<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
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
</TABLE>
b) Pro Forma Financial Information
<TABLE>
<S> <C>
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
</TABLE>
c) Exhibits
None.
2
<PAGE>
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
<PAGE>
RAYTHEON SEMICONDUCTOR, INC.
(A Wholly Owned Subsidiary of Thornwood Trust)
Balance Sheet
December 31, 1997
(In thousands, except share and per share data)
<TABLE>
Assets
<S> <C>
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
=======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
RAYTHEON SEMICONDUCTOR, INC.
(A Wholly Owned Subsidiary of Thornwood Trust)
Statement of Income
Year ended December 31, 1997
(In thousands)
<TABLE>
<S> <C>
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
=======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
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)
<TABLE>
<CAPTION>
Parent Additional Total
Company Common Stock Paid-in- Stockholder's
Investment Shares Amount Capital Equity
------------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
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
============ ======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
RAYTHEON SEMICONDUCTOR, INC.
(A Wholly Owned Subsidiary of Thornwood Trust)
Statement of Cash Flows
Year ended December 31, 1997
(In thousands)
<TABLE>
<S> <C>
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
========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
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
<PAGE>
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
<PAGE>
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):
<TABLE>
<S> <C>
Cost of sales ......................................... $3,647
Research and development .............................. 1,059
Selling, general and administrative ................... 1,715
------
$6,421
======
</TABLE>
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
<PAGE>
(4) Inventories
Inventories as of December 31, 1997, consisted of the following (in
thousands):
<TABLE>
<S> <C>
Finished goods .............................. $ 6,012
Work in process ............................. 10,419
Raw materials ............................... 1,694
-------
$18,125
=======
</TABLE>
(5) Property, Plant, and Equipment
Property, plant, and equipment as of December 31, 1997, consisted of the
following (in thousands):
<TABLE>
<S> <C>
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
=======
</TABLE>
11
<PAGE>
(6) Federal Income Taxes
The provision for income taxes for the year ended December 31, 1997, was
(in thousands):
<TABLE>
<S> <C>
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
======
</TABLE>
The provision for income taxes for 1997 differs from the U.S. statutory
rate due to the following(in thousands):
<TABLE>
<S> <C>
Computed expected tax expense .................. $3,833
State income tax, net of federal tax benefit ... 562
------
$4,395
======
</TABLE>
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):
<TABLE>
<S> <C>
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
======
</TABLE>
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
<PAGE>
(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:
<TABLE>
<CAPTION>
Weighted-
average
exercise
Shares price
-------- ---------
<S> <C> <C>
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
</TABLE>
13
<PAGE>
The following table summarizes information about stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------ ----------------
Weighted-
average
Exercise Options remaining Options
price outstanding life in years exercisable
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 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
========== =============== ================
</TABLE>
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):
<TABLE>
<S> <C> <C>
1998 ............................................ $ 812
1999 ............................................ 844
2000 ............................................ 439
2001 ............................................ --
2002 ............................................ --
Thereafter ...................................... --
------
$2,095
======
</TABLE>
Rental expense for 1997 amounted to $533.
14
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<S> <C>
In-process research and development ................... $ 15.5
Developed technology .................................. 29.6
Assembled workforce ................................... 4.1
Goodwill .............................................. 4.6
------
$ 53.8
======
</TABLE>
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
<PAGE>
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
<PAGE>
FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended May 25, 1997
(In millions)
<TABLE>
<CAPTION>
Fairchild Raytheon Pro
Semiconductor Semiconductor Forma Pro
Corporation Inc. Total Adjustments Forma
--------------- --------------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
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
============ =========== ======= ======= =========
</TABLE>
19
<PAGE>
FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
For the Six-Month Period Ended November 23, 1997
(In millions)
<TABLE>
<CAPTION>
Fairchild Raytheon Pro
Semiconductor Semiconductor Forma Pro
Corporation Inc. Total Adjustments Forma
--------------- --------------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
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
============ =========== ======= ======= =========
</TABLE>
20
<PAGE>
FAIRCHILD SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Balance Sheet
November 23, 1997
(In millions)
<TABLE>
<CAPTION>
Fairchild Raytheon Pro
Semiconductor Semiconductor Forma Pro
Corporation Inc. Total Adjustments Forma
--------------- --------------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
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
============ =========== ======== ======= =========
</TABLE>
21
<PAGE>
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
