stock
under option,
purchase, and
profit sharing
plans and
tax benefit
of $51.9 - - 1.7 - 79.6 - 81.3
Unrealized gain
on available-
for- sale
securities
(net of tax) - - - - - 17.1 17.1
- ------------------------------------------------------------------------
Balances at
May 28, 1995 $ - $0.2 $63.1 $(59.9) $992.3 $411.0 $1,406.7
==== ==== ===== ======= ====== ====== =======
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Years Ended
------------------------------
May 28, May 29, May 30,
1995 1994 1993
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 264.2 $ 264.0 $ 130.3
Adjustments to reconcile income
with net cash provided by operations:
Depreciation and amortization 185.4 173.8 159.8
Cumulative effect of accounting
change - (4.9) -
Loss (gain) on sale of investments (6.9) (2.2) 5.2
Other, net 6.5 (1.8) -
Changes in deferred taxes (97.9) 1.7 -
Tax benefit associated with stock
options 51.9 2.0 -
Changes in certain assets and
liabilities:
Receivables (29.0) (16.1) (77.0)
Inventories (50.3) (18.5) 18.2
Other current assets (4.6) 1.5 (22.5)
Accounts payable and accrued
expenses 24.4 51.3 16.4
Income taxes 76.1 13.6 12.2
Other non-current liabilities 9.0 (30.7) (8.6)
------ ------ -------
Net cash provided by operating
activities 428.8 433.7 234.0
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (478.8) (270.7) (233.9)
Proceeds from the sale of
property, plant and equipment - - 15.7
Sale and maturity of available-
for-sale securities 184.9 658.7 42.8
Maturity of held-to-maturity
securities 707.1 - -
Purchase of available-for-sale
securities (144.9) (680.0) (111.1)
Purchase of held-to-maturity securities (696.7) - -
Proceeds from sale of investments - 7.7 1.0
Purchase of investments and other, net (22.0) (11.2) (11.6)
------ ------ ------
Net cash used by investing activities (450.4) (295.5) (297.1)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 159.0 1.9 37.3
Repayment of debt (83.0) (19.7) (23.7)
Collateral deposits and restricted cash - - 20.9
Issuance of common stock, net 29.4 28.5 18.0
Issuance of preferred stock, net
of issuance costs - - 166.8
Purchase of treasury stock (50.4) (9.5) -
Payment of preferred dividends (11.2) (18.7) (17.1)
------- ------ ------
Net cash provided (used) by
financing activities 43.8 (17.5) 202.2
------- ------ ------
Net change in cash and cash equivalents 22.2 120.7 139.1
Cash and cash equivalents at beginning
of year 398.1 277.4 138.3
------ ------ ------
Cash and cash equivalents
at end of year $ 420.3 $398.1 $277.4
====== ====== ======
===============================================
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include National Semiconductor
Corporation and its majority-owned subsidiaries ("National" or the
"Company"). All significant intercompany transactions are eliminated in
consolidation. Investments in which National has less than 20 percent
ownership are accounted for by the cost method.
Revenue Recognition
Revenue from the sale of semiconductor products is generally recognized
when shipped, with a provision for estimated returns and allowances
recorded at the time of shipment. Service and other revenues are
recognized ratably over the contractual period or as the services are
performed.
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual cost on a first-in, first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
provided using both accelerated and straight-line methods over the
estimated useful lives of the respective assets, or in the case of
property under capital lease, over the lesser of the useful life or
lease term.
Income Taxes
The income tax provision for 1995 and 1994 has been determined in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109"), which requires that deferred
liabilities or assets at the end of each period be determined using the
tax rate expected to be in effect when the taxes are actually paid or
recovered. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance. The Company adopted FAS 109
effective the first day of fiscal 1994. The impact of adopting FAS 109
did not have a material effect on the consolidated financial statements,
and as such no cumulative effect is recorded for the accounting method
change.
The income tax provision for fiscal year 1993 was determined in
accordance with Statement of Financial Accounting Standards No. 96,
"Accounting for Income Taxes". Accordingly, the provision for income
taxes for 1993 included federal, state and non-U.S. income taxes
currently payable or refundable and deferred amounts as a result of
temporary differences between the tax bases of assets and liabilities
and the corresponding amounts reported in the financial statements.
Earnings Per Share
Primary earnings per share are computed using the weighted average
number of common shares and dilutive common stock equivalents
outstanding using the treasury stock method. Dilutive common stock
equivalents include stock options. Preferred dividends are reflected as
adjustments to reported net earnings in the calculation. Fully diluted
earnings per common share are computed using the weighted average common
and dilutive common stock equivalents outstanding, plus other dilutive
securities outstanding which are not common stock equivalents such as
Convertible Preferred Shares. If the result of assumed conversions is
dilutive, the dividend requirements for the Convertible Preferred Shares
are reduced while the average shares of common stock outstanding are
increased.
Currencies
The Company's functional currency for all operations worldwide is the
U.S. dollar. Accordingly, gains and losses from translation of foreign
currency financial statements into U.S. dollars are included in the
determination of net income in the period in which they occur. Gains
and losses resulting from foreign currency transactions are also
included in the consolidated statements of operations.
Financial Instruments
Cash and Cash Equivalents. Cash equivalents are highly liquid
instruments with a maturity of three months or less at the time of
purchase. National maintains its cash balances in various currencies
and a variety of financial instruments. The Company has not experienced
any material losses relating to any short-term investment instruments.
Marketable Investments. Effective the beginning of fiscal 1995, the
Company adopted FAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," ("FAS 115"). This adoption was not material to
the Company's financial position. Under FAS 115, the Company has
classified its marketable debt and equity securities into held-to-
maturity or available-for-sale categories. Debt securities are
classified as held-to-maturity when the Company has the positive intent
and ability to hold the securities to maturity. Held-to-maturity
securities are recorded as either short-term or long-term on the balance
sheet based upon contractual maturity date and are stated at amortized
cost. Marketable debt and equity securities not classified as held-to-
maturity are classified as available-for-sale and are carried at fair
market value, with the unrealized gains and losses, net of tax, reported
in a separate component of shareholders' equity. Gains or losses on
securities sold are based on the specific identification method.
Off-Balance Sheet Financial Instruments. The Company utilizes various
off-balance sheet financial instruments to manage market risks
associated with fluctuations in certain interest rates, commodity prices
and foreign currency exchange rates. It is the Company's policy to use
derivative financial instruments to protect against market risks arising
in the normal course of business. Company policies prohibit the use of
derivative instruments for the sole purpose of trading for profit on
price fluctuations or to enter into contracts which intentionally
increase the Company's underlying exposure.
Fair Values of Financial Instruments
Fair values of cash equivalents, short-term investments and short-term
debt approximate cost due to the short period of time until maturity.
Fair values of long-term investments, long-term debt, currency forward
contracts and currency options are based on quoted market prices or
pricing models using prevailing financial market information as of May
28, 1995.
Reclassifications
Certain amounts in prior years' financial statements and related notes
have been reclassified to conform to the 1995 presentation. These
reclassifications are not material.
Note 2. Financial Instruments
Marketable Investments
The Company's policy is to diversify its investment portfolio to reduce
risk to principal from credit, geographic, and investment sector risk.
At May 28, 1995, investments were placed with a variety of different
financial institutions or other issuers, and no individual security,
financial institution, or obligation from a direct issuer exceeded ten
percent of total investments. Investments with a maturity of less than
one year have a rating of A1/P1 or better. Investments with a maturity
of more than one year have a minimum rating of AA/Aa2. The Company's
investment portfolio generally matures within one year or less. Gross
realized gains on available-for-sale securities approximated $6.9
million for the year ended May 28, 1995. Gross realized losses were not
material.
Investments at May 28, 1995 are comprised of the following:
Gross Gross
Amortized Unrealized Unrealized Estimated
(in millions) Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
Short-Term Investments:
Available-for-Sale Securities:
Certificates of deposit $ 5.0 $ - $ - $ 5.0
Corporate bonds 6.0 - - 6.0
Commercial paper 6.9 - 0.1 6.8
Governmental agencies 4.0 - - 4.0
Held-to-Maturity Securities:
Corporate Bonds 25.3 - - 25.3
Total Short-Term ------- -------- -------- -------
Investments $ 47.2 $ - $ 0.1 $ 47.1
Long-Term Investments:
Available-for-Sale Securities:
Equity Securities $ 3.1 $ 17.1 $ - $ 20.2
------- -------- -------- -------
Total Long-Term Investments $ 3.1 $ 17.1 $ - $ 20.2
======= ======== ======== =======
At May 28, 1995, the Company held $33.0 million and $346.8 million
of available-for-sale and held-to-maturity securities, respectively,
that are classified as cash equivalents on the consolidated balance
sheet. These cash equivalents consist of the following (in millions):
bank time deposits ($156.2), institutional money market funds ($150.0),
certificates of deposit ($14.0), commercial paper ($46.9), repurchase
agreements ($5.3) and government securities ($7.4).
The net unrealized gain on the sale of available-for-sale
securities (of $17.1 million) is included in retained earnings May 28,
1995.
Off-Balance Sheet Financial Instruments
Foreign Currency Instruments
The objective of the Company's foreign exchange risk management policy
is to preserve the U.S. dollar value of after-tax cash flow in relation
to non-U.S. dollar currency movements. The Company uses forward and
option contracts to hedge firm commitments and anticipatory exposures.
These exposures comprise sales of the Company's products in currencies
other than the U.S. dollar. A majority of these sales are made through
the Company's subsidiaries in Europe and Japan. Gains and losses on
financial instruments that are intended to hedge an identifiable firm
commitment are deferred and included in the measurement of the
underlying transaction. Gains and losses on hedges of anticipated
transactions are deferred until such time as the underlying transactions
are recognized or immediately when the transaction is no longer expected
to occur. In addition, the Company uses forward and option contracts to
hedge non-U.S. dollar denominated asset and liability positions. Gains
and losses on these contracts are used to offset the effect of currency
movements on these financial positions.
Interest Rate Derivatives
The Company from time to time enters into interest rate derivative
contracts in order to better match the nature of its cash flows from the
floating-rate income on its cash equivalents and short-term investments
with the predominately fixed-rate interest expense of its long-term
debt. Interest rate swaps are used to extend the effective duration of
a portion of the Company's short-term investment portfolio up to a
maximum of two years. The Company had no outstanding interest rate
derivative contracts as of May 28, 1995.
Commodity Derivatives
The financial performance of the Company's Dynacraft, Inc. subsidiary,
which makes leadframes for integrated circuit packaging, is exposed to
risk from fluctuations in the price of copper. The Company has
purchased a series of call options on the price of copper, a "cap",
which hedges the risk arising to Dynacraft from copper price increases.
The last option expires in August 1995. The purchase price of option
contracts are capitalized and amortized over the life of the option.
Any gains or losses from an option contract, either accrued or realized,
are recorded as an adjustment to operating expenses in the period
earned.
Fair Value and Notional Principal of Off-Balance Sheet Financial
Instruments
The table below shows the fair value and notional principal of the
Company's off-balance sheet instruments as of May 28, 1995 and May 29,
1995. The notional principal amounts for off-balance sheet instruments
provide one measure of the transaction volume outstanding as of year end
and do not represent the amount of the Company's exposure to credit or
market loss. The estimates of fair value are based on applicable and
commonly used pricing models using prevailing financial market
information as of May 28, 1995 and May 29, 1994. The credit risk amount
shown in the table represents the Company's gross exposure to potential
accounting loss on these transactions if all counterparties failed to
perform according to the terms of the contract, based on then-current
currency exchange rate, interest rate or commodity price at each
respective date. Although the following table reflects the notional
principal, fair value, and credit risk amounts of the off-balance sheet
instruments, it does not reflect the gains or losses associated with the
exposures and transactions that the off-balance sheet instruments are
intended to hedge. The amounts ultimately realized upon settlement of
these financial instruments, together with the gains and losses on the
underlying exposures, will depend on actual market conditions during the
remaining life of the instruments.
Transactions Qualifying as Accounting Hedges (in millions)
1995 1994
Notional Fair Credit Notional Fair Credit
Principal Value Risk Principal Value Risk
--------- ----- ------ --------- ----- ------
Interest rate instruments:
Swaps $ - $ - $ - $ 15.0 $ (0.1) $ -
Foreign exchange instruments:
Forward contracts
To buy dollars 37.3 (1.7) - 48.3 (1.0) -
To sell dollars 55.2 - 0.2 63.4 2.2 2.2
Purchased options 66.0 0.3 0.3 36.0 0.2 0.2
Commodity instruments
Purchased call option
on copper 1.8 0.3 0.3 - - -
The Company has outstanding currency exchange contracts to sell foreign
currency and to purchase U.S. dollars in the future with the predominant
concentration of foreign currency in Japanese yen. The Company has
outstanding currency exchange contracts to buy Malaysian ringgit,
Singapore dollar, and pound sterling and to sell U.S. dollars in the
future. All foreign exchange forward contracts expire within one year.
Unrealized gains and losses on foreign exchange forward contracts that
are accounted for as hedges are deferred and recognized in income in the
same period as the hedged transactions. Deferred gains and losses on
such agreements at May 28, 1995 and May 29, 1994 are immaterial. The
Company has purchased foreign currency options denominated in Japanese
yen and German deutsche mark. All foreign currency option contracts
expire within a year. Purchased foreign exchange option contracts that
qualify for hedge accounting treatment are reported on the balance sheet
at the premium cost, which is amortized over the life of the option.
Unrealized gains and losses on these option contracts are deferred until
the occurrence of the hedged transaction and recognized as a component
of the hedged transaction. Deferred gains and losses on such agreements
at May 28, 1995 and May 29, 1994 are immaterial.
Fair Value of Financial Instruments
A summary table of estimated fair values of financial instruments at
fiscal year end follows:
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(in millions) -------- ---------- -------- ----------
Long-term investments $ 20.2 $ 20.2 $ 20.9 $ 20.9
Long-term debt (82.5) (86.5) (14.5) (14.6)
Currency forward contracts:
To buy dollars 0.3 (1.7) 0.3 (1.0)
To sell dollars (0.7) - (0.1) 2.2
Currency options (0.5) 0.3 (0.3) 0.2
Commodity options 0.1 0.3 - -
=====================================
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily investments and trade
receivables. The Company's investment policy requires cash investments
to be placed with high-credit quality counterparties and to limit the
amount of credit from any one financial institution or direct issuer.
The Company sells its products to distributors and original equipment
manufacturers involved in a variety of industries including computers
and peripherals, automotive, and telecommunications. National performs
continuing credit evaluations of its customers whenever deemed
necessary. Historically, the Company has not experienced significant
losses related to receivables from individual customers or groups of
customers in any particular industry or geographic area.
Note 3. Restructuring of Operations
Included in 1995 results is the release of $10.1 million of
restructuring reserves originally provided in 1994, partially offset by
$4.6 million in additional charges for existing programs identified by
the Company. The release of $10.1 million is attributable to the
Company's decision to retain certain facilities and related support
operations connected therewith. The additional restructuring
requirements include charges for the Company's wholly owned subsidiary,
Dynacraft, Inc. ("DCI"), to consolidate its business, and the decision
by the Company to transfer the remainding military assembly operations
in South Portland, Maine to Singapore. The charges for these actions,
which are expected to be completed early in fiscal 1996, consist
primarily of fixed asset dispositions, reductions in the work force and
costs related to termination of a non-cancelable commitment for a
facility.
During fiscal 1995, the Company utilized $14.5 million of
restructuring reserves, primarily attributable to the consolidation of
its DCI business into one location in California, closure of a wafer
fabrication line in Salt Lake City, Utah and completion of reduction in
headcount and related infrastructure in its Santa Clara, California
plant. Of the reserves, $9.6 million represented cash charges with the
balance taking the form of fixed asset write-offs and other non-cash
items.
During fiscal 1994, the Company utilized $44.2 million of the
restructuring reserves primarily attributable to the closure of a wafer
fabrication module in its Salt Lake City, Utah facility, and closure of
a wafer fabrication line in Santa Clara, California. In addition, the
Company completed most of the process transfers from its Santa Clara,
California facility to the Greenock, Scotland fabrication facility and
completed the transfer of part of its Mil Aero manufacturing to its
Singapore facility. The Company continued to reduce headcount and
related infrastructure at its Santa Clara, California operation.
During fiscal 1993, the Company's restructuring activities related
to the sale of its Bangkok, Thailand facility and also the sale of its
Migdal Haemek, Israel facility to a joint venture, in which the Company
has less than a 20 percent investment. The Company also continued
activities related to the closure of a fabrication module at its Salt
Lake City, Utah facility and decided to close a fabrication module in
Santa Clara, California.
Note 4. Consolidated Balance Sheet Details
(in millions)
1995 1994
------ ------
RECEIVABLE ALLOWANCES
Doubtful accounts $ 2.4 $ 3.0
Returns and allowances 31.3 30.8
------ ------
Total receivable allowances $ 33.7 $ 33.8
====== ======
INVENTORIES
Raw materials $ 33.9 $ 17.3
Work in process 165.9 129.4
Finished goods 63.2 66.0
------- ------
Total inventories $ 263.0 $ 212.7
======= ======
PROPERTY, PLANT AND EQUIPMENT
Land $ 12.5 $ 8.9
Buildings and improvements 501.4 340.9
Machinery and equipment 1,419.9 1,251.4
Construction in progress 213.8 164.4
------- -------
Total property, plant and equipment 2,147.6 1,765.6
Less accumulated depreciation and
amortization 1,185.2 1,097.6
------- -------
Property, plant and equipment, net $ 962.4 $ 668.0
======= =======
ACCRUED EXPENSES
Payroll and employee related $ 159.3 $ 124.9
Other 71.4 139.7
------- ------
Total accrued expenses $ 230.7 $ 264.6
======= ======
Effective beginning in fiscal 1994, the Company changed its method of
accounting to include certain costs in inventory which were previously
charged directly to cost of sales as incurred. These costs consisted
primarily of product engineering, quality assurance and reliability, and
production control and logistics. The Company believes this change was
preferable under the circumstances because it more closely matched
inventory costs with net sales and more closely aligned the Company with
industry practices. The cumulative effect of this change on years prior
to fiscal 1994 of $4.9 million was reflected in the 1994 first quarter
results.
Both the impact of the change in fiscal 1994 and the proforma
effect on net income for fiscal 1993 under the new method of accounting
were immaterial.
In addition, beginning in fiscal 1994, the Company reclassified
certain period expenses from cost of sales to R&D expense or to SG&A
expense. The amounts presented in prior period statements of operations
have been reclassified to conform with the fiscal 1994 presentation.
The types of costs consisted primarily of non-manufacturing product
engineering, quality assurance and reliability, applications
engineering, and product line management costs. The Company believes
these reclassifications more closely align Company reporting with
industry practices. For 1993, the effect of the reclassification
decreased cost of sales by $81.3 million and increased R&D and SG&A
expenses by $26.9 million and $54.4 million, respectively. Net income
was not impacted in any period by the reclassifications.
Note 5. Debt Financing
Debt consists of the following:
(in millions) 1995 1994
------ -------
Notes secured by real estate payable
at 11.8% to 12.6% $ 20.2 $ 5.9
Notes secured by equipment payable
at 7.3% to 8.9% 33.0 13.3
Unsecured loans payable at 7.5%
and 4.2%, respectively 50.0 6.4
Obligations under capital leases 2.9 4.5
------- -------
Total loans payable 106.1 30.1
Current portion of long-term debt (23.6) (15.6)
------- -------
Long-term debt $ 82.5 $ 14.5
======= =======
Notes secured by real estate in 1995 consist of three notes assumed as
part of the repurchase of the equity interest in the Company's
Arlington, Texas facility which was sold and leased back prior to 1990.
Interest on these notes is due semi-annually, principal payments vary,
and maturities range from March 1996 to March 2002. The 1994 balance
consists of a mortgage loan held by a foreign subsidiary due in 1996
which was repaid in April 1995. The notes secured by machinery and
equipment have installments payable either monthly or quarterly with
maturities ranging from November 1995 to May 2000. The unsecured 7.5
percent note is due in monthly installments through May 2000. The note
payable in 1994 at 4.2 percent is a variable interest loan at the U.S.
dollar Singapore Interbank Offer Rate plus 0.75 percent and was due in
1999, but was repaid in July 1994.
For each of the next five years and thereafter, debt and capital
lease obligations are as follows:
Total Debt
(in millions) (Principal only)
----------------
1996 $ 23.6
1997 18.5
1998 17.3
1999 18.5
2000 19.4
Thereafter 8.8
----------------
Total $106.1
================
The Company's multicurrency and revolving financing agreements make
funds available in the form of multicurrency loans, letters of credit
and standby letters of credit. The multicurrency loan agreement ($30
million) expires in December 1995. The revolving credit agreement ($200
million) which includes standby letters of credit expires in December
1997. At May 28, 1995, $42.2 million of the combined total commitments
was utilized.
These agreements contain restrictive covenants, conditions and
default provisions which, among others, restrict payment of dividends
and require the maintenance of financial ratios and certain levels of
tangible net worth. At May 28, 1995, under the most restrictive
covenant, no more than $238.5 million was available for payment of
dividends on the Company's common stock.
Note 6. Interest
(in millions) 1995 1994 1993
------ ------ ------
Interest income $ 21.3 $14.2 $7.3
Interest expense (6.7) (3.3) (4.4)
------- ------- -------
Interest, net $ 14.6 $10.9 $2.9
======= ======= =======
Note 7. Income Taxes
Worldwide pretax earnings from operations and income taxes consisted of
the following:
(in millions) 1995 1994 1993
------ ------ ------
Income before income taxes:
U.S. $233.5 $264.9 $ 58.6
Non-U.S. 95.7 38.6 91.3
------- ------- -------
$329.2 $303.5 $ 149.9
Income taxes: ======= ======= =======
Current:
U.S. Federal $ 90.7 $ 26.9 $ 1.4
U.S. State and Local 5.0 6.4 2.6
Non-U.S. 12.7 5.6 12.1
------- ------- -------
108.4 38.9 16.1
Deferred:
U.S. Federal and State (96.8) - -
Non-U.S. 1.5 3.5 3.5
Charge in lieu of taxes
attributable to employee
stock plans 51.9 2.0 -
------- ------- -------
$ 65.0 $ 44.4 $ 19.6
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at May
28, 1995 and May 29, 1994 are presented below (in millions):
1995 1994
Deferred Tax Assets: ------ ------
Reserves and accruals $ 56.8 $ 80.5
Loss carryovers and other allowances - foreign 50.0 74.8
General business credit carryovers - Federal 46.1 47.1
Capitalized assets and other assets 27.6 14.5
Inventory capitalization and reserves 20.9 19.0
Foreign tax and AMT credit carryovers 7.7 6.8
Capitalized R&D - state 5.7 7.6
------- ------
Total gross deferred assets 214.8 250.3
Less valuation allowance (106.5) (248.6)
------- ------
Net deferred assets $ 108.3 $ 1.7
Deferred tax liabilities:
Capital allowance - foreign $ (20.1) $ (19.4)
Other liabilities (8.9) (0.9)
------- ------
Total gross deferred liabilities (29.0) (20.3)
------- ------
Net deferred tax assets (liabilities) $ 79.3 $ (18.6)
======= ======
Deferred tax assets and liabilities are classified in the consolidated
balance sheet based on the classification of the related asset or
liability. Included in other assets on the consolidated balance sheet
is $22.0 million of deferred tax assets.
The valuation allowance at May 28, 1995 represented a decrease of
$142.1 million from the balance of $248.6 million at May 29, 1994. Of
this decrease in the total valuation allowance for deferred tax assets,
approximately $51.9 million of recognized tax benefits attributable to
employee stock option exercises was allocated to additional paid-in
capital rather than to income tax benefit.
For fiscal 1993, deferred income taxes arose from temporary
differences between tax bases of assets and liabilities and the reported
amounts in the financial statements. The deferred tax expense reflected
is attributable primarily to depreciation, accruals and allowances.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making
this assessment. Based on the historical taxable income and projections
for future taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net
of valuation allowances as of May 28, 1995.
The reconciliation between the amount computed by applying the
U.S. Federal statutory rate and the reported worldwide tax expense
follows:
(dollars in millions) 1995 1994 1993
------- ------- -------
U.S. Federal statutory tax rate 35% 35% 34%
==== ==== ====
Income tax expense at
federal statutory rate $ 115.2 $106.2 $ 51.0
Unutilized (utilized) non-U.S.
losses and tax differential
related to non-U.S. income (19.4) 8.8 1.5
U.S. state and local taxes net
of federal benefits 5.0 4.2 2.6
Change in beginning of year
valuation allowance (36.2) (76.0) -
Utilized U.S. operating
losses under FAS 96 - - (41.3)
Sale of Bangkok facility - - 3.9
Other 0.4 1.2 1.9
------- ------- -------
Reported income tax expense $ 65.0 $44.4 $19.6
======= ======= =======
The temporary difference relating to the unremitted earnings of non-U.S.
subsidiaries for which a deferred tax liability has not been recognized
approximates $514.6 million at May 28, 1995. The additional taxes which
may become due if those earnings were to be remitted to the U.S. are
estimated to be $112.2 million after utilization of U.S. tax credits.
However, it is management's intent that these earnings remain reinvested
indefinitely.
At May 28, 1995, National had credit carryforwards of
approximately $53.9 million for tax return purposes which expire from
1996 through 2008. National also had operating loss carryforwards in
certain non-U.S. jurisdictions.
The U.S. Internal Revenue Service ("IRS") examinations of
National's U.S. Federal income tax returns for fiscal years 1976-1982
resulted in the issuance of deficiency notices during fiscal 1989 and
1990 seeking additional taxes amounting to approximately $76 million
(exclusive of interest). National filed petitions with the United
States Tax Court contesting the deficiency notices and the cases were
consolidated for trial. National and the IRS subsequently settled all
issues for fiscal years 1976 through 1982 except for intercompany
product transfer prices. This settlement reduced the additional taxes
being sought to approximately $52 million (exclusive of interest).
Trial in the case was held in February 1993 and an opinion was issued by
the U.S. Tax Court in May 1994. The opinion found that adjustments to
income of $40.6 million were due, which the Company estimates, after
giving effect to loss and credit carrybacks, will result in a tax
deficiency of approximately $5 million plus associated interest of
between $35 million and $45 million. The IRS motion for reconsideration
of the opinion, which sought an additional $31 million in income tax
adjustments, was denied by the court in June 1994. The Company and the
IRS have reached agreement on the allocation of the additional income,
and this agreement was presented to the Court in June 1995. A formal
decision implementing the opinion was then entered by the Tax Court
following completion of these final computations and the decision is
subject to appeal by either the Company or the IRS. It is not known if
an appeal will follow at this time.
In January 1994, the Company and the IRS settled all issues for
fiscal years 1983 through 1985, including issues relating to
intercompany product transfer pricing, without the payment of additional
Federal tax. This result will be affected by certain net operating loss
carryovers and credits, which will not be determined until the Tax Court
litigation is completed.
In April 1995, the IRS issued a deficiency notice for fiscal years
1986 through 1989 seeking additional taxes of approximately $11 million
(exclusive of interest). The issues raised by the deficiency notice
relate primarily to the Company's former Israeli operation and the
purchase price paid for Fairchild Semiconductor Corporation. The
Company intends to file a protest of the deficiency notice. The Company
expects the IRS to begin examination of the Company's tax returns for
fiscal years 1990 through 1993 during the summer of 1995. The Company
believes that adequate tax payments have been made and accruals recorded
for all years and that the Tax Court case will not have a material
adverse effect on the Company's financial condition or results of
operations.
Note 8. Shareholders' Equity
Each outstanding share of the Company's common stock carries a stock
purchase right ("Right") issued pursuant to a dividend distribution
declared on August 5, 1988. When exercisable, each Right entitles the
registered holder to purchase one one-thousandth of a share of the
Company's Series A Junior Participating Preferred Stock at a price of
$60.00 per one thousandth share, subject to adjustment. The Rights are
attached to all outstanding shares of common stock and no separate
Rights certificates have been distributed.
The Rights will become exercisable and will detach from the common
stock in the event any individual or group acquires 20 percent or more
of the Company's common stock, or announces a tender or exchange offer
which, if consummated, would result in that person or group owning at
least 20 percent of the Company's common stock. If such person or group
actually acquires 30 percent or more of the Company's common stock
(except pursuant to certain cash tender offers for all of the Company's
common stock), each Right will entitle the holder to purchase, at the
Right's then current exercise prices, the Company's common stock in an
amount having a market value equal to twice the exercise price.
Similarly, if after the Rights become exercisable, the Company merges or
consolidates with or sells 50 percent or more of its assets or earning
power to another person, each Right will then entitle the holder to
purchase, at the Right's then current exercise price, the stock of the
acquiring company in an amount having a market value equal to twice the
exercise price.
The Company may redeem the Rights at $0.01 per Right at any time
prior to acquisition by a person or group of 20 percent or more of the
Company's outstanding common stock. The Rights will expire August 8,
1998, unless earlier redeemed.
In March 1994, National called for redemption in April 1994 of all
of the issued and outstanding shares of the $40.00 Convertible
Exchangeable Preferred Shares, $0.50 par value (the "Exchangeable
Preferred Shares"). In connection with the redemption, a conversion
privilege offered by National to holders of the Exchangeable Preferred
Shares expired on the redemption date. Essentially all Exchangeable
Preferred Shares were converted by the holders into the Company's common
stock at the rate of 33 shares of common stock for each Exchangeable
Preferred Share. All remaining shares were redeemed and the Company
issued shares of common stock that would have been issued to the holders
of the Exchangeable Preferred Shares had they elected to convert, in
accordance with standby arrangements entered into by the Company. After
the redemption and conversion were complete, a total of 8,250,000 shares
of common stock had been issued.
At May 28, 1995, National had 345,000 shares of $32.50 Convertible
Preferred Shares, $0.50 par value (the "Convertible Preferred Shares")
issued and outstanding. The Convertible Preferred Shares were issued in
October 1992. The liquidation preference of each Convertible Preferred
Share is $500 plus unpaid dividends. The Convertible Preferred Shares
are convertible at any time at the option of the holder into common
stock at the rate of 35.273 shares of common stock for each Convertible
Preferred Share. On or after November 1, 1995, and if the closing price
of the Company's common stock on the New York Stock Exchange exceeds
$17.72 for twenty trading days within any period of thirty consecutive
trading days, the Convertible Preferred Shares are redeemable, in whole
or in part, at the option of the Company for the number of shares of
common stock as are issuable at a conversion rate of 35.273 shares of
common stock for each Convertible Preferred Share. The Convertible
Preferred Shares are not entitled to the benefit of any sinking fund.
Dividends on the Convertible Preferred Shares at an annual rate of
$32.50 per share are cumulative and payable quarterly in arrears, when
and as declared by the Company's Board of Directors. Holders of
Convertible Preferred Shares are entitled to limited voting rights.
The Company was authorized by the Board of Directors to repurchase
up to 3.5 million shares of the Company's common stock at current market
prices prior to the end of calendar 1994. During fiscal 1994, National
purchased 500,000 shares on the open market at a cost of $9.5 million.
In April 1995, the Board of Directors authorized repurchase of up to an
additional 3.5 million shares at current market prices prior to the end
of calendar 1995. During fiscal 1995, National purchased 3,115,600
shares on the open market at a cost of $50.4 million, net of certain
share reissuances in connection with employee benefit plans. The shares
purchased by the Company are being used for issuance under the Company's
various benefit plans and are being held as treasury stock.
National has paid no cash dividends on its common stock and
intends to continue its practice of reinvesting all earnings except
those required for preferred stock dividends.
Note 9. Stock Option and Purchase Plans
National has a stock option plan under which officers and key employees
may be granted nonqualified or incentive stock options to purchase up to
32,754,929 shares of the Company's common stock. Generally, the terms of
this plan provide that options are granted at the market price on the
date of grant and expire up to a maximum of 10 years and one day after
grant or 3 months after termination of employment (up to 5 years after
termination due to death, disability, or retirement), whichever occurs
first. Options generally become exercisable ratably over a four-year
period.
In connection with the retirement of Peter J. Sprague from his
position as Chairman of the Board of Directors on May 18, 1995, the
Company granted an option to Mr. Sprague to purchase 300,000 shares of
the Company's common stock. The option granted to Mr. Sprague was not
granted under the option plans, but was granted at the market price on
the date of grant, expires ten years and one day after grant and becomes
exercisable ratably over a four-year period.
National has an employee stock purchase plan which authorizes the
issuance of up to 19,950,000 shares of common stock in quarterly
offerings to eligible employees in amounts related to their basic annual
compensation at a price which is equal to 85 percent of the lower of its
fair market value at the beginning and end of a quarterly period. Prior
to January 1995, the employee stock purchase plan granted options which
became exercisable after 13 months and expired after 27 months. The
option price was determined by the Stock Option and Compensation
Committee of the Board of Directors but could not be less than 100
percent of the market value on the date of grant or 85 percent of the
market value on the date of exercise, whichever was lower. The last
options issued under the terms of the previous plan will expire in March
1996.
National also has an employee stock purchase plan available to
employees at international locations which was approved in September
1994 and first made available to employees in January 1995. The global
plan authorizes the issuance of up to 5,000,000 shares of common stock
in quarterly offerings to eligible employees in amounts related to their
basic annual compensation at a price equal to 85 percent of the lower of
its fair market value at the beginning and end of a quarterly period.
Unlike the U.S. stock purchase plan, the stock purchased under the
global stock purchase plan for the account of an employee is held by a
fiduciary in an offshore trust, which allows an employee located in
countries that do not permit direct stock ownership to participate in a
Company stock plan. In addition, the participant's employing company is
responsible for paying the difference between the purchase price set by
the terms of the plan and the fair market value at the time of the
purchase.
Changes in options outstanding under options granted by the
Company during fiscal 1994 and 1995, whether under the option or
purchase plan or otherwise were as follows:
Number Price
of shares per
(in millions) share
------------- ----------------
Outstanding May 30, 1993 15.2 $3.75 to $14.75
Granted 3.3 $15.00 to $20.50
Exercised (4.7) $3.75 to $14.75
Cancelled (0.6) $3.75 to $20.50
- -------------------------------------------------------------------
Outstanding May 29, 1994 13.2 $3.75 to $20.50
Granted 2.7 $14.88 to $27.88
Exercised (3.1) $3.75 to $20.50
Cancelled (0.5) $3.75 to $20.50
- -------------------------------------------------------------------
Outstanding at May 28, 1995 12.3 $3.75 to $27.88
Exercisable at May 28, 1995 6.9 $3.75 to $20.50
===================================================================
Expiration dates: From May 31, 1995 to May 18, 2005
- -------------------------------------------------------------------
Shares issued under the new terms of the stock purchase plan and the
global stock purchase plan from January 1, 1995 through the end of
fiscal 1995 were as follows:
Number of Shares Price
(in millions) per Share
---------------- ---------
Issued 0.3 $14.34
Under the stock option and purchase plans, 3.4 million shares of common
stock were issued during fiscal 1995. As of May 28, 1995, 30.6 million
shares were reserved for issuance under all stock purchase and option
plans and other options granted by the Company, including shares
available for future option grants.
Note 10. Other Stock Plans
National has a director stock plan approved by shareholders in fiscal
1993. The director stock plan authorizes the issuance of up to 200,000
shares of the Company's common stock to eligible non-employee directors
of the Company. The common stock was issued automatically to eligible
directors upon approval of the director stock plan by the shareholders
and is issued automatically thereafter to eligible new directors upon
their appointment to the Board and to all eligible directors on the
subsequent election to the Board by shareholders. As of May 28, 1995,
22,000 shares had been issued under the director stock plan and 178,000
shares were reserved for future issuances.
National has a performance award plan which was approved by
shareholders in fiscal 1993 which authorizes the issuance of up to 1.0
million shares of the Company's common stock as full or partial payment
of awards to plan participants based on performance units and the
achievement of certain specific performance goals during a performance
plan cycle. Performance plan cycles are three to five years depending
on specific performance measurements, and the earliest a payout can
occur is the third year of a performance plan cycle. Plan participants
currently consist of a limited group of senior executives. No shares
were issued under the performance award plan during fiscal 1994 or 1995.
The first payout under the plan will occur in fiscal 1996, and expense
recorded in fiscal 1994 and 1995 under the plan was not material.
Note 11. Retirement and Pension Plans
National's Retirement and Savings Program for U.S. employees consists of
two plans as follows:
The profit sharing plan requires Company contributions of the
greater of five percent of consolidated net earnings before income taxes
or one percent of payroll (as defined by the plan). Contributions are
invested 25 percent in National's common stock and 75 percent in cash.
Total shares contributed under the profit sharing plan during fiscal
1995 were 211,565. As of May 28, 1995, 1.9 million shares of common
stock were reserved for future Company contributions.
The salary deferral "401(k)" plan allows employees to defer up to
15 percent of their salaries, subject to certain limitations, with
partially matching Company contributions. Contributions are invested in
one or more of five investment funds at the discretion of the employee.
One of the investment funds is a Company stock fund where contributions
are invested in Company common stock. Although 5.0 million shares of
common stock are reserved for issuance to the stock fund, shares
purchased to date with contributions have been purchased on the open
market and the Company has not issued any stock directly to the stock
fund.
The benefit restoration plan adopted in fiscal 1993 allows certain
highly compensated employees to receive a higher profit sharing plan
allocation than would otherwise be permitted under IRS regulations and
defer greater percentages of compensation than would otherwise be
permitted under the salary deferral "401(k)" plan and IRS regulations.
The benefit restoration plan is a nonqualified and unfunded plan of
deferred compensation and the Company credits accounts maintained under
it with interest earnings each quarter.
Certain non-U.S. subsidiaries have varying types of defined
benefit pension and retirement plans that are consistent with local
statutes and practices. The annual expense for all plans was as
follows:
(in millions) 1995 1994 1993
------ ------ ------
Profit Sharing Plan $17.3 $15.9 7.9
- -----------------------------------------------------------
Salary deferral "401(k)" plan $ 9.8 $8.3 $4.1
- -----------------------------------------------------------
Non-U.S. pension and
retirement plans $ 6.3 $4.7 $5.4
===========================================================
Effective beginning fiscal 1994, the Company prospectively adopted
Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits other than Pensions" ("FAS 106").
The adoption did not have a material impact on the Company's financial
statements.
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employer's
Accounting for Postemployment Benefits" ("FAS 112"), effective for
fiscal years beginning after December 15, 1993. Under FAS 112,
postemployment benefits, primarily salary continuation and insurance
continuation, are accrued at the time the benefit is earned by the
employee. The Company implemented FAS 112 starting in the first quarter
of fiscal 1995. Adoption of FAS 112 did not have a material impact on
the Company's financial statements.
Note 12. Commitments and Contingencies
Commitments. The Company leases certain facilities and equipment under
operating lease arrangements which expire at various times through the
year 2025. Rental expenses under operating leases were $37.4 million,
$48.9 million, and $58.9 million in 1995, 1994, and 1993, respectively.
Minimum commitments under noncancelable operating leases are as follows:
(in millions)
-------------
1996 $ 24.7
1997 17.4
1998 11.3
1999 7.7
2000 6.8
Thereafter 32.0
------
Total $ 99.9
======
During 1995, the Company purchased the equity interest in two facility
sale and leaseback transactions. This had the effect of significantly
reducing the operating lease commitments. The Company has commitments
to purchase fabricated wafers from a joint venture in which it is a
minority interest holder. As of May 28, 1995,
these commitments total $40.4 million, $48.5 million, $42.8 million, and
$10.6 million for fiscal years 1996, 1997, 1998 and 1999, respectively,
based on negotiated prices and minimum contractual volumes.
Contingencies -- Legal Proceedings
In April 1988, the Company received a notice from the District Director
of U.S. Customs in San Francisco alleging underpayment of duties of
approximately $19.5 million for the period June 1, 1979 to March 1, 1985
on merchandise imported from the Company's non-U.S. subsidiaries. The
Company filed an administrative appeal in September 1988. On May 23,
1991, the District Director revised his action and issued a Notice of
Penalty Claim and Demand for Restoration of Duties, alleging
underpayment of duties of approximately $6.9 million for the same period
and the alleged underpayment was reduced in a similar action on April
22, 1994 to approximately $3.6 million. The revised alleged
underpayment could be subject to penalties that may be computed as a
multiple of such underpayment. The Company filed an administrative
petition for relief in October 1991 and the Company is continuing to
contest the Penalty Notice in administrative proceedings. The Company
believes that the ultimate resolution of this matter will not have a
material impact on the Company's financial position.
The Company has been named to the National Priorities List
("Superfund") for its Santa Clara, California site and has completed a
Remedial Investigation/Feasibility Study with the Regional Water Quality
Control Board ("RWQCB"), acting as an agent for the Federal
Environmental Protection Agency. The Company has agreed in principle
with the RWQCB to a site remediation plan. Management believes that the
potential liability, if any, in excess of amounts already accrued for
the site remediation will not have a material effect on the Company's
financial position.
In addition to the Santa Clara site, the Company has been
designated as a potentially responsible party ("PRP") by federal and
state agencies with respect to certain waste sites with which the
Company may have had direct or indirect involvement. Such designations
are made regardless of the extent of the Company's involvement. The
Company has also been cited for alleged deficiencies in its record
keeping for and handling, treatment, storage and disposal of hazardous
products and wastes. These claims are in various stages of
administrative or judicial proceedings and include demands for recovery
of past governmental costs and for future investigations and remedial
actions. In many cases, the dollar amounts of the claims have not been
specified, and with respect to the PRP claims, have been asserted
against a number of other entities for the same cost recovery or other
relief as was asserted against the Company. The Company accrues costs
associated with environmental matters when they become probable and
reasonably estimable. The amount of all environmental charges to
earnings, including charges relating to the Santa Clara site
remediation, which did not include potential reimbursements from
insurance coverage, were not material during fiscal years 1995, 1994,
and 1993. The Company believes that the potential liability, if any, in
excess of amounts already charged to earnings will not have a material
effect on the Company's financial position.
On December 2, 1992, Hughes Aircraft Company ("Hughes") filed a
patent infringement suit in Federal court against the Company seeking
unspecified amounts of damages and costs, which was served on the
Company on January 7, 1993. The Company filed a counter claim against
Hughes' parent, General Motors Corporation, also alleging patent
infringement. In December 1994, the parties participated in a minitrial
proceeding that resolved all matters disputed in the litigation. On the
single issue presented in the minitrial the judge found for Hughes and,
in accordance with an agreement reached with Hughes prior to the
minitrial, damages agreed to in advance were paid by the Company to
Hughes. The settlement did not have a material impact on the Company's
financial position and all matters in dispute in the litigation have
been resolved.
The Company is engaged in tax litigation with the IRS and the
Company's tax returns will soon be under examination by the IRS (see
Note 7). In addition to the foregoing, National is a party to other
suits and claims which arise in the normal course of business. National
believes any liability resulting from those matters would not be
material to the Company's financial position.
Note 13. Industry and Geographic Segment Information
The Company operates in one industry segment and is engaged in the
design, development, manufacture and marketing of a wide variety of
semiconductor products including analog integrated circuits, digital
integrated circuits, mixed analog and digital circuits,
microcontrollers, hybrid circuits, subsystems, electronic packaging, and
miscellaneous services and supplies for the semiconductor industry and
original equipment manufacturers. National operates in three main
geographic areas. In the information that follows, sales include local
sales and exports made by operations within each area. Total sales by
geographic area include sales to unaffiliated customers and
intergeographic transfers, which are based on standard cost. To control
costs, a substantial portion of National's products are transported
between the U.S., Asia, and Europe in the process of being manufactured
and sold. Sales to unaffiliated customers have little correlation with
the location of manufacture. It is, therefore, not meaningful to
present operating profit by geographic area.
National conducts a substantial portion of its operations outside
of the U.S. and is subject to hazards associated with non-U.S.
operations, such as political risks, currency controls and fluctuations,
tariffs, import controls and air transportation.
Elim & Consol-
(in millions) Americas Europe Asia Corporate idated
-------- ------- -------- ---------- -------
1995
Sales to unaffiliated
customers $1,015.9 $562.7 $ 800.8 $ - $2,379.4
Transfers between
geographic areas 459.7 114.3 680.3 (1,254.3) -
-------- ------ ------ ------- -------
Total sales $1,475.6 $677.0 $1,481.1 $(1,254.3) $2,379.4
-------- ------ ------ ------ --------
Total assets $1,016.7 $252.8 $ 623.2 $ 343.0 $2,235.7
======== ====== ======= ======= ========
1994
Sales to unaffiliated
customers $1,010.4 $496.7 $ 788.3 $ - $2,295.4
Transfers between
geographic areas 493.3 153.7 631.4 (1,278.4) -
-------- ------ ------ -------- --------
Total sales $1,503.7 $650.4 $1,419.7 $(1,278.4) $2,295.4
-------- ------ ------ -------- --------
Total assets $ 656.7 $218.9 $ 558.5 $ 313.6 $1,747.7
======== ====== ======= ======= ========
1993
Sales to unaffiliated
customers $ 939.5 $413.2 $ 661.0 $ - $2,013.7
Transfers between
geographic areas 415.6 120.0 558.1 (1,093.7) -
-------- ------ ------ ------- --------
Total sales $1,355.1 $533.2 $1,219.1 $(1,093.7) $2,013.7
-------- ------ ------ ------- --------
Total assets $ 539.7 $222.7 $ 436.6 $ 277.5 $1,476.5
======== ====== ======= ======= ========
Note 14. Supplemental Disclosure of Cash Flow Information and Non-cash
Investing and Financing Activities
(in millions) 1995 1994 1993
------- ------- -------
Cash paid for:
Interest expense $ 6.4 $ 3.3 $4.5
Interest payment on
tax settlements $30.2 $18.6 $ -
Income taxes $43.2 $27.8 $4.9
Non-cash items:
Issuance of stock for employee
benefit plans $ 4.0 $ 2.0 $ -
The Company recorded capital lease obligations of $1.2 million during
1993, related to the acquisition of machinery and equipment. Non-cash
financing activities in fiscal 1993 included the relief of debt of $12.3
million on the sale of the Migdal Haemek, Israel facility.
Note 15. Financial Information by Quarter (Unaudited)
The following table presents the quarterly information for fiscal 1995
and 1994:
First Second Third Fourth
(in millions, except per) Quarter Quarter Quarter Quarter
share amounts) ------- ------- ------- -------
1995
Net Sales $553.8 $584.4 $571.4 $669.8
Gross Margin $233.2 $251.7 $229.3 $280.7
Net income $ 59.0 $ 67.0 $ 57.0 $ 81.2
====== ====== ====== ======
Primary earnings
per common share $0.44 $0.51 $0.43 $0.62
Weighted average common and ====== ====== ====== ======
common equivalent shares
outstanding 129.1 124.9 124.7 125.6
Fully diluted earnings ===== ===== ===== =====
per common share $0.42 $0.49 $0.42 $0.59
===== ===== ===== =====
Weighted average fully
diluted shares 141.5 137.2 136.9 138.7
===== ===== ===== =====
Common stock price - high $21.50 $19.50 $20.50 $28.50
Common stock price - low $15.63 $14.38 $16.63 $15.13
===== ===== ===== =====
1994
Net Sales $558.9 $582.4 $544.7 $609.4
Gross Margin $228.3 $243.5 $228.4 $258.9
Income before cumulative
effect of accounting change $ 52.2 $ 60.7 $ 63.8 $ 82.4
Net income $ 57.1 $ 60.7 $ 63.8 $ 82.4
Primary earnings per common ====== ====== ====== ======
share before cumulative
effect of accounting change $0.39 $0.46 $0.48 $0.63
Cumulative effect of
accounting change 0.04 - - -
Primary earnings ----- ----- ----- -----
per common share $0.43 $0.46 $0.48 $0.63
====== ====== ====== ======
Weighted average common and
common equivalent shares
outstanding 119.5 120.1 120.8 126.0
Fully diluted earnings per ====== ====== ====== =====
share before cumulative
effect of accounting change $0.37 $0.43 $0.45 $0.58
Cumulative effect of
accounting change 0.04 - - -
Fully diluted earnings ----- ----- ----- -----
per common share $0.41 $0.43 $0.45 $0.58
Weighted average fully ===== ===== ===== =====
diluted shares 140.4 140.6 141.7 143.0
===== ===== ===== =====
Common stock price - high $19.50 $21.75 $21.88 $25.00
Common stock price - low $14.38 $15.00 $14.38 $16.75
===== ===== ===== =====
Preferred dividends are reflected as adjustments to reported earnings in
the calculation of primary earnings per share.
The Company's common stock is traded on the New York Stock
Exchange and the Pacific Stock Exchange. The quoted market prices are
as reported on the New York Stock Exchange Composite Tape. At May 28,
1995, there were approximately 13,500 holders of the Company's common
stock.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
National Semiconductor Corporation
We have audited the accompanying consolidated balance sheets of National
Semiconductor Corporation and subsidiaries as of May 28, 1995 and May
29, 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-
year period ended May 28, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of National Semiconductor Corporation and subsidiaries as of May 28,
1995 and May 29, 1994, and the results of their operations and their
cash flows for each of the years in the three-year period ended May 28,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements,
in 1994 the Company changed its method of accounting for certain costs
in inventory.
KPMG PEAT MARWICK LLP
San Jose, California
June 7, 1995
MANAGEMENT
OFFICERS
EXECUTIVE COMMITTEE
Gilbert F. Amelio
President and Chief
Executive Officer
Richard M. Beyer
Executive Vice
President, and Chief
Operating Officer
Kirk P. Pond
Executive Vice
President and Chief
Operating Officer
Patrick J. Brockett
President,
International
Business Group
Charles P. Carinalli
Senior Vice
President and Chief
Technical Officer
Donald Macleod
Executive Vice President,
Finance and Chief
Financial Officer
George M. Scalise
Executive Vice
President and Chief
Administrative Officer
MANAGEMENT COMMITTEE
consists of the Executive
Committee and the following
officers:
Bami Bastani
Vice President and
General Manager,
Embedded Technologies
Division
Mike Bereziuk
Vice President and
General Manager, Personal
Systems Division
Michael D. Burger
Vice President and
General Manager,
Southeast Asia Division,
International
Business Group
W. Wayne Carlson
Vice President and
General Manager,
Data Management
Division
Gordon C. Chilton
Vice President,
Asia Pacific
John M. Clark III
Senior Vice President,
General Counsel and
Secretary
Raymond G. Hawkins
Vice President and
General Manager,
Americas Division,
International
Business Group
Gunnar Hurtig III
Vice President,
Corporate Strategic
Planning
Tatsuo Ishihara
President, Japan
Division, International
Business Group
Keith D. Jackson
Vice President and
General Manager, Analog
Mixed Signal Systems
Division
Keith M. Kolerus
Vice President,
Strategy, International
Business Group
Robert G. MacLean
Vice President,
Human Resources
Douglas M. McBurnie
Vice President and
General Manager, Local
Area Networks Division
R. Thomas Odell
Senior Vice President,
Business Process
Improvement
E. Randy Parker
Senior Vice
President, Quality
and Reliability
Robert M. Penn
Vice President and
General Manager, Wide
Area Networks Division
Hans Rohrer
Vice President and
General Manager,
European Division,
International
Business Group
Richard L. Sanquini
Senior Vice President,
Intellectual Property
Protection and Business
Development
Robert M. Whelton
Vice President and
General Manager,
Analog Products
Division
OTHER OFFICERS
David S. Dahmen
Vice President and Treasurer
Nancy Lucke Ludgus
Assistant Secretary
Robert B. Mahoney
Vice President and Controller
John G. Webb
Vice President, Taxes
TRANSFER AGENT AND
REGISTRAR
The First National
Bank of Boston
P.O. Box 644
Boston,
Massachusetts
02102
INDEPENDENT
AUDITORS
KPMG Peat Marwick LLP
Board of Directors
Gilbert F. Amelio began his career at Bell Laboratories and has more than 25
years of semiconductor industry experience. He holds 16 patents alone or
jointly and is co-inventor of the charge-coupled device image sensor.
Dr. Amelio is a former vice-president and general manager of Fairchild
Camera and Instrument Corporation's MOS Products Group and was President of
Rockwell Communications Systems before joining National as President and
Chief Executive Officer in 1991.
*Gary P. Arnold has extensive experience in the international electronics
industry in finance, strategic planning and operations. Since January
1993, he has been President, Chief Executive Officer and Chairman of the
Board of Analogy, Inc., a leading supplier of product design and simulation
software headquartered in Beaverton, Oregon. Prior to that he held Chief
Financial Officer positions at Tektronix and at National Semiconductor.
*Robert Beshar has been an attorney in private practice since 1972 following
a distinguished career including legal positions with the New York Harbor
Waterfront Commission the Appellate Division of the New York Supreme Court
and the U.S. Justice Department. He also served in the U.S. Commerce
Department as a Deputy Assistant Secretary, director of the Bureau of
Internatioal Commerce and as National Export Coordinator.
Dr. Modesto A. Maidique has been President of Florida International
University (FIU) since 1986. Prior to that he distinguished himself as a
scholar and a teacher, having taught at Massachusetts Institute of Technology,
Harvard University, and Stanford University. He also established credentials
as a corporate executive and consultant and is a co-founder of Analog Devices
Semiconductor.
J. Tracy O'Rourke, since 1990, has been Chairman and Chief Executive Officer
of varian Associates, a Fortune 500 company with annual sales exceeding
$1 billion. Before joining Varian, he was one of three Executive Vice
Presidents and Chief Operating Officers of Rockwell International Corporation.
He also served earlier as President and Chief Operating Officer of
Allen-Bradley Corporation, where he is credited with transforming the $450-
million private company into a $1.4-billion international electronics
business.
Charles E. Sporck, from 1967 to 1991, served as President and Chief Executive
Officer of National Semiconductor, building the company from a small
transistor manufacturer with annual sales of $7 million to a nearly $2-
billion global semiconductor supplier. He is credited with opening the first
offshore semiconductor assembly and test facilities in Southeast Asia. He
started his career at General Electric Corporation, and prior to joining
National he was General Manager if Fairchild Camera & Instrument Corporation.
*Donald E. Weeden, as Chief Excutive of the Wall Street firm of Weeden &
Company, has been a leading advocate for progressive change in the securities
industry. He is a recognized entrepreneur and venture capitalist, and a
trustee of the Weeden Foundation, which supports projects related to environ-
ment and population concerns.
* Member of the Audit Committee
WORLDWIDE OPERATIONS
Headquarters
National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 58090
Santa Clara, California 95052-8090
Telephone (408) 721-5000
Manufacturing Facilities
Santa Clara, California; South Portland, Maine;
Murrysville, Pennsylvania; Arlington, Texas;
West Jordan, Utah; Malacca, Malaysia; Penang, Malaysia;
Cebu, Philippines; Greenock, Scotland; Singapore
SHAREHOLDER INFORMATION
Common Stock Data
The Company's common stock is traded on the New York Stock
Exchange and the Pacific Stock Exchange.
Annual Meeting of Shareholders
The annual meeting will be held on or about September 29, 1995. A
notice of the meeting, together with a form of proxy and a proxy
statement, will be mailed to shareholders on or about August 20, 1995,
at which time proxies will be solicited by the Board of Directors.
FORM 10-K
If you would like to receive a free copy of the Company's "Form 10-K",
filed with the Securities and Exchange Commission, please send your
request to:
Investor Relations
Mailstop 10-397
National Semiconductor Corporation
P.O. Box 58090
Santa Clara, California 95052-8090
Telephone (408) 721-5800 Fax (408) 721-7254
APPENDIX TO GRAPHS
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(FINANCIAL HIGHLIGHTS section; 3 separate graphs)
Net Sales $2,379.4 $2,295.4 $2,013.7 $1,717.5 $1,701.8
Profit Before Tax 329.2 303.5 149.9 (117.0) (149.0)
Research and
Development Expense 283.1 257.8 229.2 208.9 198.6
(MD&A - Left of Sales)
Net Sales per Employee 106.2% 102.9% 86.1%
(MD&A - Between Gross Margin and R&D, on the Right)
Net Operating Margin
as a Percent of Sales 13.2% 12.7% 7.3%
(MD&A - Right of SG&A; one graph, broken into 3 sections)
Operating Costs and
Expenses as a Percent
of Sales:
Cost of Sales 58.2% 58.2% 64.5%
Research and Development 11.9% 11.2% 11.4%
Selling, General, and
Administrative 16.9% 17.9% 16.8%
(MD&A - Left of Income Tax Expense)
Stock Price Ending $26.00 $19.00 $14.63
(MD&A - Right of Financial Condition)
Net Property, Plant,
and Equipment $962.4 $668.0 $577.4