UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 26, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from to .
Commission File Number: 1-6453
NATIONAL SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2095071
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(State of incorporation) (I.R.S. Employer Identification Number)
2900 SEMICONDUCTOR DRIVE, P.O. BOX 58090
SANTA CLARA, CALIFORNIA 95052-8090
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(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 721-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common stock, par value New York Stock Exchange
$0.50 per share Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
--Continued on next page--
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes[X]. No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10K or any amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non affiliates of the
registrant as of July 21, 1996, was approximately $1,404,934,588.
Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares of the registrant's common stock, $0.50 par value,
as of July 21, 1996, was 138,226,266.
DOCUMENTS INCORPORATED BY REFERENCE
Document Location in Form 10-K
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1996 Annual Report to Shareholders (pp. 15-43) Parts I, II and IV
Portions of the Proxy Statement for the Annual Part III
Meeting of Stockholders to be held on or about
September 27, 1996.
Portions of the Company's Registration
Statement on Form S-3 Registration No. 33-48935, Part IV
which became effective October 5, 1992.
Portions of the Company's Registration Statement Part IV
on Form S-3, Registration No. 33-52775, which
became effective March 22, 1994.
Portions of the Company's Registration Statement Part IV
on Form S-8, Registration No. 33-54931, which
became effective August 5, 1994.
Portions of the Company's Registration Statement Part IV
on Form S-8, Registration No. 33-55699, which
became effective September 30, 1994.
Portions of the Proxy Statement for the Annual Part IV
Meeting of Stockholders held September 30, 1994
Portions of the Company's Registration Statement Part IV
on Form S-8, Registration No. 33-61377, which
became effective July 28, 1995.
Portions of the Company's Registration Statement Part IV
on Form S-3, Registration No. 33-63649, which
became effective November 6, 1995.
The Index to Exhibits is located on pages 20-22.
PART I
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ITEM 1. BUSINESS
General
National Semiconductor Corporation, including its subsidiaries,
("National" or the "Company") designs, develops, manufactures and
markets a broad line of analog intensive, mixed signal and other
integrated circuits for applications in the communications, personal
systems, consumer and industrial market place. National was
incorporated under the laws of the state of Delaware in 1959.
By early fiscal 1996, the Company completed its manufacturing
consolidation and reduction in cost structure in accordance with the
restructuring plan originally announced in fiscal 1992. These final
actions primarily included headcount reduction and fixed asset
disposals.
In fiscal 1996, the Company completed the sale of the assets of
Dynacraft, Inc., its wholly owned subsidiary. The disposition did not
have a material effect on the Company's financial position or results of
operations. The Company also purchased Sitel Sierra B.V., a Netherlands
company that designs and supplies components and subsystems for the
wireless market. The Company believes that this acquisition augments
its portfolio in the wireless arena and enables it to provide a complete
offering of integrated, high performance wireless solutions. In
connection with the acquisition, the Company incurred a one-time charge
of $11.4 million for in-process research and development.
The Company operates in one industry segment. The information
with respect to sales and identifiable assets for National's geographic
segments appearing on page 38-39 of the Company's 1996 Annual Report to
Shareholders under the caption "Industry and Geographic Segment
Information" is incorporated herein by reference.
Products
Semiconductors are integrated circuits (in which a number of transistors
and other elements are combined to form a more complicated circuit) or
discrete devices (such as individual transistors). In an integrated
circuit, various elements are fabricated in a small area or "chip" of
silicon, which is then encapsulated in plastic, ceramic or other
advanced forms of packaging and connected to a circuit board or
substrate.
National manufactures a broad variety of analog intensive, mixed
signal and digital products. National's products are used in numerous
commercial applications, including personal systems, telecommunications
and communications products, data processing, automotive, local and wide
area networking and other industrial applications as well as some
consumer applications.
The Company is a leading supplier of analog and mixed signal
products, serving both broad based markets such as the industrial and
consumer market, and more narrowly defined markets such as Ethernet
Local Area Networks ("LAN") and automotive. While no precise industry
standard for analog and mixed signal exists, the Company considers
products which process analog information, convert analog to digital or
convert digital to analog as analog and mixed signal. Analog and mixed
signal products include amplifiers and regulators, power monitors and
line drivers, products optimized for audio, video, automotive or display
applications and data acquisition products. Other Company products with
significant digital to analog or analog to digital capacity include
products for local area networks, wireless networking and wireless
communications, as well as products for personal systems and personal
communications such as its office automation and Super I/O offerings.
Analog and mixed signal business units accounted for 60% of Company
revenue in fiscal 1996 and their revenues have been increasing over the
past few years as a percentage of total Company revenue.
The Company also sells bipolar and complimentary metal oxide
silicon ("CMOS") logic and memory products. These products are largely
older, more mature offerings serving broad markets in data processing,
switching equipment and personal computing. The Company's bipolar and
CMOS products include many of the mature logic families such as Advanced
Schottky ("AS") and Advanced Low Power Schottky ("ALS"), High
Performance CMOS ("HCMOS") as well as Electrically Erasable Programmable
Read Only Memory ("EEPROM") and Erasable Programmable Read Only Memory
("EPROM") products. The Company has been limiting its investment in
these more mature product areas to opportunities which complement its
analog and mixed signal product focus. Bipolar and CMOS logic and
memory products accounted for 20% of fiscal 1996 revenues, down from the
previous year and declining as a percentage of total Company revenue
over the past several years.
The Company's other product offerings include discretes and
various other products such as microcontrollers and customized
integrated circuits. These products accounted for 20% of sales in
fiscal 1996, which have been essentially flat as a percentage of total
revenue for several years.
Corporate Structure and Organization. From fiscal 1993 to fiscal
1995, the Company's operating divisions were divided into two groups:
the Standards Products Group ("SPG") and the Communications and
Computing Group ("CCG"). SPG served primarily horizontal markets and
CCG served primarily vertical markets. For fiscal 1996, the group
structure was eliminated, leaving seven main operating divisions,
described as follows:
Analog and Mixed Signal Divisions. Analog devices control
continuously variable functions (such as light, color, sound and power)
and are used in automotive, telecommunications, audio/video and many
industrial applications. The Company's analog products include high
performance operational amplifiers, power management circuits, data
acquisition circuits and voltage regulators. National provides a
variety of analog products including standard products, application
specific products and full custom products, as well as advanced mixed
analog digital solutions. The Company's mixed signal products include
circuits for video monitors and consumer audio products, real time
clocks, automotive, custom linear ASIC ("CLASIC") and peripheral
drivers. Discrete products, comprised primarily of transistors and
diodes which are used as control and actuating devices in a broad range
of electronic systems, were also a part of the Analog and Mixed Signal
Divisions.
Data Management Division. This division's products incorporated
bipolar, CMOS and BiCMOS technologies for high-performance applications
such as switching and data manipulation. These applications are used in
a variety of communications applications and computationally intensive
applications such as workstations and computers, where the Company's
FACT, FAST, BCT and 100K ECL product families are industry standards.
Embedded Technologies Division. The Company's Embedded Technology
Division consisted of 4-, 8-, 16- and 32-bit microcontrollers and memory
products in the form of electrically programmable read only memories
("EPROM") and electrically erasable programmable read only memories
("EEPROM"). The division addressed markets which combine basic
computational or logic algorithms with specific memory storage on chips.
National's higher end, more complex microcontrollers have been optimized
for laser printers, high speed facsimile machines, scanners and other
imaging applications. Memory configurations of varying densities are
also sold into markets for temporary or permanent data storage such as
personal computers and workstations.
Local Area Networks Division. National is one of the world's
leading suppliers of Local Area Networks ("LAN") Ethernet products,
which are currently the dominant protocol for LANs. National has
pioneered the development of 10M and 10/100M Ethernet technology and
continues to be a major technology contributor to the Giga-bit Ethernet
efforts. National's Ethernet product families include highly integrated
controllers, HUBs/repeaters and stand alone Physical Layer devices for
10M, 10/100M Ethernet and next generation Giga-bit Ethernet. These
products include families of the Repeater Interface Controller ("RIC",
"100RIC" and "LeRIC") and 10/100 Physical Layer devices ("Cat5PHY" and
"Twister"). National's Ethernet products are being used by all of the
leading networking system suppliers.
Wide Area Networks Division. The Wide Area Networks ("WAN")
products allow customers to transmit large amounts of data at high speed
from one location to another anywhere in the world. WAN products serve
both wired and wireless communication networks. Historically a leading
supplier of integrated circuits for the line cards of central office
switches and private automatic branch exchanges, the WAN Division also
provided application specific products for the higher speed data
transmission systems (such as the Internet). National's WAN Division
provided and developed a variety of high end products which serve the
cellular telephone and other rapidly growing wireless communications
markets. National's WAN products are currently being used by most major
communication equipment companies. WAN products are the focal point for
joint ventures in China that produce products which serve both wired and
wireless communications markets.
Personal Systems Division. The Personal Systems Division
developed products for the personal computer and workstation market.
The Company does not attempt to compete with the host microprocessor,
but instead designs and develops peripheral products which work in
tandem with the host microprocessor in either the personal computer or
workstation. For example, National offers a family of input/output
devices which consolidate many dependent functions on the motherboard.
In addition to the seven product line divisions, National's wholly
owned subsidiary, DCI, produced semiconductor packaging materials such
as leadframes, packaging materials and tools for internal
consumption and other semiconductor manufacturers. As noted above, the
DCI assets were sold in fiscal 1996.
In June 1996, the Company reorganized its structure by
consolidating its seven operating divisions into four business groups:
the Analog Group, the Communications and Consumer Group, the Personal
Systems Group and the Fairchild Semiconductor Group. The Company
believes this structure will enhance the focus and support of the
Company's strength in Analog and Mixed Signal technology. Also in June
1996, Fairchild Semiconductor was formed as a new organization
consisting of the Company's family logic, memory and discrete
businesses. The Company is considering a number of strategic business
alternatives with respect to Fairchild Semiconductor, including a sale
or partial financing of all or a portion of the businesses.
Under the new structure, the Company's Mixed Signal products,
Ethernet LAN products and WAN products, except wireless communication
products, are now in the Communications and Consumer Group. Wireless
communications products join former Analog Division products in the
Analog Group. Microcontrollers and products previously in Embedded
Technology Division used in applications for workstations and computers
are included in the Personal Systems Group. The Company's family
logic, memory and discrete products now reside in the Fairchild
Semiconductor organization.
Aside from the business groups, the Company's corporate structure
also includes Worldwide Sales and Marketing, formerly called the
International Business Group, the Development Technology Group and
Process Technology Group, previously both part of the former Corporate
Technology Group. Worldwide Sales and Marketing is organized around the
four major regions of the world in which the Company operates: the
Americas, Europe, Japan and Asia and is comprised of the Company's
worldwide sales and marketing organization. Process Technology is the
central research arm of the Company, providing pure research, process
development and initial product prototyping necessary for many of the
Company's core production processes and leading edge products.
Development Technology leads in the selection and implementation of
integrated Computer Aided Design ("CAD") tools which design, layout,
simulate and test the logical and physical representation of new
products before they are actually produced.
In addition, the Company recently created the Central Technology
and Manufacturing Group to centralize the management of its production
operations and manufacturing technology organizations.
Marketing and Sales
The Company markets its products throughout the world to original
equipment manufacturers ("OEMs") and distributors. Major OEMs include
IBM, Hewlett-Packard, Compaq, 3COM, Intel and General Motors as well as
NEC, Siemens, Samsung, L.M. Ericsson and others. In addition to its
direct sales force, National uses distributors in all four of its
business regions and a manufacturers representation ("rep") program in
the United States.
The Company has established cross regional marketing groups
responsible for customers operating in multiple regions. In addition,
the Company's focus on analog intensive and mixed signal markets has led
to the introduction of strategic market segment teams which identify
emerging trends and opportunities in these two broad categories, as well
as others.
Customer support is handled by comprehensive, state of the art
central facilities in the United States and Europe. These Customer
Support Centers ("CSCs") provide rapid turnaround on product pricing and
availability, technical support for customer questions, order entry and
scheduling. In fiscal 1996, a third CSC opened in Singapore to support
the Asia region.
National augments its sales effort with application engineers
based in the field. These engineers are specialists in National's
complex product portfolio and work with customers to design National
integrated circuits for their systems. These engineers also help
identify emerging markets for new products and are supported by Company
design centers in the field or at manufacturing sites.
In line with industry practices, National generally credits
distributors for the effect of price reductions on their inventory of
National products and under specific conditions repurchases products
that are unsold, slow moving or have been discontinued by the Company.
Customers
National is not dependent upon any single customer, the loss of which
would have a material effect on the Company. In addition, no one
customer or distributor accounted for 10 percent or more of total net
sales in fiscal 1996.
Backlog
Semiconductor backlog quantities and shipment schedules under
outstanding purchase orders are frequently revised to reflect changes in
customer needs. Binding agreements calling for the sale of specific
quantities at specific prices which are contractually subject to price
or quantity revisions are, as a matter of industry practice, rarely
formally enforced. For these reasons, National does not believe that
the amount of backlog at any particular date is meaningful.
Seasonality
Generally, National is affected by the seasonal trends of the
semiconductor and related industries. As a result of these trends, the
Company typically experiences lower revenue in the third fiscal quarter,
primarily due to customer holiday demand adjustments. Revenue usually
has a seasonal peak in the Company's fourth quarter. In calendar 1996,
the typical seasonal patterns were not experienced, as the Company was
subject to weakened customer demand resulting from inventory corrections
primarily in the personal computer market and distribution channel
throughout most of the second half of the fiscal year.
Manufacturing
The design of semiconductor products is based upon customer requirements
and general market trends and needs. These designs are compiled and
digitized by state of the art design equipment and then transferred to
silicon wafers in a series of complex precision processes which include
oxidation, lithography, chemical etching, diffusion, deposition,
implantation and metallization. Production of integrated circuits
continues with wafer sort, where the wafers are tested and separated
into individual circuit devices; assembly, where tiny wires are used to
connect the electronic circuits on the device to the stronger metal
leads or "prongs" of the package in which the device is encapsulated for
protection; and final test, where the devices are subjected to a series
of vigorous tests using computerized circuit testers and for certain
applications, environmental testers such as burn in ovens, centrifuges,
temperature cycle testers, moisture resistance testers, salt atmosphere
testers and thermal shock testers.
The Company's product design and development activities are
conducted predominantly in the United States. Wafer fabrication is
concentrated in four facilities in the United States and in a facility
in Scotland. Nearly all product assembly and final test operations are
performed in facilities in Southeast Asia. For capacity utilization and
other economic reasons, National employs subcontractors to perform
certain manufacturing functions in the United States, Southeast Asia and
Japan. National also utilizes some manufacturing capacity of the
Company's former facility in Israel and a small, majority owned joint
venture in Shanghai, People's Republic of China, for the manufacture of
boards using National produced integrated circuits. In fiscal 1996, the
Company began ground for construction of a state-of-the-art eight-inch
wafer fabrication facility in South Portland, Maine.
National's wafer manufacturing processes span Bipolar, Metal Oxide
Silicon ("MOS"), Complementary Metal Oxide Silicon ("CMOS") and Bipolar
Complementary Metal Oxide Silicon ("BiCMOS") technologies. As products
decrease in size and increase in functionality, National's wafer
fabrication facilities are now required in many cases to be able to
manufacture integrated circuits with sub-micron circuit pattern widths.
Precision manufacturing in wafer fabrication has carried over to
assembly and test where advanced packaging technology and comprehensive
test operations are required for more and more powerful integrated
circuits.
Wafer fabrication processes have been adapted for mixed signal
applications. National also has optimized its CMOS process for
nonvolatile memories, both ultraviolet and electrically erasable. There
are a number of Bipolar processes supporting the Company's standard
products. Of particular importance are several groups of processes that
are optimal for manufacturing the Company's analog products.
Raw Materials
National's manufacturing processes make use of certain key raw materials
critical to its products. These include silicon wafers, certain
chemicals and gases, ceramic and plastic packaging materials and various
precious metals. The Company also is increasingly relying on
subcontractors to supply finished or semi-finished products which the
Company markets through its sales channels. Both raw materials and
semi-finished or finished products are obtained from various sources,
although the number of sources for any particular material or product is
relatively limited. Although the Company feels its current supply of
essential materials is adequate, shortages from time to time have
occurred and could occur again.
Significant increases in demand, rapid product mix changes or natural
disaster all could affect the Company's ability to procure materials or
goods.
Research and Development
National's research and development ("R&D") consists of pure research in
metallurgical, electro-mechanical and solid state sciences,
manufacturing process development and product design. At the corporate
level, the Company's Process Technology Group performs pure research
functions and defines and develops most process technologies. The
Company envisions that its process capability will be developed and
prototyped in its new eight-inch wafer fabrication facility, located in
Santa Clara, California and product design will be done by the operating
divisions. R&D expenses were $361.3 million in fiscal 1996 and $283.1
million in 1995, with both years experiencing increases in R&D in the
Company's core analog and mixed signal products and critical process
development.
Patents
National owns numerous United States and non-U.S. patents and has many
patent applications pending. It considers the development of patents
and the maintenance of an active patent program advantageous to the
conduct of its business but believes that continued success will depend
more on engineering, production, marketing, financial and managerial
skills than on its patent program. The Company licenses certain of its
patents to other manufacturers and participates in a number of cross
licensing arrangements with other parties. In addition, the Company is
currently involved in a program to further capitalize on its
intellectual property assets through licensing of its intellectual
property; the amount of income from the licensing program has varied in
the past and the amount and timing of future income from this program
cannot be forecast with certainty.
Employees
At May 26, 1996, National employed approximately 20,300 people of whom
approximately 8,000 were employed in the United States, 2,200 in Europe,
9,700 in Southeast Asia and 400 in other areas. The Company believes
that its future success depends fundamentally on its ability to recruit
and retain skilled technical and professional personnel. National's
employees in the United States are not covered by collective bargaining
agreements. The Company considers its employee relations worldwide to
be favorable.
Competition and Risks
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 economic
environment generally characterized by short product life cycles, rapid
selling price erosion and high sensitivity to the overall business
cycle. In addition, substantial capital and R&D investment is required
for development and manufacture of products and processes. The Company
may experience periodic fluctuations in its operating results because of
industry wide conditions. National competes with a number of major
companies in the high-volume segment of the industry. These include
several companies whose semiconductor business may be only part of their
overall operations, such as Motorola, Inc., Philips Electronics, NV, and
Texas Instruments Incorporated. National also competes with a large
number of companies that target particular markets such as Linear
Technology Corporation, Analog Devices, Inc., Advanced Micro Devices,
Inc., SGS-Thompson Microelectronics SA and Cirrus Logic, Inc.
Competition is based on design and quality of the products, product
performance, price and service, with the relative importance of such
factors varying among products and markets.
International Operations
National conducts a substantial portion of its operations outside the
United States and its business is subject to risks associated with many
factors beyond its control. These factors include fluctuations in
foreign currency rates, instability of foreign economy or its emerging
infrastructure to support demanding manufacturing requirements,
government changes and U.S. and foreign laws and policies affecting
trade and investment. Although the Company has not experienced any
materially adverse effects with respect to
its foreign operations arising from such factors, the Company has been
impacted in the past by one or more of these factors and could be
impacted in the future by such factors. In addition, although the
Company seeks to hedge its exposure to currency exchange rate
fluctuations, the Company's competitive position relative to non-U.S.
suppliers can be affected by the exchange rate of the U.S. dollar
against other currencies, particularly the Japanese yen.
Environmental Regulations
National believes that compliance with federal, state and local laws or
regulations which have been enacted or adopted to regulate the
environment has not had, nor will have, a material effect upon the
Company's capital expenditures, earnings, competitive or financial
position. (Also see Item 3, Legal Proceedings.)
In addition to the risks discussed above, further discussion of other
risks and uncertainties that may affect the Company's business is
included in the outlook section of "Management's Discussion and
Analysis" on pages 19 through 21 in the Annual Report.
ITEM 2. PROPERTIES
National's principal administrative and research facilities are located
in Santa Clara, California. Several other sites in the United States
have major concentrations of wafer fabrication and research and
development capability, including the Company's plants in Salt Lake
City, Utah, South Portland, Maine, and Arlington, Texas. The Company
also operates a smaller facility in Fort Collins, Colorado.
The Company conducts significant manufacturing offshore. One of
National's largest wafer fabrication facilities is in Greenock,
Scotland. Assembly and test functions are performed primarily in
Southeast Asia. These facilities are located in Penang and Melaka,
Malaysia, Cebu, the Philippines and Singapore. A small manufacturing
facility, majority owned by National, was established in January 1995,
in Shanghai, People's Republic of China. The regional headquarters for
National's Worldwide Sales and Marketing are located in Santa Clara,
California, Munich, Germany, Tokyo, Japan and Kowloon, Hong Kong.
National maintains local sales offices in various locations and
countries throughout its four business regions. In general, the Company
owns its manufacturing facilities and leases most of its sales and
administrative offices.
As a result of the formation of Fairchild Semiconductor,
National's four-inch, five-inch and six-inch fabrication lines in South
Portland, Maine, the wafer fabrication plant in West Jordan, Utah and
the test and assembly plants in Cebu, the Philippines and Penang,
Malaysia will become part of Fairchild Semiconductor.
With the commencement of construction in South Portland, Maine of
an eight-inch wafer fabrication facility which will remain under
National, the Company expects to increase its manufacturing capacity.
During the first half of fiscal 1996, wafer fab capacity utilization
reached 91 percent, despite some capacity constraints. In the second
half of the year, wafer fab capacity utilization declined to
approximately 72 percent as the Company reduced production output in an
effort to keep inventories in balance with decreasing demand. The
Company feels its current plant, property and leased facilities are well
maintained.
ITEM 3. LEGAL PROCEEDINGS
In July 1983, the United States Internal Revenue Service ("IRS")
issued an examination report for the fiscal years ended 1978 and 1979.
The Company filed a protest with the appeals office of the IRS in
September 1983. The IRS issued a Notice of Deficiency for these years in
December 1988 seeking additional taxes of approximately $24 million
(exclusive of interest). The issues giving rise to the proposed
adjustments related primarily to intercompany product transfer prices
and the application of Subpart F provisions of the United States
Internal Revenue Code. The Company filed a petition with the United
States Tax Court contesting the Notice of Deficiency in March 1989. The
IRS' subsequent examination of the Company's United States tax returns
for fiscal years 1980 through 1982 resulted in a Notice of Deficiency
issued in January 1990 seeking additional taxes of approximately $52
million (exclusive of interest) for the fiscal years ended 1976, 1977,
1980, 1981 and 1982. The issues giving rise
to the proposed adjustments for the earlier years related primarily to
reductions in the available net operating loss carrybacks and, for the
later years, to intercompany product transfer prices, full absorption
inventory costing, deductibility of certain reserves and spare parts
depreciation. The Company filed a petition with the United States Tax
Court contesting this Notice of Deficiency in April 1990. By order
dated August 8, 1991, the Tax Court granted the Company's and the IRS'
motion to consolidate the two cases for trial. Prior to trial, which
was held during February 1993, the Company and the IRS reached a
settlement on all disputed issues except for the issue of intercompany
product transfer prices; this settlement reduced the total of the
additional taxes being sought to approximately $52 million (exclusive of
interest). An opinion was issued by the Tax Court on May 2, 1994.
After the Company and the IRS reached agreement on the allocation of the
additional income found by the Court to be due, a final decision
implementing the opinion was entered by the Tax Court on June 6, 1995.
The period for appealing the decision expired in early September 1995.
After giving effect to loss and credit carryovers, the final tax
deficiency was $4.1 million. The associated interest has not been
finally determined, but preliminary IRS calculations estimate it to be
approximately $44.9 million. The Company has made advance payments to
the IRS on the tax and interest deficiency, but disagrees with the IRS'
interest calculation and has filed a claim for refund on the disputed
difference with the IRS. With respect to the IRS' examination of tax
returns for other fiscal years, the Company and the IRS settled in
January 1994 all issues for fiscal years 1983 through 1985, including
issues relating to intercompany product transfer pricing. After giving
effect to net operating loss carryovers and credits finalized by the
completion of the Tax Court case, the tax deficiency was $120,000 and
the associated interest was $492,000, all of which has been paid. In
April 1995, the IRS issued a Notice of Deficiency for fiscal years 1986
through 1989 seeking additional taxes of approximately $11 million
(exclusive of interest). The issues giving rise to this set of proposed
adjustments relate primarily to the Company's former Israeli operation
and the purchase price paid for Fairchild Semiconductor Corporation.
The Company has filed a protest with the appeals office of the IRS
contesting the Notice of Deficiency. The IRS has begun examination of
the Company's tax returns for fiscal years 1990 through 1993. The
Company believes that adequate tax payments have been made or accrued
for all years.
On July 9, 1996, the Company received notices of assessment from
the Malaysian Inland Revenue Department relating to the Company's
manufacturing operations in Malaysia. The assessments total
approximately $59.2 million. The issues giving rise to the assessments
relate to intercompany transfer pricing, primarily for fiscal year 1993.
The Company believes the assessments are without merit and intends to
contest them. The Company believes it has adequate tax reserves to
satisfy the ultimate resolution of the assessments.
On April 22, 1988, the District Director of the United States
Customs Service, San Francisco, issued a Notice of Proposed Action and a
Pre-penalty Notice to the Company alleging underpayment of duties of
approximately $19.5 million on merchandise imported from the Company's
foreign subsidiaries during the period from June 1, 1979 to March 1,
1985. 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, reducing
the alleged underpayment of duties for the same period to approximately
$6.9 million; the alleged underpayment was subsequently reduced 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 the underpayment. The Company filed an administrative
petition for relief in October 1991 and a supplemental petition for
relief in October 1994 and is continuing to contest the Penalty Notice
in proceedings at the administrative agency level. On July 1, 1988, the
Customs Service liquidated various duty drawback claims previously filed
by the Company, denying the payment of drawback previously paid to the
Company and issued bills in the amount of $2.5 million seeking repayment
of the accelerated drawback. Timely protest of these liquidations were
filed in September 1988. These protests were denied in March 1996. The
Company is pursuing judicial review of the denial in the Court of
International Trade and has paid the denied duties and associated
interest totalling $5.2 million, which is a prerequisite to filing a
summons with the Court. The Company believes that resolution of these
Customs matters will not have a material impact on the Company's
financial position.
A sales tax examination conducted by the California State Board of
Equalization for the tax years 1984 to 1988 resulted in a proposed
assessment of approximately $12 million (exclusive of interest and
penalty) in October 1991. A final assessment in the amount of
approximately $4 million (including interest and penalty) was made by
the Board and payment was made by the company in August 1995. The
Company has subsequently filed a claim for refund of all amounts paid,
plus interest, with the Board. The
sales tax examination and assessment did not have a material adverse
effect upon the Company's financial position.
By letter dated January 6, 1994, the Company was notified by the
California Department of Toxic Substances Control ("DTSC") of a Report
of Violation ("ROV") listing 39 violations arising out of inspections of
certain facilities and operations of the Company and its wholly owned
subsidiary, Dynacraft, Inc. ("DCI") located in Santa Clara, California
and the DTSC's further review of information obtained during the
inspections. The deficiencies cited can be described as violations of
various provisions of the California Health and Safety Code and the
California Code of Regulations relating to the record keeping for and
the handling, treatment, storage, and disposal of hazardous products and
wastes. The Company worked with DTSC to correct the deficiencies noted
in the ROV and signed a Stipulation and Order with the DTSC on June 16,
1995 whereby the Company agreed to pay a fine of $490,000 and complete
several compliance projects. The Company completed the final project
and submitted its report on the projects to DTSC on May 6, 1996. On May
16, 1996, the DTSC notified the Company that it requires the Company to
perform several tasks in connection with the projects.
On June 18, 1991, the U.S. Environmental Protection Agency ("EPA")
issued a Finding of Violation and Order to the Company and DCI relating
to the alleged failure of the Company and DCI to comply with the federal
categorical pretreatment standards arising from the city of San Jose,
California's pretreatment program. The Order requires the Company and
DCI to comply with all Federal categorical pretreatment standards and to
take further actions to maintain permanent compliance. Since 1992, the
Company and DCI have worked with the U.S. Department of Justice ("DOJ")
and the EPA to settle this matter. A Consent Decree was entered by the
U.S. District Court, Northern District of California on March 30, 1995.
Under the terms of the Consent Decree, National and DCI agreed to pay a
civil penalty in the amount of $50,000 and perform three Supplemental
Environmental Projects ("SEPs"), the costs of which are estimated at
$445,000. The $50,000 civil penalty has been paid. In the event the
Company and DCI do not perform any or all of the SEPs by March 30, 1997,
stipulated penalties in the amounts of $62,517, $55,303, and/or $96,180
(the respective amounts for each of the SEPs) must be paid to the EPA.
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 agent for the EPA. The Company has
agreed in principle with the RWQCB to a site remediation plan. In
addition to the Santa Clara site, the Company has been designated as a
potentially responsible party 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. 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 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 such
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, have not been material during
the last three fiscal years. The Company believes that the potential
liability, if any, in excess of amounts already accrued will not have a
material effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT *
Name Current Title Age *
- ---- ------------- ---
Richard M. Beyer (1) Executive Vice President and
Chief Operating Officer 47
Patrick J. Brockett (2) President, International Business Group 48
Charles P. Carinalli (3) Senior Vice President and 47
Chief Technical Officer
John M. Clark III (4) Senior Vice President, General Counsel 46
and Secretary
Brian L. Halla (5) Chairman of the Board, President and 49
Chief Executive Officer
Donald Macleod (6) Executive Vice President, Finance and 47
Chief Financial Officer
Kirk P. Pond (7) Executive Vice President 51
* all information as of May 26, 1996
Business Experience During Last Five Years
- ------------------------------------------
(1) Mr. Beyer joined the Company in February 1993 and served as
President of the Communications and Computing Group until being
named Executive Vice President and Chief Operating Officer in June
1995. Prior to joining the Company, Mr. Beyer was Vice President
and General Manager of the Switching Systems Division of Rockwell
International Corporation. Mr. Beyer left the Company in June 1996
after the end of the fiscal year.
(2) Mr. Brockett joined the Company in September 1979. Prior to
becoming President, International Business Group in February 1993,
he had held positions as Corporate Vice President, International
Business Group; Vice President, North America Business Center; Vice
President and Managing Director, European Operations; and Vice
President and Director of European Sales. Mr. Brockett was named
Executive Vice President, Worldwide Sales and Marketing in June
1996 after the end of the fiscal year.
(3) Mr. Carinalli joined the Company in June 1970. Prior to becoming
Senior Vice President and Chief Technical Officer in February 1993,
he was Executive Vice President, Communications and Computing Group
and Chief Technical Officer. Prior to that, he had held positions
as Vice President, Integrated Systems Group; Group Director,
Integrated Systems Group; and Director of Technology, Advanced
Digital Products.
(4) Mr. Clark joined the Company in May 1978. Prior to becoming Senior
Vice President, General Counsel and Secretary in April 1992, he had held
positions as Associate General Counsel, Vice President and
Assistant Secretary.
(5) Mr. Halla joined the Company in May 1996 as Chairman of the Board,
President and Chief Executive Officer. Prior to joining the
Company, Mr. Halla had held positions at LSI Logic Corporation as
Executive Vice President, LSI Logic Products; Senior Vice President
and General
Manager, Microprocessor/DSP Products Group; and Vice
President and General Manager, Microprocessor Products Group.
(6) Mr. Macleod joined the Company in February 1978. Prior to becoming
Executive Vice President, Finance and Chief Financial Officer in June
1995, he had held positions as Senior Vice President, Finance
and Chief Financial Officer; Vice President, Finance and Chief
Financial Officer; Vice President, Financial Projects; Vice
President and General Manager, Volume Products - Europe; and
Director of Finance and Management Services - Europe.
(7) Mr. Pond joined the Company as an employee of Fairchild
Semiconductor Corporation ("Fairchild") when Fairchild was acquired
by the Company in October 1987. Prior to being named Executive
Vice President in May 1996, he had held positions as Executive Vice
President and Chief Operating Officer; Co-President, Standard
Products Group; and Vice President, Digital Logic Division. Mr.
Pond was named President of the Fairchild Semiconductor
organization for the Company's logic, memory and discrete
businesses in June 1996.
Executive officers serve at the pleasure of the Company's Board of
Directors. There is no family relationship among any of the Company's
directors and executive officers.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
See information appearing on pages 32, 34-35, 40 and 43 under the
captions "Debt", "Shareholders' Equity", "Financial Information by
Quarter (Unaudited)" and "Common Stock Data" of the registrant's 1996
Annual Report to Shareholders which is incorporated herein by reference.
Market price range data are based on the New York Stock Exchange
Composite Tape. Market price per share at the close of business on July
19, 1996 was $14.375. At July 19, 1996, the number of record holders of
the Company's common stock was 12,900.
ITEM 6. SELECTED FINANCIAL DATA
See "Five-Year Selected Financial Data" on page 15 of the registrant's
1996 Annual Report to Shareholders which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 16 through 21 of the registrant's 1996
Annual Report to Shareholders which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of Part IV of this
report are incorporated herein by reference.
The "Financial Information by Quarter (Unaudited)," appearing on
page 40 of the registrant's 1996 Annual Report to Shareholders, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors, appearing under the caption
"Election of Directors" including subcaptions thereof, in the
registrant's Proxy Statement for the 1996 annual meeting of shareholders
to be held on or about September 27, 1996 and which will be filed in
definitive form pursuant to Regulation 14a on or about August 20, 1996
(hereinafter "1996 Proxy Statement"), is incorporated herein by
reference. Information concerning executive officers is set forth in
Part I hereof under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions "Director Compensation",
"Compensation Committee Interlocks and Insider Participation", and
"Executive Compensation" (including all related sub captions thereof) in
the 1996 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information concerning the only known ownership of more than 5
percent of the Company's outstanding Common Stock "Outstanding Capital
Stock, Quorum and Voting" in the 1996 Proxy Statement, is incorporated
herein by reference. The information concerning the ownership of the
Company's equity securities by directors, certain executive officers and
directors and officers as a group, appearing under the caption "Security
Ownership of Management" in the 1996 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions and
Relations" in the 1996 Proxy Statement is incorporated herein by
reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
- ---------------------------
The following items appearing in the 1996 Annual Report to Shareholders
are incorporated by reference into Part II of this report:
Pages in 1996 Annual
Report to Shareholders
----------------------
Consolidated Balance Sheets at May 26, 1996 22
and May 28, 1995.
Consolidated Statements of Operations for each 23
of the years in the three-year period ended
May 26, 1996.
Consolidated Statements of Shareholders' Equity 24
for each of the years in the three-year period
ended May 26, 1996.
Consolidated Statements of Cash Flows for each 25
of the yearS in the three-year period ended
May 26, 1996.
Notes to Consolidated Financial Statements. 26-40
Independent Auditors' Report. 41
Pages in
(a)2. Financial Statement Schedule this document
- ----------------------------------- -------------
For the three years ended May 26, 1996:
Independent Auditors' Report 16
Schedule II -- Valuation and Qualifying Accounts 17
All other schedules are omitted since the required information is
inapplicable or the information is presented in the consolidated
financial statements or notes thereto.
Separate financial statements of the registrant are omitted
because the registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements being
filed, in the aggregate, do not have minority equity interest or
indebtedness to any person other than the registrant in an amount which
exceeds five percent of the total assets as shown by the most recent
year end consolidated balance sheet filed herein.
(a)3. Exhibits
- ---------------
The exhibits listed in the accompanying Index to Exhibits on pages 20 to
22 of this report are filed or incorporated by reference as part of this
report.
(b) Reports on Form 8-K
- ------------------------
A report on Form 8-K concerning the Company's announcement to reduce the
worldwide work force by approximately 400 people, primarily in Santa
Clara headquarters, was filed on April 2, 1996. This work force
reduction, plus related equipment write offs, was expected to result in
a one-time charge of $20 million to $25 million for the fourth quarter
of fiscal 1996. The date of the reported event was April 2, 1996. No
financial statements were filed with the Form 8-K.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
National Semiconductor Corporation:
Under date of June 5, 1996, except as to the second paragraph of Note 15
which is as of July 9, 1996, we reported on the consolidated balance
sheets of National Semiconductor Corporation and subsidiaries as of May
26, 1996, and May 28, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in
the three-year period ended May 26, 1996, as contained in the 1996
Annual Report to Shareholders. These consolidated financial statements
and our report thereon are incorporated by reference in the May 26, 1996
annual report on Form 10-K of National Semiconductor Corporation. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed under item 14(a)2. The financial statement schedule
is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on
our audits.
In our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
KPMG PEAT MARWICK LLP
San Jose, California
June 5, 1996
NATIONAL SEMICONDUCTOR CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Deducted from receivables
in the consolidated balance sheets
Doubtful Returns and
Description Accounts Allowances Total
- ----------- -------- ----------- -----
Balances at May 30, 1993 $ 3.5 $ 29.5 $ 33.0
Additions charged against revenue - 193.2 193.2
Deductions (0.5) (1) (191.9) (192.4)
------ ------- -------
Balances at May 29, 1994 3.0 30.8 33.8
Additions charged against revenue - 214.1 214.1
Deductions (0.6) (1) (213.6) (214.2)
----- ------ -------
Balances at May 28, 1995 2.4 31.3 33.7
Additions charged against revenue - 225.3 225.3
Additions (Deductions) 0.1 (1) (224.1) (224.0)
----- ------- -------
Balances at May 26, 1996 $ 2.5 $ 32.5 $ 35.0
________________________________________________
(1) Doubtful accounts written off, less recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL SEMICONDUCTOR CORPORATION
Date: August 5, 1996 By: /S/ BRIAN L. HALLA
-------------------
Brian L. Halla
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities stated and on the 5th day of August
1996.
Signature Title
/S/ BRIAN L. HALLA Chairman of the Board, President
-------------- and Chief Executive Officer
Brian L. Halla (Principal Executive Officer)
/S/ DONALD MACLEOD* Executive Vice President, Finance
-------------- and Chief Financial Officer
Donald Macleod (Principal Financial Officer)
/S/ RICHARD D. CROWLEY, JR.* Vice President and Controller
----------------------- (Principal Accounting Officer)
Richard D. Crowley
/S/ GARY P. ARNOLD* Director
--------------
Gary P. Arnold
/S/ ROBERT BESHAR* Director
-------------
Robert Beshar
/S/ MODESTO A. MAIDIQUE* Director
-------------------
Modesto A. Maidique
/S/ EDWARD R. McCRACKEN* Director
-------------------
Edward R. McCracken
/S/ J. TRACY O'ROURKE* Director
-----------------
J. Tracy O'Rourke
/S/ CHARLES E. SPORCK* Director
-----------------
Charles E. Sporck
/S/ DONALD E. WEEDEN* Director
----------------
Donald E. Weeden
*By /S/ BRIAN L. HALLA
-------------------
Brian L. Halla, Attorney-in-fact
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
National Semiconductor Corporation:
We consent to incorporation by reference in the Registration
Statements No. 33-48943, 33-54931, 33-55699, 33-55703, 33-55715, 33-
61377, and 33-61381 on Form S-8 of National Semiconductor Corporation
and subsidiaries of our report dated June 5, 1996, except as to the
second paragraph of Note 15 which is as of July 9, 1996, relating to the
consolidated balance sheets of National Semiconductor Corporation and
subsidiaries as of May 26, 1996, and May 28, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended May 26, 1996,
which report appears on page 41 of the 1996 National Semiconductor
Corporation Annual Report to Shareholders ("National Annual Report") and
is incorporated by reference in the May 26, 1996 annual report on Form
10-K of National Semiconductor Corporation and our report dated June 5,
1996, on the related financial statement schedule which appears on page
16 of the 1996 annual report on Form 10-K. Our report which appears in
the National Annual Report refers to a change in the method of
accounting for depreciation and a change in accounting for certain costs
in inventory.
KPMG PEAT MARWICK LLP
San Jose, California
August 5, 1996
INDEX TO EXHIBITS
Item 14(a) (3)
The following documents are filed as part of this report:
1. Financial Statements: reference is made to the Financial
Statements described under Part IV, Item 14(a) (1).
2. Other Exhibits:
Designation Description of Exhibit
3.1 Second Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference from the Exhibits to the
Company's Registration Statement on Form S-3 Registration No.
33-52775, which became effective March 22, 1994); Certificate
of Amendment of Certificate of Incorporation dated September
30, 1994. (incorporated by reference from the Exhibits to the
Company's 10-K filed July 27, 1995).
3.2 By-Laws of the Company (incorporated by reference from the
Exhibits to the Company's 10-K filed July 27, 1995).
4.1 Form of Common Stock Certificate (incorporated by reference
from the Exhibits to the Company's Registration Statement on
Form S-3 Registration No. 33-48935, which became effective
October 5, 1992).
4.2 Rights Agreement (incorporated by reference from the Exhibits
to the Company's Registration Statement on Form 8-A filed
August 10, 1988). First Amendment to the Rights Agreement
dated as of October 31, 1995 (incorporated by reference from
the Exhibits to the Company's Amendment No. 1 to the
Registration Statement on Form 8-A filed December 11, 1995).
4.3 Indenture dated as of September 15, 1995 (incorporated by
reference from the Exhibits to the Company's Registration
Statement on Form S-3 Registration No. 33-63649, which became
effective November 6, 1995).
4.4 Registration Rights Agreement dated as of September 21, 1995
(incorporated by reference from the Exhibits to the Company's
Registration Statement on Form S-3 Registration No. 33-63649,
which became effective November 6, 1995).
4.5 Form of Note (incorporated by reference from the Exhibits to
the Company's Registration Statement on Form S-3 Registration
No. 33-63649, which became effective November 6, 1995).
10.1 Management Contract or Compensatory Plan or Arrangement:
Executive Officer Incentive Plan (incorporated by reference
from the Exhibits to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders held September 30, 1994
filed on August 10, 1994). 1996 Executive Officer Incentive
Plan Agreement (incorporated by reference from the Exhibits to
the Company's 10-K filed July 27, 1995).
10.2 Management Contract or Compensatory Plan or Arrangement: Stock
Option Plan, as amended through January 9, 1995 (incorporated
by reference from the Exhibits to the Company's Registration
Statement on Form S-8 Registration No. 33-61377, which became
effective July 28, 1995).
10.3 Management Contract or Compensatory Plan or Arrangement:
Benefit Restoration Plan as amended through January 1, 1995.
(incorporated by reference from the Exhibits to the Company's
10-Q filed March 27, 1995).
10.4 Management Contract or Compensatory Plan or Arrangement:
Promissory Note and Agreement with Peter J. Sprague
(incorporated by reference from the Exhibits to the Company's
Form 10-K filed August 22, 1991). Amendment Letter dated
November 30, 1993 (incorporated by reference from the Exhibits
to the Company's 10-K filed July 28, 1994). Agreement with
Peter J. Sprague dated May 17, 1995. Non Qualified Stock
Option Agreement with Peter J. Sprague dated May 18, 1995.
(incorporated by reference from the Exhibits to the Company's
10-K filed July 27, 1995).
10.5 Management Contract or Compensatory Plan or Arrangement:
Airplane Use Agreement with Gilbert F. Amelio doing business
as Aero Ventures (incorporated by reference from the Exhibits
to the Company's 10-Q filed March 18, 1994). Amendment No. 1
to Airplane Use Agreement with Gilbert F. Amelio doing
business as Aero Ventures (incorporated by reference from the
Exhibits to the Company's 10-Q filed December 14, 1994).
10.6 Management Contract or Compensatory Plan or Arrangement: Loan
Agreement with Gilbert F. Amelio (incorporated by reference
from the Exhibits to the Company's 10-K filed August 24,
1992).
10.7 Management Contract or Compensatory Plan or Arrangement:
Director Stock Plan (incorporated by reference from the
Exhibits to the Company's Registration Statement on Form S-8
Registration No. 33-54931 which became effective August 5,
1994).
10.8 Management Contract or Compensatory Plan or Arrangement:
Performance Award Plan (incorporated by reference from the
Exhibits to the Company's Registration Statement on form S-8
Registration No. 33-55699 which became effective September
30,1994).
10.9 Management Contract or Compensatory Plan or Arrangement:
Consulting Agreement with Harry H. Wetzel (incorporated by
reference from the Exhibits to the Company's 10-K filed July
28, 1994).
10.10 Management Contract or Compensatory Plan or Arrangement:
Preferred Life Insurance Program (incorporated by reference
from the Exhibits to the Company's 10-K filed July 28, 1994).
10.11 Management Contract or Compensatory Plan or Arrangement:
Retired Officers and Directors Health Plan. (incorporated by
reference from the Exhibits to the Company's 10-K filed July
27, 1995).
10.12 Management Contract or Compensatory Plan or Arrangement:
Terms of Employment Offered Brian L. Halla.
10.13 Management Contract or Compensatory Plan or Arrangement:
Restricted Stock Agreement with Brian L. Halla.
10.14 Management Contract or Compensatory Plan or Agreement:
Settlement Agreement and General Release with Ellen M.
Hancock.
10.15 Management Contract or Compensatory Plan or Agreement:
Settlement Agreement and General Release with Richard M.
Beyer.
10.16 Management Contract or Compensatory Plan or Agreement:
Retention Agreement with Kirk P. Pond.
11.0 Computation of Earnings (Loss) per share assuming full
dilution.
13.0 Portions of the Annual Report to Shareholders for the fiscal
year ended May 26, 1996 (to be deemed filed only to the extent
required by the instructions to Exhibits for reports on Form
10-K).
21.0 List of Subsidiaries.
23.0 Consent of Independent Auditors (included in Part IV).
24.0 Power of Attorney.
27.0 Financial Data Schedule.
Exhibit 11.0
NATIONAL SEMICONDUCTOR CORPORATION
CALCULATION OF EARNINGS PER SHARE-ASSUMING FULL DILUTION (1)
(in millions, except per share amounts)
Year ended
-----------------------------
May 26, May 28, May 29,
1996 1995 1994
------ ------ ------
Net income before cumulative
effect of accounting change
(reflecting adjustment for interest on
convertible notes) $191.2 $264.2 $259.1
Cumulative effect of accounting change - - 4.9
------ ----- ------
Net income $191.2 $264.2 $264.0
====== ====== ======
Number of shares:
Weighted average common shares outstanding 129.3 121.4 113.0
Weighted average common equivalent shares,
net of tax benefit 3.2 3.8 8.4
----- ----- ------
Weighted average common and common
equivalent shares 132.5 125.2 121.4
Additional weighted average common
equivalent shares assuming full dilution - 0.1 0.4
Shares issuable from assumed
conversion of preferred shares 6.1 12.2 19.6
Shares issuable from assumed
conversion of convertible notes 4.0 - -
----- ---- -----
Weighted average common and common
equivalent shares assuming full dilution 142.6 (1) 137.5 141.4
===== ===== =====
Earnings per share:
Net income assuming full dilution
before cumulative effect of
accounting change $ 1.34 $ 1.92 $ 1.83
Cumulative effect of accounting chang - - 0.04
------ ------ ------
Net income $ 1.34 $ 1.92 $ 1.87
====== ====== ======
______________________________________________
(1) For fiscal 1996, this calculation is submitted in accordance with
Regulation S-K Item 601 (b)(11) although it is contrary to paragraph 40
of APB Opinion No. 15 because it produces an anti-dilutive result.
Exhibit 21.0
NATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following table shows certain information with respect to the active
subsidiaries of the Company as of May 26, 1996, all of which are
included in the consolidated financial statements of the registrant:
State or Percent of
other Other country voting
jurisdiction in which securities
of subsidiary is owned by
Name incorporation registered National
- ---- ------------- ---------- -------
Dynacraft, Inc. California 100%
National Semiconductor Delaware 100%
International, Inc.
DTS Caribe, Inc. Delaware 100%
N.S. Publications, Inc. Delaware 100%
Fairchild Semiconductor Corp. Delaware 100%
Comlinear Corporation Delaware 100%
National Semiconductor France 100%
France S.A.R.L.
National Semiconductor GmbH Germany Belgium 100%
National Semiconductor Israel 100%
(I.C.) Ltd.
National Semiconductor Sp.A. Italy 100%
National Semiconductor A.B. Sweden 100%
National Semiconductor Great Britain Denmark/ 100%
(U.K.) Ltd. Ireland/ Finland/
Norway/ Spain
Fairchild Semiconductor Ltd. Great Britain 100%
National Semiconductor Netherlands 100%
Benelux B.V.
National Semiconductor B.V. Netherlands 100%
National Semiconductor Switzerland 100%
International
Finance S.A.
Natsem India Designs Pvt. Ltd. India 100%
National Semiconductor Australia 100%
(Australia) Pty. Ltd.
National Semiconductor Hong Kong 100%
(Hong Kong) Limited
National Semiconductor Hong Kong Taiwan 100%
(Far East) Limited
National Semiconductor (HK) Hong Kong Philippines 100%
Distribution Ltd.
NSM International Limited Hong Kong 50%
National Semiconductor Hong Kong 51%
Sunrise Hong Kong Limited
National Semiconductor Japan 100%
Japan Ltd.
National Semiconductor Malaysia 100%
SDN. BHD.
National Semiconductor Malaysia 100%
Technology SDN. BHD.
Dynacraft SDN. BHD. Malaysia 100%
Dynacraft Asia Pacific
SDN. BHD. Malaysia 100%
National Semiconductor Pte. Singapore 100%
Ltd.
National Semiconductor Singapore 100%
Asia Pacific Pte. Ltd.
National Semiconductor Singapore 100%
Singapore Manufacturer
Pte. Ltd.
Dynacraft Asia Pacific
Pte. Ltd. Singapore 100%
National Semiconductor
Sunrise of Shanghai People's Republic
Limited of China 51%
National Semiconductor Canada 100%
Canada Inc.
National Semicondutores Brazil 100%
de America Do Sul Ltda.
Electronica NSC de Mexico, Mexico 100%
S.A. de C.V.
ASIC Limited Bermuda 100%
EXHIBIT 10.12
TERMS OF EMPLOYMENT OFFERED BRIAN L. HALLA
------------------------------------------
1. Elected to positions of Chairman, President and Chief Executive
Officer effective May 3, 1996.
2. Salary per annum: $650,000.
3. Granted 500,000 shares of stock on May 3, 1996.
Granted 500,000 shares of stock on May 27, 1996.
Option Terms: Ten years and one day, fully vested six months
after grant date
4. Issued 200,000 shares of restricted stock; vesting 25% per year
over four years from May 3, 1996.
5. Participate in the Company's Executive Officer Incentive Plan
beginning fiscal 1997, with target incentive at 100% of base
salary. Guaranteed minimum incentive payment of $650,000 for
fiscal 1997.
6. Participate in the Company's Performance Award Plan beginning
fiscal 1997, with target units for Cycle V set at 37,000 units.
7. Eligible to participate in all other Company benefit plans.
EXHIBIT 10.13
NATIONAL SEMICONDUCTOR CORPORATION
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT, dated as of May 3, 1996 (the
"Award Date"), is made by and between NATIONAL SEMICONDUCTOR
CORPORATION, a Delaware corporation (the "Company"), and BRIAN L. HALLA,
an Employee of the Company (the "Employee"):
WHEREAS, the Company's Board of Directors has determined that
it would be to the advantage and best interest of the Company and its
stockholders to issue the shares of Restricted Stock provided for herein
to the Employee to induce Employee to join the Company, and has advised
the Company thereof and instructed the Secretary of the Company to issue
said Restricted Stock;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto do hereby agree as
follows:
1. Definitions
-----------
Whenever used in this Agreement, the following terms shall have
the meaning set forth below.
Common Stock: The Company's common stock par value $0.50 per share.
Disability: Inability to perform any services for the Company and
eligible to receive disability benefits under the standards used by the
Company's disability benefit plans or any successor plan thereto.
Restricted Stock: Common Stock issued pursuant to the terms of this
Agreement.
Restrictions: Reacquisition and transferability restrictions imposed
upon Restricted Stock under this Agreement.
Termination of Employment: The time when the employer-employee
relationship between the Employee and the Company is terminated for any
reason, with or without cause, including but not limited to a
termination by resignation, discharge, death or Disability.
Vested Shares: Shares of Restricted Stock that become unrestricted
shares of Common Stock, as provided in Section 3.A.
2. Issuance of Restricted Stock
----------------------------
A. In consideration of Employee's agreement to become employed
by the Company and for other good and valuable consideration which the
Board of Directors has determined to be equal to the par value of its
Common Stock, on the Award Date the Company issues to the Employee
200,000 shares of its Common Stock, upon the terms and conditions set
forth in this Agreement.
B. Nothing in this Agreement shall confer upon the Employee any
right to continue in the employ of the Company.
3. Restrictions
------------
A. The shares of Restricted Stock issued to the Employee shall
be subject to the restrictions on transferability provided in Section
4.B. In addition, the Restricted Stock is subject to reacquisition by
the Company without payment of any consideration to the Employee
immediately upon a Termination of Employment; provided, however, that no
reacquisition shall occur in the event of a Termination of Employment
because of the Employee's Disability or death, in which event all shares
of Restricted Stock shall immediately fully vest and all Restrictions
shall immediately expire. Further, all restrictions on the Restricted
Stock issued to Employee hereunder shall expire with respect to twenty-
five percent (25%) of such shares on the first anniversary of the Award
Date, at which time said shares shall become Vested Shares. Thereafter,
all Restrictions shall expire with respect to an additional twenty-five
percent (25%) of the originally issued shares on each subsequent
anniversary of the Award Date. The Restrictions limiting
transferability and subjecting the Restricted Stock to reacquisition by
the Company shall not apply to any Vested Shares held by the Employee.
B. Certificates representing shares of Restricted Stock issued
pursuant to this Agreement shall, until all Restrictions lapse and new
certificates are issued pursuant to Section 3.C, bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VESTING REQUIREMENTS AND MAY BE SUBJECT TO REACQUISITION BY THE COMPANY
UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY AND
BETWEEN NATIONAL SEMICONDUCTOR CORPORATION (THE "COMPANY") AND THE
HOLDER OF THE SECURITIES. PRIOR TO VESTING OF OWNERSHIP IN THE
SECURITIES, THEY MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED,
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNDER ANY CIRCUMSTANCES. COPIES OF THE ABOVE REFERENCED AGREEMENT
ARE ON FILE AT THE OFFICES OF THE
COMPANY AT 2900 SEMICONDUCTOR DRIVE, M/S 16-135, SANTA CLARA, CA 95051.
C. Upon the vesting of the shares of Restricted Stock and
subject to Section 4.C and payment of taxes as required by Section 4.J,
the Company shall cause new certificates to be issued with respect to
the Vested Shares and delivered to the Employee or his legal
representative, free from legend and any other Restrictions. Vested
Shares shall cease to be Restricted Stock subject to the terms and
conditions of this Agreement.
D. Upon the merger or consolidation of the Company into another
corporation, the acquisition by another corporation or person (excluding
any employee benefit plan of the Company or any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company) of all or substantially all of the Company's assets or 51% or
more of the Company's then outstanding voting stock, or the liquidation
or dissolution of the Company, all shares of Restricted Stock shall
fully vest and all Restrictions on the Restricted Stock shall
immediately expire.
E. In the event that the outstanding shares of the Company's
Common Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another
corporation pursuant to a merger of the Company into another
corporation, or the exchange of all or substantially all of the assets
of the Company for the securities of another corporation, or the
acquisition by another corporation or person (excluding any employee
benefit plan of the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company) of 51% or more
of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, or a stock split-up or stock dividend, such
new, additional or different shares or securities which are held or
received by the Employee in his or her capacity as a holder of
Restricted Stock shall be considered to be Restricted Stock and shall be
subject to all of the Restrictions.
4. Miscellaneous
-------------
A. The Company's Board of Directors has the power to interpret
this Agreement and all other documents relating to the Restricted Stock
issued hereunder. All actions taken and all interpretations and
determinations made by the Board of Directors in good faith shall be
final and binding upon the Employee, the Company and all other
interested persons. No member of the Board of Directors shall be
personally liable
for any action, determination or interpretation made in good faith.
B. No Restricted Stock or any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the
Employee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition is voluntary or
involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including
bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that this Section 4.B shall
not prevent transfers by will or by applicable laws of descent and
distribution.
C. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock pursuant to this
Agreement prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(ii) The completion of any registration or other
qualification of such shares under any state or Federal law or
under rulings or regulations of the Securities and Exchange
Commission or of any other governmental regulatory body, which the
Board of Directors shall, in its absolute discretion, deem
necessary or advisable; and
(iii) The obtaining of any approval or other clearance from
any state or Federal governmental agency which the Board of
Directors shall, in its absolute discretion, determine to be
necessary or advisable; and
(iv) Subject to the provisions of Section 4.J, the payment by
the Employee of all amounts required to be withheld under federal,
state and local tax laws, with respect to the issuance of
Restricted Stock and/or the lapse or removal of any of the
Restrictions.
D. The Secretary of the Company shall retain physical custody
of the certificates representing Restricted Stock, including shares of
Restricted Stock issued pursuant to Section 3.E, until all of the
Restrictions expire or are removed.
E. Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary,
and any notice to be given to the Employee shall be addressed to him at
the address given beneath Employee's signature hereto. By a notice
given pursuant to this Section 4.E, either party may designate a
different address for notices to be given to it. Any notice which is
required to be given to the Employee shall, if the Employee is then deceased,
be given to the Employee's personal representative if such representative
has previously informed the Company of his or her status and address by
written notice under this Section 4.E. Any notice shall have been
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
F. Upon delivery of the shares of Restricted Stock to the
Secretary pursuant to Section 4.D, the Employee shall have all the
rights of a stockholder with respect to said shares, subject to the
Restrictions herein (including the provisions of Section 4.J), including
the right to vote the shares and to receive all dividends or other
distributions paid or made with respect to the shares.
G. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this
Agreement.
H. This Agreement shall be administered, and the Restricted
Stock shall be issued, only in such a manner as to conform to all
applicable laws, rules and regulations.
I. This Agreement may be amended only by a writing executed by
the parties hereto which specifically states that it is amending this
Agreement.
J. The Company's obligation to issue or deliver to the Employee
any certificate or certificates for unrestricted shares of stock or to
pay to the Employee any dividends or make any distributions with respect
to the Restricted Stock is expressly conditioned upon receipt from the
Employee, on or prior to the date the same is required to be withheld,
of:
(i) Full payment (in cash or by check) of any amount that must be
withheld by the Company for federal, state and/or local tax purposes; or
(ii) Subject to the consent of the Board of Directors and Section
4.J(iii), full payment by delivery to the Company of unrestricted shares
of the Company's Common Stock previously owned by the Employee duly
endorsed for transfer to
the Company by the Employee with an aggregate fair market value
(determined, as applicable, as of the date of the lapse of the
Restrictions or vesting, or as of the date of the distribution) equal to
the amount that must be withheld by the Company for federal, state
and/or local tax purposes; or
(iii) With respect to the withholding obligation for shares of
Restricted Stock that become unrestricted shares as of a Vesting Date
and subject to the consent of the Board of Directors and to the timing
requirements set forth in this Section 4.J(iii), full payment by
retention by the Company of a portion of such shares of Restricted Stock
which become unrestricted or vested with an aggregate fair market value
(determined as of the Vesting Date) equal to the amount that must be
withheld by the Company for federal, state and/or local tax purposes.
(iv) Any combination of payments provided for in the foregoing
subsections (i), (ii) or (iii).
K. The laws of the State of Delaware shall govern the
interpretation, validity, administration, enforcement and performance of
the terms of this Agreement regardless of the law that might be applied
under principles of conflicts of laws.
IN WITNESS HEREOF, this Agreement has been executed and delivered by the
parties hereto.
NATIONAL SEMICONDUCTOR CORPORATION
By //S// JOHN M. CLARK III
-----------------
Its Senior Vice President
---------------------
//S// BRIAN L. HALLA
--------------
Employee Signature
BRIAN L. HALLA
- ----------------------
Print Name of Employee
EXHIBIT 10.14
SETTLEMENT AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Settlement Agreement and General Release (hereinafter
"Agreement") is entered into as of this 10th day of May, 1996, by and
between Ellen M. Hancock (hereinafter "Employee") and National
Semiconductor Corporation (hereinafter "Company").
WHEREAS, Employee and the Company have agreed that her active
employment at the Company will be terminated effective as of May 10,
1996; and
WHEREAS, Company desires to provide termination benefits to
Employee on the terms specified herein; and
WHEREAS, Company and Employee acknowledge that the termination
benefits specified herein are greater than Employee would otherwise be
entitled to upon termination of her employment; and
WHEREAS, Company and Employee desire to settle fully and finally
any differences between them;
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, Employee and Company agree as follows:
1. Effective as of May 10, 1996, Employee shall resign as an
active employee and shall be relieved of any further obligations to
perform services as an employee on behalf of the Company. Employee
agrees to resign all positions held as an officer of the Company or any
of its subsidiaries on or before May 10, 1996.
2. Subject to the limitation set forth below, the Company will
continue to pay Employee's salary (at current levels) and all associated
benefits as if Employee were an active employee through November 29,
1996. If Employee accepts full-time employment prior to such date,
Employee shall so notify Company's Vice President, Human Resources and
Company shall pay to Employee in a lump sum the amount of additional
salary (but not benefits) that would otherwise have been paid to
Employee through November 29, 1996. The Company's internal records
shall reflect
that Employee's employment terminated as a result of voluntary
resignation on November 29, 1996 or the date salary and benefits
otherwise end. This date shall be referred to as the "Termination
Date."
3. Employee will be eligible for the Executive Officers
Incentive Plan ("EOIP") award for fiscal year 1996 (prorated from
Employee's original date of hire), which award will be paid based on the
Accomplishment Score for fiscal 1996 and will be paid in accordance with
the provisions of the EOIP at the same time all other participants
receive their payments. Employee will not be eligible for EOIP for
fiscal year 1997.
4. Employee will be credited with twelve (12) months of service
toward any payment of Cycle IV of the Performance Award Plan ("PAP").
If PAP awards are made for Cycle IV, Employee will receive an award
prorated as applicable in accordance with the provisions of the PAP and
payment will be made at the same time all other participants receive
their payments.
5. For a period ending on the earlier of November 29, 1996 or
Employee's acceptance of full-time employment, Company agrees to provide
Employee, at no cost, with Key Executive career transition services
through Right Associates, 19925 Stevens Creek Boulevard, Suite 174,
Cupertino, CA 95014.
6. In the event Employee moves back to her home in Connecticut
within twelve (12) months of the date hereof, Company will pay the costs
of such a move in accordance with its standard relocation policy
(excluding per diem and temporary housing allowance); provided, however,
that Company's obligations under this Paragraph 6 will expire upon
Employee's acceptance of full-time employment.
7. On the Termination Date, Company shall pay Employee any
accrued vacation pay to which Employee may be entitled under the
Company's vacation program. In addition, Employee shall have the right
to exercise on or before ninety (90) days after the Termination Date,
any stock options which have vested through the Termination Date.
8. Employee agrees to return all Company property, credit
cards, documents or other materials or equipment that have been
furnished to her by the Company on a mutually-agreed schedule.
9. Employee, her representatives, heirs, successors and assigns
do hereby completely release and forever discharge Company, its
affiliated, related or subsidiary corporations, and its and their
present and former shareholders, officers, directors, agents, employees,
attorneys, successors and assigns (hereinafter collectively also
referred to as "Company") from all claims, rights, demands, actions,
obligations, liabilities and causes of action of any and every kind,
nature and character whatsoever, known or unknown, which Employee may
now have, or has ever had, against Company, based upon any act or
omission by Company prior to the date of execution of this Agreement by
Employee, including, but not limited to, any and all claims for damages,
declaratory or injunctive relief or attorneys' fees, arising from or in
any way related to Employee's employment by Company or the termination
thereof, whether based on tort, contract (express or implied), or any
federal, state or local law, statute or regulation, including, but not
limited to, claims of unlawful age discrimination based on the Age
Discrimination in Employment Act or the California Fair Employment and
Housing Act; provided, however, that this paragraph does not waive any
indemnification rights Employee may have whether as an employee or an
officer, pursuant to Labor Code Section 2802, any other statutory
provision, or the Common Law, Company By-Laws or Company policy.
10. It is understood and agreed that the preceding Paragraph is
a full and final Release covering all known as well as all unknown or
unanticipated injuries, debts, claims or damages to Employee including,
without limitation, those arising from or in any way related to her
employment by Company or the termination thereof. Therefore, Employee
waives any and all rights or benefits which she may now have, or in the
future may have, under the terms of Section 1542 of the California Civil
Code which provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor.
11. Employee shall not initiate or cause to be initiated
against Company any suit, action, investigation, audit, compliance
review or proceeding of any kind, or participate in same, individually
or as a representative or member of a class, under any contract (express
or implied), law, statute or regulation, federal, state or local,
pertaining in any manner whatsoever to the claims, rights, demands,
actions, obligations, liabilities, and causes of action herein released,
including, without limitation, those relating to her employment by
Company or the termination thereof.
12. It is understood and agreed that this Agreement and each
and every provision thereof shall be confidential and shall not be
disclosed directly or indirectly by Employee to any other person, firm,
organization or other entity, of any and every type, public or private,
for any reason, at any time without the prior written request or consent
of Company unless required by law. Nor shall Employee disclose directly
or indirectly to any person or organization, except as expressly
permitted herein, or required by law, that Employee received any sum of
money from Company as a result of the termination of her employment with
Company. It is further understood and agreed that it shall not
constitute a breach of this Agreement for Employee to disclose the terms
thereof to her immediate family and to her attorney and her financial
advisor and/or accountant; provided, however, that Employee shall be
obliged to use her best efforts to assure that such persons do not
disclose this Agreement or any provision thereof or the fact that
Employee received any sum of money from Company as a result of the
termination of Employee's employment with Company. It is further
understood and agreed that Company shall make reasonable efforts to
maintain the confidentiality of this Agreement and its contents and
shall not disclose this Agreement or its contents, directly or
indirectly, to any of Company's employees or agents, unless such persons
have a work-related need to know or unless required by law, and Company
shall instruct each such person to whom it discloses this Agreement or
its contents to refrain from making any disclosure to any other person
except as permitted by this Agreement. Company believes that disclosure
in its 1996 Proxy Statement may be required by law. It is further
understood and agreed that it shall not constitute a breach of this
Agreement for Employee or Company to respond to any unsolicited inquiry
by stating only that Employee and Company separated on mutually
satisfactory terms.
13. Employee represents that she has had an opportunity to be
represented by Counsel of her own choosing in the negotiation and
preparation of this Agreement, that she has had an adequate opportunity
to consider the Agreement, that she has carefully read the Agreement,
that she is fully aware of and understands its contents and its legal
effect, that the preceding paragraphs recite the sole consideration for
this Agreement, that all agreements and understandings between Employee
and Company are embodied, referenced and expressed herein, and that she
enters into this Agreement voluntarily, without coercion, and based on
her own judgment and not in reliance upon any oral or written
representations or promises made by Company, other than those contained
or referenced herein.
14. Employee (but not Company) shall have the right to reject
and revoke this Agreement at any time within twenty-one (21) days of the
execution hereof by delivering written notice to that effect to
Company's General Counsel. If Employee so notifies Company, this
Agreement and General Release will be void and Employee will not be
entitled to receive any benefits hereunder.
15. With respect to any matters under this Agreement that are
governed by state law, the parties agree that this Agreement shall be
construed and governed by the laws of the State of California. The
language of all parts of this Agreement shall in all cases be construed
as a whole, according to its fair meaning, and not strictly for or
against any party.
16. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
EMPLOYEE NATIONAL SEMICONDUCTOR CORPORATION
//S// ELLEN M. HANCOCK By: //S// JOHN M. CLARK III
----------------------- ----------------------
Title: Senior Vice President
----------------------------
EXHIBIT 10.15
SETTLEMENT AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Settlement Agreement and General Release (hereinafter
"Agreement") is entered into as of this 11th day of June, 1996, by and
between Richard M. Beyer (hereinafter "Employee") and National
Semiconductor Corporation (hereinafter "Company").
WHEREAS, Employee and the Company have agreed that his active
employment at the Company will be terminated effective as of June 11,
1996; and
WHEREAS, Company desires to provide termination benefits to
Employee on the terms specified herein; and
WHEREAS, Company and Employee acknowledge that the termination
benefits specified herein are greater than Employee would otherwise be
entitled to upon termination of his employment; and
WHEREAS, Company and Employee desire to settle fully and finally
any differences between them;
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, Employee and Company agree as follows:
1. Effective as of June 11, 1996, Employee shall resign as an
active employee and shall be relieved of any further obligations to
perform services as an employee on behalf of the Company. Employee
agrees to resign all positions held as an officer of the Company or any
of its subsidiaries on or before June 11, 1996.
2. Subject to the limitation set forth below, the Company will
continue to pay Employee's salary (at current levels) and all associated
benefits as if Employee were an active employee at least through
December 31, 1996. If Employee accepts full-time
employment prior to such date, Employee shall so notify Company's Vice
President, Human Resources and Company shall pay to Employee in a lump
sum the amount of additional salary (but not benefits) that would
otherwise have been paid to Employee through December 31, 1996. The
Company's internal records shall reflect that Employee's employment
terminated as a result of voluntary resignation on the date the payment
of salary and benefits ends. Whether pursuant to Paragraph 2 or
Paragraph 3 hereof, this date shall be referred to as the "Termination
Date."
3. In the event Employee has not become employed on a full-time
basis by December 31, 1996, the Company will continue to pay salary and
benefits as provided in Paragraph 2 above until such time as Employee
does become so employed, provided that in no event shall such payments
continue beyond June 30, 1997.
4. Employee will be eligible for the Executive Officers
Incentive Plan ("EOIP") award for fiscal year 1996, which award will be
paid based on the Accomplishment Score for fiscal 1996 and will be paid
in accordance with the provisions of the EOIP at the same time all other
participants receive their payments. Employee will also receive an EOIP
payment for FY97 at the Termination Date, such payment to be calculated
at Target and prorated from the beginning of FY97 through the
Termination Date.
5. Employee will be credited with service through the
Termination Date (but for purposes of this Paragraph 5 not beyond
December 31, 1996) toward any payment of Cycle III and IV of the
Performance Award Plan ("PAP"). If PAP awards are made for Cycle III or
IV, Employee will receive an award prorated as applicable in accordance
with the provisions of the PAP and payment will be made at the same time
all other participants receive their payments. Employee will not be
eligible to participate in Cycle V or any subsequent cycles of the PAP.
6. For a period ending on the earlier of December 31, 1996 or
Employee's acceptance of full-time employment, Company agrees to provide
Employee, at no cost, with Key Executive career transition services
through Right Associates, 19925 Stevens Creek Boulevard, Suite 174,
Cupertino, CA 95014.
7. On the Termination Date, Company shall pay Employee any
accrued vacation pay to which Employee may be entitled under the
Company's vacation program. In addition, Employee shall have the right
to exercise on or before ninety (90) days after the Termination Date,
any stock options which have vested through the Termination Date.
8. Employee agrees to return all Company property, credit
cards, documents or other materials or equipment that have been
furnished to him by the Company on a mutually-agreed schedule.
9. Employee, his representatives, heirs, successors and assigns
do hereby completely release and forever discharge Company, its
affiliated, related or subsidiary corporations, and its and their
present and former shareholders, officers, directors, agents, employees,
attorneys, successors and assigns (hereinafter collectively also
referred to as "Company") from all claims, rights, demands, actions,
obligations, liabilities and causes of action of any and every kind,
nature and character whatsoever, known or unknown, which Employee may
now have, or has ever had, against Company, based upon any act or
omission by Company prior to the date of execution of this Agreement by
Employee, including, but not limited to, any and all claims for damages,
declaratory or injunctive relief or attorneys' fees, arising from or in
any way related to Employee's employment by Company or the termination
thereof, whether based on tort, contract (express or implied), or any
federal, state or local law, statute or regulation, including, but not
limited to, claims of unlawful age discrimination based on the Age
Discrimination in Employment Act or the California Fair Employment and
Housing Act; provided, however, that this paragraph
does not waive any indemnification rights Employee may have whether as
an employee or an officer, pursuant to Labor Code Section 2802, any
other statutory provision, or the Common Law, Company By-Laws or Company
policy.
10. It is understood and agreed that the preceding paragraph is
a full and final Release covering all known as well as all unknown or
unanticipated injuries, debts, claims or damages to Employee including,
without limitation, those arising from or in any way related to his
employment by Company or the termination thereof. Therefore, Employee
waives any and all rights or benefits which he may now have, or in the
future may have, under the terms of Section 1542 of the California Civil
Code which provides as follows:
A general release does not extend to claims
which the creditor does not know or suspect to
exist in his favor at the time of executing the
release, which if known by him must have materially
affected his settlement with the debtor.
11. Employee shall not initiate or cause to be initiated
against Company any suit, action, investigation, audit, compliance
review or proceeding of any kind, or participate in same, individually
or as a representative or member of a class, under any contract (express
or implied), law, statute or regulation, federal, state or local,
pertaining in any manner whatsoever to the claims, rights, demands,
actions, obligations, liabilities, and causes of action herein released,
including, without limitation, those relating to his employment by
Company or the termination thereof.
12. It is understood and agreed that this Agreement and each
and every provision thereof shall be confidential and shall not be
disclosed directly or indirectly by Employee to any other person, firm,
organization or other entity, of any and every type, public or private,
for any reason, at any time without the prior written consent of Company
unless required by law. Nor shall Employee
disclose directly or indirectly to any person or organization, except
as expressly permitted herein, or required by law, that Employee
received any sum of money from Company as a result of the termination of
his employment with Company. It is further understood and agreed that
it shall not constitute a breach of this Agreement for Employee to
disclose the terms thereof to his immediate family and to his attorney
and his financial advisor and/or accountant; provided, however, that
Employee shall be obliged to use his best efforts to assure that such
persons do not disclose this Agreement or any provision thereof or the
fact that Employee received any sum of money from Company as a result of
the termination of Employee's employment with Company. It is further
understood and agreed that Company shall make reasonable efforts to
maintain the confidentiality of this Agreement and its contents and
shall not disclose this Agreement or its contents, directly or
indirectly, to any of Company's employees or agents, unless such persons
have a work-related need to know or unless required by law, and Company
shall instruct each such person to whom it discloses this Agreement or
its contents to refrain from making any disclosure to any other person
except as permitted by this Agreement. Company believes that disclosure
in its 1996 Proxy Statement may be required by law. It is further
understood and agreed that it shall not constitute a breach of this
Agreement for Employee or Company to respond to any unsolicited inquiry
by stating only that Employee and Company separated on mutually
satisfactory terms.
13. Employee represents that he has had an opportunity to be
represented by Counsel of his own choosing in the negotiation and
preparation of this Agreement, that he has had an adequate opportunity
to consider the Agreement, that he has carefully read the Agreement,
that he is fully aware of and understands its contents and its legal
effect, that the preceding paragraphs recite the sole consideration for
this Agreement, that all agreements and understandings between Employee
and Company are embodied, referenced and expressed herein, and that he
enters into this
Agreement voluntarily, without coercion, and based on his own judgment
and not in reliance upon any oral or written representations or
promises made by Company, other than those contained or referenced
herein.
14. Employee (but not Company) shall have the right to reject
and revoke this Agreement at any time within twenty-one (21) days of the
execution hereof by delivering written notice to that effect to
Company's General Counsel. If Employee so notifies Company, this
Agreement and General Release will be void and Employee will not be
entitled to receive any benefits hereunder.
15. With respect to any matters under this Agreement that are
governed by state law, the parties agree that this Agreement shall be
construed and governed by the laws of the State of California. The
language of all parts of this Agreement shall in all cases be construed
as a whole, according to its fair meaning, and not strictly for or
against any party.
16. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
EMPLOYEE NATIONAL SEMICONDUCTOR CORPORATION
//S// RICHARD M. BEYER By: //S// JOHN M. CLARK III
--------------------- ------------------
Title: Senior Vice President
---------------------
EXHIBIT 10.16
RETENTION AGREEMENT
This Retention Agreement is entered into as of this 2nd day of
July, 1996, by and between Kirk P. Pond (hereinafter "Employee") and
National Semiconductor Corporation (hereinafter "Company").
WHEREAS, Company wishes to assign Employee to a new project
substantially different than his current job responsibilities; and
WHEREAS, Company desires to provide additional compensation
benefits to Employee as an incentive to accept this assignment; and
WHEREAS, Employee wishes to accept such assignment on the terms
specified herein;
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, Employee and Company agree as follows:
1. Assignment. Effective immediately, Employee shall assume
full management responsibility for the Company's Logic and Memory
Product lines, including all manufacturing operations conducted at the
facilities located in South Portland, Maine (other than the 8"
facility); Salt Lake City, Utah; and Penang, Malaysia. In addition to
responsibility for the day-to-day management of these businesses,
Employee agrees to use his best efforts to sell or otherwise dispose of
the businesses and their associated assets on terms favorable to the
Company, although any final decision on terms of sale (including price)
shall be subject to the approval of the Company's CEO and Board of
Directors. During the course of this assignment, Employee shall be
based in South Portland, Maine, and report directly to the Company's
Chief Executive Officer. Employee agrees to devote his full energies to
this assignment and
further agrees that during the duration of the assignment he will not
seek employment with any third party. Solicitation of or acceptance of
employment with a purchaser of all or a portion of the business shall
not be prohibited under this paragraph provided Employee informs senior
management of the Company at the time such discussions are commenced.
2. Legal Structure. Company and Employee currently contemplate
that the Logic and Memory businesses, together with their associated
assets, will be placed into a separate wholly-owned subsidiary of the
Company, headquartered in South Portland, Maine. In this structure,
Employee would serve as the subsidiary's Chief Executive Officer. The
parties recognize, however, that the precise legal structure of the
businesses is subject to review and part of the Employee's assignment
will be to determine what structure is most advantageous to the
interests of the Company. So long as any new entity is owned or
controlled by the Company, if Employee serves as an officer or director
of such entity, the entity shall obtain director and officer liability
insurance comparable in scope to that presently held by the Company.
Such entity shall also adopt by-law provisions and/or appropriate
corporate policies indemnifying officers and directors with respect to
claims arising out of their conduct as such, to the full extent such
indemnity is permitted by law.
3. Compensation. Employee shall receive the following
compensation and benefits (less any required statutory withholdings):
(i) During the time that Employee is actively engaged on the
assignment described in paragraph 1, Company will continue to pay
Employee's salary and all associated benefits at current levels.
Company will continue Employee's participation in all current
employee benefit plans at current
levels, notwithstanding Employee's engagement as an officer or
employee of a new subsidiary or other entity.
(ii) Employee will be eligible to receive bonus payments as
provided on Exhibit A.
(iii) The Company will grant to Employee a stock option for
100,000 shares under the Company's Stock Option Plan, such option
to be on the Company's standard option terms, except (a) if
Employee remains on the payroll for a period of not less than six
(6) months after the date of grant, 100% of the shares will vest
upon the Effective Date of the Severance Agreement referenced in
paragraph 4 hereof (subject to subparagraph 4(v) below) and (b)
Employee shall be permitted to retire for purposes of the option
exercise provisions of the Employee's Stock Option Agreements if
his age plus years of service on the Termination Date (as defined
in the Severance Agreement) are equal to or greater than
sixty-five (65).
(iv) Employee will receive an incentive payment upon the
completion of a sale of all or any part of the businesses on the
terms described in Exhibit B.
4. Severance. Employee and Company agree to execute the
Severance and Release Agreement attached hereto as Exhibit C (the
"Severance Agreement"). The "Effective Date" of the Severance Agreement
will be deemed to be the date of the earlier to occur of the following:
(i) Closing of a transaction for the sale or other
disposition of all or substantially all of the Logic and Memory
businesses;
(ii) Company notifies Employee that it is relieving him of
further responsibility for the assignment;
(iii) Employee notifies Company that he is resigning from the
assignment. Employee shall give Company not less than thirty (30)
days written notice of his intent to resign from the assignment; or
(iv) If the Company and Employee fail to reach final, written
agreement with respect to the matters set forth in either of
Exhibit A or Exhibit B within sixty (60) days from the date hereof,
Employee shall have the right to notify the Company that he is
resigning from the assignment and the Effective Date shall occur
whenever such notice is effective.
(v) In the event the Effective Date of the Severance
Agreement is triggered pursuant to subparagraphs 4(i) and 4(ii)
above, or, on or after June 1,1997, pursuant to subparagraph
4(iii), all stock options held by Employee other than the option
granted under subparagraph 3(iii) will vest one hundred percent
(100%) on the Termination Date (as defined in the Severance
Agreement), to the extent not previously vested under
existing Stock Option Agreements. However, in the event the
Effective Date is triggered pursuant to subparagraph 4(iii) prior
to June 1, 1997, or pursuant to subparagraph 4(iv), the accelerated
vesting provisions in subparagraph 3(iii) will not apply, and all
options held by Employee will vest in accordance with the terms of
the applicable Stock Option Agreement.
5. Tax Indemnity.
(i) Income Tax (State): In the event that any portion of
the payments specified in paragraphs 3 and 4 above becomes subject
to personal income tax in both Maine and California, Company agrees
to indemnify and hold Employee harmless to the extent that
limitations imposed by the law of either state result in Employee
being "double-taxed" under the personal income tax or other similar
laws of either jurisdiction. For
purposes of this paragraph, "double taxation" shall occur whenever
any dollar amount of income of Employee is subjected to state
taxation in such a manner that the total of all state income taxes
paid with respect to such amount exceed the maximum rate applicable
under the Maine or California personal income tax. If a payment is
due under this indemnity, Company shall "gross up" such payments to
an amount which will make Employee whole after payment of all
federal and state taxes imposed on such amount.
(ii) "Golden Parachute" Excise Tax: Company shall attempt to
structure the ownership of the Logic and Memory Business, the
employment of Employee, and the payments reflected on Exhibits A
and B to avoid any so-called "Golden Parachute" tax or penalty,
including, without limitation, the Excess Parachute Excise Tax
imposed under Section 4999 of the Internal Revenue Code
(collectively, a "Parachute Tax"). If any payments under this
Agreement or the Severance Agreement are subjected
to a Parachute Tax payable by or imposed on Employee, Company shall
indemnify and hold Employee harmless for such taxes. Company shall
"gross up" any payments due under this indemnity so that Employee
is made whole and receives the indemnified amount in full after
payment of all federal and state income taxes imposed on any
indemnity payment.
6. Entire Agreement. This Retention Agreement, and the
Exhibits thereto (including the Severance Agreement), constitute the
entire agreement and understanding between the parties hereto in
reference to all the matters herein agreed upon.
7. Amendment. This Retention Agreement may not be modified or
amended except by written instrument signed by the parties hereto.
8. Governing Law. The validity, construction and performance
of this Agreement shall be governed by the laws of the State of Maine.
9. Counterpart Originals. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10. Costs. Company agrees to pay Employee's reasonable legal
fees and other professional costs and expenses (such as accountant's
fees) incurred in analyzing, negotiating and drafting this Agreement and
the agreements described on Exhibits A through C.
EMPLOYEE NATIONAL SEMICONDUCTOR CORPORATION
//S// KIRK P. POND By: //S// BRIAN L. HALLA
- -------------------------- -----------------------------
Title: Chairman, President & CEO
EXHIBIT A
The parties agree to negotiate in good faith bonus targets and
performance goals within sixty (60) days of the Effective Date. Bonus
goals and awards to reflect returns to Company during operation of
businesses by Employee as CEO. Bonus at target shall be equal to
seventy percent (70%) of base salary and shall not exceed one hundred
forty percent (140%) of base.
EXHIBIT B
The parties agree to negotiate in good faith within sixty (60) days
of the date hereof the terms and conditions of the incentive payments to
be made to Employee upon the sale of all or any part of the businesses.
The terms are expected to be based on the total proceeds (or other
value) received by the Company, and the parties anticipate that a
mutually-agreeable target on the realistic sales value of the business
will result in a target compensation to Employee of approximately $2.5
million, with upside potential reflecting additional value. The parties
also agree that there will be a minimum incentive level payable for
closing of the transaction regardless of price, or in the event the
Company decides not to sell the businesses. It is also understood and
agreed that if Employee voluntarily terminates his active work on the
assignment before a transaction is closed that the Company will have no
obligation to pay such incentive payment, but that provision will have
to be made for payment if such a transaction occurs on or prior to the
Termination Date following the Company's termination of Employee's work
on the assignment.
Exhibit C
SEVERANCE AGREEMENT AND GENERAL RELEASE
---------------------------------------
This Severance Agreement and General Release (hereinafter
"Agreement") is entered into as of this ____ day of ____, 199_ (the
"Effective Date"), by and between Kirk P. Pond (hereinafter "Employee")
and National Semiconductor Corporation (hereinafter "Company").
WHEREAS, Employee and the Company have entered into a Retention
Agreement dated as of June __, 1996 (the "Retention Agreement"); and
WHEREAS, upon the termination of Employee's active employment
engagement under the Retention Agreement the Company desires to provide
termination benefits to Employee on the terms specified herein; and
WHEREAS, Company and Employee acknowledge that the termination
benefits specified herein are greater than Employee would otherwise be
entitled to upon termination of his employment; and
WHEREAS, Company and Employee desire to settle fully and finally
any differences that may exist between them between them;
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, Employee and Company agree as follows:
1. Effective as of the Effective Date, Employee shall resign as
an active employee and shall be relieved of any further obligations to
perform services as an employee on behalf of the Company. Employee
agrees to resign all positions held as an
officer of the Company or any of its subsidiaries on or before the
Effective Date.
2. Subject to the limitation set forth below, the Company will
continue to pay Employee's salary (at current levels) and all associated
benefits as if Employee were an active employee for a period of twelve
(12) months following the Effective Date. Company will continue
Employee's participation in all current employee benefit plans at
current levels, notwithstanding Employee's engagement as an officer or
employee of a new subsidiary or other entity. The Company's internal
records shall reflect that Employee's employment terminated as a result
of voluntary resignation on the date the payment of salary and benefits
ends. This date shall be referred to as the "Termination Date."
3. On the Termination Date, Employee shall be paid a bonus
amount equal to seventy (70%) percent of annual salary, less any
required statutory withholdings.
4. Employee will be credited with service through the
Termination Date toward any payment of Cycle III and IV of the
Performance Award Plan ("PAP"). If PAP awards are made for Cycle III or
IV, Employee will receive an award (prorated if applicable) in
accordance with the provisions of the PAP and payment will be made at
the same time all other participants receive their payments. For
purposes of this paragraph 4, Employee will be deemed to have terminated
employment on the Termination Date pursuant to section 12(c) of the
PAP. Employee will not be eligible to participate in Cycle V or any
subsequent cycles of the PAP.
5. If requested by Employee, Company agrees to provide
Employee, at no cost, with Key Executive career transition services
through Right Associates, 19925 Stevens Creek Boulevard, Suite 174,
Cupertino, CA 95014. The Company shall not be obligated to provide such
services beyond the Termination Date.
6. On the Termination Date, Company shall pay Employee any
accrued vacation pay to which Employee may be entitled under the
Company's vacation program. In addition, for purposes of the Company's
Stock Option Plan, the Termination Date shall be the date of employment
termination, and Employee shall have the right to exercise any vested
options as provided in the applicable Stock Option Agreement(s), as
modified by the Retention Agreement.
7. Employee agrees to return all Company property, credit
cards, documents or other materials or equipment that have been
furnished to him by the Company within thirty (30) days of the Effective
Date.
8. Employee, his representatives, heirs, successors and assigns
do hereby completely release and forever discharge Company, its
affiliated, related or subsidiary corporations, and its and their
present and former shareholders, officers, directors, agents, employees,
attorneys, successors and assigns (hereinafter collectively also
referred to as "Company") from all claims, rights, demands, actions,
obligations, liabilities and causes of action of any and every kind,
nature and character whatsoever, known or unknown, which Employee may
now have, or has ever had, against Company, based upon any act or
omission by Company prior to the date of execution of this Agreement by
Employee, including, but not limited to, any and all claims for damages,
declaratory or injunctive relief or attorneys' fees, arising from or in
any way related to Employee's employment by Company or the termination
thereof, whether based on tort, contract (express or implied), or any
federal, state or local law, statute or regulation, including, but not
limited to, claims of unlawful age discrimination based on the Age
Discrimination in Employment Act or the California Fair Employment and
Housing Act; provided, however, that this paragraph does not waive any
indemnification rights Employee may have whether
as an employee or an officer, pursuant to Labor Code Section 2802, any
other statutory provision, or the Common Law, Company By-Laws or Company
policy. This release shall in no way limit or affect Employee's rights
under the Retention Agreement or any other Continuing Agreement (as
defined below).
9. It is understood and agreed that the preceding paragraph is
a full and final Release covering all known as well as all unknown or
unanticipated injuries, debts, claims or damages to Employee arising
prior to the date hereof, including, without limitation, those arising
from or in any way related to his employment by Company or the
termination thereof. Therefore, Employee waives any and all rights or
benefits which he may now have, or in the future may have, under the
terms of Section 1542 of the California Civil Code which provides as
follows:
A general release does not extend to claims
which the creditor does not know or suspect to
exist in his favor at the time of executing the
release, which if known by him must have materially
affected his settlement with the debtor.
10. Employee shall not initiate or cause to be initiated
against Company any suit, action, investigation, audit, compliance
review or proceeding of any kind, or participate in same, individually
or as a representative or member of a class, under any contract (express
or implied), law, statute or regulation, federal, state or local,
pertaining in any manner whatsoever to the claims, rights, demands,
actions, obligations, liabilities, and causes of action herein released,
including, without limitation, those relating to his employment by
Company or the termination thereof. This release shall in no way limit
or affect Employee's rights under the Retention Agreement or any other
Continuing Agreement (as defined below).
11. It is understood and agreed that this Agreement and each
and every provision thereof shall be confidential and shall not be
disclosed directly or indirectly by Employee to any other person, firm,
organization or other entity, of any and every type, public or private,
for any reason, at any time without the prior written consent of Company
unless required by law. Nor shall Employee disclose directly or
indirectly to any person or organization, except as expressly permitted
herein, or required by law, that Employee received any sum of money from
Company as a result of the termination of his employment with Company.
It is further understood and agreed that it shall not constitute a
breach of this Agreement for Employee to disclose the terms thereof to
his immediate family and to his attorney and his financial advisor
and/or accountant; provided, however, that Employee shall be obliged to
use his best efforts to assure that such persons do not disclose this
Agreement or any provision thereof or the fact that Employee received
any sum of money from Company as a result of the termination of
Employee's employment with Company. It is further understood and agreed
that Company shall make reasonable efforts to maintain the
confidentiality of this Agreement and its contents and shall not
disclose this Agreement or its contents, directly or indirectly, to any
of Company's employees or agents, unless such persons have a work-
related need to know or unless required by law, and Company shall
instruct each such person to whom it discloses this Agreement or its
contents to refrain from making any disclosure to any other person
except as permitted by this Agreement. Company believes that disclosure
in its 1996 Proxy Statement may be required by law. It is further
understood and agreed that it shall not constitute a breach of this
Agreement for Employee or Company to respond to any unsolicited inquiry
by stating only that Employee and Company separated on mutually
satisfactory terms.
12. Employee represents that he has had an opportunity to be
represented by Counsel of his own choosing in the negotiation and
preparation of this Agreement, that he has had an adequate opportunity
to consider the Agreement, that he has carefully read the Agreement,
that he is fully aware of and understands its
contents and its legal effect, that the preceding paragraphs recite the
sole consideration for this Agreement, that all agreements and
understandings between Employee and Company are embodied, referenced and
expressed herein, in the Retention Agreement and in the Continuing
Agreements (as defined below) and that he enters into this Agreement
voluntarily, without coercion, and based on his own judgment and not in
reliance upon any oral or written representations or promises made by
Company, other than those contained or referenced herein.
13. Employee shall have the option, on or after the Effective
Date, to notify the Company of his election to retire on the Termination
Date so long as his age plus years of service with the Company
(including Company-controlled subsidiaries) equals or exceeds sixty-five
(65). "Retire" shall mean the termination of employment with the
Company with no intention to engage in a full-time vocation. If
Employee elects to retire, the following rights shall apply:
(a) the right to defer the receipt of deferred compensation
accrued on the Effective Date for up to ten (10) years in
accordance with existing Company procedure.
(b) the right to obtain medical and health insurance coverage
pursuant to the terms of the Retired Officer Medical Plan
as approved by the Company Board of Directors (and this
Agreement shall constitute, to the extent required by
such Plan, the consent of the President of the Company to
Employee's participation at an age less than fifty-five
on the date of retirement);
(c) the right to leave custody of 401(k) plan assets with the
trustee for the Company's 401(k) plan in accordance with
the terms of the plan.
14. Employee (but not Company) shall have the right to reject
and revoke this Agreement at any time within twenty-one (21) days of the
execution hereof by delivering written notice to that effect to
Company's General Counsel. If Employee so notifies Company, this
Agreement and General Release will be void and Employee will not be
entitled to receive any benefits hereunder.
15. With respect to any matters under this Agreement that are
governed by state law, the parties agree that this Agreement shall be
construed and governed by the laws of the State of Maine. The language
of all parts of this Agreement shall in all cases be construed as a
whole, according to its fair meaning, and not strictly for or against
any party.
16. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. As used herein, the term "Continuing Agreements" shall mean
and refer to:
(i) The Stock Option Plan and all Stock Option Agreements
granted to Employee thereunder, as expressly modified as to vesting and
option exercise period by the Retention Agreement;
(ii) The Retention Agreement;
(iii) The Performance Award Plan, as modified herein;
(iv) Executive Officer Incentive Plan Agreement, as modified
herein and in the Retention Agreement; and
(v) All other employee benefit programs normally provided to
active employees, in accordance with Section 2 hereof.
EMPLOYEE NATIONAL SEMICONDUCTOR CORPORATION
_________________________ By: _____________________________
Title: __________________________
Exhibit 13.0
NATIONAL SEMICONDUCTOR CORPORATION 1996 ANNUAL REPORT
5 YEAR SELECTED FINANCIAL DATA
(in millions, except per share amounts)
May 26, May 28, May 29, May 30, May 31,
Years Ended 1996 1995 1994 1993 1992
- ----------- ------- ------- ------- ------- -------
OPERATING RESULTS
Net sales $2,623.1 $2,379.4 $2,295.4 $2,013.7 $1,717.5
Operating costs and
expenses 2,409.0 2,095.4 2,020.9 1,893.8 1,861.5
------- ------- ------- ------- -------
Operating income (loss) 214.1 284.0 274.5 119.9 (144.0)
Interest income, net 13.3 14.6 10.9 2.9 5.4
Other income, net 19.8 30.6 18.1 27.1 21.6
------- ------- ------- ------- -------
Income (loss) before
income taxes and
cumulative effect of
accounting change 247.2 329.2 303.5 149.9 (117.0)
Income taxes 61.8 65.0 44.4 19.6 3.1
------- ------- ------- ------- -------
Income (loss) from
continuing operations
before cumulative
effect of accounting
change $ 185.4 $ 264.2 $ 259.1 $ 130.3 $(120.1)
- ------------------------------------------------------------------------
Net income (loss) $ 185.4 $ 264.2 $ 264.0 $ 130.3 $(120.1)
- ------------------------------------------------------------------------
Net income (loss) used
in primary earnings
per common share
calculation (reflecting
preferred dividends,
if applicable):
Income (loss) from
continuing operations
before cumulative effect
of accounting change $ 179.8 $ 253.0 $ 240.4 $ 113.2 $ (130.1)
Net income (loss) $ 179.8 $ 253.0 $ 245.3 $ 113.2 $ (130.1)
- ------------------------------------------------------------------------
Net income (loss) used
in fully diluted
earnings per share
calculation (reflecting
adjustment for interest
on convertible notes
when dilutive, if applicable):
Income (loss) from
continuing operations
before cumulative effect
of accounting change $ 185.4 $ 264.2 $ 259.1 $ 130.3 $ (120.1)
Net income (loss) $ 185.4 $ 264.2 $ 264.0 $ 130.3 $ (120.1)
- ------------------------------------------------------------------------
Earnings (loss) per
common share:
From continuing
operations before
cumulative effect of
accounting change:
Primary $ 1.36 $ 2.02 $ 1.98 $ 0.98 $ (1.24)
Fully diluted $ 1.34 $ 1.92 $ 1.83 $ 0.98 $ (1.24)
Net income (loss):
Primary $ 1.36 $ 2.02 $ 2.02 $ 0.98 $ (1.24)
Fully diluted $ 1.34 $ 1.92 $ 1.87 $ 0.98 $ (1.24)
- ------------------------------------------------------------------------
Weighted average common
and common equivalent
shares outstanding:
Primary 132.5 125.2 121.4 115.9 104.6
Fully diluted 138.6 137.5 141.4 115.9 104.6
- ------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR-END
Working capital $ 579.2 $ 492.4 $ 439.0 $ 336.6 $ 122.0
Total assets $2,658.0 $2,235.7 $1,747.7 $1,476.5 $1,148.9
Long-term debt $ 350.5 $ 82.5 $ 14.5 $ 37.3 $ 33.9
Total debt $ 372.0 $ 106.1 $ 30.1 $ 47.9 $ 45.4
Shareholders' equity $1,577.2 $1,406.7 $1,105.7 $ 837.4 $ 539.4
- ------------------------------------------------------------------------
OTHER DATA
Research and
development expense $ 361.3 $ 283.1 $ 257.8 $ 229.2 $ 208.9
Capital additions $ 628.1 $ 476.8 $ 270.7 $ 235.1 $ 189.4
Number of employees
(in thousands) 20.3 22.4 22.3 23.4 27.2
- ------------------------------------------------------------------------
National has paid no cash dividends on its common stock in any of the
years presented above.
See Note 1 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 Semiconductor Corporation ("National" or the "Company")
recorded sales of $2.6 billion in fiscal 1996 compared to $2.4 billion
in fiscal 1995 and $2.3 billion in fiscal 1994. Net income for fiscal
1996 was $185.4 million compared to $264.2 million in fiscal 1995 and
$264.0 million in fiscal 1994.
The decrease in earnings was primarily attributable to a
combination of lower than expected revenues and higher costs associated
with reduced factory utilization experienced in the second half of the
year as the Company and the global semiconductor industry experienced
much slower order activity due to over-inventory conditions at its
customers and distributors. Results for fiscal 1996 also included one-
time charges of $11.4 million related to the acquisition of Sitel
Sierra, B.V., a Netherlands company that designs and supplies components
and subsystems for the wireless market, and a charge of $19.3 million
associated with various cost reduction programs announced in late fiscal
1996 taken to align costs with current market conditions.
The increase in net income for fiscal 1995 over fiscal 1994 was
primarily due to increased sales and improved gross margins offset
partially by a higher effective tax rate.
Sales
Sales increased overall by 10 percent in fiscal 1996 over fiscal 1995.
While sales growth for the first half of fiscal 1996 was 24 percent over
sales for the first half of fiscal 1995, sales for the second half of
fiscal 1996 remained flat with sales for the second half of fiscal 1995.
Increases in both unit shipments and prices contributed to first half
sales growth for fiscal 1996, while decreased unit shipments, primarily
to customers in the personal computer and peripherals industry and
distributors, together with some modest price declines resulted in lower
sales for the second half of the year. Sales for the second half of
fiscal 1996 declined 14 percent from sales for the first half of the
year. This decline was caused primarily by a general slowdown in new
orders as customers and distributors reduced inventories.
During fiscal 1996, the largest sales growth was in Analog and
Mixed Signal products, which increased 17 percent over fiscal 1995.
These products continued to drive the overall growth in sales,
increasing to 60 percent of total sales in fiscal 1996 as compared to 56
percent in fiscal 1995. Within the Analog and Mixed Signal category,
sales for Local Area Network and Wide Area Network markets, including
wireless communication products, were major contributors to fiscal 1996
sales growth with increases of 21 percent
and 52 percent, respectively, over fiscal 1995 sales. Although sales
in fiscal 1996 for other Analog and Mixed Signal products grew by 13
percent overall, sales growth for these products was offset by a
decrease in product sales from read channel applications in the Mass
Storage market, an area the Company has de-emphasized.
Sales of Bipolar Logic, CMOS Logic and Memory products were flat
compared to fiscal 1995 as the Company continues its strategy to de-
emphasize Logic and EPROM Memory products. Sales of these products
represented 20 percent of total sales, down from 22 percent for fiscal
1995. Sales for all remaining product lines also represented 20 percent
of total sales, down from 22 percent in fiscal 1995. Further discussion
is contained in the "Outlook" section relating to the Company's future
plans which affect a large portion of these product areas.
Fiscal 1996 sales increased in all geographic regions over fiscal
1995. The increases were 8 percent for the Americas, 14 percent for
Europe, 13 percent for Japan and 9 percent for Asia. The dollar value
of foreign currency denominated sales was minimally affected by exchange
rates as favorable currency movements in the first half of the year were
offset in the second half of the year as the dollar began to strengthen
against the Japanese yen and major European currencies. In fiscal 1996,
sales in the Americas declined to 42 percent of total sales, while
sales for Japan grew to 10 percent of total sales and sales remained
consistent at 24 percent each for Europe and Asia.
During fiscal 1995, sales increased 4 percent over fiscal 1994.
Sales in the first half of fiscal 1995 were comparable to the first half
of fiscal 1994. During the second half of fiscal 1995, sales grew 8
percent over the second half of fiscal 1994 as additional manufacturing
capacity came on line to support increased demand. In addition,
customer orders significantly increased in fiscal 1995, especially in
the second half of the year, when orders booked ran at rates
significantly ahead of revenues.
Fiscal 1995 sales increased 13 percent and 8 percent in Europe and
Japan, respectively, over fiscal 1994. Half of this increase in sales
in Europe and Japan resulted from currency movements. Sales in the
Americas and Asia were essentially flat with fiscal 1994. Overall, the
Americas, Europe, Japan and Asia regions accounted for 43%, 24%, 9% and
24% of total fiscal 1995 sales, respectively.
Gross Margin
Gross margin as a percentage of sales declined to 41 percent in fiscal
1996 from 42 percent in each of fiscal 1995 and 1994 (see Note 1). The
primary factor contributing to the decline was reduced factory
utilization in the second half of the year due to a slowdown in new
orders as customers and distributors reduced inventories coupled with a
general increase in operating expenses, including increases in
depreciation expense as new equipment was placed in service. As the
Company entered fiscal 1996, gross margin for the first half of the year
increased to 44 percent due to high product demand, particularly in the
higher margin Analog products. Wafer fab capacity utilization reached
91 percent, despite some capacity constraints. In the second half of
the year, wafer fab capacity utilization declined to approximately 72
percent as the Company reduced production output in an effort to keep
inventories in balance with decreasing demand. This resulted in a
decline in gross margin to 37 percent for the second half of the year.
The decline in unit volume in the second half of the year was
accompanied by modest price declines in older commodity products and
some multimarket Analog products such as amplifiers and voltage
regulators.
Fiscal 1995 gross margins remained essentially flat with fiscal
1994 at 42 percent as 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, declines in unit shipments as
well. Overall gross margins remained relatively constant for most
operating divisions. Wafer capacity utilization approached 90 percent
for most of the year; however, margins were impacted by the Company's
difficulties in growing manufacturing capacity to match rapidly rising
product demand.
Research and Development
Research and development ("R&D") expenses were $361.3 million for fiscal
1996, or 14 percent of sales, compared to $283.1 million in fiscal 1995,
or 12 percent of sales and $257.8 million in fiscal 1994, or 11 percent
of sales. The increase in fiscal 1996 reflects the Company's
accelerated investment in advanced submicron CMOS process technology, as
well as continued investment in the development of new Analog and Mixed
Signal based products for applications in the personal systems,
communications, consumer and industrial markets. Fiscal 1996 R&D
expenses also include an $11.4 million charge for in-process R&D related
to the acquisition of Sitel Sierra B.V. during the year.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased to
$486.8 million, or 19 percent of sales in fiscal 1996 from $433.3
million, or 18 percent of sales in fiscal 1995 and $429.4 million, or 19
percent of sales in fiscal 1994. The increase is primarily attributable
to increases in sales support costs and marketing activities
proportional to increased sales in the first half of the year, together
with increases in contributions to employee compensation and benefit
plans, including the employee retirement and savings program and the
success sharing incentive plan that commenced in fiscal 1996 for all
employees worldwide not already in other bonus or incentive plans.
Fiscal 1996 SG&A expenses also include $9.5 million of the $19.3 million
one-time charge related to the implementation of various cost reduction
programs announced in late fiscal 1996. Although SG&A expenses for the
first half of fiscal 1996 increased 22 percent over the first half of
fiscal 1995, beginning in the second half of fiscal 1996, the Company
reduced SG&A expenses by 11 percent from the first half of the year as
certain cost reduction programs were implemented in response to the
slowdown in market conditions.
Interest Income and Interest Expense
Net interest income was $13.3 million for fiscal 1996 compared to $14.6
million in fiscal 1995 and $10.9 million in fiscal 1994. While interest
income increased in fiscal 1996 primarily due to higher cash balances,
the increase was offset by a greater increase in interest expense
associated with the $258.8 million convertible subordinated notes issued
by the Company in September 1995, as well as other borrowings related to
the Company's continued investment in plant and equipment. Net interest
income was higher in fiscal 1995 over fiscal 1994 primarily due to an
increase in interest income earned from higher average rates on
investments, offset partially by $2.5 million of prepayment premiums
paid in conjunction with the early retirement of debt.
Income Tax Expense
Income tax expense for fiscal 1996 was $61.8 million compared to $65.0
million in fiscal 1995 and $44.4 million in fiscal 1994. The effective
tax rate in fiscal 1996 was 25 percent as compared to approximately 20
percent and 15 percent in fiscal 1995 and 1994, respectively. The
increases in the effective tax rates over the last three years are
primarily attributable to the exhaustion of certain net operating loss
carryovers in various tax jurisdictions.
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 German 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 that have an original maturity of one year or less.
Financial Condition
As of May 26, 1996, cash and short-term investments increased to a total
$504.3 million from a total of $467.4 million at May 28, 1995. Cash
generated from operating activities was $361.4 million in fiscal 1996,
down from $438.6 million in fiscal 1995 and $433.7 million in fiscal
1994, principally as a result of the decline in net income in fiscal
1996.
Cash used for investing activities was $579.0 million in fiscal
1996 compared to $455.0 million in fiscal 1995 and $295.5 million in
fiscal 1994. Capital expenditures increased in fiscal 1996 over fiscal
1995 from $476.8 million to $628.1 million as the Company continued to
invest in property, plant and equipment to expand its manufacturing
capabilities and modernize existing plants. Capital expenditures in
fiscal 1996 included continued expansion of a CMOS wafer fabrication
facility in Arlington, Texas, construction of an eight-inch 0.35 micron
pilot wafer fabrication line at its research and development facility in
Santa Clara, expansion of the Company's BiCMOS six-inch wafer
fabrication facility in South Portland, Maine and commencement of
construction of an eight-inch wafer fabrication facility, also in South
Portland.
The Company's financing activities provided cash of $239.7 million
in fiscal 1996 primarily due to proceeds of $253.3 million, net of
issuance costs, from the private placement of convertible subordinated
notes and $42.4 million from the issuance of common stock, offset by the
repurchase of 2,450,000 shares of common stock on the open market for
$63.0 million. In fiscal 1995, cash provided by financing activities of
$38.6 million was provided by debt proceeds of $157.8 million and $29.4
million from issuance of common stock, offset by $83.0 million of debt
repayment and the repurchase of 3,115,600 of common stock on the open
market for $54.4 million. The Company also repurchased 500,000 shares
of common stock on the open market for $9.5 million in 1994. During
1994, net cash used in financing activities was $17.5 million which
consisted primarily of debt repayments, purchases of treasury stock and
payment of preferred dividends, offset by issuances of common stock.
Management foresees significant cash outlays for plant and
equipment throughout fiscal 1997. The fiscal 1997 capital expenditure
rate is expected to be approximately at the same level as fiscal 1996.
Existing cash and investment balances, together with existing lines of
credit, are felt to be sufficient to finance fiscal 1997 capital
investments.
Outlook
The statements contained in this Outlook and in the Financial Condition
section of Management's Discussion and Analysis are forward looking
based on current expectations and management's estimates. Actual results
may differ materially from those set forth in such forward looking
statements.
The semiconductor industry is characterized by rapid technological
change and frequent introduction of new technology leading to more
complex and more integrated 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.
As a result of industry conditions, the Company may experience periodic
fluctuations in its operating results.
Business conditions for the semiconductor industry weakened
throughout the second half of fiscal 1996. Distributors and personal
computer manufacturers continue to work through inventory corrections.
The duration of this inventory correction process is unknown and may
have a significant ongoing impact on the Company's future operating
results. We have recently seen improving resales in the semiconductor
distribution channel in the U.S. market and some
improvement in orders from personal computer manufacturers. It appears
that the order rates in the industry may have reached the bottom of a
down cycle, but the timing and extent of a recovery in revenue growth
rates is uncertain. Should the current business conditions continue
indefinitely, revenue growth rates expected for fiscal 1997 will be
affected and operating results may not achieve levels recorded in fiscal
1996.
The Company will continue to focus on major customers in the
personal systems, communications, industrial and consumer markets. In
fiscal 1997, the Company expects to continue its emphasis in Analog and
Mixed Signal market opportunities. The Company expects to grow at or
above market rates of growth in particular segments of Analog and Mixed
Signal, but may not necessarily achieve growth in the more mature
commodity markets for Logic and Memory products. Sales growth may also
be affected by product pricing, especially in these commodity areas.
The Company has also experienced a general decline in the rate of
growth in orders since the end of fiscal 1995 and the normal seasonal
upturn generally experienced by the semiconductor industry during the
spring did not materialize in fiscal 1996. Unless the rate of new
orders increases, the Company may not be able to achieve the level of
sales expected for fiscal 1997. The Company faces the risks that either
an upturn for the semiconductor industry may be delayed or that an
upturn will not provide new orders at a level sufficient to generate
revenue growth. Additionally, the rate of orders and product pricing
may be affected by continued and increasing competition and by the
growth rates in the personal computer industry.
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, focus on Analog and Mixed Signal products and introduction
of new products are expected to result in gross margin improvement. The
Company has committed substantial capital investments to bring new
manufacturing capacity on line for fiscal 1997. While management
expects to more fully utilize wafer capacity as business conditions
return to more normal levels, there is no certainty that the level of
demand will be sufficient to fully utilize the additional new capacity
when it is brought on line. Failure to improve manufacturing capacity
utilization will lead to flat or decreased gross margin for fiscal 1997.
In addition, unexpected start-up expenses, inefficiencies and delays in
the start of production in the Company's new eight-inch wafer
fabrication facility in South Portland or the wafer fabrication facility
expansion in Arlington may result in lower than expected gross margin
for fiscal 1997. The Company experienced pricing declines in Logic and
Analog commodity products during fiscal 1996 and if this trend
continues or some of the Company's other products also become exposed to
pricing pressure, the effect may cause deterioration in gross margin in
fiscal 1997. The Company's focus is to continue to introduce new
products, particularly higher margin Analog and Mixed Signal based
products, to reposition its product portfolio so that its is less
exposed to the pricing declines of older commodity products. If the
development of new products is delayed or their market acceptance is
below expectations, there may be a decrease in the Company's gross
margin for fiscal 1997.
Although the Company believes that continued focused investment in
research and development is a key factor to the Company's successful
growth, ongoing research and development spending for fiscal 1997 is not
currently expected to exceed fiscal 1996 levels. National's product
portfolio, particularly products in the personal systems and
communications area, have short product life cycles and successfully
developing and introducing new products is critical to the Company's
ability to maintain a competitive position in the marketplace. The
Company's ability to achieve strong financial performance is also
dependent on the development of new manufacturing processes and the
timely development and market acceptance of new products. The Company
also expects overall SG&A expenses for fiscal 1997 to be lower than
fiscal 1996 as management continues to evaluate strategies to align its
cost structure with current market conditions.
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 applications. The Company's joint
venture in the People's Republic of China ("China") to design,
manufacture and market subscriber line interface modules and other
products using similar technologies is dependent on the development of a
telecommunication infrastructure in China. The Company's success in
this joint venture is subject to the risk of market acceptance, as well
as the general economic conditions and political environment in China.
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. No assurance
can be given that the Company will be successful in these endeavors or
that such endeavors will provide financial growth.
Because of significant international operations, overall, the
Company benefits from a weaker dollar and is adversely affected by a
stronger dollar relative to major currencies worldwide. As such,
changes in exchange rates, and in particular a strengthening of the U.S.
dollar, may unfavorably affect the Company's consolidated sales and net
income. The Company attempts to hedge the short-term exposures to
foreign currency fluctuations, but there can be no assurance that the
Company's risk management activities will offset more than a portion of
the adverse financial impact resulting from unfavorable movements in
foreign exchange.
In June 1996, the Company announced that it had formed a new
organization, consisting of its family logic, memory and discrete
businesses, to be called Fairchild Semiconductor. The Company is
pursuing a number of alternatives with respect to Fairchild
Semiconductor, including a sale or partial financing of all or a portion
of the businesses or related assets. The Company expects to record a
one-time charge of $280 million to $320 million in the first quarter of
fiscal 1997, primarily to reflect the write down of assets to estimated
realizable value. A portion of the estimated charge is associated with
staffing reductions and other expenses necessary to reduce the Company's
associated infrastructure in both Fairchild Semiconductor and the
continuing National core business areas (see Note 15). Since the nature
and timing of the ultimate strategy selected for these businesses is not
known and cannot be forecast at this time, it is difficult to predict
the future impact of such transactions on the Company's financial
condition or operating results for fiscal 1997. The Company faces the
risk that it may not be able to sell or finance all or a portion of the
businesses or related assets. Retaining these businesses or related
assets may result in an unfavorable impact to the Company's operating
results. The Company also faces the risk that the Fairchild businesses,
as well as the Company's other businesses, may be disrupted and
experience lower performance levels during the process of evaluating
alternatives. In addition, the actual net realizable value of the
assets of these businesses may be lower or higher than amounts initially
estimated. The effect of the Company's announced reorganization and the
potential disposition of these businesses are expected to significantly
reduce the Company's profitability for fiscal 1997. The Company has
also reorganized the structure of its other businesses by consolidating
its original six divisions down to three divisions. The Company's
future operating results and financial condition could be affected by
how it manages the transition to a new organizational structure.
In addition to the risks and uncertainties discussed above, other
risks and uncertainties that may cause actual results to differ
materially include, but are not limited to, the general economy,
regulatory and international economic conditions, changing environment
of the semiconductor industry, competitive products and pricing, growth
in the personal computer and communications industries, the effects of
legal and administrative cases and proceedings, and such other risks and
uncertainties as detailed from time to time in the Company's SEC reports
and filings.
NATIONAL SEMICONDUCTOR CORPORATION 1996 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
May 26, May 28,
1996 1995
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 442.4 $ 420.3
Short-term marketable investments 61.9 47.1
Receivables, net 281.2 318.0
Inventories 325.7 263.0
Deferred tax assets 71.1 77.4
Other current assets 73.7 52.5
------- -------
Total current assets 1,256.0 1,178.3
Property, plant and equipment, net 1,308.1 962.4
Long-term marketable investments 11.7 20.2
Other assets 82.2 74.8
------- -------
Total assets $2,658.0 $2,235.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 21.5 $ 23.6
Accounts payable 255.6 272.0
Accrued expenses 235.1 230.7
Income taxes 164.6 159.6
-------- --------
Total current liabilities 676.8 685.9
Long-term debt 350.5 82.5
Deferred income taxes 12.1 20.1
Other non-current liabilities 41.4 40.5
-------- --------
Total liabilities $1,080.8 $ 829.0
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock of $0.50 par value.
Authorized 1,000,000 shares. Issued
and outstanding 345,000 shares of
convertible preferred stock in 1995
(liquidation preference of $172.5) $ - $ 0.2
Common stock of $0.50 par value.
Authorized 300,000,000 shares.
Issued and outstanding 136,923,332
in 1996; 125,895,301 in 1995 68.4 63.1
Additional paid-in capital 930.2 992.3
Retained earnings 581.9 411.0
Unearned compensation - restricted stock (3.3) -
Treasury stock, at cost:
3,094,896 shares in 1995 - (59.9)
-------- --------
Total shareholders' equity $1,577.2 $1,406.7
-------- --------
Total liabilities and
shareholders' equity $2,658.0 $2,235.7
======== ========
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1996 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Years Ended
---------------------------
May 26, May 28, May 29,
1996 1995 1994
------- ------- -------
Net sales $2,623.1 $2,379.4 $2,295.4
Operating costs and expenses:
Cost of sales 1,560.9 1,384.5 1,336.3
Research and development 361.3 283.1 257.8
Selling, general and administrative 486.8 433.3 429.4
Restructuring of operations - (5.5) (2.6)
-------- --------- --------
Total operating costs and expenses 2,409.0 2,095.4 2,020.9
-------- --------- --------
Operating income 214.1 284.0 274.5
Interest income, net 13.3 14.6 10.9
Other income, net 19.8 30.6 18.1
-------- -------- --------
Income before income taxes and
cumulative effect of accounting change 247.2 329.2 303.5
Income taxes 61.8 65.0 44.4
-------- -------- --------
Income before cumulative
effect of accounting change 185.4 264.2 259.1
Cumulative effect of accounting change - - 4.9
-------- -------- --------
Net income $ 185.4 $ 264.2 $ 264.0
======== ======== ========
Earnings per share before cumulative
effect of accounting change:
Primary $ 1.36 $ 2.02 $ 1.98
Fully diluted $ 1.34 $ 1.92 $ 1.83
Earnings per share:
Primary $ 1.36 $ 2.02 $ 2.02
Fully diluted $ 1.34 $ 1.92 $ 1.87
Weighted average shares:
Primary 132.5 125.2 121.4
Fully diluted 138.6 137.5 141.4
Net income used in primary earnings per
common share calculation (reflecting
preferred dividends, if applicable) $ 179.8 $ 253.0 $ 245.3
Net income used in fully diluted earnings
per share calculation (reflecting
adjustment for interest on convertible
notes when dilutive, if applicable) $ 185.4 $ 264.2 $ 264.0
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1996 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions, except per share amounts)
Preferred Stock
------------------ Un-
Convert- earned Addi- Retained
ible Con- Com- Com- Treas- tional Earnings
Exchange- vert mon pen- ury Paid-In (Def-
able ible Stock sation Stock Capital icit) Total
-------- ------ ----- ------ ----- ------- ------ -----
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 - - - - (54.4) - - (54.4)
Issuance of
common stock
under option,
purchase, and
profit sharing
plans and tax
benefit of $51.9 - - 1.7 - 4.0 79.6 - 85.3
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
Net income - - - - - - 185.4 185.4
Conversion of
convertible
preferred shares - (0.2) 6.1 - - (5.9) - -
Convertible
preferred
dividends
of $32.50
per share - - - - - - (5.6) (5.6)
Acquisition of
treasury stock - - - - (63.0) - - (63.0)
Retirement of
treasury stock - - (2.8) - 118.6 (115.8) - -
Issuance of
common stock
under option,
purchase, and
profit sharing
plans and tax
benefit of $15.9 - - 2.0 - 4.3 56.3 - 62.6
Unearned
compensation
charge relating
to restricted
stock - - - (3.3) - 3.3 - -
Unrealized loss
on available-
for-sale
securities
(net of tax) - - - - - - (8.9) (8.9)
- ------------------------------------------------------------------------
Balances at
May 26, 1996 $ - $ - $ 68.4 $(3.3)$ - $930.2 $ 581.9 $1,577.2
===== ===== ===== ====== ==== ====== ======= ========
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1996 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Years Ended
---------------------------
May 26, May 28, May 29,
1996 1995 1994
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 185.4 $ 264.2 $ 264.0
Adjustments to reconcile net income
with net cash provided by operations:
Depreciation and amortization 232.6 185.4 173.8
Cumulative effect of accounting change - - (4.9)
Gain on sale of investments (4.3) (6.9) (2.2)
Changes in deferred taxes 3.3 (95.7) 1.7
Tax benefit associated with stock options 15.9 51.9 2.0
In-process research and development charge 11.4 1.5 -
Loss on disposal of equipment 4.8 8.6 9.1
Other, net (0.5) (2.1) (1.8)
Changes in certain assets and liabilities:
Receivables 23.8 (26.5) (16.1)
Inventories (77.2) (48.4) (18.5)
Other current assets (33.3) (4.5) 1.5
Accounts payable and accrued expenses (5.3) 26.0 42.2
Income taxes 5.0 76.1 13.6
Other non-current liabilities (0.2) 9.0 (30.7)
------- ------- -------
Net cash provided by operating activities 361.4 438.6 433.7
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (628.1) (476.8) (270.7)
Proceeds from the sale of equipment 24.6 - -
Proceeds from the sale and maturity
of available-for-sale securities 116.7 184.9 658.7
Maturity of held-to-maturity securities 820.2 707.1 -
Purchase of available-for-sale securities (132.2) (144.9) (680.0)
Purchase of held-to-maturity securities (819.8) (696.7) -
Proceeds from sale of net assets of
Dynacraft, Inc. 70.0 - -
Proceeds from sale of investments 7.8 - 7.7
Business acquisitions, net of cash acquired (19.2) (12.0) -
Purchase of investments and other, net (19.0) (16.6) (11.2)
------- ------- -------
Net cash used by investing activities (579.0) (455.0) (295.5)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible
subordinated notes, less issuance costs 253.3 - -
Proceeds from issuance of debt 42.0 157.8 1.9
Repayment of debt (29.4) (83.0) (19.7)
Issuance of common stock under
employee benefit plans 42.4 29.4 28.5
Purchase of treasury stock (63.0) (54.4) (9.5)
Payment of preferred dividends (5.6) (11.2) (18.7)
------- ------- -------
Net cash provided (used) by
financing activities 239.7 38.6 (17.5)
------- ------- -------
Net change in cash and cash equivalents 22.1 22.2 120.7
Cash and cash equivalents at beginning
of year 420.3 398.1 277.4
------- ------- -------
Cash and cash equivalents at end of year $ 442.4 $ 420.3 $398.1
======= ======= ======
See accompanying Notes to Consolidated Financial Statements
NATIONAL SEMICONDUCTOR CORPORATION 1996 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. Effective May 29,
1995, the Company prospectively changed its method of accounting for
depreciation from the 150 percent declining balance method to the
straight-line method for machinery and equipment placed in service on or
after that date. The change was adopted because it conforms with
predominant industry practice and is expected to result in a more
appropriate distribution of the cost of the new machinery and equipment
over its estimated useful life. The effect of the change was an
increase to net income of $11.1 million, or eight cents (fully diluted)
per share, for fiscal year 1996. Assets placed in service prior to
fiscal year 1996 and assets other than machinery and equipment continue
to be depreciated using prior years' depreciation methods consisting of
both straight-line and declining balance methods over the assets'
remaining estimated useful lives, or in the case of property under
capital lease and leasehold improvements, over the lesser of the
estimated useful life or lease term.
The Company capitalizes interest on borrowings during the
construction period of major capital projects. Capitalized interest is
added to the cost of the underlying assets and is amortized over their
useful lives. For fiscal year 1996, the Company capitalized $6.0
million of interest in connection with various capital expansion
projects. Prior to fiscal year 1996, capitalized interest costs were
immaterial.
In 1995, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds
the future undiscounted cash flows attributable to such assets. SFAS
No. 121 will become effective in the Company's fiscal year 1997.
Adoption of SFAS No. 121 is not expected to have a material impact on
the Company's financial position or results of operations.
Income Taxes
Income taxes have been provided in accordance with SFAS No. 109,
"Accounting for Income Taxes," under which deferred tax liabilities and
assets at the end of each period are determined based on the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases 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.
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
potentially dilutive securities outstanding which are not common stock
equivalents such as convertible preferred shares for all fiscal years
presented and convertible subordinated notes beginning in fiscal year
1996. If the result of assumed conversions is dilutive, the dividend
adjustments for the convertible preferred shares are reduced and net
earnings are adjusted for the interest expense on the convertible
subordinated notes while the average shares of common stock outstanding
are increased. For fiscal year 1996, the effect of assumed conversion
of the convertible subordinated notes was antidilutive.
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 current
results. Gains and losses resulting from foreign currency transactions
are also included in current results.
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 financial instruments.
Marketable Investments. The Company classifies its marketable debt and
equity securities into held-to-maturity or available-for-sale categories
in accordance with the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." 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 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 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
26, 1996.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Employee Stock Plans
The Company accounts for its stock option plan and its employee stock
purchase plans in accordance with provisions of the Accounting
Principles Board's Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." In 1995, the Financial Accounting Standards Board
released SFAS No. 123, "Accounting for Stock Based Compensation." SFAS
No. 123 provides an alternative to APB 25 and is effective for fiscal
years beginning after December 15, 1995. The Company intends to
continue to account for its employee stock plans in accordance with the
provisions of APB 25. Accordingly, SFAS No. 123 will not have any
impact on the Company's reported financial position or results of
operations.
Accounting Change
Effective beginning in fiscal year 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 year 1994 of $4.9 million was reflected
in the 1994 first quarter results. The impact of the change in fiscal
year 1994 under the new method of accounting was immaterial.
Reclassifications
Certain amounts in prior years' financial statements and related notes
have been reclassified to conform to the fiscal year 1996 presentation.
Note 2. Financial Instruments
Marketable Investments
The Company's policy is to diversify its investment portfolio to reduce
risk to principal that could arise from credit, geographic and
investment sector risk. At May 26, 1996, 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 $7.2 million and $6.9 million for the years ended May 26,
1996 and May 28, 1995, respectively. Gross realized losses were not
material for either fiscal year 1996 or 1995.
Investments at fiscal year end comprise:
Gross
Amortized Unrealized Estimated
(in millions) Cost Gains Fair Value
1996 --------- ---------- ----------
SHORT-TERM INVESTMENTS
Available-for-Sale Securities:
Certificates of deposit $ 11.0 $ - $ 11.0
Corporate bonds 1.0 - 1.0
Commercial paper 9.5 - 9.5
Governmental agencies 13.0 - 13.0
U.S. Treasury bills 2.4 - 2.4
Held-to-Maturity Securities:
Auction rate preferred stock 25.0 - 25.0
------ ------ -------
Total Short-Term Investments $ 61.9 $ - $ 61.9
======= ====== =======
LONG-TERM INVESTMENTS
Available-for-Sale Securities:
Equity securities $ 3.5 $ 8.2 $ 11.7
------- ------- -------
Total Long-Term Investments $ 3.5 $ 8.2 $ 11.7
======= ======= =======
1995
SHORT-TERM INVESTMENTS
Available-for-Sale Securities:
Certificates of deposit $ 5.0 $ - $ 5.0
Corporate bonds 6.0 - 6.0
Commercial paper 6.8 - 6.8
Governmental agencies 4.0 - 4.0
Held-to-Maturity Securities:
Corporate bonds 25.3 - 25.3
------- ------- -------
Total Short-Term Investments $ 47.1 $ - $ 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
====== ====== ======
Gross unrealized losses were not material for either fiscal year 1996 or
1995.
At May 26, 1996, the Company held $20.9 million and $410.1 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 ($154.8), institutional money market funds ($45.6),
certificates of deposit ($2.0), commercial paper ($219.1) and government
securities ($9.5).
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 $8.2 million and $17.1 million is included in retained
earnings at May 26, 1996 and May 28, 1995, respectively.
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 primarily comprise sales of the Company's products in
currencies other than the U.S. dollar, a majority of which 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 certain non-U.S. dollar
denominated asset and liability positions. Gains and losses on these
contracts are matched with the corresponding effect of currency
movements on these financial positions.
Interest Rate Derivatives
The Company utilizes swap agreements to exchange the fixed interest rate
of certain long-term U.S. dollar debt for a variable U.S. dollar
interest rate and to exchange the variable interest rate of certain
long-term Japanese yen debt for a fixed Japanese yen interest rate. The
variable rates on swaps are based primarily on U.S. dollar LIBOR and
reset on a quarterly or semi-annual basis. These agreements that have
maturities of up to three years involve the exchange of fixed rate
interest payments for variable rate interest payments without exchange
of the underlying principal amounts. The differential between fixed and
variable rates to be paid or received is accrued as interest rates
change in accordance with the agreements and is included in current
interest expense.
The Company utilizes interest rate collars to limit the Company's
exposure to fluctuation in short-term returns on certain investments in
its portfolio by locking in a range of interest rates. An interest rate
collar is a no-cost structure that consists of a purchased option and a
sold option which are entered into simultaneously with the same
counterparty. The Company receives a payment when the three-month LIBOR
falls below predetermined levels and makes a payment when the three-
month LIBOR rises above predetermined levels. These payments are
recorded as gains or losses in interest income. All interest rate
option contracts outstanding at May 26, 1996 expire within three years.
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 26, 1996 and May 28,
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 26, 1996 and May 28, 1995. 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 or interest rate 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:
Notional Estimated Credit
(in millions) Principal Fair Value Risk
--------- ---------- ------
1996
INTEREST RATE INSTRUMENTS
Swaps $ 97.7 $ (0.2) $ 0.2
Interest rate collars 50.0 (0.2) -
FOREIGN EXCHANGE INSTRUMENTS
Forward contracts:
To buy dollars 23.1 1.6 1.9
To sell dollars 55.7 0.9 0.9
Purchased options 33.8 0.8 0.8
1995
FOREIGN EXCHANGE INSTRUMENTS
Forward contracts:
To buy dollars 37.3 (1.7) -
To sell dollars 55.2 - 0.2
Purchased options 66.0 0.3 0.3
The Company has outstanding currency exchange contracts to sell foreign
currency, predominantly Japanese yen, and to purchase U.S. dollars in
the future. The Company has outstanding currency exchange contracts
predominantly 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 are deferred and recognized in
income in the same period as the hedged transactions. Unrealized gains
and losses on such agreements at May 26, 1996 and May 28, 1995 are
immaterial. The Company has purchased foreign currency options
denominated in Japanese yen and German deutsche mark. All foreign
currency option contracts expire within one year. Premiums on purchased
foreign exchange option contracts are amortized over the life of the
option. Deferred gains on these option contracts are deferred until the
occurrence of the hedged transaction and recognized as a component of
the hedged transaction. Deferred gains on such agreements at May 26,
1996 and May 28, 1995 are immaterial.
Fair Value of Financial Instruments
A summary table of estimated fair values of financial instruments at
fiscal year end follows:
1996 1995
-------------------- --------------------
Carrying Estimated Carrying Estimated
(in millions) Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Long-term investments $ 11.7 $ 11.7 $ 20.2 $ 20.2
Long-term debt (350.5) (327.1) (82.5) (86.5)
Currency forward contracts:
To buy dollars 2.0 1.6 (0.8) (1.7)
To sell dollars - 0.9 (0.1) -
Currency options 0.3 0.8 0.5 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
During fiscal year 1996, the Company utilized $6.8 million of
restructuring reserves primarily attributable to severance and fixed
asset disposals related to the completion of the business consolidation
of the Company's wholly owned subsidiary, Dynacraft, Inc. ("DCI") into
one location in California and the transfer of the remaining military
assembly operations in South Portland, Maine to Singapore.
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 was attributable to the
Company's decision to retain certain facilities and related support
operations connected therewith. The additional restructuring
requirements included charges for the consolidation of its DCI business
and the decision by the Company to transfer the military assembly
operations in South Portland to Singapore.
During fiscal year 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 reductions in
headcount and related infrastructure at its Santa Clara, California
plant. Of the reserves, $9.6 million represented cash charges and the
remainder represented fixed asset write offs and other non-cash items.
During fiscal year 1994, the Company utilized $44.2 million of
restructuring reserves primarily attributable to the closure of a wafer
fabrication module in Salt Lake City and closure of a wafer fabrication
line in Santa Clara.
Note 4. Consolidated Financial Statements Details
(in millions) 1996 1995
------ ------
RECEIVABLE ALLOWANCES
Doubtful accounts $ 2.5 $ 2.4
Returns and allowances 32.5 31.3
------- ------
Total receivable allowances $ 35.0 $ 33.7
======= =======
INVENTORIES
Raw materials $ 39.1 $ 33.9
Work in process 208.5 165.9
Finished goods 78.1 63.2
------- -------
Total inventories $ 325.7 $ 263.0
====== ======
PROPERTY, PLANT AND EQUIPMENT
Land $ 19.1 $ 12.5
Buildings and improvements 523.9 501.4
Machinery and equipment 1,604.7 1,419.9
Construction in progress 369.0 213.8
------- -------
Total property, plant and equipment 2,516.7 2,147.6
Less accumulated depreciation and amortization 1,208.6 1,185.2
------- -------
Property, plant and equipment, net $1,308.1 $ 962.4
======== =======
ACCRUED EXPENSES
Payroll and employee related $161.1 $ 159.3
Other 74.0 71.4
-------- -------
Total accrued expenses $235.1 $ 230.7
====== =======
(in millions) 1996 1995 1994
------ ------ ------
OTHER INCOME
Net intellectual property income $ 14.0 $ 28.7 $ 15.9
Gain on sale of investments, net 4.3 6.9 2.2
Other 1.5 (5.0) -
------- ------- -------
Total other income, net $ 19.8 $ 30.6 $ 18.1
======= ====== ======
INTEREST
Interest income $ 29.3 $ 21.3 $ 14.2
Interest expense (16.0) (6.7) (3.3)
------- ------- ------
Interest, net $ 13.3 $ 14.6 $ 10.9
======= ======= =======
Note 5. Debt
Debt at fiscal year end consists of the following:
(in millions) 1996 1995
------ ------
Convertible subordinated notes payable at 6.5% $ 253.6 $ -
Notes secured by real estate payable at
12.5% and 12.6% 16.4 20.2
Notes secured by equipment payable at 6.7% to 8.8% 36.3 33.0
Unsecured loan payable at 7.5% 42.2 50.0
Other 22.7 -
Obligations under capital leases 0.8 2.9
------- -------
Total debt 372.0 106.1
Less current portion of long-term debt 21.5 23.6
------- -------
Long-term debt $ 350.5 $ 82.5
======= =======
In September 1995, the Company completed a private placement of
convertible subordinated notes in the total amount of $258.8 million to
certain qualified investors. Interest is payable semi-annually
beginning April 1, 1996, at an annual rate of 6.5 percent. The notes,
which mature in 2002, are not redeemable by the Company prior to October
3, 1998. Thereafter, the notes are redeemable at the option of the
Company, initially at 103.714 percent of face value and at decreasing
prices thereafter to 100 percent of face value at maturity, plus accrued
interest. The notes are convertible at any time into shares of the
Company's common stock at a conversion price of $42.78 per share and are
subordinated to senior indebtedness of the Company. The notes have not
been and will not be registered under the Securities Act of 1933 and may
not be offered or sold within the United States absent registration or
exemption from such registration requirements.
Notes secured by real estate consist of two 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 1997 to March 2002. The notes secured by
machinery and equipment have installments payable either monthly or
quarterly with maturities ranging from May 1997 to August 2000. The
unsecured 7.5 percent note is due in monthly installments through May
2000.
For each of the next five years and thereafter, debt and capital
lease obligations are as follows:
Total Debt
(in millions) (Principal only)
------------------
1997 $ 21.5
1998 20.3
1999 44.1
2000 22.1
2001 2.4
Thereafter 261.6
-------
Total $ 372.0
=======
The Company's multicurrency and revolving financing agreements provide
for multicurrency loans, letters of credit and standby letters of
credit. The multicurrency loan agreement ($30 million) expires in
December 1996. The revolving credit agreement ($200 million), which
includes standby letters of credit, expires in December 1997. The
Company does not anticipate any problems in renewing the credit
agreements at time of termination. At May 26, 1996, $40.1 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 26,
1996, under the most restrictive covenant, no more than $270.3 million
was available for payment of dividends on the Company's common stock.
Note 6. Income Taxes
Worldwide pretax earnings from operations and income taxes consisted of
the following:
(in millions) 1996 1995 1994
------ ------ ------
Income before income taxes:
U.S. $170.2 $233.5 $264.9
Non-U.S. 77.0 95.7 38.6
------ ------ ------
$247.2 $329.2 $303.5
====== ====== ======
Income taxes:
Current:
U.S. Federal $ 16.2 $ 90.7 $ 26.9
U.S. state and local 1.0 5.0 6.4
Non-U.S. 25.3 12.7 5.6
------ ------ ------
42.5 108.4 38.9
Deferred:
U.S. Federal and state 11.4 (96.8) -
Non-U.S. (8.0) 1.5 3.5
Charge in lieu of taxes attributable
to employee stock plans 15.9 51.9 2.0
------ ------ ------
$ 61.8 $ 65.0 $ 44.4
====== ====== ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at May
26, 1996 and May 28, 1995 are presented below:
(in millions) 1996 1995
------ ------
DEFERRED TAX ASSETS
Reserves and accruals $ 56.6 $ 56.8
Loss carryovers and other allowances - foreign 56.9 50.0
Credit carryovers 38.9 46.1
Capitalized assets and other assets 31.0 27.6
Inventory capitalization and reserves 13.7 20.9
Foreign tax and AMT credit carryovers 9.0 7.7
Capitalized R&D - state 3.7 5.7
Other 2.5 -
------- -------
Total gross deferred assets 212.3 214.8
Valuation allowance (107.3) (106.5)
------- -------
Net deferred assets 105.0 108.3
------- -------
DEFERRED TAX LIABILITIES
Capital allowance - foreign (12.1) (20.1)
Other liabilities (16.9) (8.9)
------- -------
Total gross deferred liabilities (29.0) (29.0)
------- -------
Net deferred tax assets $ 76.0 $ 79.3
======= =======
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 sheets
are $17.0 million and $22.0 million of deferred tax assets at May 26,
1996 and May 28, 1995, respectively.
The Company has recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized due to
the expiration of net operating losses and tax credit carryovers.
The changes in the valuation allowance are as follows:
(in millions) 1996 1995
------ ------
Balance at beginning of year $ (106.5) $ (248.6)
Changes in non-U.S. tax loss carryovers (6.9) 23.1
Utilization of U.S. tax credits 5.9 0.1
Change in probability of recovery for
deferred tax assets 2.7 111.3
Other (2.5) 7.6
-------- ---------
Balance at end of year $ (107.3) $ (106.5)
========= ========
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 in which the deferred tax assets
are deductible, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net
of valuation allowances as of May 26, 1996.
The reconciliation between the income tax rate computed by applying
the U.S. Federal statutory rate and the reported worldwide tax rate
follows:
1996 1995 1994
------ ------ ------
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Non-U.S. losses and tax differential
related to non-U.S. income (3.8) (5.9) 2.9
U.S. state and local taxes net of
federal benefits 0.2 1.5 1.4
Research and development credits (9.7) (2.8) -
Change in beginning of year valuation allowance (1.1) (8.2) (25.0)
Other 4.4 0.1 0.3
----- ----- -----
Effective rate 25.0% 19.7% 14.6%
===== ===== =====
U.S. income taxes were provided for deferred taxes on undistributed
earnings of non-U.S. subsidiaries to the extent that dividend payments
from such companies are expected to result in additional liability.
There has been no provision of U.S. income taxes for the remaining
undistributed earnings of approximately $347.4 million at May 26, 1996,
because the Company intends to reinvest these earnings indefinitely in
operations outside the United States. If such earnings were
distributed, additional U.S. taxes of approximately $89.7 million would
accrue after utilization of U.S. tax credits.
At May 26, 1996, National had credit carryovers of approximately
$38.9 million which expire from 1999 through 2011. National also had
operating loss carryovers of $199.2 million from 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 through
1982 and subsequent litigation related thereto resulted in a final
decision being entered by the U.S. Tax Court in June 1995. The period
for appealing the decision expired in September 1995. After giving
effect to loss and credit carryovers, the final tax deficiency was $4.1
million. The associated interest has not been finally determined, but
preliminary IRS calculations estimate it to be approximately $44.9
million. The Company has made advance payments to the IRS on the tax
and interest deficiency, but disagrees with the IRS' interest
calculation and has filed a claim for refund on the disputed difference
with the IRS.
In January 1994, the Company and the IRS settled all issues in the
examination of fiscal years 1983 through 1985. After giving effect to
net operating loss carryovers and credits finalized by the completion of
the Tax Court case, the tax deficiency was $120 thousand and the
associated interest was $492 thousand, all of which has been paid.
In April 1995, the IRS issued a deficiency notice for fiscal years
1986 through 1989 seeking additional taxes of approximately $11.0
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 has filed a protest of the deficiency notice. The IRS has begun
examination of the Company's tax returns for fiscal years 1990 through
1993. In addition, the Malaysian Inland Revenue Department is examining
the Company's tax returns for fiscal years 1985 through 1993. The
Company believes that adequate tax payments have been made and accruals
recorded for all years in question.
Note 7. 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.
In November 1995, National called for redemption in December 1995
of all of the shares of the $32.50 Convertible Preferred Shares, $0.50
par value (the "Convertible Preferred Shares"). All of the Convertible
Preferred Shares were redeemed for the number of shares of common stock
as were issuable at a conversion rate of 35.273 shares of common stock
for each Convertible Preferred Share, resulting in a total of 12,169,185
additional shares of common stock being issued.
In connection with the private placement of convertible
subordinated notes completed in September 1995 (see Note 5), the Company
has reserved for issuance a total of 6,048,387 shares of common stock
issuable upon conversion of the outstanding 6.5 percent convertible
subordinated notes due 2002.
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. 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 years 1996, 1995 and 1994, National purchased 2,450,000
shares on the open market at a cost of $63.0 million, 3,115,600 shares
on the open market at a cost of $54.4 million and 500,000 shares on the
open market at a cost of $9.5 million, respectively. Of these
repurchased shares the Company used 160,427 shares and 211,565 shares
for issuance of stock under its various benefit plans in fiscal years
1996 and 1995, respectively. All of the remaining repurchased shares
have been retired as of May 26, 1996.
National has paid no cash dividends on its common stock and intends
to continue its practice of reinvesting all earnings.
Note 8. 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 ten years and one day after
grant or three months after termination of employment (up to five years
after termination due to death, disability or retirement), whichever
occurs first. Options can become exercisable after a six-month period,
but most are exercisable ratably over a four-year period.
On May 18, 1995, the Company granted to its former chairman, in
connection with his retirement, an option to purchase 300,000 shares of
the Company's common stock. The option was granted outside the stock
option plan 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 thirteen months and expired after twenty-seven
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 prior terms of the plan expired 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 5.0 million 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 years 1996 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 May 28, 1995 12.3 $ 3.75 to $27.88
Granted 3.9 $13.63 to $32.50
Exercised (2.7) $ 3.75 to $20.50
Cancelled (0.9) $ 4.38 to $28.25
------
Outstanding at May 26, 1996 12.6 $ 3.75 to $32.50
Exercisable at May 26, 1996 2.6 $ 3.75 to $24.88
Expiration dates: From July 22, 1996 to May 3, 2006
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 year 1996 were as follows:
Number of Shares Price
(in millions) per Share
---------------- -----------------
Issued:
1995 0.3 $14.34
1996 1.3 $11.79 to $23.91
Under the stock option and purchase plans, 4.0 million shares of common
stock were issued during fiscal year 1996. As of May 26, 1996, 26.6
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 9. Other Stock Plans
National has a director stock plan which 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 their subsequent election to the Board by shareholders. As
of May 26, 1996, 30,000 shares had been issued under the director stock
plan and 170,000 shares were reserved for future issuances.
National has a performance award plan 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.
In fiscal year 1996, the Company issued 111,990 shares in the first
payout under the plan. No shares were issued under the performance
award plan during fiscal years 1995 and 1994. As of May 26, 1996,
888,010 shares were reserved for future issuances. Expense recorded in
fiscal years 1996, 1995 and 1994 under the plan was not material.
The Company adopted a restricted stock plan in fiscal year 1996
which authorizes the issuance of up of 2.0 million shares of the
Company's common stock to non-officer employees of the Company. The
plan is intended to be made available to a limited group of employees
with technical expertise deemed important to the Company. The stock
restrictions expire over time as determined by the Board of Directors.
As of May 26, 1996, no shares had been issued under the plan.
In May 1996, the Company issued 200,000 shares of restricted stock
to Brian L. Halla, the Company's newly hired President and Chief
Executive
Officer. These shares were not issued under the restricted stock plan
and have restrictions which expire annually over a four-year period.
The shares were recorded at the market value on the date of issuance as
unearned compensation-restricted stock and are shown as a separate
component of shareholders' equity. Unearned compensation is amortized
to expense over the respective vesting period. For fiscal year 1996,
such expense was not material.
Note 10. 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 5 percent of consolidated net earnings before income taxes or
1 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
year 1996 were 160,427. As of May 26, 1996, 1.7 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 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) 1996 1995 1994
------ ------ ------
Profit Sharing Plan $13.0 $17.3 $15.9
Salary deferral "401(k)" Plan $10.8 $ 9.8 $ 8.3
Non-U.S. pension and retirement plans $ 7.0 $ 6.3 $ 4.7
Note 11. 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 $40.1 million, $37.4 million
and $48.9 million in fiscal years 1996, 1995 and 1994, respectively.
Future minimum commitments under noncancelable operating leases are as
follows:
(in millions)
---------------
1997 $ 30.2
1998 22.8
1999 17.3
2000 15.3
2001 11.7
Thereafter 29.8
------
Total $ 127.1
======
During 1995, the Company purchased the equity interest in two of its
facilities, which previously had been subject to 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 26, 1996, these commitments total $30.6
million and $21.4 million for fiscal years 1997 and 1998, respectively,
based on prices and minimum contractual volumes negotiated in March
1996.
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 in 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 a supplemental petition for
relief in October 1994 and the Company is continuing to contest the
Penalty Notice in administrative proceedings. In July 1988, the Customs
Service liquidated various duty drawback claims previously filed by the
Company and demanded repayment of accelerated drawback previously paid
to the Company plus accrued interest. In March 1996, the Customs
Service approved in part and denied in part administrative protests
filed by the Company contesting the denied drawback claims. The Company
is pursuing judicial review of the denial in the Court of International
Trade and has paid the billed duties and associated interest totalling
$5.2 million which is a prerequisite to filing a summons with the Court.
The Company believes that the ultimate resolution of these Customs
matters 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 failure to comply with federal
categorical pretreatment standards. 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 1996, 1995 and
1994. 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.
The Company is engaged in administrative tax appeals with the IRS
and the Company's tax returns for certain years are under examination
(see Note 6). 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 12. 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
Americas, 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
-------- ------ ----- --------- -------
1996
Sales to unaffiliated
customers $1,098.6 $ 641.3 $ 883.2 $ - $2,623.1
Transfers between
geographic areas 522.2 119.6 755.2 (1,397.0) -
-------- ------ ------- -------- --------
Total sales $1,620.8 $ 760.9 $1,638.4 $(1,397.0) $2,623.1
======== ======= ======== ========= ========
Total assets $1,277.3 $ 248.3 $ 701.9 $ 430.5 $2,658.0
======== ====== ======== ========= ========
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
======== ====== ======== ========= ========
Note 13. Supplemental Disclosure of Cash Flow Information and Non-Cash
Investing and Financing Activities
(in millions) 1996 1995 1994
------ ------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for:
Interest expense $19.2 $ 6.4 $ 3.3
Interest payment on tax settlements $18.3 $30.2 $18.6
Income taxes $20.3 $43.2 $27.8
(in millions) 1996 1995 1994
------ ------ ------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of stock for employee
benefit plans $ 4.3 $ 4.0 $ 2.0
Tax benefit for employee stock
option plans $ 15.9 $ 51.9 $ 2.0
Retirement of treasury stock $118.6 $ - $ -
Unrealized gain (loss) on
available-for-sale securities $ (8.9) $ 17.1 $ -
Unearned compensation charge relating
to restricted stock issuance $ 3.3 $ - $ -
Note 14. Financial Information by Quarter (Unaudited)
The following table presents the quarterly information for fiscal 1996
and 1995:
First Second Third Fourth
(in millions, except per Quarter Quarter Quarter Quarter
share amounts) -------- ------- ------- -------
1996
Net Sales $698.8 $711.6 $600.3 $612.4
Gross Margin $301.1 $313.0 $231.6 $216.5
Net income $ 73.5 $ 79.8 $ 23.0 $ 9.1
=======================================================================
Primary earnings
per common share $ 0.56 $ 0.61 $0.17 $0.07
=======================================================================
Weighted average common and common
equivalent shares outstanding 127.4 126.9 137.8 137.8
=======================================================================
Fully diluted earnings
per common share $ 0.53 $0.57 $0.17 $0.07
=======================================================================
Weighted average fully
diluted shares 139.6 143.1 137.8 137.8
=======================================================================
Common stock price - high $31.25 $33.63 $24.00 $17.25
Common stock price - low $23.88 $20.63 $14.88 $13.50
=======================================================================
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
=======================================================================
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 26,
1996, there were approximately 12,810 holders of the Company's common
stock.
Note 15. Subsequent Events
Fairchild Semiconductor (Unaudited)
On June 20, 1996, the Company announced that it had formed a new
organization consisting of its family logic, memory and discrete
businesses, to be called Fairchild Semiconductor. The Company is
pursuing a number of alternatives with respect to Fairchild
Semiconductor, including a sale or partial financing of all or a portion
of the businesses. The Company expects to record a one-time charge of
$280 million to $320 million in the first quarter of fiscal 1997,
primarily to reflect the write down of assets to estimated realizable
value. A portion of the estimated charge is associated with staffing
reductions and other expenses necessary to reduce the Company's
associated infrastructure in both Fairchild Semiconductor and continuing
National core business areas. Actual charges recorded may differ
depending on a number of factors, including but not limited to, the
ultimate business strategy selected, the actual amount of proceeds
received from a sale or disposition and actual realizable values of the
assets.
Notices of Assessment
On July 9, 1996, the Company received notices of assessment from the
Malaysian Inland Revenue Department relating to the Company's
manufacturing operations in Malaysia. The assessments total
approximately $59.2 million. The issues giving rise to the assessments
relate to intercompany transfer pricing, primarily for fiscal year 1993.
The Company believes the assessments are without merit and intends to
contest them. The Company believes it has adequate tax reserves to
satisfy the ultimate resolution of the assessments.
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 26, 1996 and May
28, 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-
year period ended May 26, 1996. 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 26,
1996 and May 28, 1995, and the results of their operations and their
cash flows for each of the years in the three-year period ended May 26,
1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
in 1996 the Company changed its method of accounting for depreciation
and in 1994 the Company changed its method of accounting for certain
costs in inventory.
KPMG PEAT MARWICK LLP
San Jose, California
June 5, 1996, except as to the
second paragraph of Note 15 which
is as of July 9, 1996
MANAGEMENT
DIRECTORS
Gary P. Arnold*
President, Chairman and
Chief Executive Officer,
Analogy, Inc.
Robert Beshar*
Attorney in private
practice
Brian L. Halla
President and Chief
Executive Officer
of the Company
Modesto A. Maidique
President, Florida
International University
Edward R. McCracken*
Chairman and Chief
Executive Officer,
Silicon Graphics, Inc.
J. Tracy O'Rourke
Chairman and Chief
Executive Officer,
Varian Associates, Inc.
Charles E. Sporck
Formerly President
and Chief Executive
Officer of the Company
Donald E. Weeden*
Chairman of Weeden
Securities Corporation
*Member of the
Audit Committee
EXECUTIVE STAFF
Brian L. Halla
President and Chief
Executive Officer
Mike Bereziuk
Senior Vice President,
Personal Systems Group
Patrick J. Brockett
Executive Vice President,
Worldwide Sales and
Marketing
Charles P. Carinalli
Senior Vice
President and Chief
Technical Officer
John M. Clark III
Senior Vice President,
General Counsel and
Secretary
Donald Macleod
Executive Vice President,
Finance and Chief
Financial Officer
Douglas M. McBurnie
Senior Vice President,
Communications and
Consumer Group
Robert M. Penn
Senior Vice President,
Analog Group
Kirk P. Pond
President, Fairchild
Semiconductor
Richard L. Sanquini
Senior Vice President,
Intellectual Property
Protection and Business
Development
Richard A. Wilson
Vice President,
Human Resources
OTHER OFFICERS
Richard D. Crowley, Jr.
Vice President and Controller
David S. Dahmen
Vice President and Treasurer
Nancy Lucke Ludgus
Assistant Secretary
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
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;
Arlington, Texas; West Jordan, Utah; Melaka,
Malaysia; Penang, Malaysia; Cebu, Philippines;
Greenock, Scotland; Toa Payoh, 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 27, 1996. 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, 1996,
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 MD&A GRAPHS
(3 Years)
1996 1995 1994
------ ------ ------
(MD&A - Left of Sales)
Net Sales per Employee 129.2 106.2 102.9
(MD&A - Left of Gross Margin)
Net Operating Margin
as a Percent of Sales 8.2% 11.9% 12.0%
(MD&A - Right of SG&A; one graph, broken into 3 sections)
Operating Costs and
Expenses as a Percent
of Sales:
Cost of Sales 59.5% 58.2% 58.2%
Research and Development 13.8% 11.9% 11.2%
Selling, General, and
Administrative 18.6% 18.2% 18.7%
(MD&A - Right of Financial Condition)
Net Property, Plant,
and Equipment $1,308.1 $962.4 $668.0
(MD&A - Right of paragraph 5 and 6 of Outlook)
Stock Price Ending $16.25 $26.00 $19.00
Exhibit 24.0
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
persons hereby constitutes and appoints Brian L. Halla, Donald Macleod, and
John M. Clark III, and each of them singly, his true and lawful attorney-in-
fact and in his name, place, and stead, and in any and all of his
offices and capacities with National Semiconductor Corporation (the
"Company"), to sign the Annual Report on Form 10-K for the Company's 1996
fiscal year, and any and all amendments to said Annual Report on Form 10-K,
and generally to do and perform all things and acts necessary or advisable
in connection therewith, and each of the undersigned hereby ratifies and
confirms all that each of said attorneys-in-fact may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto executed
this Power of Attorney as of the date set forth opposite his signature.
SIGNATURE DATE
--------- ----
/s/ BRIAN L. HALLA July 8, 1996
- ---------------------------------
Brian L. Halla
/s/ GARY P. ARNOLD July 8, 1996
- ---------------------------------
Gary P. Arnold
/s/ ROBERT BESHAR July 8, 1996
- ----------------------------------
Robert Beshar
/s/ MODESTO A. MAIDIQUE July 8, 1996
- ---------------------------------
Modesto A. Maidique
/s/ EDWARD R. McCRACKEN July 8, 1996
- ---------------------------------
Edward R. McCracken
/s/ J. TRACY O'ROURKE July 8, 1996
- ---------------------------------
J. Tracy O'Rourke
/s/ CHARLES E. SPORCK July 8, 1996
- ---------------------------------
Charles E. Sporck
/s/ DONALD E. WEEDEN July 8, 1996
- ---------------------------------
Donald E. Weeden
Exhibit 24.0
(page 2)
/s/ DONALD MACLEOD July 8, 1996
- ---------------------------------
Donald Macleod
/s/ RICHARD D. CROWLEY, JR. July 8, 1996
- ---------------------------------
Richard D. Crowley, Jr.