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National Semiconductor Reports Profit for Second Quarter of Fiscal 2003 With Revenues Up $1.7 Million from First Quarter

Dec 6, 2002

December 6, 2002 - National Semiconductor Corporation (NYSE:NSM) today reported a net profit of $6.2 million, or 3 cents per share, on revenues of $422.3 million for the second quarter of fiscal 2003, which ended November 24, 2002.  Revenues increased $1.7 million sequentially from the first quarter and 15 percent from the second quarter a year ago. At this time last year, National reported a net loss of $46.6 million, or 26 cents per share, on revenues of $366.5 million.

"We remained profitable for the third straight quarter despite a pretty tough market," said Brian L. Halla, National's chairman, president and CEO.  "Our revenues exceeded the expectations we had at the beginning of the quarter. We did a good job managing our expenses, and continued to improve our product positioning, especially in the wireless market."

Summary of results
3 months ended: November 24, 2002   November 25 , 2001
Net sales
Net income (loss)
Earnings (loss) per diluted
   share as reported

$ 422.3
$     6.2

  $    0.03

$ 366.5
 $ (46.6)

   $  (0.26)

All figures in millions of dollars except per share amounts

National reported that second quarter orders were down 5 percent from the first quarter but up 23 percent over the previous year. The sequential decline in orders was largely attributed to the distribution channel, as distributors reduced inventories and continued to be cautious about their inventory levels going forward. This caused orders for our Analog products, which are heavily sold through distribution, to decline sequentially. Total order rates, as well as turns orders (those placed for delivery within the same quarter) improved measurably in the latter half of the quarter.

Orders for application specific wireless circuits grew sequentially due to demand in the wireless handset market. Bookings for PC-specific devices were up from the first quarter due to a pickup in demand late in the quarter, particularly for notebooks. Display product orders, which were below first quarter levels, were impacted by light activity from CRT manufacturers in the earlier part of the quarter. Display bookings improved toward the end of the quarter. On a regional basis, orders in North America grew both sequentially and year over year. Bookings in other regions showed sequential declines but grew over last year's second quarter. Worldwide billings slightly exceeded bookings during the quarter.

Forward Outlook
For the third quarter of fiscal 2003, the company's guidance is for revenues to be flat to down 5 percent sequentially. "Our third quarter typically reflects a post-holiday seasonal decline in revenues," Halla said. "Although bookings picked up in October and November, it is too early to tell whether that momentum will carry over enough to offset the normal seasonal pattern."
Gross margins are expected to decline slightly, primarily due to lower production volume through the factories. Operating expenses are expected to increase by $4 to $6 million,  primarily in the research and development area due to strategic programs in power management and wireless.

This outlook contains forward looking statements dependent on a number of risks and uncertainties including such factors as, but not restricted to, new orders received and shipped during the remainder of the third quarter, the degree of factory utilization, the successful sale of existing inventories at existing prices, and the ramp up of recently introduced products. Other risk factors are included in the company's 10-Q from the first quarter ended August 25, 2002, the 10-K for the year ended May 26, 2002 (see the Outlook section of Management's Discussion and Analysis of Results of Operations and Financial Conditions) and the Annual Report dated May 26, 2002.

About National Semiconductor
National Semiconductor is the premier analog company driving the information age. Combining real-world analog and state-of-the-art digital technology, the company is focused on the fast growing markets for wireless handsets; displays; information infrastructure, and information appliances. With headquarters in Santa Clara, California, National reported sales of $1.5 billion for its most recent fiscal year and has about 10,000 employees worldwide. Additional company and product information is available on the World Wide Web at www.national.com.

# # #

NATIONAL SEMICONDUCTOR CORPORATION                            
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)

                                 Three Months Ended      Six Months Ended
                                 -------------------    -------------------
                                 Nov. 24,   Nov. 25,    Nov. 24,   Nov. 25,
                                  2002       2001        2002       2001
                                 -------    -------     --------   --------
Net sales                        $ 422.3    $ 366.5     $ 842.9     $ 705.8
Operating costs and expenses:
  Cost of sales                    241.2      237.0       479.5       466.2
  Research and development         107.1      110.4       217.8       219.4
  Selling, general and 
    administrative                  68.3       66.8       138.2       129.3
  Special items                      0.7        -           0.7         1.1
                                 -------    -------     --------   --------
Total operating costs
  and expenses                     417.3      414.2       836.2       816.0
                                 -------    -------     --------   --------
Operating income(loss)               5.0      (47.7)        6.7      (110.2)
Interest income, net                 3.6        5.5         7.7        12.5
Other income(expense), net          (0.4)      (1.9)       (1.9)        1.5
                                 -------    -------     --------   --------
Net income(loss) before taxes        8.2      (44.1)       12.5       (96.2)
Income tax expense                   2.0        2.5         5.0         5.0
                                 -------    -------     --------   --------
Net income(loss)                 $   6.2    $ (46.6)    $   7.5     $(101.2)
                                 =======    ========    ========   ========
Earnings(loss) per share: 
         Basic                    $ 0.03    $ (0.26)      $ 0.04     $ (0.58)
         Diluted                  $ 0.03    $ (0.26)      $ 0.04     $ (0.58)

Selected income statement ratios as a percentage of sales:
Gross margin                       42.9%       35.3%       43.1%       33.9%
Research and development,
  excluding IPR&D charge           25.4%       30.1%       25.8%       31.1%
Selling, general and              
  administrative                   16.2%       18.2%       16.4%       18.3%
Net income(loss)                    1.5%      (12.7%)       0.9%      (14.3%)
Effective tax rate                  N/A         N/A         N/A         N/A

NATIONAL SEMICONDUCTOR CORPORATION                                           
CONDENSED CONSOLIDATED BALANCE SHEETS  (Unaudited) 
(in millions)
                                                   Nov. 24,      May 26,
                                                     2002         2002   
ASSETS                                             --------     --------
Current assets:
  Cash and cash equivalents                        $  686.4     $  681.3
  Short-term marketable securities                     -            18.1
  Receivables, net                                    144.4        131.7
  Inventories                                         153.0        145.0
  Deferred tax assets                                  58.7         58.7
  Other current assets                                 36.3         38.3
                                                   --------     --------
  Total current assets                              1,078.8      1,073.1
Property, plant and equipment, net                    739.4        737.1
Long-term marketable debt securities                  152.9        145.0
Goodwill                                              173.3        173.3
Other assets                                          159.5        160.3
                                                   --------     --------
Total assets                                       $2,303.9     $2,288.8
                                                   ========     ========
                                                   
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                     4.0          5.5
  Accounts payable                                    109.6        123.7
  Accrued expenses                                    238.9        226.7
  Income taxes payable                                 56.5         47.9
                                                   --------     --------
  Total current liabilities                           409.0        403.8
Long-term debt                                         19.5         20.4
Other noncurrent liabilities                           92.7         83.5
                                                   --------     --------
  Total liabilities                                   521.2        507.7
                                                   --------     --------
Commitments and contingencies
Shareholders' equity:
  Common stock                                         90.8         90.2
  Additional paid-in capital                        1,423.1      1,402.5
  Retained earnings                                   318.0        310.5
  Accumulated other comprehensive loss                (49.2)       (22.1)
                                                   --------     --------
  Total shareholders' equity                        1,782.7      1,781.1
                                                   --------     --------
Total liabilities and shareholders' equity         $2,303.9     $2,288.8
                                                   ========     ========

NATIONAL SEMICONDUCTOR CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)    
                                                     Six Months Ended
                                                   ----------------------
                                                    Nov. 24,     Nov. 25,
                                                      2002         2001 
                                                    -------      -------
Cash flows from operating activities:
Net income(loss)                                    $   7.5     $ (101.2)
Adjustments to reconcile net income with net
  cash provided by operating activities:
  Depreciation and amortization                       113.8        114.8
  Gain on investments                                  (0.5)        (5.4)
  Loss on disposal of equipment                         1.6          1.6
  Noncash special items                                 0.7          1.1
  Other, net                                            0.3          0.2
  Changes in certain assets and liabilities, net:
    Receivables                                       (12.6)        20.3
    Inventories                                        (8.0)        23.1
    Other current assets                               (9.8)        (8.7)
    Accounts payable and accrued expenses              (1.9)       (52.2)
    Current and deferred income taxes                   8.6         21.8
    Other noncurrent liabilities                        7.3          4.6
                                                    -------      -------
Net cash provided by operating activities             107.0         20.0
                                                    -------      -------
Cash flows from investing activities:
Purchase of property, plant and equipment            (112.2)       (85.4)
Sale and maturity of available-for-sale securities    300.1         24.0
Purchase of available-for-sale securities            (290.2)       (74.6)
Sale of investments                                     8.7          6.7
Sale of equipment                                       2.3           -
Business acquisitions, net of cash acquired           (11.0)       (27.5)
Purchase of nonmarketable investments                 (12.2)       (10.1)
Funding of benefit plan                                (3.6)       (14.4)
Other, net                                              0.3          5.8
                                                    -------      -------
Net cash used by investing activities                (117.8)      (175.5)
                                                    -------      -------
Cash flows from financing activities:
Repayment of debt                                      (3.5)        (8.9)
Issuance of common stock, net                          19.4         54.8
                                                    -------      -------
Net cash provided by financing activities              15.9         45.9
                                                    -------      -------
Net change in cash and cash equivalents                 5.1       (109.6)
Cash and cash equivalents at beginning of period      681.3        817.8
                                                    -------      -------
Cash and cash equivalents at end of period          $ 686.4     $  708.2
                                                    =======      =======

PART I.  FINANCIAL INFORMATION
EARNINGS PER SHARE (Unaudited)
(in millions, except per share amounts)

                                 Three Months Ended     Six Months Ended
                                 ------------------     -----------------
                                 Nov. 24,  Nov. 25,    Nov. 24,  Nov. 25,
                                   2002      2001         2002     2001  
                                 -------    -------     -------   -------
Earnings(loss) per share: 
         Basic                   $  0.03   $ (0.26)     $  0.04  $  (0.58)
         Diluted                 $  0.03   $ (0.26)     $  0.04  $  (0.58)
Weighted-average shares: 
         Basic                     181.3    176.8        181.0     175.8
         Diluted                   182.0    176.8        184.5     175.8
   
Income(loss) used in basic and 
   diluted earnings per 
   common share calculation       $  6.2   $(46.6)      $  7.5   $(101.2)

NOTES TO FINANCIAL STATEMENTS:
(in millions)
                                 Three Months Ended    Six Months Ended
                                 ------------------    -----------------
                                 Nov. 24,   Nov. 25,   Nov. 24,  Nov. 25,
                                   2002       2001       2002     2001   
                                 -------    -------    -------   -------
Special items
-------------
In-process research and 
  development charges            $  0.7    $  -        $  0.7    $  1.1
                                 -------    -------    -------   -------
  Total special items            $  0.7    $  -        $  0.7    $  1.1
                                 =======    =======    =======   =======
              
Interest income, net
--------------------
Interest income                  $  4.1    $  6.6      $  8.6    $ 14.8
Interest expense                   (0.5)     (1.1)       (0.9)     (2.3)
                                 -------    -------    -------   -------
  Interest income, net           $  3.6    $  5.5      $  7.7    $ 12.5
                                 =======    =======    =======   =======
Other income(expense), net
--------------------------
Net intellectual property income $  2.5    $  0.4      $  4.1    $  1.7
Gain(loss) on investments          (2.9)     (1.7)       (6.0)      0.4
Other                                -       (0.6)         -       (0.6)
                                 -------    -------    -------   -------
  Total other income
    (expense), net               $ (0.4)   $ (1.9)     $ (1.9)   $  1.5
                                 =======    =======    =======   =======