National Semiconductor Reports Results for Third Quarter Fiscal 2008

SANTA CLARA, Calif., March 6 /PRNewswire-FirstCall/ -- National Semiconductor Corporation today reported sales of $453.4 million and net income of $71.2 million, or 28 cents per share, for the third quarter of fiscal 2008 which ended February 24, 2008. National's third quarter of fiscal 2008 results included $19.6 million of pre-tax severance and restructuring expenses related to a previously announced factory modernization effort. Third quarter results also included approximately $11 million of discrete tax benefits that were recognized in the quarter.

National's third quarter fiscal 2008 sales decreased 9.1 percent sequentially from the second quarter of fiscal 2008, when the company reported $499.0 million in sales and earnings of 33 cents per share.

"Our business was impacted by lower-than-expected shipments into the wireless handset and personal mobile device markets; however, our margins held up well," said Brian L. Halla, National's chairman and CEO.

Gross margin of 64.3 percent in National's third quarter of fiscal 2008 was down slightly from the 64.4 percent gross margin percentage achieved in the second quarter of fiscal 2008. Notwithstanding the sequential decline in revenues, third quarter gross margin benefited from higher-value product mix as well as manufacturing efficiencies.

Compared to last year, third quarter fiscal 2008 sales were up from the $431.0 million reported in the third quarter of fiscal 2007, and earnings per share were above the 22 cents recorded a year ago. Gross margin in the third quarter of fiscal 2008 was also higher than the 59.8 percent reported in the third quarter of fiscal 2007 due to improvements in both product mix and manufacturing.

Bookings for Q3, Fiscal 2008

National's bookings in the third quarter of fiscal 2008 declined sequentially by approximately 14 percent, driven primarily by lower orders for wireless handsets and other personal mobile devices. Regionally, the third quarter bookings decrease was most prominent in Asia Pacific and Europe.

Other Notable Items in Q3, Fiscal 2008 Results

Included in third quarter fiscal 2008 results was $22.4 million in pre-tax stock compensation expense under FASB Statement 123(R). One year ago, the third quarter of fiscal 2007 included $29.5 million of pre-tax stock compensation expense. Third quarter fiscal 2008 net results also included approximately $11 million of discrete tax benefits.

Outlook for Q4, Fiscal 2008

National anticipates that sales in the fourth quarter of fiscal 2008 will range from $440 million to $460 million.

Stock Repurchase Program

During the third quarter of fiscal 2008, the company repurchased approximately $120 million of stock under its stock buyback program. As of the end of the third quarter of fiscal 2008, National had approximately $480 million of authorization still available under approved programs for future stock repurchases. National Semiconductor's fully diluted weighted average share count for the third quarter of fiscal of 2008 was 255.5 million shares, down from 271.5 million shares in the second quarter of fiscal 2008.

Company Declares Dividend

The company announced that the Board of Directors today has declared a cash dividend of $0.06 per outstanding share of common stock. This dividend will be paid on April 7, 2008 to shareholders of record at the close of business on March 17, 2008.

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. Except for historical information contained herein, the matters set forth in this press release, including management's expectations regarding future performance, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks and uncertainties include, but are not restricted to, such factors as 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 Annual Report on Form 10-K for the fiscal year ended May 27, 2007 under the captions "Outlook", "Risk Factors" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" contained therein and the 10-Q for the quarter ended November 25, 2007.

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, communications infrastructure, medical, automotive, industrial, and test and measurement applications. Headquartered in Santa Clara, Calif., National reported sales of $1.93 billion for fiscal 2007, which ended May 27, 2007. Additional company and product information is available at http://www.national.com/.

NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In millions, except per share amounts) Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2008 2007 2008 2007 Net sales $453.4 $431.0 $1,423.9 $1,474.0 Cost of sales 161.7 173.3 514.1 586.6 Gross margin 291.7 257.7 909.8 887.4 Research and development 87.1 89.7 272.8 268.0 Selling, general and administrative 77.4 76.4 235.7 235.9 Severance and restructuring expenses 19.6 - 18.1 4.0 Gain on sale of manufacturing plant assets - - (3.1) - Litigation settlement - - 3.3 - In-process research and development charge - 6.1 - 6.1 Other operating (income) expense, net 0.4 (0.2) (0.2) (2.2) Operating expenses 184.5 172.0 526.6 511.8 Operating income 107.2 85.7 383.2 375.6 Interest income 7.7 9.4 29.0 30.3 Interest expense (22.6) (0.4) (65.9) (1.3) Other non-operating income (expense), net (5.4) 0.1 (7.3) 1.1 Income before taxes 86.9 94.8 339.0 405.7 Income tax expense 15.7 21.1 91.6 120.5 Net income $71.2 $73.7 $247.4 $285.2 Earnings per share: Basic $0.29 $0.23 $0.96 $0.89 Diluted $0.28 $0.22 $0.92 $0.85 Selected income statement ratios as a percentage of sales: Gross margin 64.3% 59.8% 63.9% 60.2% Research and development 19.2% 20.8% 19.2% 18.2% Selling, general and administrative 17.1% 17.7% 16.6% 16.0% Net income 15.7% 17.1% 17.4% 19.3% Effective tax rate 18.1% 22.3% 27.0% 29.7% NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) Feb. 24, May 27, 2008 2007 ASSETS Current assets: Cash and cash equivalents $871.0 $828.6 Receivables 153.5 150.6 Inventories 146.4 176.0 Deferred tax assets 100.9 73.2 Other current assets 25.5 62.1 Total current assets 1,297.3 1,290.5 Net property, plant and equipment 564.8 583.5 Goodwill 60.5 63.6 Deferred tax assets 233.6 194.4 Other assets 91.7 69.9 Total assets $2,247.9 $2,201.9 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $62.5 $- Accounts payable 71.0 59.9 Accrued expenses 161.2 122.7 Income taxes payable 26.8 117.4 Total current liabilities 321.5 300.0 Long-term debt 1,428.8 20.6 Long-term income taxes payable 143.8 - Other non-current liabilities 96.2 132.5 Total liabilities 1,990.3 453.1 Commitments and contingencies Shareholders' equity: Common stock of $0.50 par value 121.3 155.1 Retained earnings 228.6 1,685.7 Accumulated other comprehensive loss (92.3) (92.0) Total shareholders' equity 257.6 1,748.8 Total liabilities and shareholders' equity $2,247.9 $2,201.9 NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Nine Months Ended Feb. 24, Feb. 25, 2008 2007 Cash flows from operating activities: Net income $247.4 $285.2 Adjustments to reconcile net income with net cash provided by operating activities: Depreciation and amortization 99.7 110.5 Share-based compensation expense 70.0 86.6 Excess tax benefit from share-based payment arrangements (13.8) (7.0) Tax benefit associated with stock options 23.5 18.4 Loss (gain) on investments 7.1 (1.1) Loss on disposal of equipment 2.9 0.9 Non-cash restructuring expenses 4.5 - Gain on sale of manufacturing plant assets (3.1) - In-process research and development charge - 6.1 Other, net 2.3 0.8 Changes in certain assets and liabilities, net: Receivables (3.0) 41.8 Inventories 29.8 20.2 Other current assets 21.5 (6.8) Accounts payable and accrued expenses 35.8 (122.4) Income taxes 21.9 (17.4) Other non-current liabilities (28.4) 15.4 Net cash provided by operating activities 518.1 431.2 Cash flows from investing activities: Purchase of property, plant and equipment (79.3) (88.3) Business acquisition, net of cash acquired - (8.2) Proceeds from sale of property, plant, and equipment 16.5 0.6 Sale and maturity of available-for-sale securities - 110.8 Proceeds from sale of investments 0.2 - Funding of benefit plan (5.5) (7.9) Other, net (1.9) 1.9 Net cash (used in) provided by investing activities (70.0) 8.9 Cash flows from financing activities: Proceeds from unsecured senior notes, net of issuance costs 992.9 - Proceeds from bank borrowings, net of issuance costs 1,996.5 - Repayment of bank borrowing (1,531.2) - Payment on software license obligations (8.7) (8.7) Excess tax benefit from share-based payment arrangements 13.8 7.0 Minimum tax withholding paid on behalf of employees for net share settlements (14.2) (1.1) Issuance of common stock 81.2 44.5 Purchase and retirement of treasury stock (1,899.8) (603.8) Cash dividends declared and paid (36.2) (32.5) Net cash used in financing activities (405.7) (594.6) Net change in cash and cash equivalents 42.4 (154.5) Cash and cash equivalents at beginning of period 828.6 932.2 Cash and cash equivalents at end of period $871.0 $777.7 PART I. FINANCIAL INFORMATION EARNINGS PER SHARE (Unaudited) (In millions, except per share amounts) Three Months Ended Nine Months Ended Feb. 24, Feb. 25, Feb. 24, Feb. 25, 2008 2007 2008 2007 Earnings per share: Basic $ 0.29 $ 0.23 $ 0.96 $ 0.89 Diluted $ 0.28 $ 0.22 $ 0.92 $ 0.85 Net income used in basic and diluted earnings per share calculation $ 71.2 $ 73.7 $247.4 $285.2 Weighted-average shares: Basic 245.4 315.7 258.2 322.0 Diluted 255.5 330.1 270.3 336.4 OTHER FINANCIAL STATEMENT DETAIL (In millions) Three Months Ended Nine Months Ended Other operating Feb. 24, Feb. 25, Feb. 24, Feb. 25, (income) expense, net 2008 2007 2008 2007 Net intellectual property income $ (0.1) $ (0.2) $ (0.2) $ (1.2) Other 0.5 - - (1.0) Total other operating (income) expense, net $ 0.4 $ (0.2) $ (0.2) $ (2.2) Other non-operating income (expense), net Gain (loss) on investments $ (5.4) $0.1 $ (7.1) $1.1 Charitable contribution - - (0.2) - Total other non-operating income (expense), net $ (5.4) $0.1 $ (7.3) $1.1

The loss on investments of $5.4 million in the third quarter of fiscal 2008 represents a decline in the market value of the investment assets held in a trust for the employee deferred compensation plan. The decline in the market value of the investment assets in this same trust for the first nine months of fiscal 2008 was $7.3 million, which was partially offset by a $0.2 million gain from other investments not associated with the deferred compensation plan.

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