-----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, L+KpRsgHHmtjyh+0idhOVrYDQXH6mf3J0wCWaSbDD1TlvE0XdiXRLIq8GDaWDIFk Dbh4qhXPu2BTSPsxSCrXKA== 0001047469-98-036926.txt : 19981012 0001047469-98-036926.hdr.sgml : 19981012 ACCESSION NUMBER: 0001047469-98-036926 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980830 FILED AS OF DATE: 19981009 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: 98723783 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 August 30, 1998 [ ] 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 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 September 30, 1998:
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 Months Ended August 30, 1998 and August 24, 1997 .................................................................... 3 Condensed Consolidated Balance Sheets as of August 30, 1998 (Unaudited) and May 31, 1998 ....................................................... 4 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended August 30, 1998 and August 24, 1997 .................................................................... 5 Notes to Condensed Consolidated Financial Statements (Unaudited) ...................................................................... 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................... 7 Part II. Other Information Item 1 Legal Proceedings ......................................................................... 12 Item 6 Exhibits and Reports on Form 8-K .......................................................... 12 Signature .......................................................................................... 13
2 PART I. FINANCIAL INFORMATION Item 1, Financial Statements FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended ---------------------- August 30, August 24, 1998 1997 ---- ---- (In millions) Revenue: Net sales--trade $ 135.1 $ 158.7 Contract manufacturing--National Semiconductor 9.9 40.8 --- ---- Total revenue 145.0 199.5 Operating expenses: Cost of sales 106.3 108.0 Cost of contract manufacturing--National Semiconductor 8.3 30.1 Research and development 9.2 7.1 Selling, general and administrative 22.6 21.0 Restructuring 4.5 -- ----- ----- Total operating expenses 150.9 166.2 ----- ----- Operating income (loss) (5.9) 33.3 Interest, net 11.9 11.0 ---- ---- Income (loss) before income taxes (17.8) 22.3 Provision (benefit) for income taxes (3.5) 7.8 ---- --- Net income (loss) $ (14.3) $ 14.5 -------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements. 3 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) August 30, May 31, 1998 1998 ---- ---- ASSETS (In millions) Current assets: Cash and cash equivalents $ 5.0 $ 6.5 Receivables, net 75.5 75.0 Inventories 106.1 108.0 Other current assets 11.0 20.0 ---- ---- Total current assets 197.6 209.5 Property, plant and equipment, net 333.4 342.9 Deferred income taxes 20.9 17.5 Intangible assets, net 30.6 31.5 Other assets 33.0 30.4 ---- ---- Total assets $ 615.5 $ 631.8 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt $ 29.8 $ 13.2 Accounts payable 60.2 77.7 Accrued expenses and other current liabilities 54.2 55.9 ---- ---- Total current liabilities 144.2 146.8 Long-term debt, less current portion 438.1 438.1 Other liabilities 1.2 0.6 --- --- Total liabilities 583.5 585.5 Commitments and contingencies Stockholder's equity: Common stock -- -- Additional paid-in capital 12.0 12.0 Retained earnings 20.0 34.3 ---- ---- Total stockholder's equity 32.0 46.3 ---- ---- Total liabilities and stockholder's equity $ 615.5 $ 631.8 -------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements. 4 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended ---------------------- August 30, August 24, 1998 1997 ---- ---- (In millions) Cash flows from operating activities: Net income (loss) $ (14.3) $ 14.5 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization 23.3 20.0 Restructing charge, net of cash expended 2.4 -- (Gain) loss on disposal of property, plant and equipment (0.2) 0.2 Deferred income taxes (3.5) 5.2 Changes in operating assets and liabilities, net: Accounts receivable (0.5) (15.7) Inventories 1.9 1.5 Prepaid expenses and other current assets 9.1 2.3 Current liabilities (20.8) 5.8 Other assets and liabilities (2.7) (0.1) ------- ------- Cash provided by (used in) operating activities (5.3) 33.7 Cash flows from investing activities: Capital expenditures (13.0) (11.8) Proceeds from sale of property, plant and equipment 1.0 -- Purchase of molds and tooling (0.8) (1.2) ------- ------- Cash used in investing activities (12.8) (13.0) Cash flows from financing activities: Proceeds from revolving credit facility, net 16.6 -- Repayment of long-term debt -- (2.7) ------- ------- Cash provided by (used in) financing activities 16.6 (2.7) ------- ------- Net change in cash and cash equivalents (1.5) 18.0 Cash and cash equivalents at beginning of period 6.5 40.7 ------- ------- Cash and cash equivalents at end of period $ 5.0 $ 58.7 ------- ------- ------- ------- Supplemental cash flow information: Cash paid for: Income taxes $ 0.2 $ 0.3 ------- ------- ------- ------- Interest $ 3.4 $ 3.9 ------- ------- ------- -------
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 August 30, 1998 and May 31, 1998 and the Condensed Consolidated Statements of Operations and Cash Flows for the three-month periods ended August 30, 1998 and August 24, 1997 were prepared by the Company. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position and results of operations of the Company. 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 consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended May 31, 1998. Note 2 - Inventories The components of inventories are as follows:
August 30, May 31, 1998 1998 ---- ---- (In millions) Raw materials $ 9.4 $ 13.0 Work in process 72.0 69.5 Finished goods 24.7 25.5 -------- ------- Total inventories $ 106.1 $ 108.0 -------- ------- -------- -------
Note 3 - Restructuring charge In the first quarter of fiscal 1999, in connection with management's plan to reduce costs and improve operating efficiencies, the Company recorded a pre-tax restructuring charge of approximately $4.5 million. The restructuring charge consisted of $0.8 million related to non-cash asset impairments and $3.7 million of employee separation costs. The charge for employee separation arrangements accrues for the termination and other severance costs associated with the approximately 600 salaried, hourly and temporary employees severed as a result of this action, a reduction of approximately 10% of the Company's payroll. Through the first quarter of fiscal 1999, approximately $2.1 million of these costs have been paid with the remaining $1.6 million of accruals to be expended by the end of fiscal 1999. Note 4 - Long-term debt Effective August 25, 1998, the Company executed a Second Amendment to its Amended and Restated Credit Agreement, modifying certain restrictive financial and operating covenants with which (as modified) the Company was in compliance at August 30, 1998. All other terms and conditions of the Credit Agreement remained unchanged. 6 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, discrete power and signal technology and analog and mixed signal semiconductors, serving the telecommunications, consumer, industrial, personal systems and automotive markets. Results of Operations The Company incurred a net loss of $14.3 million in the first quarter of fiscal 1999, compared to net income of $14.5 million in the first quarter of fiscal 1998. Fiscal 1999 first quarter net loss includes a net loss of $0.3 million for Raytheon Semiconductor ("Raytheon" or "Analog"), which was not acquired until the third quarter of fiscal 1998. Excluding a one-time restructuring charge of $4.5 million, Fairchild had an operating loss for the first three months of fiscal 1999 of $1.4 million as compared to operating income of $33.3 million in the same period last year. Analog operations broke even for the first three months of fiscal 1999. The decrease is primarily attributable to lower trade and contract manufacturing revenues and a corresponding deterioration in margins resulting from soft market conditions, due to excess personal computer inventories in the sales channels and adverse effects on semiconductor demand driven by economic uncertainty in Southeast Asia. These forces have combined to cause excess capacity in the semiconductor industry resulting in price and margin erosion. Excluding depreciation and amortization of $23.3 million and $20.0 million in the first quarters of fiscal 1999 and 1998, respectively, and one-time charges, earnings before interest, taxes, depreciation and amortization ("EBITDA") were $21.9 million in the first quarter of fiscal 1999 compared to $53.3 million in the first quarter of fiscal 1998. Excluding Analog, EBITDA was $19.7 million for the first three months of fiscal 1999, a 63% reduction from the comparable period of fiscal 1998. 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. Revenues The Company's revenues consist of trade sales to unaffiliated customers (93.2% and 79.5% of total revenues in the first quarters of fiscal 1999 and 1998, respectively) and revenues from contract manufacturing services provided to National Semiconductor ("National") (6.8% and 20.5% of total revenues in the first quarters of fiscal 1999 and 1998, respectively). Trade revenues decreased 14.9% to $135.1 million in the first quarter of fiscal 1999 compared with $158.7 million in the first quarter of fiscal 1998. Trade sales for the three months ended August 30, 1998 include those of Analog. Excluding Analog, trade sales decreased 25.5% over the comparable period in fiscal 1998. This decline impacted all product groups and is the result of continued industry-wide market softness, which began in the second half of fiscal 1998. Logic, Discrete and Memory trade sales decreased by 23.3%, 18.8% and 41.4%, respectively, in the first quarter of fiscal 1999 over the first quarter of fiscal 1998. Geographically, excluding Analog, 37%, 22% and 41% of trade sales were derived from North America, Europe and Asia/Pacific, respectively, in the first quarter of fiscal 1999 compared to 36%, 19% and 45% in the first quarter of fiscal 1998. All regions experienced decreases in trade sales in the first quarter of fiscal 1999 compared to the first quarter of fiscal 1998. Trade sales decreased by 23.5%, 13.9% and 32.1% in North America, Europe and Asia/Pacific, respectively. Contract manufacturing revenues decreased sharply in the first quarter of fiscal 1999 to $9.9 million compared to $40.8 million in the first quarter of fiscal 1998, reflecting reduced demand from National. 7 Gross Profit Gross profit decreased 50.5% to $30.4 million in the first quarter of fiscal 1999 compared to $61.4 million in the first quarter of fiscal 1998. Excluding the effect of Raytheon, gross trade profit decreased 60.1% in the first quarter of fiscal 1999 over the first quarter of fiscal 1998. As a percentage of trade sales, gross trade profits were 21.3% in the first quarter of fiscal 1999, compared to 32.0% in the first quarter of fiscal 1998. The decrease in gross trade profit as a percentage of trade sales was due to lower average selling prices and decreased factory utilization due to soft market conditions. Contract manufacturing gross profit decreased 85.1% to $1.6 million in the first quarter of fiscal 1999 compared to $10.7 million in the first quarter of fiscal 1998. Contract manufacturing gross profit for the first quarter of fiscal 1999 includes $6.2 million of fixed cost reimbursement under the Company's manufacturing agreements with National. Research and Development Research and development expenses ("R&D") were $9.2 million, or 6.8% of trade sales, in the first quarter of fiscal 1999, compared to $7.1 million, or 4.5% of trade sales, in the first quarter of fiscal 1998. The increase in R&D expenses is driven by R&D costs incurred by Analog in fiscal 1999 which the Company did not incur in fiscal 1998. R&D efforts are focused on the Company's growth products: CMOS Logic, DMOS, EEPROM and Analog. In the first quarters of fiscal 1999 and 1998, R&D expenditures were 9.3% and 7.3% of trade sales, respectively, for these growth products, and 0.8% and 0.8% of trade sales, respectively, for the Company's mature products (Bipolar Logic, Bipolar Discretes and EPROM). Selling, General and Administrative Selling, general and administrative expenses ("SG&A") were $22.6 million, or 16.7% of trade sales, in the first quarter of fiscal 1999, compared to $21.0 million, or 13.2% of trade sales, in the first quarter of fiscal 1998. The increase in SG&A expenses is primarily the result of the incremental SG&A expenses of Analog, which the Company did not incur in the first quarter of fiscal 1998. Restructuring The Company incurred a pre-tax restructuring charge of approximately $4.5 million in the first quarter of fiscal 1999. The charge consisted of $0.8 million related to non-cash asset impairments and $3.7 million of employee separation costs which are expected to be substantially expended by the end of fiscal 1999. Interest, Net Interest, net was $11.9 million in the first quarter of fiscal 1999, compared to $11.0 million in the first quarter of fiscal 1998. The increase is principally the result of indebtedness incurred to fund the Raytheon acquisition, which occurred in the third quarter of fiscal 1998. Income Taxes Income tax expense (benefit) was $(3.5) million for the first quarter of fiscal 1999, compared to $7.8 million in the first quarter of fiscal 1998. The effective tax rates for the first quarter of fiscal 1999 and 1998 were 19.7% and 35.0%, respectively. The decrease in the effective tax rate is due to the Company's inability to carry-back current year net operating losses due to the short time the Company has operated as a stand-alone entity. 8 Liquidity and Capital Resources As of August 30, 1998, the Company's cash and cash equivalents balance was $5.0 million, a decrease of $1.5 million from May 31, 1998. In addition, the Company had $113.4 million available under its Revolving Credit Facility at August 30, 1998. During the three months ended August 30, 1998, the Company's operations used $5.3 million in cash compared to $33.7 million generated from operating activities in the first three months of fiscal 1998. The decrease in cash provided by operating activities reflects a decrease in net income adjusted for noncash items of $32.2 million as well as a decrease in cash flows from changes in operating assets and liabilities of $6.8 million. Cash used in investing activities during the first three months of fiscal 1999 totaled $12.8 million compared to $13.0 million in the first three months of fiscal 1998. Capital expenditures in the first quarter of fiscal 1999 were being made principally to purchase and install the Company's enterprise-wide information system whereas in the first quarter of fiscal 1998, capital purchases were being made primarily to increase capacity in the Company's manufacturing facilities. Cash provided by financing activities of $16.6 million for the first three months of fiscal 1999 was the result of net proceeds from the Company's Revolving Credit Facility. Cash used in financing activities of $2.7 million for the first three months of fiscal 1998 was due to repayments of long-term debt. The Company expects that its existing cash together with funds available from its amended Senior Credit Facilities and funds generated from operations will be sufficient to meet its anticipated operating requirements and to fund its research and development and capital expenditures for the next twelve months. Capital expenditures for the balance of fiscal 1999 will be primarily made for the completion of the enterprise software system implementation and to increase assembly and test capacity. 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 and option contracts to hedge currency exposure when deemed necessary for expenses denominated in Malaysian ringgit and Philippine peso, as well as revenues denominated in Japanese yen and the major European currencies. The devaluation of several currencies in Southeast Asia against the U.S. dollar and the recent currency restrictions imposed by the Malaysian government have not had, nor does the Company presently expect these events 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, and the fact that its sales in that region (excluding Japan) are denominated in U.S. dollars. As discussed in greater depth in "Outlook and Business Risks," recent economic developments and the associated currency devaluations have softened demand in that region, thereby negatively affecting the Company's revenues and profitability. Deferred gains from hedging transactions were immaterial to the Company's operating results in the first quarters of fiscal 1999 and 1998. The Company does not speculate in these financial instruments. Outlook and Business Risks The statements contained under this heading and elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations", 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 or contemplated by such forward-looking statements. The following factors may affect the Company's operating results for fiscal 1999: (i) the potential effect of the Company's substantially leveraged financial condition on its liquidity, its ability to fund capital expenditures, working capital, debt service 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 9 additional funds, dispose of or acquire assets or fund capital expenditures; (iii) the highly cyclical and competitive nature of the semiconductor industry and the potential for continued softness in demand; (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 ability to successfully integrate Raytheon and other potential acquisitions into the Company's operations and the resultant risk of losing key customers or employees of the acquired operation; (vii) the Company's dependence on sales to National Semiconductor; (viii) the Company's dependence on the availability and cost of raw materials used in its products and upon key subcontractors providing it with wafer fabrication, assembly and test services; (ix) the Company's reliance on complex manufacturing processes and its sensitivity to maintaining yields, efficiencies and continuous operations; (x) uncertainties and legal risks associated with the dependence on, and potential disputes concerning, patents and other intellectual property rights; and (xi) foreign currency and other risks associated with operating a global business. The industry is currently experiencing soft market conditions, which began in the second half of fiscal 1998, due to the Asian financial crisis and an inventory correction in the personal computer market, resulting in excess capacity in the semiconductor industry as a whole. These factors have combined to cause severe price pressures and reduced demand, which will continue to negatively impact the Company's trade revenues and gross profit in the second quarter of fiscal 1999 as compared to the second quarter of fiscal 1998. In response, the Company has undertaken cost reduction initiatives, including factory shutdowns and headcount reductions. Despite these actions and a recent upswing in order rates, the Company expects its trade revenues and gross profit as a percent of sales in the second quarter of fiscal 1999 to remain substantially below the comparable period of fiscal 1998. No assurance can be given that order rates will continue to improve, nor that such cost reduction measures will produce improved gross profit in the subsequent periods of fiscal 1999 and beyond. In the fourth quarter of fiscal 1998, National informed the Company that its demand would be significantly lower in fiscal 1999 than in fiscal 1998. This has resulted in significantly lower contract manufacturing revenues in the first quarter of fiscal 1999 as compared to the first quarter of fiscal 1998 and will result in substantially lower contract manufacturing revenues throughout fiscal 1999 as compared to fiscal 1998. Such reduced demand will negatively impact factory utilization, particularly in the 6-inch fab in South Portland, Maine. National, under the terms of the Asset Purchase Agreement (the "Agreement"), is obligated to purchase an aggregate of $330.0 million of contract manufacturing services during the 39 month period which began March 11, 1997, including a minimum of $90.0 million of contract manufacturing services in fiscal 1999. In addition, National is obligated to cover a contractually agreed-upon amount of fixed costs in the Company's 6-inch fab in South Portland, Maine in fiscal 1999. While National's ordering and payment schedules for fiscal 1999 remain under discussion, National has reaffirmed its commitment to remain in compliance with the terms of the Agreement. The combination of soft market conditions and reduced demand from National will result in a net loss for the second quarter of fiscal 1999. In addition, start-up issues with the shipping and logistics modules of the Company's enterprise software system have caused a temporary increase in delinquent backlog; however, the Company has experienced no significant cancellations of backlog, and expects the problem to be resolved by the end of the second quarter. No assurance can be given that such start-up issues will not have a further negative effect on trade revenues and profit in the second quarter. Should prices, order rates and the Company's ability to serve its backlog not improve during the second quarter or National not comply with its obligations under the Agreement, the Company may experience a loss in the third quarter of Fiscal Year 1999 and in subsequent periods as well. In light of the foregoing conditions and uncertainties, the Company expects substantially lower profits in fiscal 1999 as compared to fiscal 1998 (and potentially a net loss in fiscal 1999). 10 The Company's assembly and test facilities, as well as certain subcontractors for wafer fabrication and assembly and test services, are located in Southeast Asia and Japan. Reliance on these facilities, as well as subcontractors located in this region of the world, entails certain risks, both political and economic, including political instability, asset seizures or nationalizations, currency controls and exchange rate fluctuations. While the Company has not experienced any significant disruptions in its operations in that part of the world, no assurance can be given that such continued economic and political instability would not result in an adverse effect on the Company's operations or financial condition. In the fourth quarter of fiscal 1997, the Company commenced its enterprise software system implementation project for the purpose of separating from National's business systems. The system, which became operational for several of the Company's critical business processes in the first quarter of fiscal 1999, is year 2000 compliant. Additional modules of the system are scheduled to be implemented throughout fiscal 1999. The Company's business is dependent upon its information systems as an integral part of all major business processes. As the Company begins the implementation of critical operational and logistical modules, there is a risk that these implementations could be delayed, could experience difficulties or in fact may not be successful and could adversely affect future results of operations and cash flows. Additionally, internal resources have been redeployed to identify, test and correct year 2000 problems in other systems throughout the Company, including those systems embedded in the Company's machinery and equipment. The Company is also reviewing the year 2000 readiness and compliance of its principal suppliers of products and services, in order to identify and assess any negative impacts that such non-compliances could have on the Company. In addition, the Company is working with its customers to identify potential year 2000 issues with its products. To date, none have been identified. Management expects that its assessments will be completed by December 31, 1998. During the first quarters of fiscal 1999 and 1998, respectively, incremental amounts incurred and charged to expense to identify, test and correct such other year 2000 problems were immaterial to the financial statements. Future incremental expenditures are currently estimated to be approximately $2.0 million, the majority of which should be incurred before the end of fiscal 1999. Although management believes the Company's systems will be year 2000 compliant, the failure of the Company's suppliers and customers to address the year 2000 issue could result in disruption to the Company's operations and have a significant adverse impact on its results of operations, the extent of which the Company has not yet estimated. The Company is not actively engaged in preparing contingency plans in the event that key suppliers or customers fail to become year 2000 compliant. However, the Company, in the ordinary course of business, seeks to expand its customer base to lessen dependence on any one customer for a significant portion of its revenues, and seeks second sources of supply for its key products and services where appropriate. 11 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 Credit Agreement - Second Amendment as of August 25, 1998 27 Financial Data Schedule b) Reports on Form 8-K Fairchild Semiconductor Corporation filed no reports on Form 8-K during the quarter ended August 30, 1998. Items 2, 3, 4 and 5 are not applicable and have been omitted. 12 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: October 9, 1998 By: /s/ Joseph R. Martin --------------------------------------- Executive Vice President, Finance Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) EX-10.1 2 EX-10.1 EXHIBIT 10.1 SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Second Amendment"), dated as of August 25, 1998, 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 and amended and restated as of December 31, 1997 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. Section 4.02(f) of the Credit Agreement is hereby amended by (i) in clause (iv) of the first parenthetical thereof, deleting the word "and" appearing at the end thereof, (ii) redesignating clause "(v)" of the first parenthetical thereof as clause "(vi)" thereof (and changing the reference in said clause to "clause (v)" to "clause (vi)"), (iii) inserting, immediately after clause (iv) of the first parenthetical thereof, the following: ", (v) 50% of the Net Sale Proceeds from the sale of the Mountain View Property but only to the extent that the Borrower has delivered a certificate to the Administrative Agent on or prior to the date of such sale stating that the Borrower (or any of its Subsidiaries which are Guarantors) intends to apply such Net Sale Proceeds towards Capital Expenditures within 270 days after the date of such sale and" and (iv) deleting the last sentence thereof and inserting in lieu thereof the following new sentence: "To the extent any Net Sale Proceeds are not required to be applied pursuant to this Section 4.02(f) as a result of clause (iv) or (v) contained in the parenthetical appearing in the first sentence of this Section 4.02(f), then on the 270th day after the date of the respective sale or disposition, the Net Sale Proceeds from the respective sale or disposition shall be applied as otherwise required by this Section 4.02(f) (determined without regard to clause (iv) or (v), as the case may be, contained in the parenthetical appearing in this first sentence of this Section 4.02(f)) to the extent not actually used as contemplated by said clause (iv) or (v), as the case may be, by said 270th day." 2. Section 9.02 of the Credit Agreement is hereby amended by (i) in clause (ix) thereof, deleting the word "and" appearing at the end thereof, (ii) in clause (x) thereof, deleting the period appearing at the end thereof and inserting in lieu thereof a semi-colon and (iii) inserting in appropriate order the following new clause: "(xi) the Borrower (or its Subsidiary that is the fee owner of the Mountain View Property) shall be permitted to consummate the sale of the Mountain View Property, so long as (A) such sale is for fair market value (as determined in good faith by the Board of Directors of the Borrower (or such Subsidiary)), (B) such sale results in consideration consisting of at least 85% (for this purpose, taking the amount of cash and the fair market value of all non-cash consideration, as determined in good faith by the Borrower (or such Subsidiary)) of cash, (C) such sale is consummated (and the Net Sale Proceeds therefrom are applied in accordance with, and to the extent required by, Section 4.02(f)) on or prior to May 28, 2000 and (D) there shall exist no Default or Event of Default (both before and after giving effect thereto)." 3. Section 9.07 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 9.07: "9.07 Capital Expenditures. (a) Holdings will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that (x) during the fiscal year ended May 31, 1998 (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $85,000,000, (y) during each of the fiscal year ended May 30, 1999 (taken as one accounting period) and the fiscal year ended May 28, 2000 (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $50,000,000 in each such fiscal year and (z) during each fiscal year thereafter (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $105,000,000. (b) Notwithstanding anything to the contrary contained in clause (a) above, to the extent that the aggregate amount of Capital Expenditures made by the Borrower and its Subsidiaries pursuant to Section 9.07(a) in any fiscal year of the Borrower is less than $85,000,000 (or, in the case of each of the fiscal year ended May 30, 1999 and the fiscal year ended May 28, 2000, $50,000,000, or, in the case of a fiscal year beginning after May 28, 2000, $105,000,000), the amount of such difference, but in no case more than $25,000,000, may be carried forward and used to make Capital Expenditures in the immediately succeeding fiscal year, provided that amounts once carried forward to such succeeding fiscal year shall lapse and terminate at the end of such fiscal year. (c) In addition to the Capital Expenditures permitted pursuant to preceding clauses (a) and (b) of this Section 9.07, the Borrower and its Subsidiaries may make additional Capital Expenditures consisting of (x) the reinvestment of proceeds of Recovery Events not required to be applied to prepay the Loans pursuant to Section 4.02(h) and (y) the Net Sale Proceeds from the sale of the Mountain View Property not required to be applied to prepay the Loans pursuant to Section 4.02(f)." 4. Section 9.08 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 9.08: 9.08 Consolidated Interest Coverage Ratio. Holdings will not permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters (or, if shorter, the period beginning on the first day of the fiscal year beginning on, or closest to, May 26, 1997 and ended on the last day of a fiscal quarter ended thereafter), in each case taken as one accounting period, ended on the last day of a fiscal quarter described below to be less than the amount set forth opposite such fiscal quarter below:
Fiscal Quarter Ended In, or Closest to Ratio ----------------- ----- August, 1997 2.60:1.0 November, 1997 2.60:1.0 February, 1998 2.60:1.0 May, 1998 3.00:1.0
August, 1998 3.00:1.0 November, 1998 2.70:1.0 February, 1999 2.50:1.0 May, 1999 2.75:1.0 August, 1999 and thereafter 3.50:1.0
5. Section 9.10 of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting in lieu thereof the following new Section 9.10: 9.10 Maximum Leverage Ratio. Holdings will not permit the Leverage Ratio at any time during a fiscal quarter set forth below to be greater than the ratio set forth opposite such fiscal quarter below:
Fiscal Quarter Ended In, or Closest to Ratio ----------------- ----- August, 1997 3.50:1.0 November, 1997 3.50:1.0 February, 1998 3.50:1.0 May, 1998 3.00:1.0 August, 1998 3.25:1.0 November, 1998 4.00:1.0 February, 1999 4.00:1.0 May, 1999 3.75:1.0 August, 1999 3.00:1.0 November, 1999 3.00:1.0 February, 2000 3.00:1.0 May, 2000 and thereafter 2.50:1.0"
6. Section 11.01 of the Credit Agreement is hereby amended by inserting the following new definition in the appropriate alphabetical order: "Mountain View Property" shall mean that certain parcel of land (and the improvements thereon) located at 350 Ellis Street, Mountain View, California. 7. The Banks hereby waive compliance by Holdings with the requirements of Section 9.09 of the Credit Agreement but only with respect to each period of four consecutive fiscal quarters (in each case taken as one accounting period) ended on the last day of any fiscal quarter in the fiscal year ended May 30, 1999. 8. In order to induce the Banks to enter into this Second Amendment, each of Holdings and the Borrower hereby represents and warrants that (i) all 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 Second Amendment Effective Date (as defined below) and after giving effect to this Second Amendment (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 Second Amendment Effective Date, in each case both before and after giving effect to this Second Amendment, and (iii) neither the execution, delivery or performance by any Credit Party of this Second Amendment, nor the consummation of the transactions contemplated hereby, 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. 9. This Second 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. 10. This Second 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. 11. THIS SECOND 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. 12. This Second Amendment shall become effective on the date (the "Second Amendment Effective Date") when Holdings, the Borrower, each Subsidiary Guarantor and the Required Banks 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. 13. From and after the Second 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. * * * IN WITNESS WHEREOF, the parties hereto have caused their duly authorized offers to execute and deliver this Second 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: AMARA-1 FINANCE LTD. By: ----------------------------------- Name: Title: AMARA-2 FINANCE LTD. 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 TRUST COMPANY 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: FIRST SOURCE FINANCIAL LLP By First Source Financial, Inc., its Agent/Manager By: ----------------------------------- Name: Title: FLEET NATIONAL BANK By: ----------------------------------- Name: Title: THE MITSUBISHI TRUST AND BANKING CORPORATION, LOS ANGELES AGENCY By: ----------------------------------- Name: Title: NATEXIS BANQUE BFCE By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: PILGRIM AMERICA PRIME RATE TRUST By: PILGRIM AMERICA INVESTMENTS, INC. as its Investment Manager By: ----------------------------------- Name: Title: PNC BANK, NATIONAL ASSOCIATION By: ----------------------------------- Name: Title: ABN AMRO BANK, N.V. By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: ----------------------------------- Name: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: ----------------------------------- Name: Title: ACKNOWLEDGED AND AGREED: FAIRCHILD SEMICONDUCTOR CORPORATION OF CALIFORNIA By: ------------------------------------ Name: Title: EX-27 3 EX-27
5 3-MOS MAY-30-1999 JUN-01-1998 AUG-30-1998 5,000 0 87,900 12,400 106,100 197,600 807,900 474,500 615,500 144,200 438,100 0 0 0 32,000 615,500 145,000 145,000 114,600 150,900 0 0 11,900 (17,800) (3,500) (14,300) 0 0 0 (14,300) 0 0
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