<PAGE> 1
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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 28, 1999
[ ] 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: 001-15181
------------------------
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3363001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
333 WESTERN AVENUE
SOUTH PORTLAND, MAINE 04106
(Address of principal executive offices, including zip code)
(207) 775-8100
(Registrant's telephone number, including area code)
------------------------
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 31, 1999:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NUMBER OF SHARES
- ------------------------------------------------------------ ----------------
<S> <C>
Class A Common Stock, par value $.01 per share 60,353,196
Class B Common Stock, par value $.01 per share 28,396,000
</TABLE>
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<PAGE> 2
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Statements of Operations
(Unaudited) for the Three and Six Months Ended
November 28, 1999 and November 29, 1998.......... 3
Condensed Consolidated Balance Sheets as of
November 28, 1999 (Unaudited) and May 30, 1999... 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended November 28,
1999 and November 29, 1998....................... 5
Notes to Condensed Consolidated Financial
Statements (Unaudited)........................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 9
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk....................................... 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.................................. 16
ITEM 6. Exhibits and Reports on Form 8-K................... 17
SIGNATURE................................................... 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
NOVEMBER 28, NOVEMBER 29, NOVEMBER 28, NOVEMBER 29,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net sales -- trade...................... $328.1 $152.0 $619.5 $287.1
Contract manufacturing................ 28.7 15.9 61.8 32.1
------ ------ ------ ------
Total revenue................. 356.8 167.9 681.3 319.2
Operating expenses:
Cost of sales......................... 223.1 118.4 428.1 224.7
Cost of contract manufacturing........ 20.4 13.9 44.4 28.5
Research and development.............. 15.7 9.1 29.7 18.3
Selling, general and administrative... 53.3 23.6 109.7 46.2
Restructuring and impairments......... -- -- -- 4.5
------ ------ ------ ------
Total operating expenses...... 312.5 165.0 611.9 322.2
------ ------ ------ ------
Operating income (loss)................. 44.3 2.9 69.4 (3.0)
Interest expense, net................... 18.3 15.2 50.8 29.6
------ ------ ------ ------
Income (loss) before income taxes....... 26.0 (12.3) 18.6 (32.6)
Provision (benefit) for income taxes.... 3.5 (2.4) 4.1 (6.5)
------ ------ ------ ------
Net income (loss)....................... $ 22.5 $ (9.9) $ 14.5 $(26.1)
====== ====== ====== ======
Net income (loss) applicable to common
stockholders.......................... $ 22.5 $(12.3) $ 12.5 $(30.8)
====== ====== ====== ======
Net income (loss) per common share:
Basic................................. $ 0.25 $(0.20) $ 0.16 $(0.49)
====== ====== ====== ======
Diluted............................... $ 0.24 $(0.20) $ 0.15 $(0.49)
====== ====== ====== ======
Weighted average common shares:
Basic................................. 88.6 62.9 78.7 62.9
====== ====== ====== ======
Diluted............................... 92.6 62.9 82.0 62.9
====== ====== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
NOVEMBER 28, MAY 30,
1999 1999
------------ --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 123.6 $ 62.4
Receivables, net.......................................... 145.9 129.7
Inventories............................................... 162.4 148.6
Other current assets...................................... 14.9 65.7
-------- --------
Total current assets.............................. 446.8 406.4
Property, plant and equipment, net.......................... 362.8 360.2
Intangible assets, net...................................... 264.0 278.5
Other assets................................................ 41.6 50.6
-------- --------
Total assets...................................... $1,115.2 $1,095.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt......................... $ 1.4 $ 14.1
Accounts payable.......................................... 99.4 99.6
Accrued expenses and other current liabilities............ 89.8 85.0
-------- --------
Total current liabilities......................... 190.6 198.7
Long-term debt, less current portion........................ 717.2 1,045.9
Other liabilities........................................... 2.0 1.4
-------- --------
Total liabilities................................. 909.8 1,246.0
Redeemable preferred stock.................................. -- 90.1
Commitments and contingencies
Stockholders' equity (deficit):
Class A common stock...................................... 0.6 0.3
Class B common stock...................................... 0.3 0.3
Additional paid-in capital................................ 448.6 9.6
Accumulated deficit....................................... (238.2) (250.6)
Less treasury stock at cost............................... (5.9) --
-------- --------
Total stockholders' equity (deficit).............. 205.4 (240.4)
-------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $1,115.2 $1,095.7
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS) (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
NOVEMBER 28, NOVEMBER 29,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 14.5 $(26.1)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization............................. 69.9 47.4
Amortization of deferred compensation..................... 1.1 --
Restructuring charges, net of cash expended............... -- 1.9
Non-cash interest expense................................. 13.3 5.1
Loss (gain) on disposal of property, plant and
equipment.............................................. 0.2 (0.1)
Deferred income taxes..................................... (1.6) (6.2)
Changes in operating assets and liabilities, net:
Receivables............................................... (16.2) (18.0)
Inventories............................................... (16.0) 6.6
Other current assets...................................... 4.7 7.0
Current liabilities....................................... 9.8 (20.1)
Other assets and liabilities.............................. (0.1) (1.4)
------- ------
Cash provided by (used in) operating activities........ 79.6 (3.9)
------- ------
Cash flows from investing activities:
Capital expenditures...................................... (53.8) (19.4)
Proceeds from sale of property, plant and equipment....... 0.9 1.0
Purchase of molds and tooling............................. (0.9) (1.4)
Refund of value added tax paid in connection with
acquisition............................................ 40.9 --
------- ------
Cash used in investing activities...................... (12.9) (19.8)
------- ------
Cash flows from financing activities:
Proceeds from revolving credit facility, net.............. -- 31.5
Repayment of long-term debt............................... (345.8) (3.1)
Proceeds from issuance of common stock, net............... 345.0 --
Proceeds from exercise of stock options................... 1.2 --
Purchase of treasury stock................................ (5.9) --
------- ------
Cash provided by (used in) financing activities........ (5.5) 28.4
------- ------
Net change in cash and cash equivalents..................... 61.2 4.7
Cash and cash equivalents at beginning of period............ 62.4 6.5
------- ------
Cash and cash equivalents at end of period.................. $ 123.6 $ 11.2
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The Condensed Consolidated Balance Sheets of Fairchild Semiconductor
International, Inc. (the "Company") as of November 28, 1999 and May 30, 1999 and
the Condensed Consolidated Statements of Operations for the three and six month
periods ended November 28, 1999 and November 29, 1998 and the Condensed
Consolidated Statements of Cash Flows for the six month periods ended November
28, 1999 and November 29, 1998 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 30, 1999.
Certain prior period amounts have been reclassified to conform to their
current presentation.
NOTE 2--INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
NOVEMBER 28, MAY 30,
1999 1999
------------ -------
(IN MILLIONS)
<S> <C> <C>
Raw materials.......................................... $ 13.7 $ 13.6
Work in process........................................ 97.4 93.1
Finished goods......................................... 51.3 41.9
------ ------
Total inventories............................ $162.4 $148.6
====== ======
</TABLE>
NOTE 3--COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is computed using the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per common share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period. For
the three and six months ended November 28, 1999, common equivalent shares
consisted of 7.0 million stock options, all of which were dilutive. Using the
treasury stock method, 4.0 million and 3.3 million shares were added to the
weighted average shares outstanding for the three and six months ended November
28, 1999, respectively, for the purposes of the diluted net income per share
calculation. For the three and six months ended November 29, 1998, common
equivalent shares consisted of 3.8 million stock options, all of which were
anti-dilutive and excluded from the calculation of net loss per share due to the
net losses for those periods. The net income (loss) used in computing net income
(loss) per common share has been adjusted where applicable, to reflect dividends
accrued during each respective period for preferred stock, resulting in
reductions to net income applicable to common stockholders for the six months
ended November 28, 1999 and increases to net losses applicable to common
stockholders for the three and six months ended November 29, 1998.
NOTE 4--INITIAL PUBLIC OFFERING
On August 9, 1999, the Company completed an initial public offering ("IPO")
of its Class A Common Stock and sold an aggregate of 20,000,000 shares at a
price of $18.50 per share. The underwriting discount was $1.11 per share. The
net proceeds after the underwriting discount and other IPO expenses were
approximately $345.0 million. In addition, National Semiconductor Corporation,
one of the Company's principal stockholders, sold 3,000,000 additional shares
pursuant to the underwriters' overallotment option. The Company
6
<PAGE> 7
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
received no proceeds from this sale, which closed on August 12, 1999. Concurrent
with the IPO, all of the shares of the Company's previously authorized 12%
Series A Cumulative Compounding Preferred Stock were converted into shares of
the Company's Class A Common Stock. Each preferred stockholder received
75.714571 shares of Class A Common Stock per share of preferred stock,
reflecting the $1,000 liquidation value of the preferred stock, plus accumulated
unpaid dividends to the date of conversion, converted into common stock on the
basis of $17.39 per share. As a result of the conversion, 70,000 shares of
preferred stock were converted into 5,300,020 shares of common stock.
NOTE 5--SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
NOVEMBER 28, NOVEMBER 29,
1999 1998
------------ ------------
(IN MILLIONS)
<S> <C> <C>
Cash paid for:
Income taxes..................................... $ 1.5 $ 1.0
===== =====
Interest......................................... $42.1 $22.7
===== =====
</TABLE>
For the six month periods ended November 28, 1999 and November 29, 1998,
the Company accumulated dividends on the redeemable preferred stock of
approximately $2.0 million and $4.7 million, respectively. The accumulated
dividends were recorded as an increase to the carrying value of the redeemable
preferred stock and accumulated deficit.
NOTE 6--SEGMENT INFORMATION
During the second quarter of stub year 1999, the Company integrated the
power device business acquired from Samsung Electronics in April of 1999, into
its existing Analog and Mixed Signal Products Division and its Discrete Power
and Signal Technologies Group product line operating segments. In addition, the
Company's Logic Products Group was renamed the Interface and Logic Products
Group, reflecting this segment's emphasis on its Interface products. These
changes were approved by the Company's Chief Executive Officer, who has been
identified as the Chief Operating Decision Maker as defined by SFAS No. 131.
Selected operating segment financial information for the three and six months
ended November 28, 1999 and November 29, 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
NOVEMBER 28, 1999 NOVEMBER 29, 1998
------------------------------- -------------------------------
CONTRACT CONTRACT
TRADE MANUFACTURING TOTAL TRADE MANUFACTURING TOTAL
------ ------------- ------ ------ ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Analog....................... $ 79.7 $ -- $ 79.7 $ 17.7 $ -- $ 17.7
Discrete..................... 147.1 9.7 156.8 45.7 1.5 47.2
Interface and Logic.......... 84.0 19.0 103.0 67.9 14.4 82.3
Memory....................... 17.3 -- 17.3 20.7 -- 20.7
------ ----- ------ ------ ----- ------
Total.............. $328.1 $28.7 $356.8 $152.0 $15.9 $167.9
====== ===== ====== ====== ===== ======
</TABLE>
7
<PAGE> 8
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------------------------
NOVEMBER 28, 1999 NOVEMBER 29, 1998
------------------------------- -------------------------------
CONTRACT CONTRACT
TRADE MANUFACTURING TOTAL TRADE MANUFACTURING TOTAL
------ ------------- ------ ------ ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Analog....................... $151.3 $ -- $151.3 $ 34.6 $ -- $ 34.6
Discrete..................... 277.6 22.7 300.3 84.5 4.3 88.8
Interface and Logic.......... 156.7 39.1 195.8 128.7 27.8 156.5
Memory....................... 33.9 -- 33.9 39.3 -- 39.3
------ ----- ------ ------ ----- ------
Total.............. $619.5 $61.8 $681.3 $287.1 $32.1 $319.2
====== ===== ====== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
NOVEMBER 28, NOVEMBER 29, NOVEMBER 28, NOVEMBER 29,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING INCOME (LOSS):
Analog.......................... $ 7.7 $ 0.8 $20.9 $ 0.7
Discrete........................ 20.5 2.5 32.0 4.4
Interface and Logic............. 15.5 6.8 24.6 9.8
Memory.......................... 0.6 (7.2) 0.2 (13.4)
Other unusual charges(1)........ -- -- (8.3) (4.5)
----- ----- ----- ------
Total................. $44.3 $ 2.9 $69.4 $ (3.0)
===== ===== ===== ======
</TABLE>
- ---------------
(1) For the six months ended November 28, 1999, the amount represents a one-time
charge for the write-off of receivables from the management investors to pay
their federal and state individual income tax liabilities resulting from the
lapse of risks of forfeiture with respect to their stock ownership. Such
receivables were cancelled as a result of the Company's initial public
offering. This write-off includes amounts to discharge the individual tax
liabilities associated with the cancellation. For the six months ended
November 29, 1998, the amount represents a restructuring charge for
severance related to a workforce reduction and certain asset write-offs.
NOTE 7--RESTRUCTURING AND IMPAIRMENTS
Substantially all amounts have been expended with respect to the Company's
fiscal 1999 restructuring actions with the exception of the analog wafer
production transfer to South Portland, Maine. The following table summarizes the
activity of the remaining active restructuring plan:
Fourth Quarter fiscal 1999 Mountain View Restructuring (In millions):
<TABLE>
<S> <C>
Total charge................................................ $10.0
Non-cash items.............................................. (3.4)
-----
Acrual balance as of May 30, 1999......................... 6.6
Cash payments............................................... (0.6)
-----
Acrual balance as of August 29, 1999...................... 6.0
Cash payments............................................... (3.2)
-----
Acrual balance as of November 28, 1999.................... $ 2.8
=====
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Readers are cautioned not to place undue reliance on forward-looking statements
in this report. See "Outlook and Business Risks" below.
OVERVIEW
Fairchild Semiconductor International, Inc. ("Fairchild International"),
through its wholly-owned subsidiary Fairchild Semiconductor Corporation
(collectively, 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.
The Company has changed its fiscal year end from the last Sunday in May to
the last Sunday in December. This discussion covers the first six months of the
transition period from May 31, 1999 to December 26, 1999. Throughout this
discussion, we refer to the second quarter and first six months of the
transition period as the second quarter and first six months of "stub year
1999." The comparable quarter and six month period a year ago is referred to as
the second quarter and first six months of "fiscal 1999." The Company will file
an annual report on Form 10-K for the transition period from May 31, 1999 to
December 26, 1999. On August 9, 1999 the Company consummated an initial public
offering ("IPO") of its Class A Common Stock. Proceeds received from the
offering of approximately $345.0 million, net of underwriting and other related
fees, were used to retire a portion of the Company's debt.
RESULTS OF OPERATIONS
The Company generated net income of $22.5 million in the second quarter of
stub year 1999, compared to a net loss of $9.9 million in the second quarter of
fiscal 1999. The Company generated net income of $14.5 million in the first six
months of stub year 1999, compared to a net loss of $26.1 million in the first
six months of fiscal 1999. Excluding amortization of acquisition-related
intangibles of $8.4 million and $0.8 million, respectively, in the second
quarter of stub year 1999 and fiscal 1999, net of tax effect, the Company had
adjusted net income of $30.9 million for the second quarter of stub year 1999,
compared to an adjusted net loss of $9.2 million for the second quarter of
fiscal 1999. On a year to date basis, excluding unusual charges and amortization
of acquisition-related intangibles of $15.5 million and $16.9 million,
respectively, in the first six months of stub year 1999, and $4.5 million and
$1.6 million, respectively, in the first six months of fiscal 1999, net of tax
effect, the Company had adjusted net income of $46.9 million for the first six
months of stub year 1999, compared to an adjusted net loss of $21.2 million in
the first six months of fiscal 1999. Unusual charges in the first six months of
stub year 1999 included initial public offering-related charges of $8.3 million,
recorded in selling, general and administrative expense ("SG&A"), for the
forgiveness of certain loans made to the Company's management for payment of
individual income tax liabilities resulting from their ownership of Fairchild
International common stock, and $7.2 million, recorded in interest expense, for
the write-off of deferred financing fees associated with the debt repaid with
the proceeds from the initial public offering. Unusual charges in the first six
months of fiscal 1999 were due to restructuring charges as a result of a
workforce reduction. Operating income was $44.3 million for the second quarter
of stub year 1999, as compared to operating income of $2.9 million in the same
period last year. Excluding unusual charges, the Company had operating income
for the first six months of stub year 1999 of $77.7 million as compared to
operating income of $1.5 million for the same period last year. The increase in
operating income for both the second quarter and first six months of stub year
1999 over the comparable periods last year is due to the acquisition of the
Power Device Business (the "power device business") of Samsung Electronics Co.,
Ltd. ("Samsung Electronics") and higher revenues and gross profits due to new
product introductions and improved business conditions, resulting in higher
factory utilization in the second quarter and first six months of stub year 1999
compared to the second quarter and first six months of fiscal 1999.
All operating segments reported improved operating results in the second
quarter and first six months of stub year 1999 as compared to the corresponding
periods during fiscal 1999. Analog had operating income of $7.7 million and
$20.9 million, respectively, in the second quarter and first six months of stub
year 1999 as compared to operating income of $0.8 million and $0.7 million,
respectively, in the second quarter and first six
9
<PAGE> 10
months of fiscal 1999. Excluding analog power device products, Analog had
operating losses of $3.3 million and $5.9 million, respectively, for the three
and six months ended November 28, 1999. The increases in Analog's operating
losses (excluding analog power device products) were due to unfavorable sales
mix and increased inventory valuation reserves in anticipation of the closure of
the Mountain View, California wafer fab, which occurred in the second quarter of
stub year 1999. Discrete operating income was $20.5 million and $32.0 million,
respectively, in the second quarter and first six months of stub year 1999, as
compared to $2.5 million and $4.4 million, respectively, in the second quarter
and first six months of fiscal 1999. Excluding discrete power device products,
Discrete had operating income of $8.7 million and $10.2 million, respectively,
for the three and six months ended November 28, 1999. Interface and Logic
operating income was $15.5 million and $24.6 million, respectively, in the
second quarter and first six months of stub year 1999 as compared to $6.8
million and $9.8 million, respectively, in the corresponding periods last year.
The increases in Discrete and Interface and Logic operating income were due to
higher revenues and improved gross profits due to improved factory utilization
and, in the case of Discrete, higher average selling prices. Memory had
operating income of $0.6 million and $0.2 million, respectively, in the second
quarter and first six months of stub year 1999 as compared to operating losses
of $7.2 million and $13.4 million, respectively, in the second quarter and first
six months of fiscal 1999. The decreases in Memory operating losses are due to
the benefit from the implementation of the Memory restructuring plan in the
fourth quarter of fiscal 1999.
Excluding depreciation and amortization of $35.5 million and $71.0 million
in the second quarter and first six months of stub year 1999, respectively, and
$24.1 million and $47.4 million in the comparable periods of fiscal 1999, and
unusual charges, earnings before interest, taxes and depreciation and
amortization ("EBITDA") were $79.8 million and $148.7 million in the second
quarter and first six months of stub year 1999, respectively, compared to $27.0
million and $48.9 million in the comparable periods of fiscal 1999. 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
(92.0% and 90.9% of total revenues in the second quarter and first six months of
stub year 1999, respectively, and 90.5% and 89.9% in the comparable periods of
fiscal 1999) and revenues from contract manufacturing services provided to
National Semiconductor and Samsung Electronics (8.0% and 9.1% of total revenues
in the second quarter and first six months of stub year 1999, respectively, and
9.5% and 10.1% in the comparable periods of fiscal 1999).
Trade sales increased 115.9% to $328.1 million in the second quarter of
stub year 1999 compared to $152.0 million in the second quarter of fiscal 1999.
On a year to date basis, trade sales increased 115.8% to $619.5 million as
compared to $287.1 million for the same period a year ago. Excluding sales from
the power device business, trade sales increased 26.6% and 23.6%, respectively,
for the three and six months ended November 28, 1999 over the comparable periods
in fiscal 1999, as higher sales volume offset lower average selling prices.
Average selling prices for the second quarter and first six months of stub year
1999 were slightly lower than the second quarter and first six months of fiscal
1999, despite higher average selling prices in the second quarter of stub year
1999 over the first quarter of stub year 1999, particularly for Discrete and
Interface and Logic products. The increase in trade sales is attributable to
improved demand due to strength in end-markets such as personal computers and
telecommunications and an economic recovery in the Asia/Pacific region. Sales
growth was observed across all segments except Memory, whose sales declined as a
result of exiting certain unprofitable product lines. Excluding power device
products, Analog, Discrete and Interface and Logic trade sales were up 12.5%,
56.2% and 23.8%, respectively, in the second quarter of stub year 1999 over the
second quarter of fiscal 1999. On a year-to-date basis, Analog, Discrete and
Interface and Logic trade sales were up 9.2%, 49.7% and 21.8%, respectively,
over the comparable period a year ago.
Approximately 69.1 % and 69.2% of the Company's trade revenues were
generated from Analog, Discrete and Power Device products in the second quarter
and first six months of stub year 1999, respectively.
10
<PAGE> 11
Geographically, 21.1%, 12.0%, 46.2% and 20.7% of trade sales were derived
from North America, Europe, Asia/Pacific and Korea, respectively, in the second
quarter of stub year 1999. Excluding sales from the power device business,
29.7%, 16.5% and 53.8% of trade sales were derived from North America, Europe
and Asia/ Pacific (including Korea), respectively, compared to 38.9%, 18.3% and
42.8% in the second quarter of fiscal 1999. On a year to date basis, 22.2%,
12.2%, 44.6% and 21.0% of trade sales were derived from North America, Europe,
Asia/Pacific and Korea, respectively. Excluding sales from the power device
business, 32.1%, 17.1% and 50.8% of trade sales were derived from North America,
Europe and Asia/Pacific (including Korea), respectively, as compared to 40.4%,
18.5% and 41.1% in the first six months of fiscal 1999. Excluding sales from the
power device business, the Asia/Pacific and European regions saw increases in
trade sales in the second quarter of stub year 1999 over the second quarter of
fiscal 1999 of 59.0% and 14.4%, respectively, while North American revenues
decreased 3.0%. For the first six months of stub year 1999, excluding sales from
the power device business, Asia/Pacific and Europe saw increases in trade sales
over the first six months of fiscal 1999 of 53.0% and 14.2%, respectively, while
North American revenues decreased by 2.0%. The increases in the Asia/Pacific
region are due to strength in the consumer and personal computer markets, as
well as improved market conditions. The increases in Europe are due to improved
telecommunications, consumer and distribution markets. The decreases in North
America are due mainly to the continued move of contract manufacturers to
locations outside North America.
Contract manufacturing revenues increased 80.5% to $28.7 million in the
second quarter of stub year 1999 compared to $15.9 million in the second quarter
of fiscal 1999. Excluding contract manufacturing services provided to Samsung
Electronics, contract manufacturing revenues increased 35.8% in the second
quarter of stub year 1999 over the second quarter of fiscal 1999. For the first
six months of stub year 1999, contract manufacturing revenues increased 92.5% to
$61.8 million as compared to $32.1 million for the same period a year ago.
Excluding contract manufacturing services provided to Samsung Electronics,
contract manufacturing revenue increased 45.5% in the first six months of stub
year 1999 over the same period a year ago. The increases reflect increased
demand from National Semiconductor.
GROSS PROFIT
Gross profit increased 218.3% to $113.3 million in the second quarter of
stub year 1999 compared to $35.6 million in the second quarter of fiscal 1999.
Excluding the gross profit derived from power device products, gross profit
increased 77.0% in the second quarter of stub year 1999 over the second quarter
of fiscal 1999. As a percentage of trade sales, gross trade profits were 32.0%
in the second quarter of stub year 1999. Excluding the power device business,
gross trade profits as a percentage of trade sales were 30.6% in the second
quarter of stub year 1999 compared to 22.1% in the second quarter of fiscal
1999. Gross profit increased 216.4% to $208.8 million in the first six months of
stub year 1999 compared to $66.0 million in the first six months of fiscal 1999.
Excluding the gross profit derived from power device products, gross profit
increased 62.4% in the first six months of stub year 1999 over the comparable
period of fiscal 1999. As a percentage of trade sales, gross trade profits were
30.9% in the first six months of stub year 1999. Excluding the power device
business, gross trade profits as a percentage of trade sales were 27.7% in the
first six months of stub year 1999 compared to 21.7% in the first six months of
fiscal 1999. The increase in gross trade profit as a percentage of trade sales
was due to the favorable effect of increased factory utilization and the full
benefit of cost reduction actions undertaken in fiscal 1999, offset by lower
average selling prices. Average selling prices for the second quarter and first
six months of stub year 1999 were slightly lower than the second quarter and
first six months of fiscal 1999, despite higher average selling prices in the
second quarter of stub year 1999 over the first quarter of stub year 1999,
particularly for Discrete and Interface and Logic products.
Contract manufacturing gross profit increased 315.0% to $8.3 million in the
second quarter of stub year 1999 compared to $2.0 million in the second quarter
of fiscal 1999. For the six months ended November 28, 1999, contract
manufacturing gross profit increased 383.3% to $17.4 million as compared to $3.6
million for the first six months of fiscal 1999. The increase in contract
manufacturing gross profit is due to incremental business with Samsung
Electronics as a result of the acquisition of the power device business and
greater demand from National Semiconductor reflective of improved market
conditions. Contract manufacturing gross profit for the second quarter and first
six months of fiscal 1999 included $5.4 million and $11.6 million,
11
<PAGE> 12
respectively, of fixed cost reimbursement under the Company's manufacturing
agreements with National Semiconductor.
RESEARCH AND DEVELOPMENT
Research and development expenses ("R&D") were $15.7 million, or 4.8% of
trade sales, in the second quarter of stub year 1999, compared to $9.1 million,
or 6.0% of trade sales, in the second quarter of fiscal 1999. On a year-to-date
basis, R&D was $29.7 million, or 4.8% of trade sales, compared to $18.3 million,
or 6.4% of trade sales, for the comparable period of fiscal 1999. The increase
in R&D expenses is driven by the dedicated R&D costs incurred by the power
device business in the second quarter and first six months of stub year 1999
which the Company did not incur in fiscal 1999. R&D efforts are focused on the
Company's growth products (Analog, DMOS power and CMOS logic). In the second
quarter and first six months of stub year 1999, R&D expenditures were 5.5% and
5.5% of trade sales, respectively, for these growth products as compared to 8.8%
and 9.2%, respectively, for the second quarter and first six months of fiscal
1999. R&D expenditures for the Company's mature products (Bipolar Logic, Bipolar
Discretes and EPROM) were less than 1% of trade sales for the second quarter and
first six months of both stub year 1999 and fiscal 1999. The decrease in R&D
expenditures for growth products as a percentage of trade sales is due to the
relatively small R&D requirements of the power device business as a percentage
of trade sales.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses ("SG&A") were $53.3 million,
or 16.2% of trade sales, in the second quarter of stub year 1999, compared to
$23.6 million, or 15.5% of trade sales, in the second quarter of fiscal 1999. On
a year-to-date basis, SG&A expenses were $109.7 million, or 17.7% of trade
sales, compared to $46.2 million, or 16.1% of trade sales, for the comparable
period of fiscal 1999. SG&A expenses in the first six months of stub year 1999
include an unusual charge of $8.3 million taken in the first quarter of stub
year 1999 for the forgiveness of certain loans made to the Company's management
investors for payment of individual income tax liabilities resulting from their
ownership of the Company's common stock. Excluding this unusual charge, SG&A was
$101.4 million, or 16.4% of trade sales, in the first six months of stub year
1999. The increase in SG&A expenses (excluding the unusual charge) is primarily
the result of the incremental SG&A expenses and intangible asset amortization of
the power device business, which the Company did not incur in the second quarter
and first six months of fiscal 1999, and increased selling expenses for the
pre-existing business due to higher sales volume.
RESTRUCTURING
The Company incurred a pre-tax restructuring charge of approximately $4.5
million in the first six months of fiscal 1999. The charge consisted of $0.8
million related to non-cash asset impairments and $3.7 million of employee
separation costs related to the reduction of approximately 600 salaried, hourly
and temporary positions, then representing approximately 10% of the Company's
payroll. Substantially all amounts have been expended with respect to the
Company's fiscal 1999 restructuring actions with the exception of the Analog
wafer production transfer to South Portland, Maine. Approximately $3.2 million
and $3.8 million was expended in the second quarter and first six months of stub
year 1999, respectively, for this transfer with an estimated $2.8 million of
accrued liabilities expected to be expended by the end of the first quarter of
2000.
INTEREST EXPENSE, NET
Interest expense, net was $18.3 million and $50.8 million in the second
quarter and first six months of stub year 1999, respectively, compared to $15.2
million and $29.6 million in the comparable periods of fiscal 1999. Interest
expense, net in the first six months of stub year 1999 includes an unusual
charge of $7.2 million for the write-off of deferred financing fees associated
with debt retired with the proceeds from the IPO. Excluding this charge,
interest expense, net was $43.6 million in the first six months of stub year
1999. The increases, excluding the unusual charges, is principally the result of
indebtedness incurred to finance the power device business acquisition, which
occurred in the fourth quarter of fiscal 1999.
12
<PAGE> 13
INCOME TAXES
Income tax expense was $3.5 million and $4.1 million for the second quarter
and first six months of stub year 1999, respectively, compared to a tax benefit
of $2.4 million and $6.5 million in the second quarter and first six months of
fiscal 1999. The effective tax rates for the second quarter and first six months
of stub year 1999 were 13.5% and 22.0%, respectively, compared to 19.5% and
19.9% in the second quarter and first six months of fiscal 1999. The stub year
1999 second quarter and first six months tax provisions are based on income
generated from the Company's foreign operations, excluding Korea where the
Company benefits from a tax holiday. The increase in the tax provision is due to
profits earned in stub year 1999 and the Company's limited ability to currently
recognize the full benefit of U.S. net operating loss carryforwards.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with its acquisitions of the power device business and the
Raytheon Semiconductor business completed in fiscal 1999 and fiscal 1998,
respectively, the Company allocated a portion of each purchase price to
in-process research and development projects. This allocation represented the
estimated fair value based on risk-adjusted cash flows related to the incomplete
products. At the dates of the acquisitions, the development of these projects
had no alternative future uses. Accordingly, these costs were expensed as of
each respective acquisition date.
The financial results of the power device business to date have been
consistent, in all material respects, with the assumptions of the Company at the
time of the acquisition as they relate to the value of the purchased in-process
research and development. Actual results to date on Raytheon products have
fallen short of expectations due to unfavorable market conditions during the
recent industry downturn and higher than expected costs on certain projects. The
Company has addressed the cost issues in the restructuring of its Mountain View
facility and expects improvement in demand for these products as market
conditions continue to improve. The weaker cash flows from these projects have
not had, nor are expected to have, any material adverse impact on the results of
the Company or its financial position, including the recoverability of
intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a borrowing capacity of $100.0 million for working capital
and general corporate purposes under the revolving credit facility. No amount
was drawn under the revolving credit facility at November 28, 1999.
The senior credit facilities, the 10 1/8% Senior Subordinated Notes and the
10 3/8% Senior Subordinated Notes do, and other debt instruments the Company may
enter into in the future may, impose various restrictions and covenants on the
Company which could potentially limit the Company's ability to respond to market
conditions, to provide for unanticipated capital investments or to take
advantage of business opportunities. The restrictive covenants include
limitations on consolidations, mergers and acquisitions, restrictions on
creating liens, restrictions on paying dividends or making other similar
restricted payments, restrictions on asset sales, limitations on borrowing
money, and limitations on capital expenditures, among other restrictions. The
covenants relating to financial ratios include minimum fixed charge and interest
coverage ratios and a maximum leverage ratio. The senior credit facilities also
limit the Company's ability to modify its certificate of incorporation, bylaws,
shareholder agreements or similar arrangements. In addition, the senior credit
facilities, the 10 1/8% Senior Subordinated Notes and the 10 3/8% Senior
Subordinated Notes contain additional restrictions limiting the ability of the
Company's subsidiaries to make dividends or advances to the Company. However,
the Company's subsidiaries are permitted without material restrictions under its
debt instruments to make dividends or advances to Fairchild Semiconductor
Corporation. The Company believes that those funds permitted to be transferred,
together with existing cash, will be sufficient to meet cash obligations. 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 anticipated operating requirements and to fund its
research and development and capital expenditures for the next twelve months. In
the long-term, additional borrowing or equity investment may be required to fund
future acquisitions.
13
<PAGE> 14
As of November 28, 1999, the Company's cash and cash equivalents balance
was $123.6 million, an increase of $61.2 million from May 30, 1999.
During the first six months of stub year 1999, the Company's operations
provided $79.6 million in cash compared to a use of $3.9 million of cash in the
first six months of fiscal 1999. The increase in cash provided by operating
activities reflects an increase in net income adjusted for non-cash items of
$75.4 million as well as an increase in cash flows from changes in operating
assets and liabilities of $8.1 million. Cash used in investing activities during
the first six months of stub year 1999 totaled $12.9 million, compared to a use
of $19.8 million in the first six months of fiscal 1999. The difference
primarily relates to the refund of Korean value added taxes paid as a result of
the acquisition of the power device business off-set by higher capital
expenditures. Capital expenditures in the first six months of stub year 1999
were made principally to add capacity in the Company's assembly and test
manufacturing facilities, whereas in the first six months of fiscal 1999,
capital expenditures were made primarily to install the Company's enterprise
software system. Capital expenditures for the balance of stub year 1999 will be
made primarily to increase capacity in the Company's manufacturing facilities.
Cash used in financing activities of $5.5 million for the first six months of
stub year 1999 includes proceeds received from Fairchild International's initial
public offering of its Class A Common Stock of $345.0 million, net of fees and
expenses. The net proceeds from the initial public offering were used to repay
an 11.74% Subordinated Note due 2008 ($101.4 million), to repay a 12.5%
Subordinated Note due 2008 ($53.0 million, including a prepayment penalty of
$0.8 million) and to repay the Tranche A term loan and partially repay the
Tranche B term loan, in each case under the Company's senior credit facilities,
in the aggregate amount of $190.6 million. In addition, cash was used for the
repurchase of shares of our common stock. Cash provided by financing activities
of $28.4 million in the first six months of fiscal 1999 was due to proceeds
received from the Company's revolving credit line.
LIQUIDITY AND CAPITAL RESOURCES OF FAIRCHILD INTERNATIONAL, EXCLUDING OUR
SUBSIDIARIES
Fairchild International is a holding company, the principal assets of which
are the stock of its subsidiary, Fairchild Semiconductor Corporation. Fairchild
International on a stand-alone basis had no cash flow from operations in the
first six months of stub year 1999, nor in the first six months of fiscal 1999.
Fairchild International on a stand-alone basis has no cash requirements for the
next twelve months.
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 within the
meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "estimates," "anticipates," or "hopeful," or the negative of
those terms or other comparable terminology, or by discussions of strategy,
plans or intentions. The statements about the Company's expectations about
market conditions, revenues and earnings in the second paragraph below are
examples of forward-looking statements in this report. Forward-looking
statements are made based on current expectations and management's estimates,
which involve risks and uncertainties, including those described in the
following paragraph. Other factors that may affect the Company's future
operating results are described in the Company's annual report on Form 10-K for
the fiscal year ended May 30, 1999, which was filed with the Securities and
Exchange Commission on August 27, 1999, under the caption "Business-Risk
Factors." Such risks and uncertainties could cause actual results to be
materially different than those in the forward-looking statements. Readers are
cautioned not to place undue reliance on the forward-looking statements in this
quarterly report on Form 10-Q, which speak only as of the date hereof. The
Company assumes no obligation to update such information.
The following factors may affect the Company's future operating results:
(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) the Company's ability to successfully complete a follow-on offering of
6,140,880 shares of its Class A common stock in order to undertake the first
14
<PAGE> 15
phase of a multi-year capital investment program to increase manufacturing
capacity in support of power management and interface products; (iii)
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; (iv) the highly cyclical and competitive nature of
the semiconductor industry and the potential for continued softness in demand;
(v) 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 its products; (vi) the need to design,
develop, manufacture, market and support new products in order to remain
competitive in our markets; (vii) the ability to efficiently integrate the
operations of the power device business into the Company and the risk of losing
customers or employees of the acquired operation; (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.
Market conditions have been generally improving since the third quarter of
fiscal 1999. Strong bookings and demand throughout the historically slower
summer season continued into the second quarter of stub year 1999, which ended
November 28, 1999. A portion of the bookings increase seen in both the first and
second quarters of stub year 1999 has occurred as industry-wide leadtimes have
extended and customers have committed their backlog for a longer period of time.
Going forward, the Company expects sequential bookings increases to return to
more normal seasonal patterns. Further significant lengthening of leadtimes is
not anticipated. The Semiconductor Industry Association forecasts calendar year
2000 industry sales growth of 14-22% compared to calendar year 1999 for our
targeted investment areas in the power transistor, voltage regulator/reference
generator and interface markets. The Company expects its revenue growth in these
focused areas to be at least at market growth rates. The Company believes that
industry-wide demand is meeting supply in many product areas, leading to some
price firming during the second quarter of stub year 1999. If tightening market
trends continue, the Company's management expects that prices will continue to
stabilize or rise slowly through the first half of calendar year 2000. The
Company expects that margins will continue to improve slowly as a result of
these price increases, better new product mix, manufacturing cost reductions and
better overhead spreading. Potential factors that may preclude us from realizing
any or all of these expectations include, but are not limited to, softening of
industry-wide demand, renewed industry-wide price competition, failure to
execute new product development plans and failure to execute capacity expansion
plans.
On September 21, 1999, Taiwan experienced a major earthquake. The
earthquake and resulting aftershocks caused power outages and significant damage
to Taiwan's infrastructure. The Company has no manufacturing facilities in
Taiwan. However, the Company has a number of customers, primarily personal
computer manufactures, located there. The Company has not experienced any
significant impact on its revenue in that region as a result of the earthquake.
The power device business currently sells its products in Asia through a
network of exclusive sales agents on a commission basis. The prices for which
products are sold include the commission. The commissions are recorded as a
selling expense. Effective January 1, 2000, as part of the integration of the
power device business into the Company's operations, the power device business
is ending these arrangements, and the products will be sold through the
Company's existing distribution network at market prices. Had the prospective
arrangement been in place during stub year 1999, revenues, gross profits and
SG&A would each be reduced by approximately $5.1 million and $10.0 million for
the three and six months ended November 28, 1999, respectively.
YEAR 2000 COMPLIANCE
In the fourth quarter of Fiscal 1997, the Company commenced its enterprise
software system implementation project for the purpose of separating from
National Semiconductor's business systems. The system, which became operational
for several of the Company's critical business processes in the first half of
fiscal
15
<PAGE> 16
1999, is year 2000 compliant. Additional modules of the system are scheduled to
be implemented through Fiscal 2000. For those legacy systems that were not
converted by December 31, 1999, year 2000 remediation projects were completed in
October 1999. The Company's business is dependent upon its information systems
as an integral part of all major business processes. Additionally, internal
resources had 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. Identification of systems and equipment that
are not year 2000 compliant and remediation projects to correct identified
problems have been completed. The Company also reviewed 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 worked with its customers to identify
potential year 2000 issues with its products. The company has completed its
assessments. The Company does not believe there are any year 2000 problems with
its products. No year 2000 issues were noted with its key suppliers which in the
Company's opinion would cause a major disruption to its operations. In the first
quarter of stub year 1999 and in fiscal 1999, 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 less than $0.1 million. Although we believe 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 has completed the preparation of contingency plans. These
plans cover manufacturing equipment, information services and facilities. In
addition, contingency plans were prepared in the event that key suppliers fail
to become year 2000 compliant. For example, for key materials which are imported
from outside the U.S., arrangements were made to insure at least four weeks of
available supply. 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.
As of the date of this filing, the Company has not experienced any
significant year 2000 problems with its internal systems or equipment, nor has
the Company detected any significant year 2000 problems affecting its customers
or suppliers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosure about Market Risk, in the Company's Annual Report on Form 10-K for
the year ended May 30, 1999 and under the subheading "Quantitative and
Qualitative Disclosures about Market Risk" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 31 of the
Company's Annual Report on Form 10-K for the year ended May 30, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 2, 1999, our principal operating subsidiary, Fairchild
Semiconductor Corporation, was named as a defendant in a patent infringement
lawsuit filed by Siliconix Incorporated in the United States District Court for
the Northern District of California. The complaint filed in the suit alleges
that some of the Company's products infringe two Siliconix patents and claims an
unspecified amount of damages. The Company intends to contest these claims
vigorously.
On December 22, 1999, the Company, Fairchild Semiconductor Corporation and
Fairchild Korea Semiconductor Ltd. were named as defendants in a patent
infringement lawsuit filed by IXYS Corporation in the United States District
Court for the Northern District of California. The complaint filed in the
lawsuit alleges that one or more of the Company's products infringe one IXYS
patent and claims an unspecified amount of damages. Although the Company is in
the process of investigating IXYS' claims, the Company believes these claims are
subject to indemnification by Samsung Electronics under the patent
indemnification
16
<PAGE> 17
provisions of the Business Transfer Agreement with Samsung Electronics. As of
the date of this filing, the Company is unable to assess the validity of IXYS'
claims.
In addition to the above proceedings, from time to time the Company is
involved in other legal proceedings in the ordinary course of business. The
Company believes that there is no such ordinary course litigation pending that
could have, individually or in the aggregate, a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
Fairchild Semiconductor International, Inc. filed no reports on Form 8-K
during the quarter ended November 28, 1999.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
17
<PAGE> 18
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 INTERNATIONAL,
INC.
By: /s/ DAVID A. HENRY
----------------------------------
David A. Henry
Vice President, Corporate Controller
(Principal Accounting Officer)
Date: January 11, 2000
18
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