-----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, WFyBP4SKqfz8t9ENA4dDcUoj++hscJ5B4URYTQVnyRAF4pE+8eXs3pLaRTzbuzCo 1xI9PnusKDgds0pIw0gvLw== 0001047469-98-010056.txt : 19980317 0001047469-98-010056.hdr.sgml : 19980317 ACCESSION NUMBER: 0001047469-98-010056 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 ITEM INFORMATION: FILED AS OF DATE: 19980316 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: 8-K/A SEC ACT: SEC FILE NUMBER: 333-26897 FILM NUMBER: 98566563 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 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 to CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 31, 1997 FAIRCHILD SEMICONDUCTOR CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 333-26897 77-0449095 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization) Identification No.) 333 Western Avenue, Mail Stop 01-00 South Portland, Maine 04106 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (207) 775-8100 Item 7. Financial Statements and Exhibits On January 13, 1998, Fairchild Semiconductor Corporation filed with the Securities and Exchange Commission a Current Report on Form 8-K with respect to the acquisition of Raytheon Semiconductor, Inc. on December 31, 1997. This amendment is being filed for the purpose of including financial statements and pro forma financial information and should be read in conjunction with the Form 8-K. a) Financial Statements of Business Acquired
Page -------- Independent Auditors' Report .......................................... 3 Balance Sheet as of December 31, 1997 ................................. 4 Statement of Income for the Year Ended December 31, 1997 .............. 5 Statement of Stockholder's Equity for the Year Ended December 31, 1997 ................................................... 6 Statement of Cash Flows for the Year Ended December 31, 1997 ................................................... 7 Notes to Financial Statements ......................................... 8
b) Pro Forma Financial Information Introduction to Unaudited Pro Forma Consolidated Financial Statements .......................................................... 16 Notes to Unaudited Pro Forma Consolidated Financial Statements .......................................................... 17 Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended May 25, 1997 .................................... 19 Unaudited Pro Forma Consolidated Statement of Operations for the Six-Month Period Ended November 23, 1997 .................... 20 Unaudited Pro Forma Consolidated Balance Sheet as of November 23, 1997 ................................................... 21
c) Exhibits None. 2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholder Raytheon Semiconductor, Inc: We have audited the accompanying balance sheet of Raytheon Semiconductor, Inc. (a wholly owned subsidiary of Thornwood Trust) (the Company) as of December 31, 1997, and the related statements of income, stockholder's equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Raytheon Semiconductor, Inc. as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Mountain View, California February 27, 1998 3 RAYTHEON SEMICONDUCTOR, INC. (A Wholly Owned Subsidiary of Thornwood Trust) Balance Sheet December 31, 1997 (In thousands, except share and per share data) Assets Current assets: Cash ................................................. $ 186 Accounts receivable, net of allowances of $2,073 ..... 11,414 Inventories .......................................... 18,125 Prepaid expenses and other ........................... 262 ------- Total current assets ....................... 29,987 Property, plant, and equipment, net ...................... 21,532 ------- Total assets ............................... $51,519 ======= Liabilities and Stockholder's Equity Current liabilities: Accounts payable ..................................... $ 3,711 Accrued compensation ................................. 2,575 Accrued liabilities .................................. 1,062 ------- Total current liabilities .................. 7,348 Commitments and contingencies Stockholder's equity Common stock, $0.01 par value; 2,500 authorized, ..... -- issued, and outstanding Additional paid-in-capital ........................... 44,171 ------- Total liabilities and stockholder's equity ............... $51,519 =======
See accompanying notes to financial statements. 4 RAYTHEON SEMICONDUCTOR, INC. (A Wholly Owned Subsidiary of Thornwood Trust) Statement of Income Year ended December 31, 1997 (In thousands) Net sales ................................................. $78,369 Cost of sales ............................................. 44,815 ------- Gross profit ................................... 33,554 Operating expenses: Research and development .............................. 12,128 Selling, general, and administrative .................. 10,064 ------- Total operating expenses ....................... 22,192 ------- Operating income ............................... 11,362 Other expense ............................................. 88 ------- Income before income taxes ..................... 11,274 Provision for income tax expense .......................... 4,395 ------- Net income ..................................... $ 6,879 =======
See accompanying notes to financial statements. 5 RAYTHEON SEMICONDUCTOR, INC. (A Wholly Owned Subsidiary of Thornwood Trust) Statement of Stockholder's Equity Year ended December 31, 1997 (In thousands, except share data)
Parent Additional Total Company Common Stock Paid-in- Stockholder's Investment Shares Amount Capital Equity ------------ -------- -------- ---------- ------------ Balances at beginning of year .. $ 54,874 -- $ -- $ -- $ 54,874 Net income .................... 6,879 -- -- -- 6,879 Net transfers to parent ....... (17,582) -- -- -- (17,582) Incorporation of Company on December 31, 1997 ......... (44,171) 2,500 -- 44,171 -- ------------ -------- -------- -------- --------- Balances at end of year ....... $ -- 2,500 $ -- $ 44,171 $ 44,171 ============ ======== ======== ======== =========
See accompanying notes to financial statements. 6 RAYTHEON SEMICONDUCTOR, INC. (A Wholly Owned Subsidiary of Thornwood Trust) Statement of Cash Flows Year ended December 31, 1997 (In thousands) Cash flows from operating activities: Net income .................................................................... $ 6,879 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................ 6,397 Changes in operating assets and liabilities: Accounts receivable........................................................ (2,112) Inventory ................................................................. 2,977 Prepaid expenses and other ................................................ (76) Accounts payable .......................................................... (221) Accrued expenses .......................................................... (595) -------- Net cash provided by operating activities ......................... 13,249 -------- Cash flows from investing activities-- additions to property, plant, and equipment . (2,718) -------- Cash flows from financing activities - transfers to Parent Company Investment ....... (10,570) -------- Net decrease in cash ................................................................ (39) Cash, beginning of year ............................................................. 225 -------- Cash, end of year ................................................................... $ 186 ======== Supplemental disclosure of cash flow information: Deferred taxes transferred to Parent Company Investment per terms of the Acquisition Agreement ......................................... $ 7,012 ========
See accompanying notes to financial statements. 7 RAYTHEON SEMICONDUCTOR, INC. (A Wholly Owned Subsidiary of Thornwood Trust) Notes to Financial Statements December 31, 1997 (In thousands, except share and per share data) (1) Background and Basis of Presentation Raytheon Semiconductor Inc. (the Company) is a wholly owned subsidiary of Thornwood Trust (Thornwood) which is a wholly owned unit of Raytheon Company (Raytheon). The Company's Multimedia Business Unit, based in San Diego, California, designs and manufactures digital and mixed-signal integrated circuits (IC) for use in broadcast video, computer graphics, multimedia, imaging and communications applications. The Analog and High Speed Communications Business Units, both based in Mountain View, California, manufacture DC-DC converters, voltage regulator modules and IC's used by customers in high performance microprocessors and networking applications. The Company sells mainly through distributors in North America, Asia, and Europe. Fairchild Semiconductor Corporation (Fairchild) acquired all the outstanding shares of the Company subsequent to the close of business on December 31, 1997 (see Note 10). Prior to this transaction, the net assets of the Company represented an operating division of Raytheon. These financial statements report the operating results of the Company as a division of Raytheon. As a division of Raytheon, certain costs included in the income statement were determined on the basis of allocations from Corporate Headquarters and represent management's best estimate of the cost that would have been incurred had the division operated independently. As a result, the financial statements presented may not reflect the financial position or results of operations which would have been realized had the Company operated as a nonaffiliated entity for the year. (2) Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of trade accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable, as the majority of the Company's customers are large, well established companies. The Company maintains reserves for potential credit losses, but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. 8 Revenue Recognition Revenue is primarily recognized at the time product is shipped. The Company provides for estimated returns of products sold to distributors under various sales incentive programs and for general product returns from all customers. Reductions of net sales revenue under these programs are recorded at the time products are shipped. Inventories Inventories are stated at the lower of standard cost, which approximates actual cost, or net realizable value. Cost is determined on a first-in, first-out basis. Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is generally provided on the double declining balance (buildings), or sum-of-years digits method based on the following estimated useful lives: Buildings 20 to 45 years Machinery and equipment 3 to 10 years Computer software and other assets 7 years Leasehold improvements are amortized over the lesser of the remaining term of the lease or the estimated useful life of the improvement. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards of the Company. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Stock Option Plan The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense is recorded using the intrinsic value-based method. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, on January 1, 1996, which permits entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. 9 Parent Company Investment As a division of Raytheon, the Company's operating cash requirements have been met with transfers from Raytheon as required. Cash balances of the Company not required for operations have been transferred to Raytheon, and all cash receipts and disbursements and intercompany charges related to the Company's operations have been credited to or charged against Parent Company Investment. (3) Corporate Allocations The accompanying statement of income includes charges allocated by Raytheon representing the Company's share of certain costs incurred by Raytheon in support of the Company's operations. Services provided by Raytheon in 1997 were primarily financial, legal and administrative in nature. Costs have been allocated to the Company based on the proportion of Raytheon expenses represented by Company expenses. In all cases, the corporate charges assessed approximate the amounts which would have been incurred by the Company if it had operated on a standalone basis during the year. The total amounts allocated to the Company for the year ended December 31, 1997 and included in the statement of income are as follows (in thousands): Cost of sales ......................................... $3,647 Research and development .............................. 1,059 Selling, general and administrative ................... 1,715 ------ $6,421 ======
Additionally, in 1997, substantially all employees of the Company participated in the defined benefit pension plans of Raytheon. Under the plans, benefits are generally based on years of service and the employee's compensation during the years before retirement. Total expense allocated to the Company for 1997 was $572. Subject to certain age and service requirements, substantially all employees of the Company in 1997 were eligible to participate in Raytheon's defined contribution plans. Employees participating in the Raytheon Savings and Investment Plan could contribute up to 17% of their pay subject to prescribed Internal Revenue Code ("IRC") limits. Raytheon matched 50% of the employees' contributions, up to a maximum of 3% of each participating individual's compensation. Total expense charged to the Company for this plan in 1997 was $458. For employees participating in the Raytheon Employee Stock Ownership Plan, the Company's annual contribution was approximately one half of one percent of salary, as limited by the IRC. Total expense charged to the Company for this plan in 1997 was $105. Raytheon allocated charges for the employee benefit plans based primarily on headcount and eligible payroll. Management has reviewed the allocations made by Raytheon in respect of employee benefit plans and believes them to be reasonable. Subject to the Acquisition Agreement with Fairchild, substantial changes to the Company's pension and benefit plans are expected for 1998. See Note 10. 10 (4) Inventories Inventories as of December 31, 1997, consisted of the following (in thousands): Finished goods .............................. $ 6,012 Work in process ............................. 10,419 Raw materials ............................... 1,694 ------- $18,125 =======
(5) Property, Plant, and Equipment Property, plant, and equipment as of December 31, 1997, consisted of the following (in thousands): Land ......................................... $ 616 Buildings and leasehold improvements ......... 22,802 Machinery and equipment ...................... 61,159 Computer software ............................ 2,898 Construction in progress ..................... 427 ------- 87,902 Less accumulated depreciation and amortization 66,370 ------- Property, plant, and equipment, net .......... $21,532 =======
11 (6) Federal Income Taxes The provision for income taxes for the year ended December 31, 1997, was (in thousands): Current income tax expense: Federal ..................................... $2,299 State ....................................... 473 ------ 2,772 ------ Deferred income tax expense: Federal ..................................... 1,247 State ....................................... 376 ------ 1,623 Total tax expense .................... $4,395 ======
The provision for income taxes for 1997 differs from the U.S. statutory rate due to the following(in thousands): Computed expected tax expense .................. $3,833 State income tax, net of federal tax benefit ... 562 ------ $4,395 ======
Current income tax expense is included as a transfer to Raytheon in the Parent Company Investment account. The sources and tax effects of temporary differences which give rise to deferred income tax balances are as follows (in thousands): Current deferred tax assets: Inventory reserves ........................ $2,196 Accounts receivables allowances ........... 829 Accrued expenses .......................... 801 ------ 3,826 Noncurrent deferred tax assets: Depreciation and amortization ............. 1,568 ------ $5,394 ======
Under the terms of the Acquisition Agreement with Fairchild, the deferred tax assets will not be transferred to Fairchild and accordingly are included as a transfer to Raytheon as of December 31, 1997. See Note 10. 12 (7) Employee Stock Plans Stock Based Compensation The Company's employees participate in the Raytheon Stock Option Plan (the Plan) which provides for the grant of incentive stock options and nonqualified stock options to employees, directors and consultants of the Company at the fair market value of Raytheon's common stock on the date of grant. The vesting and exercise provisions of the option grants under the Plan are determined by the Board of Directors. Options generally vest ratably over a four-year period commencing from the date of grant, subject to one year of employment and generally expire in 10 years from the date of grant. The Company has elected to use the intrinsic value-based method to account for all of its stock-based employee compensation plans. Accordingly, no compensation cost has been recognized for its stock options in the accompanying financial statements because the fair value of the underlying common stock equals the exercise price of the stock options at the date of grant. Pursuant to SFAS No. 123, Accounting for Stock Based Compensation, the Company is required to disclose the pro forma effects on the net income of the Company as if the Company had elected to use the fair value approach to account for its stock-based employee compensation plan. Had compensation cost for the Company's plans been determined consistent with the fair value approach under SFAS No. 123, the Company's 1997 net income would have been $6,476. The fair value of each option is estimated using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 6.5%, an expected life of 5 years, and volatility of 24%. No dividend impact was considered as Raytheon has never declared, and does not have plans to declare, any future dividends. No option or equity instruments were issued to nonemployees. The following table summarizes activity under the plan as of December 31, 1997:
Weighted- average exercise Shares price -------- --------- Outstanding at beginning of year ........................ 67,320 $ 39.25 Options granted ......................................... 32,500 51.13 Options exercised ....................................... (8,900) 31.02 Options canceled ........................................ -- -- ------- Outstanding at end of year .............................. 90,920 44.30 ======= Options vested at year-end .............................. 58,420 $ 40.60 ======= Weighted-average fair value of options granted during the year ............................................... . $ 13.98
13 The following table summarizes information about stock options outstanding as of December 31, 1997:
Outstanding Exercisable ------------------------------------------------------ ---------------- Weighted- average Exercise Options remaining Options price outstanding life in years exercisable -------------- --------------- --------------- ---------------- $ 16.95 2,000 1.96 years 2,000 21.80 1,000 4.06 1,000 31.91 2,020 5.65 2,020 31.47 5,000 5.73 5,000 32.53 10,000 6.48 10,000 32.88 3,000 6.65 3,000 39.03 14,000 7.49 14,000 52.56 20,400 8.44 20,400 51.75 1,000 8.66 1,000 47.13 4,000 9.15 -- 51.69 28,500 9.50 -- --------------- ---------------- 44.30 90,920 58,420 ========== =============== ================
Pursuant to the Acquisition Agreement with Fairchild (see Note 10), all unvested outstanding options at December 31, 1997 are canceled. (8) Commitments and Contingencies At December 31, 1997, the Company had commitments under long-term operating leases requiring approximate annual rentals as follows (in thousands): 1998 ............................................ $ 812 1999 ............................................ 844 2000 ............................................ 439 2001 ............................................ -- 2002 ............................................ -- Thereafter ...................................... -- ------ $2,095 ======
Rental expense for 1997 amounted to $533. 14 The Company's Mountain View facility is located on a contaminated site under the Comprehensive Environmental Liability Act (the "Act"). During the year the Company paid $2,164 for remediation costs which were reimbursed by Raytheon. Under the terms of the Acquisition Agreement executed on December 31, 1997(see Note 10), future responsibility for these costs will be assumed by Raytheon. All other environmental costs are immaterial to the Company and have been expensed as incurred. The Company is subject to various claims and legal proceedings in the normal course of business. None of the claims or potential claims outstanding at December 31, 1997 are anticipated to have a material impact on the financial position, cash flows, or results of operations of the Company after taking into consideration provisions already recorded. (9) Related Party Transactions, and Geographic Information In 1997, the Company had $2,134 of net sales to affiliate companies of Raytheon; the related cost of sales amounted to $1,126. There were no other transactions with affiliate companies of Raytheon during 1997. The Company's export sales for the year ended December 31, 1997 was $24,810 principally to customers Europe and Asia. (10) Subsequent Event As discussed in Note 1, prior to the formation of the Company on December 31, 1997, the Company operated as a division of Raytheon. On December 31, 1997, the Company was incorporated as a wholly-owned subsidiary of Thornwood Trust (Thornwood), a Massachusetts Business Trust and wholly-owned unit of Raytheon. Subsequent to the close of business on December 31, 1997, Fairchild acquired 100% of the outstanding shares of common stock of the Company from Thornwood for approximately $117 million. Upon closing of the acquisition, the Company became a business unit of Fairchild. Pursuant to the Acquisition Agreement, Raytheon will retain and be responsible for liabilities accrued by employees of the Company through December 31, 1997 under any defined benefit pension plan or other employee-related benefit plans. In addition, Raytheon will retain all liability and responsibility for the disposition of interests under the Raytheon Savings and Investment Plan and the Raytheon Stock Ownership Plan with respect to all employees of the Company who were participants in either of the plans as of December 31, 1997. Raytheon will also retain and be responsible for all liabilities related to environmental remediation activities, including those required by the United States Environmental Protection Agency, at the Company's Mountain View, California facility which arose prior to December 31, 1997 or were created by the release of hazardous substances that first occurred prior to December 31, 1997. 15 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES Unaudited Pro Forma Consolidated Statements of Income and Pro Forma Consolidated Balance Sheet The following unaudited pro forma consolidated financial statements reflect the acquisition of Raytheon Semiconductor, Inc. ("Raytheon") by Fairchild Semiconductor Corporation (the "Company," "Fairchild"), under the purchase method of accounting. The Company purchased all of the outstanding common stock of Raytheon on December 31, 1997 for approximately $117 million. The unaudited pro forma consolidated statement of operations for the year ended May 25, 1997 includes the audited consolidated statement of operations of Fairchild for the year ended May 25, 1997, the unaudited statement of operations of Raytheon for the year ended June 30, 1997, and pro forma adjustments to reflect the acquisition of Raytheon as though the Company purchased Raytheon as of May 27, 1996. The unaudited statement of operations of Raytheon for the year ended June 30, 1997 was created by adding the unaudited results for the six months ended December 31, 1996 to the audited statement of operations for the year ended December 31, 1997 and subtracting the unaudited results for the six months ended December 31, 1997. The unaudited pro forma consolidated statement of operations for the six-month period ended November 23, 1997 includes the unaudited consolidated statement of operations of Fairchild for the six-month period ended November 23, 1997, the unaudited statement of operations of Raytheon for the six-month period ended December 31, 1997, and pro forma adjustments to reflect the acquisition of Raytheon as though the Company purchased Raytheon as of May 27, 1996. The unaudited statement of operations of Raytheon for the six-month period ended December 31, 1997 was created by subtracting the unaudited results for the six months ended December 31, 1997 from the audited statement of operations for the year ended December 31, 1997. The unaudited pro forma consolidated balance sheet as of November 23, 1997 includes the unaudited consolidated balance sheet of Fairchild as of November 23, 1997, the audited balance sheet of Raytheon as of December 31, 1997, and pro forma adjustments to reflect the acquisition of Raytheon as though the Company purchased Raytheon as of November 23, 1997. Pro forma adjustments are described in the accompanying notes to the pro forma financial statements. The unaudited pro forma consolidated statements of operations and consolidated balance sheet are provided for informational purposes only and are not necessarily indicative of the Company's financial position or actual results of operations that would have been reported, nor do they propose to indicate the results of future operations of the Company. In the opinion of management, all adjustments necessary to present fairly such unaudited pro forma consolidated statements of operations and consolidated balance sheet have been made. The unaudited pro forma consolidated statements of operations and consolidated balance sheet should be read in conjunction with the audited consolidated financial statements and related notes of the Company included in the 1997 annual report on Form 10-K, and the audited financial statements and related notes of Raytheon included elsewhere in this report. 16 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES Notes to Unaudited Pro Forma Consolidated Financial Statements 1. On December 31, 1997, the Company entered into an Acquisition Agreement with Thornwood Trust, the parent company of Raytheon, whereby the Company acquired all of the outstanding common stock of Raytheon for approximately $117 million in cash, plus related expenses. Raytheon designs, manufactures and markets high-performance analog and mixed signal integrated circuits. The Company elected to treat the purchase as an asset acquisition for income tax reporting purposes. The purchase price was allocated to all identifiable tangible and intangible assets and assumed liabilities based on their fair values. The following identifiable intangible assets and goodwill were recorded at the acquisition date: In-process research and development ................... $ 15.5 Developed technology .................................. 29.6 Assembled workforce ................................... 4.1 Goodwill .............................................. 4.6 ------ $ 53.8 ======
In-process research and development of $15.5 million, and the related deferred tax benefit of $5.4 million, will be charged to operations in the Company's fiscal quarter ending March 1, 1998. The non-recurring charge has been excluded from the accompanying unaudited pro forma consolidated statements of operations. Developed technology, assembled workforce, and goodwill will be amortized to expense on the straight-line basis over periods of 15 years, 3 years, and 15 years, respectively. 2. To record the use of available cash and increase in debt to finance the purchase price of the acquisition and related expenses. 3. To record inventory at its fair value at the date of acquisition. 4. To record a noncurrent deferred tax liability of $5.4 million related to in-process research and development identified at the date of acquisition. 5. To record property, plant and equipment at its fair value at the date of acquisition. 6. To record the cost to secure additional debt to finance the acquisition. The debt finance costs will be amortized over a five-year period, the term of the related debt. 7. To eliminate intercompany liabilities of $0.2 million not acquired by Fairchild. 8. To eliminate the equity of Raytheon at the acquisition date. 9. To record the amortization of identifiable intangible assets and goodwill, as discussed in Note 1. 17 10. To record the impact to interest expense and interest income for the increase in debt, use of available cash and costs to secure debt to finance the acquisition. Interest expense of $9.6 million and $2.7 million, respectively, at a rate of 8.75% (the Company's average incremental borrowing rate) has been recorded related to additional average borrowings of $110.0 million and $61.8 million, respectively, for the year ended May 25, 1997 and for the six-month period ended November 23, 1997. Interest income of $0.4 million and $1.3 million, respectively, at rates of approximately 4.25% and 4.65%, respectively, has been eliminated to reflect the use of the available average cash balances of $9.0 million and $57.2 million, respectively, for the year ended May 25, 1997 and for the six-month period ended November 23, 1997. Interest expense of $0.2 million and $0.1 million, respectively, for amortization of debt finance costs has been recorded for the year ended May 25, 1997 and the six-month period ended November 23, 1997. 11. To record the income tax effect of pro forma adjustments using an effective rate of 35%. 18 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES Unaudited Pro Forma Consolidated Statement of Operations For the Year Ended May 25, 1997 (In millions)
Fairchild Raytheon Pro Semiconductor Semiconductor Forma Pro Corporation Inc. Total Adjustments Forma --------------- --------------- ------- ------------ --------- Revenue: Net sales - trade ................................. $ 587.1 $ 71.3 $ 658.4 $ $ 658.4 Contract manufacturing ............................ 104.2 -- 104.2 104.2 ------------ ----------- ------- ------- --------- Total revenue ........................ 691.3 71.3 762.6 -- 762.6 Direct and allocated costs and expenses: Cost of sales ..................................... 442.7 41.9 484.6 484.6 Cost of contract manufacturing .................... 97.4 -- 97.4 97.4 Research and development .......................... 18.9 11.7 30.6 30.6 Selling, general and administrative ............... 95.6 10.0 105.6 105.6 Amortization of intangible assets ................. -- -- -- 3.7 (9) 3.7 Restructuring ..................................... 5.3 -- 5.3 5.3 ------------ ----------- ------- ------- --------- Total operating costs and expenses ... 659.9 63.6 723.5 3.7 727.2 Interest, net ........................................... 9.3 -- 9.3 10.2 (10) 19.5 Other (income) expense .................................. 0.9 (0.2) 0.7 0.7 ------------ ----------- ------- ------- --------- Revenues less direct and allocated expenses before income taxes ................................... 21.2 7.9 29.1 (13.9) 15.2 Income taxes ............................................ 4.5 3.0 7.5 (4.9)(11) 2.6 ------------ ----------- ------- ------- --------- Revenues less direct and allocated expenses and income taxes ...................................... $ 16.7 $ 4.9 $ 21.6 $ (9.0) $ 12.6 ============ =========== ======= ======= =========
19 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES Unaudited Pro Forma Consolidated Statement of Operations For the Six-Month Period Ended November 23, 1997 (In millions)
Fairchild Raytheon Pro Semiconductor Semiconductor Forma Pro Corporation Inc. Total Adjustments Forma --------------- --------------- ------- ------------ --------- Revenue: Net sales - trade ................................. $ 314.0 $ 41.6 $ 355.6 $ $ 355.6 Contract manufacturing ............................ 81.3 -- 81.3 81.3 ------------ ----------- ------- ------- --------- Total revenue ........................ 395.3 41.6 436.9 -- 436.9 Direct and allocated costs and expenses: Cost of sales ..................................... 213.4 23.2 236.6 236.6 Cost of contract manufacturing .................... 61.4 -- 61.4 61.4 Research and development .......................... 14.9 6.2 21.1 21.1 Selling, general and administrative ............... 42.0 5.5 47.5 47.5 Amortization of intangible assets ................. -- -- -- 1.8 (9) 1.8 ------------ ----------- ------- ------- --------- Total operating costs and expenses ... 331.7 34.9 366.6 1.8 368.4 Operating income ........................................ 63.6 6.7 70.3 (1.8) 68.5 Interest, net ........................................... 21.7 -- 21.7 4.1 (10) 25.8 ------------ ----------- ------- ------- --------- Income before income taxes .............................. 41.9 6.7 48.6 (5.9) 42.7 Income taxes ............................................ 14.7 2.6 17.3 (2.1)(11) 15.2 ------------ ----------- ------- ------- --------- Net income .............................................. $ 27.2 $ 4.1 $ 31.3 $ (3.8) $ 27.5 ============ =========== ======= ======= =========
20 FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES Unaudited Pro Forma Consolidated Balance Sheet November 23, 1997 (In millions)
Fairchild Raytheon Pro Semiconductor Semiconductor Forma Pro Corporation Inc. Total Adjustments Forma --------------- --------------- ------- ------------ --------- Assets Current assets: Cash ............................................... $ 40.7 $ 0.2 $ 40.9 $ (40.9)(2) $ 0.0 Accounts receivable, net ........................... 79.6 11.4 91.0 91.0 Inventories ........................................ 73.1 18.1 91.2 (4.5)(3) 86.7 Prepaid expenses and other current assets .......... 16.6 0.3 16.9 16.9 Deferred income taxes .............................. 2.1 -- 2.1 2.1 ------------ ----------- ------- ------- --------- Total current assets .................... 212.1 30.0 242.1 (45.4) 196.7 Property, plant and equipment, net ...................... 295.0 21.5 316.5 29.6 (5) 346.1 Deferred income taxes ................................... 17.8 -- 17.8 (5.4)(4) 12.4 Intangible assets ....................................... -- -- -- 53.8 (1) 53.8 Other assets ............................................ 29.4 -- 29.4 1.1 (6) 30.5 ------------ ----------- -------- ------- --------- Total assets ............................ $ 554.3 $ 51.5 $ 605.8 $ 33.7 $ 639.5 ============ =========== ======== ======= ========= Liabilities and Equity Current liabilities: Current portion of long-term debt .................. $ 11.0 $ -- $ 11.0 $ $ 11.0 Accounts payable ................................... 77.1 3.7 80.8 80.8 Accrued expenses and other current liabilities ..... 40.1 3.6 43.7 (0.2)(7) 43.5 ------------ ----------- ------- ------- --------- Total current liabilities ............... 128.2 7.3 135.5 (0.2) 135.3 Long-term debt, less current portion .................... 409.0 -- 409.0 78.1 (2) 487.1 Other liabilities ....................................... 0.4 -- 0.4 0.4 ------------ ----------- ------- ------- --------- Total liabilities ....................... 537.6 7.3 544.9 77.9 622.8 ------------ ----------- ------- ------- --------- Equity: Common stock ....................................... -- -- -- -- Additional paid-in capital ......................... 9.6 44.2 53.8 (44.2)(8) 9.6 Accumulated deficit ................................ 7.1 -- 7.1 7.1 ------------ ----------- ------- ------- --------- Total equity ............................ 16.7 44.2 60.9 (44.2) 16.7 ------------ ----------- ------- ------- --------- Total liabilities and equity ............ $ 554.3 $ 51.5 $ 605.8 $ 33.7 $ 639.5 ============ =========== ======== ======= =========
21 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: March 16, 1998 By: /s/ Joseph R. Martin ----------------------------------- Joseph R. Martin Executive Vice President, Finance Chief Financial Officer 22 -----END PRIVACY-ENHANCED MESSAGE-----