-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SgSI5Hm6GkrOCE7CHepcspMHKuZs3nV0hWDLFno1bQJC7I54VnaORfUtjnWpj29M zhVSg7gbtZ8UmVY0m4OFjg== 0001047469-97-008699.txt : 19971224 0001047469-97-008699.hdr.sgml : 19971224 ACCESSION NUMBER: 0001047469-97-008699 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971123 FILED AS OF DATE: 19971223 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0001038272 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770449095 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-26897 FILM NUMBER: 97743424 BUSINESS ADDRESS: STREET 1: 333 WESTERN AVENUE STREET 2: MAIL STOP 01 00 CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 BUSINESS PHONE: 2077758100 MAIL ADDRESS: STREET 1: 333 WESTERN AVENUE STREET 2: MAIL STOP 01 00 CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 23, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ------- -------- Commission File Number: 333-26897 FAIRCHILD SEMICONDUCTOR CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 77-0449095 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 333 Western Avenue, Mail Stop 01-00 South Portland, Maine 04106 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (207) 775-8100 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 [ ]. The number of shares outstanding of the issuer's classes of common stock as of the close of business on December 18, 1997: Title of Each Class Number of Shares -------------------- ---------------- Common Stock; $0.01 par value 100 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE ---- Item 1 Financial Statements Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended November 23, 1997 and November 24, 1996........................... 3 Condensed Consolidated Balance Sheets as of November 23, 1997 (Unaudited) and May 25, 1997................................. 4 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three and Six Months Ended November 23, 1997................................................. 5 Notes to Condensed Consolidated Financial Statements (Unaudited)............................................ 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 9 Part II Other Information Item 1 Legal Proceedings................................................... 15 Item 6 Exhibits and Reports on Form 8-K.................................... 15 Signature................................................................... 16 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED NOVEMBER 23, NOVEMBER 24, NOVEMBER 23, NOVEMBER 24, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Revenue: Net sales--trade..................................... $ 155.3 $ 154.0 $ 314.0 $ 286.9 Contract manufacturing -- National Semiconductor..... 40.5 24.0 81.3 50.1 ------ ------ ------ ------ Total revenue...................................... 195.8 178.0 395.3 337.0 Direct costs and allocated expenses: Cost of sales--trade................................. 105.4 117.5 213.4 220.4 Cost of contract manufacturing -- National Semiconductor...................................... 31.3 24.0 61.4 50.1 Research and development............................. 7.8 4.3 14.9 8.5 Selling, general and administrative.................. 21.0 23.2 42.0 41.9 Restructuring of operations.......................... -- -- -- 5.3 ------ ------ ------ ------ Total operating costs and expenses................. 165.5 169.0 331.7 326.2 ------ ------ Operating income....................................... 30.3 63.6 Interest, net.......................................... 10.7 -- 21.7 -- Other expense.......................................... -- 0.5 -- 0.9 ------ ------ ------ ------ Income before income taxes............................. 19.6 41.9 Revenues less direct and allocated expenses before income taxes......................................... $ 8.5 $ 9.9 ====== ====== Income taxes........................................... 6.9 14.7 ------ ------ Net income............................................. $ 12.7 $ 27.2 ====== ======
See accompanying Notes to Condensed Consolidated Financial Statements. 3 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited) NOVEMBER 23, MAY 25, 1997 1997 ------------- ----------- ASSETS Current assets: Cash............................................ $ 79.1 $ 40.7 Receivables, net................................ 80.9 79.6 Inventories..................................... 78.2 73.1 Prepaid expenses and other current assets....... 11.7 16.6 Deferred income taxes........................... 2.1 2.1 ------ ------ Total current assets.......................... 252.0 212.1 Property, plant and equipment, net.............. 285.0 295.0 Deferred income taxes........................... 13.2 17.8 Other assets.................................... 28.9 29.4 ------ ------ Total assets.................................. $ 579.1 $ 554.3 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............... $ 11.0 $ 11.0 Accounts payable................................ 60.0 77.1 Accrued expenses and other current liabilities.. 57.9 40.1 ------ ------ Total current liabilities..................... 128.9 128.2 Long-term debt, less current portion.............. 403.5 409.0 Other liabilities................................. 0.4 0.4 ------ ------ Total liabilities............................. 532.8 537.6 Commitments and contingencies Stockholders' Equity: Common stock.................................... -- -- Additional paid-in capital...................... 12.0 9.6 Retained earnings............................... 34.3 7.1 ------ ------ Total stockholders' equity.................... 46.3 16.7 ------ ------ Total liabilities and stockholders' equity.... $ 579.1 $ 554.3 ====== ====== See accompanying Notes to Condensed Consolidated Financial Statements. 4 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) THREE MONTHS SIX MONTHS ENDED ENDED NOVEMBER 23, NOVEMBER 23, 1997 1997 -------------- ------------- Operating activities: Net income....................................... $ 12.7 $ 27.2 Addback non-cash adjustments to net income: Depreciation and amortization.................. 20.3 40.3 Loss on disposal of fixed assets............... 0.3 0.5 Deferred income taxes.......................... (0.6) 4.6 Changes in certain assets and liabilities, net: Accounts receivable............................ 16.9 1.2 Inventories.................................... (6.6) (5.1) Prepaid expenses and other current assets...... 2.6 4.9 Other assets................................... 0.2 0.1 Current liabilities............................ (5.2) 0.6 ----- ----- Cash provided by operating activities........ 40.6 74.3 Investing activities: Capital expenditures............................. (15.7) (27.5) Purchase of molds and tooling.................... (1.7) (2.9) ----- ----- Cash used by investing activities............ (17.4) (30.4) Financing activities: Repayment of long-term debt...................... (2.8) (5.5) ----- ----- Cash used by financing activities............ (2.8) (5.5) Net change in cash and cash equivalents............ 20.4 38.4 Cash and cash equivalents at beginning of period... 58.7 40.7 ----- ----- Cash and cash equivalents at end of period......... $ 79.1 $ 79.1 ===== ===== Cash paid for interest and taxes was $18.7 million and $3.0 million respectively for the three-month period ended November 23, 1997, and $22.6 million and $3.3 million respectively for the six-month period ended November 23, 1997. See accompanying Notes to Condensed Consolidated Financial Statements. 5 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1--BASIS OF PRESENTATION The Condensed Consolidated Balance Sheets of Fairchild Semiconductor Corporation (the "Company") as of November 23, 1997 and May 25, 1997 and the Condensed Consolidated Statements of Operations and Cash Flows for the three- and six-month periods ended November 23, 1997 were prepared by the Company. The Combined Condensed Statements of Operations of the Fairchild Semiconductor Business (the "Business") for the three- and six-month periods ending November 24, 1996 include all revenues and costs attributable to the Business as it was operated within National Semiconductor Corporation ("National"), including allocations for shared facilities and overhead. In addition, National performed cash management on a centralized basis. As a result, receivables, liabilities and cash receipts and payments were not identifiable on a business specific basis. Given these constraints, certain supplemental cash flow information is presented in lieu of statements of cash flows (Note 3). In the opinion of management, the accompanying condensed consolidated financial statements as of and for the three- and six-month periods ended November 23, 1997 contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position and results of operations of the Company. The allocations and estimates in the Combined Condensed Statements of Operations as of and for the three-and six-month periods ended November 24, 1996 were based on assumptions that management believes were reasonable under the circumstances. Interim results of operations are not necessarily indicative of the results to be expected for the full year. This report should be read in conjunction with the financial statements and notes thereto included in the special financial report on Form 10-K for the fiscal year ended May 25, 1997 and the Company's Registration Statement filed on Form S-4 dated July 9, 1997. NOTE 2--INVENTORIES The components of inventories are as follows: NOVEMBER 23, MAY 25, 1997 1997 --------------- ----------- (In millions) Raw materials....................................... $ 9.9 $ 8.8 Work in process..................................... 49.3 43.4 Finished goods...................................... 19.0 20.9 ----- ----- Total inventories................................. $ 78.2 $ 73.1 ===== ===== 6 NOTE 3--SUPPLEMENTAL CASH FLOW INFORMATION As described in Note 1, National's cash management system was not designed to trace centralized cash and related financing transactions to the specific cash requirements of the Business. In addition, National's corporate transaction systems were not designed to track receivables and certain liabilities and cash receipts and payments on a business specific basis. Given these constraints, the following unaudited data are presented to facilitate analysis of key components of cash flow activity: THREE MONTHS SIX MONTHS ENDED ENDED NOVEMBER 24, NOVEMBER 24, 1996 1996 ------------- ------------ (In millions) Operating activities: Revenues less expenses........................ $ 8.5 $ 9.9 Depreciation and amortization................. 19.5 37.6 Loss (gain) on disposal of fixed assets....... (0.2) 0.2 Decrease in inventories....................... 14.8 19.9 Increase in prepaid expenses and other current assets............................... (4.8) (0.8) Decrease in other assets...................... 1.5 0.7 Increase (decrease) in accounts payable....... 1.4 (16.3) Increase (decrease) in accrued expenses and other liabilities............................ (1.7) 9.1 ----- ----- Cash provided by operating activities....... 39.0 60.3 Investing activities: Capital expenditures.......................... (9.9) (30.6) Purchase of molds and tooling................. (1.6) (2.8) ----- ----- Cash used by investing activities........... (11.5) (33.4) ----- ----- Net financing provided to National Semiconductor *...................... $ 27.5 $ 26.9 ===== ===== - ------------------------ * Net financing provided to National Semiconductor does not necessarily represent the cash flows of the Business, or the timing of such cash flows, had it operated on a stand-alone basis. Note 4 -- Long-term Debt On November 18, 1997, the Company amended certain provisions of its Senior Credit Facilities Agreement with a syndicate of financial institutions. Specifically, the amount available under the Revolving Credit Facility was increased from $75 million to $130 million. In addition, certain restrictive covenants were amended in order to permit the acquisition of Raytheon Semiconductor, Inc. (Note 5). As of November 23, 1997, no amounts were outstanding under the Revolving Credit Facility. 7 Note 5 -- Subsequent Event On November 25, 1997, the Company signed an agreement to acquire all of the outstanding common stock of Raytheon Semiconductor, Inc., a California-based supplier of analog and mixed signal integrated circuits, for approximately $120 million in cash. The Company intends to finance the acquisition through a combination of borrowings under its existing Revolving Credit Facility (Note 4), borrowings under a new Tranche C term loan within its existing Senior Term Facility, and existing cash. In conjunction with the acquisition, the Company intends to refinance its existing Tranche B term loan with proceeds from the new Tranche C term loan. The new Tranche C term loan will mature on March 11, 2003 and will bear interest based on either the bank's base rate or the Eurodollar rate at the option of the Company. The transaction, which is presently expected to be completed by December 31, 1997, will be accounted for as a purchase. NOTE 6--RECLASSIFICATIONS Certain amounts in the unaudited financial statements for the three and six-month periods ended November 24, 1996 have been reclassified to conform to the presentation in the unaudited financial statements for the three and six-month periods ended November 23, 1997. In addition, certain non-cash adjustments were recorded in the second quarter to increase accounts receivable ($2.5 million) and current liabilities ($0.1 million), offset against additional paid in capital. The purpose of these adjustments was to properly state business equity assumed as part of the Recapitalization. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Fairchild Semiconductor Corporation (the "Company") is a leading designer, manufacturer and supplier of high-performance logic, non-volatile memory and discrete power and signal technology semiconductors, serving the telecommunications, consumer, industrial, personal systems and automotive markets. The results of operations for the second quarter and first half of fiscal 1997 (three- and six-month periods ended November 24, 1996) reflect the operating results of the Fairchild Semiconductor Business (the "Business") of National Semiconductor Corporation ("National"), and are not necessarily indicative of the results that would have been obtained as a stand-alone company. This is due in part to the fact that National allocated to the Business certain corporate and other overhead costs at levels higher than those experienced as a stand-alone company. In addition, the Business, prior to the establishment of the Company, provided manufacturing services to National at cost and now provides such services at higher prices. RESULTS OF OPERATIONS Net income was $12.7 million and $27.2 million for the second quarter and first half of fiscal 1998, respectively. As a stand-alone operation in fiscal 1998, the Company incurred interest expense and income tax expense of $10.7 million and $6.9 million, respectively, in the second quarter of fiscal 1998 and $21.7 million and $14.7 million, respectively, in the first half of fiscal 1998, that the Business did not incur in the comparable periods of fiscal 1997. Operating income was $30.3 million and $63.6 million in the second quarter and first half of fiscal 1998, respectively, compared to revenues less direct and allocated expenses before income taxes of $8.5 million and $9.9 million in the comparable periods of fiscal 1997. This increase is primarily attributable to higher trade revenues, particularly in the first quarter of fiscal 1998, as a result of improved market conditions, higher trade gross profit due to improved factory utilization and improved pricing, along with a one-time restructuring charge of $5.3 million for workforce reductions in first half of fiscal 1997 which did not recur in the first half of fiscal 1998. In addition, the Company generated $9.2 million and $19.9 million of gross profit on contract manufacturing services in the second quarter and first half of fiscal 1998, respectively, under manufacturing agreements with National. In the comparable periods of fiscal 1997, these revenues were recorded at cost. Excluding depreciation and amortization of $20.3 million and $40.3 million in the second quarter and first half of fiscal 1998, respectively, and $19.5 million and $37.6 million in the comparable periods of fiscal 1997, and other expense of $0.5 million and $0.9 million in the second quarter and first half of fiscal 1997, respectively, earnings before interest, taxes and depreciation and amortization ("EBITDA") were $50.6 million and $103.9 million in the second quarter and first half of fiscal 1998, respectively, compared to $28.5 million and $48.4 million in the comparable periods of fiscal 1997. EBITDA is presented because the Company believes that it is a widely accepted financial indicator of an entity's ability to incur and service debt. EBITDA should not be considered as an alternative to net income, operating income, or other consolidated operations and cash flow data prepared in accordance with generally accepted accounting principles, as an indicator of the operating performance of the Company, or as an alternative to cash flows as a measure of liquidity. 9 REVENUES The Company's revenues consist of trade sales to unaffiliated customers (79.3% and 79.4% of total revenues in the second quarter and first half of fiscal 1998, respectively, and 86.5% and 85.1% in the comparable periods of fiscal 1997) and revenues from contract manufacturing services provided to National (20.7% and 20.6% of total revenues in the second quarter and first half of fiscal 1998, respectively, and 13.5% and 14.9% in the comparable periods of fiscal 1997). Trade sales increased 1.0% to $155.3 million in the second quarter of fiscal 1998 compared to $154.0 million in the second quarter of fiscal 1997. On a year-to-date basis, trade sales increased 9.4% to $314.0 million compared to $286.9 million for the comparable period of fiscal 1997. Logic trade sales increased 7.0% and 12.3% in the second quarter and first half of fiscal 1998, respectively, over the comparable periods of fiscal 1997. The increase was driven by a significant increase in unit volume, reflecting strong market demand, which offset a slight decrease in average selling prices. In the second quarter of fiscal 1998, CMOS trade sales increased 14.6% over the second quarter of fiscal 1997, offsetting a decrease of 1.0% in Bipolar trade sales, reflective of the general market trend favoring CMOS. On a year-to-date basis, CMOS and Bipolar trade sales increased 15.5% and 8.9%, respectively, over the comparable periods of fiscal 1997. Discrete trade sales increased 18.6% and 26.1% in the second quarter and first half of fiscal 1998, respectively, over the comparable periods of fiscal 1997. The increase was due almost entirely to higher average selling prices, driven by new product introductions and a favorable sales mix, as unit volume was down slightly. Small Signal trade sales increased 39.4%, offsetting a decrease of 5.2% in Power DMOS trade sales in the second quarter of fiscal 1998 over the second quarter of fiscal 1997. Power DMOS trade sales in the second quarter of fiscal 1998 were impacted by manufacturing problems at the Company's facility in Cebu, Philippines, which have been rectified. On a year-to-date basis, Small Signal and Power DMOS trade sales increased 39.4% and 9.1%, respectively, over the comparable period of fiscal 1997. Memory trade sales decreased 28.4% and 13.9% in the second quarter and first half of fiscal 1998, respectively, over the comparable periods of fiscal 1997. The decrease was driven by lower prices impacting all product lines due to competitive pressures, partially offset by higher volume, particularly in E2PROM. E2PROM trade sales decreased 0.7% in the second quarter of fiscal 1998 over the second quarter of fiscal 1997, but have increased 16.4% in the first half of fiscal 1998 over the first half of fiscal 1997. EPROM trade sales decreased 56.5% and 44.0% in the second quarter and first half of fiscal 1998, respectively, over the comparable periods of fiscal 1997. Geographically, 38%, 22% and 40% of trade sales were derived in North America, Europe and Asia/Pacific, respectively, in the second quarter of fiscal 1998, compared to 38%, 19% and 43% in the second quarter of fiscal 1997. Trade sales in Europe increased 15.7% over a year ago due to strength in the telecommunications market, which offset a decrease of 5.2% in Asia/Pacific, due in part to the delayed transition to a dedicated sales force in Japan and price pressures, particularly in Memory, in Southeast Asia. North America trade sales were flat year over year. On a year-to-date basis, 37%, 20% and 43% of trade sales were derived in North America, Europe and Asia/Pacific, respectively, compared to 39%, 19% and 42% in the first half of fiscal 1997. Trade sales in all regions were higher in the first half of fiscal 1998 compared to a year ago. Trade sales increased 4.0%, 14.9% and 12.2% in North America, Europe and Asia/Pacific, respectively, the result of improved market conditions. 10 Contract manufacturing revenues increased 68.8% to $40.5 million in the second quarter of fiscal 1998 compared to $24.0 million in the second quarter of fiscal 1997. On a year-to-date basis, contract manufacturing revenues increased 62.3% to $81.3 million, compared to $50.1 million for the comparable period in fiscal 1997. This increase reflects greater demand from National. GROSS PROFIT Gross profit increased 61.9% to $59.1 million in the second quarter of fiscal 1998, compared to $36.5 million in the second quarter of fiscal 1997. On a year-to-date basis, gross profit increased 81.2% to $120.5 million from $66.5 million for the comparable period of fiscal 1997. Included in gross profit in the second quarter and first half of fiscal 1998 is $9.2 million and $19.9 million, respectively, attributable to contract manufacturing services provided to National. In the comparable periods of fiscal 1997, these revenues were recorded at cost. Gross trade profit (excluding contract manufacturing) increased 36.7% and 51.3% in the second quarter and first half of fiscal 1998, respectively, over the comparable periods of fiscal 1997. As a percentage of trade sales, gross trade profits were 32.1% and 32.0% in the second quarter and first half of fiscal 1998, respectively, compared to 23.7% and 23.2% in the comparable periods of fiscal 1997. The increase in gross trade profit as a percentage of trade sales was due to higher average selling prices, increased factory utilization due to improved market conditions and the favorable effects of currency devaluations in Southeast Asia on the Company's manufacturing costs. RESEARCH AND DEVELOPMENT Research and development expenses ("R&D") were $7.8 million, or 5.0% of trade sales in the second quarter of fiscal 1998, compared to $4.3 million, or 2.8% of trade sales in the second quarter of fiscal 1997. On a year-to-date basis, R&D was $14.9 million, or 4.7% of trade sales, compared to $8.5 million, or 3.0% of trade sales, for the comparable period of fiscal 1997. The increase in R&D is driven by higher spending to support new product development, reflecting renewed emphasis on R&D efforts as a stand-alone company. R&D efforts are focused on the Company's growth products: CMOS Logic, Power DMOS, and E2PROM. In the second quarter and first half of fiscal 1998, R&D expenditures were 8.8% and 8.3% of trade sales, respectively, for these growth products, and 0.9% and 1.0% of trade sales, respectively, for the Company's mature products (Bipolar Logic, Small Signal Discretes and EPROM). In the comparable periods of fiscal 1997, R&D expenditures of the Business primarily consisted of allocations from National. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses ("SG&A") were $21.0 million, or 13.5% of trade sales, in the second quarter of fiscal 1998, compared to $23.2 million, or 15.1% of trade sales, in the second quarter of fiscal 1997. On a year-to-date basis, SG&A was $42.0 million, or 13.4% of trade sales, compared to $41.9 million, or 14.6% of trade sales for the comparable period of fiscal 1997. The decrease in SG&A as a percent of trade sales is primarily attributable to the effect of one-time retention and incentive bonuses charged to SG&A in the second quarter of fiscal 1997 which did not recur in the second quarter of fiscal 1998, lower G&A expenses due to lower stand-alone costs compared to the direct and allocated G&A expenses of the Business, offset by higher selling expenses primarily related to inefficiencies experienced while operating under transition service agreements with National. 11 RESTRUCTURING The first half of fiscal 1997 included a one-time restructuring charge of $5.3 million for severance and other costs directly attributable to a workforce reduction. INTEREST, NET Interest, net was $10.7 million and $21.7 million in the second quarter and first half of fiscal 1998, respectively, as a result of indebtedness incurred concurrent with the Recapitalization, which occurred in the fourth quarter of fiscal 1997. In the comparable periods of fiscal 1997, the Business was allocated net interest expense from National. This amount is included in other expense. OTHER EXPENSE Other expense was $0.5 million and $0.9 million in the second quarter and first half of fiscal 1997, respectively, consisting of primarily net interest expense allocated to the Business by National. There were no comparable amounts incurred in the comparable periods of fiscal 1998. INCOME TAXES Income taxes were $6.9 million and $14.7 million in the second quarter and first half of fiscal 1998, respectively, an effective tax rate of 35%. In the comparable periods of fiscal 1997, the Business did not record a tax provision or pay income taxes as it operated as a division of National. LIQUIDITY AND CAPITAL RESOURCES As of November 23, 1997, the Company's cash balance was $79.1 million, an increase of $38.4 million from May 25, 1997. In addition, the Company had available a Revolving Credit Facility of $130 million on November 23, 1997, under which no amounts were outstanding. The Business had no cash as of November 24, 1996, as cash management was centralized by National and amounts were not identifiable on a business specific basis. In the second quarter and first half of fiscal 1998, the Company generated sufficient cash from operations to fund its research and development, capital expenditure and debt service requirements. Research and development expenditures are made primarily to fund new product development. Capital expenditures in the second quarter and first half of fiscal 1998 and for the remainder of the fiscal year are being made primarily to increase capacity in the Company's manufacturing facilities and to purchase and install an enterprise-wide information system. The Company expects that its existing cash together with available funds from its amended Senior Credit Facilities, and funds generated from operations, will be sufficient to meet its investing and financing requirements for the next twelve months. The Company utilizes financial instruments to hedge its overall exposure to the effects of foreign currency and interest rate fluctuations. The Company utilizes short-term forward contracts to hedge currency exposure when deemed necessary for expenses denominated in Malaysian ringgit and Philippine pesos, as well as revenues denominated in Japanese yen and the major European currencies. The recent devaluation of several currencies in Southeast Asia against the U.S. dollar has not had, nor does the Company 12 presently expect it to have, a material adverse effect on the Company's results of operations or financial condition. The Company currently benefits from lower dollar-denominated expenses incurred by its manufacturing operations in Southeast Asia. The effect of lower manufacturing costs is presently expected to substantially offset any adverse impact to the Company's revenues in the region for the remainder of the fiscal year, which may result from soft market conditions created by the devaluations and other economic factors. Deferred gains from hedging transactions were immaterial to the financial statements in the second quarter and first half of fiscal 1998. The Company does not speculate in these financial instruments. OUTLOOK AND BUSINESS RISKS The statements contained under this heading and in the Liquidity and Capital Resources section of Management's Discussion and Analysis, other than statements of historical facts, are forward looking statements based on current expectations and management's estimates, which involve risks and uncertainties. Actual results may differ materially from those set forth in such forward looking statements. The following factors may affect the Company's operating results for fiscal 1998: (i) the potential effect of the Company's substantially leveraged financial condition on its liquidity, its ability to fund capital expenditures, working capital and research and development and its ability to withstand adverse general economic, market or competitive conditions and developments; (ii) restrictive covenants contained in the Company's debt instruments that could limit its ability to borrow additional funds, dispose of or acquire assets or fund capital expenditures; (iii) the highly cyclical and competitive nature of the semiconductor industry; (iv) the Company's dependence on continued demand for the end-products such as personal computers, telecommunications, automotive, and consumer and industrial electronic goods that incorporate the Company's products; (v) the need to design, develop, manufacture, market and support new products in order to remain competitive in the Company's markets; (vi) the Company's dependence on sales to National Semiconductor; (vii) the Company's dependence on the availability and cost of new materials used in its products and upon key subcontractors providing it with wafer fabrication, assembly and test services; (viii) the Company's reliance on complex manufacturing processes and its sensitivity to maintaining yields, efficiencies and continuous operations; (ix) uncertainties and legal risks associated with the dependence on, and potential disputes concerning, patents and other intellectual property rights; and (x) foreign currency and other risks associated with operating a business internationally. On November 25, 1997, the Company announced it had reached an agreement to acquire all of the outstanding common stock of Raytheon Semiconductor, Inc. ("Raytheon") for approximately $120 million in cash. Raytheon designs, manufactures and markets high-performance analog and mixed signal integrated circuits for the personal computer, communications, broadcast video and industrial markets. The transaction, which is presently expected to be completed by December 31, 1997, will be accounted for as a purchase. While the Company expects to recognize special charges related to certain acquisition and related expenses during its third quarter, the amount of such charges and their impact on the Company's operating results have yet to be determined. The Company believes that its products, technologies and capabilities and those of Raytheon are complementary, and that the separate operations are compatible. However, the integration of the companies and the Company's higher leverage resulting from the acquisition may have an unfavorable impact on future operating results if the Company encounters unforeseen obstacles, or is unable to successfully execute its integration plan. 13 The Company relies on certain subcontractors for wafer fabrication and assembly and test services. In particular, the Company utilizes NS Electronics (Bangkok) Ltd. ("NS Electronics") as a subcontractor for a significant portion of assembly and test services for its non-volatile memory products. NS Electronics has common ownership and business and management relationships with Alphatec Electronics Public Company Ltd. ("Alphatec"). Alphatec has recently reported financial difficulties, and its ability to continue its current operations and the impact of such on the operations of NS Electronics are uncertain. The Company's contract with NS Electronics expired on November 23, 1997 and negotiations to renew the contract are in progress. While negotiations continue, the parties have agreed to operate under the pricing arrangements of the proposed contract, which are generally favorable to the Company. The Company continues to explore sourcing alternatives, including other subcontractors and expansion of internal capacity. There can be no assurance that the Company would be able to replace any loss of assembly or test services as a result of adverse developments affecting Alphatec and NS Electronics, nor any assurance that such services could be replaced on terms equally favorable to the Company. Accordingly, should NS Electronics cease or sharply curtail its operations in the near future, there could be a material adverse effect on the Company's results of operations in fiscal 1998. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time the Company is involved in legal proceedings arising in the ordinary course of its business. Management believes there is no litigation pending that could have a material adverse effect on its results of operations or its financial condition. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 10.1 First Amendment to Credit Agreement dated November 18, 1997 27 Financial Data Schedule b) Reports on Form 8-K Fairchild Semiconductor Corporation filed no reports on Form 8-K during the quarter ended November 23, 1997. Items 2, 3, 4 and 5 are not applicable and have been omitted. 15 SIGNATURE Pursuant to the requirements 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. FAIRCHILD SEMICONDUCTOR CORPORATION Date: December 23, 1997 By: /s/ Joseph R. Martin --------------------------------- Joseph R. Martin Executive Vice President, Finance Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) 16 EX-10.1 2 EX-10.1 Exhibit 10.1 FIRST AMENDMENT TO CREDIT AGREEMENT FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of November 18, 1997, among FSC SEMICONDUCTOR CORPORATION, a Delaware corporation ("Holdings"), FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Borrower"), the lenders party to the Credit Agreement referred to below (the "Banks"), BANKERS TRUST COMPANY, as Administrative Agent (the "Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Syndication Agent (the "Syndication Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE, as Documentation Agent (the "Documentation Agent", and together with the Administrative Agent and the Syndication Agent, the "Agents"). Unless otherwise defined herein, all capitalized terms used herein and defined in the Credit Agreement are used herein as so defined. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Banks, the Administrative Agent, the Syndication Agent and the Documentation Agent are parties to a Credit Agreement, dated as of March 11, 1997 (as amended, modified or supplemented through the date hereof, the "Credit Agreement"); WHEREAS, the Borrower desires to acquire substantially all of the assets (or 100% of the capital stock of a corporation or other entity to be formed to own and operate the business) of the Raytheon Semiconductor Division of the Raytheon Company, for a purchase price not to exceed $120,000,000, pursuant to an acquisition agreement (the "Acquisition Agreement") between the Borrower and the Raytheon Company which conforms in all material respects to the Exclusivity Agreement, dated October 27, 1997, summarizing the terms and conditions of the Acquisition Agreement (the "Summary of Terms"), attached hereto as Schedule I (collectively, the "Raytheon Acquisition"); WHEREAS, in connection with the Raytheon Acquisition and in order to consummate same, the Banks have agreed to increase the Total Revolving Loan Commitment as set forth herein; WHEREAS, subject to the terms and conditions set forth herein, the Banks desire to (i) permit the Borrower to consummate the Raytheon Acquisition and (ii) amend the Credit Agreement as provided herein; and WHEREAS, subject to the terms and conditions set forth below, the parties hereto agree as follows; NOW, THEREFORE, it is agreed: 1. Notwithstanding anything to the contrary contained in Sections 9.02, 9.05 and 9.14 of the Credit Agreement, the Banks hereby consent to the Borrower consummating the Raytheon Acquisition, so long as (i) any Liens or Indebtedness issued or assumed in connection with the Raytheon Acquisition are otherwise permitted under the Credit Agreement, (ii) promptly after (but in no event later than 30 days after) the consummation of the Raytheon Acquisition, 100% (or, in the case of a Foreign Subsidiary, excluding that portion of the voting stock of such Foreign Subsidiary which would be in excess of 65% of the total outstanding voting stock of such Foreign Subsidiary) of the capital stock of any Subsidiary acquired pursuant to the Raytheon Acquisition is pledged and delivered to the Collateral Agent for the benefit of the Secured Creditors pursuant the Pledge Agreement, (iii) within 10 days after the Raytheon Acquisition, each newly acquired Domestic Wholly-Owned Subsidiary (x) executes and delivers a counterpart of the Subsidiaries Guaranty and (y) secures the Borrower's obligations pursuant to the Credit Agreement and the other Credit Documents (or such Subsidiary's obligations pursuant to a Subsidiaries Guaranty) by executing a counterpart of the Security Agreement and the Pledge Agreement and (iv) no Default or Event of Default then exists or would result therefrom. 2. Section 9.05(ii) is hereby amended by deleting the number "$5,000,000" appearing in the last line therein and inserting in lieu thereof the number "$75,000,000". 3. The Credit Agreement is hereby amended by inserting the following new Section 13.19: "13.19. (a) The Borrower covenants and agrees that on and after the First Amendment Effective Date, it shall not be permitted to incur Loans or have Letters of Credit issued which would cause the sum of the then outstanding principal amount of Revolving Loans and Swingline Loans and Letter of Credit Outstandings to exceed $75,000,000 unless, in connection with any such Credit Event, the Borrower establishes to the satisfaction of the Administrative Agent (including by the delivery of a certificate of the Borrower's chief financial officer setting forth in reasonable detail the reasons therefor) that such incurrence of such -2- Loans or issuance of such Letter of Credit would be permitted pursuant to the terms of the Senior Subordinated Note Indenture." 4. On and after the Increase Effective Date (as defined below), Schedule I to the Credit Agreement shall be hereby amended by deleting the column entitled "Revolving Loan Commitment" appearing therein and inserting in lieu thereof as a new column entitled "Revolving Loan Commitment" the information set forth on Schedule II attached hereto, which Schedule II reflects an increase in the Total Revolving Loan Commitment of $55,000,000. The Borrower and the Banks hereby agree to the $55,000,000 increase in the Total Revolving Loan Commitment. Each Bank hereby acknowledges and agrees that from and after the Increase Effective Date its Revolving Loan Commitment shall be the amount set forth opposite such Bank's name on Schedule II attached hereto, as such amount may be adjusted from time to time in accordance with the terms of the Credit Agreement. In connection with the increase in the Total Revolving Loan Commitment pursuant to this Section 4, the Borrower shall, in coordination with the Administrative Agent and the Banks, repay outstanding Revolving Loans of certain Banks and, if necessary, incur additional Revolving Loans from other Banks, in each case so that the Banks participate in each Borrowing of outstanding Revolving Loans pro rata on the basis of their Revolving Loan Commitments (after giving effect to this Amendment). It is hereby agreed that any breakage or similar costs of the type described in Section 1.11 of the Credit Agreement incurred by the Banks in connection with any repayment or reborrowing of Revolving Loans contemplated by this Section 4 shall be for the account of the Borrower. 5. Each Credit Party hereby agrees that, (i) on or after the Increase Effective Date and upon the reasonable request of the Collateral Agent, such Credit Party will execute such amendments to the Mortgages as the Collateral Agent shall reasonably require in connection with the transactions contemplated by this Amendment and (ii) all Revolving Loans, Swingline Loans and Letters of Credit incurred pursuant to the additional Total Revolving Loan Commitment effected hereby shall also be entitled to the benefits of the Security Documents and the Guaranties. 6. The Borrower hereby covenants and agrees that, on the Increase Effective Date, the Borrower shall have executed and delivered to the Administrative Agent for the benefit of each Bank with a Revolving Loan Commitment and whose Revolving Loan Commitment is being increased pursuant to Section 4 of this Amendment (each such Bank, an "Increasing Bank") a new Revolving Note reflecting the increased Revolving Loan Commitment of such Bank, and the Increasing Banks shall surrender to the Borrower the Revolving Notes so replaced. -3- 7. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that (i) the representations, warranties and agreements contained in Section 7 of the Credit Agreement are true and correct in all material respects on and as of the First Amendment Effective Date (except with respect to any representations and warranties limited by their terms to a specific date, which shall be true and correct in all material respects as of such date), (ii) there exists no Default or Event of Default on the First Amendment Effective Date, in each case both before and after giving effect to this Amendment and (iii) neither the execution, delivery or performance by any credit Party of this Amendment, nor the consummation of the transactions contemplated hereby (including, the incurrence of the additional Total Revolving Loan Commitment as contemplated herein) violates or will violate any term, provision or condition of the Senior Subordinated Note Documents, and no consents or approvals shall be required to be obtained by Holdings or any of its Subsidiaries from the holders of the Senior Subordinated Notes in connection with the transactions contemplated herein. 8. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 9. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent. 10. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 11. This Amendment shall become effective on the date (the "First Amendment Effective Date") when Holdings, the Borrower, each Subsidiary Guarantor, the Required Banks and each Increasing Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile) the same to the Administrative Agent at the Notice Office. 12. For the purposes of this Amendment, the Increase Effective Date shall mean the date on which all of the following conditions have been satisfied: (a) The First Amendment Effective Date shall have occurred; -4- (b) There shall have been delivered to the Administrative Agent and the Banks true and correct copies of the Acquisition Agreement, which shall conform in all material respects with the terms and conditions set forth in the Summary of Terms attached hereto as Schedule I with any material departures or waivers therefrom to be reasonably satisfactory to the Agents and the Required Banks; the Acquisition Agreement shall have been duly executed and delivered by the parties thereto and shall be in full force and effect; all conditions precedent to the consummation of the Raytheon Acquisition as set forth in the Acquisition Agreement shall have been satisfied, and not waived except with the consent (which will not be unreasonably withheld) of each Agent and the Required Banks, to the satisfaction of each Agent and the Required Banks; and the Raytheon Acquisition shall have been, or shall substantially contemporaneously (and in any event on the Increase Effective Date) be, consummated in accordance with the Acquisition Agreement and all applicable law (excluding immaterial violations of law which could not reasonably be expected to have, in the aggregate for all such violations, a material adverse effect on the consummation of the Raytheon Acquisition or on the operations, financial condition or prospects of Holdings and its Subsidiaries taken as a whole); (c) After giving effect to the Raytheon Acquisition, nothing shall have occurred (and neither the Banks nor the Agents shall have become aware of any facts or conditions not previously known) which the Agents or the Required Banks shall determine (i) has, or is reasonably likely to have, a material adverse effect on the rights or remedies of the Banks or the Agents, or on the ability of the Credit Parties to perform their obligations to them, or (ii) has, or is reasonably likely to have, a material adverse effect on the operations, financial condition or prospects of Holdings and its Subsidiaries taken as a whole; (d) The Administrative Agent shall have received from Pierce Atwood, counsel to Holdings and its Subsidiaries, an opinion addressed to each of the Agents and each of the Banks, in form and substance satisfactory to the Agents, and covering such matters incident to this Amendment and the transactions contemplated herein (including the matters set forth in Section 13.19 of the Credit Agreement (as amended hereby) as the Agents may reasonably request; and (e) The Administrative Agent shall have received resolutions of the Board of Directors of each Credit Party, which resolutions shall be certified by the Secretary or any Assistant Secretary of such Credit Party and shall authorize the execution, delivery and performance by such Credit Party of this Amendment and the consummation of the transactions contemplated hereby, and the foregoing shall be reasonably acceptable to the Agents in their reasonable discretion; -5- 13. From and after the First Amendment Effective Date, all references in the Credit Agreement and the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. * * * -6- IN WITNESSES WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. FSC SEMICONDUCTOR CORPORATION By_______________________ Name: Title: FAIRCHILD SEMICONDUCTOR CORPORATION By__________________________ Name: Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By___________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, Individually and as Syndication Agent By___________________________ Name: Title: By___________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, Individually and as Documentation Agent By___________________________ Name: Title: ABN AMRO BANK, N.V. By___________________________ Name: Title: By___________________________ Name: Title: BANKBOSTON, N.A. By___________________________ Name: Title: THE BANK OF NOVA SCOTIA By___________________________ Name: Title: BANK OF SCOTLAND By___________________________ Name: Title: BANK OF TOKYO-MITSUBISHI By___________________________ Name: Title: BANQUE FRANCAISE DU COMMERCE EXTERIEUR By___________________________ Name: Title: CHANCELLOR SENIOR SECURED MANAGEMENT By___________________________ Name: Title: CORESTATES BANK, N.A. By___________________________ Name: Title: DRESDNER BANK AG, New York Branch and Grand Cayman Branch By___________________________ Name: Title: By___________________________ Name: Title: SENIOR DEBT PORTFOLIO By Boston Management and Research, as Investment Advisor By___________________________ Name: Title: FIRST SOURCE FINANCIAL LLP By First Source Financial, Inc., its Agent/Manager By___________________________ Name: Title: FLEET NATIONAL BANK By___________________________ Name: Title: THE FUJI BANK, LIMITED NEW YORK BRANCH By___________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By___________________________ Name: Title: KEYBANK NATIONAL ASSOCIATION By___________________________ Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By___________________________ Name: Title: THE MITSUBISHI TRUST & BANKING CORPORATION, LOS ANGELES AGENCY By___________________________ Name: Title: PILGRIM AMERICA PRIME RATE TRUST By___________________________ Name: Title: PNC BANK, NATIONAL ASSOCIATION By___________________________ Name: Title: PRIME INCOME TRUST By___________________________ Name: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By___________________________ Name: Title: SCHEDULE I See attached. SCHEDULE II Revolving Bank Loan Commitment _____ __________ Bankers Trust Company $30,083,333.34 Credit Suisse First Boston 30,083,333.33 Canadian Imperial Bank of Commerce 10,833,333.33 PNC Bank National Association 5,000,000.00 Fleet National Bank 5,000,000.00 The Fuji Bank, Limited New York Branch 5,000,000.00 Bank of Scotland 4,000,000.00 ABN Amro Bank, N.V. 4,000,000.00 First Source Financial LLP 4,000,000.00 Corestates Bank, N.A. 4,000,000.00 Bank of Tokyo-Mitsubishi 4,000,000.00 The Bank of Nova Scotia 4,000,000.00 The First National Bank of Boston 4,000,000.00 General Electric Capital Corporation 4,000,000.00 Banque Francaise du Commerce Exterieur 4,000,000.00 The Mitsubishi Trust & Banking Corporation, Los Angeles Agency 4,000,000.00 Dresdner Bank AG, New York Branch and Grand Cayman Branch 4,000,000.00 Van Kampen American Capital Prime Rate Income Trust -- Pilgrim America Prime Rate Trust -- Prime Income Trust -- Merrill Lynch Senior Floating Rate Fund, Inc. -- Total $130,000,000.00 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS MAY-31-1998 MAY-31-1998 AUG-25-1997 MAY-26-1997 NOV-23-1997 NOV-23-1997 79,100 79,100 0 0 94,100 94,100 13,200 13,200 78,200 78,200 252,000 252,000 709,100 709,100 424,100 424,100 579,100 579,100 128,900 128,900 403,500 403,500 0 0 0 0 0 0 46,300 46,300 579,100 579,100 195,800 395,300 195,800 395,300 136,700 274,800 165,500 331,700 0 0 0 0 10,700 21,700 19,600 41,900 6,900 14,700 12,700 27,200 0 0 0 0 0 0 12,700 27,200 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----