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National Semiconductor Reports $65.8 Million Profit And 11 Percent Increase in Sales for Second Quarter, FY2004

Q2 GAAP earnings are 34 cents per share, more than double Q1's earnings of 15 cents

Gross margin improved to 50.1%, up from 47.2% in Q1

Q2 revenues reached $473.5 million, an 11% increase from Q1's $424.8 million

Q2 bookings rose 29%, reflecting broad-based demand for analog products

Company anticipates 3% to 5% sequential revenue growth in Q3

Dec 4, 2003

December 4, 2003 - National Semiconductor Corporation (NYSE:NSM) today reported a GAAP profit of $65.8 million, or 34 cents per share, on revenues of $473.5 million for the second quarter of fiscal 2004, which ended November 23.  National's sales were 12 percent higher than the second quarter of fiscal 2003 and 11 percent higher than the first quarter of fiscal 2004, when the company reported revenues of $424.8 million and earnings of 15 cents per share.  National's second quarter net results included special charges of $6 million for severances and exits of leased facilities in connection with cost-reduction activities.  Without these charges, National would have reported net after-tax income of $71.1 million, or earnings of 36 cents per share.

"Sales are up, expenses are down and our profits doubled from the first quarter.  We are ahead of the goals we set for ourselves," said Brian L. Halla, National's chairman, president and CEO.  "As a result of this, we achieved a 19 percent return on invested capital in the quarter."

Gross margins increased by 2.9 percentage points in the second quarter to 50.1 percent, up from the 47.2 percent gross margin reported in Q1 and 42.9 percent gross margin reported in Q2 of fiscal 2003.  With factory utilization above 90 percent, the company continues to drive improvements in product mix and average selling prices.  During the quarter, the company also completed $400 million of stock repurchases under a program announced in July 2003.

Strong Bookings in Q2
"This was National's strongest bookings quarter in three years," Halla said. "We saw strength with key customers in vertical markets, as well as in the broad-based distribution markets."

Worldwide bookings increased 29 percent sequentially in Q2 and 36 percent year-to-year.  Second quarter bookings significantly exceeded billings.  In National's key product lines, orders for audio and power management products grew substantially more than the company average.  Orders for portable power management products led the company in year-to-year growth and nearly doubled last year's order rate. The company's bookings were driven by increased demand for notebooks, PCs, displays and wireless handsets as well as strong demand from the distribution channel, where orders increased more than 30 percent sequentially from Q1. Geographically, National experienced across-the-globe strength in regional analog orders with noteworthy gains in North America and Asia Pacific. 

Positive Outlook for Q3 2004
In addition to seeing overall strength in bookings throughout the second quarter, National started the third quarter with a higher opening backlog.  National's guidance for the third quarter of FY 2004 is for revenues to grow 3 to 5 percent sequentially.  Consistent with this growth, gross margins are expected to improve slightly. The company expects operating expenses comparable to or slightly higher than the second quarter.  Historically, third quarter revenues have typically decreased due to seasonal patterns following the holiday buying season.  The company's third quarter of FY 2004 ends on Feb. 29 and will include 14 calendar weeks instead of the normal 13 weeks.

Summary of Results

For 3 months ended

For 3 months ended

 

November 23, 2003

November 24, 2002

Net sales

$473.5 million   

$422.3 million     

Net income

$  65.8 million   

$    6.2 million     

Earnings per share diluted

$   0.34          

$   0.03            


Net income excluding special items,
certain gains and the effect of an
accounting change in fiscal 2004
and none in fiscal 2003

$  71.1 million   

$    6.2 million     


Earnings per share excluding special
items, certain gains and the effect
of an accounting change in fiscal
2004 and none in fiscal 2003

$   0.36          

$   0.03           

Special Note
This release contains forward-looking statements dependent on a number of risks and uncertainties pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These factors include, but are not restricted to, new orders received and shipped during the third quarter, the degree of factory utilization, the successful construction of our Suzhou assembly and test facility, the successful sale of inventories at existing prices, and the ramp up of recently introduced products.  Other risk factors are included in the Company's 10-K for the year ended May 25, 2003 (see Outlook and Risk Factors sections of Management's Discussion and Analysis of Financial Conditions and Results of Operations) and the 10-Q dated August 24, 2003.

About National Semiconductor
National Semiconductor, the industry's premier analog company, creates high performance analog devices and subsystems. National's leading-edge products include power management circuits, display drivers, audio and operational amplifiers, imaging sensors and data conversion solutions. National's key markets include wireless handsets, displays, PCs, networks and a broad range of portable applications. With headquarters in Santa Clara, California, National reported sales of $1.67 billion for fiscal 2003, which ended May 25, 2003. Additional company and product information is available at www.national.com
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National Semiconductor is a registered trademark. 
 NATIONAL SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
                                                     Three Months Ended        Six Months Ended
                                                   ----------------------     -------------------
                                                    Nov. 23,    Nov. 24,      Nov. 23,   Nov. 24,
                                                      2003        2002          2003        2002     
                                                   ----------------------     -------------------
Net sales                                           $ 473.5     $ 422.3        $ 898.3    $ 842.9
Operating costs and expenses:
  Cost of sales                                       236.5       241.2          460.9      479.5
  Research and development                             83.2       107.1          175.3      217.8
  Selling, general and administrative                  72.8        68.3          141.2      138.2
  Special items                                         6.0         0.7           18.6        0.7
                                                   ----------------------     --------------------
Total operating costs and expenses                    398.5       417.3          796.0      836.2 
                                                   ----------------------     --------------------
Operating income                                       75.0         5.0          102.3        6.7
Interest income, net                                    2.5         3.6            5.6        7.7
Other income (expense), net                            (2.7)       (0.4)           2.8       (1.9)
                                                   ----------------------     --------------------
Income before taxes and cumulative effect
  of a change in accounting principle                  74.8         8.2          110.7       12.5 
Income tax expense                                      9.0         2.0           13.3        5.0 
                                                   ----------------------     --------------------
Income before cumulative effect of a
  change in  accounting principle                      65.8         6.2           97.4        7.5 
Cumulative effect of a change in accounting
  principle including tax effect of $0.2 million         -           -            (1.9)        -  
                                                   ----------------------     -------------------
Net income                                           $ 65.8       $ 6.2         $ 95.5      $ 7.5 
                                                   ======================     ===================

Earnings per share:
Income before cumulative effect of a change
  in accounting principle:
     Basic                                         $    0.37      $ 0.03        $  0.53     $ 0.04
     Diluted                                       $    0.34      $ 0.03        $  0.50     $ 0.04
Net income:
     Basic                                           $  0.37      $ 0.03        $  0.52     $ 0.04
     Diluted                                          $ 0.34     $  0.03        $  0.49    $  0.04
Selected income statement ratios as a percentage of sales
     Gross margin                                      50.1%       42.9%         48.7%      43.1%
     Research and development                          17.6%       25.4%         19.5%      25.8%
     Selling, general and administrative               15.4%       16.2%         15.7%      16.4%
     Net income                                        13.9%        1.5%         10.6%       0.9%
     Effective tax rate                                12.0%        N/A          12.0%       N/A
 NATIONAL SEMICONDUCTOR CORPORATION 
CONDENSED CONSOLIDATED BALANCE SHEETS  (Unaudited) 
(in millions)
                                                         Nov. 23,       May 25,
                                                          2003           2003     
                                                        ----------     ---------   
ASSETS
Current assets:
   Cash and cash equivalents                           $   513.5      $   802.2
   Short-term marketable investments                       184.8          113.2
   Receivables                                             166.1          137.1
   Inventories                                             167.3          142.2
   Deferred tax assets                                      66.0           66.0
   Other current assets                                     26.6           20.5
                                                        -----------   -----------   
   Total current assets                                  1,124.3        1,281.2
Net property, plant and equipment                          679.5          680.7
Goodwill                                                   173.3          173.3
Other assets                                                99.6          109.4
                                                       ------------   -----------   
Total assets                                            $2,076.7       $2,244.6
                                                        =========      ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt                 $      22.4     $      2.3
   Accounts payable                                        108.2          107.0
   Accrued expenses                                        188.0          192.3
   Income taxes payable                                     54.6           49.6
                                                      -------------   -----------   
   Total current liabilities                               373.2          351.2
Long-term debt                                               -             19.9
Other noncurrent liabilities                               180.9          167.5
                                                      -------------   -----------   
   Total liabilities                                       554.1          538.6
                                                      -------------   -----------   
Commitments and contingencies
Shareholders' equity:
   Common stock                                             89.0           91.8
   Additional paid-in capital                            1,177.3        1,451.3
   Retained earnings                                       372.7          277.2
   Accumulated other comprehensive loss                   (116.4)        (114.3)
                                                      -------------   ------------   
   Total shareholders' equity                            1,522.6        1,706.0
                                                      -------------   ------------   
Total liabilities and shareholders' equity              $2,076.7       $2,244.6
                                                       =========       ========
 NATIONAL SEMICONDUCTOR CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)    
                                                                     Six Months Ended             
                                                            ----------------------------------
                                                               Nov. 23,              Nov. 24,
                                                                  2003                 2002
                                                            -------------        -------------
Cash flows from operating activities:
Net income                                                      $  95.5            $    7.5
Adjustments to reconcile net income with net cash
  provided by operating activities:
   Cumulative effect of a change in accounting principle            1.9                  -  
   Depreciation and amortization                                  107.3               113.8
   Gain on investments                                             (3.0)               (0.5)
   Share in net losses of equity-method investments                 7.7                 6.1
   Loss on disposal of equipment                                    2.2                 1.6
   Noncash special items                                            4.5                 0.7
   Other, net                                                       2.4                 0.3
   Changes in certain assets and liabilities, net:
      Receivables                                                 (21.4)              (12.6)
      Inventories                                                 (29.7)               (8.0)
      Other current assets                                         (6.3)               (9.8)
      Accounts payable and accrued expenses                       (14.6)              (15.8)
      Income taxes payable                                          5.0                 8.6
      Other noncurrent liabilities                                 11.1                 7.3
                                                               -------------     -------------
Net cash provided by operating activities                         162.6                99.2
                                                               -------------     -------------
Cash flows from investing activities:
Purchase of property, plant and equipment                         (99.0)              (98.3)
Sale and maturity of available-for-sale securities                314.0               300.1
Purchase of available-for-sale securities                        (386.7)             (290.2)
Sale of investments                                                 7.2                 8.7
Sale of equipment                                                    -                  2.3
Business acquisition, net of cash aquired                            -                (11.0)
Investment in nonpublicly traded companies                         (1.7)              (16.7)
Funding of benefit plan                                            (4.5)               (3.6)
Other, net                                                          1.1                (1.3)
                                                               -------------     -------------
Net cash used by investing activities                            (169.6)             (110.0)
                                                               -------------     -------------
Cash flows from financing activities:
Repayment of debt                                                  (1.8)               (3.5)
Issuance of common stock                                          120.1                19.4
Purchase and retirement of treasury stock                        (400.0)                 -
                                                               -------------     -------------
Net cash (used by) provided by financing activities              (281.7)               15.9
                                                               -------------     -------------
Net change in cash and cash equivalents                          (288.7)                5.1
Cash and cash equivalents at beginning of period                  802.2               681.3
                                                               -------------     -------------
Cash and cash equivalents at end of period                      $ 513.5             $ 686.4
                                                                ========            ========
PART I.  FINANCIAL INFORMATION
EARNINGS PER SHARE (Unaudited)
(in millions, except per share amounts)
                                                    Three Months Ended        Six Months Ended
                                                  ---------------------      -------------------
                                                   Nov. 23,    Nov. 24,      Nov. 23,   Nov. 24,
                                                    2003         2002         2003       2002
                                                  ---------------------      -------------------
Earnings per share:
         Basic                                    $  0.37      $  0.03       $  0.52    $   0.04
         Diluted                                  $  0.34      $  0.03       $  0.49    $   0.04
Net income used in basic and diluted 
         earnings per share calculation           $ 65.8        $ 6.2        $ 95.5     $   7.5
Weighted-average shares: 
         Basic                                     180.1        181.3         182.3       181.0
         Diluted                                   195.5        182.0         193.7       184.5
   
NOTES TO FINANCIAL STATEMENTS:
(in millions, except per share amounts)
Reconciliation of net income as reported to net income excluding special item:
                                                            Three Months Ended
                                                        --------------------------
                                                               Nov. 23,
                                                                 2003
                                                             -------------
Net income as reported                                         $    65.8
Add back:
    Special item - Cost reduction actions, net
      of tax effect of $0.7 million                                  5.3
                                                             -------------
Net income excluding special item                              $    71.1
                                                              ============
Earnings per share:
    Basic                                                         $  0.39
    Diluted                                                       $  0.36
Weighted-average shares:
    Basic                                                          180.1
    Diluted                                                        195.5
 
                                                  Three Months Ended       Six Months Ended
                                                 --------------------    --------------------
                                                 Nov. 23,   Nov. 24,      Nov. 23,   Nov. 24,
                                                  2003        2002          2003      2002
                                                 --------------------    ---------------------
Special items
Cost reduction items                             $   6.0     $   -        $ 14.6    $   -
Disposition of IA business                            -          -           4.0        -
In-process research and development charges           -         0.7           -        0.7
                                                 --------------------    ---------------------
  Total special items                            $   6.0      $ 0.7       $ 18.6     $ 0.7
                                                   =================      ==================
Interest income, net
Interest income                                   $  2.7     $  4.1       $  5.9    $  8.6
Interest expense                                    (0.2)      (0.5)        (0.3)     (0.9)
                                                 --------------------    ---------------------
  Interest income, net                            $  2.5     $  3.6       $  5.6    $  7.7
                                                   =================     ===================

Other income(expense), net
Net intellectual property income                 $    -     $   2.5       $  8.0   $   4.1
Gain(loss) on investments                            0.7       (0.2)         3.0       0.5
Share in net losses of equity-method 
  Investments                                       (2.9)      (2.5)        (7.7)     (6.1)
Other                                               (0.5)      (0.2)        (0.5)     (0.4)
                                                 ---------------------   ---------------------
  Total other income (expense), net               $ (2.7)   $  (0.4)      $  2.8   $  (1.9)
                                                 ====================      =================