-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HYE0usw3u17gx/xWbQWvyKvKz9E111KSr+BwU4ZVaVtwdLThaABqwf2z939BoV96 WNW1htrK1MFkblnYfrkqXg== 0000070530-95-000006.txt : 19950731 0000070530-95-000006.hdr.sgml : 19950731 ACCESSION NUMBER: 0000070530-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19950528 FILED AS OF DATE: 19950727 SROS: NYSE SROS: PSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06453 FILM NUMBER: 95556668 BUSINESS ADDRESS: STREET 1: 2900 SEMICONDUCTORS DR STREET 2: PO BOX 58090 CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 BUSINESS PHONE: 4087216782 MAIL ADDRESS: STREET 1: 2900 SEMICONDUCTOR DR CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 10-K 1 NATIONAL SEMICONDUCTOR 10K FY95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended May 28, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the transition period from to . Commission File Number: 1-6453 NATIONAL SEMICONDUCTOR CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-2095071 -------- ---------- (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 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ------------------- ------------------------ Depositary shares, each representing New York Stock Exchange 1/10th share of $32.50 Convertible Preferred Shares, par value $0.50 per share Common stock, par value New York Stock Exchange $0.50 per share Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: $32.50 Convertible Preferred Shares ($0.50 par value) with a liquidation preference of $500 per share. (Title of class) --Continued on next page-- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10-K. [] The aggregate market value of voting stock held by non affiliates of the registrant as of July 14, 1995, was approximately $2,344,064,326. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of the registrant's common stock, $0.50 par value, as of July 14, 1995, was 123,661,548. DOCUMENTS INCORPORATED BY REFERENCE Document Location in Form 10-K -------- --------------------- 1995 Annual Report to Shareholders (pp. 23-48, 50-51) Parts I, II and IV Portions of the Proxy Statement for the Part III Annual Meeting of Stockholders to be held on or about September 29, 1995. Portions of the Company's Registration Part IV Statement on Form S-3, Registration No. 33-48935, which became effective October 5, 1992. Portions of the Company's Registration Part IV Statement on Form S-3, Registration No. 33-52775, which became effective March 22, 1994. Portions of the Company's Registration Part IV Statement on Form S-8, Registration No. 33-54931, which became effective August 5, 1994. Portions of the Company's Registration Part IV Statement on Form S-8, Registration No. 33-55699, which became effective September 30, 1994. Portions of the Proxy Statement for the Part IV Annual Meeting of Stockholders held September 30, 1994 The Index to Exhibits is located on pages 24-26. PART I ITEM 1. BUSINESS General National Semiconductor Corporation, including its subsidiaries, ("National" or the "Company") designs, develops, manufactures and markets a broad line of analog intensive, mixed signal and other integrated circuits for applications in the communications, personal systems and industrial market place. National was incorporated under the laws of the state of Delaware in 1959. During fiscal years 1995 and 1994, the Company substantially completed its manufacturing consolidation and reduction in cost structure in accordance with the restructuring plan announced in fiscal 1992. In the past two years, these actions included the closure of a wafer fabrication module in its Salt Lake City, Utah facility, closure of a wafer fabrication line in Santa Clara, California, consolidation of its Dynacraft, Inc. ("DCI") business which resulted in the elimination of a manufacturing facility in Milpitas, California and other reductions in personnel and related infrastructure at its Santa Clara facility. The Company has initiated significant recapitalization of facilities, machinery and equipment over the past three years. Capital investments over the past three years, inclusive of fiscal year 1995, total $984.6 million. These investments, in conjunction with sizable research and development investments, are required for the introduction of leading edge products into the Company's chosen markets. During fiscal 1995, the Company acquired Comlinear, Inc., a producer of analog products based in Fort Collins, Colorado. While the results of the acquisition are immaterial to the Company's overall financial position and results of operations, the acquisition adds to the Company's analog products portfolio and brings new design core competencies into the Company. Also during fiscal 1995, the Company entered into a joint venture with a partner in Shanghai, Peoples' Republic of China ("PRC"). The joint venture, which is majority owned by National, will produce integrated circuit boards using various National products for consumption by telecommunications and other enterprises within the PRC. The joint venture is not material to the Company's overall financial position and results of operations. The Company operates in one industry segment. The information with respect to sales and identifiable assets for National's geographic segments appearing on page 44-45 of the Company's 1995 Annual Report to Shareholders under the caption "Industry and Geographic Segment Information" is incorporated herein by reference. Products Semiconductors are integrated circuits (in which a number of transistors and other elements are combined to form a more complicated circuit) or discrete devices (such as individual transistors). In an integrated circuit, various elements are fabricated in a small area or "chip" of silicon, which is then encapsulated in plastic, ceramic or other advanced forms of packaging and connected to a circuit board or substrate. National manufactures a broad variety of analog intensive, mixed signal and digital products. National's products are used in numerous commercial applications, including personal systems, telecommunications and communications products, data processing, automotive, local and wide area networking and other industrial applications as well as some consumer applications. The Company is a leading supplier of analog and mixed signal products, serving both broad based markets such as the industrial and consumer market, and more narrowly defined markets such as Ethernet Local Area Networks ("LAN") and automotive. While no precise industry standard for analog and mixed signal exists, the Company considers products which process analog information, converts analog to digital or converts digital to analog as analog and mixed signal. Analog and mixed signal products include amplifiers and regulators, power monitors and line drivers, products optimized for audio, video, automotive or display applications, data acquisition and mass storage products. Other Company products with significant digital to analog or analog to digital capacity include Local Area Network, wireless networking and wireless communications, and personal systems and personal communications products such as its office automation and Super I/O offerings. Analog and mixed signal business units accounted for 56% of Company revenue in 1995 and their revenues have been increasing over the past few years as a percentage of total Company revenue. The Company also sells bipolar and complimentary metal oxide silicon ("CMOS") logic and memory products. These products are largely older, more mature offerings serving broad markets in data processing, switching equipment and personal computing. The Company's bipolar and CMOS products include many of the mature logic families such as Advanced Schottky ("AS") and Advanced Low Power Schottky ("ALS"), High Performance CMOS ("HCMOS") as well as lower density Electronically Erasable Programmable Read Only Memory ("EEPROM") and Erasable Read Only Memory ("EPROM") products. The Company is limiting its investment in mature products to opportunities which complement its analog and mixed signal product focus. Bipolar and CMOS products accounted for 22% of 1995 revenues, down from the previous year and declining as a percentage of total Company revenue over the past several years. The Company's other product offerings include discretes, its 100% owned DCI plating and stamping operation, and various other products such as low density microcontrollers and customized integrated circuits. These products accounted for 22% of sales in 1995 and revenues have been essentially flat as a percentage of total revenue for several years. Corporate Structure and Organization. For the last three fiscal years, the Company's operating divisions were divided into two groups: the Standards Products Group ("SPG") and the Communications and Computing Group ("CCG"). SPG served primarily horizontal markets and CCG served primarily vertical markets. At the start of fiscal 1996, the Company was further decentralized by eliminating the group structure, leaving seven main operating divisions, described as follows: Analog and Mixed Signal Divisions. National continues to be a leader in analog products and technology, which has been one of the Company's core competencies since its inception. Analog devices control continuously variable functions (such as light, color, sound, and power) and are used in automotive, telecommunications, audio/video and many industrial applications. The Company's analog products include high performance operational amplifiers, power management circuits, data acquisition circuits and voltage regulators. National provides a variety of analog products including standard products, application specific products and full custom products, as well as advanced mixed analog digital solutions. The Company's mixed signal products include circuits for video monitors and consumer audio products, real time clocks, automotive, custom linear ASIC ("CLASIC"), and peripheral drivers. The Company's discrete products are comprised primarily of transistors and diodes which are used as control and actuating devices in a broad range of electronic systems. Data Management Division. This Division's products incorporate bipolar, CMOS and BiCMOS technologies for high-performance applications such as switching and data manipulation. These applications are used in a variety of communications applications and computationally intensive applications such as workstations and computers, where the Company's FACT, FAST, BCT and 100K ECL product families are industry standards. Embedded Technologies Division. The Company's Embedded Technology Division consists of 4-, 8-, 16-, and 32-bit microcontrollers and memory products in the form of electronically programmable read only memories ("EPROM") and electronically erasable read only memories ("EEPROM"). The division addresses markets which combine basic computational or logic algorithms with specific memory storage on chips. National's higher end, more complex microcontrollers have been optimized for laser printers, high speed facsimile machines, scanners, and other imaging applications. Memory configurations of varying densities are also sold into markets for temporary or permanent data storage such as personal computers and workstations. Local Area Networks Division. The worldwide market for Ethernet LAN products has experienced significant growth in the last several years. LANs enable individual computer users within close proximity to share data as a work group. National is one of the world's leading suppliers of LAN Ethernet controller chip sets, which are currently the dominant protocol for LANs. National's LAN family includes a number of sophisticated control functions for networking over standard twisted- pair telephone wiring such as the Systems Oriented Network Interface Controller ("SONIC-T"), the AT/LANTIC single chip network controller for personal computers, and the Repeater Interface Controller ("RIC") for use with hubs. Through an alliance with Novell, Inc., the Company also markets its own line of Ethernet adapter cards under its Info Mover trademark. The LAN Division is also developing products in wireless networking which operate independent of twisted-pair or coaxial cabling. Wide Area Networks Division. The Wide Area Networks ("WAN") Division offers products which allow customers to transmit large amounts of data at high speed from one location to another anywhere in the world. The WAN Division also includes wireless communication products and high performance Application Specific Integrated Circuit ("ASIC") products. The Company currently supplies numerous solutions that enable existing telecommunications equipment as well as next generation SONET/ATM transmission equipment. Personal Systems Division. The Personal Systems Division develops products for the personal computer and workstation market. The Company does not attempt to compete with the host microprocessor, but instead designs and develops peripheral products which work in tandem with the host microprocessor in either the personal computer or workstation. For example, National offers a family of input/output devices which consolidate many dependent functions on the motherboard. The Division also markets mass storage products found in high performance disk drives such as read write amplifiers, pulse detectors, data synchronizers, encoder/decoder circuits and a family of motor speed and head positioning control devices. In addition to the seven product line divisions, National's wholly owned subsidiary, DCI, produces semiconductor packaging materials such as low and high pincount leadframes, advanced packaging materials and tools for both internal consumption and for sale to other semiconductor manufacturers throughout the world. Aside from the operating divisions, the Company's corporate structure also includes the International Business Group ("IBG") and the Corporate Technology Group ("CTG"), both providing corporate functions in support of the Company's global customers and technology strategies. The IBG is organized around the four major regions of the world in which the Company operates: the Americas, Europe, Japan and Asia and is comprised of the Company's worldwide sales and marketing organization. CTG is the central research arm of the Company, providing pure research, process development and initial product prototyping necessary for many of the Company's core production processes and leading edge products. The CTG also leads in the selection and implementation of integrated Computer Aided Design ("CAD") tools which design, layout, simulate and test the logical and physical representation of new products before they are actually produced. Marketing and Sales The Company markets its products throughout the world to original equipment manufacturers ("OEMs") and distributors. Major OEMs include IBM, Hewlett Packard, Compaq, Ford, and General Motors as well as NEC, Fujitsu, Goldstar, Siemens, L.M. Ericsson and others. In addition to its direct sales force, National uses distributors in all four of its business regions and has recently initiated a manufacturers representation ("rep") program in the United States. The Company has established cross regional marketing groups responsible for customers operating in multiple regions. In addition, the Company's focus on analog intensive and mixed signal markets has led to the introduction of strategic market segment teams who identify emerging trends and opportunities in these two broad categories, as well as others. Customer support is handled by comprehensive, state of the art central facilities in the United States and Europe. These Customer Support Centers ("CSC") provide rapid turnaround on product pricing and availability, technical support for customers questions, order entry and scheduling. A third CSC is planned for Singapore in early fiscal 1996 to support the Asia region. National augments its sales effort with application engineers based in the field. These engineers are specialists in National's complex product portfolio and work with customers to design National parts for their systems. These engineers also help identify emerging markets for new products and are supported by Company design centers in the field or at manufacturing sites. In line with industry practices, National generally credits distributors for the effect of price reductions on their inventory of National products, and under specific conditions repurchases products that are unsold, slow moving or have been discontinued by the Company. Customers National is not dependent upon any single customer, the loss of which would have a material effect on the Company. In addition, no one customer or distributor accounted for 10 percent or more of total net sales in fiscal 1995. Backlog Semiconductor backlog quantities and shipment schedules under outstanding purchase orders are frequently revised to reflect changes in customer needs. Binding agreements calling for the sale of specific quantities at specific prices which are contractually subject to price or quantity revisions are, as a matter of industry practice, rarely formally enforced. For these reasons, National does not believe that the amount of backlog at any particular date is meaningful. Seasonality Generally, National is affected by the seasonal trends of the semiconductor and related industries. As a result of these trends, the Company typically experiences lower revenue in the third fiscal quarter, primarily due to customer holiday demand adjustments. Revenue usually has a seasonal peak in the Company's fourth quarter. Manufacturing The design of semiconductor products is based upon customer requirements and general market trends and needs. These designs are compiled and digitized by state of the art design equipment and then transferred to silicon wafers in a series of complex precision processes which include oxidation, lithography, chemical etching, diffusion, deposition, implantation and metalization. Production of integrated circuits continues with wafer sort, where the wafers are tested and separated into individual circuit devices; assembly, where tiny wires are used to connect the electronic circuits on the device to the stronger metal leads or "prongs" of the package in which the device is encapsulated for protection; and final test, where the devices are subjected to a series of vigorous tests using computerized circuit testers and for certain applications, environmental testers such as burn in ovens, centrifuges, temperature cycle testers, moisture resistance testers, salt atmosphere testers and thermal shock testers. The Company's product design and development activities are conducted predominantly in the United States. Wafer fabrication is concentrated in four facilities in the United States and in a facility in Scotland. Nearly all product assembly and final test operations are performed in facilities in Southeast Asia. For capacity utilization and other economic reasons, National employs subcontractors to perform certain manufacturing functions in the United States, Southeast Asia and Japan. National also utilizes manufacturing capacity of a minority owned joint venture which operates the Company's former facility in Israel, and the Company recently established a small, majority owned joint venture in Shanghai, PRC, for the manufacture of boards using National produced integrated circuits. National's wafer manufacturing processes span Bipolar, Metal Oxide Silicon ("MOS"), Complementary Metal Oxide Silicon ("CMOS") and Bipolar Complementary Metal Oxide Silicon ("BiCMOS") technologies. As products decrease in size and increase in functionality, National's wafer fabrication facilities are now required in many cases to be able to manufacture integrated circuits with sub-micron circuit pattern widths. Precision manufacturing in wafer fabrication has carried over to assembly and test where advanced packaging technology and comprehensive test operations are required for more and more powerful integrated circuits. Wafer fabrication processes have been adapted for mixed signal applications. National also has optimized its CMOS process for nonvolatile memories, both ultraviolet and electrically erasable. There are a number of Bipolar processes supporting the Company's standard products. Of particular importance are several groups of processes that are optimal for manufacturing the Company's analog products. Raw Materials National's manufacturing processes make use of certain key raw materials critical to its products. These include silicon wafers, certain chemicals and gases, ceramic and plastic packaging materials and various precious metals. The Company also is increasingly relying on subcontractors to supply finished or semi-finished products which the Company markets through its sales channels. Both raw materials and semi-finished or finished products are obtained from various sources, although the number of sources for any particular material or product is relatively limited. Although the Company feels its current supply of essential materials is adequate, shortages from time to time have occurred and could occur again. Significant increases in demand, rapid product mix changes or natural disaster all could affect the Company's ability to procure materials or goods. Research and Development National's research and development ("R&D") consists of pure research in metallurgical, electro-mechanical and solid state sciences, manufacturing process development and product design. At the corporate level, CTG performs pure research functions. Much of the process development is also defined and developed by CTG. The Company envisions that its process capability will be prototyped in corporate R&D facilities but more and more of the actual process development and product design will be done by the operating divisions. R&D expenses were $283.1 million in 1995 and $257.8 million in 1994, with both years experiencing increases in R&D in the Company's core Analog and Mixed Signal products. Patents National owns numerous United States and non-U.S. patents and has many patent applications pending. It considers the development of patents and the maintenance of an active patent program advantageous to the conduct of its business but believes that continued success will depend more on engineering, production, marketing, financial and managerial skills than on its patent program. The Company licenses certain of its patents to other manufacturers and participates in a number of cross licensing arrangements with other parties. In addition, the Company is currently involved in a program to further capitalize on its intellectual property assets through licensing of its intellectual property; the amount of income from the licensing program has varied in the past and the amount and timing of future income from this program cannot be forecast with certainty. Employees At May 28, 1995, National employed approximately 22,400 people of whom approximately 7,900 were employed in the United States, 2,500 in Europe, 11,500 in Southeast Asia and 500 in other areas. The Company believes that its future success depends fundamentally on its ability to recruit and retain skilled technical and professional personnel. National's employees in the United States are not covered by collective bargaining agreements. The Company considers its employee relations worldwide to be favorable. Competition and Risks The Semiconductor Industry The semiconductor industry is characterized by rapid technological change and frequent introduction of new technology leading to more complex and powerful products. The result is a cyclical economic environment generally characterized by short product life cycles, rapid selling price erosion and high sensitivity to the overall business cycle. In addition, substantial capital and R&D investment is required for development and manufacture of products and processes. The Company may experience periodic fluctuations in its operating results because of industry wide conditions. National competes with a number of major companies in the high-volume segment of the industry. These include several companies whose semiconductor business may be only part of their overall operations, such as Motorola, Inc., Philips Electronics, NV, and Texas Instruments Incorporated. National also competes with a large number of companies that target particular markets such as Linear Technology Corporation, Analog Devices, Inc., Advanced Micro Devices, Inc., SGS-Thompson Microelectronics SA and Cirrus Logic, Inc. Competition is based on design and quality of the products, product performance, price and service, with the relative importance of such factors varying among products and markets. International Operations National conducts a substantial portion of its operations outside the United States and its business is subject to risks associated with many factors beyond its control. These factors include fluctuations in foreign currency rates, instability of foreign economy or its emerging infrastructure to support demanding manufacturing requirements, government changes, and U.S. and foreign laws and policies affecting trade and investment. Although the Company has not experienced any materially adverse effects with respect to its foreign operations arising from such factors, the Company has been impacted in the past by one or more of these factors and could be impacted in the future by such factors. In addition, although the Company seeks to hedge its exposure to currency exchange rate fluctuations, the Company's competitive position relative to non-U.S. suppliers can be affected by the exchange rate of the U.S. dollar against other currencies, particularly the Japanese yen. Environmental Regulations National believes that compliance with federal, state and local laws or regulations which have been enacted or adopted to regulate the environment has not had, nor will have, a material effect upon the Company's capital expenditures, earnings, competitive or financial position. (Also see Item 3, Legal Proceedings.) ITEM 2. PROPERTIES National's principal administrative and research facilities are located in Santa Clara, California. Several other sites in the United States have major concentrations of wafer fabrication and research and development capability, including the Company's plants in Salt Lake City, Utah, South Portland, Maine, and Arlington, Texas. The Company also operates smaller facilities in Murrysville, Pennsylvania and Fort Collins, Colorado, among others. The Company conducts significant manufacturing offshore. One of National's largest wafer fabrication facility exists in Greenock, Scotland. Assembly and test functions are performed primarily in Southeast Asia. These facilities are located in Penang and Malacca, Malaysia, Cebu, the Philippines, and Singapore. A small manufacturing facility, majority owned by National, was established in January 1995, in Shanghai, Peoples' Republic of China. The regional headquarters for National's International Business Group are located in Santa Clara, California, Munich, Germany, Tokyo, Japan and Kowloon, Hong Kong. National maintains local sales offices in various locations and countries throughout its four business regions. In general, the Company owns its manufacturing facilities and leases most of its sales and administrative offices. During fiscal 1995, the Company repurchased its manufacturing facility in Arlington, Texas and its research and development facility in Santa Clara, California, which were part of sales and subsequent operating leaseback transactions entered into prior to 1990. The Company continues to increase its property and plant expenditures in addition to the aforementioned purchases. Wafer fabrication capacity utilization approached 90% for most of 1995 and the Company continues to invest substantial sums in modernization and expansion of its facilities. The Company feels its current plant, property and leased facilities are well maintained. ITEM 3. LEGAL PROCEEDINGS In July 1983, the United States Internal Revenue Service ("IRS") issued an examination report for the fiscal years ended 1978 and 1979. The Company filed a protest with the appeals office of the IRS in September 1983. The IRS issued a Notice of Deficiency for these years in December 1988 seeking additional taxes of approximately $24 million (exclusive of interest). The issues giving rise to the proposed adjustments related primarily to intercompany product transfer prices and the application of Subpart F provisions of the United States Internal Revenue Code. The Company filed a petition with the United States Tax Court contesting the Notice of Deficiency in March 1989. The IRS' subsequent examination of the Company's United States tax returns for fiscal years 1980 through 1982 resulted in a Notice of Deficiency issued in January 1990 seeking additional taxes of approximately $52 million (exclusive of interest) for the fiscal years ended 1976, 1977, 1980, 1981 and 1982. The issues giving rise to the proposed adjustments for the earlier years related primarily to reductions in the available net operating loss carrybacks and, for the later years, to intercompany product transfer prices, full absorption inventory costing, deductibility of certain reserves and spare parts depreciation. The Company filed a petition with the United States Tax Court contesting this Notice of Deficiency in April 1990. By order dated August 8, 1991, the Tax Court granted the Company's and the IRS' motion to consolidate the two cases for trial. Prior to trial, which was held during February 1993, the Company and the IRS reached a settlement on all disputed issues except for the issue of intercompany product transfer prices; this settlement reduced the total of the additional taxes being sought to approximately $52 million (exclusive of interest). An opinion was issued by the Tax Court on May 2, 1994. The opinion found that adjustments to income of $40.6 million were due, which the Company estimates, after giving effect to loss and credit carrybacks, will result in a tax deficiency of approximately $5 million plus associated interest of between $35 million and $45 million. The IRS filed a motion for reconsideration of the opinion on June 3, 1994, seeking an additional $31 million in income adjustments. The motion was denied by the Court on June 10, 1994. The Company and the IRS have reached agreement on the allocation of the additional income, and this agreement was then presented to the Court. A final decision implementing the opinion was entered by the Tax Court on June 6, 1995 and is subject to appeal within 90 days by either the Company or the IRS. It is not known if an appeal will follow at this time. With respect to the IRS' examination of tax returns for other fiscal years, the Company and the IRS settled in January 1994 all issues for fiscal years 1983 through 1985, including issues relating to intercompany product transfer pricing, without the payment of additional federal tax. This result is affected by certain net operating loss carryovers and credits, which will not be determined until the Tax Court litigation is completed. In April 1995, the IRS issued a Notice of Deficiency for fiscal years 1986 through 1989 seeking additional taxes of approximately $11 million (exclusive of interest). The issues giving rise to this set of proposed adjustments relate primarily to the Company's former Israeli operation and the purchase price paid for Fairchild Semiconductor Corporation. The Company intends to file a protest with the appeals office of the IRS contesting the Notice of Deficiency. The Company expects the IRS to begin examination of the Company's tax returns for fiscal years 1990 through 1993 shortly. The Company believes that adequate tax payments have been made or accrued for all years and that the Tax Court opinion will not have a material adverse effect on the Company's financial position. On April 22, 1988, the District Director of the United States Customs Service, San Francisco, issued a Notice of Proposed Action and a Pre-penalty Notice to the Company alleging underpayment of duties of approximately $19.5 million on merchandise imported from the Company's foreign subsidiaries during the period from June 1, 1979 to March 1, 1985. The Company filed an administrative appeal in September 1988. On May 23, 1991, the District Director revised his action and issued a Notice of Penalty Claim and Demand for Restoration of Duties, reducing the alleged underpayment of duties for the same period to approximately $6.9 million; the alleged underpayment was subsequently reduced on April 22, 1994 to approximately $3.6 million. The revised alleged underpayment could be subject to penalties that may be computed as a multiple of the underpayment. The Company is continuing to contest the Penalty Notice in proceedings at the administrative agency level. The Company believes that resolution of this matter will not have a material impact on the Company's financial position. A sales tax examination conducted by the California State Board of Equalization for the tax years 1984 to 1988 resulted in a proposed assessment of approximately $12 million (exclusive of interest and penalty) in October 1991, which assessment has been subsequently reduced to $2.1 million. The Company is waiting for the State Board of Equalization to approve the assessment. The Company believes adequate provisions have been recorded and that its potential liability, if any, in excess of amounts already accrued will not have a material adverse effect upon its financial position. On December 2, 1992, Hughes Aircraft Company ("Hughes") filed an action in the U.S. District Court for the Eastern Division of the Northern District of Illinois alleging the Company had infringed U.S. Patents Nos. 3,472,712; 3,507,709; and 3,615,934 and seeking unspecified amounts of damages and costs. The Company was served with the suit on January 7, 1993. The Company countersued Hughes' parent company, General Motors ("GM") and Hughes in the same action alleging infringement of U.S. Patents Nos. 3,901,735; 4,325,984; and 4,599,634. The case was transferred to the U.S. District Court for the Northern District of California. The Company also filed an action in California State Court seeking declaratory relief and alleging breach of contract by Hughes and GM in connection with a prior patent cross license agreement entered into between GM and Fairchild Camera and Instruments Corporation (subsequently renamed Fairchild Semiconductor Corporation and purchased by the Company in October 1987). In September 1994, the parties agreed to resolve the dispute in its entirety in a binding minitrial procedure structured to handle the primary disputed issue; as part of the agreement, the Company dismissed with prejudice the related California State Court action. In December 1994, the minitrial was conducted before a judge selected by the parties on the single issue of whether claim 2 of the U.S. Patent No. 3,472,712 owned by Hughes was infringed by one of the Company's semiconductor fabrication processes. For purposes of the minitrial, the patent was presumed valid and the parties agreed in advance to the amounts of damages that would be paid by the Company which amount was not disclosed to the judge until after the judge had issued his findings. The judge found for Hughes on the single issue presented in the minitrial and pursuant to prior agreement of the parties, the Company paid to Hughes the sum of $10 million and the Federal Court action was dismissed with prejudice. The dismissal constituted a full settlement and release of all claims for past infringement of the patents in issue. In addition, the Company granted Hughes and GM licenses under its patents at issue; no such license was granted by Hughes back to the Company because the Hughes patents at issue had expired. By letter dated January 6, 1994, the Company was notified by the California Department of Toxic Substances Control ("DTSC") of a Report of Violation ("ROV") listing 39 violations arising out of inspections of certain facilities and operations of the Company and its wholly owned subsidiary, Dynacraft, Inc. ("DCI") located in Santa Clara, California and the DTSC's further review of information obtained during the inspections. The deficiencies cited can be described as violations of various provisions of the California Health and Safety Code and the California Code of Regulations relating to the record keeping for and the handling, treatment, storage, and disposal of hazardous products and wastes. The Company worked with DTSC to correct the deficiencies noted in the ROV and signed a Stipulation and Order with the DTSC on June 16, 1995 whereby the Company agreed to pay a fine of $490,000. The Company believes adequate provisions have been recorded and that its potential liability, if any, in excess of amounts already accrued will not have a material adverse effect upon its financial position. On June 18, 1991, the U.S. Environmental Protection Agency ("EPA") issued a Finding of Violation and Order to the Company and DCI relating to the alleged failure of the Company and DCI to comply with the federal categorical pretreatment standards arising from the city of San Jose, California's pretreatment program. The Order requires the Company and DCI to comply with all Federal categorical pretreatment standards and to take further actions to maintain permanent compliance. Since 1992, the Company and DCI have worked with the U.S. Department of Justice ("DOJ") and the EPA to settle this matter. A Consent Decree was entered by the U.S. District Court, Northern District of California on March 30, 1995. Under the terms of the Consent Decree, National and DCI agreed to pay a civil penalty in the amount of $50,000 and perform three Supplemental Environmental Projects ("SEPs"), the costs of which are estimated at $445,000. The $50,000 civil penalty has been paid. In the event the Company and DCI do not perform any or all of the SEPs within two years of March 30, 1995, stipulated penalties in the amounts of $62,517, $55,303, and/or $96,180 (the respective amounts for each of the SEPs) must be paid to the EPA. The Company has been named to the National Priorities List ("Superfund") for its Santa Clara, California site and has completed a Remedial Investigation/Feasibility Study with the Regional Water Quality Control Board ("RWQCB"), acting as agent for the EPA. The Company has agreed in principle with the RWQCB to a site remediation plan. In addition to the Santa Clara site, the Company has been designated as a potentially responsible party by federal and state agencies with respect to certain waste sites with which the Company may have had direct or indirect involvement. Such designations are made regardless of the extent of the Company's involvement. These claims are in various stages of administrative or judicial proceedings and include demands for recovery of past governmental costs and for future investigations and remedial actions. In many cases, the dollar amounts of the claims have not been specified and have been asserted against a number of other entities for the same cost recovery or other relief as was asserted against the Company. The Company accrues costs associated with such matters when they become probable and reasonably estimable. The amount of all environmental charges to earnings, including charges relating to the Santa Clara site remediation, which did not include potential reimbursements from insurance coverage, have not been material during the last three fiscal years. The Company believes that the potential liability, if any, in excess of amounts already accrued will not have a material effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT * Name Current Title Age * - ---- ------------- ----- Gilbert F. Amelio (1) Chairman of the Board, President and Chief Executive Officer 52 Richard M. Beyer (2) Executive Vice President and Chief Operating Officer 46 Patrick J. Brockett (3) President, International Business Group 47 Charles P. Carinalli (4)Senior Vice President and 47 Chief Technical Officer John M. Clark III (5) Senior Vice President, General Counsel 45 and Secretary Donald Macleod (6) Executive Vice President, Finance and 46 Chief Financial Officer Kirk P. Pond (7) Executive Vice President and 50 Chief Operating Officer George M. Scalise (8) Executive Vice President and 61 Chief Administrative Officer * as of July 1, 1995 Business Experience During Last Five Years - ------------------------------------------ (1) Mr. Amelio has been President, Chief Executive Officer, and a Director of the Company since joining the Company in February 1991. He was named Chairman of the Board in July 1995. Prior to joining the Company, Mr. Amelio was President of Rockwell Communications Systems and had previously served as President of Rockwell International Corporation's Semiconductor Products Division. (2) Mr. Beyer joined the Company in February 1993 and served as President of the Communications and Computing Group until being named Executive Vice President and Chief Operating Officer in June 1995. Prior to joining the Company, Mr. Beyer was Vice President and General Manager of the Switching Systems Division of Rockwell International Corporation. (3) Mr. Brockett joined the Company in September 1979. Prior to becoming President, International Business Group in February 1993, he had held positions as Corporate Vice President, International Business Group; Vice President, North America Business Center; Vice President and Managing Director, European Operations; and Vice President and Director of European Sales. (4) Mr. Carinalli joined the Company in June 1970. Prior to becoming Senior Vice President and Chief Technical Officer in February 1993, he was Executive Vice President, Communications and Computing Group and Chief Technical Officer. Prior to that, he had held positions as Vice President, Integrated Systems Group; Group Director, Integrated Systems Group; and Director of Technology, Advanced Digital Products. (5) Mr. Clark joined the Company in May 1978. Prior to becoming Senior Vice President, General Counsel and Secretary in April 1992, he had held positions as Associate General Counsel, Vice President and Assistant Secretary. (6) Mr. Macleod joined the Company in February 1978. Prior to becoming Executive Vice President, Finance and Chief Financial Officer in June 1995, he had held positions as Senior Vice President, Finance and Chief Financial Officer; Vice President, Finance and Chief Financial Officer; Vice President, Financial Projects; Vice President and General Manager, Volume Products - Europe; and Director of Finance and Management Services - Europe. (7) Mr. Pond joined the Company as an employee of Fairchild Semiconductor Corporation ("Fairchild") when Fairchild was acquired by the Company in October 1987. Prior to becoming Executive Vice President and Chief Operating Officer in June 1994, he held positions as Co- President, Standard Products Group and Vice President, Digital Logic Division. (8) Mr. Scalise joined the Company in August 1991. Prior to becoming Executive Vice President and Chief Administrative Officer in June 1995, he held the positions as Senior Vice President and Chief Administrative Officer and Senior Vice President, Planning and Development. Prior to joining the Company, Mr. Scalise served as Senior Vice President of Advanced Micro Devices, Inc. until July 1987 and as President and Chief Executive Officer of Maxtor Corporation from July 1987 to January 1991. From January 1991 until August 1991, Mr. Scalise was a private investor, and Chairman and Chief Executive Officer of Advantage Production Technology Corporation. Executive officers serve at the pleasure of the Company's Board of Directors. There is no family relationship among any of the Company's directors and executive officers. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See information appearing on pages 37-38, 40-41, 46, and 51 under the captions "Debt Financing", "Shareholders' Equity", "Financial Information by Quarter (Unaudited)" and "Common Stock Data" of the registrant's 1995 Annual Report to Shareholders which is incorporated herein by reference. Market price range data are based on the New York Stock Exchange Composite Tape. Market price per share at the close of business on July 14, 1995 was $30.375. At July 14, 1995, the number of record holders of the Company's common stock was 12,986. ITEM 6. SELECTED FINANCIAL DATA See "Five-Year Selected Financial Data" on page 23 of the registrant's 1995 Annual Report to Shareholders which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION See "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 24 through 27 of the registrant's 1995 Annual Report to Shareholders which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements described in Item 14(a)1 of Part IV of this report are incorporated herein by reference. The "Financial Information by Quarter (Unaudited)," appearing on page 46 of the registrant's 1995 Annual Report to Shareholders, is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to directors, appearing under the caption "Election of Directors" including subcaptions thereof, in the registrant's Proxy Statement for the 1995 annual meeting of shareholders to be held on or about September 29, 1995 and which will be filed in definitive form pursuant to Regulation 14a on or about August 20, 1995 (hereinafter "1995 Proxy Statement"), is incorporated herein by reference. Information concerning executive officers is set forth in Part I hereof under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION The information appearing under the caption "Director Compensation", "Compensation Committee Interlocks and Insider Participation", and "Executive Compensation" (including all related sub captions thereof) in the 1995 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information concerning the only known ownership of more than 5 percent of the Company's outstanding Common Stock "Outstanding Capital Stock, Quorum and Voting" in the 1995 Proxy Statement, is incorporated herein by reference. The information concerning the ownership of the Company's equity securities by directors, certain executive officers and directors and officers as a group, appearing under the caption "Security Ownership of Management" in the 1995 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under the caption "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions and Relations" in the 1995 Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements - --------------------------- The following items appearing in the 1995 Annual Report to Shareholders are incorporated by reference into Part II of this report: Pages in 1995 Annual Report to Shareholders ---------------------- Consolidated Balance Sheets at May 28, 1995 28 and May 29, 1994. Consolidated Statements of Operations for each 29 of the years in the three-year period ended May 28, 1995. Consolidated Statements of Shareholders' Equity 30 for each of the years in the three-year period ended May 28, 1995. Consolidated Statements of Cash Flows for each 31 of the years in the three-year period ended May 28, 1995. Notes to Consolidated Financial Statements. 32-46 Independent Auditors' Report. 47 Pages in (a)2. Financial Statement Schedule this document - ------------------------------------ ------------- For the three years ended May 28, 1995: Independent Auditors' Report 17 Schedule II -- Valuation and Qualifying Accounts 18 All other schedules are omitted since the required information is inapplicable or the information is presented in the consolidated financial statements or notes thereto. Separate financial statements of the registrant are omitted because the registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have minority equity interest or indebtedness to any person other than the registrant in an amount which exceeds five percent of the total assets as shown by the most recent year end consolidated balance sheet filed herein. (a)3. Exhibits - --------------- The exhibits listed in the accompanying Index to Exhibits on pages 20 and 21 of this report are filed or incorporated by reference as part of this report. (b) Reports on Form 8-K - ------------------------ No reports on Form 8-K were filed during the fiscal quarter ended May 28, 1995. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders National Semiconductor Corporation: Under date of June 7, 1995, we reported on the consolidated balance sheets of National Semiconductor Corporation and subsidiaries as of May 28, 1995, and May 29, 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended May 28, 1995, as contained in the 1995 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the May 28, 1995 annual report on Form 10-K of National Semiconductor Corporation. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed under item 14(a)2. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP San Jose, California June 7, 1995 NATIONAL SEMICONDUCTOR CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS Years Ended May 30, 1993, May 29, 1994, and May 28,1995 (in millions) Deducted from receivables in the consolidated balance sheets Doubtful Returns and Description Accounts Allowances Total - ----------- -------- ----------- ----- Year ended May 30, 1993 - ----------------------- Balance at beginning of period $ 3.5 $ 35.7 $ 39.2 Additions charged against revenue - 222.9 222.9 Additions charged to costs and expenses 0.1 - 0.1 Deductions (0.1)(1) (229.1) (229.2) -------- -------- -------- Balance at end of period $ 3.5 $ 29.5 $ 33.0 ======== ======== ======== Year ended May 29, 1994 - ----------------------- Balance at beginning of period $ 3.5 $ 29.5 $ 33.0 Additions charged against revenue - 193.2 193.2 Deductions (0.5)(1) (191.9) (192.4) ------- ------- -------- Balance at end of period $ 3.0 $ 30.8 $ 33.8 ======= ======= ======== Year ended May 28, 1995 - ----------------------- Balance at beginning of period $ 3.0 $ 30.8 $ 33.8 Additions charged against revenue - 214.1 214.1 Deductions (0.6)(1) (213.6) (214.2) ------- --------- -------- Balance at end of period $ 2.4 $ 31.3 $ 33.7 ======== ========= ======== ________________________________________________ (1) Doubtful accounts written off, less recoveries. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL SEMICONDUCTOR CORPORATION Date: July 27, 1995 By: /S/ GILBERT F. AMELIO ---------------------- Gilbert F. Amelio Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities stated and on the 27th day of July 1995. Signature Title /S/ GILBERT F. AMELIO Chairman of the Board, President Gilbert F. Amelio and Chief Executive Officer (Principal Executive Officer) /S/ DONALD MACLEOD* Executive Vice President, Finance Donald Macleod and Chief Financial Officer (Principal Financial Officer) /S/ ROBERT B. MAHONEY* Vice President and Controller Robert B. Mahoney (Principal Accounting Officer) /S/ GARY P. ARNOLD* Director Gary P. Arnold /S/ ROBERT BESHAR* Director Robert Beshar /S/ MODESTO A. MAIDIQUE* Director Modesto A. Maidique Director Edward R. McCracken /S/ J. TRACY O'ROURKE* Director J. Tracy O'Rourke /S/ CHARLES E. SPORCK* Director Charles E. Sporck /S/ DONALD E. WEEDEN* Director Donald E. Weeden *By /S/ GILBERT F. AMELIO Gilbert F. Amelio, Attorney-in-fact CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders National Semiconductor Corporation: We consent to incorporation by reference in the Registration Statements No. 33-48943, 33-48941, 33-54931, 33-55699, 33-55703, and 33- 55715 on Form S-8 of National Semiconductor Corporation and subsidiaries of our report dated June 7, 1995, relating to the consolidated balance sheets of National Semiconductor Corporation and subsidiaries as of May 28, 1995, and May 29, 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended May 28, 1995, which report appears on page 47 of the 1995 National Semiconductor Corporation Annual Report to Shareholders ("National Annual Report") and is incorporated by reference in the May 28, 1995 annual report on Form 10-K of National Semiconductor Corporation and our report dated June 7, 1995, on the related financial statement schedule which appears on page 21 of the May 28, 1995 annual report on Form 10-K. Our report which appears in the National Annual Report refers to a change in accounting for certain costs in inventory. KPMG PEAT MARWICK LLP San Jose, California July 27, 1995 INDEX TO EXHIBITS Item 14(a) (3) The following documents are filed as part of this report: 1. Financial Statements: reference is made to the Financial Statements described under Part IV, Item 14(a) (1). 2. Other Exhibits: Designation Description of Exhibit - ----------- ---------------------- 3.1 Second Restated Certificate of Incorporation of the Company, as amended (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-52775, which became effective March 22, 1994); Certificate of Powers, Designations, Preferences and Rights designating the $32.50 Convertible Preferred Stock (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-52775, which became effective March 22, 1994). Certificate of Amendment of Certificate of Incorporation dated September 30, 1994. 3.2 By-Laws of the Company 4.1 Form of Common Stock Certificate (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-48935, which became effective October 5, 1992). 4.2 Rights Agreement (incorporated by reference from the Exhibits to the Company's Registration Statement on Form 8-A filed August 10, 1988). 4.3 Deposit Agreement and Form of Depositary Receipt (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-3 Registration No. 33-52775, which became effective March 22, 1994). 10.1 Management Contract or Compensatory Plan or Arrangement: License Agreement with Wave Systems Corporation (incorporated by reference from the Exhibits to the Company's 10-Q filed March 18,1994). 10.2 Management Contract or Compensatory Plan or Arrangement: Key Employee Incentive Plan (incorporated by reference from the Exhibits to the Company's 10-K filed July 28, 1994). 1995 Key Employee Incentive Plan Agreement (incorporated by reference from the Exhibits to the Company's 10-K filed July 28, 1994). 1995 Key Employee Incentive Plan Agreement as amended through January 12, 1995 (incorporated by reference from the Exhibits to the Company's 10-Q filed March 17, 1995.) 10.3 Management Contract or Compensatory Plan or Arrangement: Executive Officer Incentive Plan (incorporated by reference from the Exhibits to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders held September 30, 1994 filed on August 10, 1994). 1995 Executive Officer Incentive Plan Agreement (incorporated by reference from the Exhibits to the Company's 10-K filed July 28, 1994). 1996 Executive Officer Incentive Plan Agreement. 10.4 Management Contract or Compensatory Plan or Arrangement: Stock Option Plan, as amended through January 19, 1995 (incorporated by reference from the Exhibits to the Company's 10-Q filed March 17, 1995). 10.5 Management Contract or Compensatory Plan or Arrangement: Benefit Restoration Plan (incorporated by reference from the Exhibits to the Company's 10-Q filed December 14, 1994). 10.6 Management Contract or Compensatory Plan or Arrangement: Promissory Note and Agreement with Peter J. Sprague (incorporated by reference from the Exhibits to the Company's Form 10-K filed August 22, 1991). Amendment Letter dated November 30, 1993 (incorporated by reference from the Exhibits to the Company's 10-K filed July 28, 1994). Agreement with Peter J. Sprague dated May 17, 1995. Non Qualified Stock Option Agreement with Peter J. Sprague dated May 18, 1995. 10.7 Management Contract or Compensatory Plan or Arrangement: Airplane Use Letter Agreement with Gilbert F. Amelio doing business as Aero Ventures (incorporated by reference from the Exhibits to the Company's Form 10-K filed August 22, 1991). 1992 Extension of Airplane Use Letter Agreement with Gilbert F. Amelio doing business as Aero Ventures (incorporated by reference from the Exhibits to the Company's 10-K filed August 24, 1992). 1993 Extension of Airplane Use Letter Agreement with Gilbert F. Amelio doing business as Aero Ventures (incorporated by reference from the Exhibits to the Company's 10-K filed August 9, 1993). Airplane Use Agreement with Gilbert F. Amelio doing business as Aero Ventures (incorporated by reference from the Exhibits to the Company's 10-Q filed March 18, 1994). Amendment No. 1 to Airplane Use Agreement with Gilbert F. Amelio doing business as Aero Ventures (incorporated by reference from the Exhibits to the Company's 10-Q filed December 14, 1994). 10.8 Management Contract or Compensatory Plan or Arrangement: Loan Agreement with Gilbert F. Amelio (incorporated by reference from the Exhibits to the Company's 10-K filed August 24, 1992). 10.9 Management Contract or Compensatory Plan or Arrangement: Director Stock Plan (incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-8 Registration No. 33-54931 which became effective August 5, 1994). 10.10 Management Contract or Compensatory Plan or Arrangement: Performance Award Plan (incorporated by reference from the Exhibits to the Company's Registration Statement on form S-8 Registration No. 33- 55699 which became effective September 30,1994). 10.11 Management Contract or Compensatory Plan or Arrangement: Consulting Agreement with Harry H. Wetzel (incorporated by reference from the Exhibits to the Company's 10-K filed July 28, 1994). 10.12 Management Contract or Compensatory Plan or Arrangement: Preferred Life Insurance Program (incorporated by reference from the Exhibits to the Company's 10-K filed July 28, 1994). 10.13 Management Contract or Compensatory Plan or Arrangement: Retired Officers and Directors Health Plan. 11.0 Computation of Earnings (Loss) per share assuming full dilution. 13.0 Portions of the Annual Report to Shareholders for the fiscal year ended May 28, 1995 (to be deemed filed only to the extent required by the instructions to Exhibits for reports on Form 10-K). 21.0 List of Subsidiaries. 23.0 Consent of Independent Auditors (included in Part IV). 24.0 Power of Attorney. EX-3.1 2 AMENDMENT OF CERTIFICATE OF INCORPORATION Exhibit 3.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF NATIONAL SEMICONDUCTOR CORPORATION NATIONAL SEMICONDUCTOR CORPORATION (the "Company"), a corporation organized and existing under and by virtue of General Corporation Law of the State of Delaware, does hereby certify: FIRST: That at a Special Meeting of the Board of Directors of the Company on July 14, 1994, a resolution was duly adopted setting forth a proposed Amendment to the Certificate of Incorporation of the Company, declaring said Amendment to be advisable and directing that the Amendment be submitted for the approval of the Stockholders of the Company at the Annual Meeting to be held September 30, 1994. Said resolution proposed that Article FOURTH of the Certificate of Incorporation be amended to read in full as follows: FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is Three Hundred and One Million (301,000,000), consisting of One Million (1,000,000) shares of preferred stock, par value of Fifty Cents ($.50) each (hereinafter called the Preferred Stock) and Three Hundred Million (300,000,000) shares of common stock of par value of Fifty Cents ($.50) each (hereinafter called the Common Stock). The designations and the powers, preferences and rights, and the qualification, limitations or restrictions thereof, of each class of stock of the Corporation which are fixed by this Certificate of Incorporation, and the express grant of authority to the Board of Directors to fix by resolution or resolutions the designations, and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of the Preferred Stock which are not fixed by this Certificate of Incorporation, are as follows: A. PREFERRED STOCK (1) Shares of Preferred Stock may be issued from time to time in one or more series, each such series to have such distinctive designation as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the initial issuance of shares of such series, and authority is expressly vested in the Board of Directors, by such resolution or resolutions providing for the initial issuance of shares of each series: (a) To fix the distinctive designation of such series and the number of shares which shall constitute such series, which number may be increased or decreased (but not below the number of shares thereof then outstanding) from time to time by actions of the Board of Directors; (b) To fix (i) the dividend rate of such series, (ii) any limitation, restrictions or conditions on the payment of dividends, including whether dividends shall be cumulative and, if so, from which date or dates, (iii) the relative rights of priority, if any, of payment of dividends on shares of that series and (iv) the form of dividends, which shall be payable either (A) in cash only, or (B) in stock only, or (C) partly in cash and partly in stock, or (D) in stock or, at the option of the holder, in cash (and in such case to prescribe the terms and conditions of exercising such option), and to make provision in case of dividends payable in stock for adjustments of the dividend rate in such events as the Board of Directors shall determine; (c) To fix the price or prices at which, and the terms and conditions on which, the shares of such series may be redeemed by the Company; (d) To fix the amount or amounts payable upon the shares of such series in the event of any liquidation, dissolution or winding up of the Company and the relative rights of priority, if any, of payment upon shares of such series; (e) To determine whether or not the shares of such series shall be entitled to the benefit of a sinking fund to be applied the purchase or redemption of such series and, if so entitled, the amount of such fund and the manner of its application; (f) To determine whether or not the shares of such series shall be made convertible into, or exchangeable for, shares of any other class or classes of stock of the Corporation or shares of any other series of Preferred Stock, and, if made so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (g) To determine whether or not the shares of such series shall have any voting powers and, if voting powers are so granted, the extent of such voting powers, provided that the number of authorized share of Common Stock may be increased or decreased by the affirmative vote of the holders of a majority of the Common Stock, voting as a class, and such increase or decrease shall not require any actions by holders of shares of Preferred Stock. Except as otherwise provided by statute or by a determination by the Board of Directors, the holders of shares of Preferred Stock, as such holders, shall not have any right to vote in the election of directors or for any other purpose; and such holders shall not be entitled to notice of any meeting of stockholders at which they are not entitled to vote; (h) To determine whether or not the issue of any additional shares of such series or of any other series in addition to such series shall be subject to restrictions in addition to the restrictions, if any, on the issue of additional shares imposed in the resolution or resolutions fixing the terms of any outstanding series of Preferred Stock theretofore issued pursuant to this Section A and, if subject to additional restrictions, the extent of such additional restrictions; and (i) Generally to fix the other rights, and any qualifications, limitations or restrictions of such rights, of such series; provided, however, that no such rights, qualifications, limitations or restrictions shall be in conflict with this Certificate of Incorporation or any amendment hereof. (2) Before any dividends shall be declared or paid or any distribution ordered or made upon the Common Stock (other than a dividend payable in Common Stock), the Corporation shall comply with the dividend and sinking fund provisions, if any, of any resolution or resolutions providing for the issue of any series of Preferred Stock any shares of which shall at the time be outstanding. Subject to the foregoing sentence, the holders of Common Stock shall be entitled, to the exclusion of the holders of Preferred Stock of any and all series, to receive such dividends as from time to time may be declared by the Board of Directors. (3) Upon any liquidation, dissolution or winding up of the Corporation, the holders of Preferred Stock of each series shall be entitled to receive the amount to which such holders are entitled as fixed with respect to such series, including all dividends accumulated to the date of final distribution, before any payment or distribution of assets of the Corporation shall be made to or set apart for the holders of Common Stock; and after such payments shall have been made to or set apart for the holders of Common Stock; and after such payments shall have been made in full to the holders of Preferred Stock, the holders of Common Stock shall be entitled to receive any and all assets remaining to be paid or distributed to stockholders and the holders of Preferred Stock shall not be entitled to share therein. For the purposes of this paragraph, the voluntary sales, conveyance, lease, exchange or transfer of all or substantially all the property or assets of the Corporation or a consolidation or merger of the Corporation with one or more other corporation (whether or not the Corporation is the Corporation surviving such consolidation or merger) shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary. (4) Subject to such limitations (if any) as may be fixed by the Board of Directors with respect to such series of Preferred Stock in accordance with paragraph (1) of this Section A, Preferred Stock of each series may be redeemed at any time in whole or from time to time in part, at the option of the Corporation, by vote of the Board of Directors, at the redemption price thereof fixed in accordance with said paragraph (1). If less than all the outstanding shares of Preferred Stock of such series are to be redeemed, the shares to be redeemed shall be determined in such manner as the Board of Directors shall prescribe. At such time or times prior to the date fixed for redemption as the Board of Directors shall determine, written notice shall be mailed to each holder of record of shares to be redeemed, in a postage prepaid envelope addressed to such holder at his address as shown by the records of the Corporation, notifying such holders of the election of the Corporation to redeem such shares and stating the date fixed for the redemption thereof and calling upon such holder to surrender to the Corporation on or after said date, at a place designated in such notice, his certificate or certificates representing the number of shares specified in such notice of redemption. On and after the date fixed in such notice of redemption, each holder of shares of preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on the records of the Corporation as the holder of the shares designated for redemption. In case less than all the shares represented by any such certificate are redeemed a new certificate shall be issued representing the unredeemed shares. From and after the date fixed in any such notice as the date of redemption (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of Preferred Stock designated for redemption in such notice shall cease to accrue and all rights of the holders thereof as stockholders of the Corporation, other than to receive the redemption price, shall terminate and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation and such shares shall not be deemed to be outstanding for any purpose whatsoever. At any time after the mailing of any such notice of redemption the Corporation may deposit the redemption price of the shares designated therein for redemption with a bank or trust company in the United States of America, having capital and surplus of at least $25,000,000 in trust for the benefit of the respective holders of the shares designated for redemption but not yet redeemed. From and after the making of such deposit the sole right of the holders of such shares shall be the right either to receive the redemption price of such shares on and after such redemption date, or, in the case of shares having conversion rights, the right to convert the same at any time at or before the earlier of the close of business on such redemption date or such prior date and time at which the right to convert shall have expired; and except for these rights, the shares of Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatsoever. (5) Shares of any series of Preferred Stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the Corporation, or which, if convertible, have been converted into shares of stock of the corporation of any other class or classes, may, upon appropriate filing and recording to the extent required by law, have the status of authorized and unissued shares of Preferred Stock and may be reissued as part of such series or of any other series of Preferred Stock, subject to such limitations (if any) as may be fixed by the Board of Directors with respect to such series of Preferred Stock in accordance with paragraph (1) of this Section A. B. COMMON STOCK (1) Except as otherwise provided by (a) the Board of Directors in fixing the voting rights of any series of the Preferred Stock in accordance with Section A of this Article FOURTH or (b) statute, voting power in the election of directors and for all other purposes shall be vested exclusively in the holders of the Common Stock. (2) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary after payment shall have been made to the holders of the Preferred Stock of the full amount to which they shall be entitled pursuant to paragraph (3) of Section A of this Article FOURTH, the holders of Common Stock shall be entitled, to the exclusion of the holders of the Preferred Stock of any and all series, to share, ratably according to the number of shares of Common Stock held by them, in all remaining assets of the Corporation available for distribution to its stockholders. All persons who shall acquire stock in this Corporation shall acquire the same subject to the provisions of this Certificate of Incorporation, as amended. SECOND: That at the Annual Meeting of Stockholders of the Company, which was duly called and held September 30, 1994 upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which a quorum was present and acting throughout, said Amendment was approved by the affirmative vote of the number of shares required by law. THIRD: That said Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of the Company will not be reduced under or by reason of said Amendment. IN WITNESS WHEREOF, the Company has caused its corporate seal to be affixed hereto and this Certificate to be signed by GILBERT F. AMELIO, President and Chief Executive Officer of the Company, and attested to be JOHN M. CLARK III, Secretary of the Company this 30th day of September, 1994. (Corporate Seal) NATIONAL SEMICONDUCTOR CORPORATION BY //s// GILBERT F. AMELIO ------------------------ GILBERT F. AMELIO Chairman of the Board, President and CEO ATTEST: By //s// JOHN M. CLARK III ------------------------ JOHN M. CLARK III Secretary EX-3.2 3 BYLAWS OF NATIONAL SEMICONDUCTOR Exhibit 3.2 BY-LAWS OF NATIONAL SEMICONDUCTOR CORPORATION ARTICLE I. OFFICES Section 1. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II. STOCKHOLDERS Section 1. Place of Meetings. Meetings of stockholders shall be held at such place either within or without the State of Delaware as may be designated by the board of directors. Section 2. Annual Meeting. An annual meeting of stockholders shall be held on the fourth Friday in September of each year, at 10:30 A.M., or at such other date and time as shall be designated by the board of directors. At the annual meeting the stockholders shall elect a board of directors and transact such other business as may be properly brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders (a) may be called by the chairman of the board of directors, the president, or by a majority of the board of directors but (b) shall be called by the secretary at the request in writing of stockholders owning at least 50% in interest of the capital stock of the corporation issued and outstanding and entitled to vote at such meeting. Any business can be transacted at a special meeting of the stockholders. Section 4. Notice of Meetings. The secretary or such other officer of the corporation as is designated by the board of directors shall serve personally or send through the mails or by telegraph a written notice of annual or special meetings of stockholders, addressed to each stockholder of record entitled to vote at his address as it appears on the stock transfer books of the corporation, stating the time and place of the meeting, not less than ten nor more than sixty days before the date of the meeting, except that a special meeting may be called on five days' notice. If mailed, notice shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Notice given by telegraph shall be deemed to have been given upon delivery of the message to the telegraph company. Section 5. Waiver of Notice. Notice of a meeting need not be given to any stockholder who signs a waiver of notice, in person or by proxy, whether before or after a meeting. The attendance of any stockholder at a meeting, in person or by proxy, without protesting either prior thereto or at its commencement the lack of notice of such meeting, shall constitute a waiver of notice by him. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. Section 6. Action by Consent. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 7. Stockholder's List. The officer who has charge of the stock transfer book of the corporation shall prepare and make, at least ten days before every meeting of the stockholders at which directors are to be elected, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to examination by any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 8. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote at a meeting, present in person or represented by proxy, shall constitute a quorum at all meetings of stockholders for the transaction of business except as otherwise provided by statute. If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote. Section 9. Proxies. At all meetings of stockholders, each stockholder entitled to vote shall have one vote, to be exercised in person or by proxy, for each share of capital stock having voting power, held by such stockholder. All proxies shall be in writing, shall relate only to a specific meeting (including continuations and adjournments of the same), and shall be filed with the secretary at or before the time of the meeting. Each proxy must be signed by the shareholder or his attorney-in-fact. The person or persons named in a proxy for a specific meeting may vote at any adjournment of the meeting for which the proxy was given. If more than one person is named as proxy, a majority of such persons so named present at the meeting, or if only one shall be present, then that one, shall have and exercise all the powers conferred upon all of the persons unless the proxy shall provide otherwise. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged prior to or at its exercise and the burden of proving invalidity shall rest on the challenger. Section 10. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the capital stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, except in respect of elections of directors which shall be decided by a plurality of the votes cast, and except when the question is one which by express provision of statute a different vote is required, in which case such express provision shall govern and control the decision of such question. No vote need be taken by ballot unless required by statute. ARTICLE III. THE BOARD OF DIRECTORS Section 1. Composition. The board of directors shall consist of eight directors subject to such automatic increase as may be required by the corporation's Restated Articles of Incorporation. The board may enlarge or reduce the size of the board in a vote of the majority of the directors in office. No director need be a stockholder. Section 2. Election and Term. Except as provided in Section 3 of this Article, the directors shall be elected by a plurality vote at the annual meeting of the stockholders. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Section 3. Vacancies and Newly Created Directorships. Any vacancy on the board of directors, or any newly created directorships, however occurring, may be filled by a majority of the directors then in office, though less than a quorum or by a sole remaining director. Any vacancy in the board of directors may also be filled by a plurality vote of the stockholders unless such vacancy shall have been previously filled by the board of directors. Section 4. Powers. The business of the corporation shall be managed by its board of directors which shall have and may exercise all such powers of the corporation, including the power to make, alter or repeal the bylaws of the corporation, and do all such lawful acts and things as are not by statute directed or required to be exercised or done by the stockholders. Section 5. Place of Meetings. The board of directors of the corporation may hold meetings both regular and special, either within or without the State of Delaware. Members of the board of directors or any committee designated by the board, may participate in a meeting of such board or committee by means of a conference telephone by means of which all persons participating in the meeting can hear each other, and participation shall constitute presence in person at such meeting. Section 6. Regular Meetings. Regular meetings of the board of directors may be held without call or notice immediately following the annual meeting of the stockholders and at such time and at such place as shall from time to time be selected by the board of directors, provided that in respect of any director who is absent when such selection is made, the notice, waiver and attendance provisions of Section 7 of this Article shall apply to such regular meetings. Section 7. Special Meetings and Notice. Special meetings of the board of directors may be called by the chairman of the board of directors, a majority of the directors or the president on at least two days' notice given to each director, either personally or by mail or telegram sent to his business or home address, stating the place, date and hour of the meeting. If mailed, notice shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the director at his business or home address. Notice given by telegraph shall be deemed to have been given upon delivery of the message to the telegraph company. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting. The attendance of any director at a meeting, without protesting either prior thereto or at its commencement the lack of notice of such meeting, shall constitute a waiver of notice by him. Any notice or waiver of notice of a meeting of the board of directors need not specify the purposes of the meeting. Section 8. Quorum and Voting. At all meetings of the board of directors a majority less one of the total number of directors then in office shall constitute a quorum for the transaction of business, except that in no case shall less than two directors be deemed to constitute a quorum, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, a majority of less than a quorum may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Action by Consent. Any action required or permitted to be taken at any meeting of the board of directors may be taken without a meeting, if all members of the board of directors, then in office, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors. Section 10. Resignation. Any director may resign at any time upon written notice delivered to the corporation at its principal office. The resignation shall take effect at the time specified therein, and if no time be specified, at the time of its dispatch to the corporation. Section 11. Removal. A director may be removed for cause by the vote of a majority of the stockholders at a special or annual meeting after the director has been given reasonable notice and opportunity to be heard before the stockholders. Section 12. Committees. The board of directors may, by resolution passed by a majority of the whole board of directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. ARTICLE IV. OFFICERS Section 1. Designation. The officers of the corporation shall consist of a president, a treasurer, a secretary, and such other officers including a chairman of the board of directors, one or more group presidents, vice presidents (including group executive vice presidents, corporate vice presidents and senior vice presidents), assistant treasurers and assistant secretaries, as the board of directors or the stockholders may deem warranted. With the exception of the chairman of the board of directors who must be a director, no officer need be a director or a stockholder. Any number of offices may be held by the same person. Section 2. Election and Term. Except for officers to fill vacancies and newly created offices provided for in Section 6 of this Article, the officers shall be elected by the board of directors at the first meeting of the board of directors after the annual meeting of the stockholders. All officers shall hold office at the pleasure of the board of directors. Section 3. Duties of Officers. In addition to those duties that may from time to time be delegated to them by the board of directors, the officers of the corporation shall have the following duties: (a) Chairman of the Board. The chairman of the board shall preside at all meetings of the stockholders and of the board of directors at which he is present, shall be ex-officio a member of all committees formed by the board of directors and shall have such other duties and powers as the board of directors may prescribe. (b) President. The president shall be the chief executive officer of the corporation, shall have general and active management of the business of the corporation, shall see that all orders and resolutions of the board of directors are carried into effect, and, in the absence or nonelection of the chairman of the board of directors, shall preside at all meetings of the stockholders and the board of directors at which he is present if he is also a director. The president also shall execute bonds, mortgages, and other contracts requiring a seal under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated expressly by the board of directors to some other officer or agent of the corporation and shall have such other powers and duties as the board of directors may prescribe. (c) Group President. The group president or group presidents, if any, shall have general and active management of the group for which they are designated as president by the board of directors and shall have such other duties and powers as vice- presidents or as the board of directors or the president may prescribe. (d) Vice-President. The vice-president or vice-presidents, if any, shall have such duties and powers as the board of directors or the president may prescribe. In the absence of the president or in the event of his inability or refusal to act, the group president or vice- president, if any, or if there be more than one, the group presidents or vice-presidents, in the order designated by the board of directors, or, in the absence of such designation, then in the order of their election, shall perform the duties and exercise the powers of the president. (e) Secretaries and Assistant Secretaries. The secretary shall record the proceedings of all meetings of the stockholders and all meetings of the board of directors in books to be kept for that purpose, shall perform like duties for the standing committees when required, and shall give, or cause to be given, call and/or notices of all meetings of the stockholders and meetings of the board of directors in accordance with these by-laws. The secretary also shall have custody of the corporate seal of the corporation, affix the seal to any instrument requiring it and attest thereto when authorized by the board of directors or the president, and shall have such other duties and powers as the board of directors may prescribe. The assistant secretary, if any, or if there be more than one, the assistant secretaries, in the order designated by the board of directors, or, if there be no such designation, then in order of their election, shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall have such other duties and powers as the board of directors may prescribe. In the absence of the secretary or an assistant secretary at a meeting of the stockholders or the board of directors, an acting secretary shall be chosen by the stockholders or directors, as the case may be, to exercise the duties of the secretary at such meeting. In the absence of the secretary or an assistant secretary or in the event of the inability or refusal of the secretary or an assistant secretary to give, or cause to be given, any call and/or notice required by law or these by-laws, any such call and/or notice may be given by any person so directed by the board of directors, the president or stockholders, upon whose requisition the meeting is called in accordance with these by-laws. (f) Treasurer and Assistant Treasurer. The treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall also disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, shall render to the board of directors, when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation, and shall have such other duties and powers as the board of directors may prescribe. If required by the board of directors, the treasurer shall give the corporation a bond, which shall be renewed every six years, in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. The assistant treasurer, if any, or if there be more than one, the assistant treasurers in the order designated by the board of directors, or, in the absence of such designation, then in the order of their election, shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall have such other duties and powers as the board of directors may prescribe. (g) Other Officers. Any other officer shall have such powers and duties as the board of directors may prescribe. Section 4. Resignation. Any officer may resign at any time upon written notice delivered to the corporation at its principal office. The resignation shall take effect at the time specified therein, and if no time be specified, at the time of its dispatch to the corporation. Section 5. Removal. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Section 6. Vacancies and Newly Created Offices. A vacancy in office, however occurring, and newly created offices, shall be filled by the board of directors. ARTICLE V. CAPITAL STOCK Section 1. Stock Certificates. Each holder of stock in the corporation shall be entitled to have a certificate signed in an officer's official capacity or in the name of the corporation by the chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Where a certificate is countersigned (a) by a transfer agent other than the corporation or its employee, or, (b) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 2. Lost, Stolen or Destroyed Certificates. The board of directors, or at their direction any officer of the company, may direct a new certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors, or at their direction any officer of the company, may, in its (his) discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer. Upon surrender to the secretary or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and upon compliance with any provisions respecting restrictions on transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Issue of Stock. From time to time, the board of directors may, by vote of a majority of the directors, issue any of the authorized capital stock of the corporation for cash, property, services rendered or expenses, or as a stock dividend and on any terms permitted by law. Section 5. Fixing Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI. GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation may be declared by the board of directors in any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed by a resolution of the board of directors. Section 4. Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VII. AMENDMENTS Section 1. Amendments. These by-laws may be amended at any proper meeting of the stockholders or of the board of directors. ARTICLE VIII. INDEMNIFICATION Section 1. Non-Derivative Proceedings. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had reasonable cause to believe that his conduct was unlawful. Section 2. Derivative Proceedings. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Amount of Indemnification. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 or 2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Determination to Indemnify. Any indemnification under Sections 1 or 2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in written opinion, or (3) by the stockholders. Section 5. Advance Payment. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of a director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section or otherwise pursuant to the law of Delaware. Section 6. Non-Exclusiveness of By-Law. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. Section 7. Continuation of Indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to this Article VIII, or permitted by statute or otherwise, shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 8. Indemnification Insurance. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. EX-10.3 4 1996 EXECUTIVE OFFICER INCENTIVE PLAN AGREEMENT Exhibit 10.3 NATIONAL SEMICONDUCTOR CORPORATION 1996 EXECUTIVE OFFICER INCENTIVE PLAN AGREEMENT ARTICLE 1 Definitions Whenever used in the Agreement, unless otherwise indicated, the following terms shall have the respective meanings set forth below: Agreement: This Executive Officer Incentive Plan Agreement. Award: The amount to be paid to a Plan Participant at the end of the fiscal year. Award Date: The date set by the Committee for payment of Awards, usually approximately forty days after the Company makes its consolidated financial statements for the fiscal year generally available to the press. Base Salary: The annualized base remuneration received by a Participant from the Company at the end of the fiscal year. Extraordinary items, including but not limited to prior awards, relocation expenses, expatriate premiums, allowances and tax adjustments, sales incentives, amounts recognized as income from stock or stock options, disability benefits (whether paid by the Company or a third party) and other similar kinds of extra or additional remuneration are excluded from the computation of Base Salary. Company: National Semiconductor Corporation ("NSC"), a Delaware corporation, and any other corporation in which NSC controls directly or indirectly fifty percent (50%) or more of the combined voting power of voting securities, and which has adopted this Plan. Committee: A committee comprised of directors of National who are not employees of the Company, as more fully defined in the Executive Officer Incentive Plan. Disability: Inability to perform any services for the Company and eligible to receive disability benefits under the standards used by the Company's disability benefit plan or any successor plan thereto. Executive Officer: An officer of the Company who is subject to the reporting and liability provisions of Section 16 of the Securities and Exchange Act of 1934. Incentive Levels: The grouping of those Executive Officers designated as participants as set forth in Article 4. Participant: An Executive Officer who at the time shall be a participant in accordance with the provisions of Article 3. Performance Factors considered and scored to determine the Goal: amount of a participant's Award, which shall be based on one or more of the business criteria listed in Section 5(b) of the Plan. Performance Goals will have four levels of performance as follows: (i) Threshold -- The minimum acceptable level of performance for which an Award may be earned on a particular Performance Goal. (ii) Target -- Good performance, as established by the Committee, reflecting a degree of difficulty which has a reasonable probability of achievement. (iii) Stretch -- Better than Target performance and reflecting a degree of difficulty with only a moderate probability of achievement. (iv) Best Expected -- Exceptional performance far exceeding the Target level because of the great degree of difficulty and the limited probability of achievement. Retired: Permanent termination of employment with the Company, and (a) age is either sixty-five (65) or age is at least fifty-five (55) and years of service in the employ of the Company is ten (10) or more, and (b) the terminating employee has certified to the Vice President-Finance of the Company that he or she does not intend to engage in a full-time vocation. Target Award: The Award, expressed as a percentage of Base Salary, that is earned by a Participant for achievement of the Target Performance Measure. All capitalized terms used in this Agreement and not otherwise defined herein have the meanings assigned to them in the Executive Officer Incentive Plan. ARTICLE 2 Effective Date The Agreement will become effective as of May 29, 1995, to be effective for the Company's fiscal year 1996. ARTICLE 3 Eligibility for Plan Participation A. Within ninety (90) days after the commencement of the Company's fiscal year, the Committee shall designate those Executive Officers who shall be Plan Participants for the fiscal year and their respective Incentive Levels. B. Participants will be notified of their participation once the Committee has designated Participants. Continued participation will be re-evaluated at the beginning of each fiscal year. C. Newly hired Executive Officers and persons who are promoted to Executive Officers may be added as Participants to the Plan during the fiscal year. Participants who are added to the Plan during a fiscal year will receive a prorated Award based on time of participation in the Plan. ARTICLE 4 Target Awards A. Each participant will be assigned an Incentive Level with associated Target Awards expressed as percentages of the Participant's Base Salary. Target Awards will be the same for all Participants at any given Incentive Level. B. In the event that a Participant changes positions during the Plan Period and the change results in a change in Incentive Level, whether due to promotion or demotion, the Incentive Level will be prorated to reflect the time spent in each position. ARTICLE 5 Plan Performance Goals A. Performance Goals, associated weights and levels of performance will be established by the Committee within ninety (90) days after the start of the fiscal year. Each Performance Goal will have a defined Threshold, Target, Stretch and Best Expected level of performance. Performance Goals and their associated weights may change from one fiscal year to another fiscal year to reflect the Company's operational and strategic goals, but must be based on one or more of the business criteria listed in Section 5(b) of the Plan. B. Awards will range between 0% and 200% of Target Award. A scale showing the amount of the Participant's Award relative to the Target Award at the various performance levels will be developed for each Performance Goal. Performance levels and associated Awards (as a percent of the Target Award) will be set from Threshold to Best Expected for the Performance Goals, with Awards ranging from 50% of the Target Award at the Threshold level to 200% of the Target Award at the Best Expected level. The Committee shall retain the discretion to reduce (but not increase) the Award otherwise payable to a Participant upon attainment of a Performance Goal. Attachment A hereto contains a chart reflecting an example of the Award formula. ARTICLE 6 Calculation and Payment of Awards A. A Participant's Award will be calculated as a percentage of Base Salary as follows: 1) The Participant's Target Award is determined prior to the beginning of the fiscal year. 2) The performance of the Plan Participants is scored on an overall basis at the end of the fiscal year. 3) The group's overall performance score creates an incentive pool. 4) The group's incentive pool is divided among the Participants within the group, based on individual contributions toward the group's overall performance score. No one individual Award may exceed 200% of the Participant's Target Award amount. B. The Committee will score the performance of the Plan Participants. Awards will be paid only after the Committee certifies in writing that the Performance Goals have been attained. The Committee shall have the discretion to reduce, but not increase, the amount of an Award otherwise payable to a Participant upon attainment of the Performance Goal(s) established for the fiscal year. C. Awards will be paid in cash on or about the Award Date. D. Awards will reflect the Participant's Base Salary in effect at the end of the fiscal year. Participants who take an unpaid leave of absence during the fiscal year will have their Awards prorated to reflect actual pay earned during the fiscal year. E. All or any portion of the Award may be deferred if the Participant makes a voluntary irrevocable election to defer payment to a future date pursuant to the deferral terms contained in Article 8. ARTICLE 7 Termination of Employment A. To be eligible to receive an Award, the Participant must be employed by the Company on the last day of the fiscal year. A Participant who terminates employment prior to that date will result in forfeiture of the Award, except as otherwise provided in this Article 7. B. If a Participant's employment is terminated during the fiscal year by Disability, Retirement, or death, the Participant will receive an Award prorated to reflect the Participant's actual period of employment during the fiscal year. C. Unless local law or regulation provides otherwise, payments of Awards made upon termination of employment by death shall be made on the Award Date to: (a) beneficiaries designated by the Participant; if none, then (b) to a legal representative of the Participant; if none, then (c) to the persons entitled thereto as determined by a court of competent jurisdiction. D. Participants whose employment is terminated by reduction in force during the fiscal year will receive no Award. If a Participant's employment is terminated by reduction in force after the fiscal year but before the Award Date, the Participant will receive the Award on the Award Date. E. The Committee reserves the right to reduce an Award on a pro-rata basis to reflect a Participant's leave of absence during a fiscal year. Participants on leaves of absence (whether paid or unpaid) on the Award Date will not receive the Award until he or she returns from the leave of absence. F. The right of any Participant to receive an Award under this Plan shall be forfeited if the Participant's employment is terminated because of or the Participant is discovered to have engaged in fraud, embezzlement, dishonesty against the Company, obtaining funds or property under false pretenses, assisting a competitor without permission, or interfering with the relationship of the Company with a customer. A Participant's Award will be forfeited for any of the above reasons regardless of whether such act is discovered prior to or subsequent to the Participant's termination of employment or payment of an Award. If an Award has been paid, such payment shall be repaid to the Company by the Participant. ARTICLE 8 Deferral of Awards A. If permitted by local law and regulations, a Participant is entitled to make an irrevocable election (in the form of the Notice of Election attached) to defer receipt of all or any portion of any Award. For any fiscal year, the Notice of Election must be completed prior to thirty (30) days before the end of the fiscal year. Notices of Election are not self-renewing and must be completed for each fiscal year if deferral is desired for the applicable fiscal year. B. For each Participant who elects deferral, the Company will establish and maintain book entry accounts which will reflect the deferred Award and any interest credited to the account. C. For deferred Awards, Participant deferred accounts will be credited each Award Date with interest set at the rate for long-term A-rated corporate bonds, as reported by the investment banking firm of Salomon Brothers Inc. of New York City (or such other investment banking firm as the Committee may specify) during the first week of each calendar year. The interest rate will be reset at the beginning of each calendar year. Interest will begin to accrue on the Award Date and will be credited each Award Date until the date payment is actually made. If a Participant's Award is distributed at any time other than on an Award Date, the Participant's account will be credited with interest until the date of distribution. D. Participants will not receive deferred Awards until the earlier of termination of employment for any reason (including Retirement, Disability, or death) or a date pre-selected by the Participant. The account balance will be paid in a lump sum in the month following the earlier of termination of employment for any reason or the pre-selected date unless installment payments are permitted and have been elected as follows: Upon termination of employment by reason of Retirement or Disability, a Participant who has previously elected to defer an Award may irrevocably elect to have the balance of the deferred Award plus accrued interest paid to the Participant in periodic, annual installments over a period of ten (10) years. Payments shall commence or be made annually on a day that is within thirty (30) days of the anniversary date following the Participant's Retirement or Disability. E. If the Participant's employment is terminated for any reason other than death, Disability or Retirement, the Participant will be paid the entire account balance in a lump sum in the month after termination. If a Participant has requested installment payments and dies either before or after distribution has begun, the unpaid balance will be paid in a lump sum in the month following the Participant's death. F. Payment of part or all of the deferred Award 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. All payments in case of hardship must be specifically approved by the Committee. G. No Participant may borrow against his or her account. H. If permitted by local law and regulations, the Participant may designate a beneficiary to receive deferred Awards in the event of the Participant's death. The Participant's beneficiary may be changed without the consent of any prior beneficiary except as follows: In those jurisdictions where spouses are granted rights by law in a Participant's earnings, if the Participant is married at the time of designation, the Participant's spouse must consent to the beneficiary designation and any change in beneficiary. If no beneficiary is chosen or the beneficiary does not survive the Participant, the Award account balance will be paid in accordance with the terms of Article 7C or as otherwise required by local law or regulation. ARTICLE 9 Interpretations and Rule-Making The Committee shall have the sole right and power to: (i) interpret the provisions of the Agreement, and resolve questions thereunder, which interpretations and resolutions shall be final and conclusive; (ii) adopt such rules and regulations with regard to the administration of the Plan as are consistent with the terms of the Plan and the Agreement, and (iii) generally take all action to equitably administer the operation of the Plan and this Agreement. ARTICLE 10 Declaration of Incentives, Amendment, or Discontinuance The Committee may on or before the Award Date: (i) determine not to make any Awards to any or all Participants for any Plan Period; (ii) make any modification or amendment to this Agreement for any or all Participants provided such modification or amendment is in accordance with the terms of the Plan; or (iii) discontinue this Agreement for any or all Participants provided such modification or amendment is otherwise in accordance with the Plan. ARTICLE 11 Miscellaneous A. Except as provided in Article 8 H, no right or interest in the Plan is transferable or assignable except by will or the laws of descent and distribution. B. Participation in this Plan does not guarantee any right to continued employment and the Committee and management reserve the right to dismiss Participants for any reason whatsoever. Participation in one fiscal year does not guarantee a Participant the right to participation in any subsequent fiscal year. C. The Company reserves the right to deduct from all Awards under this Plan any taxes or other amounts required by law to be withheld with respect to Award payments. D. This Plan constitutes an unfunded Plan of deferred compensation. As such, any amounts payable hereunder will be paid out of the general corporate assets of the Company and shall not be transferred into a trust or otherwise set aside. All accounts under the Plan will be for bookkeeping purposes only and shall not represent a claim against specific assets of the Company. The Participant will be considered a general creditor of the Company and the obligation of the Company is purely contractual and shall not be funded or secured in any way. E. Maintenance of financial information relevant to measuring performance during the fiscal year will be the responsibility of the Chief Financial Officer of the Company. F. The provisions of the Plan shall not limit, or restrict, the right or power of the Committee to continue to adopt such other plans or programs, or to make salary, bonus, incentive, or other payments, with respect to compensation of Executive Officers, as in its sole judgment it may deem proper. G. Except to the extent superseded by federal law, this Agreement shall be construed in accordance with the laws of the State of California. H. No member of the Company's board of directors or any officer, employee, or agent of the Company shall have any liability to any person, firm or corporation based on or arising out of this Agreement or the Plan. ATTACHMENT A CHART describing Incentive Awards as a percentage of Target Awards Chart illustrates the manner in which awards are to be calculated under the Executive Officer Incentive Plan. Achievement of performance against goals between the Threshold Level and fifty percent of Target Level results in an Incentive Award of 50% of Target, with the Committee having discretion to adjust downward when it deems appropriate. Similarly, performance levels against goals of between 50% and 100% result in an Incentive Award of 100% of Target, while performance against goals of between 100% and 150% result in an Incentive Award of 150% of Target (in each case, subject to downward - but not upward - adjustment by the Committee). Finally, performance against goals of more than 150% will result in the maximum incentive award of 200% of Target award, subject to downward adjustment. In summary, while the Plan formula sets the incentive awards upon achievement of each level of performance, the shaded areas of the chart reflect the areas of discretion on award payment that is vested with the Committee. NATIONAL SEMICONDUCTOR CORPORATION EXECUTIVE OFFICER INCENTIVE PLAN Notice of Election If you are a Participant in the Company's Executive Officer Incentive Plan ("EOIP") and receive an Award under the EOIP for fiscal year 1996, you may accept payment in calendar year 1996 or you may defer payment until a later date which is at least one year after the Award Date. If you want to defer payment, complete this election form and return it to Donald Macleod, Senior Vice President, Finance, or his designee by April 26, 1996. If you do not complete this form, you will receive payment in calendar year 1996. For further details, refer to the National Semiconductor Corporation Executive Officer Incentive Plan documents and Agreement. * * * * * DEFERRAL ELECTION: In accordance with the National Semiconductor Corporation EOIP, I hereby elect to defer all or part of the Award as specified below, which Award would otherwise be paid to me under the terms of the KEIP. 1. Please defer ______% or $______ of my EOIP Award. If the dollar amount selected is greater than the total EOIP Award, the entire Award will be deferred. 2. The amounts deferred will be payable on the earliest of: termination of employment for any reason (including retirement, disability, or death) or on ________________________ (specify pre- selected distribution date at least one year after the 1996 Award Date.) 3. In the event of death, my primary beneficiary is: _______________________________________________ (Print name) Print address: ______________________________________________ _______________________________________________ My secondary beneficiary (to receive benefits only in the event of death of my primary beneficiary) is: _______________________________________________ (Print name) Print address: _______________________________________________ _______________________________________________ I UNDERSTAND THIS ELECTION IS IRREVOCABLE FOR THE 1996 EOIP AWARD AND IS SUBJECT TO THE TERMS OF THE NATIONAL SEMICONDUCTOR EOIP DOCUMENT. Consent of spouse (required for married participants designating beneficiaries other than spouse) Signature: ___________________ Signature______________________ Print Name: __________________ Print Name:____________________ Date: ________________________ Received by National Semiconductor Corporation Date: ________________________________ By: __________________________________ Print Name: __________________________ Title: ________________________________ EX-10.7 5 AGREEMENT Exhibit 10.7 AGREEMENT This Agreement is made and entered into as of May 17, 1995, by and between National Semiconductor Corporation, a Delaware corporation (the "Company") and Peter J. Sprague ("Sprague"). Recitals Sprague has served as Chairman of the Board of Directors of the Company since 1965. Sprague now intends to retire as a member of the Board of Directors and as Chairman of the Board. In recognition of his many years of service as a member of the Board of Directors and as Chairman, the Company wishes to compensate Sprague in his retirement and to retain him as an independent consultant to the Company. Agreement Now, therefore, it is agreed as follows: 1. Retirement: Sprague hereby resigns as a member of the Board of Directors of the Company and as Chairman of the Board of Directors immediately effective as of the date of this Agreement. 2. Compensation: In recognition of Sprague's many years of service as a member of the Board of Directors of the Company and as Chairman of the Board, the Company hereby agrees to the following compensation for such retirement and for services rendered to the Company as an independent consultant as provided in paragraph 4 hereof: a. The Company shall pay to Sprague an annual amount of $250,000, payable in equal monthly installments, for a period of ten (10) years (the last payment to be made in May 2005). b. The outstanding indebtedness (principal and interest) of Sprague to the Company as a result of the loan made by the Company to Sprague and evidenced by that certain Promissory Note dated April 20, 1989, (the "Note"), with a balance currently outstanding of approximately $450,000, is hereby canceled and forgiven and deemed paid in full as of the date hereof. c. To the extent that the forgiveness of the Note and the outstanding balance thereunder as provided above, gives rise to state and federal income tax, the Company agrees to make a payment to Sprague in an amount sufficient to cover such tax on the forgiveness as well as the resulting tax on such payment (the "Tax Gross Up"). The Tax Gross Up shall be calculated in accordance with the Company's standard practice and shall be paid by the Company directly to Sprague within 30 days of the date of this Agreement. The Company shall have no further obligation with respect to taxes arising from forgiveness of the Note and the Tax Gross Up, and payment of such taxes shall be solely the responsibility of Sprague. d. As provided in paragraph 3 hereof, the Company shall grant to Sprague an option to purchase 300,000 shares of the Company's Common Stock at an exercise price per share equal to the opening price of the Common Stock on the New York Stock Exchange on the date of grant (the "Option"). The date of grant of the Option shall be the next business day following the date of execution of this Agreement. Except as provided by the Tax Gross Up, all compensation and benefits (including the Option) to Sprague under this agreement shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law. 3. The Option. The Option shall be evidenced by an option agreement in the form attached hereto as Exhibit A (the "Option Agreement"). The Option Agreement shall be executed simultaneously with the execution of this Agreement. Among other things, the Option Agreement provides for the following: a. The Option shall be exercisable in installments to the extent of 25% of the total number of shares subject to the Option after each anniversary of the date of the Option Agreement. b. The Option shall have a term of ten (10) years. c. The Option and any shares of Common Stock purchased upon exercise of the Option shall be acquired for investment and not with a view towards distribution. d. The Company shall use its reasonable efforts to register the Option and the underlying shares of Common Stock on Form S-8 as promptly as practicable, but only to the extent that Form S-8 is available and the Option is eligible for such registration. e. The Option shall be non-transferable by Sprague. 4. Consultant. During the term of the consulting arrangement as set forth below, Sprague agrees to provide consulting services to the Company upon the reasonable request of the Chief Executive Officer at the Company, but at such places and times as shall be reasonably convenient to Sprague in his sole discretion. a. Sprague shall devote such of his business time and skill to the revision of such services as shall, in his sole discretion, be reasonably necessary. b. Sprague agrees that the compensation provided by paragraph 2 and the Option provided by paragraph 3 above shall be the full and complete compensation due and payable to Sprague for services as such consultant. c. The term of the consulting arrangement shall be from the date hereof through May 5, 1999, or such later date as may be agreed to in writing by the Company and Sprague. d. During the term of the consulting arrangement, Sprague shall be deemed to be an independent contractor and not an employee or other representative or agent of the Company. e. At all times during and after the term of the consulting arrangement, Sprague shall keep and treat as confidential all information relating to the business or operations of the Company, except information which is in the public domain or comes within the public domain without any breach of this Consulting Agreement. f. The consulting arrangement shall not limit or prohibit Sprague from engaging in other business activities or services. g. The Company shall have the right to terminate the consulting arrangement with Sprague at any time after May 5, 1996, upon written notice; provided, however, that any such termination of the arrangement, for any reason whatsoever, shall not affect nor diminish the Option nor the compensation to be paid by the Company to Sprague as provided in this Agreement. 5. Representations of Sprague: Sprague hereby represents to the Company as follows: a. That he is acquiring the Option and the underlying shares of Common Stock upon exercise of the Option for investment and not with a view towards distribution thereof. In the event the Option is not registered on Form S-8, Sprague acknowledges that any Common Stock purchased upon exercise of the Option shall be deemed "restricted" securities within the meaning of Rule 144 under the Securities Act of 1933. b. Sprague shall comply with the terms of the Option Agreement. c. Sprague is not aware of any claims or causes of action which he, or any entity of which he is an officer, director, or a 1% shareholder or affiliate, has or may have against the Company, any subsidiary of the Company, or any officer or director of the Company or a Company subsidiary. d. Although nothing in this Agreement shall limit or prohibit Sprague from engaging in other business activities or services, whether or not competitive to the Company, Sprague does agree that during the term of the Option, Sprague will use reasonable efforts not to disparage the Company or its officers and directors nor engage in conduct (other than competition in the normal course of business) materially adverse to the interests of the Company. 6. Indemnification. Notwithstanding Sprague's retirement from the Board, Sprague shall remain entitled to indemnification by the Company for acts during the time he served as a member of the Company's Board of Directors to the extent permitted by the Company's governing documents. 7. Miscellaneous: a. This Agreement represents the entire understanding between the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings or agreements, written or oral, with respect to the subject matter hereof, including without limitation, any understanding, agreements or obligations respecting any past or future compensation or other payments to Sprague by the Company. b. This Agreement shall be governed by and construed in accordance with the laws of the State of California. c. This Agreement shall be binding upon and enure to the benefit of the executors, administrators, heirs, successors and assigns of the parties hereto. d. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same agreement. e. The waiver by either party of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any other subsequent breach of the same or other provision hereof. IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and year first above written. NATIONAL SEMICONDUCTOR CORPORATION BY: //s// GILBERT F. AMELIO ------------------------- Gilbert F. Amelio President and Chief Executive Officer //s// PETER J. SPRAGUE ------------------------ PETER J. SPRAGUE NATIONAL SEMICONDUCTOR CORPORATION NON-QUALIFIED STOCK OPTION AGREEMENT Option Agreement dated May 18, 1995 between National Semiconductor Corporation, a Delaware corporation (the "Company") and Peter J. Sprague, a consultant of the Company or of any of its subsidiaries (the ("Optionee"). By action taken by the Board of Directors of the Company, the Company has granted a non-qualified stock option to the Optionee to purchase shares of its Common Stock, par value $.50 per share ("Common Stock"). The Company and the Optionee desire to enter this Agreement to evidence such option. The option is granted pursuant to an Agreement between the Optionee and the Company dated May 17, 1995. NOW THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties hereto agree as follows: A. The Company hereby evidences its grant to the Optionee of the right and option (the "Option") to purchase all or any part of the aggregate of 300,000 full shares of Common Stock at a purchase price of $27.875 per share on the terms and conditions herein set forth. B. The term of the Option shall be for a period of TEN YEARS AND ONE DAY from the date hereof, or for such shorter period as prescribed herein. The Option shall be exercisable in installments as follows: none within the first year; during the second year to the extent of 25% of the total number of shares to which the Option relates; during the third year to the extent of 50% of said total (including that portion exercised in the preceding year); during the fourth year to the extent of 75% of said total (including that portion exercised in the preceding years); and during the remaining term of the Option to the extent of 100% of said total. C. This Option is subject to all the ADDITIONAL TERMS AND CONDITIONS attached hereto and by reference incorporated herein. IN WITNESS WHEREOF, the Optionee has hereunto set his hand and the Company has caused this Option Agreement to be duly executed by an officer thereunto duly authorized. NATIONAL SEMICONDUCTOR CORPORATION By: //s// PETER J. SPRAGUE By: //s// JOHN M. CLARK III _ ---------------------- ----------------------- Optionee Vice President ADDITIONAL TERMS AND CONDITIONS 1. If Optionee shall die without having exercised the Option, the Option shall become fully exercisable notwithstanding the installment exercise provisions of Paragraph B. The person or persons to whom the Optionee's rights under the Option shall pass by will or by the laws of descent or distribution may exercise the Option within a period of five (5) years following Optionee's death. 2. Nothing contained in Paragraph 1 hereof is intended to extend the stated term of the Option, and in no event may the Option be exercised after the term of the Option stated in Paragraph B hereof has expired. 3. The Option is exercisable, during the lifetime of the Optionee, only by the Optionee. The Option shall not be sold, pledged, assigned or transferred in any manner otherwise than by will or the laws of descent and distribution, and shall not be subject to attachment or similar process. Any attempted sale, pledge, assignment, transfer or other disposition of the Option contrary to the provisions hereof and the levy of any attachment or similar process upon the Option shall be null and void and without effect. 4. In the event there is any change in the shares of the Company through the declaration of stock dividends or a stock split-up, or through any recapitalization resulting in share split-up, or combinations or exchanges of shares, or otherwise, the number of shares subject to the Option and the purchase price of such shares shall be appropriately adjusted by the Board of Directors of the Company. No fractional shares shall be issued upon any exercise of the Option. 5. Subject to the terms and conditions of this Agreement, the Option may be exercised by giving written notice to the Company at its office in Santa Clara, California, attention of the Secretary, or at such other office that the Company may designate. Such notice shall (i) state the election to exercise the Option and the number of full shares in respect of which it is being exercised, and (ii) be signed by the person or persons so exercising the Option and, in the event the Option is being exercised (pursuant to Paragraph 1 hereof) by any person or persons other than the Optionee, be accompanied by appropriate proof of the right of such person or persons to exercise the Option. Such notice shall be accompanied by payment of the full purchase price of such shares, whereupon the Company shall issue and deliver, or cause to be issued and delivered a certificate or certificates representing such shares as soon as practicable after such notice is received. The purchase price for such shares must be paid in full in cash, or paid in full, with the consent of the Board of Directors of the Company, in Common Stock of the Company valued at the opening price of the Common Stock on the New York Stock Exchange on the date of exercise or a combination of cash and Common Stock. With the consent of the Board of Directors of the Company, the payment of all or part of the applicable withholding taxes due upon exercise of an option, up to the highest marginal rates then in effect, may be made by the withholding of shares otherwise issuable upon exercise of the option. Option shares withheld in payment of such taxes shall be valued at the opening price of the Company's Common Stock on the New York Stock Exchange on the date of exercise. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option and shall be delivered as aforesaid to or upon the written order of the person or persons exercising the Option. The date of the exercise of the Option will be the date on which the aforesaid written notice, properly executed and accompanied as aforesaid is received by the Secretary of the Company. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. Until the certificate or certificates have been issued as aforesaid, the person or persons exercising the Option shall possess no rights of a record holder with respect to any of such shares. 6. The Company will seek to obtain from each regulatory commission or agency having jurisdiction such authority as may be required to issue and sell the shares of stock subject to the Option. Inability of the Company to obtain from any such regulatory commission or agency authority which counsel for the Company deems necessary for the lawful issuance and sale of its stock to satisfy the Option shall relieve the Company from any liability for failure to issue and sell stock to satisfy the Option pending the time when such authority is obtained or is obtainable. 7. This Option Agreement shall be governed by the laws of the State of California. EX-10.13 6 RETIRED OFFICERS & DIRECTORS HEALTH PLAN Exhibit 10.13 PLAN DOCUMENT FOR NATIONAL SEMICONDUCTOR CORPORATION RETIRED OFFICERS & DIRECTORS HEALTH PLAN EIN #95-2095071 ERISA PLAN #502 EFFECTIVE JULY 19, 1983 TABLE OF CONTENTS Page Section I. Purpose 1 Section II. Definitions and Construction 2 Section III. Eligibility, Participation and Election Procedures 5 Section IV. Contributions 6 Section V. Funding Policy 7 Section VI. Benefits 8 Section VII. Claim Procedures 9 Section VIII. Continuation of Coverage 10 Section IX. Administration 11 Section X. Amendments & Terminations 13 Section XI. Miscellaneous 14 SECTION I. PURPOSE National Semiconductor Corporation has established over a period of time several welfare benefit plans for the exclusive benefit of its employees and their dependents. The purpose of this document is to set forth, or incorporate by reference, in one document all of these welfare benefits to which the subject eligible retired Officers and Directors of National Semiconductor Corporation are legally entitled. The Company intends that these plans be consolidated into this written instrument entitled the National Semiconductor Corporation Welfare Benefit Plan. This Plan is intended to conform to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). It is also the intent of the Company that any benefits provided under this Plan be eligible for exclusion from the employee's gross income for federal, Social Security, and where permissible, state and local income tax purposes, under Sections 79, 105, and 106 of the Code. SECTION II. DEFINITIONS AND CONSTRUCTION 2.1 Administrator. The Administrator is the person(s) appointed pursuant to Section IX below to control and manage the operations and administration of the Plan and carry out its provisions for purposes of the Employee Retirement Income Security Act of 1974 (ERISA). Except as may be provided in any Plan listed in Section 2.14 below and incorporated herein by reference, the Administrator also shall be the named fiduciary (within the meaning of ERISA) under the plan. 2.2 Administrative Agent. An Administrative Agent is appointed by the Administrator to assist in certain aspects of the administrative duties and functions. 2.3 Code. Code means the Internal Revenue Code of 1986, as now in effect or as it may be amended hereafter, and includes any regulations or rulings issued thereunder. 2.4 Company. Company means National Semiconductor Corporation and any designated companies within the Company's controlled group. 2.5 Contract. Contract means an agreement with any insurer listed in Section 2.14 below and incorporated herein by reference. 2.6 Contribution. The amount payable by the Company or the amount payable by the Participant for participation under the Plan. 2.7 Coverage. Coverage means the benefits provided according to the provisions of the Contract(s) listed under Section 2.14 below and incorporated herein by reference. 2.8 Dependent. Dependent means a Retired Officer or Director's dependents who are eligible for coverage according to the terms of the contract applicable to that retiree. 2.9 Effective Date. The Effective Date of this document is July 19, 1983. 2.10 Eligible Retired Officer or Director. An eligible retired Officer or Director is a retiree who is eligible to participate under the plan according to the contracts referenced under Section 2.14 below and incorporated herein by reference. 2.11 Fiduciary. The named Fiduciary is the plan Administrator as set forth under Section 2.1. 2.12 Insurer. Insurer means the insurer designated under Section 2.14 below with which the Company has entered in a Contract. 2.13 Participant. A Participant is an eligible retired Officer or Director who has become a participant as provided under Section III. 2.14 Plan. The Plan means the National Semiconductor Corporation Retired Officers and Directors Health Plan established to provide welfare benefits for the retired Officers and Directors of the Company and their Dependents according to the provisions of the Contracts listed below as they may be amended from time to time. Insurance Company Contract # Coverage Effective Date A. Prudential Ins. G-95678 Medical 6/1/81 Co. of America 94230-8 Stop Loss 6/1/81 94230-D Dental 6/1/81 2.15 Plan Year. Plan Year means a twelve consecutive month period that begins on June 1 and ends on every May 31 thereafter. 2.16 Similarly Situated Beneficiary. In the case of any former Participant or former Dependent who has a qualifying event within the meaning of Section 162(k) of the Code, an individual who has the same coverage options under the Plan that the former Participant or former Dependent would have had if the qualifying event had not occurred is a Similarly Situated Beneficiary; provided that for purposes of determining charges for continuation coverage under Section VIII below, a former spouse of an eligible retired Officer or Director whose coverage terminates by reason of divorce or legal separation, or death of the retired Officer or Director shall be treated as similarly situated to an unmarried individual, a former dependent child whose coverage terminates because he ceases to be a Dependent shall be treated as similarly situated to an unmarried individual, and other determinations of similar status shall be made by the Company in good faith and in a manner not inconsistent with applicable law or regulations requiring continued coverage for beneficiaries of the Plan. 2.17 Gender and Number. In construction of the Plan, reference to any gender shall include the masculine, feminine and neuter genders, the plural shall include the singular and the singular shall include the plural whenever appropriate. 2.18 Construction. The terms of the Plan shall be constructed under the laws of California, except to the extent such laws are preempted by federal law. SECTION III. ELIGIBILITY, PARTICIPATION AND ELECTION PROCEDURES 3.1 Eligibility. Members of the Board of Directors of the Company, the President of the Company, and Officers at the Vice President or higher level reporting directly to the President (whether appointed by Board or otherwise appointed) who retire directly from the Company after July 19, 1983 and do not become affiliated with any business in competition with the Company will be eligible provided they meet the age and service requirements of the Plan. From and after April 24, 1992, Members of the Board of Directors or Directors of the Company, the President of the Company, and Officers at the Vice President or higher level appointed by the Board, who retire directly from the Company after April 24, 1992 and do not become affiliated with any business in competition with the Company and who meet the age and service requirements are eligible to participate in the plan provided they meet the age and service requirements of the Plan. 3.2 Age and Service Requirements. An eligible Officer or Director may participate in the Plan provided that he retires when: A. He has reached age 65; B. He has reached age 55 and the sum of his age plus years of service with the Company equals at least 65; or C. Provided he has the written consent of the President of the Company, he has reached age 50 and the sum of his age plus years of service with the Company equals at least 65. Dependent eligibility will be dictated by the provisions of the Company indemnity medical/dental plan. 3.3 Termination of Coverage. Coverage for eligible retired Officers or Directors will continue until the first of the following events: A. 60 days following the last day of the month which required plan contributions were not received; or B. Death. Coverage for eligible dependents will cease when the retired Officer or Director's coverage ceases. SECTION IV. CONTRIBUTIONS 4.1 Contributions. Contributions shall be made by the Company and the Participants in accordance with Section IV and shall be paid to the Insurer(s) or HMO(s) in accordance with the provisions of the application Contract(s) listed in Section 2.14. 4.2 Contribution Schedule. The amount of contributions necessary shall be billed by the Company in accordance with the Participant's Election of Coverage on a semi-annual basis. These amounts are subject to change from time to time at the Company's discretion and any changes will be communicated to the Employees during each Open Enrollment Period. The Contribution Schedule is available from the Plan Administrator at any time during normal Company working hours. SECTION V. FUNDING POLICY 5.1 The Company's policies in funding the Plan are provided in the contracts referenced in Section 2.14 above and incorporated herein by reference. A separate fund or trust may (but need not) be established by the Company as necessary to hold any Company or Participant contributions hereunder. The Company reserves the right to change from time to time the funding policy for the Plan. SECTION VI. BENEFITS 6.1 Benefits. From the Effective Date of the Plan until amended or terminated in accordance with Section X below, benefits will be provided for under the contracts listed in Section 2.14 and incorporated herein by reference. 6.2 Nondiscriminatory Benefits. The Plan is intended not to discriminate in favor of Highly Compensated Employees (as that term is defined in the Code) as to eligibility to participate, Contributions and/or benefits, and to comply in this respect with the requirements of the Code. If in judgment of the Plan Administrator, the operation of the Plan in any Plan Year results in such discrimination, then such Plan Administrator shall either amend the Plan affecting the Highly Compensated Employees or impute income to such Highly Compensated Employees, all as shall be necessary to assure that, in the judgment of the Plan Administrator, the Plan does not discriminate. SECTION VII. CLAIMS PROCEDURES 7.1 Filing a Claim. Claims are to be submitted to the Insurer in accordance with the procedures outlined in the applicable contract listed in Section 2.14 above and incorporated herein by reference. A claimant may be required to submit whatever proof of loss the Insurer may require. All claims will be responded to within ninety (90) days of receipt unless special circumstances warrant a ninety (90) day extension. The Claimant will be notified of an extension during the first ninety (90) day period. 7.2 Denial of Claim. If any such claim is denied in whole or in part, the claimant shall be provided promptly with written notice setting forth in a manner calculated to be understood by the claimant: A. A specific reason or reasons for denial; B. Specific reference to pertinent Plan or contract provisions upon which the denial is based; C. A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and D. An explanation of the Plan's Claim Review Procedures set forth in Section 7.3 below. 7.3 Claim Review Procedures. Within sixty (60) days after denial of any claim filed under this Plan, the claimant may request, in writing from the Insurer, a review of the denial. Any claimant seeking review hereunder is entitled to examine all pertinent documents and to submit issues and comments in writing. Upon receipt of request for review, the Insurer must respond within sixty (60) days unless special circumstances require an extension of time to one hundred twenty (120) days after receipt of request for review. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to pertinent Plan and contract provisions on which the decision is based. SECTION VIII. CONTINUATION OF COVERAGE 8.1 Continuation of Coverage. If a qualifying event within the meaning of Section 162(k) of the Code occurs with respect to any Participant or Dependent and, in the case of legal separation or divorce, death of retired Officer or Director, or a dependent child's ceasing to be a Dependent, such former Participant or dependent furnishes the Company with notice of the qualifying event within the time prescribed by the Company for doing so, he shall be entitled to continue Coverage of the type available to a Similarly Situated Beneficiary under the Plan. An election to continue Coverage shall be made on forms provided by the Company or an Administrative Agent thereof, in the manner prescribed by the Company or such Administrative Agent. 8.2 Waiver of Election and Revocation of Waiver. If a former Participant or Dependent who is entitled to elect to continue coverage under Section 8.1 above waives such election, but subsequently, within the election period for such coverage, as dictated by Section 162(k), revokes the waiver and elects to continue coverage, such election to continue coverage shall be effective on a retrospective basis from the date of the qualifying event. 8.3 Similarly Situated Beneficiary. Notwithstanding any provision in this Plan to the contrary, a former Participant or Dependent of a Participant who elects to continue Coverage under this Section VIII, shall be eligible to change such Coverage in the same manner and at the same time as an individual who is a Similarly Situated Beneficiary with respect to the Participant. 8.4 Cost of Continuation Coverage. A former Participant or Dependent who elects to continue Coverage under this Section VIII shall be charged for the Coverage 102% of the cost of such coverage to the Plan. SECTION IX. ADMINISTRATION 9.1 Administrator. The Company may appoint one or more Employees who shall have the authority and responsibility to take any reasonable actions necessary to control and manage operation of the Plan under the rules applied on a uniform and nondiscriminatory basis to all Participants. However, any action by the Company assigning any of its responsibilities to specific employees as Administrative Agents shall not constitute delegation of the Administrator's responsibility but rather shall be treated as the manner in which the Company has determined internally to discharge such responsibility. 9.2 Administrative Duties. The authority and responsibility to control and manage operations of the Plan includes but is not limited to (1) determination of eligibility; (2) preparation and filing of all reports required to be filed with any agency of the government; (3) compliance with all disclosure requirements imposed by law; and (4) maintenance of all books of accounts, records and all other data as may be necessary for proper administration of the Plan. 9.3 Rules of Administration. The Company shall adopt such rules for administration of the Plan as it considers desirable provided they do not conflict with the Plan or applicable law and may construe the Plan, correct defects, supply omissions to effectuate the Plan and, subject to Section VII above, such action shall be conclusive. Records of administration of the Plan shall be kept and Retired Officers and Directors may examine records pertaining directly to them. 9.4 Liability and Responsibility of Administrator. The Administrator shall be fully protected in respect to any action taken or suffered by them in good faith, in reliance upon the advice of his advisors. To the extent permitted by law, the Company shall indemnify the Administrator against any liability or loss sustained by reason of any act or failure to act in such capacity as Administrator, if such act or failure does not involve willful misconduct. Such indemnification includes attorney's fees and other costs and expenses reasonably incurred in defense of any action brought against such Administrator by reason of any such act or failure to act. No bond or other security shall be required of any Administrator or Administrative Agent, unless the individual handles funds or other property of the Plan. 9.5 Liability of the Company. Neither the Company nor any of its employees shall be liable for any loss due to its error or omission in administration of the Plan unless the loss is due to the failure of the Company or such employee to exercise the care, skill, prudence and diligence under the circumstances then prevailing that a person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 9.6 Indemnification of Administrator and Administrative Agents. The Company shall indemnify each Officer, Director or employee of the Company for all expenses (other than amounts paid in settlement to which the Company does not consent) reasonably incurred by him in connection with any action to which he may be party by reason of this performance of administration functions and duties under the Plan, except in relation to matters as to which he shall be adjudged in such action to be personally guilty of willful misconduct in the performance of his duties. The foregoing rights to indemnification shall be in addition to such other rights as the individual may enjoy as a matter of law or by reason of insurance coverage of any kind. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which the individual may be entitled pursuant to the Company's By- laws. 9.7 Limited Discretionary Authority. Notwithstanding anything in the Plan to the contrary, and to the extent permitted by applicable law, the Plan Administrator shall have due discretionary authority to determine whether the criteria set forth in this Plan, including the criteria for eligibility and for benefits, have been established. SECTION X. AMENDMENTS AND TERMINATION 10.1 Although termination of the Plan is not anticipated by the Company as of the Effective Date, the Company necessarily reserves the right to amend or terminate the Plan at any time; provided, however, that such amendment or termination shall not affect either the Company's obligation to pay all accrued benefits under the Plan or the right of any Participant to file claims for payment or reimbursement of covered expenses, to the extent that such amounts were payable prior to such amendment or termination under the terms of the Plan. SECTION XI. MISCELLANEOUS 11.1 No Personal Liability. Nothing contained herein shall impose on any Officers or Directors of the Company any personal liability for any benefits due a Participant or Dependent pursuant to the Plan. 11.2 Additional Procedures. Any rules, regulations, or procedures that may be necessary for the proper administration of functioning of the Plan that are not covered herein shall be promulgated and adopted by the Plan Administrator. 11.3 Severability. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision and this Plan shall be construed and enforced as if such provisions had not been included. In Witness, whereof, the Company has caused this document to be executed effective as of July 19, 1983. By: //s// John M. Clark III Date: June 5, 1995 ----------------- -------------- Title: Senior Vice President EX-11 7 CALC. OF EARNINGS PER SHARE-ASSUMING FULL DILUTION Exhibit 11.0 NATIONAL SEMICONDUCTOR CORPORATION CALCULATION OF EARNINGS PER SHARE-ASSUMING FULL DILUTION (in millions, except per share amounts) Year ended --------------------------- May 28, May 29, May 30, 1995 1994 1993 ------ ------ ------ Net income before cumulative effect of accounting change $264.2 $259.1 $ 130.3 Cumulative effect of accounting change - 4.9 - ------- ------ ------- Net income $264.2 $264.0 $ 130.3 ======= ====== ======= Number of shares: Weighted average common shares outstanding 121.4 113.0 107.4 Weighted average common equivalent shares 3.8 8.4 8.5 ------- ------ ------ Weighted average common and common equivalent shares 125.2 121.4 115.9 Additional weighted average common equivalent shares assuming full dilution 0.1 0.4 0.5 Shares issuable from assumed conversion of preferred shares 12.2 19.6 16.0 ------- ----- ------ Weighted average common and common equivalent shares - assuming full dilution 137.5 141.4 132.4(1) ======= ===== ====== Earnings per share - assuming full dilution before cumulative effect of accounting change $ 1.92 $ 1.83 $ 0.98 Cumulative effect of accounting change - 0.04 - ------ ------ ------ Net income $ 1.92 $ 1.87 $ 0.98 ======= ====== ====== ______________________________________________ (1) For fiscal 1993, this calculation is submitted in accordance with Regulation S-K Item 601 (b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. EX-13 8 1995 ANNUAL REPORT Exhibit 13.0 NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT FINANCIAL HIGHLIGHTS (in millions, except per share amounts) May 28, May 29, May 30, May 31, May 26, Years Ended 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Net sales $2,379.4 $2,295.4 $2,013.7 $1,717.5 $1,701.8 Net income (loss) $ 264.2 $ 264.0 $ 130.3 $ (120.1) $ (151.4) Net earnings (loss) per share: Primary $2.02 $ 2.02 $ 0.98 $ (1.24) $ (1.56) Fully diluted $1.92 $ 1.87 $ 0.98 $ (1.24) $ (1.56) Weighted average common and common equivalent shares outstanding: Primary 125.2 121.4 115.9 104.6 103.4 Fully diluted 137.5 141.4 115.9 104.6 103.4 Research and development expense $ 283.1 $ 257.8 $ 229.2 $ 208.9 $ 198.6 Capital additions $ 478.8 $ 270.7 $ 235.1 $ 189.4 $ 109.8 Current ratio 1.72 1.76 1.67 1.26 1.47 Debt-to-equity ratio 7.5% 2.7% 5.7% 8.4% 7.0% Number of employees (in thousands) 22.4 22.3 23.4 27.2 29.8 (See Appendix to Graphs) NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT 5 YEAR SELECTED FINANCIAL DATA (in millions, except per share amounts) Years Ended ----------------------------------------------- May 28, May 29, May 30, May 31, May 26, 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- OPERATING RESULTS Net sales $2,379.4 $2,295.4 $2,013.7 $1,717.5 $1,701.8 Operating costs and expenses 2,064.8 2,002.8 1,866.7 1,839.9 1,854.4 ------- ------- ------- ------- -------- Operating income (loss) 314.6 292.6 147.0 (122.4) (152.6) Interest income, net 14.6 10.9 2.9 5.4 3.6 ------- ------- ------- ------- -------- Income (loss) before income taxes and cumulative effect of accounting change 329.2 303.5 149.9 (117.0) (149.0) Income taxes 65.0 44.4 19.6 3.1 1.3 ------- ------- ------- ------- ------- Income (loss) from continuing operations before cumulative effect of accounting change 264.2 259.1 130.3 (120.1) (150.3) ======= ======= ======= ======= ======= Net income (loss) $ 264.2 $ 264.0 $ 130.3 $(120.1) $(151.4) ======= ======= ======= ======= ======= Net income (loss) used in primary earnings per common share calculation (reflecting preferred dividends): Income (loss) from continuing operations before cumulative effect of accounting change $253.0 $ 240.4 $ 113.2 $(130.1) $(160.3) Net income (loss) $253.0 $ 245.3 $ 113.2 $(130.1) $(161.4) ======= ======= ======= ======= ======= Earnings (loss) per common share: From continuing operations before cumulative effect of accounting change: Primary $2.02 $ 1.98 $ 0.98 $ (1.24) $ (1.55) Fully diluted $1.92 $ 1.83 $ 0.98 $ (1.24) $ (1.55) Net income (loss): Primary $2.02 $ 2.02 $ 0.98 $ (1.24) $ (1.56) Fully diluted $1.92 $ 1.87 $ 0.98 $ (1.24) $ (1.56) ======= ======= ======= ======= ======= Weighted average common and common equivalent shares outstanding: Primary 125.2 121.4 115.9 104.6 103.4 Fully diluted 137.5 141.4 115.9 104.6 103.4 ======= ======= ======= ======= ======= FINANCIAL POSITION AT YEAR-END Working capital $ 492.4 $ 439.0 $ 336.6 $ 122.0 $ 196.1 Total assets $2,235.7 $1,747.7 $1,476.5 $1,148.9 $1,190.7 Long-term debt $ 82.5 $ 14.5 $ 37.3 $ 33.9 $ 19.9 Total debt $ 106.1 $ 30.1 $ 47.9 $ 45.4 $ 46.0 Shareholders' equity $1,406.7 $1,105.7 $ 837.4 $ 539.4 $ 658.3 ======= ======= ======= ======= ======= OTHER DATA Research and development expense $ 283.1 $ 257.8 $ 229.2 $ 208.9 $ 198.6 Capital additions $ 478.8 $ 270.7 $ 235.1 $ 189.4 $ 109.8 Number of employees (in thousands) 22.4 22.3 23.4 27.2 29.8 ======= ======= ======= ======= ======= National has paid no cash dividends on its common stock in any of the years presented above. See Note 4 to the Consolidated Financial Statements regarding certain reclassifications of expenses. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations National recorded sales of $2.4 billion in 1995 compared to $2.3 billion in 1994 and $2.0 billion in 1993. Net income for the fiscal year just ended was $264.2 million compared to $264.0 million in 1994 and $130.3 million in 1993. Net results in 1995 include income of $5.5 million from the release of restructuring reserves as compared to a $4.9 million gain from a change in accounting (see Note 4) and a $2.6 million restructuring release (see Note 3) both recognized in 1994. The significant increase in net income for both 1995 and 1994 over 1993 is due to increased sales and improved gross margins. (See Appendix to Graphs) Sales Sales increased 4 percent in 1995 over 1994. During 1995, sales in the first half of the year were comparable to the first half of 1994. Beginning in the third quarter of 1995, sales increased 5 percent over the comparable period a year earlier and in the fourth quarter of 1995, sales were up 10 percent as additional capacity came on line to support increased demand for the Company's products. In addition, customer orders increased significantly in 1995, especially in the second half. In 1995 and 1994, the Company's Standard Products Group ("SPG") comprised 72 percent of total sales while the Company's Communications and Computing Group ("CCG") comprised 28 percent. This is in contrast to 1993 when SPG made up 70 percent of total Company sales and CCG 30 percent. After the end of 1995, the Company dissolved the group structure, in part to allow better reporting alignment with its target markets. The sales discussion/information that follows is based on the operation divisions as currently structured. The Company experienced significant growth in its Analog and Mixed Signal business unit as sales increased approximately 11 percent. However, in the Company's more mature divisions, both unit shipments and pricing decreases contributed to a 17 percent decrease year-on-year in Bipolar and CMOS Logic and Memory products. Most of the remaining business units were flat year-on-year with average price decreases offset by volume increases. For 1995 in aggregate, Analog and Mixed Signal products represented 56 percent of total Company sales as compared to 53 percent in 1994. In comparison, Bipolar and CMOS Logic and Memory products made up 22 percent of total Company revenue for 1995 as compared to 26 percent in 1994. Fiscal 1995 sales increased by 13 percent and 8 percent in Europe and Japan over 1994. Due to overall weakness in the dollar, the dollar value of foreign currency sales increased favorably in both Europe and Japan, contributing approximately one-half of the increase in reported sales. Sales in the United States and Asia were essentially flat over 1994. Overall, the Americas, Europe, Japan and Asia regions accounted for 43%, 24%, 9% and 24% of sales, respectively, in 1995. In 1994, the regions accounted for 44%, 22%, 9% and 25% of Company sales, respectively. Sales increased 14 percent in 1994 over 1993. Unit increases in volume and modest price increases across most business units contributed to the rise in sales. The Analog and Mixed Signal business unit experienced a 13 percent increase in 1994 sales over 1993. At the same time, older commodity Bipolar and CMOS Logic and Memory products experienced a similar increase as product shortages and steady or rising demand contributed to increased prices and unit shipments. For 1994, in aggregate, Analog and Mixed Signal sales comprised 53 percent of total Company revenue comparable with 1993. In comparison, Bipolar and CMOS Logic and Memory product sales made up 26 percent of Company revenue in 1994 as compared to 25 percent in 1993. Sales increased from 1993 to 1994 in all geographic regions, with Europe at 20 percent, Asia at 19 percent, and the Americas at 8 percent. Within the Asia region, Japan increased 27 percent. Overall, the Americas, Europe, Japan and Asia regions accounted for 47%, 20%, 8%, and 25% of sales, respectively in 1993. Although future business conditions are difficult to predict, the Company's focus on major customers in the personal systems, communications, industrial and consumer markets will continue for the foreseeable future. In 1996, the Company expects to increase revenues as it continues its emphasis in Analog and Mixed Signal market opportunities. The Company expects to grow at or above market rates in particular segments of Analog and Mixed Signal, but will not necessarily match overall market growth due to slowing growth or declines in older products such as Logic and Memory. Gross Margin Gross Margin as a percentage of sales remained essentially flat at 41.8 percent in 1995 compared to 41.8 percent in 1994 and 35.5 percent in 1993 (see Note 4). Higher unit volumes and firm pricing in Analog and Mixed Signal products were offset by pricing declines in older, commodity products and in some cases, unit shipments declined as well. Overall gross margins remained relatively constant for most operating divisions. Wafer capacity utilization approached 90 percent for most of the year, but margins were adversely impacted by the inability to match manufacturing capacity with rising product demand. The improvement in 1994 gross margin over 1993 was driven by improved sales mix through the introduction of newer, higher margin products, as well as reduced offerings of older products. In addition, wafer capacity utilization improved across fiscal 1994 and the Company benefited during 1994 from many of the restructuring activities initiated in previous fiscal years. Management believes wafer capacity utilization will continue to remain at comparable levels in 1996 as compared to 1995 even as the Company makes significant additional investments in plant and equipment. In addition, the Company continues to realign current manufacturing capacity with higher growth and higher margin Analog and Mixed Signal products. While business conditions and overall market pricing have a major influence on gross margin, the Company's planned expansion and modernization of current facilities, improvements in manufacturing efficiency and introduction of new products are expected to result in a modest improvement in gross margin in 1996. (See Appendix to Graphs) Research and Development Research and development ("R&D") expenses were $283.1 million for fiscal 1995, or 11.9 percent of sales, compared to $257.8 million in fiscal 1994, or 11.2 percent of sales and $229.2 million in 1993, or 11.4 percent of sales. The dollar increase in fiscal 1995 is primarily attributable to increased spending in process development, incremental spending for analog intensive products and for design tools. The Company expects to increase R&D to approximately 13.0 percent of sales in fiscal 1996 as the Company invests in process technology, better integration of its design tools and continued product development. (See Appendix to Graphs) Selling, General and Administrative Selling, general and administrative ("SG&A") expenses decreased to $402.7 million, or 16.9 percent of sales from $411.3 million, or 17.9 percent of sales in 1994 and $339.2 million, or 16.8 percent in 1993. SG&A expenses in 1995 include net intellectual property income of $28.7 million compared to $15.9 million in 1994 and $43.7 million in 1993. In addition, 1995 results include $6.9 million in gains realized on the sale of equity investments as compared to $2.2 million in similar gains in 1994 and a writedown of $4.7 million in 1993 of a minority investment. SG&A in 1994 included a charge of $10.1 million for the consolidation of sales and marketing facilities in the Company's International Business Group. In 1993, the Company incurred $11.9 million for tax case related legal expenses (see Note 7) and $10.1 million to centralize sales and logistics facilities within the Company's International Business Group. The Company continues to pursue opportunities to leverage its intellectual property, however, the timing and amount of future licensing income cannot be forecast with certainty at this time. Exclusive of the above items, SG&A expenses were $438.3 million or 18.4 percent of sales in 1995, compared to $419.3 million in 1994 or 18.3 percent of sales and $356.2 million or 17.7 percent of sales in 1993. The modest increase in SG&A in 1995 over 1994 is primarily attributable to increases in sales support and marketing activities. The increase in 1994 SG&A over 1993 was caused primarily by increased contributions to certain employee compensation and benefit plans, including the employee retirement and savings program, as well as additional product advertising and related promotional costs. Interest Income and Interest Expense Net interest income was $14.6 million for 1995 compared to $10.9 million in 1994 and $2.9 million in 1993. Interest income has increased due primarily to higher average rates on investments in 1995 as compared to 1994. Interest expense has also increased from 1994 despite lower average outstanding debt due primarily to prepayment premiums of $2.5 million paid in conjunction with the early buyout of debt associated with the repurchase of the Company's Arlington, Texas facility and the sale of a building held by a German subsidiary. Net interest income was higher in 1994 compared to 1993 due primarily to higher average cash and investment balances combined with a decrease in interest expense. (See Appendix to Graphs) Income Tax Expense Income tax expense for 1995 was $65.0 million compared to $44.4 million in 1994 and $19.6 million in 1993. The effective tax rate in 1995 is 20 percent as compared to 15 percent and 13 percent in 1994 and 1993, respectively. The increases in the effective tax rates over the last three years are primarily attributable to the exhaustion of certain net operating loss carryforwards in various tax jurisdictions. The annual tax rate is expected to rise from 1995 levels as the Company continues to exhaust net operating loss carry forwards and other tax credits. Foreign Operations The Company has manufacturing facilities in Southeast Asia and Europe and sales offices throughout the United States, Southeast Asia, Europe, and Japan. A portion of the transactions at these facilities are denominated in local currency, which exposes the Company to risk from exchange rate fluctuations. The Company's risk exposure from expenses at foreign manufacturing facilities is concentrated in pound sterling, Singapore dollar and Malaysian ringgit. Net non-U.S. dollar denominated asset and liability positions are hedged, where practical, using forward exchange and purchased option contracts. The Company's risk exposure from foreign revenue is limited to the Japanese yen and major European currencies, primarily deutsche marks, French francs and Italian lira. The Company hedges up to 100 percent of the notional value of outstanding customer orders denominated in foreign currency using forward exchange contracts and over-the-counter foreign currency options. A portion of anticipated foreign sales commitments is, at times, hedged using purchased option contracts which have an original maturity of one year or less. The Semiconductor Industry The semiconductor industry is characterized by rapid technological change and frequent introduction of new technology leading to more complex and powerful products. The result is a cyclical environment with short product life, price erosion and high sensitivity to the overall business cycle. In addition, substantial capital and R&D investment is required to support products and manufacturing processes. The Company may experience periodic fluctuations in its operating results because of industry wide conditions. These uncertainties can have a significant impact on the Company's operating results. To address these uncertainties, the Company focuses on developing target markets in Analog and Mixed Signal, achieving high manufacturing utilization, and emphasizing rapid design of leading edge products. (See Appendix to Graphs) Financial Condition As of May 28, 1995, cash and short-term investments totaled $467.4 million, essentially unchanged from May 29, 1994. Cash generated from operating activities was $428.8 million in 1995, down slightly from $433.7 million in 1994 principally as a result of increases in inventories and receivables offset by taxes and related items. Cash used for investing activities was $450.4 million in 1995 compared to $295.5 million in 1994. Capital expenditures increased substantially during 1995 from $270.7 million to $478.8 million as the Company continued to invest in property, plant and equipment to expand its manufacturing capabilities and modernize existing plants. Capital expenditures in both 1994 and 1995 included continued expansion of a CMOS fabrication facility in Arlington, Texas, an analog fabrication facility in Greenock, Scotland, expansion of the Company's bipolar and CMOS wafer capacity in South Portland, Maine and upgrading of assembly and test facilities in Asia. In addition, the Company spent approximately $86 million in 1995 to repurchase the equity interest in its Arlington, Texas facility and a research facility in Santa Clara, California, both of which had been sold and leased back prior to 1990. The Company expects fiscal 1996 expenditures to be significantly above 1995 levels and directed toward process improvements, capacity expansion, continued modernization of existing plants and development of an 8-inch prototype wafer fabrication line. The Company's financing activities provided cash of $43.8 million in 1995 principally from issuance of debt and common stock under employee benefit plans offset by repayment of debt and the purchase of treasury stock. Proceeds from the issuance of debt include fourth quarter borrowings to fund expansion and modernization of facilities and assumption of debt associated with the repurchase of the two facilities previously sold and leased back. Cash used in financing activities during 1995 other than for repayment of debt included the repurchase of 3,115,600 shares of common stock on the open market for $50.4 million, net of issuances for certain employee benefit plans. The Company also purchased 500,000 shares of common stock in 1994. The Company is authorized by the Board of Directors to repurchase up to 3.5 million shares of common stock at current market prices prior to the end of calendar 1995. During 1994, net cash used in financing activities was $17.5 million which consisted primarily of cash paid for repayment of debt, purchases of treasury stock and payment of preferred dividends offset by issuances of common stock. Management foresees significant increased cash outlays for plant and equipment throughout 1996. Existing cash and investment balances, together with existing lines of credit, are felt to be sufficient in the immediate future to finance capital investments. Management is confident that additional lines of credit or sources of financing to supplement current cash balances and cash flows from operating activities can be arranged if needed. Outlook Despite continued improvement and profitability in the financial results, future trends for revenue and profitability continue to be difficult to predict. Risks and uncertainties facing the Company include business conditions and the rate of growth in the personal computer industry and the general economy; competitive factors and price pressures; market acceptance and timing of new products; capacity limitations; and international economic conditions. The Company believes gross margins as a percentage of sales will experience modest improvement in 1996 as new capacity comes on line and demand continues for its higher margin Analog and Mixed Signal products. Operating expenses as a percentage of sales are expected to remain at existing levels. National continues to pursue opportunities to leverage its intellectual property; however, the timing and amount of future licensing income cannot be forecast with certainty at this time. In addition, the Company continues to pursue opportunities to develop joint venture partnerships or potential acquisitions which enhance its product portfolio in Analog and Mixed Signal products. Similarly, the Company continues to critically evaluate product lines and divisions where short or long term prospects do not coincide with its overall strategic direction. In these cases, the Company will consider dispositions of assets or business entities as necessary. NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS (in millions, except share amounts) May 28, May 29, 1995 1994 ASSETS ------- ------- Current assets: Cash and cash equivalents $ 420.3 $ 398.1 Short-term marketable investments 47.1 68.7 Receivables, net 318.0 289.0 Inventories 263.0 212.7 Deferred tax assets 77.4 - Other current assets 52.5 47.9 ------- ------- Total current assets 1,178.3 1,016.4 Property, plant and equipment, net 962.4 668.0 Long-term marketable investments 20.2 20.9 Other assets 74.8 42.4 ------- ------- Total assets $2,235.7 $1,747.7 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 23.6 $ 15.6 Accounts payable 272.0 213.7 Accrued expenses 230.7 264.6 Income taxes 159.6 83.5 ------- ------- Total current liabilities 685.9 577.4 Long-term debt 82.5 14.5 Deferred income taxes 20.1 18.6 Other non-current liabilities 40.5 31.5 ------- ------- Total liabilities $ 829.0 $ 642.0 ------- ------- Commitments and contingencies Shareholders' equity: Preferred Stock of $0.50 par value. Authorized 1,000,000 shares. Convertible preferred stock: Issued and outstanding 345,000 shares in 1995 and 1994 (liquidation preference of $172.5) $ 0.2 $ 0.2 Common stock of $0.50 par value. Authorized 300,000,000 shares. Issued and outstanding 122,800,405 in 1995; 122,800,095 in 1994 63.1 61.4 Additional paid-in capital 992.3 912.7 Retained earnings 411.0 140.9 Treasury Stock, at cost: 3,094,896 shares in 1995; 500,000 shares in 1994 (59.9) (9.5) ------- ------- Total shareholders' equity $1,406.7 $1,105.7 ------- ------- Total liabilities and shareholders' equity $2,235.7 $1,747.7 ======== ======== ================================== See accompanying Notes to Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts) Years Ended -------------------------------- May 28, May 29, May 30, 1995 1994 1993 -------- -------- -------- Net sales $ 2,379.4 $ 2,295.4 $2,013.7 Operating costs and expenses: Cost of sales 1,384.5 1,336.3 1,298.3 Research and development 283.1 257.8 229.2 Selling, general and administrative 402.7 411.3 339.2 Restructuring of operations (5.5) (2.6) - ------- ------- ------- Total operating costs and expenses 2,064.8 2,002.8 1,866.7 ------- ------- ------- Operating income 314.6 292.6 147.0 Interest income, net 14.6 10.9 2.9 ------- ------- ------- Income before income taxes and cumulative effect of accounting change 329.2 303.5 149.9 Income taxes 65.0 44.4 19.6 ------- ------- ------- Income before cumulative effect of accounting change 264.2 259.1 130.3 Cumulative effect of accounting change - 4.9 - ------- ------- ------- Net income $ 264.2 $ 264.0 $ 130.3 ======== ======== ======== Earnings per share before cumulative effect of accounting change: Primary $ 2.02 $ 1.98 $ 0.98 Fully diluted 1.92 1.83 0.98 ======= ======= ====== Earnings per share: Primary $ 2.02 $ 2.02 $ 0.98 Fully diluted 1.92 1.87 0.98 ======= ======= ====== Weighted average shares: Primary 125.2 121.4 115.9 Fully diluted 137.5 141.4 115.9 ======= ======== ======= Net income used in primary earnings per common share calculation (reflecting preferred dividends) $ 253.0 $ 245.3 $ 113.2 ======= ======== ======== ===================================== See accompanying Notes to Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions, except per share amounts) Preferred Stock ------------------ Convert- Addi- ible Treas- tional Retained Exchange- Convert- Common ury Paid-In Earnings able ible Stock Stock Capital (Deficit) Total --------- -------- ------ ------- ------- -------- ------- Balances at May 31, 1992 $ 0.1 $ - $ 53.2 $ - $703.7 $(217.6) $539.4 Net income - - - - - 130.3 130.3 Issuance of convertible preferred shares - 0.2 - - 166.6 - 166.8 Convertible preferred dividends of $32.50 per share - - - - - (7.1) (7.1) Convertible exchangeable preferred dividends of $40.00 per share - - - - - (10.0) (10.0) Issuance of common stock under option and purchase plans - - 1.7 - 16.3 - 18.0 - ------------------------------------------------------------------------ Balances at May 30, 1993 0.1 0.2 54.9 - 886.6 (104.4) 837.4 Net income - - - - - 264.0 264.0 Redemption and conversion of convertible exchangeable preferred shares (0.1) - 4.1 - (5.3) - (1.3) Convertible preferred dividends of $32.50 per share - - - - - (11.2) (11.2) Convertible exchangeable preferred dividends of $40.00 per share - - - - - (7.5) (7.5) Acquisition of treasury stock - - - (9.5) - - (9.5) Issuance of common stock under option, purchase, and profit sharing plans and tax benefit of $2.0 - - 2.4 - 31.4 - 33.8 - ------------------------------------------------------------------------ Balances at May 29, 1994 - 0.2 61.4 (9.5) 912.7 140.9 1,105.7 Net income - - - - - 264.2 264.2 Convertible preferred dividends of $32.50 per share - - - - - (11.2) (11.2) Acquisition of treasury stock - - - (50.4) - - (50.4) Issuance of common stock under option, purchase, and profit sharing plans and tax benefit of $51.9 - - 1.7 - 79.6 - 81.3 Unrealized gain on available- for- sale securities (net of tax) - - - - - 17.1 17.1 - ------------------------------------------------------------------------ Balances at May 28, 1995 $ - $0.2 $63.1 $(59.9) $992.3 $411.0 $1,406.7 ==== ==== ===== ======= ====== ====== ======= See accompanying Notes to Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Years Ended ------------------------------ May 28, May 29, May 30, 1995 1994 1993 ------ ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 264.2 $ 264.0 $ 130.3 Adjustments to reconcile income with net cash provided by operations: Depreciation and amortization 185.4 173.8 159.8 Cumulative effect of accounting change - (4.9) - Loss (gain) on sale of investments (6.9) (2.2) 5.2 Other, net 6.5 (1.8) - Changes in deferred taxes (97.9) 1.7 - Tax benefit associated with stock options 51.9 2.0 - Changes in certain assets and liabilities: Receivables (29.0) (16.1) (77.0) Inventories (50.3) (18.5) 18.2 Other current assets (4.6) 1.5 (22.5) Accounts payable and accrued expenses 24.4 51.3 16.4 Income taxes 76.1 13.6 12.2 Other non-current liabilities 9.0 (30.7) (8.6) ------ ------ ------- Net cash provided by operating activities 428.8 433.7 234.0 ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (478.8) (270.7) (233.9) Proceeds from the sale of property, plant and equipment - - 15.7 Sale and maturity of available- for-sale securities 184.9 658.7 42.8 Maturity of held-to-maturity securities 707.1 - - Purchase of available-for-sale securities (144.9) (680.0) (111.1) Purchase of held-to-maturity securities (696.7) - - Proceeds from sale of investments - 7.7 1.0 Purchase of investments and other, net (22.0) (11.2) (11.6) ------ ------ ------ Net cash used by investing activities (450.4) (295.5) (297.1) ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt 159.0 1.9 37.3 Repayment of debt (83.0) (19.7) (23.7) Collateral deposits and restricted cash - - 20.9 Issuance of common stock, net 29.4 28.5 18.0 Issuance of preferred stock, net of issuance costs - - 166.8 Purchase of treasury stock (50.4) (9.5) - Payment of preferred dividends (11.2) (18.7) (17.1) ------- ------ ------ Net cash provided (used) by financing activities 43.8 (17.5) 202.2 ------- ------ ------ Net change in cash and cash equivalents 22.2 120.7 139.1 Cash and cash equivalents at beginning of year 398.1 277.4 138.3 ------ ------ ------ Cash and cash equivalents at end of year $ 420.3 $398.1 $277.4 ====== ====== ====== =============================================== See accompanying Notes to Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION 1995 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements include National Semiconductor Corporation and its majority-owned subsidiaries ("National" or the "Company"). All significant intercompany transactions are eliminated in consolidation. Investments in which National has less than 20 percent ownership are accounted for by the cost method. Revenue Recognition Revenue from the sale of semiconductor products is generally recognized when shipped, with a provision for estimated returns and allowances recorded at the time of shipment. Service and other revenues are recognized ratably over the contractual period or as the services are performed. Inventories Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is provided using both accelerated and straight-line methods over the estimated useful lives of the respective assets, or in the case of property under capital lease, over the lesser of the useful life or lease term. Income Taxes The income tax provision for 1995 and 1994 has been determined in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), which requires that deferred liabilities or assets at the end of each period be determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance. The Company adopted FAS 109 effective the first day of fiscal 1994. The impact of adopting FAS 109 did not have a material effect on the consolidated financial statements, and as such no cumulative effect is recorded for the accounting method change. The income tax provision for fiscal year 1993 was determined in accordance with Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes". Accordingly, the provision for income taxes for 1993 included federal, state and non-U.S. income taxes currently payable or refundable and deferred amounts as a result of temporary differences between the tax bases of assets and liabilities and the corresponding amounts reported in the financial statements. Earnings Per Share Primary earnings per share are computed using the weighted average number of common shares and dilutive common stock equivalents outstanding using the treasury stock method. Dilutive common stock equivalents include stock options. Preferred dividends are reflected as adjustments to reported net earnings in the calculation. Fully diluted earnings per common share are computed using the weighted average common and dilutive common stock equivalents outstanding, plus other dilutive securities outstanding which are not common stock equivalents such as Convertible Preferred Shares. If the result of assumed conversions is dilutive, the dividend requirements for the Convertible Preferred Shares are reduced while the average shares of common stock outstanding are increased. Currencies The Company's functional currency for all operations worldwide is the U.S. dollar. Accordingly, gains and losses from translation of foreign currency financial statements into U.S. dollars are included in the determination of net income in the period in which they occur. Gains and losses resulting from foreign currency transactions are also included in the consolidated statements of operations. Financial Instruments Cash and Cash Equivalents. Cash equivalents are highly liquid instruments with a maturity of three months or less at the time of purchase. National maintains its cash balances in various currencies and a variety of financial instruments. The Company has not experienced any material losses relating to any short-term investment instruments. Marketable Investments. Effective the beginning of fiscal 1995, the Company adopted FAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," ("FAS 115"). This adoption was not material to the Company's financial position. Under FAS 115, the Company has classified its marketable debt and equity securities into held-to- maturity or available-for-sale categories. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded as either short-term or long-term on the balance sheet based upon contractual maturity date and are stated at amortized cost. Marketable debt and equity securities not classified as held-to- maturity are classified as available-for-sale and are carried at fair market value, with the unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. Gains or losses on securities sold are based on the specific identification method. Off-Balance Sheet Financial Instruments. The Company utilizes various off-balance sheet financial instruments to manage market risks associated with fluctuations in certain interest rates, commodity prices and foreign currency exchange rates. It is the Company's policy to use derivative financial instruments to protect against market risks arising in the normal course of business. Company policies prohibit the use of derivative instruments for the sole purpose of trading for profit on price fluctuations or to enter into contracts which intentionally increase the Company's underlying exposure. Fair Values of Financial Instruments Fair values of cash equivalents, short-term investments and short-term debt approximate cost due to the short period of time until maturity. Fair values of long-term investments, long-term debt, currency forward contracts and currency options are based on quoted market prices or pricing models using prevailing financial market information as of May 28, 1995. Reclassifications Certain amounts in prior years' financial statements and related notes have been reclassified to conform to the 1995 presentation. These reclassifications are not material. Note 2. Financial Instruments Marketable Investments The Company's policy is to diversify its investment portfolio to reduce risk to principal from credit, geographic, and investment sector risk. At May 28, 1995, investments were placed with a variety of different financial institutions or other issuers, and no individual security, financial institution, or obligation from a direct issuer exceeded ten percent of total investments. Investments with a maturity of less than one year have a rating of A1/P1 or better. Investments with a maturity of more than one year have a minimum rating of AA/Aa2. The Company's investment portfolio generally matures within one year or less. Gross realized gains on available-for-sale securities approximated $6.9 million for the year ended May 28, 1995. Gross realized losses were not material. Investments at May 28, 1995 are comprised of the following: Gross Gross Amortized Unrealized Unrealized Estimated (in millions) Cost Gains Losses Fair Value --------- ---------- ---------- ---------- Short-Term Investments: Available-for-Sale Securities: Certificates of deposit $ 5.0 $ - $ - $ 5.0 Corporate bonds 6.0 - - 6.0 Commercial paper 6.9 - 0.1 6.8 Governmental agencies 4.0 - - 4.0 Held-to-Maturity Securities: Corporate Bonds 25.3 - - 25.3 Total Short-Term ------- -------- -------- ------- Investments $ 47.2 $ - $ 0.1 $ 47.1 Long-Term Investments: Available-for-Sale Securities: Equity Securities $ 3.1 $ 17.1 $ - $ 20.2 ------- -------- -------- ------- Total Long-Term Investments $ 3.1 $ 17.1 $ - $ 20.2 ======= ======== ======== ======= At May 28, 1995, the Company held $33.0 million and $346.8 million of available-for-sale and held-to-maturity securities, respectively, that are classified as cash equivalents on the consolidated balance sheet. These cash equivalents consist of the following (in millions): bank time deposits ($156.2), institutional money market funds ($150.0), certificates of deposit ($14.0), commercial paper ($46.9), repurchase agreements ($5.3) and government securities ($7.4). The net unrealized gain on the sale of available-for-sale securities (of $17.1 million) is included in retained earnings May 28, 1995. Off-Balance Sheet Financial Instruments Foreign Currency Instruments The objective of the Company's foreign exchange risk management policy is to preserve the U.S. dollar value of after-tax cash flow in relation to non-U.S. dollar currency movements. The Company uses forward and option contracts to hedge firm commitments and anticipatory exposures. These exposures comprise sales of the Company's products in currencies other than the U.S. dollar. A majority of these sales are made through the Company's subsidiaries in Europe and Japan. Gains and losses on financial instruments that are intended to hedge an identifiable firm commitment are deferred and included in the measurement of the underlying transaction. Gains and losses on hedges of anticipated transactions are deferred until such time as the underlying transactions are recognized or immediately when the transaction is no longer expected to occur. In addition, the Company uses forward and option contracts to hedge non-U.S. dollar denominated asset and liability positions. Gains and losses on these contracts are used to offset the effect of currency movements on these financial positions. Interest Rate Derivatives The Company from time to time enters into interest rate derivative contracts in order to better match the nature of its cash flows from the floating-rate income on its cash equivalents and short-term investments with the predominately fixed-rate interest expense of its long-term debt. Interest rate swaps are used to extend the effective duration of a portion of the Company's short-term investment portfolio up to a maximum of two years. The Company had no outstanding interest rate derivative contracts as of May 28, 1995. Commodity Derivatives The financial performance of the Company's Dynacraft, Inc. subsidiary, which makes leadframes for integrated circuit packaging, is exposed to risk from fluctuations in the price of copper. The Company has purchased a series of call options on the price of copper, a "cap", which hedges the risk arising to Dynacraft from copper price increases. The last option expires in August 1995. The purchase price of option contracts are capitalized and amortized over the life of the option. Any gains or losses from an option contract, either accrued or realized, are recorded as an adjustment to operating expenses in the period earned. Fair Value and Notional Principal of Off-Balance Sheet Financial Instruments The table below shows the fair value and notional principal of the Company's off-balance sheet instruments as of May 28, 1995 and May 29, 1995. The notional principal amounts for off-balance sheet instruments provide one measure of the transaction volume outstanding as of year end and do not represent the amount of the Company's exposure to credit or market loss. The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information as of May 28, 1995 and May 29, 1994. The credit risk amount shown in the table represents the Company's gross exposure to potential accounting loss on these transactions if all counterparties failed to perform according to the terms of the contract, based on then-current currency exchange rate, interest rate or commodity price at each respective date. Although the following table reflects the notional principal, fair value, and credit risk amounts of the off-balance sheet instruments, it does not reflect the gains or losses associated with the exposures and transactions that the off-balance sheet instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments. Transactions Qualifying as Accounting Hedges (in millions) 1995 1994 Notional Fair Credit Notional Fair Credit Principal Value Risk Principal Value Risk --------- ----- ------ --------- ----- ------ Interest rate instruments: Swaps $ - $ - $ - $ 15.0 $ (0.1) $ - Foreign exchange instruments: Forward contracts To buy dollars 37.3 (1.7) - 48.3 (1.0) - To sell dollars 55.2 - 0.2 63.4 2.2 2.2 Purchased options 66.0 0.3 0.3 36.0 0.2 0.2 Commodity instruments Purchased call option on copper 1.8 0.3 0.3 - - - The Company has outstanding currency exchange contracts to sell foreign currency and to purchase U.S. dollars in the future with the predominant concentration of foreign currency in Japanese yen. The Company has outstanding currency exchange contracts to buy Malaysian ringgit, Singapore dollar, and pound sterling and to sell U.S. dollars in the future. All foreign exchange forward contracts expire within one year. Unrealized gains and losses on foreign exchange forward contracts that are accounted for as hedges are deferred and recognized in income in the same period as the hedged transactions. Deferred gains and losses on such agreements at May 28, 1995 and May 29, 1994 are immaterial. The Company has purchased foreign currency options denominated in Japanese yen and German deutsche mark. All foreign currency option contracts expire within a year. Purchased foreign exchange option contracts that qualify for hedge accounting treatment are reported on the balance sheet at the premium cost, which is amortized over the life of the option. Unrealized gains and losses on these option contracts are deferred until the occurrence of the hedged transaction and recognized as a component of the hedged transaction. Deferred gains and losses on such agreements at May 28, 1995 and May 29, 1994 are immaterial. Fair Value of Financial Instruments A summary table of estimated fair values of financial instruments at fiscal year end follows: 1995 1994 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (in millions) -------- ---------- -------- ---------- Long-term investments $ 20.2 $ 20.2 $ 20.9 $ 20.9 Long-term debt (82.5) (86.5) (14.5) (14.6) Currency forward contracts: To buy dollars 0.3 (1.7) 0.3 (1.0) To sell dollars (0.7) - (0.1) 2.2 Currency options (0.5) 0.3 (0.3) 0.2 Commodity options 0.1 0.3 - - ===================================== Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk are primarily investments and trade receivables. The Company's investment policy requires cash investments to be placed with high-credit quality counterparties and to limit the amount of credit from any one financial institution or direct issuer. The Company sells its products to distributors and original equipment manufacturers involved in a variety of industries including computers and peripherals, automotive, and telecommunications. National performs continuing credit evaluations of its customers whenever deemed necessary. Historically, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. Note 3. Restructuring of Operations Included in 1995 results is the release of $10.1 million of restructuring reserves originally provided in 1994, partially offset by $4.6 million in additional charges for existing programs identified by the Company. The release of $10.1 million is attributable to the Company's decision to retain certain facilities and related support operations connected therewith. The additional restructuring requirements include charges for the Company's wholly owned subsidiary, Dynacraft, Inc. ("DCI"), to consolidate its business, and the decision by the Company to transfer the remainding military assembly operations in South Portland, Maine to Singapore. The charges for these actions, which are expected to be completed early in fiscal 1996, consist primarily of fixed asset dispositions, reductions in the work force and costs related to termination of a non-cancelable commitment for a facility. During fiscal 1995, the Company utilized $14.5 million of restructuring reserves, primarily attributable to the consolidation of its DCI business into one location in California, closure of a wafer fabrication line in Salt Lake City, Utah and completion of reduction in headcount and related infrastructure in its Santa Clara, California plant. Of the reserves, $9.6 million represented cash charges with the balance taking the form of fixed asset write-offs and other non-cash items. During fiscal 1994, the Company utilized $44.2 million of the restructuring reserves primarily attributable to the closure of a wafer fabrication module in its Salt Lake City, Utah facility, and closure of a wafer fabrication line in Santa Clara, California. In addition, the Company completed most of the process transfers from its Santa Clara, California facility to the Greenock, Scotland fabrication facility and completed the transfer of part of its Mil Aero manufacturing to its Singapore facility. The Company continued to reduce headcount and related infrastructure at its Santa Clara, California operation. During fiscal 1993, the Company's restructuring activities related to the sale of its Bangkok, Thailand facility and also the sale of its Migdal Haemek, Israel facility to a joint venture, in which the Company has less than a 20 percent investment. The Company also continued activities related to the closure of a fabrication module at its Salt Lake City, Utah facility and decided to close a fabrication module in Santa Clara, California. Note 4. Consolidated Balance Sheet Details (in millions) 1995 1994 ------ ------ RECEIVABLE ALLOWANCES Doubtful accounts $ 2.4 $ 3.0 Returns and allowances 31.3 30.8 ------ ------ Total receivable allowances $ 33.7 $ 33.8 ====== ====== INVENTORIES Raw materials $ 33.9 $ 17.3 Work in process 165.9 129.4 Finished goods 63.2 66.0 ------- ------ Total inventories $ 263.0 $ 212.7 ======= ====== PROPERTY, PLANT AND EQUIPMENT Land $ 12.5 $ 8.9 Buildings and improvements 501.4 340.9 Machinery and equipment 1,419.9 1,251.4 Construction in progress 213.8 164.4 ------- ------- Total property, plant and equipment 2,147.6 1,765.6 Less accumulated depreciation and amortization 1,185.2 1,097.6 ------- ------- Property, plant and equipment, net $ 962.4 $ 668.0 ======= ======= ACCRUED EXPENSES Payroll and employee related $ 159.3 $ 124.9 Other 71.4 139.7 ------- ------ Total accrued expenses $ 230.7 $ 264.6 ======= ====== Effective beginning in fiscal 1994, the Company changed its method of accounting to include certain costs in inventory which were previously charged directly to cost of sales as incurred. These costs consisted primarily of product engineering, quality assurance and reliability, and production control and logistics. The Company believes this change was preferable under the circumstances because it more closely matched inventory costs with net sales and more closely aligned the Company with industry practices. The cumulative effect of this change on years prior to fiscal 1994 of $4.9 million was reflected in the 1994 first quarter results. Both the impact of the change in fiscal 1994 and the proforma effect on net income for fiscal 1993 under the new method of accounting were immaterial. In addition, beginning in fiscal 1994, the Company reclassified certain period expenses from cost of sales to R&D expense or to SG&A expense. The amounts presented in prior period statements of operations have been reclassified to conform with the fiscal 1994 presentation. The types of costs consisted primarily of non-manufacturing product engineering, quality assurance and reliability, applications engineering, and product line management costs. The Company believes these reclassifications more closely align Company reporting with industry practices. For 1993, the effect of the reclassification decreased cost of sales by $81.3 million and increased R&D and SG&A expenses by $26.9 million and $54.4 million, respectively. Net income was not impacted in any period by the reclassifications. Note 5. Debt Financing Debt consists of the following: (in millions) 1995 1994 ------ ------- Notes secured by real estate payable at 11.8% to 12.6% $ 20.2 $ 5.9 Notes secured by equipment payable at 7.3% to 8.9% 33.0 13.3 Unsecured loans payable at 7.5% and 4.2%, respectively 50.0 6.4 Obligations under capital leases 2.9 4.5 ------- ------- Total loans payable 106.1 30.1 Current portion of long-term debt (23.6) (15.6) ------- ------- Long-term debt $ 82.5 $ 14.5 ======= ======= Notes secured by real estate in 1995 consist of three notes assumed as part of the repurchase of the equity interest in the Company's Arlington, Texas facility which was sold and leased back prior to 1990. Interest on these notes is due semi-annually, principal payments vary, and maturities range from March 1996 to March 2002. The 1994 balance consists of a mortgage loan held by a foreign subsidiary due in 1996 which was repaid in April 1995. The notes secured by machinery and equipment have installments payable either monthly or quarterly with maturities ranging from November 1995 to May 2000. The unsecured 7.5 percent note is due in monthly installments through May 2000. The note payable in 1994 at 4.2 percent is a variable interest loan at the U.S. dollar Singapore Interbank Offer Rate plus 0.75 percent and was due in 1999, but was repaid in July 1994. For each of the next five years and thereafter, debt and capital lease obligations are as follows: Total Debt (in millions) (Principal only) ---------------- 1996 $ 23.6 1997 18.5 1998 17.3 1999 18.5 2000 19.4 Thereafter 8.8 ---------------- Total $106.1 ================ The Company's multicurrency and revolving financing agreements make funds available in the form of multicurrency loans, letters of credit and standby letters of credit. The multicurrency loan agreement ($30 million) expires in December 1995. The revolving credit agreement ($200 million) which includes standby letters of credit expires in December 1997. At May 28, 1995, $42.2 million of the combined total commitments was utilized. These agreements contain restrictive covenants, conditions and default provisions which, among others, restrict payment of dividends and require the maintenance of financial ratios and certain levels of tangible net worth. At May 28, 1995, under the most restrictive covenant, no more than $238.5 million was available for payment of dividends on the Company's common stock. Note 6. Interest (in millions) 1995 1994 1993 ------ ------ ------ Interest income $ 21.3 $14.2 $7.3 Interest expense (6.7) (3.3) (4.4) ------- ------- ------- Interest, net $ 14.6 $10.9 $2.9 ======= ======= ======= Note 7. Income Taxes Worldwide pretax earnings from operations and income taxes consisted of the following: (in millions) 1995 1994 1993 ------ ------ ------ Income before income taxes: U.S. $233.5 $264.9 $ 58.6 Non-U.S. 95.7 38.6 91.3 ------- ------- ------- $329.2 $303.5 $ 149.9 Income taxes: ======= ======= ======= Current: U.S. Federal $ 90.7 $ 26.9 $ 1.4 U.S. State and Local 5.0 6.4 2.6 Non-U.S. 12.7 5.6 12.1 ------- ------- ------- 108.4 38.9 16.1 Deferred: U.S. Federal and State (96.8) - - Non-U.S. 1.5 3.5 3.5 Charge in lieu of taxes attributable to employee stock plans 51.9 2.0 - ------- ------- ------- $ 65.0 $ 44.4 $ 19.6 ======= ======= ======= The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at May 28, 1995 and May 29, 1994 are presented below (in millions): 1995 1994 Deferred Tax Assets: ------ ------ Reserves and accruals $ 56.8 $ 80.5 Loss carryovers and other allowances - foreign 50.0 74.8 General business credit carryovers - Federal 46.1 47.1 Capitalized assets and other assets 27.6 14.5 Inventory capitalization and reserves 20.9 19.0 Foreign tax and AMT credit carryovers 7.7 6.8 Capitalized R&D - state 5.7 7.6 ------- ------ Total gross deferred assets 214.8 250.3 Less valuation allowance (106.5) (248.6) ------- ------ Net deferred assets $ 108.3 $ 1.7 Deferred tax liabilities: Capital allowance - foreign $ (20.1) $ (19.4) Other liabilities (8.9) (0.9) ------- ------ Total gross deferred liabilities (29.0) (20.3) ------- ------ Net deferred tax assets (liabilities) $ 79.3 $ (18.6) ======= ====== Deferred tax assets and liabilities are classified in the consolidated balance sheet based on the classification of the related asset or liability. Included in other assets on the consolidated balance sheet is $22.0 million of deferred tax assets. The valuation allowance at May 28, 1995 represented a decrease of $142.1 million from the balance of $248.6 million at May 29, 1994. Of this decrease in the total valuation allowance for deferred tax assets, approximately $51.9 million of recognized tax benefits attributable to employee stock option exercises was allocated to additional paid-in capital rather than to income tax benefit. For fiscal 1993, deferred income taxes arose from temporary differences between tax bases of assets and liabilities and the reported amounts in the financial statements. The deferred tax expense reflected is attributable primarily to depreciation, accruals and allowances. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based on the historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of valuation allowances as of May 28, 1995. The reconciliation between the amount computed by applying the U.S. Federal statutory rate and the reported worldwide tax expense follows: (dollars in millions) 1995 1994 1993 ------- ------- ------- U.S. Federal statutory tax rate 35% 35% 34% ==== ==== ==== Income tax expense at federal statutory rate $ 115.2 $106.2 $ 51.0 Unutilized (utilized) non-U.S. losses and tax differential related to non-U.S. income (19.4) 8.8 1.5 U.S. state and local taxes net of federal benefits 5.0 4.2 2.6 Change in beginning of year valuation allowance (36.2) (76.0) - Utilized U.S. operating losses under FAS 96 - - (41.3) Sale of Bangkok facility - - 3.9 Other 0.4 1.2 1.9 ------- ------- ------- Reported income tax expense $ 65.0 $44.4 $19.6 ======= ======= ======= The temporary difference relating to the unremitted earnings of non-U.S. subsidiaries for which a deferred tax liability has not been recognized approximates $514.6 million at May 28, 1995. The additional taxes which may become due if those earnings were to be remitted to the U.S. are estimated to be $112.2 million after utilization of U.S. tax credits. However, it is management's intent that these earnings remain reinvested indefinitely. At May 28, 1995, National had credit carryforwards of approximately $53.9 million for tax return purposes which expire from 1996 through 2008. National also had operating loss carryforwards in certain non-U.S. jurisdictions. The U.S. Internal Revenue Service ("IRS") examinations of National's U.S. Federal income tax returns for fiscal years 1976-1982 resulted in the issuance of deficiency notices during fiscal 1989 and 1990 seeking additional taxes amounting to approximately $76 million (exclusive of interest). National filed petitions with the United States Tax Court contesting the deficiency notices and the cases were consolidated for trial. National and the IRS subsequently settled all issues for fiscal years 1976 through 1982 except for intercompany product transfer prices. This settlement reduced the additional taxes being sought to approximately $52 million (exclusive of interest). Trial in the case was held in February 1993 and an opinion was issued by the U.S. Tax Court in May 1994. The opinion found that adjustments to income of $40.6 million were due, which the Company estimates, after giving effect to loss and credit carrybacks, will result in a tax deficiency of approximately $5 million plus associated interest of between $35 million and $45 million. The IRS motion for reconsideration of the opinion, which sought an additional $31 million in income tax adjustments, was denied by the court in June 1994. The Company and the IRS have reached agreement on the allocation of the additional income, and this agreement was presented to the Court in June 1995. A formal decision implementing the opinion was then entered by the Tax Court following completion of these final computations and the decision is subject to appeal by either the Company or the IRS. It is not known if an appeal will follow at this time. In January 1994, the Company and the IRS settled all issues for fiscal years 1983 through 1985, including issues relating to intercompany product transfer pricing, without the payment of additional Federal tax. This result will be affected by certain net operating loss carryovers and credits, which will not be determined until the Tax Court litigation is completed. In April 1995, the IRS issued a deficiency notice for fiscal years 1986 through 1989 seeking additional taxes of approximately $11 million (exclusive of interest). The issues raised by the deficiency notice relate primarily to the Company's former Israeli operation and the purchase price paid for Fairchild Semiconductor Corporation. The Company intends to file a protest of the deficiency notice. The Company expects the IRS to begin examination of the Company's tax returns for fiscal years 1990 through 1993 during the summer of 1995. The Company believes that adequate tax payments have been made and accruals recorded for all years and that the Tax Court case will not have a material adverse effect on the Company's financial condition or results of operations. Note 8. Shareholders' Equity Each outstanding share of the Company's common stock carries a stock purchase right ("Right") issued pursuant to a dividend distribution declared on August 5, 1988. When exercisable, each Right entitles the registered holder to purchase one one-thousandth of a share of the Company's Series A Junior Participating Preferred Stock at a price of $60.00 per one thousandth share, subject to adjustment. The Rights are attached to all outstanding shares of common stock and no separate Rights certificates have been distributed. The Rights will become exercisable and will detach from the common stock in the event any individual or group acquires 20 percent or more of the Company's common stock, or announces a tender or exchange offer which, if consummated, would result in that person or group owning at least 20 percent of the Company's common stock. If such person or group actually acquires 30 percent or more of the Company's common stock (except pursuant to certain cash tender offers for all of the Company's common stock), each Right will entitle the holder to purchase, at the Right's then current exercise prices, the Company's common stock in an amount having a market value equal to twice the exercise price. Similarly, if after the Rights become exercisable, the Company merges or consolidates with or sells 50 percent or more of its assets or earning power to another person, each Right will then entitle the holder to purchase, at the Right's then current exercise price, the stock of the acquiring company in an amount having a market value equal to twice the exercise price. The Company may redeem the Rights at $0.01 per Right at any time prior to acquisition by a person or group of 20 percent or more of the Company's outstanding common stock. The Rights will expire August 8, 1998, unless earlier redeemed. In March 1994, National called for redemption in April 1994 of all of the issued and outstanding shares of the $40.00 Convertible Exchangeable Preferred Shares, $0.50 par value (the "Exchangeable Preferred Shares"). In connection with the redemption, a conversion privilege offered by National to holders of the Exchangeable Preferred Shares expired on the redemption date. Essentially all Exchangeable Preferred Shares were converted by the holders into the Company's common stock at the rate of 33 shares of common stock for each Exchangeable Preferred Share. All remaining shares were redeemed and the Company issued shares of common stock that would have been issued to the holders of the Exchangeable Preferred Shares had they elected to convert, in accordance with standby arrangements entered into by the Company. After the redemption and conversion were complete, a total of 8,250,000 shares of common stock had been issued. At May 28, 1995, National had 345,000 shares of $32.50 Convertible Preferred Shares, $0.50 par value (the "Convertible Preferred Shares") issued and outstanding. The Convertible Preferred Shares were issued in October 1992. The liquidation preference of each Convertible Preferred Share is $500 plus unpaid dividends. The Convertible Preferred Shares are convertible at any time at the option of the holder into common stock at the rate of 35.273 shares of common stock for each Convertible Preferred Share. On or after November 1, 1995, and if the closing price of the Company's common stock on the New York Stock Exchange exceeds $17.72 for twenty trading days within any period of thirty consecutive trading days, the Convertible Preferred Shares are redeemable, in whole or in part, at the option of the Company for the number of shares of common stock as are issuable at a conversion rate of 35.273 shares of common stock for each Convertible Preferred Share. The Convertible Preferred Shares are not entitled to the benefit of any sinking fund. Dividends on the Convertible Preferred Shares at an annual rate of $32.50 per share are cumulative and payable quarterly in arrears, when and as declared by the Company's Board of Directors. Holders of Convertible Preferred Shares are entitled to limited voting rights. The Company was authorized by the Board of Directors to repurchase up to 3.5 million shares of the Company's common stock at current market prices prior to the end of calendar 1994. During fiscal 1994, National purchased 500,000 shares on the open market at a cost of $9.5 million. In April 1995, the Board of Directors authorized repurchase of up to an additional 3.5 million shares at current market prices prior to the end of calendar 1995. During fiscal 1995, National purchased 3,115,600 shares on the open market at a cost of $50.4 million, net of certain share reissuances in connection with employee benefit plans. The shares purchased by the Company are being used for issuance under the Company's various benefit plans and are being held as treasury stock. National has paid no cash dividends on its common stock and intends to continue its practice of reinvesting all earnings except those required for preferred stock dividends. Note 9. Stock Option and Purchase Plans National has a stock option plan under which officers and key employees may be granted nonqualified or incentive stock options to purchase up to 32,754,929 shares of the Company's common stock. Generally, the terms of this plan provide that options are granted at the market price on the date of grant and expire up to a maximum of 10 years and one day after grant or 3 months after termination of employment (up to 5 years after termination due to death, disability, or retirement), whichever occurs first. Options generally become exercisable ratably over a four-year period. In connection with the retirement of Peter J. Sprague from his position as Chairman of the Board of Directors on May 18, 1995, the Company granted an option to Mr. Sprague to purchase 300,000 shares of the Company's common stock. The option granted to Mr. Sprague was not granted under the option plans, but was granted at the market price on the date of grant, expires ten years and one day after grant and becomes exercisable ratably over a four-year period. National has an employee stock purchase plan which authorizes the issuance of up to 19,950,000 shares of common stock in quarterly offerings to eligible employees in amounts related to their basic annual compensation at a price which is equal to 85 percent of the lower of its fair market value at the beginning and end of a quarterly period. Prior to January 1995, the employee stock purchase plan granted options which became exercisable after 13 months and expired after 27 months. The option price was determined by the Stock Option and Compensation Committee of the Board of Directors but could not be less than 100 percent of the market value on the date of grant or 85 percent of the market value on the date of exercise, whichever was lower. The last options issued under the terms of the previous plan will expire in March 1996. National also has an employee stock purchase plan available to employees at international locations which was approved in September 1994 and first made available to employees in January 1995. The global plan authorizes the issuance of up to 5,000,000 shares of common stock in quarterly offerings to eligible employees in amounts related to their basic annual compensation at a price equal to 85 percent of the lower of its fair market value at the beginning and end of a quarterly period. Unlike the U.S. stock purchase plan, the stock purchased under the global stock purchase plan for the account of an employee is held by a fiduciary in an offshore trust, which allows an employee located in countries that do not permit direct stock ownership to participate in a Company stock plan. In addition, the participant's employing company is responsible for paying the difference between the purchase price set by the terms of the plan and the fair market value at the time of the purchase. Changes in options outstanding under options granted by the Company during fiscal 1994 and 1995, whether under the option or purchase plan or otherwise were as follows: Number Price of shares per (in millions) share ------------- ---------------- Outstanding May 30, 1993 15.2 $3.75 to $14.75 Granted 3.3 $15.00 to $20.50 Exercised (4.7) $3.75 to $14.75 Cancelled (0.6) $3.75 to $20.50 - ------------------------------------------------------------------- Outstanding May 29, 1994 13.2 $3.75 to $20.50 Granted 2.7 $14.88 to $27.88 Exercised (3.1) $3.75 to $20.50 Cancelled (0.5) $3.75 to $20.50 - ------------------------------------------------------------------- Outstanding at May 28, 1995 12.3 $3.75 to $27.88 Exercisable at May 28, 1995 6.9 $3.75 to $20.50 =================================================================== Expiration dates: From May 31, 1995 to May 18, 2005 - ------------------------------------------------------------------- Shares issued under the new terms of the stock purchase plan and the global stock purchase plan from January 1, 1995 through the end of fiscal 1995 were as follows: Number of Shares Price (in millions) per Share ---------------- --------- Issued 0.3 $14.34 Under the stock option and purchase plans, 3.4 million shares of common stock were issued during fiscal 1995. As of May 28, 1995, 30.6 million shares were reserved for issuance under all stock purchase and option plans and other options granted by the Company, including shares available for future option grants. Note 10. Other Stock Plans National has a director stock plan approved by shareholders in fiscal 1993. The director stock plan authorizes the issuance of up to 200,000 shares of the Company's common stock to eligible non-employee directors of the Company. The common stock was issued automatically to eligible directors upon approval of the director stock plan by the shareholders and is issued automatically thereafter to eligible new directors upon their appointment to the Board and to all eligible directors on the subsequent election to the Board by shareholders. As of May 28, 1995, 22,000 shares had been issued under the director stock plan and 178,000 shares were reserved for future issuances. National has a performance award plan which was approved by shareholders in fiscal 1993 which authorizes the issuance of up to 1.0 million shares of the Company's common stock as full or partial payment of awards to plan participants based on performance units and the achievement of certain specific performance goals during a performance plan cycle. Performance plan cycles are three to five years depending on specific performance measurements, and the earliest a payout can occur is the third year of a performance plan cycle. Plan participants currently consist of a limited group of senior executives. No shares were issued under the performance award plan during fiscal 1994 or 1995. The first payout under the plan will occur in fiscal 1996, and expense recorded in fiscal 1994 and 1995 under the plan was not material. Note 11. Retirement and Pension Plans National's Retirement and Savings Program for U.S. employees consists of two plans as follows: The profit sharing plan requires Company contributions of the greater of five percent of consolidated net earnings before income taxes or one percent of payroll (as defined by the plan). Contributions are invested 25 percent in National's common stock and 75 percent in cash. Total shares contributed under the profit sharing plan during fiscal 1995 were 211,565. As of May 28, 1995, 1.9 million shares of common stock were reserved for future Company contributions. The salary deferral "401(k)" plan allows employees to defer up to 15 percent of their salaries, subject to certain limitations, with partially matching Company contributions. Contributions are invested in one or more of five investment funds at the discretion of the employee. One of the investment funds is a Company stock fund where contributions are invested in Company common stock. Although 5.0 million shares of common stock are reserved for issuance to the stock fund, shares purchased to date with contributions have been purchased on the open market and the Company has not issued any stock directly to the stock fund. The benefit restoration plan adopted in fiscal 1993 allows certain highly compensated employees to receive a higher profit sharing plan allocation than would otherwise be permitted under IRS regulations and defer greater percentages of compensation than would otherwise be permitted under the salary deferral "401(k)" plan and IRS regulations. The benefit restoration plan is a nonqualified and unfunded plan of deferred compensation and the Company credits accounts maintained under it with interest earnings each quarter. Certain non-U.S. subsidiaries have varying types of defined benefit pension and retirement plans that are consistent with local statutes and practices. The annual expense for all plans was as follows: (in millions) 1995 1994 1993 ------ ------ ------ Profit Sharing Plan $17.3 $15.9 7.9 - ----------------------------------------------------------- Salary deferral "401(k)" plan $ 9.8 $8.3 $4.1 - ----------------------------------------------------------- Non-U.S. pension and retirement plans $ 6.3 $4.7 $5.4 =========================================================== Effective beginning fiscal 1994, the Company prospectively adopted Statement of Financial Accounting Standards No. 106, "Employer's Accounting for Postretirement Benefits other than Pensions" ("FAS 106"). The adoption did not have a material impact on the Company's financial statements. In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employer's Accounting for Postemployment Benefits" ("FAS 112"), effective for fiscal years beginning after December 15, 1993. Under FAS 112, postemployment benefits, primarily salary continuation and insurance continuation, are accrued at the time the benefit is earned by the employee. The Company implemented FAS 112 starting in the first quarter of fiscal 1995. Adoption of FAS 112 did not have a material impact on the Company's financial statements. Note 12. Commitments and Contingencies Commitments. The Company leases certain facilities and equipment under operating lease arrangements which expire at various times through the year 2025. Rental expenses under operating leases were $37.4 million, $48.9 million, and $58.9 million in 1995, 1994, and 1993, respectively. Minimum commitments under noncancelable operating leases are as follows: (in millions) ------------- 1996 $ 24.7 1997 17.4 1998 11.3 1999 7.7 2000 6.8 Thereafter 32.0 ------ Total $ 99.9 ====== During 1995, the Company purchased the equity interest in two facility sale and leaseback transactions. This had the effect of significantly reducing the operating lease commitments. The Company has commitments to purchase fabricated wafers from a joint venture in which it is a minority interest holder. As of May 28, 1995, these commitments total $40.4 million, $48.5 million, $42.8 million, and $10.6 million for fiscal years 1996, 1997, 1998 and 1999, respectively, based on negotiated prices and minimum contractual volumes. Contingencies -- Legal Proceedings In April 1988, the Company received a notice from the District Director of U.S. Customs in San Francisco alleging underpayment of duties of approximately $19.5 million for the period June 1, 1979 to March 1, 1985 on merchandise imported from the Company's non-U.S. subsidiaries. The Company filed an administrative appeal in September 1988. On May 23, 1991, the District Director revised his action and issued a Notice of Penalty Claim and Demand for Restoration of Duties, alleging underpayment of duties of approximately $6.9 million for the same period and the alleged underpayment was reduced in a similar action on April 22, 1994 to approximately $3.6 million. The revised alleged underpayment could be subject to penalties that may be computed as a multiple of such underpayment. The Company filed an administrative petition for relief in October 1991 and the Company is continuing to contest the Penalty Notice in administrative proceedings. The Company believes that the ultimate resolution of this matter will not have a material impact on the Company's financial position. The Company has been named to the National Priorities List ("Superfund") for its Santa Clara, California site and has completed a Remedial Investigation/Feasibility Study with the Regional Water Quality Control Board ("RWQCB"), acting as an agent for the Federal Environmental Protection Agency. The Company has agreed in principle with the RWQCB to a site remediation plan. Management believes that the potential liability, if any, in excess of amounts already accrued for the site remediation will not have a material effect on the Company's financial position. In addition to the Santa Clara site, the Company has been designated as a potentially responsible party ("PRP") by federal and state agencies with respect to certain waste sites with which the Company may have had direct or indirect involvement. Such designations are made regardless of the extent of the Company's involvement. The Company has also been cited for alleged deficiencies in its record keeping for and handling, treatment, storage and disposal of hazardous products and wastes. These claims are in various stages of administrative or judicial proceedings and include demands for recovery of past governmental costs and for future investigations and remedial actions. In many cases, the dollar amounts of the claims have not been specified, and with respect to the PRP claims, have been asserted against a number of other entities for the same cost recovery or other relief as was asserted against the Company. The Company accrues costs associated with environmental matters when they become probable and reasonably estimable. The amount of all environmental charges to earnings, including charges relating to the Santa Clara site remediation, which did not include potential reimbursements from insurance coverage, were not material during fiscal years 1995, 1994, and 1993. The Company believes that the potential liability, if any, in excess of amounts already charged to earnings will not have a material effect on the Company's financial position. On December 2, 1992, Hughes Aircraft Company ("Hughes") filed a patent infringement suit in Federal court against the Company seeking unspecified amounts of damages and costs, which was served on the Company on January 7, 1993. The Company filed a counter claim against Hughes' parent, General Motors Corporation, also alleging patent infringement. In December 1994, the parties participated in a minitrial proceeding that resolved all matters disputed in the litigation. On the single issue presented in the minitrial the judge found for Hughes and, in accordance with an agreement reached with Hughes prior to the minitrial, damages agreed to in advance were paid by the Company to Hughes. The settlement did not have a material impact on the Company's financial position and all matters in dispute in the litigation have been resolved. The Company is engaged in tax litigation with the IRS and the Company's tax returns will soon be under examination by the IRS (see Note 7). In addition to the foregoing, National is a party to other suits and claims which arise in the normal course of business. National believes any liability resulting from those matters would not be material to the Company's financial position. Note 13. Industry and Geographic Segment Information The Company operates in one industry segment and is engaged in the design, development, manufacture and marketing of a wide variety of semiconductor products including analog integrated circuits, digital integrated circuits, mixed analog and digital circuits, microcontrollers, hybrid circuits, subsystems, electronic packaging, and miscellaneous services and supplies for the semiconductor industry and original equipment manufacturers. National operates in three main geographic areas. In the information that follows, sales include local sales and exports made by operations within each area. Total sales by geographic area include sales to unaffiliated customers and intergeographic transfers, which are based on standard cost. To control costs, a substantial portion of National's products are transported between the U.S., Asia, and Europe in the process of being manufactured and sold. Sales to unaffiliated customers have little correlation with the location of manufacture. It is, therefore, not meaningful to present operating profit by geographic area. National conducts a substantial portion of its operations outside of the U.S. and is subject to hazards associated with non-U.S. operations, such as political risks, currency controls and fluctuations, tariffs, import controls and air transportation. Elim & Consol- (in millions) Americas Europe Asia Corporate idated -------- ------- -------- ---------- ------- 1995 Sales to unaffiliated customers $1,015.9 $562.7 $ 800.8 $ - $2,379.4 Transfers between geographic areas 459.7 114.3 680.3 (1,254.3) - -------- ------ ------ ------- ------- Total sales $1,475.6 $677.0 $1,481.1 $(1,254.3) $2,379.4 -------- ------ ------ ------ -------- Total assets $1,016.7 $252.8 $ 623.2 $ 343.0 $2,235.7 ======== ====== ======= ======= ======== 1994 Sales to unaffiliated customers $1,010.4 $496.7 $ 788.3 $ - $2,295.4 Transfers between geographic areas 493.3 153.7 631.4 (1,278.4) - -------- ------ ------ -------- -------- Total sales $1,503.7 $650.4 $1,419.7 $(1,278.4) $2,295.4 -------- ------ ------ -------- -------- Total assets $ 656.7 $218.9 $ 558.5 $ 313.6 $1,747.7 ======== ====== ======= ======= ======== 1993 Sales to unaffiliated customers $ 939.5 $413.2 $ 661.0 $ - $2,013.7 Transfers between geographic areas 415.6 120.0 558.1 (1,093.7) - -------- ------ ------ ------- -------- Total sales $1,355.1 $533.2 $1,219.1 $(1,093.7) $2,013.7 -------- ------ ------ ------- -------- Total assets $ 539.7 $222.7 $ 436.6 $ 277.5 $1,476.5 ======== ====== ======= ======= ======== Note 14. Supplemental Disclosure of Cash Flow Information and Non-cash Investing and Financing Activities (in millions) 1995 1994 1993 ------- ------- ------- Cash paid for: Interest expense $ 6.4 $ 3.3 $4.5 Interest payment on tax settlements $30.2 $18.6 $ - Income taxes $43.2 $27.8 $4.9 Non-cash items: Issuance of stock for employee benefit plans $ 4.0 $ 2.0 $ - The Company recorded capital lease obligations of $1.2 million during 1993, related to the acquisition of machinery and equipment. Non-cash financing activities in fiscal 1993 included the relief of debt of $12.3 million on the sale of the Migdal Haemek, Israel facility. Note 15. Financial Information by Quarter (Unaudited) The following table presents the quarterly information for fiscal 1995 and 1994: First Second Third Fourth (in millions, except per) Quarter Quarter Quarter Quarter share amounts) ------- ------- ------- ------- 1995 Net Sales $553.8 $584.4 $571.4 $669.8 Gross Margin $233.2 $251.7 $229.3 $280.7 Net income $ 59.0 $ 67.0 $ 57.0 $ 81.2 ====== ====== ====== ====== Primary earnings per common share $0.44 $0.51 $0.43 $0.62 Weighted average common and ====== ====== ====== ====== common equivalent shares outstanding 129.1 124.9 124.7 125.6 Fully diluted earnings ===== ===== ===== ===== per common share $0.42 $0.49 $0.42 $0.59 ===== ===== ===== ===== Weighted average fully diluted shares 141.5 137.2 136.9 138.7 ===== ===== ===== ===== Common stock price - high $21.50 $19.50 $20.50 $28.50 Common stock price - low $15.63 $14.38 $16.63 $15.13 ===== ===== ===== ===== 1994 Net Sales $558.9 $582.4 $544.7 $609.4 Gross Margin $228.3 $243.5 $228.4 $258.9 Income before cumulative effect of accounting change $ 52.2 $ 60.7 $ 63.8 $ 82.4 Net income $ 57.1 $ 60.7 $ 63.8 $ 82.4 Primary earnings per common ====== ====== ====== ====== share before cumulative effect of accounting change $0.39 $0.46 $0.48 $0.63 Cumulative effect of accounting change 0.04 - - - Primary earnings ----- ----- ----- ----- per common share $0.43 $0.46 $0.48 $0.63 ====== ====== ====== ====== Weighted average common and common equivalent shares outstanding 119.5 120.1 120.8 126.0 Fully diluted earnings per ====== ====== ====== ===== share before cumulative effect of accounting change $0.37 $0.43 $0.45 $0.58 Cumulative effect of accounting change 0.04 - - - Fully diluted earnings ----- ----- ----- ----- per common share $0.41 $0.43 $0.45 $0.58 Weighted average fully ===== ===== ===== ===== diluted shares 140.4 140.6 141.7 143.0 ===== ===== ===== ===== Common stock price - high $19.50 $21.75 $21.88 $25.00 Common stock price - low $14.38 $15.00 $14.38 $16.75 ===== ===== ===== ===== Preferred dividends are reflected as adjustments to reported earnings in the calculation of primary earnings per share. The Company's common stock is traded on the New York Stock Exchange and the Pacific Stock Exchange. The quoted market prices are as reported on the New York Stock Exchange Composite Tape. At May 28, 1995, there were approximately 13,500 holders of the Company's common stock. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders National Semiconductor Corporation We have audited the accompanying consolidated balance sheets of National Semiconductor Corporation and subsidiaries as of May 28, 1995 and May 29, 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three- year period ended May 28, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Semiconductor Corporation and subsidiaries as of May 28, 1995 and May 29, 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended May 28, 1995 in conformity with generally accepted accounting principles. As discussed in Note 4 to the consolidated financial statements, in 1994 the Company changed its method of accounting for certain costs in inventory. KPMG PEAT MARWICK LLP San Jose, California June 7, 1995 MANAGEMENT OFFICERS EXECUTIVE COMMITTEE Gilbert F. Amelio President and Chief Executive Officer Richard M. Beyer Executive Vice President, and Chief Operating Officer Kirk P. Pond Executive Vice President and Chief Operating Officer Patrick J. Brockett President, International Business Group Charles P. Carinalli Senior Vice President and Chief Technical Officer Donald Macleod Executive Vice President, Finance and Chief Financial Officer George M. Scalise Executive Vice President and Chief Administrative Officer MANAGEMENT COMMITTEE consists of the Executive Committee and the following officers: Bami Bastani Vice President and General Manager, Embedded Technologies Division Mike Bereziuk Vice President and General Manager, Personal Systems Division Michael D. Burger Vice President and General Manager, Southeast Asia Division, International Business Group W. Wayne Carlson Vice President and General Manager, Data Management Division Gordon C. Chilton Vice President, Asia Pacific John M. Clark III Senior Vice President, General Counsel and Secretary Raymond G. Hawkins Vice President and General Manager, Americas Division, International Business Group Gunnar Hurtig III Vice President, Corporate Strategic Planning Tatsuo Ishihara President, Japan Division, International Business Group Keith D. Jackson Vice President and General Manager, Analog Mixed Signal Systems Division Keith M. Kolerus Vice President, Strategy, International Business Group Robert G. MacLean Vice President, Human Resources Douglas M. McBurnie Vice President and General Manager, Local Area Networks Division R. Thomas Odell Senior Vice President, Business Process Improvement E. Randy Parker Senior Vice President, Quality and Reliability Robert M. Penn Vice President and General Manager, Wide Area Networks Division Hans Rohrer Vice President and General Manager, European Division, International Business Group Richard L. Sanquini Senior Vice President, Intellectual Property Protection and Business Development Robert M. Whelton Vice President and General Manager, Analog Products Division OTHER OFFICERS David S. Dahmen Vice President and Treasurer Nancy Lucke Ludgus Assistant Secretary Robert B. Mahoney Vice President and Controller John G. Webb Vice President, Taxes TRANSFER AGENT AND REGISTRAR The First National Bank of Boston P.O. Box 644 Boston, Massachusetts 02102 INDEPENDENT AUDITORS KPMG Peat Marwick LLP Board of Directors Gilbert F. Amelio began his career at Bell Laboratories and has more than 25 years of semiconductor industry experience. He holds 16 patents alone or jointly and is co-inventor of the charge-coupled device image sensor. Dr. Amelio is a former vice-president and general manager of Fairchild Camera and Instrument Corporation's MOS Products Group and was President of Rockwell Communications Systems before joining National as President and Chief Executive Officer in 1991. *Gary P. Arnold has extensive experience in the international electronics industry in finance, strategic planning and operations. Since January 1993, he has been President, Chief Executive Officer and Chairman of the Board of Analogy, Inc., a leading supplier of product design and simulation software headquartered in Beaverton, Oregon. Prior to that he held Chief Financial Officer positions at Tektronix and at National Semiconductor. *Robert Beshar has been an attorney in private practice since 1972 following a distinguished career including legal positions with the New York Harbor Waterfront Commission the Appellate Division of the New York Supreme Court and the U.S. Justice Department. He also served in the U.S. Commerce Department as a Deputy Assistant Secretary, director of the Bureau of Internatioal Commerce and as National Export Coordinator. Dr. Modesto A. Maidique has been President of Florida International University (FIU) since 1986. Prior to that he distinguished himself as a scholar and a teacher, having taught at Massachusetts Institute of Technology, Harvard University, and Stanford University. He also established credentials as a corporate executive and consultant and is a co-founder of Analog Devices Semiconductor. J. Tracy O'Rourke, since 1990, has been Chairman and Chief Executive Officer of varian Associates, a Fortune 500 company with annual sales exceeding $1 billion. Before joining Varian, he was one of three Executive Vice Presidents and Chief Operating Officers of Rockwell International Corporation. He also served earlier as President and Chief Operating Officer of Allen-Bradley Corporation, where he is credited with transforming the $450- million private company into a $1.4-billion international electronics business. Charles E. Sporck, from 1967 to 1991, served as President and Chief Executive Officer of National Semiconductor, building the company from a small transistor manufacturer with annual sales of $7 million to a nearly $2- billion global semiconductor supplier. He is credited with opening the first offshore semiconductor assembly and test facilities in Southeast Asia. He started his career at General Electric Corporation, and prior to joining National he was General Manager if Fairchild Camera & Instrument Corporation. *Donald E. Weeden, as Chief Excutive of the Wall Street firm of Weeden & Company, has been a leading advocate for progressive change in the securities industry. He is a recognized entrepreneur and venture capitalist, and a trustee of the Weeden Foundation, which supports projects related to environ- ment and population concerns. * Member of the Audit Committee WORLDWIDE OPERATIONS Headquarters National Semiconductor Corporation 2900 Semiconductor Drive P.O. Box 58090 Santa Clara, California 95052-8090 Telephone (408) 721-5000 Manufacturing Facilities Santa Clara, California; South Portland, Maine; Murrysville, Pennsylvania; Arlington, Texas; West Jordan, Utah; Malacca, Malaysia; Penang, Malaysia; Cebu, Philippines; Greenock, Scotland; Singapore SHAREHOLDER INFORMATION Common Stock Data The Company's common stock is traded on the New York Stock Exchange and the Pacific Stock Exchange. Annual Meeting of Shareholders The annual meeting will be held on or about September 29, 1995. A notice of the meeting, together with a form of proxy and a proxy statement, will be mailed to shareholders on or about August 20, 1995, at which time proxies will be solicited by the Board of Directors. FORM 10-K If you would like to receive a free copy of the Company's "Form 10-K", filed with the Securities and Exchange Commission, please send your request to: Investor Relations Mailstop 10-397 National Semiconductor Corporation P.O. Box 58090 Santa Clara, California 95052-8090 Telephone (408) 721-5800 Fax (408) 721-7254 APPENDIX TO GRAPHS 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ (FINANCIAL HIGHLIGHTS section; 3 separate graphs) Net Sales $2,379.4 $2,295.4 $2,013.7 $1,717.5 $1,701.8 Profit Before Tax 329.2 303.5 149.9 (117.0) (149.0) Research and Development Expense 283.1 257.8 229.2 208.9 198.6 (MD&A - Left of Sales) Net Sales per Employee 106.2% 102.9% 86.1% (MD&A - Between Gross Margin and R&D, on the Right) Net Operating Margin as a Percent of Sales 13.2% 12.7% 7.3% (MD&A - Right of SG&A; one graph, broken into 3 sections) Operating Costs and Expenses as a Percent of Sales: Cost of Sales 58.2% 58.2% 64.5% Research and Development 11.9% 11.2% 11.4% Selling, General, and Administrative 16.9% 17.9% 16.8% (MD&A - Left of Income Tax Expense) Stock Price Ending $26.00 $19.00 $14.63 (MD&A - Right of Financial Condition) Net Property, Plant, and Equipment $962.4 $668.0 $577.4 EX-21 9 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.0 NATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT The following table shows certain information with respect to the active subsidiaries of the Company as of May 28, 1995, all of which are included in the consolidated financial statements of the registrant: State or Percent of other Other country voting jurisdiction in which securities of subsidiary is owned by Name incorporation registered National - ---- ------------- ------------- ---------- Dynacraft, Inc. California 100% National Semiconductor Delaware 100% International, Inc. DTS Caribe, Inc. Delaware 100% N.S. Publications, Inc. Delaware 100% Fairchild Semiconductor Corp. Delaware 100% Comlinear Corporation Delaware 100% National Semiconductor France 100% France S.A.R.L. National Semiconductor GmbH Germany Belgium 100% National Semiconductor Israel 100% (I.C.) Ltd. National Semiconductor Sp.A. Italy 100% National Semiconductor A.B. Sweden 100% National Semiconductor Great Britain Denmark 100% (U.K.) Ltd. Ireland/ Finland/Norway Spain Comlinear Europe Ltd. Great Britain 100% National Semiconductor Netherlands 100% Benelux B.V. National Semiconductor Switzerland 100% International Finance S.A. National Semiconductor Australia 100% (Australia) Pty. Ltd. National Semiconductor Hong Kong 100% (Hong Kong) Limited National Semiconductor Hong Kong Taiwan 100% (Far East) Limited National Semiconductor (HK) Hong Kong Philippines 100% Distribution Ltd. National Semiconductor Japan 100% (Service) Ltd. National Semiconductor Japan 100% Japan Ltd. National Semiconductor Malaysia 100% SDN. BHD. Exhibit 21.0 NATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT State or Percent of other Other country voting jurisdiction in which securities of subsidiary is owned by Name incorporation registered National - ---- ------------- ------------- ---------- National Semiconductor Malaysia 100% Technology SDN. BHD. Dynacraft SDN. BHD. Malaysia 100% Dynacraft Asia Pacific SON. BHD. Malaysia 100% National Semiconductor Pte. Singapore 100% Ltd. National Semiconductor Singapore 100% Asia Pacific Pte. Ltd. National Semiconductor Singapore 100% Singapore Manufacturer Pte. Ltd. Dynacraft Asia Pacific Pte. Ltd. Singapore 100% National Semiconductor Sunrise of Shanghai People's Republic Limited of China 51% National Semiconductor Canada 100% Canada Inc. National Semicondutores Brazil 100% de Brasil Ltda. Electronica NSC de Mexico, Mexico 100% S.A. de C.V. ASIC Limited Bermuda 100% EX-24 10 POWER OF ATTORNEY Exhibit 24.0 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned persons hereby constitutes and appoints Gilbert F. Amelio, Donald Macleod, and John M. Clark III, and each of them singly, his true and lawful attorney-in-fact and in his name, place, and stead, and in any and all of his offices and capacities with National Semiconductor Corporation (the "Company"), to sign the Annual Report on Form 10-K for the Company's 1994 fiscal year, and any and all amendments to said Annual Report on Form 10-K, and generally to do and perform all things and acts necessary or advisable in connection therewith, and each of the undersigned hereby ratifies and confirms all that each of said attorneys-in-fact may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto executed this Power of Attorney as of the date set forth opposite his signature. SIGNATURE DATE /S/ GILBERT F. AMELIO July 20, 1995 ----------------- Gilbert F. Amelio /S/ GARY P. ARNOLD July 20, 1995 ------------- Gary P. Arnold /S/ ROBERT BESHAR July 20, 1995 ------------- Robert Beshar /S/ MODESTO A. MAIDIQUE July 20, 1995 ------------------- Modesto A. Maidique ------------------ Edward R. McCracken /S/ J. TRACY O'ROURKE July 20, 1995 ----------------- J. Tracy O'Rourke Exhibit 24.0 (page 2) /S/ CHARLES E. SPORCK July 20, 1995 ----------------- Charles E. Sporck /S/ DONALD E. WEEDEN July 20, 1995 ---------------- Donald E. Weeden /S/ DONALD MACLEOD July 17, 1995 -------------- Donald Macleod /S/ ROBERT B. MAHONEY July 17, 1995 ----------------- Robert B. Mahoney EX-27 11 FINANCIAL DATA SCHEDULE
5 Accounts Receivable and interest are shown net consistent with FS pres YEAR MAY-28-1995 MAY-28-1995 420 47 318 0 263 1178 2148 1185 2236 686 0 63 0 0 1343 2236 2379 2379 1385 1385 0 0 (15) 329 65 264 0 0 0 264 2.02 1.92
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