=> National Semiconductor Reports Results for Second Quarter Fiscal 2007 <=

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07.12.2006 22:04

National Semiconductor Reports Results for Second Quarter Fiscal 2007

SANTA CLARA, Calif., Dec. 7 /PRNewswire-FirstCall/ -- National Semiconductor Corporation today reported net income of $91.4 million, or 27 cents per share, on revenues of $501.6 million for the second quarter of fiscal 2007, which ended November 26, 2006. National's second quarter of fiscal 2007 results included $33.2 million in pre-tax stock compensation expenses accounted for under FASB Statement 123( R ).

On a sequential basis, National's second quarter of fiscal 2007 revenues declined 7.4 percent from the first quarter, when the company reported $541.4 million in revenues and earnings of 35 cents per share. The sequential revenue decline was mainly due to two key factors: lower shipments to distributors who, despite experiencing flat resales of National's products, reduced their inventories during the quarter and, secondly, an approximately $21 million decrease in foundry revenues for previously sold Cordless and PC Super I/O businesses as originally projected. Year over year, National's second quarter sales decreased 7.8 percent from the second quarter of fiscal 2006, when the company reported sales of $544.0 million and earnings of 32 cents per share.

Gross margin in National's second quarter of fiscal 2007 was 58.9 percent. This was lower than last quarter's gross margin of 61.7 percent but was an increase over the 57.2 percent gross margin posted one year ago in the second quarter of fiscal 2006.

The sequential decline in gross margin percentage was due to lower manufacturing volume, as the company reduced its wafer fabrication utilization and lowered its inventory by nearly $18 million during the second quarter.

"While customer end demand did not demonstrate the seasonal uptick we usually see this time of year, the revenue decline this quarter was driven by inventory reductions at our distributors and some of our customers," said Brian L. Halla, National's chairman and CEO. "Responding to this, we were able to bring down our inventories and still hold gross margins at almost 59 percent."

Noteworthy Items

National's second-quarter results included $33.2 million in pre-tax stock compensation expenses under FASB Statement 123( R ) of which $6.6 million was included in cost of sales, and the remainder was included in operating expenses. National began accounting for stock compensation expenses under FASB Statement 123( R ) in the first quarter of fiscal 2007. Total pre-tax stock compensation expenses in the first quarter were $23.9 million.

Booking Patterns for Q2, Fiscal 2007

National's total company bookings in the second quarter of fiscal 2007 declined by 16 percent sequentially. This decrease was driven by lower orders from OEM customers and contract manufacturers. Bookings from distributors also decreased in the quarter but to a lesser extent. Total company billings exceeded bookings in the second quarter.

Outlook for Q3, Fiscal 2007

National anticipates that revenues in the third quarter of fiscal 2007 will decrease approximately 8 to 11 percent from second-quarter levels. At these sales levels, gross margin percentage is anticipated to decline slightly in the third quarter.

Company to Pay Dividend

As announced on October 6, 2006, National declared a cash dividend of $0.04 per outstanding share of common stock, an increase from the prior quarterly cash dividend of $0.03 per share. This dividend will be paid January 8, 2007 to shareholders of record at the close of business on December 18, 2006.

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 quarter, the degree of factory utilization, the sale of inventories at existing prices, and the ramp up and sale of new analog products. Other risk factors are included in the Company's 10-K for the year ended May 28, 2006 (see Outlook and Risk Factors sections of Management's Discussion and Analysis of Financial Conditions and Results of Operations) and the 10-Q for the quarter ended August 27, 2006.

About National Semiconductor

National Semiconductor, the industry's premier analog company, creates high-value analog devices and subsystems. National's leading-edge products include power management circuits, display drivers, audio and operational amplifiers, interface products and data conversion solutions. National's key analog markets include wireless handsets, displays and a variety of broad electronics markets, including medical, automotive, industrial, and test and measurement applications. Headquartered in Santa Clara, Calif., National reported sales of $2.16 billion for fiscal 2006, which ended May 28, 2006. Additional company and product information is available at http://www.national.com/.

Media Contact: Financial: LuAnn Jenkins Long Ly National Semiconductor National Semiconductor 408-721-2440 408-721-5007 luann.jenkins@nsc.com invest.group@nsc.com NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In millions, except per share amounts) Three Months Ended Six Months Ended Nov. 26, Nov. 27, Nov. 26, Nov. 27, 2006 2005 2006 2005 Net sales $501.6 $544.0 $1,043.0 $1,037.8 Cost of sales 206.2 232.7 413.3 448.8 Gross margin 295.4 311.3 629.7 589.0 Research and development 89.5 80.7 178.3 161.2 Selling, general and administrative 80.9 69.6 159.5 136.3 Severance and restructuring expenses 1.3 2.7 4.0 30.7 Gain on sale of business -- -- -- (24.3) Other operating income, net (0.7) (2.4) (2.0) (3.4) Operating expenses, net 171.0 150.6 339.8 300.5 Operating income 124.4 160.7 289.9 288.5 Interest income, net 9.5 7.5 20.0 14.6 Other non-operating income (expense), net 1.1 0.6 1.0 (1.9) Income before taxes 135.0 168.8 310.9 301.2 Income tax expense 43.6 54.1 99.4 100.9 Net income $91.4 $114.7 $211.5 $200.3 Earnings per share: Basic $0.28 $0.34 $0.65 $0.58 Diluted $0.27 $0.32 $0.62 $0.56 Selected income statement ratios as a percentage of sales: Gross margin 58.9% 57.2% 60.4% 56.8% Research and development 17.8% 14.8% 17.1% 15.5% Selling, general and administrative 16.1% 12.8% 15.3% 13.1% Net income 18.2% 21.1% 20.3% 19.3% Effective tax rate 32.3% 32.0% 32.0% 33.5% NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) Nov. 26, May 28, 2006 2006 ASSETS Current assets: Cash and cash equivalents $780.6 $932.2 Short-term marketable investments -- 110.3 Receivables 184.7 208.6 Inventories 177.8 189.4 Deferred tax assets 81.5 74.7 Other current assets 49.5 25.3 Total current assets 1,274.1 1,540.5 Net property, plant and equipment 615.9 627.7 Goodwill 57.3 57.3 Deferred tax assets 194.3 185.7 Other assets 91.0 99.9 Total assets $2,232.6 $2,511.1 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $64.1 $108.8 Accrued expenses 133.1 191.0 Income taxes payable 96.2 98.5 Total current liabilities 293.4 398.3 Long-term debt 21.1 21.1 Other non-current liabilities 170.7 165.6 Total liabilities 485.2 585.0 Commitments and contingencies Shareholders' equity: Common stock 159.3 167.8 Additional paid-in capital 146.2 504.2 Retained earnings 1,555.1 1,376.2 Unearned compensation -- (8.6) Accumulated other comprehensive loss (113.2) (113.5) Total shareholders' equity 1,747.4 1,926.1 Total liabilities and shareholders' equity $2,232.6 $2,511.1 NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Six Months Ended Nov. 26, Nov. 27, 2006 2005 Cash flows from operating activities: Net income $211.5 $200.3 Adjustments to reconcile net income with net cash provided by operating activities: Depreciation and amortization 74.6 82.8 Share-based compensation expense 57.1 7.9 Excess tax benefit from share-based payment arrangements (4.6) -- Tax benefit associated with stock options 9.3 45.0 (Gain) loss on investments (1.0) 1.3 Share in net losses of equity-method investments -- 0.6 Loss on disposal of equipment 0.7 1.4 Gain on sale of businesses -- (24.3) Non-cash other operating income, net -- (0.2) Other, net 0.7 (1.9) Changes in certain assets and liabilities, net: Receivables 23.9 (44.8) Inventories 14.9 9.5 Other current assets (0.6) 17.2 Accounts payable and accrued expenses (94.7) 33.4 Current and deferred income taxes (18.7) 31.3 Other non-current assets -- (9.6) Other non-current liabilities 5.1 16.3 Net cash provided by operating activities 278.2 366.2 Cash flows from investing activities: Purchase of property, plant and equipment (70.6) (46.4) Sale of equipment -- 0.7 Sale of business -- 60.0 Sale and maturity of available-for-sale securities 110.8 -- Sale of investments -- 0.3 Funding of benefit plan (8.2) (3.0) Other, net 0.8 (2.0) Net cash provided by investing activities 32.8 9.6 Cash flows from financing activities: Payment on software license obligations (8.4) (13.1) Excess tax benefit from share-based payment arrangements 4.6 -- Issuance of common stock 36.6 149.1 Purchase and retirement of treasury stock (462.8) (550.6) Cash dividends declared and paid (32.6) (13.9) Net cash used in financing activities (462.6) (428.5) Net decrease in cash and cash equivalents (151.6) (52.7) Cash and cash equivalents at beginning of period 932.2 867.1 Cash and cash equivalents at end of period $ 780.6 $ 814.4 PART I. FINANCIAL INFORMATION EARNINGS PER SHARE (Unaudited) (In millions, except per share amounts) Three Months Ended Six Months Ended Nov. 26, Nov. 27, Nov. 26, Nov. 27, 2006 2005 2006 2005 Earnings per share: Basic $0.28 $0.34 $0.65 $0.58 Diluted $0.27 $0.32 $0.62 $0.56 Net income used in basic and diluted earnings per share calculation $91.4 $114.7 $211.5 $200.3 Weighted-average shares: Basic 320.9 339.7 325.2 342.8 Diluted 335.6 356.7 339.6 360.2 OTHER FINANCIAL STATEMENT DETAIL (In millions) Three Months Ended Six Months Ended Other operating Nov. 26, Nov. 27, Nov. 26, Nov. 27, income, net 2006 2005 2006 2005 Net intellectual property income $(0.4) $(0.7) $(1.0) $(1.4) Other (0.3) (1.7) (1.0) (2.0) Total other operating income, net $(0.7) $(2.4) $ (2.0) $(3.4) Interest income, net Interest income $9.9 $7.9 $20.9 $15.3 Interest expense (0.4) (0.4) (0.9) (0.7) Interest income, net $9.5 $7.5 $20.0 $14.6 Other non-operating income (expense), net Gain (loss) on investments $1.1 $0.9 $ 1.0 $(1.3) Share in net losses of equity-method Investments -- (0.3) -- (0.6) Total other non-operating income (expense), net $1.1 $0.6 $1.0 $(1.9)

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