FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1BACKGROUND AND BASIS OF PRESENTATION
Background
Fairchild Semiconductor International, Inc. (Fairchild International or the
company) designs, develops and markets power analog, power discrete and certain non-power semiconductor solutions through its wholly-owned subsidiary Fairchild Semiconductor Corporation (Fairchild). The company is focused
primarily on power analog and discrete products used directly in power applications such as voltage conversion, power regulation, power distribution, and power and battery management. The companys products are building block components for
virtually all electronic devices, from sophisticated computers and internet hardware to telecommunications equipment to household appliances. Because of their basic functionality, these products provide customers with greater design flexibility and
improve the performance of more complex devices or systems. Given such characteristics, the companys products have a wide range of applications and are sold to customers in the personal computer, industrial, communications, consumer
electronics and automotive markets.
The company is headquartered in South Portland, Maine and has manufacturing operations in South
Portland, Maine, West Jordan, Utah, Mountaintop, Pennsylvania, Cebu, the Philippines, Penang, Malaysia, Singapore, Bucheon, South Korea, and Suzhou, China. The company sells its products to customers worldwide.
The accompanying financial statements of the company have been prepared in conformity with accounting principles generally accepted in the United States
of America. Certain amounts for prior periods have been reclassified to conform to current presentation.
NOTE 2SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Fiscal Year
The companys fiscal year ends on the last Sunday in December. The companys results for the years ended December 30, 2007 and December 25, 2005 consists of 52 weeks, while results for the year ended December 31,
2006 consist of 53 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts and operations of the company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenue is not recognized
unless there is persuasive evidence of an arrangement, the price to the buyer is fixed or determinable, delivery has occurred and collectibility of the sales price is reasonably assured. Revenue from the sale of semiconductor products is recognized
when title and risk of loss transfers to the customer, which is generally when the product is received by the customer. Shipping costs billed to customers are included within revenue. Associated costs are classified in cost of goods sold.
Approximately 66% of the companys revenues are received from distributors. Distributor payments are due under agreed terms and are
not contingent upon resale or any other matter other than the passage of time. The company has agreements with some distributors and customers for various programs, including prompt payment discounts, pricing protection, scrap allowances and stock
rotation. Sales to these distributors and customers, as well as the existence of sales incentive programs, are in accordance with terms set forth in written agreements with these distributors and customers. In general, credits allowed under these
programs are capped based upon
61
individual distributor agreements. The company records charges associated with these programs as a reduction of revenue based upon historical activity. The
companys policy is to use a three to six month rolling historical experience rate in order to estimate the necessary allowance to be recorded. In addition, under our standard terms and conditions of sale, the products sold by the company are
subject to a limited product quality warranty. The standard limited warranty period is one year. The company may, and often does, receive warranty claims outside the scope of our standard terms and conditions. The company accrues for the estimated
cost of incurred but unidentified quality issues based upon historical activity and known quality issues if a loss is probable and can be reasonably estimated. Quality returns are accounted for as a reduction of revenue.
In some cases, title and risk of loss do not pass to the customer when the product is received by them. In these cases, the company recognizes revenue at
the time when title and risk of loss is transferred, assuming all other revenue recognition criteria have been satisfied. These cases include several inventory locations where we manage consigned inventory for our customers, some of which inventory
is at customer facilities. In such cases, revenue is not recognized when products are received at these locations; rather, revenue is recognized when customers take the inventory from the location for their use.
Advertising
Advertising expenditures are
charged to expense as incurred. Advertising expenses for the years ended December 30, 2007, December 31, 2006 and December 25, 2005 were not material to the consolidated financial statements.
Research and Development Costs
The
companys research and development expenditures are charged to expense as incurred.
Cash, Cash Equivalents and Marketable Securities
The company invests excess cash in marketable securities consisting primarily of commercial paper, corporate notes and bonds,
U.S. Government securities, and auction rate securities.
The company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Highly liquid investments with maturities greater than three months are classified as short-term marketable securities. All other investments with maturities that exceed one year are classified
as long-term marketable securities, except for auction rate securities which were classified as short-term marketable securities as of December 31, 2006. In the third quarter of 2007, the company experienced failures on the auction rate
securities it held related to disruptions in the credit market, where there were more sellers than buyers of the auction rate securities. If an auction fails, the companys investments will not be liquid until the auction is successfully reset
or is called by the issuer. As a result, at December 30, 2007 auction rate securities have been reclassified as long term marketable securities. At December 30, 2007 and December 31, 2006, all of the companys marketable
securities are classified as available-for-sale. In accordance with Statement of Financial Accounting Standards (SFAS) 115,
Accounting for Certain Investments in Debt and Equity Securities
, available-for-sale securities are carried at
fair value with unrealized gains and losses included as a component of other comprehensive income within stockholders equity, net of any related tax effect. Realized gains and losses and declines in value judged by management to be other than
temporary on these investments are included in other income and expense. For the purpose of computing realized gains and losses, cost is identified on a specific identification basis.
62
Cash, cash equivalents and marketable securities as of December 30, 2007 and December 31, 2006
are as follows:
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
|
(In millions)
|
Cash and cash equivalents
|
|
$
|
409.0
|
|
$
|
525.2
|
Short-term marketable securities
|
|
|
2.1
|
|
|
59.1
|
Long-term marketable securities
|
|
|
51.0
|
|
|
2.1
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
462.1
|
|
$
|
586.4
|
|
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of actual cost on a first-in, first-out basis, or market.
Property, Plant and
Equipment
Property, plant and equipment are recorded at cost and are generally depreciated based upon the following estimated
useful lives: buildings and improvements, ten to thirty years, and machinery and equipment, three to ten years. Depreciation is principally provided under the straight-line method. Software is depreciated over estimated useful lives ranging from
three to ten years. During the third quarter of 2005, the company completed an analysis of the useful life assumptions on certain factory machinery and equipment. As a result, the estimated useful life assumptions for certain machinery and equipment
were adjusted effective for the third quarter to better align depreciation expense to the actual historical useful lives. As a result, the company had a reduction in depreciation expense of approximately $30.0 million in 2005, which was offset by
approximately $18.3 million of cost of sales of inventory manufactured under previous depreciation costs. This resulted in a net favorable impact to net income (loss) of approximately $11.7 million during 2005, or approximately $0.10 per share.
Investments
The company has
certain strategic investments that are typically accounted for on a cost basis as they are less than 20% owned, and the company does not exercise significant influence over the operating and financial policies of the investee. Under the cost method,
investments are held at historical cost, less impairments. The company periodically assesses the need to record impairment losses on investments and records such losses when the impairment of an investment is determined to be other than temporary in
nature. A variety of factors is considered when determining if a decline in fair value below book value is other than temporary, including, among others, the financial condition and prospects of the investee. In 2005, the company recorded a $1.1
million charge to other expense for the partial write-down of a strategic investment.
During the third quarter of 2005, one of the
companys strategic investments completed its initial public offering. This investment was classified as available-for sale and was carried at fair market value with unrealized gains and losses included as a component of other comprehensive
income within stockholders equity, net of any related tax effect. The fair value based on the ending stock price as of December 25, 2005 was $5.4 million, which was included in other current assets on the balance sheet. The investment was
sold in the third quarter of 2006 and as a result, the company recognized a $0.6 million gain on the sale.
The total cost basis for
strategic investments, which are included in other assets on the balance sheet, as of December 30, 2007 and December 31, 2006 are $4.5 million, net of write-offs.
63
Other Assets
Other assets include deferred financing costs, which represent costs incurred related to the issuance of the companys long-term debt. The costs are being amortized using the straight-line method, which
approximates the effective interest method, over the related term of the borrowings, which ranges from five to ten years, and are included in interest expense. Also included in other assets are mold and tooling costs. Molds and tools are amortized
over their expected useful lives, generally one to three years.
Goodwill and Intangible Assets
Goodwill is recorded when the consideration paid for acquisitions exceeds the fair value of net tangible and intangible assets acquired. Goodwill and
other intangible assets with indefinite useful lives are not amortized, but rather are tested at least annually for impairment. Intangible assets with estimable lives are amortized over one to fifteen years.
Goodwill and intangible assets with indefinite lives are tested annually for impairment or more frequently if there is an indication that an impairment
may have occurred. The companys impairment review is based on a discounted cash flow approach at the reporting unit level that requires significant management judgment with respect to revenue and expense growth rates, changes in working
capital and the selection and use of an appropriate discount rate. The company uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as unexpected adverse business conditions,
economic factors, unanticipated technological change or competitive activities, loss of key personnel and acts by governments and courts, may signal that an asset has become impaired. See Item 8, Note 5 for the results of testing performed
related to goodwill during 2007.
Intangible assets with estimable lives and other long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
Recoverability of
intangible assets with estimable lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If
these comparisons indicate that an asset or asset group is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based
on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset or asset group. The company determines the discount rate for this analysis based on the expected internal rate of return for the
related business and does not allocate interest charges to the asset or asset group being measured. Considerable judgment is required to estimate discounted future operating cash flows.
Currencies
The companys functional currency for all operations worldwide is the
U.S. dollar. Accordingly, gains and losses from translation of foreign currency financial statements are included in current results. In addition, cash conversion of foreign currency and foreign currency transactions are included in current
results. Realized foreign currency gains (losses) related to the translation and cash conversion of foreign currencies were $0.2 million, $(2.1) million, and $(3.6) million for the years ended December 30, 2007, December 31,
2006 and December 25, 2005, respectively.
Foreign Currency Hedging
The company utilizes various derivative financial instruments to manage market risks associated with the fluctuations in foreign currency exchange rates.
It is the companys policy to use derivative financial instruments to protect against market risk arising from the normal course of business. The criteria the company uses for
64
designating an instrument as a hedge is the instruments effectiveness in risk reduction. To receive hedge accounting treatment, hedges must be highly
effective at offsetting the impact of the hedged transaction.
All derivatives, whether designated as hedging relationships or not, are
recorded at fair value and are included in either other current assets or other current liabilities on the balance sheet. The company utilizes cash flow hedges to hedge certain foreign currency forecasted revenue and expense streams. For derivatives
designated as cash flow hedges, the effective portions of changes in fair value of the derivative are recorded in other comprehensive income (OCI) and are recognized in the income statement when the hedged item affects earnings, and within the
same income statement line as the impact of the hedged transaction. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. Effectiveness is assessed at the hedges inception and on an ongoing quarterly
basis. If the hedge fails to meet the requirements for using hedge accounting treatment or the hedged transaction is no longer likely to occur by the end of the originally specified time period or within an additional two-month period of time
thereafter, the changes in fair value of the hedge would be included in earnings. The maturities of the cash flow hedges are twelve months or less. For derivative instruments that are not designated as hedged transactions, the initial fair value, if
any, and any subsequent gains or losses on the change in the fair value are reported in earnings within the same income statement line as the impact of the hedged transactions.
Interest Rate Hedging
Effective December 29, 2006, the company entered into an interest
rate swap agreement to hedge interest rate exposure for $150 million notional amount of its floating rate debt. The swap will effectively fix the interest rate for the $150 million portion of the term loan at 4.99% for three years. This hedge of
interest rate risk was designated and documented at inception as a cash flow hedge and will be evaluated for effectiveness quarterly. Effectiveness of this hedge is calculated by comparing the fair value of the derivative to a hypothetical
derivative that would be a perfect hedge of floating rate debt. On a quarterly basis, the fair value of the swap is determined based on quoted market prices and, assuming effectiveness, the differences between the fair value and the book value of
the swap is recognized in OCI, a component of shareholders equity. Any ineffectiveness of the swap is required to be recognized in earnings as a component of interest expense.
Concentration of Credit Risk
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of investments and trade accounts receivable. The company maintains cash, cash equivalents and marketable securities with high credit quality financial institutions based upon the companys
analysis of that financial institutions relative credit standing. The company sells its products to distributors and original equipment manufacturers involved in a variety of industries including computing, consumer, communications, automotive
and industrial. The company has adopted credit policies and standards to accommodate industry growth and inherent risk. The company performs continuing credit evaluations of its customers financial condition and requires collateral as deemed
necessary. Reserves are provided for estimated amounts of accounts receivable that may not be collected.
The company also is exposed to
credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate
the companys exposure to credit risk with these institutions. This credit risk is generally limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. The company considers the risk of
counterparty default to be minimal.
65
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and payable, and accrued liabilities approximate fair value due to the short-term
maturities of these assets and liabilities. Fair values of long term debt, currency options, and interest rate swaps are based on quoted market prices at the date of measurement. The fair value of marketable securities are based on quoted market
prices at the date of measurement, except for auction rate securities. The fair value of auction rate securities are based on market prices provided by our brokers who apply standard business valuation methodologies to calculate the present value of
the securities on an individual basis (see Note 3 & 15.)
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The realizability of deferred tax
assets must also be assessed. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. A valuation allowance must be
established for deferred tax assets which we do not believe will more likely than not be realized in the future. Deferred taxes are not provided for the undistributed earnings of the companys foreign subsidiaries that are considered to be
indefinitely reinvested outside of the U.S. in accordance with Accounting Principles Board (APB) Opinion 23,
Accounting for Income TaxesSpecial Areas.
The company plans to repatriate certain non-U.S. earnings which have been
taxed in the U.S. but earned offshore as well as any non-U.S. earnings in which APB Opinion 23 has not been elected.
In June 2006, the
Financial Accounting Standards Board (FASB) issued Interpretation (FIN) 48,
Accounting for Uncertainty in Income Taxes
. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in
accordance with SFAS 109,
Accounting for Income Taxes
. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. This statement also provides guidance on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. The company adopted FIN 48 on January 1, 2007. Penalties and interest
relating to uncertain tax positions are recognized as a component of income tax expense. To the extent penalties and interest are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of
the overall income tax provision.
Stock-Based Compensation
On December 26, 2005 (first day of fiscal 2006), the company adopted SFAS 123 (revised 2004),
Share-Based Payment
, using the modified prospective application method. SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. The fair value of deferred stock units (DSUs), restricted stock units (RSUs) and performance
units (PUs) is calculated based upon the fair market value of the companys stock at the date of grant. The fair value of stock options and ESPP awards is estimated using the Black-Scholes valuation
66
model. This model requires the input of highly subjective assumptions, including the expected volatility of our stock price and the expected life of the
award. The assumptions used to value stock-based compensation awards can significantly impact the amount of stock-based compensation expense recognized over the requisite service period, typically the vesting period.
The fair value of stock-based awards is amortized over the requisite service period, which is defined as the period during which an employee is required
to provide service in exchange for an award. Prior to the adoption of SFAS 123(R), we used the expense recognition method in FIN 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans
, to recognize
expense. The company switched to a straight-line attribution method on December 26, 2005 for all grants that include only a service condition. Due to the performance criteria, PUs are expensed over the service period for each separately vesting
tranche. The expense associated with the unvested portion of the pre-adoption grants will continue to be expensed over the service period for each separately vesting tranche.
Computation of Net Income (Loss) Per Share
Basic net income (loss) per share is computed
using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of potential
future issuances of common stock relating to stock options and other potentially dilutive securities. Potentially dilutive common equivalent securities consist of stock options, shares represented by outstanding PUs, DSUs, RSUs and shares obtainable
upon the conversion of the 5% Convertible Senior Subordinated Notes, due November 1, 2008. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period.
Potential shares related to certain of the companys outstanding stock options were excluded because they were anti-dilutive, but could be dilutive in the future. The following table sets forth the computation of basic and diluted earnings per
share.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
December 25,
2005
|
|
|
|
(In millions, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
64.0
|
|
$
|
83.4
|
|
$
|
(241.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
124.1
|
|
|
122.2
|
|
|
120.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.52
|
|
$
|
0.68
|
|
$
|
(2.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
64.0
|
|
$
|
83.4
|
|
$
|
(241.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
124.1
|
|
|
122.2
|
|
|
120.2
|
|
Assumed exercise of common stock equivalents
|
|
|
2.2
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common and common equivalent shares
|
|
|
126.3
|
|
|
124.4
|
|
|
120.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.51
|
|
$
|
0.67
|
|
$
|
(2.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents, non-vested stock,
DSUs, RSUs, and PUs
|
|
|
14.5
|
|
|
16.7
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the computation of diluted earnings per share did not include the assumed conversion
of the 5% Convertible Senior Subordinated Notes because the effect would have been anti-dilutive. As a result, $11.0 million of interest expense was not added back to the numerator for 2007, 2006 and 2005. Potential common shares of 6.7 million
were not included in the denominator for all periods presented.
67
NOTE 3MARKETABLE SECURITIES
Marketable securities are categorized as available-for-sale and are summarized as follows as of December 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Market
Value
|
|
|
(In millions)
|
Short term available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
|
$
|
0.2
|
|
$
|
|
|
$
|
|
|
$
|
0.2
|
Corporate debt securities
|
|
|
1.9
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
2.1
|
|
$
|
|
|
$
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
|
Market
Value
|
|
|
(In millions)
|
Long term available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
|
$
|
1.9
|
|
$
|
0.2
|
|
$
|
|
|
|
$
|
2.1
|
Corporate debt securities
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
0.1
|
Auction rate securities
|
|
|
51.3
|
|
|
|
|
|
(2.5
|
)
|
|
|
48.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
53.3
|
|
$
|
0.2
|
|
$
|
(2.5
|
)
|
|
$
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities are categorized as available-for-sale and are summarized as follows as of
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Market
Value
|
|
|
(In millions)
|
Short term available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
|
$
|
0.2
|
|
$
|
|
|
$
|
|
|
$
|
0.2
|
Auction rate securities
|
|
|
58.9
|
|
|
|
|
|
|
|
|
58.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
59.1
|
|
$
|
|
|
$
|
|
|
$
|
59.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Market
Value
|
|
|
(In millions)
|
Long term available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
|
$
|
2.1
|
|
$
|
|
|
$
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
2.1
|
|
$
|
|
|
$
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of available-for-sale securities by contractual
maturity at December 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Market
Value
|
|
|
(In millions)
|
Due in one year or less
|
|
$
|
2.1
|
|
$
|
2.1
|
Due after one year through three years
|
|
|
0.3
|
|
|
0.3
|
Due after three years through ten years
|
|
|
1.2
|
|
|
1.3
|
Due after ten years
|
|
|
51.8
|
|
|
49.4
|
|
|
|
|
|
|
|
|
|
$
|
55.4
|
|
$
|
53.1
|
|
|
|
|
|
|
|
68
As of December 30, 2007, $51.3 million of securities with contractual maturities due after ten years
are auction rate securities. In the third quarter of 2007, the company experienced failures on the auction rate securities it held related to disruptions in the credit market, as there were more sellers than buyers of our auction rate securities. If
an auction fails, our investments will not be liquid until the auction is successfully reset or is called by the issuer, and therefore a failure could impair our liquidity needs. As a result, at December 30, 2007 auction rate securities have
been reclassified as long term marketable securities and in accordance with SFAS 115 unrealized losses of $2.5 million relating to these securities have been recorded in other comprehensive income.
Proceeds from sales of available-for-sale securities totaled $172.7 million in 2007, $249.3 million in 2006, and $899.5 million in 2005. The
proceeds are primarily composed of sales of auction rate securities. In 2006 and 2005, realized losses of $0.3 million and $0.2 million, respectively, were recognized.
Unrealized losses on the companys investments in marketable securities in 2007 were primarily caused by reset failures experienced on auction rate
securities as discussed above. The company has the ability and intent to hold these investments until there is a full recovery of the fair value, which may be maturity. Due to the short length of time and the extent to which the current market
conditions have existed the company currently believes that it will be able to collect all of the amounts due on the securities held by the company. As a result, the company does not consider these investments to be other than temporarily impaired
at December 30, 2007.
All investments in an unrealized loss position at December 30, 2007 have been in an unrealized loss
position for less than twelve months. There were no investments in an unrealized loss position in 2006.
NOTE 4FINANCIAL STATEMENT DETAILS
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
|
(In millions)
|
Inventories
|
|
|
|
|
|
|
Raw materials
|
|
$
|
34.6
|
|
$
|
31.3
|
Work in process
|
|
|
131.5
|
|
|
130.5
|
Finished goods
|
|
|
77.4
|
|
|
77.1
|
|
|
|
|
|
|
|
|
|
$
|
243.5
|
|
$
|
238.9
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
|
(In millions)
|
Property, plant and equipment
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
24.7
|
|
$
|
26.5
|
Buildings and improvements
|
|
|
319.0
|
|
|
312.8
|
Machinery and equipment
|
|
|
1,465.8
|
|
|
1,397.3
|
Construction in progress
|
|
|
68.3
|
|
|
59.0
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
1,877.8
|
|
|
1,795.6
|
Less accumulated depreciation
|
|
|
1,201.8
|
|
|
1,149.2
|
|
|
|
|
|
|
|
|
|
$
|
676.0
|
|
$
|
646.4
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
|
(In millions)
|
Accrued expenses and other current liabilities
|
|
|
|
|
|
|
Payroll and employee related accruals
|
|
$
|
47.6
|
|
$
|
93.7
|
Accrued interest
|
|
|
8.4
|
|
|
1.9
|
Income taxes payable
|
|
|
11.2
|
|
|
25.5
|
Restructuring
|
|
|
3.2
|
|
|
1.0
|
Reserve for potential litigation outcomes
|
|
|
1.0
|
|
|
14.0
|
Other
|
|
|
39.1
|
|
|
33.4
|
|
|
|
|
|
|
|
|
|
$
|
110.5
|
|
$
|
169.5
|
|
|
|
|
|
|
|
NOTE 5GOODWILL AND INTANGIBLE ASSETS
In order to complete the two-step goodwill impairment tests as required by SFAS 142,
Goodwill and Other Intangible Assets,
the company
identifies its reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. In accordance with the provisions of
SFAS 142, the company designates reporting units for purposes of assessing goodwill impairment. The standard defines a reporting unit as the lowest level of an entity that is a business and that can be distinguished, physically and operationally and
for internal reporting purposes, from the other activities, operations, and assets of the entity. Goodwill is assigned to reporting units of the company that are expected to benefit from the synergies of the acquisition. Based on the provisions of
the standard, the company has determined that it has three reporting units for purposes of goodwill impairment testing: Analog Products, Functional Power and Standard Products.
The companys valuation methodology requires management to make judgments and assumptions based on historical experience and projections of future
operating performance. If these assumptions differ materially from future results, the company may record impairment charges in the future. Additionally, the companys policy is to perform its annual impairment testing for all reporting units
in the fourth quarter of each fiscal year. The company performed its annual impairment test as of December 30, 2007 and concluded goodwill was not impaired.
The following table presents a summary of acquired intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period of
Amortization
|
|
As of December 30, 2007
|
|
|
As of December 31, 2006
|
|
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
|
(In millions)
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
2-15 years
|
|
$
|
237.6
|
|
$
|
(143.2
|
)
|
|
$
|
225.6
|
|
$
|
(124.8
|
)
|
Customer base
|
|
8-10 years
|
|
|
81.6
|
|
|
(58.1
|
)
|
|
|
55.8
|
|
|
(54.1
|
)
|
Core technology
|
|
10 years
|
|
|
3.9
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
Covenant not to compete
|
|
5 years
|
|
|
30.4
|
|
|
(30.4
|
)
|
|
|
30.4
|
|
|
(30.4
|
)
|
Assembled workforce
|
|
5 years
|
|
|
1.0
|
|
|
(0.3
|
)
|
|
|
1.0
|
|
|
(0.1
|
)
|
Process technology
|
|
5 years
|
|
|
1.6
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
Patents
|
|
4 years
|
|
|
5.4
|
|
|
(5.3
|
)
|
|
|
5.4
|
|
|
(5.2
|
)
|
Trademarks and tradenames
|
|
1 year
|
|
|
25.2
|
|
|
(25.1
|
)
|
|
|
24.9
|
|
|
(24.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
386.7
|
|
|
(263.0
|
)
|
|
|
343.1
|
|
|
(239.5
|
)
|
Goodwill
|
|
|
|
|
353.2
|
|
|
|
|
|
|
229.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
739.9
|
|
$
|
(263.0
|
)
|
|
$
|
573.0
|
|
$
|
(239.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
Amortization expense for intangible assets, excluding goodwill, was $23.5 million, $23.5 million and
$23.9 million for 2007, 2006 and 2005, respectively.
During 2007, the change to the carrying amount of goodwill was due to the acquisition
of System General Corporation (System General), the total of which was assigned to the Analog Products group (see Item 8, Note 17 for further information).
The company assesses the impairment of long-lived assets on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During the third quarter of 2005,
we determined that certain products acquired no longer fit the overall strategy of our business, which triggered an intangible asset impairment review. The recoverability of these assets was measured by comparing the carrying value to the future
undiscounted cash flows. The test determined that the undiscounted cash flows were less than the carrying amounts, so an impairment loss was recorded to the extent that the carrying amount exceeded the fair value. As a result, we recognized a $1.6
million impairment of developed technology during the third quarter of 2005, which was recorded in restructuring and impairments in the accompanying consolidated statement of operations.
The following table presents the carrying amount of goodwill by reporting unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog
Products
|
|
Functional
Power
|
|
Standard
Products
|
|
Total
|
|
|
(In millions)
|
Balance as of December 30, 2007
|
|
$
|
138.8
|
|
$
|
159.9
|
|
$
|
54.5
|
|
$
|
353.2
|
Balance as of December 31, 2006
|
|
$
|
15.5
|
|
$
|
159.9
|
|
$
|
54.5
|
|
$
|
229.9
|
The estimated amortization expense for intangible assets for each of the five succeeding fiscal
years is as follows:
|
|
|
|
Estimated Amortization Expense:
|
|
(In millions)
|
Fiscal 2008
|
|
$
|
22.0
|
Fiscal 2009
|
|
|
22.0
|
Fiscal 2010
|
|
|
21.9
|
Fiscal 2011
|
|
|
17.6
|
Fiscal 2012
|
|
|
15.4
|
NOTE 6LONG-TERM DEBT
Long-term debt consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
|
|
(In millions)
|
|
Term Loan
|
|
$
|
389.6
|
|
|
$
|
392.5
|
|
Convertible senior subordinated notes
|
|
|
200.0
|
|
|
|
200.0
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
589.6
|
|
|
|
592.5
|
|
Current portion of long-term debt
|
|
|
(203.7
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
385.9
|
|
|
$
|
589.7
|
|
|
|
|
|
|
|
|
|
|
71
Senior Credit Facility
On June 22, 2006, the company used $50.0 million of cash to pay down the term loan on its senior credit facility from $444.4 million to $394.4 million. Subsequently, on June 26, 2006, the company refinanced
the senior credit facility and replaced the $394.4 million term loan with a $375.0 million term loan due June 26, 2013. The $180.0 million revolving line of credit was replaced with a $100.0 million line of credit (Revolving Credit Facility)
due June 26, 2012. In addition, the new senior credit facility includes a $300.0 million uncommitted incremental term loan feature. The refinancing reduced the variable interest rate on the term loan from LIBOR (London Interbank Offered Rate)
plus 1.75% to LIBOR plus 1.50% and reduced the variable interest rate on the Revolving Credit Facility from LIBOR plus 2.25% to LIBOR plus 1.50%. Both the term loan and Revolving Credit Facility have step down features based on senior leverage
ratios. The Revolving Credit Facility is currently at LIBOR plus 1.25%. The company incurred cash charges of $1.9 million in the second quarter of 2006 related to the refinancing, of which $1.4 million was deferred.
As of December 30, 2007, $19.4 million was drawn on the Revolving Credit Facility. Borrowings under the senior credit facility are secured by a
pledge of common stock of the company and certain subsidiaries. At December 30, 2007, Fairchild had outstanding letters of credit under the Revolving Credit Facility totaling $2.1 million. These outstanding letters of credit reduce the
amount available under the Revolving Credit Facility to $78.5 million. Fairchild pays a commitment fee of 0.375% per annum on the unutilized commitments under the Revolving Credit Facility.
In January 2005, the company increased its senior credit facility to $630 million, consisting of a
term loan of $450 million replacing the previous $300 million term loan, and a $180 million revolving line of credit. In addition, the refinancing reduced the interest rate by 0.50% to a new rate approximating LIBOR plus 1.75%, which was
approximately 5.6% as of December 25, 2005. The company used the proceeds of the $150 million increase of the term loan together with approximately $216 million of existing cash, to complete the redemption of its 10
1
/
2
% Senior Subordinated Notes due 2009, which included a call premium of 5.25%, on February 13, 2005. The refinancing reduced
the companys debt by approximately $200 million, net of the term loan increase, during the quarter ended March 27, 2005.
Convertible Senior Subordinated Notes
On October 31, 2001, Fairchild issued $200 million aggregate
principal amount of 5.0% Convertible Senior Subordinated Notes (Notes) due November 1, 2008. Interest on the Notes is paid semi-annually on May 1 and November 1 of each year. The Notes are guaranteed by the company and
Fairchilds domestic subsidiaries. The Notes are unsecured obligations and convertible, at the option of the holder, into common stock of the company at a conversion price of $30.00 per share, subject to certain adjustments. The Notes and
the guarantees ranked pari passu in right of payment with Fairchilds then existing senior subordinated Notes and the guarantees thereof, and with any future senior subordinated indebtedness. The conversion option embedded in the Notes would be
classified as equity, in accordance with Emerging Issues Task Force (EITF) 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock,
if it was a stand alone financial
instrument. Therefore, the conversion option is not considered to be a derivative and does not need to be measured at fair value.
Senior
Subordinated Notes
On January 31, 2001, Fairchild issued
$350.0 million of 10
1
/
2
% Senior Subordinated Notes due February 1, 2009 (10
1
/
2
% Notes) at face value. On January 13, 2005, the company gave notice to redeem the $350.0 million of the 10
1
/
2
% Notes, therefore as of December 31, 2006 and December 25, 2005 there were no outstanding 10
1
/
2
% Notes. The company incurred a cash charge of approximately $19.6 million in the first quarter of 2005 for the call premium and
accrued and unpaid interest through the date of redemption. The company also incurred
72
a non-cash charge of approximately $5.4 million for the write-off of deferred financing fees associated with the redeemed 10
1
/
2
% Notes.
The payment of principal and
interest on the senior credit facility and the Notes is fully and unconditionally guaranteed by Fairchild International. Fairchild International is the parent company of Fairchild and currently conducts no business and has no significant assets
other than the capital stock of Fairchild. Fairchild has twenty direct subsidiaries and fifteen indirect subsidiaries, of which six subsidiaries, Fairchild Semiconductor Corporation of California (Fairchild California), KOTA
Microcircuits, Inc., QT Optoelectronics, Inc., QT Optoelectronics, Fairchild Energy, LLC and ROCTOV, LLC are guarantors on the senior credit facility and the Notes. The guarantees of the guarantor subsidiaries as well as that of Fairchild
International are joint and several. The remaining direct and indirect subsidiaries are foreign-based and do not guarantee either the senior credit facility or the Notes.
The companys senior credit facility and the indentures under which the Notes were issued contain various restrictions and covenants including limitations on consolidations, mergers and acquisitions, creating
liens, paying dividends or making other similar restricted payments, asset sales, capital expenditures, incurring indebtedness and the ability of the companys subsidiaries to pay dividends or make advances to the company. The covenants in the
senior credit facility also include financial measures such as a minimum interest coverage ratio, a maximum net leverage ratio and a minimum EBITDA (earnings before interest, taxes, depreciation and amortization) less capital expenditures measure.
At December 30, 2007, the company was in compliance with these covenants. The senior credit facility also limits the companys ability to modify its certificate of incorporation and bylaws, or enter into shareholder agreements, voting
trusts or similar arrangements.
Aggregate maturities of long-term debt for each of the next five years and thereafter are as follows:
|
|
|
|
|
|
(In millions)
|
2008*
|
|
$
|
203.7
|
2009
|
|
|
3.8
|
2010
|
|
|
3.8
|
2011
|
|
|
3.8
|
2012
|
|
|
23.1
|
Thereafter
|
|
|
351.4
|
|
|
|
|
|
|
$
|
589.6
|
|
|
|
|
*
|
Includes the $200.0 million Convertible Senior Subordinated Notes.
|
At December 30, 2007, the company also has approximately $15.5 million of undrawn credit facilities at certain of its foreign subsidiaries.
NOTE 7INCOME TAXES
Total income tax provision was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30,
2007
|
|
December 31,
2006
|
|
December 25,
2005
|
|
|
(In millions)
|
Income tax provision attributable to income (loss) before income taxes
|
|
$
|
18.1
|
|
$
|
15.4
|
|
$
|
204.7
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18.1
|
|
$
|
15.4
|
|
$
|
206.2
|
|
|
|
|
|
|
|
|
|
|
73
Income tax provision attributable to income (loss) before income taxes for the years ended
December 30, 2007, December 31, 2006 and December 25, 2005 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
December 25,
2005
|
|
|
|
(In millions)
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
76.8
|
|
$
|
28.2
|
|
$
|
(113.7
|
)
|
Foreign
|
|
|
5.3
|
|
|
70.6
|
|
|
77.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82.1
|
|
$
|
98.8
|
|
$
|
(36.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
|
December 25,
2005
|
|
|
(In millions)
|
Income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12.0
|
U.S. state and local
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
1.0
|
Foreign
|
|
|
20.4
|
|
|
|
17.6
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.1
|
|
|
|
17.6
|
|
|
|
21.0
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
3.5
|
|
|
|
3.5
|
|
|
|
159.9
|
U.S. state and local
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
20.5
|
Foreign
|
|
|
(5.8
|
)
|
|
|
(6.0
|
)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(2.2
|
)
|
|
|
183.7
|
Total income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
3.5
|
|
|
|
3.5
|
|
|
|
171.9
|
U.S. state and local
|
|
|
|
|
|
|
0.3
|
|
|
|
21.5
|
Foreign
|
|
|
14.6
|
|
|
|
11.6
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18.1
|
|
|
$
|
15.4
|
|
|
$
|
204.7
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the income tax rate computed by applying the U.S. federal
statutory rate and the reported worldwide effective tax rate on net income (loss) before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
|
December 25,
2005
|
|
U.S. federal statutory rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
U.S. state and local taxes, net of federal benefit
|
|
3.7
|
|
|
1.9
|
|
|
(5.5
|
)
|
Foreign tax rate differential
|
|
18.0
|
|
|
(5.6
|
)
|
|
8.2
|
|
Tax credits
|
|
(1.0
|
)
|
|
|
|
|
1.3
|
|
AJCA dividend income
|
|
|
|
|
|
|
|
(35.6
|
)
|
Non-deductible expenses
|
|
0.9
|
|
|
3.9
|
|
|
|
|
Change in valuation allowance
|
|
(34.6
|
)
|
|
(19.6
|
)
|
|
(564.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
22.0
|
%
|
|
15.6
|
%
|
|
(561.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
74
In conjunction with the acquisition of the power device business in 1999, the Korean government granted a
ten-year tax holiday to Fairchild Korea Semiconductor Ltd. The original exemption was 100% for the first seven years of the holiday and 50% for the remaining three years of the holiday. In 2000, the tax holiday was extended such that the exemption
amounts were increased to 78% in the eighth year and a 28% exemption was added to the eleventh year. The first year of the tax holiday in which Fairchild Korea Semiconductor Ltd. started providing for taxes was 2006. The following schedules the tax
rates for the remaining years of the Korean tax holiday: 200713.75%, 200813.75%, and 200919.91%. Taxes exempted include income taxes, dividend withholding taxes, acquisition tax, registration tax, property tax and aggregate land
tax.
As one of the incentives for locating in the Suzhou Industrial Park, the Chinese government granted a ten year preferential income
tax holiday to Fairchild Semiconductor (Suzhou) Co., Ltd. The holiday provides 100% exemption for the first five years of the holiday and 7.5% reduced rate from years six to ten commencing in the first year in which Fairchild Semiconductor (Suzhou)
Co. Ltd. is profitable. In 2005, no provision for income taxes for Fairchild Semiconductor (Suzhou) Co., Ltd. was provided. In 2006 and 2007, a current provision for income taxes was provided for at the 7.5% rate. Although the unified enterprise
income tax law passed in March 2007, changing the Chinese statutory rate to 25% effective 2008, the new law grandfathered enterprises currently enjoying tax incentives for a maximum period of five years. Fairchild Semiconductor (Suzhou) Co., Ltd.,
will continue to enjoy its tax incentives with a gradual transitioning over the next five years to the enacted statutory rate of 25%.
The
tax holidays increased net income by $5.4 million, or $0.04 per basic and diluted common share for the year ended December 30, 2007, increased net income by $6.6 million, or $0.05 per basic and diluted common share for the
year ended December 31, 2006 and decreased net loss by $9.5 million, or $0.08 per basic and diluted common share for the year ended December 25, 2005.
The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes that give rise to significant portions of the deferred tax assets and the deferred tax
liabilities at December 30, 2007 and December 31, 2006 are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
|
|
(In millions)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
55.0
|
|
|
$
|
72.9
|
|
Reserves and accruals
|
|
|
42.2
|
|
|
|
44.3
|
|
Capitalized research expenses and intangibles
|
|
|
27.9
|
|
|
|
43.6
|
|
Tax credit and capital allowance carryovers
|
|
|
55.2
|
|
|
|
45.7
|
|
Unrealized loss on hedging transactions
|
|
|
2.6
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
182.9
|
|
|
|
208.0
|
|
Valuation allowance
|
|
|
(166.5
|
)
|
|
|
(195.6
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
16.4
|
|
|
|
12.4
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
(26.6
|
)
|
|
|
(32.5
|
)
|
Capital allowance
|
|
|
(3.5
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(30.1
|
)
|
|
|
(35.0
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(13.7
|
)
|
|
$
|
(22.6
|
)
|
|
|
|
|
|
|
|
|
|
75
Net deferred tax assets (liabilities) by jurisdiction are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
|
|
(In millions)
|
|
United States
|
|
$
|
(29.0
|
)
|
|
$
|
(26.1
|
)
|
Europe
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
Japan
|
|
|
0.7
|
|
|
|
0.9
|
|
China
|
|
|
1.0
|
|
|
|
0.6
|
|
Hong Kong
|
|
|
2.6
|
|
|
|
2.2
|
|
Malaysia
|
|
|
(3.4
|
)
|
|
|
(2.5
|
)
|
Singapore
|
|
|
|
|
|
|
(0.1
|
)
|
Korea
|
|
|
12.4
|
|
|
|
2.2
|
|
Taiwan
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(13.7
|
)
|
|
$
|
(22.6
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are classified in the consolidated balance sheet based on the
classification of the related asset or liability. The deferred tax valuation allowance decreased $29.1 million during the year ending December 30, 2007. The deferred tax valuation allowance decreased for year ending December 31, 2006 by
$18.5 million.
Gross carryforwards as of December 30, 2007 and December 31, 2006, respectively, for U.S. net operating
losses totaled $140.9 million and $180.6 million, for foreign tax credits totaled $47.4 million and $44.8 million, and for research and development credits totaled $3.1 million and $3.1 million. The net operating losses expire in 2018
through 2026. The foreign tax credits expire in 2009 through 2017. The research and development credits expire in varying amounts in 2010 through 2027. The company has Malaysian unabsorbed capital allowances totaling approximately $13.1 million
and $8.8 million as of December 30, 2007 and December 31, 2006, respectively, which can be used to offset future years taxable income of those Malaysian subsidiaries. In addition, the company has alternative minimum tax credit
carryforwards of $0.8 million as of December 30, 2007, which are available to reduce future federal regular income taxes, if any, over an indefinite period.
The companys ability to utilize its net operating loss and credit carryforwards may be limited in the future if the company experiences an ownership change, as defined by the Internal Revenue Code. An ownership
change occurs when the ownership percentage of 5% or greater stockholders changes by more than 50% over a three year period. In August 1999, the company experienced an ownership change as a result of its initial public offering; such ownership
change did not result in a material limitation on the utilization of the loss and credit carryforwards. As of December 30, 2007, the company has not undergone a second ownership change.
Significant management judgment is required in determining our provision for income taxes and in determining whether deferred tax assets will be
realized. When it is more likely than not that all or some portion of specific deferred tax assets will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are determined not likely to be
realizable. Realization is based on our ability to generate sufficient future taxable income. A valuation allowance is determined in accordance with SFAS 109,
Accounting for Income Taxes,
which requires an assessment of both positive and
negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. In 2005, a full valuation allowance on net U.S. deferred tax assets
was recorded. The company continues to maintain a full valuation allowance on its net U.S. deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. Until such time that some or all of the
valuation allowance is reversed, future income tax expense (benefit) in the U.S., excluding any tax expense generated by our indefinite life intangibles, will be offset by adjustments to the valuation allowance to effectively eliminate any income
tax expense or benefit in the United States. Income taxes will continue to be recorded for other tax jurisdictions subject to the need for valuation allowances in those jurisdictions.
76
As of December 30, 2007, the companys valuation allowance for U.S. deferred tax assets totaled
$166.5 million, which consists of the beginning of the year allowance of $195.6 million, a 2007 benefit of $31.7 million to income from continuing operations and a charge of $2.6 million to other comprehensive income. The valuation allowance
reduces the carrying value of temporary differences generated by capital losses, capitalized research and development expenses, foreign tax credits, reserves and accruals, and net operating loss (NOL) carryforwards, which would require sufficient
future capital gains and future ordinary income in order to realize the tax benefits. If the company is ultimately able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then the related
portion of the valuation allowance will be released to income from continuing operations, additional paid in capital or other comprehensive income.
Deferred income taxes have not been provided for the undistributed earnings of the companys foreign subsidiaries that are reinvested indefinitely. Deferred income taxes have been provided for the undistributed earnings of the
companys foreign subsidiaries that are part of the repatriation plan, which aggregated to approximately $0.1 million at December 30, 2007. In addition, certain non-U.S. earnings, which have been taxed in the U.S. but earned offshore have
and will continue to be part of the companys repatriation plan. At December 30, 2007, the undistributed earnings of the companys subsidiaries approximated $412.7 million, which if provided for, would result in deferred income taxes
of $156.8 million.
In June 2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income Taxes
. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This statement also provides guidance on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. The company
adopted FIN 48 on January 1, 2007. With the implementation of FIN 48, the company recognized a cumulative effect adjustment increasing January 1, 2007 retained earnings by $1.9 million. The company also recognized a $1.8 million increase
to deferred tax assets; however, due to a full valuation allowance against the companys U.S. deferred taxes, there was no retained earnings impact. At the date of adoption, the company had $62.7 million of unrecognized tax benefits which
increased to $67.3 million as of December 30, 2007. Of the total unrecognized tax benefits at the date of adoption and December 30, 2007, $10.5 million and $13.8 million, respectively, would impact the effective tax rate, if recognized.
The remaining unrecognized tax benefits would not impact the effective tax rate, if recognized, as the company has a full valuation allowance against its U.S. deferred taxes.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
62.7
|
|
Increases related to prior year tax positions
|
|
|
3.0
|
|
Decreases related to prior year tax positions
|
|
|
(0.4
|
)
|
Increases related to current year tax positions
|
|
|
3.8
|
|
Settlements
|
|
|
|
|
Lapse of statute
|
|
|
(1.8
|
)
|
|
|
|
|
|
Balance at December 30, 2007
|
|
$
|
67.3
|
|
|
|
|
|
|
As of December 30, 2007, $0.8 million was recorded in other current liabilities in
anticipation of a resolution of some of the companys income tax recognition exposures within the next twelve months.
The
companys major tax jurisdictions as of the adoption of FIN 48 are the U.S. and Korea. For the U.S., the company has open tax years dating back to 1999 due to the carryforward of tax attributes. In Korea, the company has five open tax years
dating back to 2002.
77
As of December 30, 2007, the company had accrued for penalties and interest relating to uncertain
tax positions totaling $2.1 million, consisting of the beginning of the year total of $2.3 million and a decrease of $0.2 million during the year related to the lapse of statute, which was recognized as a component of income tax expense. To the
extent penalties and interest are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.
NOTE 8STOCK-BASED COMPENSATION
In December 2004, the FASB issued SFAS 123(R), which supersedes
APB Opinion 25,
Accounting for Stock Issued to Employees
, and amends SFAS 95,
Statement of Cash Flows
. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative.
Previously, the
company accounted for stock-based compensation awards using the intrinsic value method in accordance with APB 25. Under the intrinsic value method, no stock-based compensation expense was recognized when the exercise price of the companys
stock options equaled or exceeded the fair market value of the underlying stock at the date of grant. Instead, the company disclosed in a footnote the effect on net income (loss) and net income (loss) per share as if the company had applied the fair
value based method of SFAS 123,
Accounting for Stock-Based Compensation
, to record the expense. Under SFAS 123, this included expense for deferred stock units (DSUs), restricted stock units (RSUs) and performance units (PUs).
On December 26, 2005 (first day of fiscal 2006), the company adopted SFAS 123(R) using the modified prospective method. Under this transition
method, stock-based compensation cost recognized during 2006 and 2007 includes: (a) compensation cost for all share-based awards granted prior to but not yet vested as of December 25, 2005, based on the grant-date fair value estimated in
accordance with SFAS 123, and (b) compensation cost for all share-based awards granted subsequent to December 25, 2005, based on the grant-date fair value estimated in accordance with SFAS 123(R). In accordance with the modified
prospective method of adoption, the companys results of operations and financial position for 2005 and prior periods have not been restated.
The company currently grants equity awards under two equity compensation plansthe Fairchild Semiconductor 2007 Stock Plan and the 2000 Executive Stock Option Plan. The company also maintains the Fairchild Semiconductor Stock Plan and
an employee stock purchase plan. The Fairchild Semiconductor 2007 Stock Plan replaced the Fairchild Semiconductor Stock Plan when the companys stockholders approved the new plan on May 2, 2007. On that date the shares that remained
available for grant under the Fairchild Semiconductor Stock Plan were assumed by the new plan and no further awards were granted under the Fairchild Semiconductor Stock Plan after that date. In addition, the company has occasionally granted equity
awards outside its equity compensation plans when necessary.
Fairchild Semiconductor 2007 Stock Plan
. Under this plan, officers,
employees, non-employee directors, and certain consultants may be granted stock options, stock appreciation rights, restricted stock including RSUs, PUs, DSUs, and other stock-based awards. The plan has been approved by stockholders. The maximum
number of shares of common stock that may be delivered under the plan is equal to 3,380,305 shares, plus shares available for issuance as of May 2, 2007, under the Fairchild Semiconductor Stock Plan or shares subject to outstanding awards under
the Fairchild Semiconductor Stock Plan as of May 2, 2007, that cease for any reason to be subject to such awards. The maximum life of any option is ten years from the date of grant for incentive stock options and non-qualified stock options.
Actual terms for outstanding non-qualified stock options are eight years, although options may be granted under the plan with up to ten year terms. Options granted under the plan are exercisable at the determination of the compensation committee,
generally vesting ratably over four years. PUs are contingently granted depending on the achievement of certain predetermined performance goals. DSUs, RSUs and PUs entitle participants to receive one share of common stock for each DSU, RSU or PU
awarded. For
78
RSUs and PUs, the settlement date is the vesting date. For DSUs, the settlement date is selected by the participant at the time of the grant. Grants of PUs
generally vest under the plan over a period of three years, and DSUs and RSUs generally vest over a period of three or four years.
Fairchild Semiconductor Stock Plan
. The Fairchild Semiconductor Stock Plan authorizes shares of common stock to be issued upon the exercise of equity awards granted under the plan. The plan has been approved by stockholders. The plan
was frozen when the Fairchild Semiconductor 2007 Stock Plan was approved on May 2, 2007, and awards are no longer granted under this plan. Under this plan, executives, key employees, non-employee directors and certain consultants were granted
non-qualified stock options and RSUs, PUs, and DSUs. Options generally vest over four years with maximum terms ranging from eight to ten years. DSUs, RSUs and PUs entitle participants to receive one share of common stock for each DSU, RSU or PU
awarded. For RSUs and PUs, the settlement date is the vesting date. For DSUs, the settlement date is selected by the participant at the time of the grant. Grants of PUs generally vest under the plan over a period of three years, and DSUs and RSUs
generally vest over a period of three or four years.
The 2000 Executive Stock Option Plan
. The 2000 Executive Stock Option Plan
authorizes up to 1,671,669 shares of common stock to be issued upon the exercise of options under the plan. The plan has been approved by stockholders. Individuals receiving options under the plan may not receive in any one year options to
purchase more than 1,500,000 shares of common stock. Options generally vest over four years with a maximum term of ten years.
Employee Stock Purchase Plan (ESPP).
The company has maintained the Fairchild Semiconductor International, Inc. Employee Stock Purchase Plan since April 1, 2000. The ESPP has been approved by stockholders. The ESPP authorizes
the issuance of up to 4,000,000 shares of common stock in quarterly offerings to eligible employees at a price that is equal to 85 percent of the lower of the common stocks market price at the beginning or the end of a quarterly
calendar period. A participating employee may withdraw from a quarterly offering anytime before the purchase date at the end of the quarter, and obtain a refund of the amounts withheld through the employees payroll deductions.
Equity Awards Made Outside Stockholder-Approved Plans.
The company has granted equity awards representing a total of 820,000 shares outside its
equity compensation plans. As of December 30, 2007, equity awards representing 329,300 shares remain outstanding, including 275,000 options, 12,500 DSUs, 15,000 RSUs and 26,800 PUs.
On February 18, 2005, the company announced the acceleration of certain unvested and out-of-the-money stock options previously awarded
to employees and officers that had exercise prices per share of $19.50 or higher. Options to purchase approximately 6 million shares of the companys common stock became exercisable as a result of the vesting acceleration. Based upon the
companys closing stock price of $16.15 on February 18, 2005, none of these options had economic value on the date of acceleration. In connection with the modification of the terms of these options to accelerate their vesting,
approximately $33.1 million, on a pre-tax basis, was included in the pro forma net income (loss) table for 2005, representing the remaining unamortized value of the impacted, unvested options just prior to the acceleration. Because the exercise
price of all the modified options was greater than the market price of the companys underlying common stock on the date of their modification, no compensation expense was recorded in the statement of operations in accordance with APB 25. The
primary purpose for modifying the terms of these options to accelerate their vesting was to eliminate the need to recognize remaining unrecognized non-cash compensation expense as measured under SFAS 123(R) as the future expense associated with
these options would have been disproportionately high compared to the economic value of the options as of the date of modification. As a result of the acceleration, non-cash stock option expense in accordance with SFAS 123(R) was reduced by
approximately $12 million in 2006, $4 million in 2007 and will be reduced by $1 million in 2008 on a pre-tax basis.
79
The following table presents a summary of the companys stock options for the year ended
December 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30, 2007
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
|
(000s)
|
|
|
|
|
(In years)
|
|
(In millions)
|
Outstanding at beginning of period
|
|
22,844
|
|
|
$
|
19.61
|
|
|
|
|
|
Granted
|
|
1,107
|
|
|
|
17.87
|
|
|
|
|
|
Exercised
|
|
(1,647
|
)
|
|
|
12.20
|
|
|
|
|
|
Forfeited
|
|
(511
|
)
|
|
|
17.07
|
|
|
|
|
|
Expired
|
|
(1,052
|
)
|
|
|
25.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
20,741
|
|
|
$
|
19.85
|
|
4.0
|
|
$
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
17,387
|
|
|
$
|
20.33
|
|
3.6
|
|
$
|
8.1
|
The weighted average grant-date fair value for options granted during the years ended
December 30, 2007, December 31, 2006 and December 25, 2005 was $7.80, $8.33 and $7.19, respectively.
The following
table presents a summary of the companys DSUs for the year ended December 30, 2007.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30, 2007
|
|
Shares
|
|
|
Weighted
Average
Grant-date
Fair Value
|
|
|
(000s)
|
|
|
|
Nonvested at beginning of period
|
|
330
|
|
|
$
|
17.64
|
Granted
|
|
59
|
|
|
|
17.89
|
Vested
|
|
(78
|
)
|
|
|
16.25
|
Forfeited
|
|
(3
|
)
|
|
|
19.65
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
308
|
|
|
$
|
18.02
|
|
|
|
|
|
|
|
The weighted average grant-date fair value for DSUs granted during the years ended
December 31, 2006 and December 25, 2005 was $20.81 and $15.41, respectively. The total grant-date fair value for DSUs vested during the years ended December 30, 2007, December 31, 2006, and December 25, 2005 was $1.3
million, $7.0 million and $2.0 million, respectively. The number, weighted-average exercise price, aggregate intrinsic value and weighted average remaining contractual term for DSUs vested and outstanding is 113,761 units, zero (as these are zero
strike price awards), $1.6 million and 1.8 years, respectively.
The companys plan documents governing DSUs contain contingent cash
settlement provisions upon a change of control. Accordingly, in conjunction with the adoption of SFAS 123(R) the company now presents previously recorded expense associated with unvested and unsettled DSUs under the balance sheet caption
Temporary equity-deferred stock units as required by Securities and Exchange Commission (SEC) Accounting Series Release 268 and Emerging Issues Task Force (EITF) Topic D-98.
80
The following table presents a summary of the companys RSUs for the year ended December 30,
2007.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30, 2007
|
|
|
Shares
|
|
|
Weighted
Average
Grant-date
Fair Value
|
|
|
(000s)
|
|
|
|
Nonvested at beginning of period
|
|
303
|
|
|
$
|
18.28
|
Granted
|
|
713
|
|
|
|
17.66
|
Vested
|
|
(80
|
)
|
|
|
18.50
|
Forfeited
|
|
(84
|
)
|
|
|
18.00
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
852
|
|
|
$
|
17.79
|
|
|
|
|
|
|
|
The weighted average grant-date fair value for RSUs granted during the years ended
December 31, 2006 and December 25, 2005 was $18.45 and $16.41, respectively. The total grant-date fair value for RSUs vested during the year ended December 30, 2007, December 31, 2006, and December 25, 2005 was $1.5
million, $0.1 million, and zero, respectively.
The following table presents a summary of the companys PUs for the year ended
December 30, 2007.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30, 2007
|
|
|
Shares
|
|
|
Weighted
Average
Grant-date
Fair Value
|
|
|
(000s)
|
|
|
|
Nonvested at beginning of period
|
|
812
|
|
|
$
|
18.47
|
Granted
|
|
268
|
|
|
|
17.80
|
Vested
|
|
(269
|
)
|
|
|
18.47
|
Forfeited
|
|
(88
|
)
|
|
|
18.33
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
723
|
|
|
$
|
17.89
|
|
|
|
|
|
|
|
The weighted average grant-date fair value for PUs granted during the years ended
December 31, 2006 and December 25, 2005 was $18.47 and zero, respectively. The total grant-date fair value for PUs vested during the year ended December 30, 2007, December 31, 2006, and December 25, 2005 was $5.0
million, zero and zero, respectively.
The following table summarizes the total intrinsic value for stock options exercised and DSUs, RSUs
and PUs vested (i.e. the difference between the market price at exercise and the price paid by employees to exercise the award) for 2007, 2006 and 2005, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30,
2007
|
|
December 31,
2006
|
|
December 25,
2005
|
|
|
(In millions)
|
Options
|
|
$
|
10.7
|
|
$
|
13.3
|
|
$
|
5.5
|
DSUs
|
|
$
|
1.4
|
|
$
|
9.4
|
|
$
|
1.9
|
RSUs
|
|
$
|
1.4
|
|
$
|
0.1
|
|
$
|
|
PUs
|
|
$
|
4.8
|
|
$
|
|
|
$
|
|
81
The companys practice is to issue shares of common stock upon exercise or settlement of options,
DSUs, RSUs and PUs from previously unissued shares and to issue shares in connection with the ESPP from treasury shares. The company expects to repurchase approximately 800,000 to 1,200,000 shares in 2008 to satisfy ESPP participation. For the year
ended December 30, 2007, $20.0 million of cash was received from exercises of stock-based awards.
Valuation and Expense Information under SFAS
123(R)
The following table summarizes stock-based compensation expense under SFAS 123(R) by financial statement line, for the years
ended December 30, 2007 and December 31, 2006.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 30,
2007
|
|
December 31,
2006
|
|
|
(In millions)
|
Cost of Sales
|
|
$
|
5.3
|
|
$
|
5.6
|
Research and Development
|
|
|
4.1
|
|
|
4.3
|
Selling, General and Administrative
|
|
|
15.4
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
$
|
24.8
|
|
$
|
26.7
|
|
|
|
|
|
|
|
The company also capitalized $(0.1) million and $0.7 million of stock-based compensation into
inventory for the years ended December 30, 2007 and December 31, 2006, respectively. In addition, due to the valuation allowance for U.S. deferred income tax assets recorded by the company, no tax benefit on U.S. based stock compensation
expense was recognized in the years ended December 30, 2007 and December 31, 2006. The income tax benefit from foreign tax jurisdictions was approximately $0.2 million and $0.3 million for the years ended December 30, 2007 and
December 31, 2006, respectively.
Included in total stock-based compensation costs of $24.7 million for the year ended
December 30, 2007, is $12.8 million of cost related to DSUs, RSUs and PUs that would have been included in expense under APB 25 even if the company had not adopted SFAS 123(R) in the first quarter of 2006.
Prior to SFAS 123(R), the company calculated stock-based compensation expense (primarily DSUs and RSUs) for retirement eligible equity award recipients
over the stated vesting period. Upon adoption of SFAS 123(R), the company changed its policy and now follows the requisite service period guidance for all new awards, which requires that compensation cost attributable to equity awards be recognized
over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The impact of this change in policy was $2.0 million and $1.3 million for years ended
December 30, 2007 and December 31, 2006, respectively.
The following table summarizes total compensation cost related to
nonvested awards not yet recognized and the weighted average period over which it is expected to be recognized at December 30, 2007.
|
|
|
|
|
|
|
|
December 30, 2007
|
|
Unrecognized
Compensation
Cost for
Unvested
Awards
|
|
Weighted
Average
Remaining
Recognition
Period
|
|
|
(In millions)
|
|
(In years)
|
Options
|
|
$
|
14.1
|
|
2.0
|
DSUs
|
|
$
|
1.2
|
|
0.7
|
RSUs
|
|
$
|
10.6
|
|
2.9
|
PUs
|
|
$
|
3.5
|
|
0.8
|
82
The fair value of each option grant for the companys plans is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average assumptions, utilizing the guidance provided in SFAS 123(R) as well as SEC Staff Accounting Bulletin (SAB) 107. The fair value of each DSU, RSU and PU is equal to the
closing market price of the companys common stock on the date of grant.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
Expected volatility
|
|
41.8
|
%
|
|
52.9
|
%
|
Dividend yield
|
|
|
|
|
|
|
Risk-free interest rate
|
|
4.7
|
%
|
|
4.6
|
%
|
Expected life, in years
|
|
5.0
|
|
|
3.9
|
|
Forfeiture rate
|
|
6.7
|
%
|
|
5.6
|
%
|
Expected volatility.
The company utilizes an average of implied volatility and the most
recent historical volatility commensurate with expected life. Effective for fiscal year 2007, the company modified its volatility assumption to include an implied volatility factor. The company determined during the annual review of its volatility
assumption that it would be appropriate to include implied volatility, as described in SAB 107. The change in assumption was immaterial to stock-based compensation expense during 2007.
Dividend yield.
The company does not pay a dividend, therefore this input is not applicable.
Risk-free interest rate.
The company estimated the risk-free interest rate based on zero-coupon U.S. Treasury securities for a period that is
commensurate with the expected life assumption.
Expected life.
The company has evaluated expected life based on history and
exercise patterns across its demographic population. The company believes that this historical data is the best estimate of the expected life of a new option, and that generally all groups of our employees exhibit similar exercise behavior.
Effective for fiscal year 2007, the company performed an annual review of the expected life assumption and determined that an expected life of 5.0 years is more indicative of actual exercise behavior than the previous 3.9 years. Accordingly, all
grants for 2007 were assigned an expected life of 5.0 years. The change in assumption was immaterial to stock-based compensation expense during 2007.
Forfeiture rate.
The amount of stock-based compensation recognized is based on the value of the portion of the awards that are ultimately expected to vest as SFAS 123(R) requires forfeitures to be estimated at
the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term forfeitures is distinguished from cancellations or expirations and represents only the
unvested portion of the surrendered option. The company has applied an annual forfeiture rate of 6.7%, 5.9%, 0.6% and 4.6% to all unvested options, RSUs, DSUs and PUs, respectively, during 2007. This analysis is re-evaluated at least annually and
the forfeiture rate is adjusted as necessary.
As discussed above, prior to the adoption of SFAS 123(R), the company used the expense
recognition method in FASB FIN 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans,
to recognize expense. The company switched to a straight-line attribution method on December 26, 2005 for all
grants that include only a service condition. Due to the performance criteria, the companys performance units will be expensed over the service period for each separately vesting tranche. The expense associated with the unvested portion of the
pre-adoption grants will continue to be expensed over the service period for each separately vesting tranche.
83
Prior to December 26, 2005, the company accounted for stock-based compensation under APB 25 and
related Interpretations. The following table illustrates the effect on net loss and net loss per common share for 2005 as if the company had applied the fair value based method of SFAS 123 to record stock-based compensation expense.
|
|
|
|
|
|
|
Year Ended
December 25,
2005
|
|
|
|
|
|
(In millions, except
per share data)
|
|
Net loss, as reported
|
|
$
|
(241.2
|
)
|
Add: Stock compensation charge included in net loss determined under the intrinsic value method, net of tax
|
|
|
6.4
|
|
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
|
|
|
(61.4
|
)
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(296.2
|
)
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
Basicas reported
|
|
$
|
(2.01
|
)
|
|
|
|
|
|
Basicpro forma
|
|
$
|
(2.46
|
)
|
|
|
|
|
|
Dilutedas reported
|
|
$
|
(2.01
|
)
|
|
|
|
|
|
Dilutedpro forma
|
|
$
|
(2.46
|
)
|
|
|
|
|
|
The fair values of options granted during 2005 were estimated on the date of grant using the
Black-Scholes option pricing model, with the following weighted average assumptions.
|
|
|
|
|
|
Year Ended
December 25,
2005
|
|
|
|
Expected volatility
|
|
54
|
%
|
Dividend yield
|
|
|
|
Risk-free interest rate
|
|
4.0
|
%
|
Expected life, in years
|
|
4.0
|
|
NOTE 9RETIREMENT PLANS
The company sponsors the Fairchild Personal Savings and Retirement Plan (the Retirement Plan), a contributory savings plan which qualifies under section 401(k) of the Internal Revenue Code. The
Retirement Plan covers substantially all employees in the United States. As of January 1, 2007, the company provided a discretionary matching contribution equal to 100% of employee elective deferrals on the first 3% of pay that is contributed
to the Retirement Plan and 50% of the next 2% of pay contributed. (Prior to January 1, 2007 the company match was equal to 50% of employee elective deferrals up to a maximum of 6% of an employees annual compensation.) The company also
maintains a non-qualified Benefit Restoration Plan, under which certain eligible employees who have otherwise exceeded annual IRS limitations for elective deferrals can continue to contribute to their retirement savings. The company matches employee
elective deferrals to the Benefit Restoration Plan on the same basis as the Retirement Plan. Total expense recognized under these plans was $5.6 million, $4.3 million and $3.6 million, for 2007, 2006 and 2005, respectively.
Employees in Korea who have been with the company for over one year are entitled by Korean law to receive lump-sum payments upon termination of their
employment. The payments are based on current rates of pay and length of service through the date of termination. It is the companys policy to accrue for this estimated liability as of each balance sheet date. $13.2 million and $14.3 million
were included within other liabilities and
84
$6.4 million and $7.2 million were included in current liabilities as of December 30, 2007 and December 31, 2006, respectively. Amounts recognized
as expense were $10.1 million, $11.6 million and $8.8 million, for 2007, 2006 and 2005, respectively.
Employees in Malaysia
participate in a defined contribution plan. The company has funded accruals for this plan in accordance with statutory regulations in Malaysia. Amounts recognized as expense for contributions made by the company under this plan were $1.8 million,
$1.8 million and $1.5 million, for 2007, 2006 and 2005, respectively.
Employees in the United Kingdom, Italy, Germany, Hong Kong,
China, the Philippines, Singapore, Japan and Taiwan are also covered by a variety of defined benefit or defined contribution pension plans that are administered consistent with local statutes and practices. The expense under each of the respective
plans for 2007, 2006 and 2005 was not material to the consolidated financial statements.
In September 2006, the FASB issued SFAS 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement PlansAn Amendment of FASB Statements No. 87, 88, 106, and 132(R).
This statement requires an employer to recognize the over-funded or under-funded
status of a defined postretirement plan as an asset or liability in its statement of financial position. The company currently has defined benefit pension plans in Germany, Japan, the Philippines, Hong Kong and Taiwan. The net funded status for our
foreign defined benefit plans was $3.7 million and $2.2 million at December 30, 2007 and December 31, 2006, respectively, and was recognized in the consolidated statements of financial position. In accordance with adoption of SFAS
158, as of December 31, 2006 the net impact of recording the funded status through accumulated other comprehensive income was $1.1 million. The company measures plan assets and benefit obligations as of the date of the fiscal year-end.
Certain former executives of the company are eligible for post-retirement health benefits, which were accrued for ratably over the term of
the related employment agreements entered into by the executives with the company in 2000. At December 30, 2007 and December 31, 2006, the accrual for post-retirement health benefits was $1.6 million.
NOTE 10LEASE COMMITMENTS
Rental expense
related to certain facilities and equipment of the companys plants was $24.0 million, $22.6 million and $22.1 million, for 2007, 2006 and 2005, respectively.
Certain facility and land leases contain renewal provisions. Future minimum lease payments under noncancelable operating leases as of December 30,
2007 are as follows:
|
|
|
|
Year ending December,
|
|
(In millions)
|
2008
|
|
$
|
14.5
|
2009
|
|
|
10.2
|
2010
|
|
|
4.3
|
2011
|
|
|
2.3
|
2012
|
|
|
1.7
|
Thereafter
|
|
|
1.5
|
|
|
|
|
|
|
$
|
34.5
|
|
|
|
|
85
NOTE 11STOCKHOLDERS EQUITY
Preferred Stock
Under the companys restated certificate of incorporation, the
companys Board of Directors has the authority to issue up to 100,000 shares of $0.01 par value preferred stock, but only in connection with the adoption of a stockholder rights plan. At December 30, 2007 and December 31,
2006, no shares were issued.
Common Stock
The company has authorized 340,000,000 shares of Common Stock at a par value of $.01 per share. The holders of Common Stock are entitled to cumulative voting rights in the election of directors and to one
vote per share on all other matters submitted to a vote of the stockholders.
Under a shelf registration statement filed with the
Securities and Exchange Commission on December 18, 2000, the company may issue up to 10,000,000 shares of additional common stock. Shares of stock covered by this shelf registration statement may be issued from time to time by Fairchild
International in connection with strategic acquisitions of other businesses, assets or securities, authorized by the companys board of directors. The amounts, prices and other terms of share issuances would be determined at the time of
particular transactions.
The company accounts for treasury stock acquisitions using the cost method. At December 30, 2007 and December 31, 2006,
there were approximately 1,700,000 and 400,000 treasury shares held by the company, respectively.
NOTE 12RESTRUCTURING AND IMPAIRMENTS
The company assesses the need to record restructuring and impairment charges in accordance with SFAS 146,
Accounting for Costs
Associated with Exit or Disposal Activities
, SFAS 88,
Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits
, SFAS 112,
Employers Accounting for
Postemployment Benefits
an amendment of FASB Statement 5 and 43
, SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
, EITF Issue 95-3,
Recognition of Liabilities in Connection with a
Purchase Business Combination
, and SAB 100
, Restructuring and Impairment Charges
.
2005 Infrastructure Realignment Program
During 2005, the company recorded restructuring and impairment charges totaling $16.9 million. The charges included $10.2 million in
employee separation costs, $0.7 million in office closure costs, $7.1 million in asset impairment costs associated with software, equipment and an acquisition intangible, $0.2 million in other costs and $1.3 million in reserve releases due to
revised estimates associated with the Second Quarter 2003 Restructuring Program, 2004 Infrastructure Realignment and 2005 Infrastructure Realignment Programs.
2006 Infrastructure Realignment Program
During 2006, the company recorded restructuring and impairment charges totaling
$3.2 million. The charges included $1.0 million in employee separation costs and $2.2 million in asset impairment costs.
2007 Infrastructure
Realignment Program
During 2007, the company recorded restructuring and impairment charges, net of releases, totaling $10.8 million.
The charges included $6.8 million in employee separation costs, $0.2 million in contract cancellation costs, $3.1 million in asset impairment costs and $0.2 million in reserve releases, all associated with the 2007 Infrastructure Realignment
Program. In addition, there were $0.9 million in employee separation costs recorded during 2007 associated with the 2006 Infrastructure Realignment Program.
86
The following tables summarize the previously mentioned restructuring and impairment charges for 2005
through 2007 (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
Balance at
12/26/2004
|
|
New
Charges
|
|
Cash
Paid
|
|
|
Reserve
Release
|
|
|
Non-Cash
Items
|
|
|
Accrual
Balance at
12/25/2005
|
First Quarter 2003 Restructuring Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mountaintop, PA 6 Closure Employee Separation Costs
|
|
$
|
0.1
|
|
$
|
|
|
$
|
(0.1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Second Quarter 2003 Restructuring Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
|
0.1
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
South Portland, ME 4 Closure Employee Separation Costs
|
|
|
0.7
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
Kuala Lumpur, Malaysia Plant Closure Employee Separation Costs
|
|
|
0.5
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
|
3.2
|
|
|
|
|
|
(1.8
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
2005 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
|
|
|
|
10.2
|
|
|
(5.1
|
)
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
4.1
|
Office Closure Costs
|
|
|
|
|
|
0.7
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Asset Impairment
|
|
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
(7.1
|
)
|
|
|
|
Other Costs
|
|
|
|
|
|
0.2
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.6
|
|
$
|
18.2
|
|
$
|
(8.8
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
(7.8
|
)
|
|
$
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
Balance at
12/25/2005
|
|
New
Charges
|
|
Cash
Paid
|
|
|
Reserve
Release
|
|
|
Non-Cash
Items
|
|
|
Accrual
Balance at
12/31/2006
|
2004 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
$
|
0.8
|
|
$
|
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2005 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
|
4.1
|
|
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
2006 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
|
|
|
|
1.0
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
0.9
|
Asset Impairment
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.9
|
|
$
|
3.2
|
|
$
|
(4.9
|
)
|
|
$
|
|
|
|
$
|
(2.2
|
)
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
Balance at
12/31/2006
|
|
New
Charges
|
|
Cash
Paid
|
|
|
Reserve
Release
|
|
|
Non-Cash
Items
|
|
|
Accrual
Balance at
12/30/2007
|
2005 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
$
|
0.1
|
|
$
|
|
|
$
|
(0.1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2006 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
|
0.9
|
|
|
0.9
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Infrastructure Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Separation Costs
|
|
|
|
|
|
6.8
|
|
|
(3.4
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
3.2
|
Asset Impairment, Other
|
|
|
|
|
|
3.3
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.0
|
|
$
|
11.0
|
|
$
|
(5.5
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The company expects to complete payment of substantially all 2007 restructuring accruals by the
second quarter of 2008.
87
NOTE 13RELATED PARTY TRANSACTIONS
On September 8, 2004, the company entered into a trust agreement with H.M. Payson & Co., as Trustee, to secure the funding of
post-retirement health insurance benefits previously granted under the employment agreements executed in 2000 with three former executive officers who retired from the company in 2005. The company contributed $2.25 million to the trust upon its
creation. Each former executive is entitled to health care benefits for himself and his eligible dependents until the later of his or his spouses death. The trust will be used to pay health insurance premiums and reimbursable related expenses
to satisfy these obligations. Upon a change in control, the company or its successor is obligated to contribute additional funds to the trust, if and to the extent necessary to provide all remaining health care benefits required under the employment
agreements. The trust will terminate when the companys obligation to provide the health care benefits ends, at which time any remaining trust assets will be returned to the company.
NOTE 14COMMITMENTS AND CONTINGENCIES
The
company has future commitments to purchase chemicals for certain wafer fabrication facilities. In the event the company was to end the agreements, the company would be required to pay future minimum payments of approximately $10.2 million.
The companys facilities in South Portland, Maine and West Jordan, Utah have ongoing environmental remediation projects to respond to
certain releases of hazardous substances that occurred prior to the leveraged recapitalization of the company from National Semiconductor. Pursuant to the Asset Purchase Agreement with National Semiconductor, National Semiconductor has agreed to
indemnify the company for the future costs of these projects. The terms of the indemnification are without time limit and without maximum amount. The costs incurred to respond to these conditions were not material to the consolidated financial
statements for any period presented. The carrying value of the liability at December 30, 2007 was $0.2 million.
The companys
former Mountain View, California, facility is located on a contaminated site under the Comprehensive Environmental Response, Compensation and Liability Act. Under the terms of the Acquisition Agreement with Raytheon Company, Raytheon Company has
assumed responsibility for all remediation costs or other liabilities related to historical contamination. The purchaser of the Mountain View, California property received an environmental indemnity from us similar in scope to the one we received
from Raytheon. The purchaser and subsequent owners of the property can hold us liable under our indemnity for any claims, liabilities or damages it incurs as a result of the historical contamination, including any remediation costs or other
liabilities related to the contamination. The company is unable to estimate the potential amounts of future payments; however, any future payments are not expected to have a material impact on the companys earnings or financial condition.
Pursuant to the 1999 asset agreement to purchase the power device business of Samsung Electronics Co., Ltd., Samsung agreed to indemnify
the company for remediation costs and other liabilities related to historical contamination, up to $150 million. The company is unable to estimate the potential amounts of future payments, if any; however, any future payments are not expected
to have a material impact on the companys earnings or financial condition.
The companys facility in Mountaintop, Pennsylvania
has an ongoing remediation project to respond to releases of hazardous materials that occurred prior to acquisition of the DPP business from Intersil Corporation. Under the Asset Purchase Agreement with Intersil, Intersil indemnified the company for
specific environmental issues. The terms of the indemnification are without time limit and without maximum amount.
Phosphorus Mold
Compound Litigation and Claims.
From time to time since late 2001, the company has received claims from a number of customers seeking damages resulting from certain products manufactured with
88
a phosphorus-containing mold compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some
chips to short in some situations, resulting in chip failure. The company has been named in lawsuits relating to these mold compound claims. On August 6, 2007, the company settled a lawsuit brought against the company by Lucent Technologies
Inc. in January 2005 in New Jersey state court claiming breach of warranty and fraud. The settlement payment occurred in the third quarter of 2007. On January 5, 2007, White Rock Networks sued the company and two distributors, Arrow Electronics
and All American Semiconductor, in the U.S. District Court for the Eastern District of Texas, for violations of the Texas Deceptive Trade Practices Act relating to the mold compound issue, claiming unspecified damages. On May 17, 2007 White
Rock amended its complaint to include fraud, negligence, and breach of contract claims and removed All American Semiconductor as a defendant. White Rock served the company on May 25, 2007. The company believes it has strong defenses against
White Rocks claims and intends to vigorously defend the lawsuit. Several other customers have made claims for damages or threatened to begin litigation as a result of the mold compound issue if their claims are not resolved according to their
demands, and the company may face additional lawsuits as a result. The company has resolved similar claims with several of its leading customers. The company has exhausted insurance coverage for such customer claims.
Patent Litigation with Power Integrations, Inc.
On October 20, 2004, the company and its wholly owned subsidiary, Fairchild Semiconductor
Corporation, were sued by Power Integrations, Inc. in the United States District Court for the District of Delaware. Power Integrations alleges that certain of the companys pulse width modulation (PWM) integrated circuit products infringe four
Power Integrations U.S. patents, and seeks a permanent injunction preventing the company from manufacturing, selling or offering the products for sale in the United States, or from importing the products into the United States, as well as money
damages for past infringement. The company has analyzed the Power Integrations patents in light of the companys products and, based on that analysis, does not believe the companys products violate Power Integrations patents.
Accordingly, the company is vigorously contesting this lawsuit. The trial in the case has been divided into three phases. The first phase, held October 2-10, 2006, was on infringement, the willfulness of any infringement, and damages. On
October 10, 2006, a jury returned a verdict finding that 33 of the companys PWM products infringe one or more of seven claims of the four patents being asserted. The jury also found that the companys infringement was willful, and
assessed damages against the company of approximately $34 million. That verdict remains subject to the companys appeal. The second phase of the trial, held September 17-21, 2007 before a different jury, was on the validity of the Power
Integrations patents being asserted. On September 21, 2007 a jury returned a verdict in the second phase, finding that the four Power Integrations patents asserted in the lawsuit are valid. The third phase of the trial covers the enforceability
of the patents. The third phase began on September 21, 2007 and is still pending before the court. Rulings from the enforceability phase of the litigation may overturn parts of the jury verdict on the second phase.
Power Integrations must prevail on all three phases of the trial to receive a judgment for damages and an injunction against the company. Power
Integrations may seek an injunction to prevent the company from making, selling or offering to sell in the United States, or from importing into the United States, products that infringe patents that are found valid and enforceable. Power
Integrations has announced its intention to seek such an injunction in such event.
The jury in the first phase of the trial assessed
damages against the company of approximately $34 million. Because the jury also found that the companys infringement was willful, the judge in the case will have discretion to increase the damages award by up to three times the amount of the
final damages award. The final damages award would be determined after the third phase of the trial. Damages may be increased by the judge to account for certain sales by the company after October 20, 2006 and as a result of the willful
infringement finding. It is also possible that the company could be required to pay Power Integrations attorneys fees and pre-judgment interest.
The results of litigation are difficult to predict and no assurance can be given that the company will succeed in proving the patents unenforceable. As discussed above, the judge overseeing the case has discretion
over the
89
amount of damages awarded, and over the granting and scope of any injunction against the company. Any damages award or injunction would be subject to appeal
and the company expects to contest several aspects of the litigation and would carefully consider an appeal at the appropriate time. The company believes one aspect of the jurys verdict finding that the company had willfully infringed the
Power Integrations patents should be dismissed or put to a new trial because of an August 20, 2007 decision by the U.S. Court of Appeals for the Federal Circuit that significantly changed the law of willfulness as applied to patent infringement
cases. The company also expects to request a reduction in the level of damages awarded in the first phase of the litigation because of errors that the company believes were made in the calculation of damages. The company also plans to contest the
jurys finding in the second (validity) phase of the case as well as other decisions made by the court during the course of the litigation, including the division of the trial into several phases, rulings construing the claims of the patents
involved and limitations on the evidence the company was permitted to present. If the company chooses to appeal, the company would likely be required to post a bond or provide other security for some or the entire amount of the final damages award
during the pendency of the appeal. Should the company ultimately lose the lawsuit, or if an injunction is issued while an appeal is pending, such result could have an adverse impact on the companys ability to sell products found to be
infringing, either directly or indirectly in the U.S.
In a separate action, the company filed a lawsuit on April 11, 2006, against
Power Integrations in the United States District Court for the Eastern District of Texas, asserting that Power Integrations PWM products infringe U.S. Patent No. 5,264,719. The lawsuit was transferred to the United States District Court
for the District of Delaware. Intersil Americas owns U.S. Patent No. 5,264,719, for High Voltage Lateral Semiconductor Devices, and is a co-plaintiff with the company in the lawsuit. The company has held license rights under the patent since
acquiring Intersils power discrete business in 2001, and the company more recently secured exclusive rights to assert the patent against Power Integrations. The court dismissed the lawsuit on December 21, 2007 because of legal standing
issues relating to the license arrangement between the company and Intersil Americas. The court left open the possibility for the standing issues to be addressed and the suit reinstituted. The underlying merits of Intersil and Fairchilds
patent infringement case against Power Integrations were not addressed in the courts ruling. The company is exploring options to address the standing issues raised by the court.
The companys wholly owned subsidiary, System General Corporation, is a defendant in a patent infringement lawsuit in the U.S. District Court for
the Northern District of California. System General had appealed to the U.S. Court of Appeals for the Federal Circuit on the outcome of proceedings before the U.S. International Trade Commission (ITC) involving allegations of patent infringement.
The ITC order banned some System General parts, and downstream products incorporating the System General parts, from being imported into the United States. Both the ITC proceeding and the lawsuit were initiated by Power Integrations. The district
court action was stayed at least until the appeals court issues its decision on System Generals appeal of the ITCs final determination. On November 20, 2007, the appeals court affirmed the ITCs decision. Some System General
products were specifically carved out of the ITCs U.S. import ban, and System General has fully replaced the banned products with replacement products not covered by the ITC ban. There has been no activity in the district court action since
the appeals court decision. Fairchild Corporation has petitioned the U.S. patent office for reexamination of the patents involved. As in all litigation, it is difficult to predict the result of the district court action and no assurance can be given
as to the outcome of this lawsuit. Should the company ultimately lose the lawsuit, such result could have an adverse impact on the companys ability to sell products found to be infringing, either directly or indirectly in the U.S.
ZTE Corporation v. Fairchild Semiconductor Corporation.
On December 30, 2004, the companys wholly owned subsidiary, Fairchild
Semiconductor Corporation, was sued by Zhongxing Telecom Ltd. (ZTE), a communications equipment manufacturer, in the Intermediate Peoples Court of Shenzhen, Guangdong Province, Peoples Republic of China. ZTE alleged that certain of the
companys products were defective and caused personal injury and/or property loss to ZTE. ZTE claimed 65,733,478 Chinese yuan as damages. The company contested the lawsuit in a trial held on October 20, 2005. On December 29, 2006, the
company was informed that
90
the court had ruled in favor of ZTE and had ordered Fairchild to pay RMB 65,733,478 (equivalent to approximately $8.6 million U.S. dollars based on exchange
rates at December 30, 2007) to ZTE. The company appealed to the Higher Peoples Court of Guangdong Province. On August 22, 2007, the company settled the lawsuit for approximately $4.0 million U.S. dollars.
Patent Litigation with Alpha & Omega Semiconductor, Inc.
On May 17, 2007, Alpha & Omega Semiconductor, Inc. (AOS) filed
suit against the company in the U.S. District Court for the Northern District of California alleging that the company is infringing two of its patents. AOS is seeking unspecified damages and an injunction against the company. The company in turn
filed suit against AOS in the same court on May 18, 2007, alleging that AOS is infringing four of the companys patents. The company is also seeking unspecified damages and an injunction. The cases were consolidated on July 31, 2007.
On October 2, 2007, the parties were granted leave to amend their complaints to assert additional patents. The company asserted two additional patents against AOS, and AOS asserted one additional patent against the company. The lawsuit is
currently in the discovery phase.
The company intends to take all possible steps to seek a court order to stop AOS from making, using,
selling, offering for sale or importing any infringing products in the U.S. and to obtain monetary damages for any infringing activities. Although the company believes, based on the prior art it has identified and the companys knowledge of its
products, that the company has invalidity, non-infringement and other defenses to AOS patent claims, the results of litigation are difficult to predict and no assurance can be given that the company will succeed in proving the AOS patents
invalid, not infringed or unenforceable. Should the company ultimately lose the lawsuit, such result could have an adverse impact on the companys ability to sell products found to be infringing, either directly or indirectly in the U.S. Any
damages award or injunction would be subject to appeal and the company would expect to carefully consider an appeal at the appropriate time. In such a case, if the company chose to appeal, the company would likely be required to post a bond or
provide other security for some or the entire amount of the final damages award during the pendency of the appeal.
The company has
analyzed the potential litigation outcomes from all the above mentioned claims in accordance with Statement of Financial Accounting Standards (SFAS) 5,
Accounting for Contingencies.
While the exact amount of these losses is not known, the
company has recorded a charge for potential litigation outcomes in the Consolidated Statement of Operations, based upon the companys assessments of the potential liability using an analysis of the claims and historical experience in defending
and/or resolving these claims. As of December 30, 2007 the companys balance for potential litigation outcomes was $11.0 million. If the company continues to receive additional claims, if more of these claims proceed to litigation or if
the company chooses to settle claims in settlement of or to avoid litigation, then the company may incur liabilities in excess of the current reserves.
From time to time the company is involved in legal proceedings in the ordinary course of business. The company believes that there is no such ordinary-course litigation pending that could have, individually or in the
aggregate, a material adverse effect on the companys business, financial condition, results of operations or cash flows.
NOTE 15FINANCIAL
INSTRUMENTS
Fair Value and Notional Principal of Derivative Financial Instruments
The company uses derivative instruments to manage exposures to changes in foreign currency exchange rates and interest rates. In accordance with SFAS 133,
Accounting for Certain Derivative Instruments and Certain Hedging Activities
, the fair value of these hedges is recorded on the balance sheet.
Foreign Currency Derivatives.
The company uses currency forward and combination option contracts to hedge a portion of its forecasted foreign exchange denominated revenues and expenses. The company monitors
91
its foreign currency exposures to maximize the overall effectiveness of its foreign currency hedge positions. Currencies hedged include the euro, Japanese
yen, Philippine peso, Malaysian ringgit, Korean won and Chinese yuan. The companys objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures.
Changes in the fair value of derivative instruments related to time value are included in the assessment of hedge effectiveness. Hedge
ineffectiveness, determined in accordance with SFAS 133 and SFAS 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activitiesan amendment of FASB Statement 133
, did not have a material impact on earnings for the
years ended December 30, 2007, December 31, 2006 and December 25, 2005. Three cash flow hedges were discontinued for the year ended December 25, 2005. The $0.1 million favorable impact of terminating the hedges was recorded
in the statement of operations in accordance with SFAS 133. No cash flow hedges were derecognized or discontinued in 2007 and 2006.
Derivative gains and losses included in other comprehensive income (OCI) are reclassified into earnings at the time the forecasted transaction is recognized. The company estimates that the entire $1.2 million of net unrealized derivative
losses included in OCI will be reclassified into earnings within the next twelve months.
Interest Rate Derivatives.
The
companys variable-rate debt exposes the company to variability in interest payments due to changes in interest rates. The company uses a forward interest rate swap to mitigate the interest rate risk on a portion of its variable-rate borrowings
in order to manage fluctuations in cash flows resulting from changes in interest rates on variable-rate debt.
Effectiveness of this hedge
is calculated by comparing the fair value of the derivative to a hypothetical derivative that would be a perfect hedge of floating rate debt. The value of the hedge at inception was zero and there was no ineffectiveness as of December 30, 2007
and December 31, 2006.
Derivative gains and losses included in OCI are reclassified into earnings at the time the forecasted
transaction is recognized. There is currently $3.4 million of unrealized losses included in OCI. The amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the
floating-rate debt obligations affect earnings.
The table below shows the fair value and notional principal of the companys
derivative financial instruments as of December 30, 2007 and December 31, 2006. The estimated fair value as of December 30, 2007 and December 31, 2006 is recorded in other liabilities and other assets, respectively, on the
balance sheet. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of year end and do not represent the amount of the companys exposure to credit or market loss. The estimates of
fair value are based on applicable and commonly used pricing models using prevailing financial market information as of December 30, 2007 and December 31, 2006. Although the following table reflects the notional principal and fair value of
amounts of derivative financial instruments, it does not reflect the gains or losses associated with the exposures and transactions that these financial instruments are intended to hedge. The amounts ultimately realized upon settlement of these
financial instruments, together with the gains and losses on the underlying exposures will depend on actual market conditions during the remaining life of the instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2007
|
|
|
December 31, 2006
|
|
|
|
Notional
Principal
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Notional
Principal
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
|
(In millions)
|
|
Foreign currency exchange contracts
|
|
$
|
195.1
|
|
$
|
(1.2
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
127.0
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
Interest rate swap contract
|
|
$
|
150.0
|
|
$
|
(3.4
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
150.0
|
|
$
|
|
|
|
$
|
|
|
92
Fair Value of Financial Instruments
A summary table of estimated fair values of other financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2007
|
|
December 31, 2006
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
|
(In millions)
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Subordinated Notes
|
|
$
|
200.0
|
|
$
|
198.0
|
|
$
|
200.0
|
|
$
|
198.0
|
Term loan
|
|
|
370.3
|
|
|
353.6
|
|
|
373.1
|
|
|
372.7
|
Revolving Credit Facility borrowings
|
|
|
19.4
|
|
|
19.4
|
|
|
19.4
|
|
|
19.4
|
NOTE 16OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
Fairchild designs, develops, manufactures and markets high performance multi-market semiconductors. Effective December 26, 2005 (first day of fiscal
year 2006), the company changed the titles of its operating segments to align the segment presentation with the way management manages the business. This change had no material impact on the historical financial results of the segments presented in
this report. As of December 30, 2007, the company was organized into three reportable segments: Functional Power, Analog Products, previously known as Power Discrete and Power Analog, respectively, and Standard Products. Functional Power
includes high voltage, low voltage, automotive and radio frequency products. Analog Products includes system power, power conversion, signal conditioning, switches and interface products. Standard Products includes optoelectronics lighting, standard
linear, logic, standard diode and transistors, bipolar and foundry products.
In addition to the operating segments mentioned above, the
company also operates global operations, sales and marketing, information systems, finance and administration groups that are led by vice presidents who report to the Chief Executive Officer. The expenses of these groups are generally allocated to
the operating segments based upon their percentage of total revenue and are included in the operating results reported below. The company does not allocate income taxes or interest expense to its operating segments as the operating segments are
principally evaluated on operating profit before interest and taxes.
The company does not specifically identify and allocate all assets by
operating segment. It is the companys policy to fully allocate depreciation and amortization to its operating segments. Operating segments do not sell products to each other, and accordingly, there are no inter-segment revenues to be reported.
The accounting policies for segment reporting are the same as for the company as a whole.
93
The following table presents selected statement of operations information on reportable segments for
2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
|
December 25,
2005
|
|
|
|
(In millions)
|
|
Revenue and Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Functional Power
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
931.7
|
|
|
$
|
902.6
|
|
|
$
|
732.2
|
|
Operating income
|
|
|
136.9
|
|
|
|
124.9
|
|
|
|
49.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
345.7
|
|
|
|
320.1
|
|
|
|
266.8
|
|
Operating loss
|
|
|
(25.6
|
)
|
|
|
(13.1
|
)
|
|
|
(39.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
392.8
|
|
|
|
428.4
|
|
|
|
426.1
|
|
Operating income
|
|
|
36.8
|
|
|
|
38.8
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss (1)
|
|
|
(45.8
|
)
|
|
|
(32.1
|
)
|
|
|
(23.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,670.2
|
|
|
$
|
1,651.1
|
|
|
$
|
1,425.1
|
|
Operating income (loss)
|
|
$
|
102.3
|
|
|
$
|
118.5
|
|
|
$
|
(5.5
|
)
|
(1)
|
Operating loss in 2007 includes $24.8 million of stock-based compensation expense, $10.8 million of restructuring and impairments expense, $9.5 million in charges for potential
litigation outcomes, net (see Note 14), a net loss of $0.4 million on the sale of a product line and $0.3 million of other expense. Operating loss in 2006 includes $26.7 million of stock-based compensation expense, $8.2 million for a reserve for
potential litigation outcomes, net (see Note 14), $3.2 million for restructuring and impairments, and a net gain of $6.0 million on the sale of a product line. Operating loss in 2005 includes $16.9 million for restructuring and impairments, and also
includes $6.9 million in charges for potential litigation outcomes, net (see Note 14).
|
Depreciation and
amortization by reportable operating segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
December 25,
2005
|
|
|
(In millions)
|
Functional Power
|
|
$
|
72.4
|
|
$
|
68.8
|
|
$
|
86.6
|
Analog Products
|
|
|
32.4
|
|
|
26.2
|
|
|
31.3
|
Standard Products
|
|
|
22.2
|
|
|
21.8
|
|
|
32.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
127.0
|
|
$
|
116.8
|
|
$
|
150.2
|
|
|
|
|
|
|
|
|
|
|
94
Geographic revenue information is based on the customer location within the indicated geographic region.
Revenue by geographic region was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
December 25,
2005
|
|
|
(In millions)
|
Total Revenue:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
150.3
|
|
$
|
165.1
|
|
$
|
142.5
|
Other Americas
|
|
|
50.1
|
|
|
49.5
|
|
|
28.5
|
Europe
|
|
|
200.4
|
|
|
198.1
|
|
|
156.8
|
China
|
|
|
484.5
|
|
|
445.8
|
|
|
356.3
|
Taiwan
|
|
|
350.7
|
|
|
313.7
|
|
|
285.0
|
Other Asia/Pacific
|
|
|
217.1
|
|
|
231.2
|
|
|
228.0
|
Korea
|
|
|
217.1
|
|
|
247.7
|
|
|
228.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,670.2
|
|
$
|
1,651.1
|
|
$
|
1,425.1
|
|
|
|
|
|
|
|
|
|
|
Other Asia/Pacific includes Japan, Singapore, and Malaysia.
Geographic property, plant and equipment balances as of December 30, 2007 and December 31, 2006 are based on the physical locations within the
indicated geographic areas and are as follows:
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
|
(In millions)
|
Property, Plant & Equipment, Net:
|
|
|
|
|
|
|
United States
|
|
$
|
260.5
|
|
$
|
266.0
|
Korea
|
|
|
153.6
|
|
|
160.9
|
Philippines
|
|
|
70.8
|
|
|
64.6
|
Malaysia
|
|
|
77.5
|
|
|
61.3
|
China
|
|
|
98.9
|
|
|
77.0
|
All Others
|
|
|
14.7
|
|
|
16.6
|
|
|
|
|
|
|
|
Total
|
|
$
|
676.0
|
|
$
|
646.4
|
|
|
|
|
|
|
|
NOTE 17ACQUISITIONS AND DIVESTURES
On January 2, 2007, the company launched a tender offer in Taiwan to acquire 100% of the outstanding shares of Taipei-based System General. System
General is a leading supplier of analog power management semiconductors for AC/DC offline power conversion in computers, LCD monitors, printers, chargers, and consumer products. At the closing of the tender offer on February 5, 2007, 65,459,517
shares of System General stock were acquired, representing approximately 95.6% of System Generals outstanding shares. The company acquired the remaining System General shares effective August 3, 2007. The total amount paid in cash for the
100% interest, net of cash acquired, was approximately $179.8 million.
As of August 3, 2007, the operating results of System General
are included in the accompanying consolidated financial statements based on 100% ownership of System General. From February 5, 2007 to August 3, 2007, the operating results of System General were included in the accompanying consolidated
financial statements based on the 95.6% ownership interest. In connection with the acquisition, the company recorded a charge of $3.9 million for in-process research and development during 2007. The company also acquired goodwill of approximately
$123.3 million with the remainder of the purchase price in excess of the fair value of net tangible assets allocated to various other intangible assets. The purchase price allocation as of December 30, 2007 is based on the companys
estimate of the fair value of identifiable intangible and net tangible assets acquired. The final purchase price allocation will be completed upon completion of this analysis.
95
No proforma results of operations are presented because System General does not constitute a significant
subsidiary.
On September 5, 2007, the company announced the sale of selected assets of the Radio Frequency (RF) product line to
ANADIGICS, Inc. for approximately $1.5 million, net of cash expended for transaction fees. As a result of the sale, the company recorded a net loss of $0.4 million during the third quarter of 2007.
On May 1, 2006, the company completed its acquisition of the design team and certain assets of Orion Design Technologies, an analog design center
located in Lee, New Hampshire, for approximately $1.2 million in cash. The acquisition was made to augment the companys Analog Power design resources. The transaction was accounted for as an asset purchase without assumption of existing
liabilities. The purchase price was allocated to various tangible assets and assembled workforce, which is being amortized over the estimated useful life of 5 years.
On January 3, 2006, the company announced the sale of the light-emitting diode (LED) lamps and displays product line to Everlight International Corporation, a U.S. subsidiary of Everlight Electronics Company,
Ltd., of Taiwan. The company decided to sell the LED lamps and displays product line as it does not fit the strategic direction of the company. The company retained the optocoupler and infrared product lines, as these products are closer to and
complement the companys core strategy. The company intends to grow these product lines through focused research and development.
As
part of the sale agreement, the company assisted Everlight with transitioning the product line by directly supporting the sale of LED lamps and displays products to its customers for an appropriate period of time. As a result of the sale, the
company recorded a net gain on the sale of $6.0 million during 2006 and net cash proceeds of $6.6 million. The divestiture is considered immaterial and, therefore, no pro forma results of operations have been presented.
NOTE 18CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The company operates through its wholly owned subsidiary Fairchild Semiconductor Corporation and other indirect wholly owned subsidiaries. Fairchild Semiconductor International, Inc. and certain of Fairchild Semiconductor Corporations
subsidiaries are guarantors under the companys senior credit facility and Fairchild Semiconductor Corporations 5% Convertible Senior Subordinated Notes. These guarantees are joint and several. Accordingly, presented below are
condensed consolidating balance sheets of Fairchild Semiconductor International, Inc. as of December 30, 2007 and December 31, 2006 and related condensed consolidating statements of operations and cash flows for 2007, 2006 and 2005.
96
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2007
|
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
|
(In millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
132.0
|
|
|
$
|
|
|
|
$
|
277.0
|
|
|
$
|
|
|
|
$
|
409.0
|
|
Short-term marketable securities
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
2.1
|
|
Accounts receivable, net
|
|
|
|
|
|
|
14.0
|
|
|
|
0.1
|
|
|
|
164.9
|
|
|
|
|
|
|
|
179.0
|
|
Inventories
|
|
|
|
|
|
|
41.5
|
|
|
|
0.2
|
|
|
|
201.8
|
|
|
|
|
|
|
|
243.5
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.2
|
|
|
|
|
|
|
|
9.2
|
|
Other current assets
|
|
|
|
|
|
|
14.6
|
|
|
|
|
|
|
|
28.1
|
|
|
|
|
|
|
|
42.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
202.3
|
|
|
|
0.3
|
|
|
|
682.9
|
|
|
|
|
|
|
|
885.5
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
257.1
|
|
|
|
1.0
|
|
|
|
417.9
|
|
|
|
|
|
|
|
676.0
|
|
Deferred income taxes
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
7.7
|
|
|
|
|
|
|
|
11.6
|
|
Intangible assets, net
|
|
|
|
|
|
|
19.8
|
|
|
|
9.7
|
|
|
|
94.2
|
|
|
|
|
|
|
|
123.7
|
|
Goodwill
|
|
|
|
|
|
|
167.7
|
|
|
|
61.7
|
|
|
|
123.8
|
|
|
|
|
|
|
|
353.2
|
|
Long-term marketable securities
|
|
|
|
|
|
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51.0
|
|
Investment in subsidiary
|
|
|
1,221.7
|
|
|
|
1,191.7
|
|
|
|
447.4
|
|
|
|
221.6
|
|
|
|
(3,082.4
|
)
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
13.6
|
|
|
|
0.9
|
|
|
|
17.1
|
|
|
|
|
|
|
|
31.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,221.7
|
|
|
$
|
1,907.1
|
|
|
$
|
521.0
|
|
|
$
|
1,565.2
|
|
|
$
|
(3,082.4
|
)
|
|
$
|
2,132.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
|
$
|
203.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
203.7
|
|
Accounts payable
|
|
|
|
|
|
|
35.2
|
|
|
|
0.4
|
|
|
|
95.0
|
|
|
|
|
|
|
|
130.6
|
|
Accrued expenses and other current liabilities
|
|
|
|
|
|
|
51.1
|
|
|
|
1.7
|
|
|
|
57.7
|
|
|
|
|
|
|
|
110.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
290.0
|
|
|
|
2.1
|
|
|
|
152.7
|
|
|
|
|
|
|
|
444.8
|
|
Long-term debt, less current portion
|
|
|
|
|
|
|
385.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385.9
|
|
Net intercompany (receivable) payable
|
|
|
|
|
|
|
(26.2
|
)
|
|
|
(226.2
|
)
|
|
|
252.4
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
29.1
|
|
|
|
|
|
|
|
5.5
|
|
|
|
|
|
|
|
34.6
|
|
Other liabilities
|
|
|
|
|
|
|
13.6
|
|
|
|
|
|
|
|
32.0
|
|
|
|
|
|
|
|
45.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
692.4
|
|
|
|
(224.1
|
)
|
|
|
442.6
|
|
|
|
|
|
|
|
910.9
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equitydeferred stock units
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Additional paid-in capital
|
|
|
1,371.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,371.7
|
|
Retained earnings (accumulated deficit)
|
|
|
(116.6
|
)
|
|
|
1,221.7
|
|
|
|
745.1
|
|
|
|
1,125.6
|
|
|
|
(3,092.4
|
)
|
|
|
(116.6
|
)
|
Accumulated other comprehensive loss
|
|
|
(10.0
|
)
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
(3.0
|
)
|
|
|
10.0
|
|
|
|
(10.0
|
)
|
Less treasury stock (at cost)
|
|
|
(27.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,218.5
|
|
|
|
1,214.7
|
|
|
|
745.1
|
|
|
|
1,122.6
|
|
|
|
(3,082.4
|
)
|
|
|
1,218.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, temporary equity and stockholders equity
|
|
$
|
1,221.7
|
|
|
$
|
1,907.1
|
|
|
$
|
521.0
|
|
|
$
|
1,565.2
|
|
|
$
|
(3,082.4
|
)
|
|
$
|
2,132.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30, 2007
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
(In millions)
|
Total revenue
|
|
$
|
|
|
|
$
|
573.9
|
|
|
$
|
1.1
|
|
|
$
|
3,132.9
|
|
|
$
|
(2,037.7
|
)
|
|
$
|
1,670.2
|
Cost of sales
|
|
|
|
|
|
|
511.0
|
|
|
|
4.1
|
|
|
|
2,702.3
|
|
|
|
(2,037.7
|
)
|
|
|
1,179.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
62.9
|
|
|
|
(3.0
|
)
|
|
|
430.6
|
|
|
|
|
|
|
|
490.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
|
|
59.5
|
|
|
|
11.1
|
|
|
|
39.2
|
|
|
|
|
|
|
|
109.8
|
Selling, general and administrative
|
|
|
|
|
|
|
116.4
|
|
|
|
5.0
|
|
|
|
108.9
|
|
|
|
|
|
|
|
230.3
|
Amortization of acquisition-related intangibles
|
|
|
|
|
|
|
5.5
|
|
|
|
2.0
|
|
|
|
16.0
|
|
|
|
|
|
|
|
23.5
|
Restructuring and impairments
|
|
|
|
|
|
|
3.9
|
|
|
|
1.8
|
|
|
|
5.1
|
|
|
|
|
|
|
|
10.8
|
Charge for potential litigation outcomes
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
10.0
|
|
|
|
|
|
|
|
9.5
|
Loss on sale of product line, net
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.4
|
Purchased in-process research & development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
185.0
|
|
|
|
19.9
|
|
|
|
183.3
|
|
|
|
|
|
|
|
388.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
(122.1
|
)
|
|
|
(22.9
|
)
|
|
|
247.3
|
|
|
|
|
|
|
|
102.3
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
|
|
|
|
29.7
|
|
|
|
|
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
20.2
|
Equity in subsidiary (income) loss
|
|
|
(64.0
|
)
|
|
|
(219.7
|
)
|
|
|
6.4
|
|
|
|
|
|
|
|
277.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
64.0
|
|
|
|
67.9
|
|
|
|
(29.3
|
)
|
|
|
256.8
|
|
|
|
(277.3
|
)
|
|
|
82.1
|
Provision for income taxes
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
14.2
|
|
|
|
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
64.0
|
|
|
$
|
64.0
|
|
|
$
|
(29.3
|
)
|
|
$
|
242.6
|
|
|
$
|
(277.3
|
)
|
|
$
|
64.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30, 2007
|
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
|
(In millions)
|
|
Cash flows provided by (used in) operating activities:
|
|
$
|
|
|
|
$
|
(26.6
|
)
|
|
$
|
|
|
$
|
217.2
|
|
|
$
|
190.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
(152.0
|
)
|
|
|
|
|
|
(13.7
|
)
|
|
|
(165.7
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
159.6
|
|
|
|
|
|
|
13.1
|
|
|
|
172.7
|
|
Maturity of marketable securities
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Capital expenditures
|
|
|
|
|
|
|
(39.4
|
)
|
|
|
|
|
|
(101.0
|
)
|
|
|
(140.4
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
0.2
|
|
|
|
0.5
|
|
Purchase of molds and tooling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
(1.7
|
)
|
Acquisitions and divestitures, net of cash
|
|
|
|
|
|
|
(178.3
|
)
|
|
|
|
|
|
|
|
|
|
(178.3
|
)
|
Investment (in) from affiliate
|
|
|
(8.8
|
)
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(8.8
|
)
|
|
|
(200.9
|
)
|
|
|
|
|
|
(103.1
|
)
|
|
|
(312.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
(2.8
|
)
|
Proceeds from issuance of common stock and from exercise of stock options, net
|
|
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.1
|
|
Purchase of treasury stock
|
|
|
(28.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
8.8
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
(230.3
|
)
|
|
|
|
|
|
114.1
|
|
|
|
(116.2
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
362.3
|
|
|
|
|
|
|
162.9
|
|
|
|
525.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
132.0
|
|
|
$
|
|
|
$
|
277.0
|
|
|
$
|
409.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
$
|
27.6
|
|
|
$
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
$
|
30.4
|
|
|
$
|
|
|
$
|
|
|
|
$
|
30.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
|
(In millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
362.3
|
|
|
$
|
|
|
|
$
|
162.9
|
|
$
|
|
|
|
$
|
525.2
|
|
Short-term marketable securities
|
|
|
|
|
|
|
59.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.1
|
|
Accounts receivable, net
|
|
|
|
|
|
|
18.3
|
|
|
|
(0.1
|
)
|
|
|
145.1
|
|
|
|
|
|
|
163.3
|
|
Inventories
|
|
|
|
|
|
|
43.7
|
|
|
|
0.5
|
|
|
|
194.7
|
|
|
|
|
|
|
238.9
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
|
|
|
11.5
|
|
Other current assets
|
|
|
|
|
|
|
18.1
|
|
|
|
|
|
|
|
12.4
|
|
|
|
|
|
|
30.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
501.5
|
|
|
|
0.4
|
|
|
|
526.6
|
|
|
|
|
|
|
1,028.5
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
264.4
|
|
|
|
1.6
|
|
|
|
380.4
|
|
|
|
|
|
|
646.4
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
0.9
|
|
Intangible assets, net
|
|
|
|
|
|
|
25.6
|
|
|
|
11.7
|
|
|
|
66.3
|
|
|
|
|
|
|
103.6
|
|
Goodwill
|
|
|
|
|
|
|
167.7
|
|
|
|
61.8
|
|
|
|
0.4
|
|
|
|
|
|
|
229.9
|
|
Long-term marketable securities
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Investment in subsidiary
|
|
|
1,133.4
|
|
|
|
985.3
|
|
|
|
250.2
|
|
|
|
259.6
|
|
|
(2,628.5
|
)
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
14.8
|
|
|
|
2.0
|
|
|
|
17.4
|
|
|
|
|
|
|
34.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,133.4
|
|
|
$
|
1,961.4
|
|
|
$
|
327.7
|
|
|
$
|
1,251.6
|
|
$
|
(2,628.5
|
)
|
|
$
|
2,045.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
|
$
|
2.8
|
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
|
$
|
2.8
|
|
Accounts payable
|
|
|
|
|
|
|
25.1
|
|
|
|
0.6
|
|
|
|
64.5
|
|
|
|
|
|
|
90.2
|
|
Accrued expenses and other current liabilities
|
|
|
|
|
|
|
95.8
|
|
|
|
4.2
|
|
|
|
69.5
|
|
|
|
|
|
|
169.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
123.7
|
|
|
|
4.8
|
|
|
|
134.0
|
|
|
|
|
|
|
262.5
|
|
Long-term debt, less current portion
|
|
|
|
|
|
|
589.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589.7
|
|
Net intercompany (receivable) payable
|
|
|
|
|
|
|
88.1
|
|
|
|
(245.8
|
)
|
|
|
157.7
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
26.1
|
|
|
|
|
|
|
|
8.9
|
|
|
|
|
|
|
35.0
|
|
Other liabilities
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
23.5
|
|
|
|
|
|
|
24.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
828.1
|
|
|
|
(241.0
|
)
|
|
|
324.1
|
|
|
|
|
|
|
911.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equitydeferred stock units
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Additional paid-in capital
|
|
|
1,319.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,319.1
|
|
Retained earnings (accumulated deficit)
|
|
|
(182.5
|
)
|
|
|
1,133.4
|
|
|
|
568.7
|
|
|
|
926.4
|
|
|
(2,628.5
|
)
|
|
|
(182.5
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
1.0
|
|
Less treasury stock (at cost)
|
|
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,131.2
|
|
|
|
1,133.3
|
|
|
|
568.7
|
|
|
|
927.5
|
|
|
(2,628.5
|
)
|
|
|
1,132.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, temporary equity and stockholders equity
|
|
$
|
1,133.4
|
|
|
$
|
1,961.4
|
|
|
$
|
327.7
|
|
|
$
|
1,251.6
|
|
$
|
(2,628.5
|
)
|
|
$
|
2,045.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
|
(In millions)
|
|
Total revenue
|
|
$
|
|
|
|
$
|
1,506.2
|
|
|
$
|
3.4
|
|
|
$
|
2,165.7
|
|
|
$
|
(2,024.2
|
)
|
|
$
|
1,651.1
|
|
Cost of sales
|
|
|
|
|
|
|
1,339.8
|
|
|
|
7.0
|
|
|
|
1,831.7
|
|
|
|
(2,024.2
|
)
|
|
|
1,154.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
166.4
|
|
|
|
(3.6
|
)
|
|
|
334.0
|
|
|
|
|
|
|
|
496.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
|
|
62.6
|
|
|
|
14.7
|
|
|
|
30.2
|
|
|
|
|
|
|
|
107.5
|
|
Selling, general and administrative
|
|
|
|
|
|
|
152.4
|
|
|
|
7.4
|
|
|
|
82.1
|
|
|
|
|
|
|
|
241.9
|
|
Amortization of acquisition-related intangibles
|
|
|
|
|
|
|
5.4
|
|
|
|
2.1
|
|
|
|
16.0
|
|
|
|
|
|
|
|
23.5
|
|
Restructuring and impairments
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Charge for potential litigation outcomes
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
Gain on sale of product line, net
|
|
|
|
|
|
|
0.1
|
|
|
|
(5.7
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
231.9
|
|
|
|
18.5
|
|
|
|
127.9
|
|
|
|
|
|
|
|
378.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
(65.5
|
)
|
|
|
(22.1
|
)
|
|
|
206.1
|
|
|
|
|
|
|
|
118.5
|
|
Other (income) expense, net
|
|
|
|
|
|
|
28.1
|
|
|
|
(0.2
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
19.7
|
|
Equity in subsidiary income
|
|
|
(83.4
|
)
|
|
|
(180.9
|
)
|
|
|
(40.7
|
)
|
|
|
|
|
|
|
305.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
83.4
|
|
|
|
87.3
|
|
|
|
18.8
|
|
|
|
214.3
|
|
|
|
(305.0
|
)
|
|
|
98.8
|
|
Provision for income taxes
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
11.5
|
|
|
|
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
83.4
|
|
|
$
|
83.4
|
|
|
$
|
18.8
|
|
|
$
|
202.8
|
|
|
$
|
(305.0
|
)
|
|
$
|
83.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
|
(In millions)
|
|
Cash flows provided by operating activities:
|
|
$
|
|
|
|
$
|
85.5
|
|
|
$
|
0.6
|
|
|
$
|
98.8
|
|
|
$
|
184.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
(176.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(176.1
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
249.3
|
|
|
|
|
|
|
|
|
|
|
|
249.3
|
|
Maturity of marketable securities
|
|
|
|
|
|
|
81.1
|
|
|
|
|
|
|
|
|
|
|
|
81.1
|
|
Capital expenditures
|
|
|
|
|
|
|
(27.5
|
)
|
|
|
(0.6
|
)
|
|
|
(83.7
|
)
|
|
|
(111.8
|
)
|
Purchase of molds and tooling
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(2.1
|
)
|
Sale of strategic investment
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Acquisitions and divestitures, net of cash
|
|
|
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
Investment (in) from affiliate
|
|
|
(18.2
|
)
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
|
|
|
(18.2
|
)
|
|
|
151.4
|
|
|
|
(0.6
|
)
|
|
|
(85.7
|
)
|
|
|
46.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(54.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(54.1
|
)
|
Proceeds from issuance of common stock and from exercise of stock options, net
|
|
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.3
|
|
Purchase of treasury stock
|
|
|
(9.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.1
|
)
|
Debt Issuance costs
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
18.2
|
|
|
|
(55.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(37.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
181.4
|
|
|
|
|
|
|
|
13.1
|
|
|
|
194.5
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
180.9
|
|
|
|
|
|
|
|
149.8
|
|
|
|
330.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
362.3
|
|
|
$
|
|
|
|
$
|
162.9
|
|
|
$
|
525.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
$
|
12.5
|
|
|
$
|
|
|
|
$
|
9.7
|
|
|
$
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
$
|
44.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 25, 2005
|
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
|
(In millions)
|
|
Total revenue
|
|
$
|
|
|
|
$
|
1,318.5
|
|
|
$
|
7.1
|
|
|
$
|
1,781.7
|
|
|
$
|
(1,682.2
|
)
|
|
$
|
1,425.1
|
|
Cost of sales
|
|
|
|
|
|
|
1,206.8
|
|
|
|
15.6
|
|
|
|
1,570.6
|
|
|
|
(1,682.2
|
)
|
|
|
1,110.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
111.7
|
|
|
|
(8.5
|
)
|
|
|
211.1
|
|
|
|
|
|
|
|
314.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
|
|
43.9
|
|
|
|
10.7
|
|
|
|
23.0
|
|
|
|
|
|
|
|
77.6
|
|
Selling, general and administrative
|
|
|
|
|
|
|
129.6
|
|
|
|
4.6
|
|
|
|
60.3
|
|
|
|
|
|
|
|
194.5
|
|
Amortization of acquisition-related intangibles
|
|
|
|
|
|
|
5.6
|
|
|
|
2.3
|
|
|
|
16.0
|
|
|
|
|
|
|
|
23.9
|
|
Restructuring and impairments
|
|
|
|
|
|
|
15.5
|
|
|
|
0.1
|
|
|
|
1.3
|
|
|
|
|
|
|
|
16.9
|
|
Charge for potential litigation outcomes
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
201.5
|
|
|
|
17.7
|
|
|
|
100.6
|
|
|
|
|
|
|
|
319.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
(89.8
|
)
|
|
|
(26.2
|
)
|
|
|
110.5
|
|
|
|
|
|
|
|
(5.5
|
)
|
Other (income) expense, net
|
|
|
|
|
|
|
33.0
|
|
|
|
(0.1
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
31.0
|
|
Equity in subsidiary (income) loss
|
|
|
235.3
|
|
|
|
(63.6
|
)
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
(160.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(235.3
|
)
|
|
|
(59.2
|
)
|
|
|
(14.7
|
)
|
|
|
112.4
|
|
|
|
160.3
|
|
|
|
(36.5
|
)
|
Provision for income taxes
|
|
|
5.9
|
|
|
|
176.1
|
|
|
|
12.5
|
|
|
|
10.2
|
|
|
|
|
|
|
|
204.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(241.2
|
)
|
|
$
|
(235.3
|
)
|
|
$
|
(27.2
|
)
|
|
$
|
102.2
|
|
|
$
|
160.3
|
|
|
$
|
(241.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 25, 2005
|
|
|
|
Unconsolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
Unconsolidated
Fairchild
Semiconductor
Corporation
|
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Consolidated
Fairchild
Semiconductor
International, Inc.
|
|
|
|
(In millions)
|
|
Cash flows provided by (used in) operating activities:
|
|
$
|
|
|
|
$
|
(20.0
|
)
|
|
$
|
|
|
$
|
170.7
|
|
|
$
|
150.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
(591.3
|
)
|
|
|
|
|
|
|
|
|
|
(591.3
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
899.5
|
|
|
|
|
|
|
|
|
|
|
899.5
|
|
Maturity of marketable securities
|
|
|
|
|
|
|
20.6
|
|
|
|
|
|
|
|
|
|
|
20.6
|
|
Capital expenditures
|
|
|
|
|
|
|
(29.3
|
)
|
|
|
|
|
|
(68.1
|
)
|
|
|
(97.4
|
)
|
Purchase of molds and tooling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.5
|
)
|
|
|
(2.5
|
)
|
Investment (in) from affiliate
|
|
|
(7.7
|
)
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
|
|
|
(7.7
|
)
|
|
|
307.2
|
|
|
|
|
|
|
(70.6
|
)
|
|
|
228.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(356.4
|
)
|
|
|
|
|
|
|
|
|
|
(356.4
|
)
|
Issuance of long-term debt
|
|
|
|
|
|
|
154.5
|
|
|
|
|
|
|
|
|
|
|
154.5
|
|
Proceeds from issuance of common stock and from exercise of stock options, net
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.7
|
|
Purchase of treasury stock
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.0
|
)
|
Other
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
7.7
|
|
|
|
(202.9
|
)
|
|
|
|
|
|
|
|
|
|
(195.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
84.3
|
|
|
|
|
|
|
100.1
|
|
|
|
184.4
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
96.6
|
|
|
|
|
|
|
49.7
|
|
|
|
146.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
180.9
|
|
|
$
|
|
|
$
|
149.8
|
|
|
$
|
330.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
$
|
3.9
|
|
|
$
|
|
|
$
|
12.9
|
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
$
|
49.1
|
|
|
$
|
|
|
$
|
|
|
|
$
|
49.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect associated with other comprehensive income
|
|
$
|
|
|
|
$
|
1.5
|
|
|
$
|
|
|
$
|
|
|
|
$
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
NOTE 19UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial information for 2007 and 2006 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Total revenue
|
|
$
|
402.6
|
|
$
|
408.9
|
|
$
|
426.8
|
|
$
|
431.9
|
Gross margin
|
|
|
111.5
|
|
|
114.6
|
|
|
129.4
|
|
|
135.0
|
Net Income
|
|
|
6.3
|
|
|
3.4
|
|
|
20.3
|
|
|
34.0
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.05
|
|
$
|
0.03
|
|
$
|
0.16
|
|
$
|
0.27
|
|
|
|
|
|
Diluted income per common share
|
|
$
|
0.05
|
|
$
|
0.03
|
|
$
|
0.16
|
|
$
|
0.27
|
|
|
|
|
2006
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Total revenue
|
|
$
|
409.5
|
|
$
|
406.3
|
|
$
|
417.0
|
|
$
|
418.3
|
Gross margin
|
|
|
122.5
|
|
|
125.0
|
|
|
127.9
|
|
|
121.4
|
Net Income
|
|
|
26.6
|
|
|
23.0
|
|
|
25.1
|
|
|
8.7
|
|
|
|
|
|
Basic income per common share
|
|
$
|
0.22
|
|
$
|
0.19
|
|
$
|
0.20
|
|
$
|
0.07
|
|
|
|
|
|
Diluted income per common share
|
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.20
|
|
$
|
0.07
|
105