<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
JUNE 15, 1999
-------------
Date of Report (Date of earliest event reported)
LATTICE SEMICONDUCTOR CORPORATION
--------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-18032 93-0835214
---------------------- -------------------- ----------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
5555 NE MOORE COURT
HILLSBORO, OR 97124-6421
------------------------
(Address of principal executive offices)
(503) 268-8000
--------------
(Registrant's telephone number, including area code)
<PAGE>
AMENDMENT NO. 1
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K,
originally filed with the Securities Exchange Commission on June 25, 1999,
reporting the acquisition by Registrant from Advanced Micro Devices, Inc., a
Delaware Corporation, of all of the outstanding capital stock of Vantis
Corporation, a Delaware Corporation, and the wholly-owned subsidiaries of
Vantis, as set forth in the pages attached hereto:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 15, 1999, Lattice Semiconductor Corporation, a Delaware
Corporation ("Lattice") and the registrant herein, purchased all of the
outstanding capital stock, $.01 par value of Vantis Corporation, a Delaware
corporation, ("Vantis") from Advanced Micro Devices, Inc., a Delaware
corporation ("AMD"), for an aggregate purchase price of $500,080,000.
The acquisition was made pursuant a Stock Purchase Agreement entered
into between Lattice and AMD on April 21, 1999. Following the acquisition,
Vantis is now a wholly owned subsidiary of Lattice.
The purchase price for the shares of Vantis was determined by
arms'-length negotiation between Lattice and Advanced Micro Devices, and was
funded in part with cash reserves held by Lattice, and in part with the
proceeds of borrowings from ABN AMRO Bank, N.V., as administrative agent for
a syndicate of banks. The ABN AMRO credit facilities consist of a $60 million
three-year revolving credit facility, and a $220 million three-year term
loan. Aggregate borrowings from the credit facilities for the acquisition
were approximately $253,000,000 as of June 15, 1999.
For a more complete description of the terms of the acquisition of
Vantis please refer to the Stock Purchase Agreement, which is incorporated by
reference as Exhibit 2.1, to our Current Report on Form 8-K, dated April 21,
1999.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The required financial statements of the business acquired are set forth
below.
3
<PAGE>
Vantis Corporation
Index to Consolidated Financial Statements
Years ended December 29, 1996,
December 28, 1997, and December 27, 1998
<TABLE>
<CAPTION>
page
----
<S> <C>
Report of Independent Auditors 5
Consolidated Financial Statements
Consolidated Balance Sheets 6
Consolidated Statements of Income 7
Consolidated Statements of Stockholder's Equity and Division Equity 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10
</TABLE>
4
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholder
Vantis Corporation
We have audited the accompanying consolidated balance sheets of Vantis
Corporation as of December 28, 1997 and December 27, 1998, and the related
consolidated statements of income, stockholder's equity and division equity,
and cash flows for each of the three years in the period ended December 27,
1998. 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Vantis Corporation at December 28, 1997 and December 27, 1998, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 27, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
San Jose, California
February 8, 1999
5
<PAGE>
Vantis Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
-------------------------------------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,638 $ 25,053
Short-term investments 32,500 48,533
Accounts receivable, net of allowance for doubtful
accounts of $400 in 1997 and $605 in 1998 12,512 26,947
Inventories:
Work-in-process 7,078 6,760
Finished goods 4,219 3,029
-------------------------------------------
11,297 9,789
Deferred income taxes 17,345 15,819
Prepaid expenses and other current assets 1,755 676
-------------------------------------------
Total current assets 115,047 126,817
Equipment and furniture 31,628 33,710
Accumulated depreciation (24,281) (27,436)
-------------------------------------------
7,347 6,274
Other assets 1,340 1,789
-------------------------------------------
Total assets $123,734 $134,880
-------------------------------------------
-------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Payable to AMD (SEE NOTE 10) $ 56,608 $ 41,531
Accrued compensation and benefits 2,549 3,623
Accrued liabilities 678 5,596
Income tax payable (SEE NOTE 5) 3,990 1,666
Deferred income on shipment to distributors 21,902 27,425
-------------------------------------------
Total current liabilities 85,727 79,841
Deferred income taxes 265 71
Commitments and contingencies
Stockholder's equity:
Common stock, $0.01 par value:
Authorized shares - 150,000,000
Issued and outstanding - 100,000,000 in 1997 and 1998 1,000 1,000
Capital in excess of par value 32,448 32,448
Retained earnings 4,294 21,506
Accumulated other comprehensive income - 14
-------------------------------------------
Total stockholder's equity 37,742 54,968
-------------------------------------------
Total liabilities and stockholder's equity $123,734 $134,880
-------------------------------------------
-------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Vantis Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales $248,094 $243,099 $204,997
Expenses: (SEE NOTE 10, REGARDING RELATED PARTY
TRANSACTIONS WITH AMD)
Cost of sales 134,942 125,736 101,442
Research and development 46,375 30,848 35,616
Marketing, general, and administrative 49,817 49,762 46,339
-----------------------------------------------------------------
231,134 206,346 183,397
-----------------------------------------------------------------
Operating income 16,960 36,753 21,600
Interest and other, net - 516 4,419
-----------------------------------------------------------------
Income before income taxes 16,960 37,269 26,019
Income taxes 5,757 13,096 8,807
-----------------------------------------------------------------
Net income $ 11,203 $ 24,173 $ 17,212
-----------------------------------------------------------------
-----------------------------------------------------------------
Net income per basic and diluted share $ 0.17
---------------------
Common shares outstanding - basic and diluted 100,000
---------------------
---------------------
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Vantis Corporation
Consolidated Statements of Stockholder's Equity and Division Equity
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN OTHER TOTAL
DIVISION --------------------- EXCESS OF RETAINED COMPREHENSIVE STOCKHOLDER'S
EQUITY SHARES AMOUNT PAR VALUE EARNINGS INCOME EQUITY
--------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 12,734 - $ - $ - $ - $ - $ -
Net income and
comprehensive income 11,203 - - - - - -
Net financing provided
from AMD 4,079 - - - - - -
--------------------------------------------------------------------------------------------------
Balance at December 29, 1996 28,016 - - - - - -
Net income and
comprehensive income 19,879 - - - 4,294 - 4,294
Net financing provided to
AMD (14,447) - - - - - -
Issuance of common stock
in exchange for transfer
of assets from AMD (33,448) 100,000 1,000 32,448 - - 33,448
--------------------------------------------------------------------------------------------------
Balance at December 28, 1997 - 100,000 1,000 32,448 4,294 - 37,742
Net income - - - - 17,212 - 17,212
Other comprehensive
income, net of tax:
Unrealized gains on
securities - - - - - 14 14
---------------
Comprehensive income - - - - - - 17,226
--------------------------------------------------------------------------------------------------
Balance at December 27, 1998 $ - 100,000 $1,000 $32,448 $21,506 $14 $54,968
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Vantis Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------------------------
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,203 $ 24,173 $ 17,212
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,721 3,888 3,802
Net loss on disposal of equipment and furniture - 2 226
Net decrease (increase) in deferred income taxes (25) (1,741) 1,332
Changes in operating assets and liabilities:
Accounts receivable 5,312 12,600 (14,435)
Inventories 1,071 (1,535) 1,508
Prepaid expenses, other current assets, and
other assets (660) (1,548) 166
Payable to AMD 366 55,609 (15,077)
Accrued compensation and benefits (1,015) 1,667 1,074
Accrued liabilities 251 (2) 4,918
Income tax payable (18,042) (1,792) (2,324)
Deferred income on shipment to distributors (1,989) (2,982) 5,523
------------------------------------------------------------------------
Net cash provided by operating activities 193 88,339 3,925
INVESTING ACTIVITIES
Purchase of equipment and furniture (4,272) (1,754) (2,491)
Maturities (purchase) of available-for-sale
securities, net - (32,500) (16,019)
------------------------------------------------------------------------
Net cash used in investing activities (4,272) (34,254) (18,510)
FINANCING ACTIVITIES
Net financing provided (to) from AMD 4,079 (14,447) -
------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,079 (14,447) -
------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents - 39,638 (14,585)
Cash and cash equivalents at beginning of year - - 39,638
------------------------------------------------------------------------
Cash and cash equivalents at end of year $ - $ 39,638 $ 25,053
------------------------------------------------------------------------
------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ - $ - $ 9,808
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
In July 1997, Vantis Corporation (Vantis or the Company) was formed to
separate the programmable logic device (PLD) division of Advanced Micro
Devices, Inc. (AMD) from AMD's other operations. The PLD division of AMD was
initially created as a result of the merger of Monolithic Memories, Inc. into
AMD in 1988.
On September 29, 1997, AMD transferred substantially all of the assets and
liabilities and all of the operations of the PLD division of AMD excluding
bipolar PLDs (the Business) to the Company. A summary of the assets
transferred and liabilities assumed is as follows (IN THOUSANDS):
<TABLE>
<S> <C>
Cash transferred from AMD $ 35,312
Other assets transferred from AMD 34,874
Liabilities assumed by Vantis (36,738)
--------
Net equity $ 33,448
--------
--------
</TABLE>
The Company is a wholly owned subsidiary of AMD as of December 27, 1998. The
Company currently relies upon AMD for substantially all of its manufacturing,
assembly, test, mark, and pack activities under agreements entered into
between the Company and AMD in the fourth quarter of 1997. In addition, the
Company receives administrative services from AMD (SEE NOTE 10).
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the Company's
operations as a division of AMD for the period from December 30, 1996 to
September 28, 1997. The consolidated financial statements through September
28, 1997 have been presented as if the Company had existed as an entity
separate from AMD. The consolidated balance sheet at December 29, 1996 has
been prepared using the historical basis of accounting and included all of
the assets and liabilities specifically identifiable to the Company, and for
certain liabilities that are not specifically identifiable, estimates have
been used to allocate a portion of AMD's liabilities to the Company. The
statements of income, stockholder's equity and division equity, and cash
flows for the year ended December 29, 1996 and through the period ended
September 28, 1997 include all sales and expenses attributable to the
Company, including certain corporate administration, finance, and management
costs which have been allocated to the Company based on certain management
assumptions (SEE NOTE 10). Prior to September 29, 1997, cash management for
the Company was performed by AMD on a centralized basis. Accordingly, the
Company had no cash and cash equivalents or investments in 1996.
10
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
1. BACKGROUND AND BASIS OF PRESENTATION (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
Beginning September 29, 1997, the date AMD transferred the Business to the
Company, the corporate accounting systems of AMD tracked all financial
transactions of the Company separately from those of AMD. Financial results
subsequent to that date include the accounts and operations of the Company as
a stand-alone company pursuant to certain agreements between the Company and
AMD (SEE NOTE 10).
In connection with the transfer of the Business to the Company by AMD, the
Company issued 1,000 shares of the Company's common stock at $0.01 par value
to AMD. On October 14, 1997, the Company effected a stock split of 100,000
shares of common stock for each share then outstanding, resulting in total
capitalization of 100,000,000 shares of common stock at $0.01 par value.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company reports on a 52- or 53-week fiscal year ending on the last Sunday
in December, which resulted in a 52-week fiscal year for 1996, 1997, and
1998, that ended on December 29, December 28, and December 27, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Upon consolidation, all significant intercompany accounts
and transactions are eliminated.
CASH EQUIVALENTS
Cash equivalents consist of financial instruments that are readily
convertible to cash and have original maturities of three months or less at
the time of acquisition.
11
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The Company invests its excess cash in high-quality instruments. All of the
Company's marketable investments are classified as available-for-sale.
Available-for-sale securities are reported at fair market value with the
related unrealized gains and losses, net of tax, included as a component of
accumulated other comprehensive income. The cost of securities sold is based
upon the specific identification method. Realized gains and losses and
declines in value of securities judged to be other than temporary are
included in interest income. Interest and dividends on all securities are
included in interest income.
Investments consist of money market auction-rate preferred stocks and
corporate bonds.
INVENTORIES
Inventories are stated at standard cost adjusted to approximate the lower of
cost (first-in, first-out method) or market (net realizable) value.
EQUIPMENT AND FURNITURE
Equipment and furniture are stated at cost. Depreciation is provided using
the straight-line basis over the estimated useful lives of the assets for
financial reporting purposes and on accelerated methods for tax reporting
purposes. The estimated useful lives of equipment and furniture for financial
reporting purposes are three to five years.
REVENUE RECOGNITION
Net sales are stated net of discounts and allowances. Revenue from product
sales direct to customers is recognized upon shipment. The Company defers the
recognition of revenue and gross profit on shipments to distributors that
have certain rights of return and price protection privileges on unsold
product by the distributor until the distributor resells the product to the
end customer.
12
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE REVENUE RECOGNITION
Effective December 29, 1997, the Company adopted AICPA Statement of Position
97-2, "Software Revenue Recognition" (SOP 97-2), as amended by SOP 98-4,
"Deferral of the Effective Dates of a Provision of SOP 97-2" and SOP 98-9,
"Modification of SOP 97-2," "Software Revenue Recognition with Respect to
Certain Transactions," which was effective for transactions that the Company
entered into in 1998. The effect of adopting SOP 97-2 did not have a material
impact on the results of operations or financial position of the Company.
SOFTWARE DEVELOPMENT COSTS
Under Statement of Financial Accounting Standards No. 86 "Accounting for the
Costs of Computer Software To Be Sold, Leased, or Otherwise Marketed,"
certain software development costs incurred subsequent to the establishment
of technological feasibility are capitalized and amortized over the estimated
lives of the related products. Technological feasibility is established upon
completion of a working model, which is typically demonstrated by initial
beta shipment. The period between the achievement of technological
feasibility and the general release of the Company's products has been of
short duration. As of December 27, 1998, such capitalizable software
development costs were insignificant, and all software development costs have
been charged to research and development expense in the accompanying
consolidated financial statements of income.
ADVERTISING COSTS
The Company expenses advertising costs in the period in which they are
incurred. Advertising expense for 1996, 1997, and 1998 was approximately $5
million, $6 million, and $5 million, respectively.
FOREIGN CURRENCY REMEASUREMENT
Adjustments resulting from the process of remeasurement into U.S. dollars of
the foreign currency financial statements of the Company's wholly owned
foreign subsidiaries, for which the U.S. dollar is the functional currency,
are included in operations and have not been material.
13
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Basic net income per share is based upon weighted average common shares
outstanding. Diluted net income per share is computed using the weighted
average common shares outstanding plus any potential common stock. There was
no potential common stock outstanding for any of the periods presented.
In July 1997, the Company was incorporated as a wholly owned subsidiary of
AMD. Basic net income per share for the years ended December 29, 1996 and
December 28, 1997 have not been presented because there were no common shares
outstanding, and such information would not be meaningful.
STOCK-BASED COMPENSATION
The Company accounts for its stock option plans in accordance with provisions
of the Accounting Principles Board Opinion No. 25, "Accounting For Stock
Issued to Employees" (APB Opinion No. 25). In 1995, the Financial Accounting
Standards Board released the Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123). FAS 123 provides an
alternative to APB Opinion No. 25 and is effective for fiscal years beginning
after December 15, 1995. As allowed under FAS 123, the Company continues to
account for its employee stock plans in accordance with the provisions of APB
Opinion No. 25 (SEE NOTE 7).
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
14
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of FAS 130 had no impact on
the Company's net income or stockholder's equity and division equity. FAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments which, prior to
adoption, were reported separately in stockholder's equity and division
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of FAS 130.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which is required to be
adopted in years beginning after June 15, 1999. The Company does not usually
use derivatives instruments, therefore the adoption of FAS 133 is not
expected to affect its results of operations or financial position.
3. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, short-term investments,
and trade receivables.
The Company places its cash equivalents and short-term investments with
high-credit quality financial institutions and, by policy, limits the amount
of credit exposure with any one financial institution. Investments in
certificates of deposit are acquired from banks having combined capital,
surplus, and undistributed profits of not less than $200 million. Investments
in commercial paper, corporate notes, and money market auction-rate preferred
stocks of industrial firms and financial institutions are highly rated.
15
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
3. CONCENTRATIONS OF CREDIT RISK (CONTINUED)
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the
Company's customer base thus spreading the trade credit risk. The Company
controls credit risk through credit approvals, credit limits, and monitoring
procedures. The Company performs in depth credit evaluations of all new
customers and requires letters of credit, bank guarantees, and advance
payments, if deemed necessary. Bad debt expenses have not been material.
One of the Company's distributors accounted for 24%, 25%, and 25% of net
sales in 1996, 1997, and 1998, respectively. Another distributor accounted
for 12%, 14%, and 13% of net sales in 1996, 1997, and 1998, respectively.
4. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company held no cash and cash equivalents or short-term investments at
December 29, 1996. The following summarizes available-for-sale securities
included in cash and cash equivalents and short-term investments as of the
respective dates (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
----------------------------
<S> <C> <C>
Cash equivalents:
Commercial paper $ 9,947 $ -
Money market funds 27,600 21,000
-----------------------
Total cash equivalents $37,547 $21,000
-----------------------
-----------------------
Short-term investments:
Money market auction-rate preferred stock $32,500 $43,500
Corporate notes - 5,033
-----------------------
Total short-term investments $32,500 $48,533
-----------------------
-----------------------
</TABLE>
There were no realized or unrealized gains and losses in 1996 as the Company
did not have any cash or investment balances. Unrealized gains and losses
were $0 and $14,000 in 1997 and 1998, respectively. Realized gains and losses
were immaterial in all the periods presented.
16
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
5. INCOME TAXES
The income before income taxes shown for periods up to September 28, 1997
reflects the Company's operation as a division of AMD. The income tax expense
and income taxes payable reported for these earlier periods represent what
separate Company taxes would have been and were payable to AMD. Subsequent to
September 28, 1997, the Company has been included in the consolidated federal
income tax return of AMD and is responsible for its income taxes through a
tax sharing arrangement with AMD, whereby federal and state taxes are
allocated on a separate company basis.
Provision for income taxes consists of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
YEARS ENDED
1996 1997 1998
----------------------------------
<S> <C> <C> <C>
Current:
Federal $5,726 $14,202 $6,987
State 56 635 90
Foreign - - 398
Deferred:
Federal (24) (1,660) 1,238
State (1) (81) 94
----------------------------------
Provisions for income taxes $5,757 $13,096 $8,807
----------------------------------
----------------------------------
</TABLE>
The following is a reconciliation between statutory federal income taxes and
the provision for income taxes (IN THOUSANDS, EXCEPT PERCENT):
<TABLE>
<CAPTION>
YEARS ENDED
1996 1997 1998
-----------------------------------------------------------------
TAX RATE TAX RATE TAX RATE
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
provision $5,936 35.0% $13,044 35.0% $9,107 35.0%
State taxes net of federal
benefit 9 0.1% 326 0.9% (18) (0.1)%
Other (188) (1.2)% (274) (0.8)% (282) (1.1)%
-----------------------------------------------------------------
$5,757 33.9% $13,096 35.1% $8,807 33.8%
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
17
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
5. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as
follows (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1997 1998
----------------------------
<S> <C> <C>
Deferred tax assets:
Deferred distributor income $11,827 $10,120
Inventory reserves 4,596 3,270
Accrued liabilities not currently deductible 637 1,047
Other 285 2,150
------------------------
Total deferred tax assets 17,345 16,587
Deferred tax liabilities:
Depreciation (687) (687)
Other 422 (152)
------------------------
Total deferred tax liabilities (265) (839)
------------------------
Net deferred tax assets $17,080 $15,748
------------------------
------------------------
</TABLE>
The Company did not record a valuation allowance for all periods presented.
Realization of the Company's net deferred tax assets is dependent on future
taxable income. The Company believes that it is more likely than not that
such assets will be realized; however, ultimate realization could be
negatively impacted by market conditions and other variables not known or
anticipated at this time.
6. LINE OF CREDIT AGREEMENT
In accordance with the Administrative Services Agreement entered into on
September 29, 1997, between the Company and AMD, the Company obtained a
revolving line of credit agreement with AMD under which it may borrow up to
$15 million (SEE NOTE 10). Interest accrues monthly on the aggregate unpaid
amount of any funds advanced to the Company by AMD. Such interest is based on
the reference rates established by Bank of America at the draw date. The
agreement and resultant available facility terminate on December 31, 1999.
The Company has not drawn on the line of credit, leaving $15 million unused
and available as of December 27, 1998.
18
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
7. STOCK-BASED BENEFIT PLANS
EMPLOYEE STOCK PLANS
The Company does not have an employee stock option or employee stock purchase
plan. While employees of AMD, certain employees of the Company were granted
options to purchase AMD common stock. As of August 1997, the Company's
employees were no longer eligible to receive new grants under AMD employee
stock option plans but continue to participate to the extent they held
outstanding options in those plans. The Company's employees continue to
participate in the employee stock purchase plan of AMD.
AMD has several stock option plans under which certain employees of the
Company have previously been granted nonqualified (NSOs) options to purchase
AMD's common stock. Generally, options are exercisable within four years from
the date of grant and expire ten years after the date of grant. Exercise
prices of NSOs range from $4.25 to the fair market value of the common stock
at the date of grant.
On September 10, 1998, the Compensation Committee of the Board of Directors
of AMD approved a stock option repricing program pursuant to which employees
of AMD and the Company (excluding officers and vice presidents) could elect
to cancel certain unexercised stock options in exchange for new stock options
with an exercise price of $19.43, which was equal to 20 percent above the
closing price of AMD's common stock on the New York Stock Exchange on
September 10, 1998. Options repriced in accordance with the July 10, 1996
repricing program were not eligible to be repriced. For the Company's
participants, approximately 66,000 options were eligible for repricing, of
which approximately 39,000 were repriced.
19
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
7. STOCK-BASED BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK PLANS (CONTINUED)
On July 10, 1996, the Compensation Committee of the Board of Directors of AMD
approved a stock option repricing program pursuant to which employees of AMD
and the Company (excluding officers) could elect to cancel certain
unexercised stock options in exchange for new stock options with an exercise
price of $11.88, equal to the closing price of AMD's common stock on the New
York Stock Exchange on July 15, 1996. For the Company's participants,
approximately 478,431 options were eligible for repricing, of which 435,000
were repriced. The vesting schedules and expiration dates of repriced stock
options were extended by one year, and certain employees canceled stock
options for four shares of common stock in exchange for repriced options for
three shares of common stock.
The following is a summary of stock option activity for the Company's
participants and related information. Stock option activity is presented as
though the participants were Vantis employees when the Company was still a
division of AMD. Grants and cancelations in accordance with the repricing
programs, disclosed above, have been included in "grants" and "canceled" in
the table below.
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------------- ------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options
Outstanding at beginning of year 880 $19.97 974 $10.77 1,040 $14.43
Granted 624 $11.98 149 $35.55 39 $19.43
Canceled (502) $28.62 (1) $11.88 (77) $27.95
Exercised (28) $ 6.78 (82) $ 9.30 (83) $ 8.81
----- ----- -----
Outstanding at end of year 974 $10.77 1,040 $14.43 919 $13.84
----- ----- -----
----- ----- -----
Options exercisable at end of year 360 535 631
Available for grant at beginning of year 751 3,845 -
Available for grant at end of year 3,845 - -
</TABLE>
20
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
7. STOCK-BASED BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK PLANS (CONTINUED)
Additional information about outstanding options to purchase AMD common stock
held by employees of the Company at December 27, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ---------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 27, CONTRACTUAL EXERCISE DECEMBER 27, EXERCISE
EXERCISE PRICES 1998 LIFE (YEARS) PRICE 1998 PRICE
- ------------------------------------------------------------------------------ ----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$4.25 - $9.38 202 3.77 $ 6.70 176 $ 6.31
$10.63 - $11.88 411 6.59 $11.70 310 $11.72
$13.00 - $18.69 174 5.87 $13.81 112 $13.81
$19.43 - $39.75 132 8.75 $31.25 33 $35.94
------- -------
$4.25 - $39.75 919 6.18 $13.84 631 $11.85
------- -------
------- -------
</TABLE>
STOCK PURCHASE PLAN
AMD has an employee stock purchase plan (ESPP) that allows participating U.S.
employees to purchase, through payroll deductions, shares of AMD's common stock
at 85 percent of the fair market value at specified dates. At December 27, 1998,
427,361 common shares remained available for issuance under the plan. A summary
of stock purchased by the Company's employees under the plan is shown below.
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------------------------------------
(IN THOUSANDS, EXCEPT EMPLOYEE PARTICIPANTS)
<S> <C> <C> <C>
Aggregate purchase price $660 $795 $1,170
Shares purchased 52 37 75
Employee participants 99 122 156
</TABLE>
21
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
7. STOCK-BASED BENEFIT PLANS (CONTINUED)
STOCK-BASED COMPENSATION
As permitted under FAS 123, the Company has elected to follow APB Opinion No.
25 and related interpretations in accounting for the AMD stock-based awards
to the Company's employees. Pro forma information regarding net income and
net income per share is required by FAS 123 for awards granted after December
31, 1994, as if the Company had accounted for AMD stock-based awards to the
Company's employees under the fair value method of FAS 123. The fair value of
the AMD stock-based awards to the Company's employees was estimated using a
Black-Scholes option pricing model. The Black-Scholes model was developed for
use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, the Black-Scholes model
requires the input of highly subjective assumptions, including the expected
stock price volatility. Because the AMD stock-based awards to the Company's
employees have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of stock-based awards to the Company's employees. The fair value
of the AMD stock-based awards to the Company's employees was estimated
assuming no expected dividends and the following weighted average assumptions:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING ESPP
--------------------------------------- --------------------------------------
1996 1997 1998 1996 1997 1998
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected life (years) 2.66 3.47 2.93 0.25 0.25 0.25
Expected stock price
volatility 47.15% 54.87% 66.61% 47.90% 69.17% 75.78%
Risk-free interest rate 6.45% 6.30% 5.35% 5.29% 5.38% 5.16%
</TABLE>
22
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
7. STOCK-BASED BENEFIT PLANS (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
For pro forma purposes, the estimated fair value of the AMD stock-based awards
to Company employees is amortized over the options' vesting period (for options)
and the three-month purchase period (for stock purchases under the ESPP). The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------------------------------------
(IN THOUSANDS, EXCEPT EMPLOYEE PARTICIPANTS)
<S> <C> <C> <C>
Net income - as reported $11,203 $24,173 $ 7,212
Net income - pro forma $10,122 $22,537 $15,959
Basic and diluted net income per
share - as reported $ - $ - $ 0.17
Basic and diluted net income per
share - pro forma $ - $ - $ 0.16
</TABLE>
Because FAS 123 is applicable only to awards granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until approximately 1999.
The weighted average grant date fair value of stock-based rewards was $5.02,
$15.78, and $6.85 in 1996, 1997, and 1998, respectively. The weighted average
grant date fair value of stock purchase rights under AMD employee stock purchase
plan was $3.99, $8.49, and $6.20 in 1996, 1997, and 1998, respectively.
8. OTHER EMPLOYEE BENEFIT PLANS
Through December 28, 1997, employees of the Company participated in several AMD
retirement, employee benefit, and incentive plans. These plans included (i) a
profit sharing plan, (ii) a stock bonus plan, (iii) a salary deferral 401(k)
plan, and (iv) a key contributor bonus plan. Certain key employees and certain
management of the Company also participated in various incentive arrangements
based on individual performance and AMD's performance.
23
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
8. OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
For the two years ended December 28, 1997, the Company's employees
participated in the AMD retirement savings plan, commonly known as a 401(k)
plan, that allows participating United States employees to contribute from
one percent to 15 percent of their pre-tax salary subject to Internal Revenue
Service limits. The Company made a matching contribution calculated at 50
cents on each dollar of the first 3 percent of participant contributions a
maximum of 1.5 percent of eligible compensation. Effective January 1, 1998,
the Company established the Vantis Corporation 401(k) plan. The provisions of
the Vantis Corporation 401(k) plan are identical to those of the AMD
retirement savings plan. The Company's contributions to the 401(k) plan of
AMD were approximately $154,000 and $183,000 for 1996 and 1997, respectively.
The Company's contributions to the 401(k) plan of the Company were $305,564
for the year ended December 27, 1998.
The Company established a profit sharing plan and incentive plan that offer
cash awards to its employees, on January 1, 1998. Under the profit sharing
plan, eligible United States employees may receive a cash payment at the end
of each quarter based on whether or not certain company target goals have
been satisfied. The Company's contributions to the profit sharing plan were
approximately $314,000 for the year ended December 27, 1998. The incentive
plan offers awards to certain key employees and certain members of management
based on both the Company's performance as well as individual performance.
9. COMMITMENTS
Certain operating leases and lease commitments were assumed by the Company as
part of the transfer of the Business effective September 29, 1997. The
Company has also entered into purchase commitments with AMD for wafer
fabrication and assembly, test, mark, and pack services as described in the
respective agreements (SEE NOTE 10).
24
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
9. COMMITMENTS (CONTINUED)
At December 27, 1998, the future minimum lease payments for each of the next
five years and beyond under noncancelable long-term operating lease obligations
and purchase commitments, primarily with AMD, are as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
OPERATING PURCHASE
LEASE COMMITMENTS
---------------------------------
<S> <C> <C>
1999 $524 $28,555
2000 $458 $ 3,179
2001 $334 $ -
2002 $257 $ -
2003 $145 $ -
Beyond 2003 $ - $ -
</TABLE>
Rent expense incurred under operating leases was approximately $2 million for
all periods presented.
10. RELATED PARTY TRANSACTIONS
The Company and AMD have entered into various transactions and agreements in
the ordinary course of business. Total costs recorded by the Company under
the signed agreements, summarized below, were approximately $30 million in
the fourth quarter of 1997 and $99 million for the year ended December 27,
1998. AMD paid nearly all expense and disbursement transactions of the
Company for all periods presented. The payable to AMD represents amounts due
AMD for the services performed for the Company by AMD as well as balances due
AMD for amounts paid on behalf of the Company.
25
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
10. RELATED PARTY TRANSACTIONS (CONTINUED)
COST ALLOCATIONS
The statements of income for the period from December 30, 1996 to September
28, 1997 include all sales and expenses attributable to the Company,
including a corporate allocation of the costs of facilities and employee
benefits. These allocations are based on assumptions that management believes
are reasonable under the circumstances. However, these allocations are not
necessarily indicative of the costs that would have resulted if the Company
had operated on a stand-alone basis during these periods nor are they
necessarily indicative of future costs to support the operations of the
Company. Pro rata allocations to the Company were based on factors, including
net sales, budgeted sales, headcount, and direct operating expenses or
activities. Allocated expenses were approximately $33 million and $16 million
for fiscal years 1996 and 1997, respectively. All expenses for the year ended
December 27, 1998 are based on the agreements described below or activity
with third-party vendors.
WAFER FABRICATION AGREEMENT
The Company and AMD have entered into a Wafer Fabrication Agreement (the
Wafer Fabrication Agreement) pursuant to which AMD has agreed to fabricate
programmable logic semiconductor wafers for the Company. The Company is
required to provide AMD with annual and quarterly forecasts of its die demand
needs. AMD has agreed to respond to these forecasts with commitments (the AMD
Commitment) to fabricate all or a portion of the forecasted amount of die.
The Company has agreed to reimburse AMD for unrecovered costs of AMD
resulting from any disparity between the Company's actual production demands
and a certain percentage of the applicable AMD Commitment.
The Wafer Fabrication Agreement expires on September 28, 2002 and, under
certain conditions, may be terminated earlier by either party.
26
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
10. RELATED PARTY TRANSACTIONS (CONTINUED)
ASSEMBLY, TEST, MARK AND PACK AGREEMENT
AMD and the Company have entered into an Assembly, Test, Mark and Pack
Agreement (the Assembly, Test, Mark and Pack Agreement) pursuant to which AMD
has agreed to perform for the Company assembly, test, mark, pack, and related
services on die consigned to AMD by the Company. The Company has agreed to
provide AMD with annual and quarterly forecasts of its service needs, and AMD
has agreed to respond with commitments to provide all or a portion of the
Company's forecasted service needs for the first thirteen weeks of each
quarterly forecast. AMD is not obligated to provide services at its
facilities in excess of the maximum historical capacity at any such facility.
The Assembly, Test, Mark and Pack Agreement expires on September 28, 2002 and
under certain conditions may be terminated earlier by either party.
ADMINISTRATIVE SERVICES AGREEMENT
AMD and the Company have entered into an Administrative Services Agreement
(the Administrative Services Agreement) pursuant to which AMD and its
affiliates have agreed to provide, on a transitional basis, certain
administrative services to the Company and its foreign subsidiaries. Such
administrative services include communications, office services, finance,
human resources, information technology, legal, and procurement services. The
Administrative Services Agreement also provides for the lease to the Company,
on a month-to-month basis, of certain office and test space and for a
revolving line-of-credit to the Company by AMD in an aggregate unpaid amount
not to exceed $15 million. The Administrative Services Agreement does not
require AMD to provide any administrative services to the extent that the
performance of such services becomes more expensive for AMD as a result of an
organizational or operational change by the Company that was not contemplated
by the parties at the time of the Administrative Services Agreement.
The Administrative Services Agreement expires on December 31, 1999. The
Company may terminate the provision of one or more services upon 90 days
prior written notice to AMD. The Administrative Services Agreement under
certain conditions may also be terminated earlier by either party.
27
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
10. RELATED PARTY TRANSACTIONS (CONTINUED)
BIPOLAR PLD SALES AND MARKETING SERVICES AGREEMENT
Pursuant to a Bipolar PLD Sales and Marketing Services Agreement between the
Company and AMD (the Bipolar PLD Agreement), the Company has agreed to
provide to AMD, as requested by AMD sales and marketing services for bipolar
PLDs manufactured by AMD. Services under the Bipolar PLD Agreement currently
include receipt and processing of orders, distribution of invoices,
collection of receivables, marketing, and customer service and support. The
Bipolar PLD Agreement provides that AMD will pay the Company a monthly fee in
consideration of the services provided. The initial monthly fee, which may be
reviewed annually, is a percentage of the gross revenues arising from sales
by the Company of AMD bipolar PLDs.
The Bipolar PLD Agreement expires on the earlier of December 31, 2002 or 90
days after AMD provides written notification to the Company. AMD anticipates
that it will eventually phase out its manufacture and sale of bipolar PLDs.
AMD FINANCING AGREEMENTS
AMD has entered into a series of financing agreements that contain
significant restrictive covenants. Failure to comply with certain such
limitations would have a material adverse effect on AMD. Many of the
covenants restrict the Company as a subsidiary of AMD to the same extent that
AMD is restricted. As long as the Company is a majority-owned subsidiary of
AMD, it remains subject to these covenants. Among other things, the Company
will be restricted in its ability to (i) declare or pay dividends or make
other distributions on account of the common stock; (ii) purchase, redeem, or
otherwise acquire or retire for value the common stock; (iii) make
investments other than certain strategic investments, investments in cash
equivalents, investments in AMD or certain of its affiliates, or other
investment specifically permitted by the terms of the financing agreement;
(iv) incur indebtedness or issue preferred stock; (v) dispose of assets or
issue or sell common stock or other equity interests of the Company; and (vi)
create or incur liens on assets of the Company.
28
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
10. RELATED PARTY TRANSACTIONS (CONTINUED)
PATENT CROSS LICENSE AGREEMENT
Pursuant to a Patent Cross License Agreement between AMD and the Company (the
Patent Cross License Agreement), AMD and the Company have each agreed to
license to the other, every issued patent or patent that may be issued on
applications filed prior to January 8, 2003. Each cross-license is a
nonassignable and nontransferable (except as expressly permitted) worldwide,
nonexclusive, royalty-free license without the right to grant sublicenses.
The Patent Cross License Agreement also provides that all inventions
developed jointly by AMD and the Company under the Wafer Fabrication
Agreement and the Assembly, Test, Mark and Pack Agreement will be jointly
owned by AMD and the Company.
The Patent Cross License Agreement expires on the date of expiration of the
last licensed patent to expire. The Patent Cross License Agreement may be
terminated by either party upon the occurrence of certain events.
11. CONTINGENCIES
AMD V. ALTERA COMPANY
AMD and Altera are currently involved in litigation involving certain patent
infringement claims. Vantis received all rights to the AMD-held patents as
part of the Patent Cross License Agreement in September 1997.
An agreement entered into between AMD and Vantis requires AMD to indemnify
Vantis for any liability incurred by Vantis in connection with or as a result
of this litigation. A further agreement between AMD and Vantis requires AMD
to indemnify the Company against all damages, attorneys' fees, court costs,
and other similar expenses owed to Altera pursuant to any final judgment or
settlement of this litigation. Based upon information presently known to
management, the Company does not believe that the ultimate resolution of this
lawsuit will have a material adverse effect on the financial condition or
results of operations of the Company.
29
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
OTHER MATTERS
The Company is a defendant or plaintiff in various other actions that arose
in the normal course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial condition or results of operations of the Company.
12. YEAR 2000 READINESSS (UNAUDITED)
Many current firmware programs and software systems are coded to accept only
two digits for the year entry in a date code field. If any of our current
firmware or software interpret a year entry of "00" in a date code field as
the year 1900 rather than the Year 2000, system failures or miscalculations
could result in disruptions of operations, including, among other things, a
temporary inability to process transactions, issue invoices, or engage in
other normal business activities.
The Company has developed a multistep Year 2000 readiness plan. The plan
includes development of corporate awareness, assessment of internal systems
and suppliers, project planning, project implementation (including
remediation, upgrading, and replacement), validation testing, and contingency
planning. In March 1998, the Company performed a complete inventory of its
computer systems, including engineering systems, work stations, servers,
desktops, and all hardware and software. While this inventory revealed that
not many of these systems will require substantial corrective action, the
Company recently began upgrades designed to remedy those systems that were
deemed to be noncompliant. These upgrades are scheduled for completion during
the third quarter of 1999 and are estimated to cost approximately $100,000.
The Company is initiating formal communication with significant suppliers to
determine the extent to which its operations are vulnerable to those third
parties' failure to remediate their own Year 2000 issues. Suppliers of
hardware, software, or other products that might contain embedded processors
will also be requested to provide information regarding the Year 2000
compliance status of their products. In order to protect against the
acquisition of additional noncompliant products, the Company now requires
suppliers to warrant that products sold or licensed to it are Year 2000
compliant.
30
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
12. YEAR 2000 READINESS (UNAUDITED) (CONTINUED)
AMD is the primary wafer manufacturer and principal supplier of goods and
services to the Company. Given this relationship with AMD, the Company, as a
wholly owned subsidiary of AMD, has relied primarily on AMD's response to the
Year 2000 issue. In particular, the Company is relying on AMD's analysis and
efforts in the areas of order processing and management, manufacturing,
shipping and distribution, and finance. The Company believes the failure of
AMD or the Company to successfully resolve their Year 2000 issues could
result in a shut-down of some or all of AMD's or the Company's operations,
which could have a material adverse effect on the Company.
AMD has developed a multistep Year 2000 readiness plan for its internal
systems, including replacing its order management system with a Year 2000
compliant system and contracting with a software reengineering company
specializing in Year 2000 problems to remediate noncompliant code in older
applications and systems. AMD is also utilizing internal resources to
reprogram or replace and test the software for Year 2000 modifications and is
dedicating substantial resources to Year 2000 issues with respect to its
wafer fabrication and wafer sort facilities worldwide. We are briefed weekly
on the progress of these projects. If required modifications to AMD's order
management existing software and conversions to new software are not made or
are not completed in a timely manner, the Year 2000 issue could have a
material impact on the operations of the Company.
AMD has contacted significant suppliers of hardware, software, or other
products to obtain information regarding the Year 2000 compliance status of
these third parties' products. To the extent that AMD's or our significant
suppliers do not successfully achieve Year 2000 compliance on a timely basis,
our business or operations could be materially and adversely affected.
The Company does not currently have any information regarding the Year 2000
compliance status of its customers. In the event that a number of the
Company's customers and suppliers do not successfully achieve Year 2000
compliance on a timely basis, the Company's business or operations could be
adversely affected.
31
<PAGE>
Vantis Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1998
12. YEAR 2000 READINESS (UNAUDITED) (CONTINUED)
The Company is currently assessing its exposure to contingencies related to
the Year 2000 issue for products it sells or has already sold; however, the
Company does not expect these contingencies to have a material impact on its
operations. To date, the Company has not evaluated the potential implications
of noncompliant embedded technologies contained in noninformation technology
systems, including general facility and security systems. The Company is also
vulnerable to unquantifiable risks associated with external forces that
threaten to affect industry and commerce in general, such as utility or
transportation company Year 2000 compliance failures and related service
interruptions.
The Company has not yet developed a comprehensive contingency plan to address
situations that may result if it is unable to achieve Year 2000 readiness of
its critical operations. Development of contingency plans is in progress and
is expected to be completed by September 30, 1999. The Company's failure to
develop and implement, if necessary, an appropriate contingency plan could
have a material adverse effect on its operations.
The total cost of the Year 2000 project for the Company is currently
estimated at approximately $500,000, which is not material to its results of
operations or financial condition. The costs of the Year 2000 project are
being funded through operating cash flows. The costs of the project and the
date on which the Company believes it will complete the Year 2000
modifications are based on the Company's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans, and other
factors. Actual results could materially differ from those anticipated.
32
<PAGE>
VANTIS CORPORATION
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 28, 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 28, 1999 AND MARCH 29, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheet at March 28, 1999 34
Condensed Consolidated Statements of Income for the
Three Months Ended March 28, 1999 and March 29, 1998 35
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 28, 1999 and March 29, 1998 36
Notes to Condensed Consolidated Financial Statements 37
</TABLE>
33
<PAGE>
VANTIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 28,
1999
-----------
(THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,374
Short-term investments 58,490
Accounts receivable, net of allowance for
doubtful accounts of $570 24,351
Inventory 8,346
Receivable from AMD 12,700
Prepaid expenses and other current assets 895
Deferred income taxes 16,605
--------
Total current assets 139,761
Equipment and furniture, net of accumulated
depreciation 6,376
Other assets 6,198
--------
$152,335
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Payable to AMD $ 45,497
Accrued compensation and benefits 4,383
Accrued liabilities 7,557
Income tax payable 4,712
Deferred income on shipments to distributors 29,096
--------
Total current liabilities 91,245
Other long term liabilities 1,250
Deferred income taxes 49
Commitments and contingencies
Stockholder's equity:
Common stock, $.10 par value:
Authorized shares -- 150,000,000; issued and
outstanding shares -- 100,000,000 1,000
Capital in excess of par 32,448
Retained earnings 26,303
Accumulated other comprehensive income 40
--------
Total stockholder's equity 59,791
--------
$152,335
--------
--------
</TABLE>
See accompanying notes.
34
<PAGE>
VANTIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 28, MARCH 29,
1999 1998
--------- ---------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C>
Net sales $47,157 $56,224
Expenses:
Cost of sales 20,395 26,158
Research and development 11,924 10,483
Marketing, general and administrative 8,245 7,939
------- -------
40,564 44,580
------- -------
Operating income 6,593 11,644
Interest and other, net 965 1,492
------- -------
Income before income taxes 7,558 13,136
Income taxes 2,761 4,439
------- -------
Net income $ 4,797 $ 8,697
------- -------
------- -------
Net income per basic and diluted share $ 0.05 $ 0.09
------- -------
------- -------
Common shares outstanding - basic and diluted 100,000 100,000
------- -------
------- -------
</TABLE>
See accompanying notes.
35
<PAGE>
VANTIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 28, MARCH 29,
1999 1998
--------- ---------
(THOUSANDS) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,797 $ 8,697
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation & amortization 967 1,028
Deferred income taxes (808) --
Changes in operating assets and liabilities:
Accounts receivable 2,596 (8,550)
Inventory 1,443 (194)
Prepaid expenses, other current assets and other assets (227) (1,218)
Accrued liabilities 7,937 15,308
Income tax payable 3,046 4,381
Deferred income on shipment to distributors 1,671 671
-------- --------
Net cash provided by operating activities 21,422 20,123
INVESTING ACTIVITIES
Purchases of property and equipment (944) (835)
Purchases of software licenses (4,500) --
Maturities (purchases) of available-for-sale securities, net (9,957) (19,500)
-------- --------
Net cash used in investing activities (15,401) (20,335)
FINANCING ACTIVITIES
Net financing provided to AMD (12,700) --
-------- --------
Net cash used for financing activities (12,700) --
-------- --------
Net decrease in cash and cash equivalents (6,679) (212)
Cash and cash equivalents at beginning of period 25,053 39,638
-------- --------
Cash and cash equivalents at end of period $ 18,374 $ 39,426
-------- --------
-------- --------
</TABLE>
See accompanying notes.
36
<PAGE>
VANTIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 28, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 28, 1999 are not necessarily
indicative of the result that may be expected for the year ended December 26,
1999. For further information, refer to the Company's consolidated financial
statements and footnotes thereto for the year ended December 27, 1998.
The Company uses a 52- to 53- week fiscal year ending on the last Sunday in
December. The quarters ended March 28, 1999 and March 29, 1998 each included 13
weeks.
The condensed consolidated financial statements include the accounts of
Vantis Corporation and its subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation.
37
<PAGE>
VANTIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 28, 1999
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
March 28,
(Thousands) 1999
---------
<S> <C>
Cash equivalents:
Money market funds $13,000
Certificates of deposit 2,028
-------
Total cash equivalents $15,028
-------
-------
Short-term investments:
Bank notes $ 5,059
Certificates of deposit 10,000
Commercial paper 43,431
-------
Total short-term investments $58,490
-------
-------
</TABLE>
NET INCOME PER SHARE
In connection with the transfer of the Business to the Company by AMD in
September 1997, the Company issued 1,000 shares of the Company's common stock
at $0.01 par value to AMD. On October 14, 1997, the Company effected a stock
split of 100,000 shares of common stock for each share then outstanding,
resulting in total capitalization of 100,000,000 shares of common stock
outstanding at March 28, 1999. Basic net income per share is based upon
weighted average common shares outstanding. Diluted net income per share is
computed using the weighted average common shares outstanding plus any
potential common stock. As of March 28, 1999, the weighted average common
shares outstanding for computing net income per share is 100,000,000 shares.
In April 1999, the Company approved and adopted the 1999 Performance
Award Plan and the 1999 Leadership Award Plan. Under the terms of these
plans, in April and June 1999, the Company issued approximately 10.9 million
stock options to employees. The exercise price of the options is equal to the
fair market value of the Company's common stock on the date of grant as
determined by the board of directors.
38
<PAGE>
VANTIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 28, 1999
COMPREHENSIVE INCOME
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 28, March 29,
(Thousands) (unaudited) 1999 1998
------------- -----------
<S> <C> <C>
Net Income $4,797 $8,697
------ ------
Unrealized gains on securities, net of tax:
Unrealized holding gains arising during the period 26 -
------ ------
Other comprehensive income 26 -
------ ------
Comprehensive income $4,823 $8,697
------ ------
------ ------
</TABLE>
2. SALE OF COMPANY
On April 21, 1999, Advanced Micro Devices, Inc., the parent company of
Vantis Corporation, entered into an agreement with Lattice Semiconductor
Corporation to sell all of the stock of the Company for approximately $500
million plus assumption of liabilities and other costs incurred by the buyer.
The purchase price is subject to change during the six months following the
acquisition date. The transaction was completed on June 15, 1999 and was
accounted for as a purchase by the buyer. Therefore the basis of carrying
assets and liabilities used in the financial statements may not be indicative
of the basis used in the financial statements of Lattice Semiconductor
Corporation.
3. INVENTORY
Inventory consists of the following at March 28, 1999:
<TABLE>
<S> <C>
Finished goods $2,906
Work in process 5,440
------
$8,346
------
------
</TABLE>
39
<PAGE>
VANTIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 28, 1999
4. ADVANCE TO AMD
During March 1999 the Company advanced approximately $12.7 million to
AMD. This amount was repaid in April 1999 with interest at approximately 4.5%
per annum.
5. PREPAID SOFTWARE LICENSE AGREEMENT
In 1998, the Company entered into a license agreement with a software
company requiring the payment of $4.5 million in license fees over time upon
the satisfactory development and delivery of the software to the Company.
Initial software acceptance and delivery of the software was completed during
the first calendar quarter of 1999. Accordingly, a prepaid software license
asset of $4.5 million is included in Other assets, and is being amortized on
the straight line method over three years which represents the estimated
useful life of the software. As of March 28, 1999, $500,000 of the license
fee has been paid, $2.75 million is due within the next twelve months and is
recorded as a current liability, and $1.25 million is due in equal
consecutive quarterly installments of $250,000 beginning in June, 2000, and
is recorded as a long-term liability in the accompanying condensed
consolidated balance sheet.
6. CONTINGENCIES
AMD V. ALTERA CORPORATION
ADVANCED MICRO DEVICES, INC. V. ALTERA CORPORATION (CASE NO.
C-94-20567-RMW,N.D. CAL.). This litigation, which began in 1994, involves
multiple claims and counterclaims for patent infringement relating to Vantis
and Altera programmable logic devices.
In April 1999, the Federal Court of Appeal reversed earlier jury and
Court decisions and held that Altera is not licensed to the eight AMD
patents-in-suit. These eight AMD patents were subsequently assigned to
Vantis. Also in April 1999, following the decision of the Federal Court of
appeal, Altera filed a petition for rehearing. In June 1999, the Federal
Court of Appeal denied Altera's petition for rehearing.
In connection with the acquisition of Vantis by Lattice Semiconductor
Corporation, Lattice agreed to assume both the claims against Altera and the
claims by Altera against AMD.
40
<PAGE>
(b) Pro Forma Financial Information.
----------------------
The following unaudited pro forma condensed consolidated financial
statements are presented for illustrative purposes only and do not purport to
be indicative of the consolidated financial position or results of operations
for future periods or the results that actually would have been realized had
Lattice Semiconductor Corporation ("Lattice") and Vantis Corporation
("Vantis") been a consolidated company during the specified periods. Further,
non recurring Purchase Accounting adjustments are excluded from the pro forma
adjustments in the unaudited pro forma condensed Statement of Operations.
The unaudited pro forma condensed consolidated financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with the historical consolidated financial
statements and the notes thereto of Lattice which were previously reported in
Lattice's Annual Report on Form 10-K for the year ended April 3, 1999 and the
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999, which are
hereby incorporated by reference, and the consolidated financial statements
and the notes thereto for the three years ended December 27, 1998 and the
Unaudited Condensed Consolidated Statements and the notes thereto for the
three month period ended March 28, 1999, of Vantis included elsewhere in this
Current Report on Form 8-K.
The following unaudited pro forma condensed consolidated financial
statements are based on the respective historical audited and unaudited
consolidated financial statements and the notes thereto of Lattice and Vantis
after giving effect to the acquisition of Vantis using the purchase method of
accounting and the assumptions and adjustments described below. The purchase
price was allocated to the estimated fair value of assets acquired and
liabilities assumed. The preliminary purchase price allocation is based on an
independent appraisal and management estimates. The purchase price allocation
is subject to further refinement and change over the next year. Management is
in the process of completing its plans related to the integration of Vantis,
and accordingly, the amounts recorded related to Vantis are based on
management's current estimate of those costs.
This Current Report on Form 8-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934.
41
<PAGE>
The required pro forma unaudited financial information is set forth below.
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL INFORMATION
Table of Contents page
<S> <C>
Unaudited Pro Forma Condensed Consolidated Balance Sheet -
April 3, 1999 43
Unaudited Pro Forma Condensed Consolidated Statement of
Operations - Year ended April 3, 1999 44
Unaudited Notes to Pro Forma Condensed Consolidated
Financial Statements 45
</TABLE>
42
<PAGE>
LATTICE SEMICONDUCTOR CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
April 3, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Lattice Vantis Adjustments Combined
--------- --------- --------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and short term investments (Note 1) $319,434 $ 76,864 $(260,562) A $135,736
Accounts receivable, net 23,788 24,351 48,139
Inventories 17,683 8,346 500 B 26,529
Other current assets 20,461 30,200 (16,605) B 34,056
--------- --------- ---------- ---------
Total current assets 381,366 139,761 (276,667) 244,460
Property plant and equipment, net 44,993 6,376 3,854 B 55,223
Foundry investments, advances and
other assets 114,537 6,198 2,951 C 123,686
Intangible assets, net 422,533 A 422,533
Deferred income taxes 32,486 E 32,486
--------- --------- ---------- ---------
Total assets $540,896 $152,335 $ 185,157 $878,388
--------- --------- ---------- ---------
--------- --------- ---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 32,184 $ 57,437 $ 58,274 A $147,895
Bank borrowings 25,000 C 25,000
Deferred income on sales to distributors 19,993 29,096 (29,096) B 19,993
Income taxes payable 4,985 4,712 (4,712) B 4,985
--------- --------- ---------- ---------
Total current liabilities 57,162 91,245 49,466 197,873
Bank borrowings and other long term liabilities 1,299 227,999 C 229,298
--------- --------- ---------- ---------
Total liabilities 57,162 92,544 277,465 427,171
--------- --------- ---------- ---------
Stockholders' equity:
Stock and Paid-in Capital 223,526 33,488 (9,488) F G 247,526
Retained earnings 260,208 26,303 (82,820) F 203,691
--------- --------- ---------- ---------
Total stockholders' equity 483,734 59,791 (92,308) 451,217
--------- --------- ---------- ---------
Total liabilities and stockholders' equity $540,896 $152,335 $ 185,157 $878,388
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
43
<PAGE>
LATTICE SEMICONDUCTOR CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED April 3, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Lattice Vantis Adjustments Combined
-------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Revenue $200,072 $195,930 $396,002
Costs and expenses:
Costs of products sold 78,440 95,678 174,118
Research and development 33,190 35,922 69,112
Selling, general and administrative 36,818 47,781 84,599
Amortization of intangibles $ 84,500 A 84,500
--------- --------- ---------- ----------
Total operating expenses 148,448 179,381 84,500 412,329
Income (loss) from operations 51,624 16,549 (84,500) (16,327)
Other income (expense), net 10,668 3,892 (27,444) C D (12,884)
--------- --------- ---------- ----------
Income (loss) before income taxes 62,292 20,441 (111,944) (29,211)
Provision (benefit) for income taxes 20,246 7,129 (36,723) E (9,348)
--------- --------- ---------- ----------
Net income (loss) $ 42,046 $ 13,312 $ (75,221) $ (19,863)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Basic earnings (loss) per share $1.79 ($0.85)
--------- ----------
--------- ----------
Diluted earnings (loss) per share $1.77 ($0.85)
--------- ----------
--------- ----------
Shares used in computing basic
earnings (loss) per share 23,487 23,487
--------- ----------
--------- ----------
Shares used in computing diluted earnings
(loss) per share (Note 3) 23,819 23,487
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
44
<PAGE>
LATTICE SEMICONDUCTOR CORPORATION
UNAUDITED NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands)
Note 1. Basis of Presentation
On June 15, 1999, Lattice Semiconductor Corporation ("Lattice") completed the
acquisition of all of the outstanding capital stock of Vantis Corporation
("Vantis") from Advanced Micro Devices, Inc. ("AMD"). The transaction was
completed pursuant to a Stock Purchase Agreement dated as of April 21, 1999
between Lattice and AMD. We paid approximately $500 million in cash for all of
the outstanding capital stock of Vantis. In addition, we exchanged our stock
options for all of the options outstanding under Vantis employee stock option
plans.
The components of purchase price are as follows (millions):
<TABLE>
<S> <C>
Bank term and line of credit bearing interest at
adjustable rates $250.3
Cash 249.8
Other liabilities assumed 34.5
Fair value of options assumed 24.0
Estimated direct acquisition costs 10.8
Exit costs 8.3
Preacquisition contingencies 5.4
------
Total $583.1
------
------
</TABLE>
The total purchase price was allocated to the estimated fair value of assets
acquired and liabilities assumed. The estimate of fair value of the assets
acquired is based on an independent appraisal and management estimates. The
purchase price allocation is subject to further refinement and change over
the next year. Management is in the process of completing its integration
plans related to Vantis, and accordingly, the amounts recorded are based on
management's current estimate of those costs. The allocation of purchase
price is discussed further in Note 2.
The pro forma unaudited condensed consolidated statement of operations is
presented using Lattice's audited condensed consolidated statement of
operations for the twelve months ended April 3, 1999 combined with Vantis's
unaudited condensed consolidated statement of operations for the twelve
months ended March 28, 1999 assuming the transaction occurred on March 29,
1998.
The pro forma unaudited condensed consolidated balance sheet gives effect to
the acquisition as if the transaction had taken place on April 3, 1999 and
combines Lattice's
45
<PAGE>
audited April 3, 1999 condensed consolidated balance sheet amounts with
Vantis's unaudited March 28, 1999 condensed consolidated balance sheet
amounts.
For financial reporting purposes, Lattice and Vantis report on 13 or 14 week
quarters with their years ending April 3, 1999 and December 27, 1998,
respectively. There were no transactions between Lattice and Vantis during
the period presented and there are no significant differences between the
accounting policies of Lattice and Vantis.
The pro forma unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto of Lattice, which were previously reported in Lattice's Annual Report
on Form 10-K/A for the year ended April 3, 1999 and its Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999, incorporated herein by
reference, and with the financial statements and notes thereto of Vantis
included elsewhere in this Form 8-K/A. These pro forma statements are based
on such consolidated financial statements after giving effect to the
transaction under the purchase method of accounting and the assumptions and
adjustments described below. The pro forma information does not purport to be
indicative of the results which would have been reported if the purchase had
been in effect for the periods presented or which may result in the future.
Note 2. Pro Forma Adjustments
The pro forma adjustments are based on a preliminary allocation of the
purchase price to the assets acquired and liabilities assumed. This
allocation is subject to refinement and change over the next year. The
allocation of the purchase price is based on an independent appraisal of
certain assets as well as management estimates of fair value. It also
reflects the results of an integration plan, which includes elimination of
duplicative facilities, elimination of duplicative sales representatives and
distributors, employee separations resulting from changes in
responsibilities, employee relocation and other integration actions. The
accruals recorded related to the integration of Vantis operations are in
accordance with Emerging Issue Task Force No. 95-3 "Recognition of
Liabilities in Connection with a Purchase Business Combination."
This Current Report on Form 8-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 and other risks detailed in our Annual
Report on Form 10-K/A for the year ended April 3, 1999 and our Quarterly
Reports on Form 10-Q for the quarter ended July 3, 1999 and other reports
filed with the Securities Exchange Commission from time to time. Actual
results could differ materially from those projected in these forward-looking
statements as a result of the risks described above as well as other risk
factors set forth in our periodic reports both previously and hereafter filed
with the Securities Exchange Commission.
46
<PAGE>
(A) To reflect the allocation of purchase price to net assets acquired and
liabilities assumed. The purchase price was allocated as follows:
Acquisition of Vantis.
We completed the acquisition of all of the outstanding capital stock of
Vantis from AMD on June 15, 1999. We paid approximately $500.1 million in
cash for all of the outstanding capital stock of Vantis. Additionally, we
paid approximately $10.8 million in estimated direct acquisition costs, we
accrued an additional $5.4 million of pre-acquisition contingencies, we
accrued $8.3 million in exit costs and recorded normal accruals of $34.5
million related to the Vantis business. The cash adjustment in the pro forma
condensed consolidated Balance Sheet is cash paid to the seller and estimated
direct acquisition costs. This purchase was financed using a combination of
cash reserves and a new credit facility bearing interest at adjustable rates
(Note C.) In addition, we assumed all of the options outstanding under Vantis
employee stock plans with a calculated Black-Scholes value of approximately
$24.0 million. The total purchase price of Vantis was $583.1 million. The
purchase price was allocated to the estimated fair value of assets acquired
and liabilities assumed based on an independent appraisal and management
estimates. The purchase price and the related allocation are subject to
further refinement and change over the next year. The total purchase price
was allocated as follows (in millions):
<TABLE>
<S> <C>
Current technology $210.3
Excess of purchase price over net assets assumed 158.8
In-process research and development 89.0
Fair value of other tangible net assets 61.3
Assembled workforce, customer list, patents and trademarks 53.5
Fair value of property, plant and equipment 10.2
------
Total $583.1
------
------
</TABLE>
Vantis Integration
We have taken certain actions to integrate the Vantis operations and, in
certain instances, to consolidate duplicative operations. Accrued exit costs
related to Vantis were recorded as an adjustment to the fair value of net
assets in the purchase price allocation. Accrued exit costs include $4.2
million related to Vantis office closures, $2.5 million related to
integration costs for Vantis employees and $1.6 million in other exit costs
primarily relating to the termination of Vantis foreign distributors. These
accruals are based upon our current estimates and are in accordance with
Emerging Issue Task Force ("EITF") No. 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination". There was no activity
against these exit costs for the period June 16, 1999 to July 3, 1999.
47
<PAGE>
In-Process Research and Development
The value assigned to IPR&D was determined by identifying individual research
projects for which technological feasibility had not been established. These
include semiconductor projects with a value after application of the SEC's
IPR&D valuation methodology of $77.2 million and a process technology
project with a value of $11.8 million.
Useful lives of intangible assets
The estimated weighted average useful life of the intangible assets for
current technology, assembled workforce, customer lists, trademarks, patents
and residual goodwill, created as a result of the acquisition, is
approximately five years.
(B) Adjustment to eliminate Vantis deferred income, and deferred and current
income taxes, and to adjust inventory and property, plant and equipment to
fair value.
(C) Adjustment to record the current ($25 million) and long-term ($195
million) portion of the term loan and the $33 million revolving line of
credit entered into on June 15, 1999 on the unaudited pro forma condensed
consolidated balance sheet as of April 3, 1999. The term loan bears interest
at adjustable rates and an increase or decrease in the interest rate by 1/4%
would have an insignificant effect to the unaudited pro forma condensed
consolidated statements of operations presented. The unaudited pro forma
condensed consolidated statements of operations include an adjustment to
record interest expense for the periods presented related to the incremental
borrowing entered into by Lattice to finance the Vantis acquisition using an
assumed rate of 7%. Amortization of capitalized debt issuance costs are
$984,000 for the period presented. Costs and expenses related to the issuance
of this debt totalled approximately $3 million and are capitalized and
amortized over the life of the loan using the interest method.
(D) Adjustment to reflect the reversal of interest income on the pro forma
adjustment to cash resulting from the acquisition. The assumed rate of
return on the cash balance was approximately 3.5% which is based upon the
estimated rate of return on short-term investments for Lattice.
(E) Adjustment to reflect the tax effect of the pro forma adjustments at the
combined rate of Lattice and Vantis during the period presented.
(F) Adjustment to eliminate Vantis stockholder's equity previously recorded
and to reflect in-process research and development charge.
48
<PAGE>
(G) Adjustment to stockholders' equity to record the Black-Scholes value of the
Vantis stock options converted to Lattice stock options as a result of the
transaction. Assumptions used in the Black-Scholes calculations are:
volatility - 43.9%; risk free interest rate - 4.7%; expected option life
from vesting date - 1.3 years; unvested option forfeiture rate - 27%.
Note 3. Pro Forma Earnings (Loss) Per Share
Basic pro forma earnings (loss) per share was calculated based on shares of
Lattice's Common Stock outstanding at April 3, 1999. Diluted earnings per
share are the same as basic shares outstanding because including common stock
equivalents would be anti-dilutive.
(A) Exhibits.
23.1 Consent of Ernst and Young LLP, Independent Auditors
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 hereunto duly authorized.
LATTICE SEMICONDUCTOR CORPORATION
Date: August 20, 1999 By: /s/ Stephen Skaggs
---------------------------------
Name: STEPHEN A. SKAGGS
Title: Chief Financial Officer
49
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-33933, 33-35259, 33-38521, 33-76358, 33-51232,
33-69496, 333-15737, 333-40031, 333-69467, and 333-81035) and the
Registration Statements on Form S-3 (Nos. 33-57512, 333-15741, and 333-40043)
of Lattice Semiconductor Corporation and in the related prospectuses of our
report dated February 8, 1999, with respect to the consolidated financial
statements of Vantis Corporation included in the Form 8-K/A of Lattice
Semiconductor Corporation dated June 15, 1999.
/s/ Ernst & Young LLP
San Jose, California
August 18, 1999
50
