-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A/iSepRw2LB9bhOZ9vzX1541QOzgvYCECZjgT2KrFKxKgzW1PO2o+krvw01Or9Hm RX4euO7hs5GQ6v7cdErM3A== 0000070530-02-000004.txt : 20020416 0000070530-02-000004.hdr.sgml : 20020416 ACCESSION NUMBER: 0000070530-02-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020224 FILED AS OF DATE: 20020410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0000070530 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 952095071 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06453 FILM NUMBER: 02606689 BUSINESS ADDRESS: STREET 1: 2900 SEMICONDUCTOR DR STREET 2: PO BOX 58090 CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 BUSINESS PHONE: 4087215000 MAIL ADDRESS: STREET 1: 2900 SEMICONDUCTOR DR CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 10-Q 1 form10q_040302.txt NATIONAL SEMICONDUCTOR CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 24, 2002 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - -- EXCHANGE ACT OF 1934 For the transition period from _________ to _________. Commission File Number: 1-6453 NATIONAL SEMICONDUCTOR CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-2095071 -------- ---------- (State of incorporation) (I.R.S. Employer Identification Number) 2900 Semiconductor Drive, P.O. Box 58090 Santa Clara, California 95052-8090 ---------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (408) 721-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of Each Class Outstanding at February 24, 2002. ------------------- --------------------------------- Common stock, par value $0.50 per share 179,221,864 NATIONAL SEMICONDUCTOR CORPORATION INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations (Unaudited) for the Three Months and Nine Months Ended February 24, 2002 and February 25, 2001 3 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months and Nine Months Ended February 24, 2002 and February 25, 2001 4 Condensed Consolidated Balance Sheets (Unaudited) as of February 24, 2002 and May 27, 2001 5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended February 24, 2002 and February 25, 2001 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Part II. Other Information Item 1. Legal Proceedings 21 Item 6. Exhibits and Reports on Form 8-K 21-22 Signature 23 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts)
Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net sales $ 369.5 $ 475.6 $1,075.3 $ 1,711.4 Operating costs and expenses: Cost of sales 236.2 242.6 702.4 838.3 Research and development 110.3 112.0 329.7 327.8 Selling, general and administrative 64.6 76.3 196.9 255.7 Special items - 12.1 1.1 18.5 ------------ ------------ ------------ ------------ Total operating costs and expenses 411.1 443.0 1,230.1 1,440.3 ------------ ------------ ------------ ------------ Operating income (loss) (41.6) 32.6 (154.8) 271.1 Interest income, net 4.3 13.4 16.8 42.7 Other income, net 2.0 3.0 6.5 48.9 ------------ ------------ ------------ ------------ Income (loss) before income taxes (35.3) 49.0 (131.5) 362.7 Income tax expense 2.5 9.8 7.5 72.6 ------------ ------------ ------------ ------------ Net income (loss) $ (37.8) $ 39.2 $ (139.0) $ 290.1 ============ ============ ============ ============ Earnings (loss) per share: Basic $ (0.21) $ 0.23 $ (0.79) $ 1.64 Diluted $ (0.21) $ 0.21 $ (0.79) $ 1.53 Weighted-average shares: Basic 178.4 174.0 176.7 176.7 Diluted 178.4 183.0 176.7 190.2 Income (loss) used in basic and diluted earnings (loss) per share calculation $ (37.8) $ 39.2 $ (139.0) $ 290.1
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in millions)
Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2002 2001 2002 2001 ------------ ------------- ------------ ------------- Net income (loss) $(37.8) $39.2 $(139.0) $290.1 Other comprehensive income (loss), net of tax: Reclassification adjustment for net realized gain on available-for-sale securities included in net income (loss) (1.5) (0.1) (6.9) (22.4) Unrealized gain (loss) on available-for-sale securities 28.4 (2.6) 22.9 41.3 Derivative instruments: Unrealized loss on cash flow hedges (0.1) - - - ------------ ------------- ------------ ------------- Comprehensive income (loss) $(11.0) $36.5 $(123.0) $309.0 ============ ============= ============ =============
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions)
Feb. 24, May 27, 2002 2001 ------------------------ ----------------------- ASSETS Current assets: Cash and cash equivalents $ 654.1 $ 817.8 Short-term marketable investments 32.4 5.0 Receivables, net 126.4 123.4 Inventories 145.5 195.5 Deferred tax assets 97.2 97.2 Other current assets 39.7 36.1 ------------------------ ----------------------- Total current assets 1,095.3 1,275.0 Net property, plant and equipment 742.7 815.7 Long-term marketable debt investments 140.2 46.6 Other assets 297.8 225.0 ------------------------ ----------------------- Total assets $2,276.0 $2,362.3 ======================== ======================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt $ 10.3 $ 29.4 Accounts payable 96.0 126.4 Accrued expenses 218.7 262.9 Income taxes payable 78.8 53.1 ------------------------ ----------------------- Total current liabilities 403.8 471.8 Long-term debt 21.2 26.2 Other non-current liabilities 102.0 96.4 ------------------------ ----------------------- Total liabilities 527.0 594.4 ------------------------ ----------------------- Commitments and contingencies Shareholders' equity: Common stock 89.6 86.9 Additional paid-in capital 1,382.2 1,280.8 Retained earnings 293.4 432.4 Accumulated other comprehensive loss (16.2) (32.2) ------------------------ ----------------------- Total shareholders' equity 1,749.0 1,767.9 ------------------------ ----------------------- Total liabilities and shareholders' equity $ 2,276.0 $ 2,362.3 ======================== =======================
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)
Nine Months Ended Feb. 24, Feb. 25, 2002 2001 ------------------------ ----------------------- Cash flows from operating activities: Net income (loss) $(139.0) $290.1 Adjustments to reconcile net income (loss) with net cash provided by operations: Depreciation and amortization 171.5 179.0 Gain on investments (6.9) (40.8) Loss on disposal of equipment 3.1 2.7 Donation of equity securities - 20.5 Noncash special items 1.1 18.5 Other, net 0.2 0.3 Changes in certain assets and liabilities, net: Receivables (1.9) 102.6 Inventories 50.0 (22.8) Other current assets (3.7) (0.9) Accounts payable and accrued expenses (71.9) (115.7) Current and deferred income taxes 25.7 10.8 Other liabilities 5.6 4.5 ------------------------ ----------------------- Net cash provided by operating activities 33.8 448.8 ------------------------ ----------------------- Cash flows from investing activities: Purchase of property, plant and equipment (89.4) (168.4) Maturity of available-for-sale securities 39.5 39.3 Purchase of available-for-sale securities (160.1) (28.0) Proceeds from sale of equity investments 8.7 33.3 Business acquisition, net of cash acquired (27.5) (98.3) Purchase of software (16.8) (10.0) Supplemental benefit plan (14.7) (3.5) Other, net (10.3) (10.3) ------------------------ ----------------------- Net cash used by investing activities (270.6) (245.9) ------------------------ ----------------------- Cash flows from financing activities: Repayment of debt (14.1) (14.9) Issuance of common stock, net 87.2 48.5 Purchase and retirement of treasury stock - (173.5) ------------------------ ----------------------- Net cash provided by (used by) financing activities 73.1 (139.9) ------------------------ ----------------------- Net change in cash and cash equivalents (163.7) 63.0 Cash and cash equivalents at beginning of period 817.8 778.8 ------------------------ ----------------------- Cash and cash equivalents at end of period $ 654.1 $841.8 ======================== =======================
See accompanying Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies In the opinion of our management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position and results of operations of National Semiconductor Corporation and our majority-owned subsidiaries. You should not expect interim results of operations to be indicative of the results to be expected for the full year. This report should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended May 27, 2001. Earnings Per Share: A reconciliation of the shares used in the computation of basic and diluted earnings per share follows (in millions):
Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2002 2001 2002 2001 ------------ ----------- ----------- ----------- Net income (loss) used for basic and diluted earnings (loss) per share $(37.8) $39.2 $(139.0) $290.1 ============ =========== =========== =========== Number of shares: Weighted average common shares outstanding used for basic earnings per share 178.4 174.0 176.7 176.7 Effect of dilutive securities: Stock options - 9.0 - 13.5 ------------ ----------- ----------- ----------- Weighted average common and potential common shares outstanding used for diluted earnings per share 178.4 183.0 176.7 190.2 ============ =========== =========== ===========
On February 24, 2002, we had options outstanding to purchase 35.4 million shares of common stock with a weighted-average exercise price of $27.71, which could potentially dilute basic earnings per share in the future. These options are not included in diluted earnings per share because their effect was antidilutive. On February 25, 2001, we had options outstanding to purchase 13.3 million shares of common stock with a weighted-average exercise price of $47.32, which could have potentially diluted basic earnings per share in the future. These options were also not included in diluted earnings per share as their effect was antidilutive. Note 2. Derivative Financial Instruments At the beginning of the first quarter of fiscal 2002, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133, as amended, requires companies to record derivatives on the balance sheet as assets or liabilities measured at fair value. Gains or losses resulting from changes in the values of these derivatives are accounted for based on the use of the derivative and whether it qualifies for hedge accounting. The cumulative effect of adoption of this statement was immaterial to both our financial position and results of operations. As part of our risk management strategy we use derivative financial instruments, including forwards, swaps and purchased options, to hedge certain foreign currency and interest rate exposures. Our intent is to offset gains and losses that occur from our underlying exposure, with gains and losses on the derivative contracts used to hedge them. We do not enter into any speculative positions in derivative instruments. We record all derivatives on the balance sheet at fair value. We are exposed to foreign currency exchange rate risk that is inherent in orders, sales, cost of sales, expenses, and assets and liabilities denominated in currencies other than the U.S. dollar. We enter into foreign exchange contracts, primarily forwards and purchased options, to hedge against exposure to changes in foreign currency exchange rates. These contracts are designated at inception to the related foreign currency exposures that are being hedged, including sales by subsidiaries, and assets and liabilities denominated in currencies other than the U.S. dollar. Our foreign currency hedges typically mature within one year. We designate derivative instruments that are used to hedge exposures to variability in expected future foreign denominated cash flows as cash flow hedges. We record the effective portion of the gains or losses on the derivative instrument in accumulated other comprehensive loss as a separate component of stockholders' equity and reclassify amounts into earnings in the period when the hedged transaction affects earnings. We recognize the ineffective portion of the gain or loss on the derivative, if any, in earnings during the period of change. Derivative instruments that we use to hedge exposures to reduce or eliminate changes in the fair value of a foreign currency denominated asset or liability are designated as fair value hedges. We recognize the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, in current earnings. We measure hedge effectiveness for foreign currency forward contracts by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. For purchased options, we measure hedge effectiveness by the change in the option's intrinsic value, which represents the change in the forward rate relative to the option's strike price. We are also exposed to variable cash flow that is inherent in our variable-rate debt. We use an interest rate swap to convert the variable interest payments to fixed interest payments. We designate this derivative as a cash flow hedge. For interest rate swaps, the critical terms of the interest rate swap and hedged item are designed to match up, enabling us to assume effectiveness under SFAS No. 133. We recognize amounts as interest expense as cash settlements are paid or received. In accordance with our policy, we report hedge ineffectiveness from foreign currency derivatives for both options and forward contracts in current earnings. We also report ineffectiveness related to interest rate swaps in current earnings. Hedge ineffectiveness was immaterial for the third quarter and first nine months of fiscal 2002. The effective portion of all changes in derivatives is reported in the same financial statement line item as the changes in the hedged item. On February 24, 2002, the net fair values of foreign currency-related derivatives designated as cash flow hedges and fair value hedges were $0.3 million in other assets and immaterial in other accrued liabilities. On February 24, 2002, unrealized gains or losses on derivative instruments, net of taxes, in accumulated other comprehensive income were immaterial. We had $0.6 million and $0.9 million of net realized losses from derivative instruments for the third quarter and first nine months of fiscal 2002, respectively. Note 3. Consolidated Financial Statement Details
Balance sheets (in millions): Feb. 24, May 27, 2002 2001 --------------------------- --------------------------- Inventories: Raw materials $ 6.0 $ 8.1 Work in process 89.4 113.8 Finished goods 50.1 73.6 --------------------------- --------------------------- Total inventories $ 145.5 $ 195.5 =========================== =========================== Accumulated other comprehensive loss: Unrealized gain on available-for-sale securities $ 31.0 $ 15.0 Minimum pension liability (47.2) (47.2) --------------------------- --------------------------- $ (16.2) $ (32.2) =========================== ===========================
Statements of operations (in millions): Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2002 2001 2002 2001 ------------ ----------- ----------- ----------- Special items: In-process research and development charge $ - $12.1 $ 1.1 $16.2 Restructuring of operations - - - 2.3 ------------ ----------- ----------- ----------- $ - $12.1 $ 1.1 $18.5 ============ =========== =========== =========== Interest income, net: Interest income $ 5.3 $14.6 $20.1 $46.4 Interest expense (1.0) (3.3) (3.7) (1.2) ------------ ----------- ------------ ----------- Interest income, net $ 4.3 $13.4 $16.8 $42.7 ============ =========== ============ =========== Other income, net: Net intellectual property income $ 1.0 $ 0.9 $ 2.7 $ 5.4 Gain on investments, net 1.0 2.1 4.4 43.5 Other - (0.6) - - ------------ ----------- ----------- ------------ Total other income, net $ 2.0 $ 3.0 $ 6.5 $48.9 ============ =========== =========== ============
Included in gain on investments for the first nine months of fiscal 2001 is a gain of $20.5 million from the distribution of equity securities that were a part of our investment portfolio. We donated the securities to establish the National Semiconductor Foundation. The expense associated with the donation also totaled $20.5 million and this amount is included in selling, general and administrative expenses for the first nine months of fiscal 2001. Note 4. Statement of Cash Flows Information (in millions)
Nine Months Ended Feb. 24, Feb. 25, 2002 2001 ---------------------- ----------------------- Supplemental Disclosure of Cash Flows Information: Cash paid (refunded) for: Interest $ 3.2 $ 3.6 Income taxes $ (18.2) $ 61.8 Supplemental Schedule of Non-cash Investing and Financing Activities: Issuance of common stock for employee benefit plans $ 4.3 $ 4.1 Issuance of common stock to directors $ 0.2 $ 0.3 Issuance of restricted common stock $ 2.1 $ 7.5 Issuance of common stock in connection with the settlement of promissory note $ 10.0 $ - Change in unrealized gain on available-for-sale securities $ 16.0 $ 18.9
Note 5. Goodwill and Intangible Assets Beginning in fiscal 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." As a result, we no longer amortize goodwill. Instead we annually evaluate goodwill for impairment. We also evaluate goodwill whenever events and changes in circumstance suggest that the carrying amount may not be recoverable from its estimated future cash flows. Upon adoption of this financial standard, we established reporting units based on our current reporting structure. We then assigned all existing goodwill to the reporting units, as well as other assets and liabilities that relate to the reporting unit. We also completed the first step of the transitional goodwill impairment test and determined that no potential impairment existed at the time of adoption. As a result, we have recognized no transitional impairment loss in fiscal 2002 in connection with the adoption of SFAS No. 142. The changes in the carrying amount of goodwill for fiscal 2002 are as follows (in millions):
Analog All Segment Others Total --------------- -------------- -------------- Balances at May 27, 2001 $130.4 $1.7 $132.1 Goodwill acquired during fiscal 2002 27.6 - 27.6 --------------- -------------- -------------- Balances at February 24, 2002 $158.0 $1.7 $159.7 =============== ============== ==============
Other intangible assets, which will continue to be amortized, consist of the following (in millions):
Feb. 24, May 27, 2002 2001 ---------------------- ---------------------- Patents $4.9 $4.9 Less accumulated amortization 1.5 0.8 ---------------------- ---------------------- $3.4 $4.1 ====================== ======================
We expect annual amortization expense for these intangible assets to be (in millions): 2002 $1.0 2003 1.0 2004 1.0 2005 1.0 2006 0.2 - ------------------------------------------------- $4.2 ========
Amortization expense was (in millions):
Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2002 2001 2002 2001 ------------ ----------- ------------ ----------- Goodwill amortization $ - $ 2.7 $ - $ 7.1 Patent amortization 0.3 0.2 0.7 0.4 ------------ ----------- ------------ ----------- Total amortization $ 0.3 $ 2.9 $ 0.7 $ 7.5 ============ =========== ============ ===========
Pro forma net income (loss) and net income (loss) per share exclusive of amortization expense was (in millions):
Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2002 2001 2002 2001 ------------ ----------- ------------ ----------- Net income (loss), as reported $ (37.8) $ 39.2 $(139.0) $ 290.1 Add back: Goodwill amortization - 2.7 - 7.1 ------------ ----------- ------------ ----------- Net income (loss) - pro forma $ (37.8) $ 41.9 $(139.0) $ 297.2 ============ =========== ============ =========== Basic earnings (loss) per share, as reported $ (0.21) $ 0.23 $ (0.79) $ 1.64 Add back: Goodwill amortization - 0.01 - 0.04 ------------ ----------- ------------ ----------- Basic earnings (loss) per share - pro forma $ (0.21) $ 0.24 $ (0.79) $ 1.68 ============ =========== ============ =========== Diluted earnings (loss) per share, as reported $ (0.21) $ 0.21 $ (0.79) $ 1.53 Add back: Goodwill amortization - 0.02 - 0.03 ------------ ----------- ------------ ----------- Diluted earnings (loss) per share - pro forma $ (0.21) $ 0.23 $ (0.79) $ 1.56 ============ =========== ============ ===========
Note 6. Restructuring of Operations and Cost Reduction Programs During the third quarter and first nine months of fiscal 2002, we paid severance of $1.7 million and $14.5 million, respectively, to a total of 471 employees as part of the cost-reduction program we announced in May 2001. We also paid $1.7 million and $4.7 million for other exit-related costs during the third quarter and first nine months of fiscal 2002, respectively. Those costs were primarily associated with restructuring actions we originally announced in fiscal 1999. Included in accrued liabilities at February 24, 2002, is $11.1 million related to actions that were not yet completed. Of this amount, $5.5 million represents costs related to the May 2001 cost reduction program. The remaining amount represents facility dismantling costs for the closure of the Greenock 4-inch facility and lease obligations associated with other restructuring actions. Note 7. Acquisition In June 2001, we acquired Wireless Solutions Sweden AB, a leading developer of wireless solutions ranging from telemetry to mobile phones to wireless networking, including Bluetooth and 802.11 technologies. We expect this acquisition to enable us to deliver complete wireless reference designs, including silicon chipsets, hardware and software. The acquisition was accounted for using the purchase method, with a purchase price of $27.7 million. In connection with the acquisition, we recorded a $1.1 million in-process research and development charge, which is included as a component of special items in the condensed consolidated statement of operations. The amount allocated to the in-process research and development charge was determined through an established valuation technique used in the high technology industry and expensed upon acquisition, because technological feasibility had not been established and no alternative uses exist. Research and development costs to bring the products to technological feasibility are not expected to have a material impact on future operating results. The remainder of the purchase price was allocated to net liabilities of $1.0 million and intangible assets of $27.6 million, primarily representing goodwill. Note 8. Segment Information The following tables present information related to our reportable segments (in millions):
Information Analog Appliance All Total Segment Segment Others Eliminations Consolidated -------------- --------------- --------------- ---------------- ----------------- Three months ended February 24, 2002: Sales to unaffiliated customers $282.6 $ 45.1 $41.8 $ - $369.5 ============== =============== =============== ================ ================= Segment loss before income taxes $ (3.5) $(23.1) $(8.7) $ - $(35.3) ============== =============== =============== ================ ================= Three months ended February 25, 2001: Sales to unaffiliated customers $346.2 $ 49.4 $80.0 $ - $475.6 ============== =============== =============== ================ ================= Segment income (loss) before income taxes $ 60.4 $(25.6) $14.2 $ - $ 49.0 ============== =============== =============== ================ =================
Information Analog Appliance All Total Segment Segment Others Eliminations Consolidated -------------- --------------- --------------- ---------------- ----------------- Nine months ended February 24, 2002: Sales to unaffiliated customers $ 810.5 $141.7 $123.1 $ - $1,075.3 ============== =============== =============== ================ ================= Segment loss before income taxes $ (39.3) $(72.1) $(20.1) $ - $ (131.5) ============== =============== =============== ================ ================= Nine months ended February 25, 2001: Sales to unaffiliated customers $ 1,223.8 $180.5 $307.1 $ - $1,711.4 Inter-segment sales - 0.1 - (0.1) - -------------- --------------- --------------- ---------------- ----------------- Net sales $ 1,223.8 $180.6 $307.1 $ (0.1) $1,711.4 ============== =============== =============== ================ ================= Segment income (loss) before income taxes $ 344.4 $(63.7) $ 82.0 $ - $ 362.7 ============== =============== =============== ================ =================
Item 2. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in the outlook section and within certain sections 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 these forward-looking statements. The forward-looking statements discussed or incorporated by reference in this section involve a number of risks and uncertainties. Other risks and uncertainties include, but are not limited to, the general economy, regulatory and international conditions, the changing environment of the semiconductor industry, competitive products and pricing, growth in the wireless, PC and communications infrastructure industries, the effects of legal and administrative cases and proceedings, and such other risks and uncertainties as may be detailed from time to time in our reports and filings with the SEC. o Critical Accounting Policies We believe the following critical accounting policies are those policies that significantly affect the determination of our financial position and results of operations. These policies also require us to make our most difficult and subjective judgements: 1. Revenue Recognition We recognize revenue from the sale of semiconductor products upon shipment, provided title and risk of loss has passed to the customer, the fee is fixed or determinable and collection of the revenue is reasonably assured. Service revenues are recognized as the services are provided or as milestones are achieved, depending on the terms of the arrangement. A provision for estimated future returns is recorded at the time of shipment. Approximately 46 percent of our semiconductor product sales are sold through distributors. We have agreements with our distributors for various programs, including, among other things, scrap allowances and volume incentives. The revenue we record for these distribution sales is net of estimated provisions for these programs. When determining this net revenue, we must make significant judgements and estimates. Our estimates are based upon historical experience rates, inventory levels in the distribution channel, current economic trends and other related factors. To date the actual distributor activity has been consistent with the provisions we made in accordance with our estimates. However, because of the inherent nature of estimates, there is a risk that there could be significant differences between actual amounts and our estimates. Our financial condition and operating results are dependent on our ability to make reliable estimates and we believe that our estimates are reasonable. However, different judgements or estimates could result in variances that might be significant to reported operating results. Intellectual property income is generally not classified as revenue. Such income is classified as non-operating income and is recognized when the license is delivered and no further obligations to the customer exist. 2. Inventories Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. We reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory by an amount that is the difference between its cost and the estimated market value based upon assumptions about future demand and market conditions. Our products are classified as either custom, which are those products manufactured with customer-specified features or characteristics, or non-custom, which are those products that do not have customer-specified features or characteristics. We evaluate obsolescence by analyzing the inventory aging, backlog and future customer demand on an individual product basis. If actual demand were to be substantially lower than what we have estimated, we may be required to write-down inventory below the current carrying value. While these estimates require us to make significant judgements and assumptions regarding future events, we believe our relationships with our customers, combined with our understanding of the end-markets we serve, provide us the ability to make reliable estimates. We also evaluate the carrying value of inventory for lower of cost or market on an individual product basis. Our evaluations are based on the difference between net realizable value and standard cost. Net realizable value is determined as the selling price of the product less estimated cost of disposal. The carrying value of inventory is reduced to the lower of cost or the net realizable value. If actual market conditions and resulting product sales were to be less favorable than those projected by management, additional inventory write-downs may be required. 3. Impairment of Goodwill, Intangible Assets and Other Long-lived Assets We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. Our long-lived assets subject to this evaluation include property, plant and equipment. We assess the impairment of goodwill and other intangible assets whenever events or changes in circumstances indicate that their fair value is more likely than not to be below their carrying value. Other intangible assets subject to this evaluation include patents we have acquired and technology licenses. We are required to make judgements and assumptions in identifying those events or changes in circumstances that may trigger impairment. Some of those factors we consider include: o Significant decrease in market value of an asset o Significant changes in the extent or manner for which the asset is being used or in its physical condition o A significant change, delay or departure in our business strategy related to the asset o Significant negative change in the business climate, industry or economic conditions o Current period operating or cash flow losses combined with a history of similar losses or a forecast that indicates continuing losses associated with the use of an asset In view of the recent general economic decline, we are periodically evaluating whether an impairment of our intangible assets and other long-lived assets has occurred. Our evaluation includes an analysis of estimated expected future undiscounted net cash flows to be generated by the assets over their estimated useful lives. If the estimated future undiscounted net cash flows is insufficient to recover the carrying value of the assets over the estimated useful lives, we will record an impairment in the amount by which the carrying value of the assets exceeds their fair value. We determine fair value based on discounted cash flows using a discount rate commensurate with the risk inherent in our current business model. If, as a result of our analysis, we determine that our intangible assets or other long-lived assets have been impaired, we will recognize an impairment loss in the period in which the impairment is determined. Any such impairment charge could be significant and could have a material adverse effect on our financial position and results of operations, if and when the impairment is recorded. Major factors that influence our cash flow analysis are our estimates for future revenue and expenses associated with the use of the asset. Different estimates could have a significant impact on the results of our evaluation. We performed a goodwill impairment review upon initial adoption of the new accounting rules for goodwill as of the beginning of fiscal 2002. We also plan to perform an annual review for goodwill impairment in our fourth fiscal quarter. Our impairment review is based on a discounted cash flow approach that uses our estimates of future revenues and costs for those business units with goodwill. We use a discount rate commensurate with the risk inherent in the current business model for the business unit with goodwill. Units with goodwill include our wireless business unit and displays business unit, which are operating segments within our Analog segment. The estimates we have used are consistent with the plans and estimates that we are using to manage the underlying businesses. If we fail to deliver new products for these business units, if the products fail to gain expected market acceptance, or market conditions for these businesses fail to improve, our revenue and cost forecasts may not be achieved and we may incur charges for goodwill impairment. Such impairment charges could be significant and could have a material adverse effect on our financial position and results of operations. o Overview We recorded net sales of $369.5 million and $1,075.3 million for the third quarter and first nine months of fiscal 2002, respectively. This represented a 22 percent and 37 percent decline, respectively, from sales of $475.6 million and $1,711.4 million for the comparable periods of fiscal 2001. The decline in sales came from lower demand seen broadly across semiconductor markets. For the third quarter and first nine months of fiscal 2002, we had a net loss of $37.8 million and $139.0 million, respectively. This compares to net income of $39.2 million and $290.1 million, respectively, for the third quarter and first nine months of fiscal 2001. Operating results for fiscal 2002 have been primarily affected by lower sales as a result of slower demand. While the net loss for the third quarter of fiscal 2002 included no special items, the net loss for the first nine months of fiscal 2002 included a special item of $1.1 million for an in-process R&D charge related to the acquisition in the first quarter of Wireless Solutions Sweden AB. In comparison, net income for the third quarter of fiscal 2001 included a special item of $12.1 million for an in-process R&D charge related to the acquisition of innoComm Wireless. Net income for the first nine months of fiscal 2001 included special items of $18.5 million. In addition to the in-process R&D charge from the innoComm Wireless acquisition, these special items included a $4.1 million in-process R&D charge related to the acquisition of the Vivid Semiconductor business and a $2.3 million charge for restructuring of operations. o Sales The following discussion is based on our operating segments described in Note 12 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended May 27, 2001. Our sales for the third quarter and first nine months of fiscal 2002 declined significantly year on year, as market conditions for the semiconductor industry remained weak compared to the prior year. Although we saw a slight increase in unit volume in the third quarter of fiscal 2002, the sales decline for the year was primarily due to decreased volume of shipments. To a lesser extent, lower average selling prices were also a factor for both the quarter and the first nine months of the year. The Analog segment, which represents 75 percent of our total sales, experienced declines in sales of 18 percent for the third quarter and 34 percent for the first nine months of fiscal 2002 compared to the corresponding periods of fiscal 2001. Average selling prices were down in the third quarter of fiscal 2002 due to shifts in product mix as well as to declining prices on comparable products. Although volume was down on comparable products, total unit volume for the third quarter was somewhat mitigated by higher volume from recently introduced lower priced products. The decline for the first nine months of fiscal 2002 was mostly due to a large drop in unit volume together with some decreases in average selling prices. Within the Analog segment, sales of application-specific wireless products, including radio frequency building blocks, declined by 36 percent and 43 percent for the third quarter and first nine months of fiscal 2002, respectively, over sales for the corresponding periods of fiscal 2001. Sales of display products increased by 39 percent for the third quarter of fiscal 2002 over sales for the same quarter of fiscal 2001, as a large increase in unit volume more than offset decreases in average selling prices. As a result, sales of display products for the comparative nine-month period declined by only four percent from sales in fiscal 2001. In the broad-based analog markets, sales of power management and amplifier products were down for the third quarter of fiscal 2002 by 28 percent and 22 percent, respectively, from the same period last year. For the first nine months, sales of these products in fiscal 2002 were down by 42 percent and 39 percent, respectively, from sales in fiscal 2001. Sales for the third quarter and first nine months of fiscal 2002 for the Information Appliance segment declined 9 percent and 22 percent, respectively, from sales for the comparable periods of fiscal 2001. The decline was primarily driven by lower unit volume, as average-selling prices remained fairly steady. Since a large part of our portfolio of information appliance products is still consumed in the PC marketplace, the year-to-year slowdown in demand for personal computers and PC-related products had a significant effect in the decline in sales for the Information Appliance segment. In addition, the market adoption of emerging information appliances that are not PCs has been slower than expected. o Gross Margin Gross margin as a percentage of sales decreased to 36 percent and 35 percent for the third quarter and first nine months of fiscal 2002, respectively, from gross margin of 49 percent and 51 percent for the same periods of fiscal 2001. The erosion in gross margin was primarily driven by lower factory utilization. Wafer fabrication capacity utilization during the first nine months of fiscal 2002 ran at 49 percent, as production activity was reduced considerably by the weakened business conditions in the semiconductor industry. This compares with wafer fabrication capacity utilization during the first nine months of fiscal 2001 of 78 percent, when business conditions in the semiconductor industry were very strong. We also saw lower margins from some products in fiscal 2002, which contributed to lower gross margin. This was caused mostly from a shift in product sales mix and to a lesser extent from pricing pressure. o Research and Development Our research and development expenses for the third quarter of fiscal 2002 decreased two percent from R&D expenses for the third quarter of fiscal 2001, mainly reflecting reduced spending for new product development. For the first nine months of fiscal 2002, our R&D expenses increased one percent over R&D expenses for the first nine months of fiscal 2001. The fiscal 2002 amount for the first nine months excludes $1.1 million for an in-process R&D charge related to an acquisition. The fiscal 2001 amounts for the third quarter and first nine months exclude $12.1 million and $16.2 million, respectively, for in-process R&D charges related to acquisitions. The in-process R&D charges are included as a component of special items in the condensed consolidated statements of operations. Higher R&D expenses for the first nine months of fiscal 2002 result mainly from a license agreement with Taiwan Semiconductor Manufacturing Company. This agreement, which began in fiscal 2001, allows us to gain access to a variety of TSMC's advanced sub-micron processes for use in our Maine facility as desired, if and when those processes are developed by TSMC. These advanced process technologies are expected to accelerate the development of high performance digital and mixed-signal products in the markets for wireless handsets, displays, information appliances and information infrastructure. Through the first nine months of fiscal 2002, we devoted approximately 74 percent of our R&D effort towards new product development and 26 percent towards the development of process and support technology. Compared to the first nine months of fiscal 2001, this represents a 10 percent decrease in spending for new product development and a 20 percent increase in spending for process and support technology. While spending for new product development declined slightly, we continue to focus our R&D investment on our key strategic programs. We continue to invest in the development of new analog and mixed-signal technology-based products for applications in the wireless handsets, displays, information appliances and information infrastructure markets. We also continue to devote resources towards developing new cores and integrating those cores with other technological capabilities to create system-on-a-chip solutions. o Selling, General and Administrative Our selling, general and administrative expenses for the third quarter and first nine months of fiscal 2002 declined 15 percent and 23 percent, respectively, from SG&A expenses for the comparable periods of fiscal 2001. The fiscal 2001 SG&A expenses for the first nine months included a $20.5 million expense associated with the charitable donation of equity securities that were part of our investment portfolio. We donated the securities to establish the National Semiconductor Foundation. The fiscal 2001 SG&A expenses also included goodwill amortization of $2.7 million and $7.1 million for the third quarter and the first nine months, respectively. Since adopting new accounting rules beginning in fiscal 2002, we no longer record goodwill amortization. Excluding these expenses, SG&A expenses for the third quarter and first nine months of fiscal 2002 declined 12 percent and 14 percent, respectively, from SG&A expenses for the comparable fiscal 2001 period. Overall, the decline in fiscal 2002 expenses reflect actions that we implemented in the second half of fiscal 2001 to reduce spending in response to weakened business conditions. Those actions reduced payroll and employee benefit expenses, as well as discretionary selling and marketing program expenses. o Interest Income and Interest Expense For the third quarter and first nine months of fiscal 2002, we earned net interest income of $4.3 million and $16.8 million, respectively, compared to $13.4 million and $42.7 million for the comparable periods of fiscal 2001. The decrease in net interest income was primarily due to lower average interest rates on lower average cash balances during fiscal 2002 compared to fiscal 2001. Offsetting interest expense was slightly lower for fiscal 2002 as we continued to reduce our outstanding debt balances. o Other Income, Net Other income, net was $2.0 million and $6.5 million for the third quarter and first nine months of fiscal 2002, respectively, compared to $3.0 million and $48.9 million for the comparable periods of fiscal 2001. The components of other income, net for the third quarter of fiscal 2002 included a $1.5 million net gain from equity investments and $1.0 million of net intellectual property income, which were offset by $0.5 million of non-operating losses associated with an investment partnership. For the first nine months of fiscal 2002, other income, net included a $6.9 million net gain from equity investments and $2.7 million of net intellectual property income. This was offset by $2.5 million of non-operating losses associated with an investment partnership and $0.6 million from other miscellaneous losses. Other income, net for the third quarter of fiscal 2001, included a $2.0 million net gain from equity investments, $0.9 million of net intellectual property income and $0.1 million of non-operating income associated with an investment partnership. For the first nine months of fiscal 2001, other income, net included a $40.8 million net gain from equity investments, $5.4 million of net intellectual property income and $2.7 million of non-operating income associated with an investment partnership. The net gain from equity investments for the first nine months of fiscal 2001 included a gain of $20.5 million from the distribution of equity securities that were part of our investment portfolio, which we donated to establish the National Semiconductor Foundation. An expense for the same amount associated with the donation was included in SG&A expenses for the first nine months of fiscal 2001. o Income Tax Expense We recorded income tax expense of $2.5 million and $7.5 million for the third quarter and first nine months of fiscal 2002, respectively. This compares to income tax expense of $9.8 million and $72.6 million for the corresponding periods of fiscal 2001. The fiscal 2002 tax expense represents taxes due on international income, while we have not recognized a tax benefit on operating losses in the U.S. The fiscal 2001 tax expense is based on a 20 percent effective rate on both our U.S. and international operations. o Liquidity and Capital Resources During the first nine months of fiscal 2002, cash and cash equivalents decreased $163.7 million compared to an increase of $63.0 million for the first nine months of fiscal 2001. We describe the primary factors contributing to these changes below: We generated cash from operating activities of $33.8 million for the first nine months of fiscal 2002, compared to $448.8 million generated from operating activities in the first nine months of fiscal 2001. The net loss for the first nine months of fiscal 2002 significantly reduced cash from operating activities, which was partially offset by a smaller net positive change in working capital components. The positive effect from a decrease in inventories and an increase in income taxes payable was mostly offset by a net decrease in accounts payable and accrued expenses. For fiscal 2001, operating cash was generated primarily from net income adjusted for non-cash expenses, which was partially offset by a negative impact from changes in working capital components from decreases in accounts payable and accrued liabilities, which were partially offset by a decrease in receivables. Our investing activities used cash of $270.6 million for the first nine months of fiscal 2002, compared to $245.9 million used for the first nine months of fiscal 2001. Major uses of cash in fiscal 2002 included investment in property, plant and equipment of $89.4 million, net purchases of available-for-sale securities of $120.6 million and the acquisition of Wireless Solutions Sweden AB for $27.5 million. Major uses of cash in fiscal 2001 included investment in property, plant and equipment of $168.4 million and the payments of $98.3 million associated with the acquisitions of innoComm Wireless and the Vivid Semiconductor business. Our financing activities generated cash of $73.1 million for the first nine months of fiscal 2002, while they used cash of $139.9 million for the first nine months of fiscal 2001. The primary source of cash was from the issuance of common stock under employee benefit plans in the amount of $87.2 million in fiscal 2002, which was offset by repayment of $14.1 million of our outstanding debt balances. The primary use of cash in fiscal 2001 was for our repurchase of 5.3 million shares of our common stock on the open market for $173.5 million. All of the shares of this treasury stock were retired during the same fiscal 2001 period. This more than offset cash inflow of $48.5 million from the issuance of common stock under employee benefit plans. Management foresees substantial cash outlays for plant and equipment throughout the remainder of fiscal 2002, with primary focus on new capabilities that support our target growth markets, as well as improvements to provide better manufacturing efficiency and productivity. However, we will continue to manage that activity in light of current business conditions. Based on current economic conditions, the fiscal 2002 capital expenditure level is expected to be lower than the fiscal 2001 level. We expect existing cash and investment balances, together with existing lines of credit, to be sufficient to finance planned capital investments remaining for fiscal 2002 and into fiscal 2003. Our cash and investment balances are dependent on continued collection of customer receivables and the ability to sell inventories. Although we have not experienced major problems with our customer receivables, continued and significant declines in overall economic conditions will probably impact sales and may lead to problems with customer receivables. In addition, major declines in financial markets would probably cause reductions in our cash equivalents and marketable investments. The following table provides a summary of the effect on liquidity and cash flows from our contractual obligations as of February 24, 2002:
(in millions) Fiscal Year: 2007 and 2002 2003 2004 2005 2006 thereafter Total --------------- ---------- --------- --------- -------- ------------- ---------- Contractual obligations: Debt obligations $ 6.6 $ 4.6 $ 2.1 $ 18.2 - - $ 31.5 Noncancellable operating leases 5.0 14.9 12.8 10.7 7.0 10.6 61.0 Fairchild manufacturing agreement 4.8 20.0 - - - - 24.8 Licensing agreements: TSMC 7.3 32.0 32.0 32.0 19.0 - 122.3 Other 1.3 13.1 5.9 0.9 - 21.2 --------------- ---------- --------- --------- -------- ------------- ---------- Total $ 25.0 $ 84.6 $ 52.8 $ 61.8 $ 26.0 $ 10.6 $260.8 =============== ========== ========= ========= ======== ============= ========== Commercial Commitments: Standby letters of credit under bank multicurrency agreement $ 20.4 - - - - - $ 20.4 =============== ========== ========= ========= ======== ============= ==========
o Recently Issued Accounting Standards At the beginning of the first quarter of fiscal 2002, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of this statement did not have a material impact on our financial statements as described in Note 2 to the condensed consolidated financial statements. We also adopted SFAS No. 142, "Goodwill and Other Intangible Assets" at the beginning of the first quarter of fiscal 2002. The impact of adoption of this statement is described in Note 5 to the condensed consolidated financial statements. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and eliminates the use of the pooling-of-interests method. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We are currently analyzing this statement and have not yet determined its impact on our consolidated financial statements. This Statement will be effective for our fiscal year 2003. In October 2001, the Financial Accounting Standards Board also issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Though SFAS No. 144 retains the basic requirements of SFAS No. 121 regarding when and how to measure an impairment loss, it provides additional implementation guidance. SFAS No. 144 also supersedes the provisions of APB Opinion No. 30, "Reporting Results of Operations," pertaining to discontinued operations. Separate reporting of a discontinued operation is still required, but SFAS No. 144 expands the presentation to include a component of an entity, rather than strictly a business segment as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." We are currently analyzing this statement and have not yet determined its impact on our consolidated financial statements. This statement will be effective for our fiscal year 2003. o Outlook Although semiconductor market conditions for fiscal 2002 continued to be weak compared to that in fiscal 2001, we experienced sequential quarterly growth in new orders in the third quarter. The sequential improvement was driven by new orders coming from wireless handset makers, PC suppliers and display manufacturers. Fiscal 2002 sales for the third quarter, which is typically a down quarter, increased slightly over sales for the second quarter. For the third consecutive quarter we also saw improvement over the preceding quarter in fill orders, which are orders received with delivery requested in the same quarter. We expect the relatively strong trend in fill orders to continue into our fourth quarter. Our order backlog at the beginning of the fourth quarter was greater than what we had at the beginning of the third quarter. In light of these factors, we anticipate that sales for the fourth quarter of fiscal 2002 will increase by 6 to 9 percent over sales for the third quarter, ranging from $390-$405 million. While our fiscal fourth quarter has historically been seasonally strong, it is also possible this trend may not occur. The actual level of sales we achieve in the fourth quarter of fiscal 2002 will depend upon the amount of fill orders we receive. If the level and pattern of fill orders that we have so far experienced throughout fiscal 2002 are not sustained, the expected level of sales for the fourth quarter of fiscal 2002 will not be achieved. We also expect our gross margin percentage for the fourth quarter of fiscal 2002 to improve over the recently completed third quarter to the 38-40 percent range, as wafer fabrication capacity utilization is expected to run in the mid-to-high fifty percent range. We plan to continue to control the level of production activity in our manufacturing facilities in alignment with order levels and economic conditions. For the fourth quarter of fiscal 2002, we currently anticipate operating results to improve over the third quarter of fiscal 2002. The September terrorist attacks on the U.S. and subsequent associated events have created additional uncertainty on the state of the U.S. economy overall. Although we did not experience any immediate direct adverse effect on our operations from the terrorist attacks, the longer-term and indirect consequences from this catastrophic event are not yet known. There can be no assurance that the economic and political climate will improve in the near future. If the slow business conditions in the global economy continue or become more severe, our future sales and operating results will be negatively impacted. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended May 27, 2001 and to the subheading "Financial Market Risks" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 21 of our Annual Report on Form 10-K for the year ended May 27, 2001 and in Note 1, "Summary of Significant Accounting Policies," and Note 2, "Financial Instruments," in the Notes to the Consolidated Financial Statements included in Item 8 of our 2001 Form 10-K. There have been no material changes from the information reported in these sections. PART II. OTHER INFORMATION Item 1. Legal Proceedings In November 2000, a derivative action was filed in the U.S. District Court in Delaware against us, Fairchild Semiconductor International, Inc. and Sterling Holding Company, LLC, by Mark Levy, a Fairchild stockholder. The action was brought under Section 16(b) of the Securities Exchange Act of 1934 and the rules issued under that Act by the Securities and Exchange Commission. The plaintiff sought disgorgement of alleged short-swing insider trading profits. We had originally acquired Fairchild common and preferred stock in March 1997 at the time we disposed of the Fairchild business. Prior to its initial public offering in August 1999, Fairchild had amended its certificate of incorporation to provide that all Fairchild preferred stock would convert automatically to common stock upon completion of the initial public offering. As a result, our shares of preferred stock converted to common stock in August 1999. Plaintiff had alleged that the acquisition of common stock through the conversion constituted an acquisition that should be "matched" against our sale in January 2000 of Fairchild common stock for purposes of computing short-swing trading profits. The action sought to recover from us on behalf of Fairchild alleged recoverable profits of approximately $14 million. In February 2002, the judge in the case granted the motion for summary judgment filed by us and our co-defendants and dismissed the case, ruling that the conversion was done pursuant to a reclassification which is exempt from the scope of Section 16(b). Plaintiff appealed the dismissal of the case in March 2002. Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits 3.1 Second Restated Certificate of Incorporation of the Company as amended (incorporated by reference from the Exhibits to our 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 our Registration Statement on Form S-8 Registration No. 333-09957, which became effective August 12, 1996); Certificate of Amendment of Certificate of Incorporation dated September 22, 2000 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8 Registration No. 333-48424, which became effective October 23, 2000). 3.2 By Laws of the Company, as amended effective October 30, 2001 (incorporated by reference from the Exhibits to our Form 10-K for the quarter ended November 25, 2001 filed January 9, 2002). 4.1 Form of Common Stock Certificate (incorporated by reference from the Exhibits to our 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 our 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 our Amendment No. 1 to the Registration Statement on Form 8-A filed December 11, 1995); Second Amendment to the Rights Agreement dated as of December 17, 1996 (incorporated by reference from the Exhibits to our Amendment No. 2 to the Registration Statement on Form 8-A filed January 17, 1997). 4.3 Indenture dated as of May 28, 1996 between Cyrix Corporation ("Cyrix") and Bank of Montreal Trust Company as Trustee (incorporated by reference from the Exhibits to Cyrix's Registration Statement on Form S-3 Registration No. 333-10669, which became effective August 22, 1996). 4.4 Registration Rights Agreements dated as of May 28, 1996 between Cyrix and Goldman, Sachs & Co. (incorporated by reference from the Exhibits to Cyrix's Registration Statement on Form S-3 Registration No. 333-10669, which became effective August 22, 1996). 10.1 Management Contract or Compensatory Plan or Arrangement: Deferred Compensation Plan. 10.2 Management Contract or Compensatory Plan or Arrangement: Settlement Agreement and General Release with Richard A. Wilson. (b) Reports on Form 8-K ------------------- No reports on form 8-K were filed for the quarter ending February 24, 2002. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL SEMICONDUCTOR CORPORATION Date: April 9, 2002 \s\Robert E. DeBarr ------------------- Robert E. DeBarr Controller Signing on behalf of the registrant and as principal accounting officer EX-10 3 form10q_0403exha.txt EXHIBIT 10.1 NSC DEFERRED COMPENSATION PLAN Exhibit 10.1 NATIONAL SEMICONDUCTOR CORPORATION DEFERRED COMPENSATION PLAN Effective June 1, 2001 (As Amended and Restated Effective November 1, 2001) NATIONAL SEMICONDUCTOR CORPORATION DEFERRED COMPENSATION PLAN PLAN DOCUMENT (AS AMENDED AND RESTATED EFFECTIVE AS OF NOVEMBER 1, 2001) THIS DEFERRED COMPENSATION PLAN ("Plan") originally adopted by National Semiconductor Corporation, a corporation organized and existing under the laws of the State of Delaware, (hereinafter referred to as the "Employer") effective as of June 1, 2001, as hereby amended and restated effective as of November 1, 2001: WITNESSETH: WHEREAS, the Employer adopted this Plan to consolidate previously deferred incentive awards under the Key Employee Incentive Plan ("KEIP"), Executive Officer Incentive Plan ("EOIP"), and Key Employee Bonus Plan ("KEBP") and to continue to allow certain participants in the KEIP and EOIP the ability to defer payment of their incentive awards under those plans; and WHEREAS, the Employer's Benefit Restoration Plan ("BRP") previously permitted certain BRP participants to defer up to 30% of Compensation as Annual Savings Restoration Amounts and provided Annual Profit Sharing Restoration Amounts for participants whose benefits under the National Semiconductor Corporation Retirement and Savings Program (RASP) were limited by the Internal Revenue Code; and WHEREAS, the Employer desires to combine into the Plan the provisions of the BRP that permit the deferral of Compensation and provide for Annual Profit Sharing Restoration Amounts, in order to create a single plan and to provide additional flexibility with respect to future deferrals; and WHEREAS, the Employer also desires to transfer Annual Matching Restoration Amounts, Annual Profit Sharing Restoration Amounts and Annual Savings Restoration Amounts previously accrued under the BRP so that they may be held under a single plan; and WHEREAS, the Employer wishes to amend and restate the Plan in order to achieve the goals set forth above; NOW, THEREFORE, in consideration of the promises herein contained, it is hereby declared as follows: ARTICLE 1 DEFINITIONS When used herein, the words and phrases defined hereinafter shall have the following meaning unless a different meaning is clearly required by the context. 1.01 "Account" shall mean the Account established pursuant to Section 3.05 of the Plan. 1.02 "Annual Matching Restoration Amount" shall mean the amount (as previously defined under the BRP) that remained to the credit of a Participant under the BRP as of October 31, 2001 and which will no longer be payable under the BRP after October 31, 2001. Once this amount is credited to a Participant Account under the Plan, a Participant will no longer have any right to the amount previously credited under the BRP. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the BRP prior to November 1, 2001. 1.03 "Annual Profit Sharing Restoration Amount" shall mean the amount determined in accordance with Section 3.02 of this Plan. Such amount shall also include the Annual Profit Sharing Restoration Amount that remained to the credit of a Participant under the BRP as of October 31, 2001 and which will no longer be payable under the BRP after October 31, 2001. Once this amount is credited to a Participant Account under the Plan, a Participant will no longer have any right to the amount previously credited under the BRP. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the BRP prior to November 1, 2001. 1.04 "Annual Savings Restoration Amount" shall mean the amount (as previously defined under the BRP) that remained to the credit of a Participant under the BRP as of October 31, 2001, and which will no longer be payable under the BRP after October 31, 2001. Once this amount is credited to a Participant Account under the Plan, a Participant will no longer have any right to the amount previously credited under the BRP. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the BRP prior to November 1, 2001. 1.05 "Beneficiary" shall mean the person or persons last designated by a Participant, by written notice filed with the Committee, to receive a Plan Benefit upon his or her death. A new Beneficiary designation may be made with respect to each Deferred Incentive Award Amount or Deferred Compensation Amount class year subaccount. In the event a Participant fails to designate a person or persons as provided above or if no Beneficiary so designated survives the Participant, then for all purposes of this Plan, the Beneficiary shall be the person(s) designated as the beneficiaries by the Participant under the RASP, or, if none, the Participant's estate. 1.06 "Benefits" shall mean the value of the Participant's Account as credited to the investment options selected by the Participant from among the investment options authorized by the Committee from time-to-time under the Plan as reflected in the records of the Participant's Account as described in Sections 3.05 and 3.06 of the Plan. 1.07 "Board" shall mean the Board of Directors of National Semiconductor Corporation. 1.08 "BRP" shall mean the National Semiconductor Corporation Benefit Restoration Plan. 1.09 "Committee" shall mean The Retirement and Savings Program Administrative Committee. 1.10 "Compensation" shall mean the sum of: (a) the Employee's basic or regular rate of compensation for each payroll period during that portion of a Plan Year in which the Employee is a Participant in the Plan, plus (b) all overtime, lead time, sales commissions and shift differential income received during that portion of a Plan Year in which the Employee is a Participant in the Plan. Compensation does not include Incentive Awards. 1.11 "Deferred Compensation Amount" shall mean the amount determined in accordance with Section 3.04 of this Plan. 1.12 "Deferred Incentive Award Amount" shall mean the amount of a Participant's Incentive Award that is deferred with respect to a particular fiscal year of the Employer as determined in accordance with Section 3.03 of this Plan. Such amount also includes amounts credited to a Participant Account in the Plan as of June 1, 2001 from amounts that remained to the credit of a Participant under the provisions of the KEIP, EOIP or KEBP as of May 31, 2001. In no event shall a Participant be entitled to the amount credited under this Plan and the amount that was credited to an account under the KEIP, EOIP or KEBP prior to June 1, 2001. 1.13 "Effective Date" shall mean June 1, 2001, except that the provisions relating to the deferral of Compensation, Annual Profit Sharing Restoration Amounts and the consolidation of prior Annual Matching Restoration Amounts, prior Annual Profit Sharing Restoration Amounts, and prior Annual Savings Restoration Amounts under the BRP which remained to the credit of a participant in the BRP as of October 31, 2001, shall be effective November 1, 2001. 1.14 "Employer" shall mean National Semiconductor Corporation. 1.15 "Incentive Award" shall mean the amount payable to an Employee either under the Employer's Executive Officer Incentive Plan (EOIP) or Key Employee Incentive Plan (KEIP) from June 1, 2001 forward. 1.16 "Participant" shall mean an eligible Employee of the Employer who satisfies the eligibility requirements of Section 2.01 of the Plan. 1.17 "Plan" shall mean the National Semiconductor Corporation Deferred Compensation Plan, as amended from time to time. 1.18 "Plan Year" shall mean the Employer's fiscal year. 1.19 "RASP" shall mean the National Semiconductor Corporation Retirement and Savings Program, or any successor plan (or plans) thereto. In the case of any successor plan, references herein to Sections of the RASP shall be interpreted as corresponding Sections under the successor plan. 1.20 Capitalized Terms not defined herein shall have the meaning attributed to them in the RASP. ARTICLE II ELIGIBILITY 2.01 Eligibility A. Annual Profit Sharing Restoration Amount An Employee shall be eligible to receive an Annual Profit Sharing Restoration Amount in any Plan Year in which he qualifies for an allocation of the Employer's Annual Profit Sharing Contribution as a participant under the RASP, but the amount of the RASP benefit to which he is entitled is reduced by reason of the application of the limitations set forth in Sections 401(a)(17) or 415(c)(1)(A) of the Code as applied to the Employee's compensation under the RASP, or is reduced by the amount of Compensation deferred pursuant to Section 2.02 of the Plan. B. Deferred Compensation Amount An Employee shall be eligible to make deferrals of his Compensation under the Plan if he is on the Employer's U.S. payroll, and (i) holds a 39xx or higher job code and (ii) has made the maximum permitted deferral under the RASP (provided, however, that this requirement shall not apply to an Employee who holds both a 43xx or higher job code and a job title of vice president or above), or such other criteria as is established by the Committee for eligibility. C. Deferred Incentive Award Amount An Employee shall be eligible to make deferrals of his Incentive Award under the Plan if he is on the Employer's U.S. payroll, and holds a 39xx or higher job code, or such other criteria as is established by the Committee for eligibility. 2.02 Enrollment A. Annual Profit Sharing Restoration Amount An eligible Employee is automatically enrolled in the Annual Profit Sharing Restoration Amount portion of this Plan. B. Deferred Compensation Amount A Participant may enroll in the Plan for purposes of deferring Compensation by November 30, or such other date that is specified by the Committee ("enrollment date"), prior to the end of any calendar year, to be effective as of January 1, of the next succeeding calendar year, by using such enrollment process as established by the Committee for this purpose. Such enrollment process shall provide for the election of the percentage of the Compensation that shall be deferred, the timing of the commencement of deferrals (in accordance with Section 3.04), the timing for payment of Compensation (in accordance with Section 4.01), and the form of payment of Compensation (in accordance with Section 4.05). 1. Once a Participant has enrolled in the Plan for the purpose of deferring Compensation (or previously enrolled in the BRP for purposes of Annual Savings Restoration Amounts), the election made by the Participant shall remain in effect until the Participant modifies or revokes his election. Any modification or revocation by the Participant must be made by the enrollment date of the calendar year preceding the effective date of such modification or revocation. 2. An Employee hired during a Plan Year who meets the eligibility requirements of Section 2.01 of the Plan, may make an election, prior to the date the Employee's employment commences, to begin participation 30 days after the Employee's date of employment. Otherwise, an Employee who becomes eligible after an enrollment date will be required to wait until the next available enrollment date to participate in the Plan. C. Deferred Incentive Award Amount A Participant may enroll in the Plan for purposes of deferring an Incentive Award with respect to a particular fiscal year of the Employer no later than 30 days before the end of the fiscal year of the Employer, or such other date that is specified by the Committee, by using such enrollment process as established by the Committee for this purpose. Such enrollment process shall provide for the election of the percentage of the Incentive Award that shall be deferred, the timing for payment of the Incentive Award (in accordance with Section 4.01), and the form of payment of the Incentive Award (in accordance with Section 4.05). A new election must be completed for each fiscal year for which a deferral of an Incentive Award is desired. ARTICLE III BENEFITS 3.01 Benefits The maximum Benefits under this Plan to which a Participant shall be entitled shall be equal to the sum of: (a) the Participant's Annual Profit Sharing Restoration Amount credited pursuant to Section 3.02 (and previously credited amounts as described in Section 1.03); (b) the Participant's Deferred Incentive Award Amount credited pursuant to Section 3.03 (and previously credited amounts as described in Section 1.12); (c) the Participant's Deferred Compensation Amount credited pursuant to Section 3.04; (d) the Participant's Annual Savings Restoration Amount; (e) the Participant's Annual Matching Restoration Amount; and (f) earnings and losses credited to the Participant's Account in accordance with Section 3.06. 3.02 Annual Profit Sharing Restoration Amount The Annual Profit Sharing Restoration Amount to which a Participant shall be entitled to for a Plan Year shall be an amount equal to the difference, if any between (a) and (b) below: (a) The amount of the Employer's Annual Profit Sharing Contribution, which would have been allocated to a Participant under the RASP if the Annual Profit Sharing Contribution were determined pursuant to Section 5.01 B.3. of the RASP and the allocation were determined pursuant to Section 6.03 A. of the RASP 1) without giving any effect to the limitations imposed by sections 401(a)(17) and 415 of the Code, as now or hereafter in effect and 2) by including the amount of Compensation deferred pursuant to Section 2.02 of the Plan; less (b) The amount of the Employer's Annual Profit Sharing Contribution allocated to the Participant under the RASP. 3.03 Deferred Incentive Award Amounts The Deferred Incentive Award Amount which shall be credited to a Participant's Account for a Plan Year, shall be equal to the amount of the Incentive Award with respect to the Employer's fiscal year ending immediately before the Plan Year that a Participant has agreed to defer under this Plan pursuant to procedures established by the Committee. A Participant may agree to defer receipt of up to 100% of his Incentive Award with respect to the Employer's fiscal year ending immediately before the Plan Year. 3.04 Deferred Compensation Amounts In the case of a Participant who holds a job code of 39xx or above, the maximum Deferred Compensation Amount shall be equal to 30% of the Participant's Compensation beginning as of the pay date in which the Participant makes the maximum contributions to the RASP permitted under section 402(g) of the Code through to the end of the calendar year in which the Participant's deferral election applies. Such Participant may elect any whole percentage of his Compensation between 0% and 30%. In the case of a Participant holding both a 43xx or higher job code and a job title of vice president or above, the maximum Deferred Compensation Amount shall be equal to 50% of the Participant's Compensation for the entire calendar year in which the Participant's election applies, allowing deferrals to start at the beginning of a calendar year before a Participant reaches the maximum contributions to the RASP permitted under section 402(g) of the Code if the Participant so chooses. Such Participant may elect any whole percentage of his Compensation between 0% and 50%. 3.05 Participant's Account The Employer shall create and maintain adequate records to reflect the interest of each Participant in the Plan. Such records shall be in the form of individual Accounts. When appropriate, a Participant's Account shall consist of separate calendar class year subaccounts with respect to each Plan Year for which a Deferred Incentive Award Amount or Deferred Compensation Amount is credited under the Plan. Such Accounts shall be kept for recordkeeping purposes only and shall reflect amounts allocated under Section 3.07, distributions under Article IV, and divestments under Section 6.07. Any Accounts maintained in trust by the Employer shall not be construed as providing for assets to be held in trust or escrow or any other form of asset segregation for the Participant or Beneficiary to whom benefits are to be paid pursuant to the terms of the Plan. 3.06 Allocation to Participant Account The Participant's Deferred Incentive Award Amount and Deferred Compensation Amount shall be credited to the Participant's Account as of the paydate such amount would have been paid to such Participant absent a deferral under the Plan. The Participant's Annual Profit Sharing Restoration Amount shall be credited to the Participant's Account as of the same date as the Annual Profit Sharing Contribution is credited under the RASP. The Participant's Annual Savings Restoration Amount, Annual Matching Restoration Amount and Annual Profit Sharing Restoration Amount previously credited under the BRP shall be credited to the Participant's Account as of the Effective Date. Each Participant may advise the Committee, in accordance with procedures established by the Committee, on how he wishes his Account to be allocated among the investment options authorized by the Committee and such Participant's Account shall be credited with earnings and losses at such time and in such manner as determined in the sole discretion of the Committee and shall reflect the allocation of investments made there under. The Participant may change his investment allocation in accordance with procedures established by the Committee. Notwithstanding the foregoing, the Committee reserves the right to determine the Plan's investment options and the specific process for making investments without regard to the advice received from Participants. 3.07 Vested Percentage Notwithstanding anything herein to the contrary, a Participant shall be 100% vested at all times in his Deferred Incentive Award Amount, his Deferred Compensation Amount, Annual Savings Restoration Amount, and his Annual Matching Restoration Amount. A Participant shall be vested in his Annual Profit Sharing Restoration Amount in accordance with Section 8.01(A) of the RASP; provided, however, that forfeited amounts shall not be reallocated among Plan Participants, or be restored to the forfeiting Participant upon reemployment. 3.08. Benefits Under Prior Plans In no event shall a Participant be entitled to the same amount under this Plan and the KEIP, EIOP, KEBP, or BRP. ARTICLE IV DISTRIBUTION OF BENEFITS 4.01 Benefit Commencement Date Except as provided in Section 4.04, Benefits under the Plan may not be paid prior to the earlier of: (a) the Participant's termination of employment (as provided in Section 4.02); or (b) in the case of a Deferred Incentive Award Amount or Deferred Compensation Amount, a date pre-selected by the Participant (as provided in Section 4.03), in accordance with the election made by the Participant pursuant to Section 2.02. If an election is made to have Benefits commence on a date pre-selected by the Participant (as provided in Section 4.03), such election subsequently may be modified to defer payment until the Participant's termination of employment (as provided in Section 4.02), provided such election modification is made by the Participant in writing at least 12 months prior to the pre-selected date. 4.02 Termination of Employment Except as otherwise provided in Section 4.01 and 4.03 of this Article, Benefits shall be distributed upon termination of employment for any reason (including retirement, disability, death, or reduction-in-force). However, in the case of a termination of employment because of a disposition of substantially all of the assets of a line of business or a disposition of the Employer's interest in a subsidiary, if the Employer and the acquiring company so agree, a Participant that would continue in a similar position with the acquiring company will be given the opportunity to elect sufficiently in advance of such disposition, to have his Benefits transferred to a nonqualified deferred compensation plan maintained by the acquiring company. If the Participant makes the election described in the preceding sentence, and the Participant's Benefits are so transferred, the Participant's rights under this Plan shall cease. If the Participant does not make such an election, the Participant's Benefits shall be paid as they otherwise would in the case of a termination of employment. 4.03 Date Pre-Selected by the Participant A Participant may elect to have payment of a Deferred Compensation Amount or a Deferred Incentive Award Amount for a particular Plan Year (except that in the case of a Deferred Incentive Award Amount deferred prior to June 1, 2001, all such amounts must be subject to the same election) commence prior to termination of employment, provided that the commencement date is at least two full calendar years after the end of the calendar year in which the Deferred Incentive Award Amount or Deferred Compensation Amount otherwise would have been paid to the Participant absent the deferral under this Plan. For example, payment of a Deferred Incentive Award Amount or a Deferred Compensation Amount that otherwise would have been paid to the Participant in 2002 may be deferred to a date no earlier than January 1, 2005. 4.04 Hardship Payment of part or all of the Benefits under this Plan may be accelerated in the case of severe hardship, which shall mean an emergency or unexpected situation in the Participant's financial affairs, including, but not limited to, illness or accident involving the Participant or any of the Participant's dependents (within the meaning of Section 152(a) of the Internal Revenue Code). All payments in case of hardship must be approved by the Committee and will be limited to the amount necessary to meet the severe hardship. 4.05 Form of Payment Benefits shall be distributed to a Participant in either a lump sum, or in annual installment payments of at least two (2) years, but not more than ten (10) years, in accordance with the election made by the Participant pursuant to Section 2.02; provided, however, that the Participant's election under Section 2.02 as to the form of payment of Benefits subsequently may be modified to provide for another permissible form of payment, so long as such election modification is made by the Participant in writing at least 90 days prior to the date the payment of Benefits commences under Section 4.01. Notwithstanding the preceding paragraph, a Participant's Annual Profit Sharing Restoration Amount, Annual Savings Restoration Amount, and Annual Matching Restoration Amount may not be paid in installments unless the Participant is eligible to retire under Section 9.01 of the RASP. If installment payments are elected, the first installment shall be made as soon as is administratively feasible after the event giving rise to the distribution and all subsequent installments shall be paid at the beginning of each subsequent calendar year as soon as is administratively feasible. Annual installment payments shall be equal to the then remaining Account balance, divided by the number of years remaining in the installment period. To the extent Benefits are not paid in installments, the Account balance will be paid in a lump sum in the month following the event giving rise to the distribution, or as soon as is administratively feasible. Notwithstanding the foregoing, the Committee, in its sole discretion, may accelerate any installment payment election upon the Participant's termination of employment. 4.06 Beneficiary Entitlement In the event a Participant entitled to installment payments dies before receiving all Benefits under the Plan, the unpaid balance will be paid in a lump sum to such Participant's Beneficiary as soon as is administratively feasible following the Participant's death. ARTICLE V ADMINISTRATION; AMENDMENTS AND TERMINATION; RIGHTS AGAINST THE COMPANY 5.01 Administration The Committee shall administer this Plan. With respect to the Plan, the Committee shall have, and shall exercise and perform, all the powers, rights, authorities and duties set forth in the RASP with the same effect as if set forth in full herein with respect to this Plan. Except as expressly set forth herein, any determination or decision by the Committee shall be conclusive and binding on all persons who at any time have or claim to have any interest whatsoever under this Plan. 5.02 Amendment and Termination Prior to a Change in Control The Employer, solely, and without the approval of the Committee or any Participant or Beneficiary, shall have the right to amend this Plan at any time and from time-to-time. Any such amendment shall become effective upon the date stated therein. Notwithstanding the foregoing, no amendment shall adversely affect the rights of any Participant or Beneficiary who was previously receiving Benefits under this Plan to continue to receive such Benefits or of all other Participants and Beneficiaries to receive the Benefits promised under the Plan immediately prior to the later of the effective date or the date of adoption of the amendment. The Employer has established this Plan with the bona fide intention and expectation that from year-to-year it will deem it advisable to continue it in effect. However, circumstances not now foreseen or circumstances beyond the Employer's control may make it impossible or inadvisable to continue the Plan. Therefore, the Employer, in its sole discretion, reserves the right to terminate the Plan in its entirety at any time; provided, however, that in such event any Participant or Beneficiary who was receiving benefits under this Plan as of the termination date, shall continue to receive such Benefits, and all other Participants and Beneficiaries shall remain entitled to receive the Benefits promised under the Plan immediately prior to the termination of the Plan. 5.03 Rights Against the Employer The establishment of this Plan shall not be construed as giving to any Participant, Beneficiary, Employee or any person whomsoever, any legal, equitable or other rights against the Employer, or its officers, directors, agents or shareholders, except as specifically provided for herein, or its giving to any Participant any equity or other interest in the assets, business or shares of the Employer or giving any Employee the right to be retained in the employment of the Employer. All terms relating to Incentive Awards that do not involve the deferral of receipt of such awards shall be governed by the KEIP or EOIP, as the case may be. All Employees and Participants shall be subject to discharge to the same extent that they would have been if this Plan had never been adopted. Subject to the rights of the Employer to terminate this Plan or any benefit hereunder, the rights of a Participant hereunder shall be solely those of an unsecured creditor of the Employer. ARTICLE VI GENERAL AND MISCELLANEOUS 6.01 Spendthrift Clause No right, title or interest of any kind in the Plan shall be transferable or assignable by any Participant or Beneficiary or any other person or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary. Any attempt to alienate, sell, transfer, assign, pledge, garnish, attach or otherwise encumber or dispose of any interest in the Plan shall be void. 6.02 Severability In the event that any provision of this Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. 6.03 Construction of Plan The article and section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular. 6.04 Gender The personal pronoun of the masculine gender shall be understood to apply to women as well as men except where specific reference is made to one or the other. 6.05 Governing Law THE VALIDITY AND EFFECT OF THIS PLAN AND THE RIGHTS AND OBLIGATIONS OF ALL PERSONS AFFECTED HEREBY SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES AND THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ITS OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS. 6.06 Unfunded Top Hat Plan It is the Employer's intention that this Plan be a Top Hat Plan, defined as an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, as provided in Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended from time-to-time. The Employer may establish and fund one or more trusts for the purpose of paying some or all of the benefits promised to Participants and Beneficiaries under the Plan; provided, however, that (i) any such trust(s) shall at all times be subject to the claims of the Employer's general creditors in the event of the insolvency or bankruptcy of the Employer, and (ii) notwithstanding the creation or funding of any such trust(s), the Employer shall remain primarily liable for any obligation hereunder. Notwithstanding the establishment of any such trust(s), the Participants and Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of any such trust or of the Employer. 6.07 Divestment for Cause Notwithstanding any other provisions of this Plan to the contrary, the right of any Participant, former Participant, or Beneficiary of either, to receive any Benefits, or to have paid to any other person any Benefits, or the right of any such other person to receive any Benefits under this Plan, shall be forfeited, if such Participant's employment with the Employer is terminated because of, or the Participant is discovered to have engaged in, fraud, embezzlement, dishonesty against the Employer, obtaining funds or property under false pretenses, assisting a competitor without permission, or interfering with the relationship of the Employer or any subsidiary or affiliate thereof with a customer. A Participant's or Beneficiary's Benefits shall be forfeited for any of the above reasons regardless of whether such act is discovered prior to or subsequent to the Participant's termination from the Employer or the payment of Benefits under the Plan. If payment has been made, such payment shall be restored to the Employer by the Participant or Beneficiary. ERISA RIGHTS This Plan is intended to provide benefits for a select group of highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974 (ERISA). However, it is not subject to most of the requirements or protection of ERISA nor is the Plan eligible for insurance under Title IV of ERISA. Furthermore, the Plan is considered to be an unfunded, non-qualified plan for purposes of complying with the Internal Revenue Code. PLAN NAME: NATIONAL SEMICONDUCTOR CORPORATION DEFERRED COMPENSATION PLAN PLAN SPONSOR: Employer I.D. Number (EIN): National Semiconductor Corporation EIN: 95-2095071 2900 Semiconductor Drive P.O.Box 58090 Santa Clara, CA 95052-8090 (408) 721-6431 PLAN NUMBER: 006 PLAN YEAR: The Plan Year is the fiscal year. Plan records are maintained on the basis of this Plan Year. PLAN ADMINISTRATOR: Retirement and Savings Program Administrative Committee C/o Corporate Benefits National Semiconductor Corporation 2900 Semiconductor Drive P. O. Box 58090, M/S C1-195 Santa Clara, CA 95052-8090 (408) 721-6431 TYPE OF PLAN: The Plan is a non-qualified deferred compensation plan for selected key employees of National Semiconductor Corporation. Agent for Service of Legal Process: Legal process should be served on the Employer's Corporate Secretary or the Plan Administrator in care of the Retirement Plans Administration Office at the Employer's address. FUNDING MEDIUM: The Plan is unfunded and Benefits are paid from the Plan sponsor's general assets. EX-10 4 form10q_exhb.txt EX-10.2 SETTLEMENT AGREEMENT AND GENERAL RELEASE Nll/agrmt/erlseraw Exhibit 10.2 SETTLEMENT AGREEMENT AND GENERAL RELEASE This Settlement Agreement and General Release (hereinafter "Agreement") is entered into as of this 31st day of January, 2002 ("Effective Date"), by and between Richard A. Wilson (hereinafter "Employee") and National Semiconductor Corporation (hereinafter "Company"). WHEREAS, Employee and the Company have agreed that Employee's active duties in the position of Senior Vice President, Human Resources at the Company were discontinued effective as of January 28, 2002; and WHEREAS, Company desires to provide certain benefits to Employee in connection with Employee's work status on the terms specified herein; and WHEREAS, Company and Employee acknowledge that the benefits specified herein are greater than Employee would otherwise be entitled to upon termination of his employment; WHEREAS, Company and Employee desire to settle fully and finally all differences between them; and WHEREAS, Company and Employee desire to mutually release each other; NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, Employee and Company agree as follows: 1. From January 28, 2002 through March 2, 2002, Employee will provide transition support to the Company as needed upon reasonable notice. During this transition period, Employee shall continue to have access to and the use of the Company's email and voicemail systems. Effective as of March 2, 2002 ("Resignation Date"), Employee shall resign as an active employee and shall be relieved of any further obligations to perform on going day-to-day services at or on behalf of the Company. Employee agrees to resign all formal positions held by Employee in the Company or any of its subsidiaries. In consideration of mutual benefits received, the parties agree that during the period that the Company is paying Employee's salary pursuant to paragraph 2 below, Employee will continue to be considered to be an employee of the Company and shall not engage in full-time employment (not including consulting) with any company other than the Company. During this period, the Company retains the right and the discretion to direct Employee to perform mutually agreeable services. In the event that such services are requested, the Company must notify Employee in writing the nature of the services requested and the time period for which such services are to be performed. 2. Subject to the limitation set forth below, from and after the Resignation Date the Company will continue to pay Employee's salary (at current levels) and all associated benefits, including but not limited to those benefits listed on Exhibit A, for an additional period of one year, ending on the one year anniversary of the Resignation Date. The Company's internal records shall reflect that Employee's employment terminated as a result of voluntary resignation from all duties and obligations on the date that salary and benefits end. This date shall be referred to as the "Termination Date." At any time prior to the end of this one year period, Employee may elect to terminate the employment relationship by so notifying the Company's Vice President, Human Resources. In such case, the effective date of such notification shall become the Termination Date and Company shall pay to Employee in a lump sum the amount of additional salary, including amounts due under the Executive Officer Incentive Plan ("EOIP") for fiscal years 2002 and 2003, (but not benefits) that would otherwise have been paid to Employee through the one year period after the Resignation Date. Employee's stock options will continue to vest through the Termination Date, in accordance with the terms of the relevant stock option agreements. 3. If Employee accepts full time employment (not including consulting) outside of the Company, Employee shall notify the Company's Vice President, Human Resources and the effective date of such notification shall become the Termination Date. At that time, the Company shall pay to Employee in a lump sum the amount of additional salary, including amounts due under the Executive Officer Incentive Plan ("EOIP") for fiscal years 2002 and 2003, (but not benefits) that would otherwise have been paid to Employee through the one year period after the Resignation Date. 4. Employee will be eligible for an EOIP award for fiscal year 2002. Employee's accomplishment score for fiscal 2002 shall be the average of all Executive Staff scores and Employee's Target Incentive Level will be 60%. The EOIP award for fiscal 2002, if any, will be paid in accordance with the terms of the EOIP at the same time all other EOIP participants receive their payments. Employee will also be paid an EOIP award for fiscal year 2003 calculated at 75% of target (Target Incentive Level of 60%) which will be paid in accordance with the provisions of the EOIP at the same time all other participants receive their payments. 5. Employee and Company acknowledge that Employee is eligible for retirement under all Company benefit plans, including stock option plans, on and after April 2, 2002 (the affected benefit plans are listed on Exhibit B hereto). Both parties acknowledge that Employee achieves such eligibility without any modification to any of the currently existing terms and requirements of the Company's benefit plans concerning retirement. Employee has notified the Company of his intention to retire on the Termination Date and provided the Termination Date is on or after April 2, 2002, Employee shall be deemed to have retired from the Company upon providing notice of same to the Company's Chief Financial Officer, such notice to be substantially in the form of Exhibit C hereto. 6. Except as may otherwise be agreed in writing, Employee agrees to return all Company property, credit cards, documents or other materials or equipment that have been furnished to him by the Company by the Termination Date. 7. Employee acknowledges that he has had twenty-one (21) days to consider the terms of this Settlement Agreement and General Release. Once signed by Employee, Employee shall have an additional seven (7) days to withdraw Employee's approval of this Agreement and General Release. If Employee withdraws his approval, this Agreement and General Release will be void and Employee will not be entitled to receive any benefits hereunder. 8. Each Party, its representatives, heirs, successors and assigns do hereby completely release and forever discharge the other Party and its representatives, heirs, successors and assigns, being understood that for the purposes of this paragraph, the Company shall also include its affiliated, related or subsidiary corporations and its and their present and former shareholders, officers, directors, agents, employees, and attorneys, 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 either party may now have, or has ever had, against the other party based upon any act or omission by a party prior to the date of execution of this Agreement by the parties, 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, Company By-Laws or Company policy; and provided further, however, that this paragraph does not waive any rights either Party may have against the other for failure to perform its obligations under this Agreement. 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 either Party including, without limitation, those arising from or in any way related to Employee's employment by Company or the termination thereof. Therefore, each party waives any and all rights or benefits which it 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. 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 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, 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 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. 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 resolved their differences in a mutually-satisfactory manner. 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, 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. 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. 14. 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 A. WILSON By: //s// JOHN M. CLARK III - --------------------------- -------------------------------- Title: Senior Vice President ----------------------------- EXHIBIT A BENEFITS COVERED BY PARAGRAPH 2 Medical and Dental Insurance Retirement and Savings Program Deferred Compensation Plan Employee Stock Purchase Plan Stock Option Plan Executive Financial Counseling Expense Reimbursement Executive Medical Examination Expense Reimbursement Long Term Disability Insurance Short Term Disability Insurance Accidental Death & Dismemberment Insurance Dependent (Spouse and Child) Life Insurance Vacation Accrual EXHIBIT B SUMMARY OF BENEFITS AVAILABLE UPON RETIREMENT The following summarizes the benefits and options available to all employees in connection with the termination of employment at National Semiconductor Corporation ("NSC") by reason of retirement: 1. You are eligible for the Retired Officers Medical Plan, details of which can be obtained from the Company's Director of Corporate Benefits. 2. Life insurance coverage ends on the last day of employment. Under the life insurance program effective 1/1/97, the coverage can be ported to an individual policy. Contact the Human Resources Service Center for details. 3. Disability plan coverage ends on the last day of employment. There is no option available to convert disability coverage to an individual plan. 4. Participation in the Stock Purchase Plan ends on the last day of employment. Payroll deductions for that quarter will be refunded to you. 5. You are eligible for retirement treatment for payout of any deferred monies in accordance with the provisions of the Executive Officer Incentive Plan and the Deferred Compensation Plan. Details can be obtained from the Director of Corporate Benefits. 6. You are eligible for retirement treatment of all stock options granted to you more than six months prior to the Termination Date. EXHIBIT C National Semiconductor Corporation 2900 Semiconductor Drive Santa Clara, California 95051 Attention: Chief Financial Officer Dear Sir: This letter constitutes notice of my intention to retire from National Semiconductor Corporation ("NSC") pursuant to the provisions of Paragraph 5 of the Settlement Agreement and General Release by and between NSC and me dated as of January 31, 2002, Sincerely, Richard A. Wilson -----END PRIVACY-ENHANCED MESSAGE-----