P.R.:
Alan Bernheimer
(408) 721-8665
alan.bernheimer@nsc.com
Bill Callahan
(408) 721-2871
bill.callahan@nsc.com
Financial:
Jim Foltz
(408) 721-5693
invest@nsc.com
NATIONAL SEMICONDUCTOR SALES AND EARNINGS INCREASE OVER Q2, REVERSING TRADITIONAL THIRD QUARTER DOWNTURN
March 6, 1997 -- National Semiconductor Corporation® today reported net income of $42.8 million or 30 cents per share for the third quarter of fiscal 1997, compared with net income of $23.0 million or 17 cents per share for the comparable quarter of fiscal 1996. Sales and earnings also improved over the second quarter, overriding the seasonal dip in sales that has been traditional at National every year since 1984.
"Our strong revenue and earnings performance for the quarter is one of the early paybacks of our new focus on operational excellence," said Brian L. Halla, president and chief executive officer. "Combined with the continuing recovery of our targeted market areas in analog, Ethernet, wireless and high-end personal computers, this improvement is reflected in our increased bottom line profitability," Halla added.
Sales for the third quarter, ended February 23, 1997, were $680.5 million, compared with sales of $600.3 million for the comparable quarter last year, and also were up from the immediately preceding second quarter sales of $661.5 million.
Third quarter ended: February 23, 1997 February 25, 1996 Net Sales $680.5 $600.3 Net Income 42.8 23.0 Earnings per share 0.30 0.17 (All figures in millions of dollars, except per share amounts)
Gross margin recovered to 37.5 percent, compared with 34.9 percent in the second quarter, and 38.6 percent in the third quarter a year ago, which ended February 25, 1996. For National's continuing businesses, that exclude Fairchild, the equivalent gross margin was 41.2 percent, compared with 38.3 percent for the second quarter and 42.3 percent for the third quarter a year ago.
February quarter worldwide bookings were up sharply, more than 40 percent, compared with last year's third quarter. The book-to-bill ratio remained above 1 to 1, although orders for the quarter were seasonally lower than the immediately preceding fall quarter.
Personal computer orders led the company in year over year improvement, as National's industry leading Super I/O products continue to be the solution of choice in Pentium machines. Local Area Network orders continued as the company's largest single application area with meaningful growth over last year. New product introductions in wireless products resulted in orders that doubled over last year. Bookings growth for analog and Fairchild products mirrored the company as a whole.
On a regional basis, bookings in Southeast Asia grew the most, but all regions were up over last year and showed less than traditional dips compared to second quarter levels.
Looking forward, Halla said: "I'm encouraged by the order momentum in the personal computer, communications and analog markets going into 1997. This recovery continues to support our repositioning of National Semiconductor as we target system-on-a-chip solutions for our key data highway partners, exploiting our analog expertise as a starting point for forward integration."
During the quarter the company signed an agreement to sell its Fairchild Semiconductor business, which consists of a broad portfolio of logic, discrete and non-volatile memory semiconductor devices aimed at high-volume markets. The agreement calls for Fairchild Semiconductor's management and Sterling, LLC, a Citicorp Venture Capital, Ltd. investment portfolio company, to lead a $550-million recapitalization of Fairchild Semiconductor. Final closure of the transaction is expected early in the fourth fiscal quarter.
For the nine months of fiscal 1997, ended February 23, 1997, the company reported a net loss of $135.3 million, or $0.97 per share, on sales of $1,908.1 million. This compares with net income of $176.3 million, or $1.26 per share, on sales of $2,010.7 million for the first nine months of fiscal 1996, which ended February 25, 1996. Results for the first nine months of fiscal 1997 include one-time pre-tax charges of $285.6 million taken in the first quarter relating to the spinout of the Fairchild product lines and the acquisition of PicoPower.
Summary of results: Nine months ended: February 23, 1997 February 25, 1996 Net Sales $1,908.1 $2,010.7 Net Income (loss) (135.3) 176.3 Earnings per share (0.97) 1.26 (All figures in millions of dollars, except per share amounts)
This report contains forward looking statements dependent on a number of risks and uncertainties including such factors as, but not restricted to, new orders received and shipped during the third quarter, the timely ramp up of new submicron production facilities, the degree of factory utilization, and the successful sale of existing inventories. Other risk factors are listed in the company's Form 10Q for the second quarter of fiscal 1997, which ended November 24, 1996, and in Form 10K for the year ended May 26, 1996 (see the outlook section of Management's Discussion and Analysis of Results of Operations and Financial Conditions).
National Semiconductor produces analog and mixed-signal based silicon solutions for the information highway, communications, personal systems and consumer markets. Additional company and product information is available on the World Wide Web at www.national.com.
PART I. FINANCIAL INFORMATION
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
------------------ -------------------
Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
-------- ------- -------- --------
Net sales $680.5 $600.3 $1,908.1 $2,010.7
Operating costs and expenses:
Cost of sales 425.2 368.7 1,249.8 1,165.0
Research and development 93.3 96.9 279.7 270.5
Selling, general and
administrative 111.5 112.1 311.9 370.1
Restructuring of operations - - 256.3 -
------ ------ -------- -------
Total operating costs
and expenses 630.0 577.7 2,097.7 1,805.6
------ ------ -------- -------
Operating income(loss) 50.5 22.6 (189.6) 205.1
Interest income, net 2.3 4.1 4.6 9.9
Other income, net 4.3 4.0 4.6 20.0
------ ------ -------- -------
Income(loss) before
income taxes 57.1 30.7 (180.4) 235.0
Income tax provision(benefit) 14.3 7.7 (45.1) 58.7
------ ------ -------- -------
Net Income(loss) $ 42.8 $ 23.0 $ (135.3) $ 176.3
====== ====== ======== =======
Earnings per share:
Primary $ .30 $ .17 $ (.97) $1.30
Fully diluted $ .30 $ .17 $ (.97) $1.26
Selected income statement ratios as a percentage of sales:
Gross Margin 37.5% 38.6% 34.5% 42.1%
Research and Development 13.7% 16.1% 14.7% 13.5%
Selling, general and 16.4% 18.7% 16.3% 18.4%
administrative
Net income(loss) 6.3% 3.8% (7.1%) 8.8%
Effective tax rate 25.0% 25.0% 25.0% 25.0%
NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
Feb. 23, May 26,
1997 1996
ASSETS -------- --------
Current assets:
Cash and cash equivalents $ 383.8 $ 442.4
Short-term marketable investments 46.7 61.9
Receivables, net 329.1 281.2
Inventories 241.7 325.7
Deferred tax assets 140.4 71.1
Other current assets 60.7 73.7
------- -------
Total current assets 1,202.4 1,256.0
Property, plant and equipment 2,734.5 2,516.7
Less accumulated depreciation 1,343.3 1,208.6
------- -------
Net property, plant and equipment 1,391.2 1,308.1
Long-term marketable investments 5.3 11.7
Other assets 85.7 82.2
------- -------
Total assets $2,684.6 $2,658.0
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 30.2 $ 21.5
Accounts payable 269.1 255.6
Accrued expenses 306.5 235.1
Income taxes 170.4 164.6
------- -------
Total current liabilities 776.2 676.8
Long-term debt 374.3 350.5
Deferred income taxes 9.3 12.1
Other non-current liabilities 40.0 41.4
------- -------
Total liabilities 1,199.8 1,080.8
------- -------
Commitments and contingencies
Shareholders' equity:
Common stock 70.4 68.4
Additional paid-in capital 973.1 926.9
Retained earnings 441.3 581.9
------- -------
Total shareholders' equity 1,484.8 1,577.2
------- -------
Total liabilities and shareholders' equity $2,684.6 $2,658.0
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NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
Nine Months Ended
--------------------
Feb. 23 Feb. 25,
1997 1996
------- -------
Cash flows from operating activities:
Net Income(loss) $(135.3) $ 176.3
Adjustments to reconcile net income(loss)
with net cash provided by operations:
Depreciation and amortization 206.4 169.4
Gain on investments (1.0) (5.2)
Tax benefit associated with stock options 10.0 12.8
In-process research and development charge 10.6 11.4
Loss on disposal of equipment 3.4 2.6
Write-down of inventory 15.1 -
Restructuring charges 256.3 -
Other, net (3.3) (4.1)
Changes in certain assets and liabilities, net:
Receivables (47.9) (11.4)
Inventories 68.9 (78.0)
Other current assets 13.0 (39.9)
Accounts payable and accrued expenses 0.8 (74.4)
Current and deferred income taxes (66.3) 17.7
Other non-current liabilities (1.4) (1.9)
------- -------
Net cash provided by operating activities 329.3 175.3
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (446.6) (423.1)
Proceeds from sale of equipment - 24.6
Proceeds from the sale and maturity of
marketable investments 904.7 578.2
Purchase of marketable investments (889.5) (630.1)
Proceeds from sale of net assets of DynaCraft, Inc. - 70.0
Proceeds from sale of investments 5.0 7.8
Business acquisition (15.4) (19.2)
Purchase of investments and other, net (12.2) (10.7)
------- -------
Net cash used by investing activities (454.0) (402.5)
------- -------
Cash flows from financing activities:
Proceeds from issuance of convertible subordinated
notes, less issuance costs - 253.3
Proceeds from the issuance of debt 52.2 42.0
Repayment of debt (19.7) (20.9)
Issuance of common stock, net 33.6 29.3
Purchase of treasury stock - (63.0)
Payment of preferred dividends - (5.6)
------- -------
Net cash provided by financing activities 66.1 235.1
------- -------
Net change in cash and cash equivalents (58.6) 7.9
Cash and cash equivalents at beginning of period 442.4 420.3
------- -------
Cash and cash equivalents at end of period $ 383.8 $ 428.2
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PART I. FINANCIAL INFORMATION
EARNINGS PER SHARE (Unaudited)
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
------------------ --------------------
Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
-------- ------- -------- --------
Earnings per share:
Primary $ .30 $ .17 $ (.97) $1.30
Fully diluted $ .30 $ .17 $ (.97) $1.26
Weighted average shares:
Primary 143.8 137.8 139.0 131.1
Fully diluted 150.0 137.8 139.0 142.6
Income(loss) used in primary
earnings per common share
calculation(reflecting
preferred dividends,
if applicable) $ 42.8 $ 23.0 $(135.3) $ 170.7
Income(loss) used in fully
diluted earnings per share
(reflecting adjustment for
interest on convertible
notes when dilutive) $ 44.3 $ 23.0 $(135.3) $ 180.1
Notes to Financial Tables-------------------------
One-Time Charges
----------------
As previously announced in the first quarter of fiscal 1997, the Company recorded a $275 million one-time charge in connection with the formation of the Fairchild Semiconductor organization that consisted of a $256.3 million restructure charge and charges to cost of sales of $18.7 million for the write-down of certain Fairchild inventory to net realizable value as well as other cost reduction activities. In a separate transaction, the Company also recorded a one-time charge of $10.6 million to expense in-process research and development related to the acquisition of PicoPower.
Selected Financial Information
------------------------------
The following table summarizes selected financial information excluding the effect of the one-time charges for the Fairchild Semiconductor Organization and the National core business. Included in the Fairchild amounts is financial information related to certain businesses the Company has exited that will not be a part of the Fairchild organization expected to be sold in the fourth quarter of fiscal 1997.
Three Months Ended Nine Months Ended
---------------------- --------------------------
($ in millions) Fair- Nat’l Total Fair- Nat’l Total
child Core Co. child Core Co.
------ ------ ------ ------ -------- -------
Fiscal 1997
-----------
Period Ended
February 23, 1997:
Sales $147.5 $533.0 $680.5 $434.2 $1,473.9 $1,908.1
Gross margin 24.2% 41.2% 37.5% 23.3% 39.1% 35.5%
Income
before taxes $ 9.5 $47.6 $57.1 $24.8 $80.4 $105.2
Fiscal 1996
-----------
Period Ended
February 25, 1996:
Sales $157.8 $442.5 $600.3 $534.6 $1,476.1 $2,010.7
Gross margin 28.2% 42.3% 38.6% 33.0% 45.3% 42.1%
Income
before taxes $10.2 $20.5 $30.7 $68.0 $167.0 $235.0
The financial information presented for Fairchild Semiconductor and National Core Business is pro forma and includes certain expenses for research and development, selling and marketing, and headquarter functions which are allocated from central corporate cost centers. Income before taxes for fiscal 1996 reflects management’s best efforts to restate these allocations to be consistent with the allocation basis used in the current year.
Other Income, Net
----------------------------
Components of other Three Months Ended Nine Months Ended
income, net were: ------------------ ------------------
(in millions) Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
-------- -------- -------- --------
Net intellectual property income $ .3 $ 2.5 $ 2.0 $ 13.3
Gain(loss)on investments, net 4.0 - 1.0 5.2
Other - 1.5 1.6 1.5
------- ------- ------- -------
Total other income, net $ 4.3 $ 4.0 $ 4.6 $ 20.0
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