<PAGE> 1
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): April 13, 1999
FAIRCHILD SEMICONDUCTOR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 333-26897 77-0449095
(State or other jurisdiction of (I.R.S. Employer (Commission File
incorporation or organization) Number) Identification No.)
333 Western Avenue
South Portland, Maine 04106
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (207) 775-8100
<PAGE> 2
Item 7. Financial Statements and Exhibits
On April 27, 1999, Fairchild Semiconductor Corporation filed with the Securities
and Exchange Commission a Current Report on Form 8-K with respect to the
acquisition of the Power Device Business of Samsung Electronics Co., Ltd. on
April 13, 1999. 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.
<TABLE>
<CAPTION>
(a) Financial Statements of Business Acquired
<S> <C>
Page
Report of Independent Accountants ..................................... 3
Statements of Net Assets (Liabilities) as of December 31, 1998 and
December 31, 1997 ................................................. 4
Statements of Operations and Comprehensive Income (Loss) for each
of the Years in the Three-Year Period Ended December 31, 1998 ..... 5
Statements of Cash Flows for each of the Years in the Three-Year
Period Ended December 31, 1998 ................................... 6
Notes to Financial Statements .......................................... 7
(b) Pro Forma Financial Information
Introduction to Unaudited Pro Forma Combined Condensed
Financial Statements ............................................. 23
Unaudited Pro Forma Combined Condensed Statement of
Operations for the Fiscal Year Ended May 31, 1998 .................. 25
Unaudited Pro Forma Combined Condensed Statement of
Operations for the Nine Months Ended February 28, 1998 ............ 26
Notes to Unaudited Pro Forma Combined Condensed Statements
of Operations ................................................... 27
Unaudited Pro Forma Combined Condensed Balance Sheet as
Of February 28, 1999 .............................................. 32
Notes to Unaudited Pro Forma Combined Condensed Balance
Sheet ............................................................. 33
</TABLE>
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Samsung Electronics Co., Ltd.
In our opinion, the accompanying statements of net assets (liabilities) and
the related statements of operations and comprehensive income (loss) and cash
flows present fairly, in all material respects, the financial position of the
Power Device Business of Samsung Electronics Co., Ltd. (the "Business") at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Business' management, our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 11 to the financial statements, the operations of the
Business, and those of similar companies in the Republic of Korea, have been
significantly affected, and will continue to be affected for the foreseeable
future, by the country's unstable economy caused in part by the currency
volatility in the Asia Pacific region.
The Business is an operating unit of Samsung Electronics Co., Ltd. and, as
discussed in Notes 3, 7 and 15, has engaged in various transactions with Samsung
Electronics Co., Ltd.
Samil Accounting Corporation
Seoul, Korea
February 24, 1999
3
<PAGE> 4
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
STATEMENTS OF NET ASSETS (LIABILITIES)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1997 1998
---------- ----------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18 $ 37
Trade accounts and notes receivable, net.................. 28,445 26,605
Inventories............................................... 50,469 43,977
Deferred tax assets....................................... 909 1,184
Prepaid expenses and other current assets................. 2,317 3,750
-------- --------
Total current assets................................... 82,158 75,553
Advances to employees....................................... 5,398 2,632
Property, plant and equipment, net.......................... 93,166 90,955
Deposit for deferred employee compensation.................. 6,272 --
Intangible assets, net...................................... 1,182 887
Other assets................................................ 419 262
-------- --------
Total assets........................................... 188,595 170,289
-------- --------
LIABILITIES
Current liabilities:
Corporate borrowings...................................... 9,750 12,641
Current portion of capital lease obligation............... 12,706 8,086
Trade accounts and notes payable.......................... 11,086 13,729
Income taxes payable to Samsung........................... 6,394 12,947
Accrued expenses and other accounts payable............... 6,621 70,594
-------- --------
Total current liabilities.............................. 46,557 117,997
Corporate borrowings........................................ 92,032 46,065
Capital lease obligation.................................... 15,151 9,667
Deferred employee compensation.............................. 13,004 6,471
Deferred tax liabilities.................................... 3,173 1,914
-------- --------
Total liabilities...................................... 169,917 182,114
-------- --------
Commitments and contingencies
NET ASSETS (LIABILITIES)
Business equity............................................. 37,301 272
Accumulated other comprehensive loss --
Cumulative translation adjustments........................ (18,623) (12,097)
-------- --------
Total net assets (liabilities)......................... $ 18,678 $(11,825)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
Revenues:
Net sales............................................ $418,047 $440,700 $369,899
Contract manufacturing -- Samsung Electronics........ 53,735 37,428 16,620
-------- -------- --------
Total revenue........................................ 471,782 478,128 386,519
-------- -------- --------
Operating expenses:
Cost of sales........................................ 361,624 309,712 232,562
Cost of contract manufacturing -- Samsung
Electronics....................................... 53,735 37,428 16,620
Research and development............................. 18,579 19,205 15,224
Selling, general and administrative.................. 28,950 34,280 33,812
Litigation settlement................................ -- -- 58,000
-------- -------- --------
Total operating expenses.......................... 462,888 400,625 356,218
-------- -------- --------
Operating income....................................... 8,894 77,503 30,301
Interest expense, net.................................. 10,384 10,076 4,205
Foreign currency losses, net........................... 497 5,933 923
-------- -------- --------
Income (loss) before income taxes...................... (1,987) 61,494 25,173
Income tax benefit (provision)......................... 4,754 (18,549) (9,519)
-------- -------- --------
Net income............................................. 2,767 42,945 15,654
-------- -------- --------
Other comprehensive income (loss):
Net foreign currency translation adjustments...... (4,837) (14,491) 6,526
-------- -------- --------
Comprehensive income (loss)............................ $ (2,070) $ 28,454 $ 22,180
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 2,767 $ 42,945 $ 15,654
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 48,965 38,792 22,289
Provision for (recovery of) doubtful accounts........... (6) 93 7
Provision for (reversal of) inventory reserve........... (216) (3,713) 1,016
Accrual for litigation settlement....................... -- -- 58,000
Loss on disposition of property, plant and equipment.... 1,545 423 498
Deferred employee compensation.......................... 1,407 (8,623) 3,745
Deferred income taxes................................... (4,365) 8,648 (1,534)
Changes in operating assets and liabilities:
Trade accounts and notes receivable..................... 3,283 (28,329) 5,817
Inventories............................................. 13,092 (3,166) 12,617
Prepaid expenses and other current assets............... 2,629 720 (894)
Advances to employees................................... (1,208) 1,702 3,188
Deposit for deferred employee compensation.............. (1,036) 4,057 6,345
Other assets............................................ 1,463 516 198
Trade accounts and notes payable........................ (2,942) 1,008 638
Income taxes payable to Samsung......................... (4,966) 6,394 6,553
Accrued expenses and other accounts payable............. (12,388) 19,152 4,232
Payment of deferred employee compensation............... (8,642) (6,299) (10,278)
--------- --------- ---------
Net cash provided by operating activities............... 39,382 74,320 128,091
--------- --------- ---------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment............ (118,005) (10,259) (7,671)
Proceeds from sale of property, plant and equipment..... 30,644 10,593 2,297
Acquisition of intangible assets........................ (1,134) (454) (319)
--------- --------- ---------
Net cash used in investing activities................... (88,495) (120) (5,693)
--------- --------- ---------
Cash Flows from Financing Activities:
Corporate borrowing, net................................ 54,223 (75,678) (43,076)
Capital lease payment................................... (9,335) (23,819) (11,046)
Net capital distribution................................ (16,867) (57,593) (52,683)
--------- --------- ---------
Net cash provided by (used in) financing activities..... 28,021 (157,090) (106,805)
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... 21,092 82,907 (15,574)
--------- --------- ---------
Net increase in cash and cash equivalents................... -- 17 19
Cash and cash equivalents, beginning of period.............. 1 1 18
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 1 $ 18 $ 37
========= ========= =========
Supplemental disclosure of cash flows information:
Interest paid........................................... $ 396 $ 252 $ 9
========= ========= =========
Machinery and equipment acquired under capital lease.... $ 103 $ 673 $ 942
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION:
BUSINESS
The Power Device Business (the "Business") was established in 1985 as an
operating unit of Samsung Electronics Co., Ltd. ("Samsung"). The Business is not
a distinct legal entity. The Business designs, develops and manufactures
discrete and standard analog semiconductors. These products are used in major
market worldwide sectors including computers, computer peripherals, office
equipment, consumer electronics, lighting, communications, and industrial
equipment. The Business is located in Bucheon, the Republic of Korea ("Korea")
and shares the Samsung Bucheon factory with Samsung's Multimedia Business.
On December 20, 1998, Samsung entered into a Business Transfer Agreement
(the "Agreement") with Fairchild Semiconductor Corporation ("Fairchild"). Under
terms of the Agreement, Fairchild shall purchase substantially all of the assets
including allocated notes receivable and prepaid expenses and assume certain
liabilities of the Business in exchange for $455,000 thousand in cash, subject
to certain conditions and adjustments. In conjunction with the transfer of the
Business, Samsung intends to pay an employee bonus to the employees staying with
the Business to the closing date.
BASIS OF PRESENTATION
The Securities and Exchange Commission, in Staff Accounting Bulletin Number
55, requires that historical financial statements of a subsidiary, division, or
lesser business component of another entity include certain expenses incurred by
the parent on its behalf. These expenses generally include, but are not limited
to, officer and employee salaries, rent, depreciation, advertising, accounting
and legal services, other selling, general and administrative expenses and other
such expenses. These financial statements include such expenses and services.
These financial statements present the assets, liabilities, results of
operations and cash flows of the Business. Because the Business did not
previously prepare separate financial statements, these financial statements
were derived by extracting the assets, liabilities and results of operations of
the Business from the corresponding Samsung accounts. As a result, the carved
out financial statements contain allocations of certain Samsung assets,
liabilities, revenues and expenses attributable to the Business deemed
reasonable by management to present the Business on a stand-alone basis.
Although the Business' management is unable to estimate the actual benefits
which would have been realized and costs which would have been incurred had the
respective transactions been executed with independent third parties, the
allocation methodologies described below and within the respective notes to
financial statements, where appropriate, are considered reasonable by
management. The financial position and results of operations of the Business
may, however, differ from the results which may have been achieved had the
Business operated as an independent legal entity. Additionally, future expenses
incurred as an independent entity may not be comparable to the historical
levels.
The carved out financial statements are presented in accordance with
generally accepted accounting principles of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies followed by the Business in the
preparation of its financial statements are summarized below.
7
<PAGE> 8
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
RELATED PARTY ACTIVITY AND ALLOCATIONS
The financial statements reflect the assets, liabilities, revenue and
expenses that were directly related to the Business as it operated within
Samsung. In cases involving assets and liabilities not specifically identifiable
to any particular facility, a portion of such items were allocated to the
Business based on assumptions that management considers reasonable in the
circumstances.
Samsung uses a centralized approach to cash management and the financing of
its operations. These systems did not track cash balances, notes receivable
balances and bank borrowings on a business specific basis. Accordingly, notes
receivable and debt not specifically identifiable to the operations of any
particular facility were allocated annually to the Business based on the
customer sales ratio and fixed asset ratio of the Business, respectively, as a
percentage of Samsung for each respective period. Interest expense on allocated
debt was determined by applying the average interest rates of Samsung during the
respective periods. Management believes the debt allocation basis is reasonable
as the Business operates in a highly capital intensive industry and capital
expenditures are financed through bank borrowings.
Manufacturing costs were generally apportioned between the Business and
Samsung's other product lines based upon actual factory production loading.
Certain manufacturing costs (e.g., material costs) that were specifically
identifiable with a particular product line were charged directly.
Other operating units of Samsung also performed manufacturing services for
the Business and incurred other elements of cost of sales on behalf of the
Business, including freight, duty, warehousing, and purchased manufacturing
services from third party vendors. Costs of these services are specifically
identified as they relate to the Business. Also, the Business has performed
contract manufacturing related to wafer foundry services for Samsung. The
revenues for these services are reflected at cost in the accompanying statements
of operations. These costs include manufacturing costs incurred within the
Samsung Bucheon factory and do not include cost of raw materials and/or
processing costs incurred outside of the Samsung Bucheon factory.
Shared or common costs, including certain general and administrative, sales
and marketing, and research and development expenses, have been allocated from
Samsung's corporate office, selling and marketing locations, and manufacturing
sites to the Business on a basis which is considered by management to reasonably
reflect the utilization of such services by the operating unit receiving the
charge. These allocations were based on sales revenues, the number of employees
and working hours. Research and development (R&D) expenses represent the actual
costs incurred by the Bucheon factory plus R&D expenses specifically incurred by
Samsung on behalf of the Business.
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
revenues and expenses in the financial statements and accompanying notes.
Significant estimates made by management include those related to the useful
lives of property, plant and equipment, allowances for doubtful accounts and
customer returns, inventory realizability, contingent liabilities and allocated
expenses. Actual results could differ from those estimates, and such differences
may be material to the financial statements.
8
<PAGE> 9
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and cash in bank accounts,
with original maturities of three months or less.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Business provides an allowance for doubtful accounts and notes
receivable to reduce such receivables to their probable estimated collectable
amounts.
INVENTORIES
Inventories are stated at the lower of cost or market, using the weighted
average method, except for materials in-transit, for which cost is determined
using the specific identification method.
INTANGIBLE ASSETS
Intangible assets, principally patent rights, are stated at cost and
amortized on a straight-line basis over their estimated useful lives of 10 years
which does not exceed the patent period.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as set forth below:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
-------------
<S> <C>
Buildings................................................... 15 - 40 years
Building related structures................................. 7 - 40 years
Machinery and equipment..................................... 5 years
Tools....................................................... 5 years
Furniture and fixtures...................................... 5 years
Vehicles.................................................... 5 years
</TABLE>
Assets under capital leases and leasehold improvements are amortized over
the shorter of the asset life or the remaining lease term. Amortization of
assets under capital leases is included within depreciation expense.
Upon retirement or other disposal of fixed assets, the costs and related
accumulated depreciation or amortization are eliminated from the accounts, and
any resulting gain or loss is reflected in income for the period. Routine
maintenance and repairs are charged to expense as incurred. Expenditures which
enhance the value or significantly extend the useful lives of the related assets
are capitalized.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Business adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". In accordance
with this standard, management periodically evaluates the carrying value of
long-lived assets to be held and used, when events and circumstances warrant
such a review. The
9
<PAGE> 10
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
carrying value of long-lived assets is considered impaired when the anticipated
undiscounted cash flows is separately identifiable and is less than the carrying
value of the assets. In that event, a loss is recognized based on the amount by
which the carrying value exceeds the fair market value of the long-lived assets.
Fair market value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved. The adoption of this
new accounting standard did not have a material effect on the Business'
operating results or financial position.
WARRANTIES
The Business' products are generally warranted for up to one year from
customer receipt. Estimated future costs of repair, replacement, or customer
accommodations are reflected in income for the period of the related sales.
RECOGNITION OF REVENUES
Revenues from the sale of products are recognized on the transfer of
ownership upon shipment. The Business provides a reserve for product returns
from all customers at the time revenue is recognized. Contract manufacturing
revenues are recognized based on completion of respective stages of production,
defined as wafer fabrication and electronic die sorting.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
The Business receives, under the terms of specific legislation, research
and development grants for projects selected by the government. Such grants,
collectively insignificant, are recorded as liabilities since the grant monies
must be repaid upon conclusion of the project.
INCOME TAXES
The Business is not a separate taxable entity for Korean or international
tax purposes and has not filed separate income tax returns, but rather was
included in the income tax returns filed by Samsung. Accordingly, income tax
expense in the carved out financial statements has been calculated as if filed
on a separate tax return basis. The Business accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." SFAS 109 requires
an asset and liability approach for financial accounting and reporting for
income tax purposes. Under the asset and liability method, deferred income taxes
are recognized for temporary differences, net operating loss carryforwards and
credits by applying enacted statutory tax rates applicable to future years.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
Investment R&D tax credits are accounted for by the flow-through method
whereby they reduce income taxes in the period the assets giving rise to such
credits are placed in service. To the extent such credits are not currently
utilized, deferred tax assets, subject to considerations about the need for a
valuation allowance, are recognized for the carryforward account.
10
<PAGE> 11
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
DEFERRED EMPLOYEE COMPENSATION
In accordance with statutory regulations in Korea, employees and directors
with one year or more of service are entitled to receive a lump-sum payment upon
termination of their employment with the Business, based on years of service and
rate of pay at the time of termination. The accrual for deferred compensation
approximates the amount required if all employees were to terminate employment
at the balance sheet date.
The annual provision for deferred compensation charged to operations is
calculated based on the net change in the deferred compensation amount, assuming
the termination of all eligible employees and directors as of the beginning and
end of the period, plus the actual payments made during the period.
Under the National Pension Fund Law of Korea, the Business is required to
pay a certain percentage of employee retirement benefits to the National Pension
Fund in exchange for a reduction in their severance pay. Contributed amounts
shall be refunded from the National Pension Plan to employees on their
retirement. This amount has been offset against deferred compensation except for
the portion related to employees with less than one year of service which is
included in current assets.
Deferred employee compensation is partially funded through a group
severance insurance plan with Samsung Life Insurance Co., Ltd., an affiliate of
Samsung. The amounts deposited under this insurance plan are classified as
noncurrent assets and may only be withdrawn for the actual payment of deferred
compensation.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in currencies other than the Korean won
have been translated at the rate of exchange on the balance sheet date. Gains
and losses resulting from the translation are reflected in income for the
period.
The Business' functional currency is the Korean won, the primary currency
in which business is conducted, and its official accounting records are
maintained in Korean won. The accompanying financial statements are reported in
US dollars pursuant to SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at the exchange rate as of the balance sheet date.
All revenue and expense accounts are translated at a weighted-average exchange
rate in effect during the respective period.
Resulting translation adjustments are recorded in a separate component of
net assets entitled "Cumulative Translation Adjustment." All amounts in these
financial statements have been presented in thousands of US dollars, unless
otherwise stated.
The exchange rates used to translate the financial statements are as
follows:
<TABLE>
<CAPTION>
EXCHANGE RATES USED
-------------------------------------
BALANCE SHEET REVENUE AND EXPENSE
ACCOUNTS ACCOUNTS
-------------- -------------------
<S> <C> <C>
1996................................................ US$1 = 844.20 US$1 = 804.78
1997................................................ US$1 = 1415.20 US$1 = 951.11
1998................................................ US$1 = 1207.80 US$1 = 1398.88
</TABLE>
11
<PAGE> 12
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
COMPREHENSIVE INCOME
Effective January 1, 1996, the Business retroactively adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for the
reporting and display of comprehensive income. The components of comprehensive
income (loss) include net income and foreign currency translation adjustments.
There is no tax effect on the foreign currency translation adjustments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Business to a
concentration of credit risk consist primarily of cash and cash equivalents and
trade accounts and notes receivable.
The Business deposits its cash with a major Korean bank. Deposits in this
bank may exceed the amount of insurance provided on such deposits. However, the
Business is exposed to loss only to the extent of the amount of cash reflected
on its statements of net assets. The Business has not experienced losses on its
bank cash deposits.
The Business performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral for domestic
customers on accounts or notes receivable. The Business maintains reserves for
potential credit losses, but historically has not experienced significant losses
related to individual customers or groups of customers in any particular
industry or geographic area. The Business derives a substantial portion of its
revenues from export sales through Samsung's foreign subsidiaries in Asia, North
America and Europe.
A substantial portion of the components necessary for the manufacture and
operation of many of the Business' products are obtained from the other
operating units of Samsung and its affiliates. The disruption or termination of
any of these sources could have a material adverse effect on the Business'
operating results and financial condition.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, trade accounts and notes
receivable, trade accounts and notes payable, and accrued expenses and other
accounts payable approximates fair value due to the short-term nature of these
instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The provisions
of the statement require the recognition of all derivatives as either assets or
liabilities in the financial statements and the measurement of those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This statement is effective for fiscal years beginning after June 15, 1999. The
Business is currently not separately engaged in any derivatives or hedging
activities.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which provides guidance
concerning recognition and measurement of costs associated with developing or
acquiring software for internal use. In 1998, the AICPA also issued Statement of
Position
12
<PAGE> 13
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
98-5, "Reporting on the Costs of Start-Up Activities", which provides guidance
concerning the costs of start-up activities. For accounting purposes, start-up
activities are defined as one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory or
with a new class of customer, initiating a new process in an existing facility,
or commencing some new operation. Both pronouncements are effective for
financial statements of years beginning after December 15, 1998, with earlier
application encouraged. Management does not believe that adoption of these
pronouncements will have a material impact on the financial statements of the
Business.
3. TRADE ACCOUNTS AND NOTES RECEIVABLE:
Trade accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Trade accounts receivable
Due from third parties.................................... $10,820 $ 9,198
Due from Samsung subsidiaries and affiliates.............. 9,173 2,338
------- -------
19,993 11,536
Trade notes receivable
Due from third parties.................................... 8,205 7,516
Due from Samsung subsidiaries and affiliates.............. 353 7,666
------- -------
8,558 15,182
Allowance for doubtful accounts............................. (106) (113)
------- -------
$28,445 $26,605
======= =======
</TABLE>
At December 31, 1997 and 1998, trade accounts receivable of $17,992
thousand and $6,148 thousand, respectively, are denominated in foreign
currencies, primarily US dollars. Trade notes receivable represents amounts due
from domestic customers maturing generally within 90 to 120 days with no
interest charge.
13
<PAGE> 14
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Finished products........................................... $15,606 $21,482
Work-in-process............................................. 25,395 19,632
Raw materials and supplies.................................. 10,444 6,411
Materials in-transit........................................ 1,757 201
------- -------
53,202 47,726
Allowance for obsolete and excess inventory................. (2,733) (3,749)
------- -------
$50,469 $43,977
======= =======
</TABLE>
At December 31, 1998, substantially all of the Business' inventories are
insured against fire and other casualty losses.
At December 31, 1998, a portion of the Business' inventory up to a maximum
amount of $27,654 thousand is pledged as collateral for a bank loan of Samsung.
At December 31, 1998, a total of approximately $9,136 thousand of raw materials
and work-in-process inventories was held by the Business' subcontractors
including Samsung plants in Korea and China. Also, at December 31, 1998, all
finished goods inventories were held by the Samsung Onyang plant in Korea for
warehousing.
5. ADVANCES TO EMPLOYEES:
The Business provides advances to its employees primarily for the purchase
or lease of residential properties. Advances to employees are provided for
periods of up to 7 years and earn interest at a maximum annual rate not to
exceed 4%.
14
<PAGE> 15
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Buildings................................................... $ 38,666 $ 44,948
Building related structures................................. 6,124 7,175
Machinery and equipment..................................... 165,362 190,421
Tools....................................................... 3,046 2,894
Furniture and fixtures...................................... 7,737 8,757
Vehicles.................................................... 497 466
--------- ---------
221,432 254,661
Accumulated depreciation.................................... (137,891) (172,685)
--------- ---------
83,541 81,976
Land........................................................ 8,973 8,563
Construction in progress.................................... 510 247
Machinery in transit........................................ -- 4
Other....................................................... 142 165
--------- ---------
$ 93,166 $ 90,955
========= =========
</TABLE>
At December 31, 1998, substantially all of the Business' property, plant
and equipment, other than land and certain construction in progress, are insured
against fire and other casualty losses. A substantial portion of the Business'
property, plant and equipment at December 31, 1998 is pledged as collateral for
various bank loans of Samsung.
Depreciation expense for property, plant and equipment was $48,812
thousand, $38,564 thousand and $21,540 thousand for the years ended December 31,
1996, 1997, and 1998, respectively.
At December 31, 1998, approximately $6,132 thousand of the Business'
manufacturing machinery and equipment was held by its subcontractors, primarily
in Korea.
Property, plant and equipment under capital leases, which include primarily
machinery and equipment, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Cost........................................................ $ 40,114 $ 40,325
Accumulated amortization.................................... (30,387) (33,658)
-------- --------
$ 9,727 $ 6,667
======== ========
</TABLE>
Amortization expense for assets under capital leases for the years ended
December 31, 1996, 1997 and 1998 is $15,026 thousand, $9,350 thousand and $4,002
thousand, respectively.
15
<PAGE> 16
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. TRADE ACCOUNTS AND NOTES PAYABLE:
Trade accounts and notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Trade accounts payable
Due to third parties...................................... $ 9,091 $11,035
Due to Samsung subsidiary and affiliates.................. 1,283 2,203
------- -------
10,374 13,238
Trade notes payable
Due to third parties...................................... 712 409
Due to Samsung subsidiary and affiliates.................. -- 82
------- -------
712 491
------- -------
$11,086 $13,729
======= =======
</TABLE>
At December 31, 1997 and 1998, trade accounts payable of $10,204 thousand
and $12,925 thousand, respectively, are denominated in foreign currencies,
primarily US dollars.
8. CORPORATE BORROWINGS:
The Business does not undertake its own financing but has been able to
benefit from the financing obtained by Samsung. Corporate borrowings have been
allocated based on the methodology described in Note 2. The interest expense on
the allocated corporate borrowings has been calculated using average interest
rates of 6.48%, 7.30%, and 9.69% for the years ended December 31, 1996, 1997,
and 1998, respectively.
Samsung has entered into various types of short-term financing arrangements
including usance financing and bank overdrafts. The Business does not have its
own usance letter of credit but benefits from such letter of credit of Samsung
when needed. At December 31, 1998, no borrowings existed from such short-term
financing arrangements. The Business does not have any debt sharing or other
arrangements with Samsung. Consequently, corporate borrowings have been
classified as current and long-term based on the expected maturities of the
contractual obligations into which Samsung has entered.
16
<PAGE> 17
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. DEFERRED EMPLOYEE COMPENSATION:
Changes in deferred employee compensation are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Beginning balance........................................... $27,926 $ 13,004
Provision................................................... (8,623) 3,745
Payments.................................................... (6,299) (10,278)
------- --------
Ending balance.............................................. $13,004 $ 6,471
======= ========
</TABLE>
During 1998, certain employees elected to take early settlement of deferred
compensation. As a result, the Business paid approximately $2,436 thousand in
cash from the deferred employee compensation balance, net of advances due from
employees of $2,751 thousand.
10. COMMITMENTS AND CONTINGENCIES:
LITIGATION
On December 30, 1998, a settlement agreement was reached resolving a patent
infringement lawsuit. Under the terms of this settlement, Samsung shall pay the
principal sum of $58,000 thousand. The litigation settlement has been accrued in
the financial statements of the Business as of December 31, 1998 and for the
year then ended.
Samsung is also alleged, in the United States, to have infringed a method
claimed by a patent owned by Northern Telecom ("NT"), in the production of its
memory devices. The patent expired in 1994 and hence NT's claim is limited to
past damages based on a reasonable royalty accrued between February 1989 and
June 1994, and prejudgment interest thereon. In September 1998, the District
Court granted Samsung's motion for summary judgment, finding the patent invalid
and dismissed the case. NT filed a motion to set aside the judgment which was
denied on December 10, 1998. Additionally, NT has brought an action against
Samsung alleging an infringement of a patent in Germany. The German patent is a
counterpart of the patent being litigated in the United States. In May 1997, the
court allowed the action but did not fix the amount of damages to be paid and
Samsung appealed against this decision. The proceedings are currently pending
and the next hearing is scheduled for March 1999. Similar to the case in the
United States, the German patent expired in 1995 and potential liability is
limited to past damages. While it is not feasible to predict or determine the
final outcome of these proceedings at the present time, management does not
believe that they will result in a materially adverse effect on the financial
position or results of operations of Samsung or the Business.
LICENSING AND SUBCONTRACT AGREEMENTS
Samsung has entered into various licensing agreements, some of which relate
to Power Device products either directly or indirectly. Royalty expense incurred
by or allocated to the Business was $636 thousand, $5,922 thousand, and $6,004
thousand for the years ended December 31, 1996, 1997, and 1998, respectively.
The allocation was made based on the relative sales value for the respective
period.
The Business has long-term subcontract agreements with Usha HBB (India)
Ltd. ("Usha") and Psi Technologies, Inc. ("Psi"), third party subcontractors, in
connection with the manufacture of certain
17
<PAGE> 18
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)
products. Subject to the subcontractors' quality and performance, total
commitments remaining under these agreements approximated $32,657 thousand as of
December 31, 1998. The agreements with Usha and Psi expire in July 2001 and July
2005, respectively.
GUARANTEE PROVIDED
In relation to the Business, Samsung has guaranteed payment of principal
and interest on a bank loan provided to Korea Microsystems, Inc., a third-party
subcontractor of the Business, up to $2,070 thousand due in April 2002.
CAPITAL LEASE
With respect to the Business, Samsung leases machinery and equipment under
capital lease arrangements. The future minimum lease payments under the capital
leases are as follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE
FOR THE YEAR ENDING DECEMBER 31, PAYMENTS
- -------------------------------- --------
<S> <C>
1999........................................................ $ 8,086
2000........................................................ 6,467
2001........................................................ 3,177
2002........................................................ 1,475
Thereafter.................................................. 226
-------
Total.................................................. 19,431
Less: amount representing interest.......................... (1,678)
-------
Present value of minimum lease payments..................... 17,753
Less: current portion....................................... (8,086)
-------
Total capital lease obligation, non-current portion......... $ 9,667
=======
</TABLE>
11. UNSTABLE ECONOMIC ENVIRONMENT:
The operations of the Business, and those of similar companies in Korea,
have been affected, and may continue to be affected for the foreseeable future,
by the unstable economic conditions in Korea and the Asia Pacific region.
Specific factors that impact these companies include volatility in the value of
the Korean won and interest rates and the general deterioration of the economies
of countries in the Asia Pacific region.
18
<PAGE> 19
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS EQUITY:
Business equity represents Samsung's ownership interest in the recorded net
assets (liabilities) of the Business. A summary of activity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Beginning balance...................................... $ 66,049 $ 51,949 $ 37,301
Net income............................................. 2,767 42,945 15,654
Net capital distribution............................... (16,867) (57,593) (52,683)
-------- -------- --------
Ending balance......................................... $ 51,949 $ 37,301 $ 272
======== ======== ========
</TABLE>
13. INCOME TAXES:
As discussed in Note 2, the Business did not pay income taxes directly or
file separate income tax returns. The Business incurs income tax liabilities in
Korean won and based on taxable income determined in accordance with generally
accepted accounting principles and tax laws of Korea. The tax provision
(benefit) included in these financial statements reflects current tax expense
and the impact of accounting for deferred taxes under the asset and liability
method, including the impact of foreign currency translation of such deferred
tax amounts.
The income tax provision (benefit) for 1996, 1997 and 1998 consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Current................................................... -- $ 9,515 $11,178
Deferred.................................................. $(4,754) 9,034 (1,659)
------- ------- -------
Income tax provision (benefit)............................ $(4,754) $18,549 $ 9,519
======= ======= =======
</TABLE>
The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, if appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Business' ability to generate taxable
income within the period which the temporary differences reverse, the outlook of
the Korean economic environment and the overall future industry outlook.
Management has considered these factors in reaching its conclusion as to the
need for a valuation allowance for financial reporting purposes.
The Business does not have any formalized tax sharing agreement with
Samsung.
19
<PAGE> 20
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES: -- (CONTINUED)
The income tax effect of temporary differences comprising the deferred tax
assets and deferred tax liabilities as of December 31, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets -- current:
Inventory reserve......................................... $ 842 $ 1,154
Other..................................................... 67 30
------- -------
909 1,184
------- -------
Deferred tax assets (liabilities) -- non-current:
Provision for deferred employee compensation.............. -- 783
Excess depreciation....................................... (3,173) (2,697)
------- -------
(3,173) (1,914)
------- -------
Net deferred tax liabilities................................ $(2,264) $ (730)
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon taxable income within
carry forward periods available under the tax laws. Management has concluded
that it is "more likely than not" that the Business will realize the full
benefit of deferred tax assets.
The statutory income tax rate, including tax surcharges, applicable to the
Business for 1996, 1997 and 1998 is approximately 30.8%. The reconciliation from
income taxes calculated at the statutory tax rate to the effective income tax
amount for each of the periods is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Taxes at Korean statutory tax rate......................... $ (612) $18,940 $7,753
R&D tax credit............................................. (4,375) (391) (675)
Effect of tax rate change on beginning cumulative temporary
differences.............................................. 233 -- --
Effect of exchange rate changes............................ -- -- 2,441
------- ------- ------
Effective income tax amounts............................... $(4,754) $18,549 $9,519
======= ======= ======
</TABLE>
The current and deferred income tax provisions were computed on a Korean
won basis, the functional currency of the Business, and translated into US
dollars using the weighted average exchange rate. The effect of exchange rate
changes in the amount of $2,441 thousand reflects the impact of translating the
litigation settlement discussed in Note 10, using the rate at which such
transaction was recognized for financial reporting purposes.
14. OTHER COMPREHENSIVE INCOME (LOSS):
For the years ended December 31, 1996, 1997 and 1998, foreign currency
translation adjustments are the only components of other comprehensive income.
20
<PAGE> 21
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. OTHER COMPREHENSIVE INCOME (LOSS): -- (CONTINUED)
There are no related tax effects allocated to foreign currency translation
adjustments due to the fact that the Business' functional currency is Korean
won.
A summary of cumulative translation adjustments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cumulative translation adjustments:
Beginning balance..................................... $ 705 $ (4,132) $(18,623)
Current-period change................................. (4,837) (14,491) 6,526
------- -------- --------
Ending balance........................................ $(4,132) $(18,623) $(12,097)
======= ======== ========
</TABLE>
15. RELATED PARTY TRANSACTIONS:
Related party activity between the Business and Samsung (including
subsidiaries and affiliates of Samsung) is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Product sales to other operating units of Samsung...... $ 66,834 $ 68,472 $ 56,126
Product sales to foreign sales subsidiaries of
Samsung.............................................. 144,338 150,943 86,552
Product sales to other Samsung subsidiaries and
affiliates........................................... 27,032 25,503 41,691
-------- -------- --------
Total sales....................................... $238,204 $244,918 $184,369
======== ======== ========
Manufacturing services performed by other operating
units of Samsung..................................... $ 81,151 $ 75,962 $ 49,775
Manufacturing services performed by a Chinese
subsidiary of Samsung................................ 5,149 22,086 16,352
Purchase of raw materials from Samsung affiliates...... 15,966 20,797 10,626
-------- -------- --------
Total manufacturing costs......................... $102,266 $118,845 $ 76,753
======== ======== ========
Selling, general and administrative expenses allocated
from Samsung......................................... $ 26,891 $ 27,880 $ 27,536
======== ======== ========
Sales of manufacturing equipment to other operating
units of Samsung..................................... $ 12,590 $ 6,945 $ 56
======== ======== ========
Purchase of manufacturing equipment from other
operating units of Samsung........................... $ 20,937 $ 1,088 $ 2,355
======== ======== ========
</TABLE>
21
<PAGE> 22
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. GEOGRAPHIC INFORMATION:
The Business is engaged in one industry segment, namely the development,
manufacture and marketing of power semiconductors. Sales data, summarized by
geographic area, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Korea.................................................. $178,321 $171,058 $137,111
Asia................................................... 182,839 207,602 186,668
North America.......................................... 32,001 35,638 24,308
Europe................................................. 24,886 26,402 21,812
-------- -------- --------
Total............................................. $418,047 $440,700 $369,899
======== ======== ========
</TABLE>
Substantially all of the Business' assets are located in Korea.
22
<PAGE> 23
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS AND
UNAUDITED SUPPLEMENTAL DATA
The following unaudited pro forma combined condensed financial statements
are based on the historical financial statements of Fairchild, the Power Device
Business and Raytheon Semiconductor, Inc. ("Raytheon"). The acquisition of
Raytheon was consummated on December 31, 1997, and, accordingly, Fairchild's
historical consolidated statements of operations include the results of
operations of Raytheon beginning January 1, 1998.
The Unaudited Pro Forma Combined Condensed Statements of Operations give
effect to the Raytheon acquisition and the Power Device Business acquisition as
if they were consummated on May 26, 1997. The Unaudited Pro Forma Combined
Condensed Balance Sheet gives effect to the Power Device Business acquisition as
if it were consummated on February 28, 1999. All of the pro forma adjustments
are described more fully in the accompanying notes. The pro forma adjustments
are based upon preliminary estimates and certain assumptions that we believe are
reasonable in the circumstances. In our opinion, all adjustments have been made
that are necessary to present fairly the pro forma data. Final amounts could
differ from those set forth below.
The Unaudited Pro Forma Combined Condensed Statements of Operations for the
fiscal year ended May 31, 1998 and the nine months ended February 28, 1999
include the historical statements of operations of the Power Device Business for
the twelve months ended June 30, 1998 and the nine months ended December 31,
1998, respectively. The Unaudited Pro Forma Combined Condensed Balance Sheet as
of February 28, 1999 includes the historical balance sheet of the Power Device
Business as of December 31, 1998. The results of operations of the Power Device
Business for the period from April 1, 1998 through June 30, 1998 have been
included in both the Unaudited Pro Forma Combined Condensed Statements of
Operations for the fiscal year ended May 31, 1998 and the nine months ended
February 28, 1999. Power Device Business revenue and loss for this period was
$101.5 million and $34.1 million, respectively.
The Power Device Business' historical financial information reflected in
the Pro Forma Financial Statements represents the accounts and operations of
Samsung Electronics with respect to the Power Device Business. During the period
covered by the Power Device Business' Financial Statements, the Power Device
Business was conducted as a part of Samsung Electronics' overall operations, and
separate financial statements were not prepared. Fairchild has been advised by
Samsung Electronics that the Power Device Business' Financial Statements were
prepared from the historical accounting records of Samsung Electronics and
include various allocations for costs and expenses. Therefore, the statements of
operations of the Power Device Business may not be indicative of the results of
operations that would have resulted if the Power Device Business had operated on
a stand-alone basis. Fairchild has been advised by Samsung Electronics that all
of the allocations and estimates reflected in the Power Device Business'
Financial Statements are based on assumptions that Samsung Electronics believes
are reasonable under the circumstances.
The Pro Forma Financial Statements are presented for informational purposes
only and do not purport to be indicative of the results of operations that
actually would have been achieved had such transactions been consummated on the
date or for the periods indicated and do not purport to be indicative of the
balance sheet data or results of operations as of any future date or for any
future period. The Pro Forma Financial Statements should be read in conjunction
with the accompanying notes, the financial statements and notes thereto of
Fairchild, the Power Device Business and Raytheon which are included elsewhere
in this prospectus, "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Fairchild" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Power Device
Business."
23
<PAGE> 24
The acquisition of Raytheon and the Acquisition of the Power Device
Business were accounted for using the purchase method of accounting. The
purchase method of accounting allocates the aggregate purchase price to the
assets acquired and liabilities assumed based upon their respective fair values.
For purposes of the Pro Forma Financial Statements, the excess of the aggregate
purchase price over the historical net book value of the Power Device Business'
assets acquired and liabilities assumed as of December 31, 1998 has been
allocated to inventory, property, plant and equipment, and various intangible
assets, and is for illustrative purposes in the pro forma financial statements
only. Actual allocations will be based on fair values as of the acquisition date
(April 13, 1999).
24
<PAGE> 25
FAIRCHILD SEMICONDUCTOR CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, 1998
---------------------------------------------------------------------------------------------------------
POWER
POWER DEVICE POWER
DEVICE BUSINESS DEVICE COMPANY
BUSINESS PRO FORMA BUSINESS FAIRCHILD RAYTHEON PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL(3) HISTORICAL(3) COMBINED ADJUSTMENTS PRO FORMA
---------- ----------- --------- ------------- ------------- -------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Net sales-trade...... $400.2 $ 7.51a $413.8 $635.8 $47.3 $1,096.9 $ -- $1,096.9
6.11b
Contract
manufacturing........ 27.6 22.81c 50.4 153.4 -- 203.8 -- 203.8
------ ------ ------ ------ ----- -------- ------- --------
427.8 36.4 464.2 789.2 47.3 1,300.7 -- 1,300.7
Cost of sales
Cost of
sales-trade........ 240.6 (2.7)1a 249.8 441.6 26.7 718.1 3.92a 722.0
9.91d
1.41e
1.31f
(0.7)1g
Cost of contract
manufacturing...... 27.6 -- 27.6 117.1 -- 144.7 -- 144.7
------ ------ ------ ------ ----- -------- ------- --------
268.2 9.2 277.4 558.7 26.7 862.8 3.9 866.7
------ ------ ------ ------ ----- -------- ------- --------
Gross profit........... 159.6 27.2 186.8 230.5 20.6 437.9 (3.9) 434.0
Research and
development.......... 15.4 -- 15.4 35.7 6.9 58.0 -- 58.0
Selling, general and
administrative....... 32.5 15.51a 33.9 92.0 6.4 132.3 28.42a 160.7
(8.7)1d
(5.4)1h
Litigation settlement
expense.............. 58.0 -- 58.0 -- -- 58.0 -- 58.0
Restructuring and other
non-recurring
charges.............. -- -- -- 15.5 -- 15.5 -- 15.5
------ ------ ------ ------ ----- -------- ------- --------
Operating income....... 53.7 25.8 79.5 87.3 7.3 174.1 (32.3) 141.8
Non-cash interest
expense.............. -- -- -- 2.8 -- 2.8 2.22b 5.0
Cash interest expense,
net.................. 9.9 (9.9)1i -- 41.9 -- 41.9 46.02c 87.9
Foreign currency
losses, net.......... 7.5 -- 7.5 -- -- 7.5 -- 7.5
------ ------ ------ ------ ----- -------- ------- --------
Income before income
taxes................ 36.3 35.7 72.0 42.6 7.3 121.9 (80.5) 41.4
Income taxes........... 11.1 (11.1)1j -- 13.9 2.6 16.5 (8.1)2d 8.4
------ ------ ------ ------ ----- -------- ------- --------
Net income before
cumulative effect of
change in accounting
principle............ $ 25.2 $ 46.8 $ 72.0 $ 28.7 $ 4.7 $ 105.4 $ (72.4) $ 33.0
====== ====== ====== ====== ===== ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed statements of
operations.
25
<PAGE> 26
FAIRCHILD SEMICONDUCTOR CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28, 1999
-----------------------------------------------------------------------------------------
POWER POWER
POWER DEVICE DEVICE
DEVICE BUSINESS BUSINESS COMPANY COMPANY
BUSINESS PRO FORMA PRO FAIRCHILD PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA HISTORICAL COMBINED ADJUSTMENTS FORMA
---------- ------------ --------- ---------- -------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Net sales-trade............. $282.4 $18.41a $308.5 $434.1 $742.6 $ -- $742.6
7.71b
Contract manufacturing...... 12.5 11.71c 24.2 54.5 78.7 -- 78.7
------ ----- ------ ------ ------ ------ ------
294.9 37.8 332.7 488.6 821.3 -- 821.3
Cost of sales
Cost of sales-trade......... 190.3 6.91a 205.4 336.2 541.6 3.02a 544.6
5.11d
1.41e
0.91f
0.81g
Cost of contract
manufacturing............ 12.5 -- 12.5 45.4 57.9 -- 57.9
------ ----- ------ ------ ------ ------ ------
202.8 15.1 217.9 381.6 599.5 3.0 602.5
------ ----- ------ ------ ------ ------ ------
Gross profit.................. 92.1 22.7 114.8 107.0 221.8 (3.0) 218.8
Research and development...... 11.5 -- 11.5 27.9 39.4 -- 39.4
Selling, general and
administrative.............. 27.9 10.21a 31.3 68.5 99.8 19.72a 119.5
(2.7)1d
0.41e
(4.5)1h
Litigation settlement
expense..................... 58.0 -- 58.0 -- 58.0 -- 58.0
Restructuring and other non-
recurring charges........... -- -- -- 7.2 7.2 -- 7.2
------ ----- ------ ------ ------ ------ ------
Operating income (loss)....... (5.3) 19.3 14.0 3.4 17.4 (22.7) (5.3)
Non-cash interest expense..... -- -- 2.3 2.3 1.52b 3.8
Cash interest expense, net.... 2.6 (2.6)1i -- 34.5 34.5 29.42c 63.9
Foreign currency gains, net... (0.3) -- (0.3) -- (0.3) -- (0.3)
------ ----- ------ ------ ------ ------ ------
Income (loss) before income
taxes....................... (7.6) 21.9 14.3 (33.4) (19.1) (53.6) (72.7)
Income taxes.................. 8.6 (8.6)1j -- (3.3) (3.3) (5.4)2d (8.7)
------ ----- ------ ------ ------ ------ ------
Net income (loss)............. $(16.2) $30.5 $ 14.3 $(30.1) $(15.8) $(48.2) $(64.0)
====== ===== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed statements of
operations.
26
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS GIVE
EFFECT TO THE FOLLOWING PRO FORMA ADJUSTMENTS:
1. PRO FORMA ADJUSTMENTS TO THE HISTORICAL RESULTS OF THE POWER DEVICE
BUSINESS.
(a) Historically, the Power Device Business has recognized revenue for
sales to Samsung Electronics' foreign sales subsidiaries, which we
refer to as the Sales Subsidiaries, at the time of shipment to the
Sales Subsidiaries. The pro forma adjustment to net sales eliminates
the sales to the Sales Subsidiaries from the revenue of the Power
Device Business and replaces them with the sales of the Sales
Subsidiaries to the ultimate third parties. Cost of sales is also
adjusted to reflect the change in the inventory held by the Sales
Subsidiaries. Historically, the selling expenses incurred by the Sales
Subsidiaries in connection with their sales to third parties have been
recorded by the Sales Subsidiaries. The Power Device Business' selling,
general and administrative expenses have been adjusted to give effect
to the provisions of the Overseas Sales Support Agreement, which
provides for commissions to be paid to the Sales Subsidiaries to
provide certain sales services to the Power Device Business.
The pro forma increases (decreases) to net sales, cost of sales and SG&A
expenses are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, FEBRUARY 28,
1998 1999
----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales -- trade.......................................... $ 7.5 $18.4
Cost of sales -- trade...................................... (2.7) 6.9
SG&A........................................................ 15.5 10.2
</TABLE>
(b) Historically, the Power Device Business has sold its products to
Samsung Electronics at intercompany transfer prices. Under the terms of
the Product Supply Agreement, the Power Device Business will sell its
products to Samsung Electronics at guaranteed minimum annual levels
based on historical volumes and at prices designed to reflect market
prices, subject to certain adjustments to reflect changes in market
prices as published by Worldwide Semiconductor Trade Statistics. In
order to give effect to the minimum contractual volumes over historical
levels and the pricing structure under the Product Supply Agreement,
the pro forma net sales are increased by $6.1 million and $7.7 million
for the fiscal year ended May 31, 1998 and the nine months ended
February 28, 1999, respectively.
(c) The pro forma adjustment to contract manufacturing revenue is $22.8
million and $11.7 million for the fiscal year ended May 31, 1998 and
the nine months ended February 28, 1999, respectively. These amounts
reflect the increase in contract manufacturing revenue that will be
required to generate the minimum profit level guaranteed by Samsung
Electronics under the Foundry Sale Agreement of W53,700 million during
the first three years following consummation of the Acquisition
(W27,700 million, W17,300 million and W8,700 million for the first,
second and third years, respectively). Historically, the Power Device
Business has provided these contract manufacturing services, consisting
of wafer fabrication services, to Samsung Electronics at cost. The U.S.
Dollar-denominated pro forma adjustments have been recorded using
weighted average exchange rates of 1,260 Won and 1,334 Won to one U.S.
Dollar for the fiscal year ended May 31, 1998 and the nine months ended
February 28, 1999, respectively.
(d) Historically, the Power Device Business has been charged at cost for
epitaxial fabrication services, assembly and test services and photo
mask supply services provided by Samsung Electronics' plants
27
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
located in Onyang and Kiheung, South Korea. Under the terms of the EPI
Services Agreement, the Onyang Assembly and Test Services Agreement and
the Photo Mask Supply Agreement, Samsung Electronics has agreed to
provide the Power Device Business with the above services for a
three-year period following consummation of the Acquisition at
agreed-upon prices denominated in U.S. Dollars in accordance with the
terms of the above agreements. In the case of the Onyang Assembly and
Test Services Agreement, the agreement provides for a 5% annual price
decrease. The pro forma adjustments reflect the effects of (i)
replacing the actual historical costs of these services with the
negotiated costs of these services, which negotiated costs include
recovery of general and administrative and interest costs attributable
to these plants recorded in SG&A for the Power Device Business, based
on historical product volumes and (ii) eliminating the portion of
historically allocated SG&A expenses to be included in such negotiated
costs.
The pro forma increases (decreases) to cost of sales and SG&A expenses
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, FEBRUARY 28,
1998 1999
----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cost of sales -- trade...................................... $ 9.9 $ 5.1
SG&A........................................................ (8.7) (2.7)
</TABLE>
(e) Historically, the Power Device Business has been allocated charges for
information technology services, logistics and other general and
administrative services which were provided by Samsung Electronics.
Under the terms of the Transitional Services Agreement, Samsung
Electronics has agreed to provide to the Power Device Business
logistics and other general and administrative services for a
three-year period, at the fixed annual price of $5.3 million.
Information technology services are provided under a separate agreement
with Samsung SDS Co., Ltd. at the fixed annual price of $3.8 million.
The pro forma adjustments to cost of sales and SG&A expenses reflect
the effects of replacing the historical charges for such services with
the fixed prices included in the Transitional Services Agreement and
the agreement with Samsung SDS Co., Ltd. In addition, the pro forma
adjustment includes the effect of a fixed 1,200 Won to one U.S. Dollar
exchange rate used to translate the fixed charges included in the
Transitional Services Agreement and the agreement with Samsung SDS Co.,
Ltd.
The pro forma increases to cost of sales relating to information
technology services and SG&A expenses relating to logistics and other
general and administrative services are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, FEBRUARY 28,
1998 1999
----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cost of sales -- trade...................................... $1.4 $1.4
SG&A........................................................ -- 0.4
</TABLE>
(f) Sales of certain Power Device Business products will be subject to
royalties arising from Fairchild's existing license agreement with
another semiconductor corporation. The pro forma increases to cost of
sales to give effect to such royalties are $1.3 million and $0.9
million for the fiscal year ended May 31, 1998 and the nine months
ended February 28, 1999, respectively.
28
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(g) Historically, the Power Device Business has been charged at cost for
assembly and test services provided by Samsung Electronics' plant
located in Suzhou, China. Under the terms of the Suzhou Assembly and
Test Services Agreement, Samsung Electronics has agreed to provide the
Power Device Business with assembly and test services for a three-year
period following consummation of the Acquisition at agreed-upon prices
denominated in U.S. Dollars. The pro forma adjustments reflect the
effects of replacing the actual historical costs of these services with
the negotiated costs of these services based on historical product
volumes. Although the Suzhou Assembly and Test Services Agreement
provides for annual price adjustments based upon the percentage change
in the U.S. Consumer Price Index, the pro forma adjustments do not give
effect to such price adjustments. The pro forma increases (decreases)
to cost of sales are $(0.7) million and $0.8 million for the fiscal
year ended May 31, 1998 and the nine months ended February 28, 1999,
respectively.
(h) Represents the elimination of royalty expense incurred by Samsung
Electronics attributable to the Power Device Business which arises from
certain license agreements that were not transferred to Fairchild. This
results in a decrease to SG&A expenses of $5.4 million and $4.5 million
for the fiscal year ended May 31, 1998 and the nine months ended
February 28, 1999, respectively.
(i) The pro forma adjustment to cash interest expense is $9.9 million and
$2.6 million for the fiscal year ended May 31, 1998 and the nine months
ended February 28, 1999, respectively. These amounts represent the
elimination of interest expense on bank borrowings, capital lease
obligations and corporate borrowings of Samsung Electronics allocated
to the Power Device Business that were not transferred to Fairchild.
(j) The pro forma adjustment for the elimination of income taxes is $11.1
million and $8.6 million for the fiscal year ended May 31, 1998 and the
nine months ended February 28, 1999, respectively. As a result of the
Acquisition, the Power Device Business is 100% exempt from Korean
income taxes for seven years beginning with the first year in which
taxable Korean income is generated.
2. PRO FORMA ADJUSTMENTS TO THE COMBINED RESULTS OF FAIRCHILD, THE POWER DEVICE
BUSINESS AND RAYTHEON.
(a) On April 13, 1999, Fairchild completed the acquisition of the Power
Device Business for approximately $406.8 million, net of post-closing
adjustments for working capital and an income payment aggregating $48.2
million. The purchase includes all of the worldwide operations and
assets of the Power Device Business, which are comprised in part of a
high volume wafer fabrication plant in Bucheon, South Korea, design and
development operations in Bucheon, South Korea, secured services for
high volume assembly and test operations and worldwide sales and
marketing operations. The transaction is being accounted for as a
purchase.
The following table represents the estimated allocation of the purchase
price over the historical net book value of the Power Device Business'
assets acquired and liabilities assumed as of December 31, 1998, and is
for illustrative purposes in the pro forma financial statements only.
Actual allocations will be based on fair values as of the acquisition
date (April 13, 1999). Also presented are the estimated periods of
amortization for each of the identifiable intangible assets for purposes
of calculating the pro forma adjustments to amortization expense in the
accompanying pro forma condensed consolidated statements of operations.
All tangible assets will be amortized on a straight-line basis. The
amount allocated to in-process research and development will be charged
to expense in our fourth fiscal quarter ended May 30, 1999. This expense
has been excluded from the accompanying pro forma combined condensed
29
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
statements of operations. Assuming the Transactions occurred on February
28, 1999, the allocation would have included the following intangible
assets (in millions):
<TABLE>
<CAPTION>
PERIOD OF
INTANGIBLE ASSETS AMOUNT AMORTIZATION
----------------- ------- ------------
<S> <C> <C>
Developed technology........................................ $124.1 15 years
Customer base............................................... 47.0 8 years
In-process research and development......................... 31.2 --
Covenant not to compete..................................... 26.9 5 years
Trademarks and tradenames................................... 21.9 4 years
Assembled workforce......................................... 3.8 3 years
------
Total............................................. $254.9
======
</TABLE>
In connection with Fairchild's acquisition of Raytheon on December 31,
1997, intangible assets were recorded for developed technologies and an
assembled workforce. These assets are being amortized on a straight line
basis over periods of 3 to 15 years.
Pro forma adjustments for depreciation and amortization of fixed assets
and other intangible assets are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, FEBRUARY 28,
1998 1999
----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Intangibles -- Power Device Business........................ $26.3 $19.7
Intangibles -- Raytheon..................................... 2.1 --
----- -----
Total recorded in SG&A................................. $28.4 $19.7
===== =====
Fixed assets -- Power Device Business recorded in cost of
sales-trade............................................... $ 3.9 $ 3.0
===== =====
</TABLE>
(b) In connection with the Transactions, the Company incurred debt issuance
costs of approximately $22.3 million associated with the Senior Credit
Facilities and the Notes. These costs are comprised primarily of
financing costs and other professional fees that will be deferred and
amortized over the term of the related debt, which ranges from 5 to
8 1/2 years. The pro forma adjustments to non-cash interest expense
represent the incremental amortization of these debt issuance costs in
the amount of $2.2 million and $1.5 million for the fiscal year ended
May 31, 1998 and the nine months ended February 28, 1999, respectively.
Unamortized debt issuance costs of $4.0 million, net of the related tax
benefit of $0.4 million, associated with the existing senior credit
facilities was charged to interest expense concurrent with the
Transactions. The non-recurring charge has been excluded from the pro
forma combined condensed statements of operations.
(c) In connection with the Transactions, the Company entered into the
Senior Credit Facilities, which provided up to $410.0 million in
financing, consisting of a $100.0 million Revolving Credit Facility
(under which no amounts were drawn at closing of the Acquisition) and
$310.0 million of Senior Term Facilities. The Company also issued
$300.0 million of Notes. Since a portion of the purchase price for the
acquisition
30
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
of Raytheon was paid from existing cash, interest income that
corresponds to the interest on such cash and which would not have been
earned during the period from May 26, 1997 through the date of the
acquisition has been eliminated.
The pro forma increases (decreases) to cash interest expense are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, FEBRUARY 28,
1998 1999
----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Senior Term Facilities -- Tranche A Facility (7.75%)........ $ 7.5 $ 4.9
Senior Term Facilities -- Tranche B Facility (8.25%)........ 17.3 12.8
Notes (10.375%)............................................. 31.1 23.4
Income lost -- Raytheon..................................... 1.6 --
Interest expense on debt refinanced......................... (11.5) (11.7)
------ ------
Total.................................................. $ 46.0 $ 29.4
====== ======
</TABLE>
The Senior Term Facilities bear interest at adjustable rates based on a
spread over LIBOR. An increase of 0.125% in the rate applicable to the
Senior Term Facilities will increase interest expense and reduce net
income as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, FEBRUARY 28,
1998 1999
----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest expense............................................ $ 0.4 $ 0.3
===== =====
Net income.................................................. $(0.3) $(0.2)
===== =====
</TABLE>
(d) The pro forma adjustment for income tax benefit is $8.1 million and
$5.4 million for the fiscal year ended May 31, 1998 and the nine months
ended February 28, 1999, respectively. These amounts represent the
benefit for income taxes on the loss before income tax resulting from
the pro forma adjustments made to the combined results of the Company.
The benefit for income taxes was calculated using a rate of 10%, the
Company's current effective tax rate.
3. For the fiscal year ended May 31, 1998, historical Fairchild amounts include
the results of operations of Raytheon after December 31, 1997, the date of
its acquisition, and historical Raytheon amounts include the results of
operations of Raytheon from June 1, 1997 to December 31, 1997.
31
<PAGE> 32
FAIRCHILD SEMICONDUCTOR CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AT FEBRUARY 28, 1999
--------------------------------------------------------------------------------------
POWER
POWER DEVICE POWER
DEVICE BUSINESS DEVICE COMPANY
BUSINESS PRO FORMA BUSINESS FAIRCHILD PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- -------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ -- $ -- $ -- $ 5.4 $ 5.4 $ 59.22a $ 64.6
Receivables, net....................... 26.6 -- 26.6 101.5 128.1 128.1
Inventories............................ 44.0 -- 44.0 105.6 149.6 (4.6)2b 145.0
Deferred income taxes.................. 1.2 (1.2)1a -- -- -- -- --
Other current assets................... 3.8 (1.4)1b 2.4 19.7 22.1 -- 22.1
------ ------- ------ ------ ------ ------ --------
Total current assets................. 75.6 (2.6) 73.0 232.2 305.2 54.6 359.8
Property, plant and equipment, net....... 91.0 -- 91.0 305.9 396.9 24.22b 421.1
Deferred income taxes.................... -- -- -- 24.5 24.5 -- 24.5
Goodwill, net............................ -- -- -- -- -- -- --
Intangible assets, net................... 0.9 -- 0.9 29.0 29.9 223.72b 253.6
Other assets............................. 2.8 -- 2.8 31.1 33.9 18.32c 52.2
------ ------- ------ ------ ------ ------ --------
Total assets......................... $170.3 $ (2.6) $167.7 $622.7 $790.4 $320.8 $1,111.2
====== ======= ====== ====== ====== ====== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt............ $ 20.7 $ (20.7)1c $ -- $ 35.5 $ 35.5 $(21.4)2d $ 14.1
Income tax payable..................... 13.0 (13.0)1a -- -- -- -- --
Accounts payable....................... 13.7 -- 13.7 85.2 98.9 -- 98.9
Accrued expenses and other current
liabilities.......................... 70.6 (5.5)1b 7.1 56.0 63.1 -- 63.1
(58.0)1d -- -- -- -- --
------ ------- ------ ------ ------ ------ --------
Total current liabilities............ 118.0 (97.2) 20.8 176.7 197.5 (21.4) 176.1
Long term debt, less current portion..... 55.7 (55.7)1c -- 428.1 428.1 467.82e 895.9
Deferred income taxes.................... 1.9 (1.9)1a -- -- -- -- --
Other liabilities........................ 6.5 -- 6.5 1.7 8.2 -- 8.2
------ ------- ------ ------ ------ ------ --------
Total liabilities.................... 182.1 (154.8) 27.3 606.5 633.8 446.4 1,080.2
------ ------- ------ ------ ------ ------ --------
Commitments and contingencies
Stockholder's equity:
Common stock........................... -- -- -- -- -- -- --
Additional paid-in capital............. -- -- -- 12.0 12.0 50.02f 62.0
Business equity........................ 0.3 152.2 152.5 -- 152.5 (152.5)2g --
Cumulative translation adjustment...... (12.1) -- (12.1) -- (12.1) 12.12g --
Accumulated earnings (deficit)......... -- -- -- 4.2 4.2 (31.2)2b (31.0)
(4.0)2c
------ ------- ------ ------ ------ ------ --------
Total stockholder's equity........... (11.8) 152.2 140.4 16.2 156.6 (125.6) 31.0
------ ------- ------ ------ ------ ------ --------
Total liabilities and stockholder's
equity............................. $170.3 $ (2.6) $167.7 $622.7 $790.4 $320.8 $1,111.2
====== ======= ====== ====== ====== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed balance sheet.
32
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
THE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET GIVES EFFECT TO
THE FOLLOWING PRO FORMA ADJUSTMENTS:
1. PRO FORMA ADJUSTMENTS TO THE HISTORICAL RESULTS OF THE POWER DEVICE
BUSINESS.
(a) Reflects the elimination of deferred income tax assets of $1.2 million,
deferred income tax liabilities of $1.9 million and income taxes
payable of $13.0 million that were not transferred to Fairchild.
(b) Reflects the elimination of prepaid royalties of $1.4 million and
accrued royalties of $5.5 million arising from certain license
agreements that were not transferred to Fairchild.
(c) Reflects the elimination of bank borrowings, capital lease obligations
and corporate borrowings of Samsung Electronics allocated to the Power
Device Business in an aggregate amount of $76.4 million that were not
transferred to Fairchild.
(d) Reflects the elimination of accrued expense of $58.0 million for patent
litigation settlement costs that will be paid by Samsung Electronics.
2. PRO FORMA ADJUSTMENTS TO THE COMBINED RESULTS OF FAIRCHILD AND THE POWER
DEVICE BUSINESS.
(a) Represents the amount of excess cash that was provided in connection
with the acquisition of the power device business, the financings in
connection with the acquisition and the application of the proceeds of
such financings. We obtained a total of $610.0 million of proceeds from
entering into the senior term facilities and from issuance of the 10
3/8% Senior Subordinated Notes. Of this amount, we used approximately
$406.8 million to pay for the purchase price of the power device
business, approximately $163.6 million to repay the existing senior
credit facilities, and approximately $30.4 million to pay fees and
expenses relating to the acquisition of the power device business, the
financings in connection with the acquisition and the application of
the proceeds of such financings.
(b) The following table represents the estimated allocation of the purchase
price over the historical net book value of the Power Device Business'
assets acquired and liabilities assumed as of December 31, 1998, and is
for illustrative purposes in the pro forma financial statements only.
Actual allocations will be based on fair values as of the acquisition
date (April 13, 1999). The amount allocated to in-process research and
development will be charged to expense in our fourth fiscal quarter
ended May 30, 1999. This expense has been excluded from the
accompanying pro forma condensed consolidated statements of operations.
Assuming the acquisition of the power device business, the finances in
connection with the acquisition and the application of the proceeds of
such financings occurred on February 28, 1999, the purchase price
allocation, including acquisition related expenses of $8.1 million,
would have been as follows (in millions):
<TABLE>
<CAPTION>
Power Device Purchase Purchase
Business Historical Price Price
As Adjusted Adjustments Allocation
------------------- ----------- ----------
<S> <C> <C> <C>
Receivables, net............................................. 26.6 -- 26.6
Inventories.................................................. 44.0 (4.6) 39.4
Other current assets......................................... 2.4 -- 2.4
Property plant and equipment, net............................ 91.0 24.2 115.2
Developed technology......................................... -- 124.1 124.1
Customer base................................................ -- 47.0 47.0
In-process research and development.......................... -- 31.2 31.2
Covenant not to compete...................................... -- 26.9 26.9
Trademarks and tradenames.................................... -- 21.9 21.9
Assembled workforce.......................................... -- 3.8 3.8
Other intangible assets...................................... 0.9 -- 0.9
----- ----- -----
Total intangible assets................................. 0.9 254.9
Less: in-process research and development............... -- 31.2
Net intangible assets after in-process research
and development write-off........................ 0.9 223.7
----- ----- -----
Other assets................................................. 2.8 -- 2.8
Accounts payable............................................. (13.7) -- (13.7)
Accrued expenses and other current liabilities............... (7.1) -- (7.1)
Other liabilities............................................ (6.5) -- (6.5)
----- ----- -----
Net assets......................................... 140.4
=====
Total purchase price allocation.................... 414.9
=====
</TABLE>
In-process research and development of $31.2 million will be charged to
operations in our fourth fiscal quarter ending May 30, 1999. This
non-recurring charge has been excluded from the unaudited pro forma
statement of operations data presented in this prospectus. For pro forma
balance sheet purposes, intangible assets have been reduced by $31.2
million with a corresponding charge to accumulated deficit.
(c) Represents deferred debt issuance costs primarily comprised of
financing costs and professional fees of $22.3 million associated with
the Notes and the Senior Credit Facilities offset by the write-off of
$4.0 million, net of the related tax benefit of $0.4 million, of
unamortized debt issuance costs associated with the existing senior
credit facilities being repaid.
33
<PAGE> 34
(d) Represents the repayment of the short-term portion of the existing
senior credit facilities in an aggregate amount of $35.5 million,
offset by the current portion of the Term Loan Facilities in an
aggregate amount of $14.1 million.
(e) Represents the repayment of the long-term portion of the existing
senior credit facilities in an aggregate amount of $128.1 million
offset by the Term Loan Facilities and the Notes in an aggregate amount
of $595.9 million.
(f) Represents $50.0 million contributed to the capital of Fairchild by
Fairchild Holdings.
(g) Represents the elimination of the equity of the Power Device Business
at the Acquisition date in an aggregate amount of $140.4 million.
34
<PAGE> 35
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: [June 25, 1999]
By: /s/ Joseph R. Martin
---------------------
Joseph R. Martin
Executive Vice President, Finance
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Office
35
<PAGE> 36
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: June 28, 1999
By: /s/ David A. Henry
---------------------
David A. Henry
Vice President, Corporate Controller
(Principal Accounting Officer)
36
