Fairchild Semiconductor Financial

Background
     Fairchild Semiconductor International, Inc. (“Fairchild International” or the “Company”), formerly known as FSC Semiconductor Corporation, was incorporated on March 10, 1997 by National Semiconductor Corporation (“National Semiconductor” or “National”). On March 11, 1997, National Semiconductor consummated an Agreement and Plan of Recapitalization (“Recapitalization”). As part of the Recapitalization, National Semiconductor transferred all of the capital stock of Fairchild Semiconductor Corporation (“Fairchild”) and approximately $12.8 million in cash to Fairchild International in exchange for shares of Fairchild International’s 12% Series A Cumulative Compounding Preferred Stock, Fairchild International’s common stock and a promissory note in the principal amount of approximately $77.0 million.
     In addition, National Semiconductor transferred substantially all of the assets and liabilities of the Fairchild Semiconductor Business (the “Business”) to Fairchild International. The Business was defined as the logic, discrete and memory divisions of National Semiconductor. The Recapitalization was accounted for as a leveraged recapitalization, whereby Fairchild International assumed the historical operating results of the Business. Fairchild International is a leading global designer, developer and manufacturer of high performance multi-market semiconductors. Fairchild International’s interface and logic, discrete, non-volatile memory and analog and mixed signal products are the building block components for virtually all electronic devices, from sophisticated computers to household appliances. The Company is headquartered in South Portland, Maine, and has manufacturing operations in South Portland, Maine, West Jordan, Utah, Cebu, the Philippines, Penang, Malaysia and Puchon, South Korea.
     On December 31, 1998, Fairchild acquired Raytheon Semiconductor Inc. (“Raytheon”). On April 13, 1999, Fairchild acquired the Power Device Business of Samsung Electronics (the “power device business”). (See Note 17)

Basis of Presentation
     The consolidated financial statements as of December 26, 1999 and May 30, 1999, and for the seven months ended December 26, 1999, the fiscal years ended May 30, 1999 and May 31, 1998 and for the period from March 11, 1997 through May 25, 1997, include the accounts and operations of the Company and its wholly-owned subsidiaries.
     Prior to March 11, 1997, the combined balance sheets included the assets and liabilities that were directly related to the Business as they were operated within National Semiconductor. These balance sheets did not include National Semiconductor’s corporate assets or liabilities not specifically identifiable to Fairchild. National Semiconductor performed cash management on a centralized basis and processed related receivables and certain payables, payroll and other activity for Fairchild. These systems did not track receivables, liabilities and cash receipts and payments on a business specific basis. Accordingly, it was not practical to determine certain assets and liabilities associated with the Business. Given these constraints, certain supplemental cash flow information is presented in lieu of a statement of cash flows for the year ended May 25, 1997. (See Note 16) The cash flows may have been significantly different if not for the centralized cash management system of National Semiconductor.
     Prior to March 11, 1997, the combined statements of operations included all revenues and costs attributable to the Business including an allocation of the costs of shared facilities and overhead of National Semiconductor. In addition, certain costs incurred at Fairchild plants for the benefit of other National Semiconductor product lines were allocated from Fairchild to National Semiconductor. All of the allocations and estimates in the combined statements of operations were based on assumptions that management believes were reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs that would have resulted if the Business had been operated on a stand-alone basis.
     Transactions with National Semiconductor have been identified in the consolidated financial statements as transactions between related parties to the extent practicable. (See Note 12)

Fiscal Year
The Company changed its fiscal year end from the last Sunday in May to the last Sunday in December. The Company’s results for the seven months ended December 26, 1999 (Stub Year 1999) and for the fiscal years ended May 30, 1999 (Fiscal 1999), May 31, 1998 (Fiscal 1998) and May 25, 1997 (Fiscal 1997) consist of 30 weeks, 52 weeks, 53 weeks, and 52 weeks, respectively.

Principles of Consolidation
Commencing with the Recapitalization, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition
Revenue from the sale of semiconductor products is recognized when shipped, with a provision for estimated returns and allowances recorded at the time of shipment. Contract manufacturing revenues are recognized upon completion of the contracted services.

Research and Development Costs
The Company’s research and development expenditures are charged to expense as incurred.

Related Party Activity
     In conjunction with the Recapitalization, Fairchild International and National Semiconductor executed several agreements, which govern the performance of manufacturing services by Fairchild International on behalf of National Semiconductor and by National Semiconductor on behalf of Fairchild International. In addition, National Semiconductor provided a number of business support services to Fairchild International through May 30, 1999.
     Prior to the Recapitalization, the Business performed contract manufacturing services for National Semiconductor. The revenues for these services are reflected at cost in the accompanying consolidated statements of operations.
     Manufacturing costs were generally apportioned between National Semiconductor and the Business’ product lines based upon budgeted and actual factory production loading. Certain manufacturing costs (e.g., material costs) that were specifically identifiable with a particular product line were charged or credited directly without apportionment.
     National Semiconductor also performed manufacturing services for the Business and incurred other elements of cost of sales on behalf of the Business, including freight, duty, warehousing, and purchased manufacturing services from third-party vendors.
     Shared or common costs, including certain general and administrative, sales and marketing, and research and development expenses, have been allocated from National Semiconductor’s corporate office, selling and marketing locations, and manufacturing sites to the Business or from the Business’ plants to National Semiconductor product lines on a basis which is considered to fairly and reasonably reflect the utilization of the services provided to, or benefit obtained by, the business receiving the charge. National Semiconductor had net interest income on a consolidated basis for all periods presented prior to the Recapitalization. Although not material, these amounts have been allocated to the Business prior to the Recapitalization on the basis of net assets and are included in other expense, net. (See Note 12)

Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Inventories
Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market.

Property, Plant and Equipment
Property, plant and equipment is recorded at cost and is 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.

Intangible Assets
Intangible assets were recorded as part of the Raytheon and power device business acquisitions and are amortized by the use of the straight-line method over their estimated lives, which are generally three to fifteen years. (See Notes 3 and 17)

Other Assets
Other assets include deferred financing costs which represent costs incurred related to the issuance of the Company’s long-term debt. The costs are being amortized using 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.

Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets not held for sale, including intangible assets, by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. Based on these evaluations, there were no adjustments to the carrying value of long-lived assets in Stub Year 1999, Fiscal 1999, Fiscal 1998, and Fiscal 1997 except as discussed in Note 11.

Currencies
The Company’s 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.

Off-Balance Sheet Financial Instruments
The Company utilizes various off-balance sheet financial instruments to manage market risks associated with the fluctuations in certain interest rates and foreign currency exchange rates. It is the Company’s policy to use derivative financial instruments to protect against market risk arising from the normal course of business. Gains and losses on financial instruments that are intended to hedge an identifiable firm commitment are deferred and included in the measurement of the underlying transaction. Gains and losses on hedges of anticipated transactions are deferred until such time as the underlying transactions are recognized or immediately when the transaction is no longer expected to occur. The criteria the Company uses for designating an instrument as a hedge include the instrument’s effectiveness in risk reduction and one-to-one matching of derivative instruments to underlying transactions. In addition, the Company uses forward and option contracts to hedge certain non-U.S. denominated asset and liability positions. Gains and losses on these contracts are matched with the underlying gains and losses resulting from currency movement on these balance sheet positions.

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, interest rate swaps and caps, currency forward contracts and currency options are based on quoted market prices or pricing models using prevailing financial market information at the date of measurement.

Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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
Prior to the Recapitalization, the Business did not file separate income tax returns but rather was included in the income tax returns filed by National Semiconductor and its subsidiaries in various domestic and foreign jurisdictions. Therefore, no provision for income taxes has been recorded in the accompanying consolidated financial statements for the period from May 27, 1996 through March 10, 1997. Upon the Recapitalization, the Company became responsible for its income taxes and, therefore, the provision for income taxes included in the accompanying 1997 statement of operations is for the period from March 11, 1997 through May 25, 1997.
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.

Net Income (Loss) Per Common Share
     Net income (loss) per common share is presented for the seven months ended December 26, 1999 and for the years ended May 30, 1999 and May 31, 1998 only because it is not meaningful for earlier years since the Company did not have common stock outstanding for the entire period during any earlier year.
     Basic income (loss) per share was computed by dividing net income (loss) applicable to common stockholders by the weighted average shares of common stock outstanding. Diluted income (loss) per share also gives effect to all dilutive potential common shares outstanding, consisting solely of outstanding stock options.
     The following table reconciles net income (loss) to net income (loss) applicable to common stockholders, and basic to diluted weighted average shares outstanding:

	Seven Months Ended December 26, 1999		Year Ended

(In millions)				May 30, 1999		May 31, 1998

Basic weighted average —common shares outstanding		80.0		62.9		62.8
Net effect of dilutive stock options —based on the treasury stock method — using the average market price		3.7		—		2.2

Diluted weighted average —common shares outstanding		83.7		62.9		65.0

Net income (loss)		$21.3		$(114.1	)	$20.6
Dividends on redeemable preferred stock		2.0		9.8		8.7

Net income (loss) applicable —to common stockholders		$19.3		$(123.9	)	$11.9

Options to purchase 82,435, 4,282,570 and 750,000 shares of common stock were outstanding at December 26, 1999, May 30, 1999 and May 31, 1998, respectively, but were not included in the computation of diluted earnings per share because the effect of including such options would have been anti-dilutive.

Employee Stock Plan
The Company accounts for its stock option plan in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company provides the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation.”

Reclassification
Certain prior year amounts have been reclassified to conform with the current year presentation.

(In millions)		December 26, 1999			May 30, 1999

Inventories —Raw materials			$17.1		$13.6
—Work in process			99.3		93.1
—Finished goods			49.9		41.9

			$166.3		$148.6

Other current assets —Refundable payment of value added —tax associated with acquisition			$—		$40.9
Non-trade receivable from —manufacturing subcontractor			—		4.5
Deferred income taxes			5.6		7.6
Prepaid and other current assets			8.1		12.7

			$13.7		$65.7

Property, plant and equipment —Land			$19.0		$19.0
—Buildings and improvements			178.2		177.0
—Machinery and equipment			704.9		681.7
—Construction in progress			49.3		18.1

——Total property, plant and equipment			951.4		895.8
—Less accumulated depreciation			575.6		535.6

			$375.8		$360.2

	Period of Amortization

Intangible assets —Developed technology	15 years		$171.0		$169.7
—Customer base	8 years		54.4		53.9
—Covenant not to compete	5 years		31.0		30.8
—Trademarks and tradenames	4 years		25.3		25.1
—Assembled workforce	3 years		9.1		8.9

——Total intangible assets			290.8		288.4
—Less accumulated amortization			(29.4	)	(9.9	)

			$261.4		$278.5

Accrued expenses —Payroll and employee related accruals			$44.4		$29.3
—Accrued interest			17.1		13.5
—Restructuring and related allowances			2.6		12.5
—Income taxes payable			2.3		0.3
—Other			29.6		29.4

			$96.0		$85.0

     On April 14, 1999 the Company entered into a Senior Credit Facilities Agreement (“Credit Agreement”) with a syndicate of financial institutions in order to refinance an existing credit agreement and finance the acquisition of the power device business. (See Note 17) Borrowings under the Credit Agreement are segregated into two tranches: $100.0 million Tranche A Term Loans and $210.0 million Tranche B Term Loans. The Tranche A Term Loans were scheduled to mature on March 31, 2004, and were paid in full on August 9, 1999, with proceeds obtained from the Company’s initial public offering (“IPO”). The Company also repaid approximately $90.6 million of the Tranche B Term Loans with the IPO proceeds. The Tranche B Term Loans are scheduled to mature on December 15, 2004, and are subject to quarterly principal payments ranging from $0.3 million to $0.4 million commencing September 30, 1999 and ending September 30, 2004 with a final principal payment of $112.5 million due December 15, 2004. The Credit Agreement also includes a Revolving Credit Facility of $100.0 million. The Revolving Credit Facility is scheduled to mature on March 31, 2004. No amounts were outstanding under the Revolving Credit Facility at December 26, 1999 or May 30, 1999.
     Borrowings under the Credit Agreement accrue interest based on either the bank’s base rate or the Eurodollar rate, at the option of the Company. The interest rate was 8.4% and 8.2% for the Tranche B term loan at December 26, 1999 and May 30, 1999, respectively, and 7.7% for the Tranche A term loan at May 30, 1999. Fairchild pays a commitment fee of 0.5% per annum of the unutilized commitments under the Revolving Credit Agreement. Borrowings are secured by substantially all assets of Fairchild.
     On April 7, 1999, Fairchild issued $300.0 million of 10 3/8% Senior Subordinated Notes (the “10 3/8% Notes”) at face value. The 10 3/8% Notes pay interest on April 1 and October 1 of each year commencing October 1, 1999 and are due October 1, 2007. The 10 3/8% Notes are unsecured and are subordinated to all existing and future senior indebtedness of Fairchild. Until April 1, 2002, Fairchild can redeem an amount not to exceed 35% of the 10 3/8% Notes with proceeds raised from certain public equity offerings. On or after April 1, 2003, the 10 3/8% Notes are redeemable by Fairchild, in whole or in part, at redemption prices ranging from 100% to approximately 105% of the principal amount.
     On March 11, 1997, Fairchild issued $300.0 million of 10 1/8% Senior Subordinated Notes (the “10 1/8% Notes” and, together with the 10 3/8% Notes, the “Notes”) at face value. The 10 1/8% Notes pay interest on March 15 and September 15 of each year commencing September 15, 1997. The 10 1/8% Notes are unsecured and are subordinated to all existing and future senior indebtedness of Fairchild. The 10 1/8% Notes are redeemable by Fairchild, in whole or in part, on or after March 15, 2002 at redemption prices ranging from 100% to approximately 105% of the principal amount. Fairchild is required to redeem $150.0 million principal amount of 101/8% Notes on March 15, 2005 and $75.0 million principal amount of 10 1/8% Notes on March 15, 2006 and 2007, respectively, in each case at a redemption price of 100% of the principal amount plus accrued interest to the date of redemption.
     The payment of principal and interest on the Credit Agreement 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 and certain deferred tax assets related to interest on its debt. Fairchild has eleven direct subsidiaries and one indirect subsidiary, of which only one direct subsidiary, Fairchild Semiconductor Corporation of California (“Fairchild California”), is a guarantor on the Credit Agreement and the Notes. The remaining direct and indirect subsidiaries are foreign-based and do not guarantee either the Credit Agreement or the Notes.
     On April 13, 1999, in connection with the acquisition of the power device business, the Company entered into a Subordinated Credit Agreement with Citicorp Mezzanine Partners, L.P. (“CMP Note”) in the principal amount of $50.0 million. The CMP Note bears interest at 12.5% per annum and matures on April 13, 2008. If the Company voluntarily prepays any or all of the loan, the interest rate on the amount prepaid is increased to 18% per annum retroactive to April 13, 1999. On August 9, 1999, the Company prepaid the CMP Note, plus accrued interest, with proceeds from its IPO. As this was considered a voluntary prepayment, interest on the CMP Note was paid at a rate of 18% per annum. In connection with the issuance of the CMP Note, Fairchild International issued a warrant for the purchase of 3,538,228 shares of common stock of Fairchild International at an exercise price of $0.01 per share. As a result of this repayment, this warrant became unexerciseable.
     On March 11, 1997, the Company issued a promissory note (“PIK Note”) in the principal amount of approximately $77.0 million to National Semiconductor as part of the consideration for all of the capital stock of Fairchild. The PIK Note bears interest at 11.74% per annum and matures in 2008. On August 9, 1999, the Company paid in full the PIK Note plus accrued interest.
     The Credit Agreement and the indenture under which the Notes were issued contain certain restrictive financial and operating covenants, including limitations on stock repurchases and prohibitions on the payment of dividends, with which the Company was in compliance at December 26, 1999.
     Aggregate maturities of long-term debt for each of the next five years and thereafter are as follows:

On April 29, 1997 and January 7, 1998, the Company entered into interest rate swap agreements to reduce the impact of changes in interest rates on its Senior Credit Facilities described above under the Original Credit Agreement. The swap agreements fixed the interest rate on $60.0 million of the Senior Credit Facility at 9.26% through May 2001, and $90.0 million of the Senior Credit Facility at 8.21% through February 2000. The notional face amount of the swap agreements was $151.3 million at May 31, 1998. The swap agreement covering $60.0 million of the Senior Credit Facility was canceled without penalty on May 26, 1999. The swap agreement covering $90.0 million was settled on April 28, 1999 at a cost to the Company of $0.6 million.

NOTE 5—INCOME TAXES
     As discussed in Note 2, the Business did not pay income taxes directly or file separate income tax returns prior to the Recapitalization, and therefore, no provision for income taxes has been recorded in the accompanying financial statements for the period from May 27, 1996 to March 10, 1997.
     In conjunction with the acquisition of the power device business, the Korean government granted a ten year tax holiday to Fairchild Korea Semiconductor Ltd. The exemption is 100% for the first seven years of the holiday and 50% for the remaining three years of the holiday. Taxes exempted include income taxes, dividend withholding taxes, acquisition tax, registration tax, property tax and aggregate land tax. As such, no current provision for income taxes for Korea has been provided. The tax holiday increased net income by $18.0 million or $0.22 per fully diluted share for the seven months ended December 26, 1999.
     The provision (benefit) for income taxes included in the accompanying consolidated statements of operations for Stub year 1999, Fiscal 1999, Fiscal 1998 and the period from March 11, 1997 to March 25, 1997, consisted of the following:

(In millions)	Seven Months Ended December 26, 1999			Year Ended					March 11, 1997 to May 25, 1997

					May 30, 1999		May 31, 1998

Income (loss) before income taxes: —U.S.		$46.6			$103.7		$14.6			$7.2
—Foreign		72.9			(15.5	)	18.2			2.5

		$26.3			$(119.2	)	$32.8			$9.7

Income tax provision (benefit): —Current: ——U.S. federal		$—			$(4.8	)	$7.1			$—
——U.S. state and local		—			—		1.5			—
——Foreign		4.0			2.1		3.3			1.4

		4.0			(2.7	)	11.9			1.4
—Deferred:
——U.S. federal		(2.1	)		(2.5	)	(2.0	)		1.9
——U.S. state and local		(0.2	)		0.1		(0.4	)		0.5
——Foreign		3.3			—		1.2			—

		1.0			(2.4	)	(1.2	)		2.4

Total income tax provision (benefit): —U.S. federal		(2.1	)		(7.3	)	5.1			1.9
—U.S. state and local		(0.2	)		0.1		1.1			0.5
—Foreign		7.3			2.1		4.5			1.4

		$5.0			$(5.1	)	$10.7			$3.8

The reconciliation between the income tax rate computed by applying the U.S. federal statutory rate and the reported worldwide tax rate follows:

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 26, 1999 and May 30, 1999 are presented below:

(In millions)	December 26, 1999			May 30, 1999

Deferred tax assets: —Net operating loss carry forwards		$60.1			$34.0
—Reserves and accruals		21.7			26.5
—Plant and equipment		3.1			3.5
—Intangibles, primarily intellectual property and software		21.7			22.7
—Tax credit carryovers		1.4			1.4

——Total gross deferred tax assets		108.0			88.1
—Valuation allowance		(80.3	)		(62.7	)

——Net deferred tax assets		27.7			25.4

Deferred tax liabilities (all foreign): —Intangibles, primarily intellectual property		(11.9	)		(9.9	)
—Plant and equipment		(5	)		(3.7	)
—Capital allowance		(1.4	)		(1.4	)

——Total deferred tax liabilities		(18.3	)		(15.0	)

Net deferred tax assets		$9.4			$10.4

     In assessing the realizability of deferred tax assets, the Company considered its taxable future earnings and the expected timing of the reversal of temporary differences. Accordingly, the Company has recorded a valuation allowance which reduces the gross deferred tax asset to an amount which the Company believes will more likely than not be realized. Deferred tax assets and liabilities are classified in the consolidated balance sheet based on the classification of the related asset or liability.
     Net operating loss, research and development credit and foreign tax credit carryforwards totaled $158.5 million, $0.2 million and $1.2 million, respectively, as of December 26, 1999. Upon utilization or recognition of the net operating loss carryforwards, $7.5 million of the tax benefit will be credited to additional paid-in capital. The net operating losses expire in 2019 and 2020. The research and development credits expire in varying amounts in 2012 through 2014. The foreign tax credits expire in varying amounts in 2002 through 2005.
     Deferred income taxes have not been provided for the undistributed earnings of the Company’s foreign subsidiaries, which aggregated approximately $54.6 million at December 26, 1999. The Company plans to reinvest all such earnings for future expansion. The amount of taxes attributable to these undistributed earnings is not practicably determinable.
     The Company’s ability to utilize its net operating loss and credit carryforwards may be limited in the future if the Company experiences an ownership change as a result of future transactions. An ownership change occurs when the ownership percentage of 5% or greater stockholders changes by more than 50% over a three-year period. The Company does not expect that a subsequent ownership change would place any material limitation on the utilization of the loss carryforward.

NOTE 6—STOCK-BASED COMPENSATION
At December 26, 1999, the Company has one stock option plan, the 1997 Stock Option Plan, as amended and restated, (the “Plan”) which is described below. The Company accounts for its stock option plan in accordance with the provisions of APB No. 25. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. During the seven months ended December 26, 1999 and the year ended May 30, 1999, the Company granted 1,358,700 and 25,600 stock options, respectively, with exercise prices less than the market price of the underlying stock on the date of the grant, and recorded total deferred compensation of $13.6 million and $0.3 million, respectively. Had compensation cost for the Company’s stock option plan been determined consistent with SFAS Statement No. 123, the Company would have reported net income (loss) of $13.6 million, $(114.3) million, $20.6 million and $15.5 million, respectively, in Stub Year 1999, Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
The Company estimates the fair value of each option as of the date of grant using a Black-Scholes pricing model with the following weighted average assumptions:

     Under the Plan, the Company may grant options for up to 8,507,666 shares of Class A Common Stock. Options granted under the Plan may be either (a) options intended to constitute incentive stock options (“ISOs”) under the Internal Revenue Code or (b) non-qualified stock options. Options may be granted under the Plan to regular salaried key employees (including officers) of the Company and its subsidiaries and members of the Company’s Board of Directors who are not employees of the Company.
     The exercise price of each option granted under the Plan shall be as determined by a Committee of the Company’s Board of Directors (the “Committee”). The maximum term of any option shall be ten years from the date of grant for incentive stock options and ten years and one day from the date of grant for non-qualified stock options. Options granted under the Plan are exercisable at the determination of the Committee, currently vesting ratably over approximately five years. Individuals receiving options under the Plan may not receive in any one year period options to purchase more than 200,000 shares of common stock.
     A summary of the status of the Company’s stock option plan as of December 26, 1999, May 30, 1999 and May 31, 1998, and changes during the years then ended are presented in the table below:

Stub Year 1999

Fiscal 1999

Fiscal 1998

Shares
(000’s)

Weighted
Average
Exercise
Price

Shares
(000’s)

Weighted
Average
Exercise
Price

Shares
(000’s)

Weighted
Average
Exercise
Price

Outstanding at beginning of year

4,283

$3.82

3,584

$2.20

2,029

$0.13

Granted

3,549

14.83

972

10.00

1,777

4.29

Exercised

(805

)

2.06

(93

)

0.13

(142

)

0.13

Canceled

(63

)

7.12

(180

)

6.83

(80

)

0.13

Outstanding at end of year

6,964

$9.60

4,283

$3.82

3,584

$2.20

Exercisable at end of year

1,331

$5.56

1,612

$1.82

798

$0.13

Weighted average fair value of options granted

$9.68

$0.09

$0.22

Information with respect to stock options outstanding and stock options exercisable at December 26, 1999, is as follows:

NOTE 7—RETIREMENT 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. The Company provides a matching contribution equal to 75% of employee elective deferrals up to a maximum of 6% of an employee’s annual compensation. The Company also maintains a non-qualified Benefit Restoration Plan, under which 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 $2.3 million, $3.5 million, $3.4 million and $1.1 million for the seven months ended December 26, 1999 and the fiscal years ended May 30, 1999, May 31, 1998 and May 25, 1997, 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 Company’s policy to accrue for this estimated liability as of each balance sheet date. Amounts recognized as expense were $2.4 million and $0.3 million for the seven months ended December 26, 1999 and the fiscal year ended May 30, 1999, 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. Contributions made by the Company under this plan were $0.9 million, $1.2 million, $1.5 million and $0.4 million for the seven months ended December 26, 1999 and the fiscal years ended May 30, 1999, May 31, 1998 and May 25, 1997, respectively.
     Employees in the Philippines participate in a defined benefit plan that was assumed by the Company from National Semiconductor as part of the Recapitalization. The benefits are based on years of service and a multiple of the employee’s final monthly salary. The Company’s funding policy is to contribute annually the amount necessary to maintain the plan on an actuarially sound basis. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The contributions made for the seven months ended December 26, 1999, and for the fiscal years ended May 30, 1999, May 31, 1998 and May 25, 1997 were not material to the consolidated financial statements.

NOTE 8—LEASE COMMITMENTS
Rental expense related to certain facilities and equipment of the Company’s plants was $8.2 million, $12.5 million, $9.5 million and $5.0 million for Stub Year 1999, Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
Future minimum lease payments under noncancelable operating leases as of December 26, 1999 are as follows:

NOTE 9—REDEEMABLE PREFERRED STOCK
Concurrent with the Recapitalization, the Company authorized 70,000 shares of redeemable preferred stock at a par value of $.01, all of which were designated as 12% Series A Cumulative Compounding Preferred Stock (the “Redeemable Preferred Stock”). The Redeemable Preferred Stock had a stated value of $1,000 per share and was entitled to annual dividends when, as and if declared, which dividends were cumulative, whether or not earned or declared, and accrued at a rate of 12%, compounding annually. On August 9, 1999, in connection with the IPO, all shares of Redeemable Preferred Stock were converted into shares of the Company’s Class A Common Stock. Each preferred stockholder received 75.714571 shares of Class A Common Stock per share of preferred stock, reflecting the $1,000 liquidation value of the preferred stock, plus accumulated unpaid dividends to the date of conversion, converted into common stock on the basis of $17.39 per share. As a result of the conversion, 70,000 shares of Redeemable Preferred Stock were converted into 5,300,020 shares of Class A Common Stock. The total liquidation value of the Redeemable Preferred Stock at August 9, 1999 was $92.2 million. At May 30, 1999, 70,000 shares were issued and outstanding. The total liquidation value of the shares outstanding at May 30, 1999 in the amount of $90.1 million is classified in the accompanying consolidated balance sheet as Redeemable Preferred Stock.

Recapitalization
On March 11, 1997, National Semiconductor consummated the Recapitalization under which the following transactions occurred:

(i)		National Semiconductor, pursuant to an Asset Purchase Agreement, transferred all of the assets and liabilities of the Business to Fairchild and its subsidiaries in exchange for demand purchase notes of Fairchild and its subsidiaries in the aggregate principal amount of $401.6 million (the “Purchase Price Notes”);
(ii)		National Semiconductor transferred all of the capital stock of Fairchild and approximately $12.8 million in cash to the Company in exchange for shares of Redeemable Preferred Stock, shares of Class A voting and Class B nonvoting common stock, and a promissory PIK Note of the Company in the principal amount of approximately $77.0 million;
(iii)		The Company issued Redeemable Preferred Stock and additional common stock in the aggregate amounts of approximately $65.0 million;
(iv)		The Company contributed cash in the amount of approximately $77.8 million to the capital of Fairchild;
(v)		Fairchild borrowed $120.0 million under term bank loans and issued $300.0 million of 10 1/8% Senior Subordinated Notes due 2007 (as described in Note 4). The proceeds from these borrowings were used to repay the Purchase Price Notes and certain debt acquisition costs.

The transaction was accounted for as a leveraged recapitalization whereby the Company assumed the historical operating results of the Business. Accordingly, the repayment of the Purchase Price Notes of $401.6 million and issuance of the PIK Note of $77.0 million were included in the statements of equity as a distribution to National Semiconductor by Fairchild and the Company, respectively.

Preferred Stock
Under the Company’s Restated Certificate of Incorporation, the Company’s Board of Directors has the authority to issue up to 100,000 shares of preferred stock, but only in connection with the adoption of a stockholder rights plan. At December 26, 1999, no shares were issued.

Initial Public Offering
On August 9, 1999, the Company completed an initial public offering of its Class A Common Stock and sold an aggregate of 20,000,000 shares at a price of $18.50 per share. The underwriting discount was $1.11 per share. The net proceeds after the underwriting discount and other IPO expenses were approximately $345.0 million. In addition, National Semiconductor Corporation, one of the Company’s principal stockholders, sold 3,000,000 additional shares pursuant to the underwriters’ overallotment option. The Company received no proceeds from this sale, which closed on August 12, 1999. Concurrent with the IPO, all of the shares of the Company’s previously authorized 12% Series A Cumulative Compounding Preferred Stock were converted into shares of the Company’s Class A Common Stock.

Common Stock
     On January 5, 1998, the Board of Directors approved a four-for-one common stock split in the form of a stock dividend. Stockholders received three additional shares for each share held. Such distribution was made on April 29, 1998 to stockholders of record on that date. All share amounts in the accompanying consolidated financial statements have been restated to retroactively reflect the split.
     The Company has authorized 220,000,000 shares of common stock at a par value of $.01 per share, divided into two classes consisting of 110,000,000 shares of Class A Common Stock and 110,000,000 shares of Class B Common Stock. Previously, 160,000,000 shares were authorized, consisting of 80,000,000 shares of Class A Common Stock and 80,000,000 shares of Class B Common Stock. The holders of Class A Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Except as required by law, the holders of Class B Common Stock have no voting rights. A holder of either class of common stock may convert any or all of his shares into an equal number of shares of the other class of common stock provided that in the case of a conversion from Class B Common Stock, which is nonvoting, into Class A Common Stock, which is voting, such conversion would be permitted only to the extent that the holder of shares to be converted would be permitted under applicable law to hold the total number of shares of Class A Common Stock which would be held after giving effect to the conversion.
     In connection with the issuance of the CMP Note (see Note 4), the Company issued a warrant for the purchase of 3,538,228 shares of Class A Common Stock of the Company at an exercise price of $0.01 per share to Citicorp Mezzaine Partners, L.P. On August 9, 1999, the CMP Note was paid in full, and the warrant became unexercisable.
     Certain amendments to the Securities Purchase and Holders Agreement, dated as of March 11, 1997 (the “Stockholders Agreement”), which were effected in May 1998, resulted in the lapse of certain risks of forfeiture by the management investors with respect to their stock ownership of the Company. The lapse of such restrictions resulted in the incurrence by the Company of deductible compensation expense for income tax purposes of $10.4 million in Fiscal 1998. The tax effect of the compensation expense of $2.1 million was recorded as a reduction in income taxes payable and an increase to additional paid-in capital at May 31, 1998. The tax effect was recorded using the alternative minimum tax rate of 20%. In connection with this transaction, loans aggregating $5.0 million were made by the Company to the management investors to pay their federal and state individual income tax liabilities in June 1998. Such loans (including accrued but unpaid interest thereon) were cancelled as a result of the Company’s IPO of its Class A Common Stock, which was completed on August 9, 1999. The Company also paid such executive officers amounts sufficient to enable them to discharge all tax liabilities arising out of the cancellation of such loans (as well as all tax liabilities arising out of such payments). A total charge of $8.3 million was recorded in selling, general and administrative expense during the seven months ended December 26, 1999.

NOTE 11—RESTRUCTURING AND IMPAIRMENTS
     In the first quarter of Fiscal 1999, in connection with management’s plan to reduce costs and improve operating efficiencies, the Company recorded a pre-tax restructuring charge of approximately $4.5 million. The restructuring charge consisted of $0.8 million related to non-cash asset impairments and $3.7 million of employee separation costs. The asset impairments relate to idle production equipment in the Company’s former Mountain View, California and West Jordan, Utah facilities, which primarily serve the Company’s Analog and Discrete product groups, respectively. As of December 26, 1999 these assets have been disposed of. The charge for employee separation arrangements provided for severance and other benefits associated with the approximately 600 salaried, hourly and temporary employees severed as a result of this action. The affected employees, who worked in production, engineering, sales and marketing and administration, were located in the United States and Cebu, the Philippines.
     In the third quarter of Fiscal 1999, the Company recorded a pre-tax restructuring charge of approximately $2.7 million related to the transfer of all assembly and test work performed at its former Mountain View, California facility to its Penang, Malaysia facility. The charge consisted of $1.9 million of non-cash asset impairments and $0.8 million for severance and other benefits for 54 production employees terminated as a result of the transfer. The asset impairments consisted of production equipment that were idled as a result of this action. As of December 26, 1999 these assets have been disposed of.
     In connection with the sale of its former Mountain View, California facility on April 2, 1999, the Company announced the transfer of all wafer production to its South Portland, Maine facility. In the fourth quarter of Fiscal 1999, the Company recorded a pre-tax restructuring charge of approximately $10.0 million, which consisted of $2.6 million of non-cash asset impairments, $4.0 million for severance and employee benefits, $1.9 million for a loss on sale of the facility and $1.5 million for other exit costs. This action resulted in the termination of approximately 170 salaried, hourly and temporary employees, all of whom worked for the Company’s Analog and Mixed Signal Division in Mountain View or San Diego, California in the areas of production, engineering, selling and marketing and administration. Other exit costs include $1.0 million paid under a noncancelable operating lease after operations ceased as well as other incremental costs associated with the facility closure. The non-cash asset impairments primarily consisted of production equipment that were not transferred to South Portland, Maine. As of December 26, 1999, substantially all of these assets have been disposed of.
     During the fourth quarter of Fiscal 1999, the Company also recorded a pre-tax charge of $4.1 million related to the restructuring of its memory product lines, whereby the Company streamlined its operations to focus solely on its most profitable products. The charge included $3.9 million for non-cash asset impairments and $0.2 million for employee separation costs all of which were paid by May 30, 1999. The non-cash impairments consisted of production equipment and other equipment in West Jordan, Utah, and Sunnyvale, California, that became idle as a result of the plan. The assets will be disposed of during the first half of 2000.
     The Memory Division product line restructuring plan also included the write-off of inventories ($9.9 million) as well as provisions for additional distribution sales allowances required as a result of this action ($5.5 million). These costs have been excluded from the restructuring charge and have been recorded as a reduction against net sales in the case of the distribution sales allowances and as a charge to cost of sales for the inventory write-offs.
     Substantially all amounts have been expended with respect to the Company’s Fiscal 1999 restructuring actions with the exception of the analog wafer production transfer to South Portland, Maine. The following table summarizes the activity of the remaining active restructuring plan:

In June 1996, National Semiconductor announced a restructuring of its operations and the intent to pursue a sale or partial financing of the Business. In connection with the restructuring, the Business recorded a $5.3 million non-recurring charge related to work force reductions. During the year ended May 25, 1997, $5.3 million of severance was paid to terminated employees.

NOTE 12—RELATED PARTY TRANSACTIONS
Related party activity between the Company and National Semiconductor, in addition to contract manufacturing services performed for National Semiconductor, is summarized as follows:

(In millions)	Seven Months Ended December 26, 1999		Year Ended May 30, 1999		Year Ended May 31, 1998		Period from March 11, 1997 through May 25, 1997		Period from May 27, 1996 through March 10, 1997

Manufacturing services performed by —National Semiconductor plants or —purchased from third parties		$1.0		$5.6		$14.0		$2.8		$34.3
Headquarters, freight, duty, warehousing —and other elements of cost of sales		—		4.4		17.9		3.7		41.8

		$1.0		$10.0		$31.9		$6.5		$76.1

Cost of business support services provided —by National Semiconductor		$0.1		$10.7		$28.7		$11.6		$—

Operating costs allocated to the Business —by National Semiconductor		$—		$—		$—		$—		$63.9

Operating costs allocated to National —Semiconductor by the Business		$—		$—		$—		$—		$9.6

Amounts receivable from National Semiconductor, included in accounts receivable, totaled $8.8 million and $12.0 million at December 26, 1999 and May 30, 1999, respectively. Amounts payable to National Semiconductor, included in accounts payable, totaled $0.2 million and $0.4 million at December 26, 1999 and May 30, 1999, respectively.

NOTE 13—CONTINGENCIES
     The Company’s facilities in South Portland, Maine, West Jordan, Utah, Cebu, the Philippines, and Penang, Malaysia have ongoing remediation projects to respond to certain releases of hazardous substances that occurred prior to the Recapitalization. Pursuant to the Asset Purchase Agreement, National Semiconductor has agreed to indemnify the Company for the future costs of these projects. The costs incurred to respond to these conditions were not material to the consolidated financial statements during Stub Year 1999, Fiscal 1999, Fiscal 1998, and Fiscal 1997.
     The Company’s 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, dated December 31, 1997, Raytheon Company has assumed responsibility for all remediation costs or other liabilities related to historical contamination.
     On November 2, 1999, our principal operating subsidiary, Fairchild Semiconductor Corporation, was named as a defendant in a patent infringement lawsuit filed by Siliconix Incorporated in the United States District Court for the Northern District of California. The complaint filed in the suit alleges that some of our products infringe two Siliconix patents and claims an unspecified amount of damages. The Company intends to contest these claims vigorously.
     On December 22, 1999, Fairchild Semiconductor Corporation and Fairchild Korea Semiconductor Ltd. were named as defendants in a patent infringement lawsuit filed by IXYS Corporation in the United States District Court for the Northern District of California. The complaint filed in the lawsuit alleges that one or more of our products infringe one IXYS patent and claims an unspecified amount of damages. Although the Company is in the process of investigating IXYS’ claims, the Company believes these claims are subject to indemnification by Samsung Electronics under the patent indemnification provisions of the Business Transfer Agreement with Samsung Electronics. As of the date of this filing, the Company is unable to assess the validity of IXYS’ claims.
     In addition, in the normal course of business, the Company is subject to proceedings, lawsuits and other claims, including proceedings under laws and regulations related to environmental and other matters. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these additional matters at December 26, 1999. It is management’s opinion that after final disposition, any monetary liability or financial impact to the Company would not be material to the Company’s consolidated financial position, annual results of operations or cash flows.

Foreign Currency Instruments
The objective of the Company’s foreign exchange risk management policy is to preserve the U.S. dollar value of after-tax cash flows in relation to non-U.S. dollar currency fluctuations. The Company uses forward and option contracts to hedge firm commitments and option contracts to hedge anticipated transactions. Gains and losses on financial instruments that are intended to hedge an identifiable firm commitment are deferred and included in the measurement of the underlying transaction. Gains and losses on hedges of anticipated transactions are deferred until such time as the underlying transactions are recognized or immediately when the transaction is no longer expected to occur. In addition, the Company uses forward and option contracts to hedge certain non-U.S. denominated asset and liability positions. Gains and losses on these contracts are matched with the underlying gains and losses resulting from currency movement on these balance sheet positions. Gains and losses on any instruments not meeting the above criteria are recognized in income in the current period. Net gains and losses from foreign currency transactions were not material for Stub Year 1999, Fiscal 1999, Fiscal 1998, and Fiscal 1997.

Interest Rate Derivatives
The Company utilizes interest rate swap or interest rate cap agreements to limit the impact of the variable interest rate of certain long-term debt. The variable rates on swaps and caps are based primarily on U.S. dollar LIBOR, and the swaps are reset on a quarterly basis. The differential between fixed and variable rates to be paid or received on swaps is accrued as interest rates change in accordance with the agreements and is included in current interest expense. The costs of interest rate cap agreements are included in interest expense ratably over the lives of the agreements. Payments to be received as a result of the cap agreements are accrued as a reduction of interest expense. As of December 26, 1999, no swap or interest rate cap agreements were outstanding.

Fair Value and Notional Principal of Off-Balance Sheet Financial Instruments
The table below shows the fair value and notional principal of the Company’s off-balance sheet financial instruments as of December 26, 1999 and May 30, 1999. The notional principal amounts for off-balance sheet financial instruments provide one measure of the transaction volume outstanding as of year end and do not represent the amount of the Company’s 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 26, 1999 and May 30, 1999. Although the following table reflects the notional principal and fair value of amounts of off-balance sheet financial instruments, it does not reflect the gains or losses associated with the exposures and transactions that the off-balance sheet 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.

Fair Value of Financial Instruments
A summary table of estimated fair values of financial instruments follows:

NOTE 15—OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
     Fairchild designs, develops, manufactures and markets high performance multi-market semiconductors. The Company is currently organized into four product line operating segments: Analog and Mixed Signal Products Division, Discrete Power and Signal Technologies Products Group, Interface and Logic Products Group and the Non-Volatile Memory Division. Each of these groups has a vice president, general manager who reports directly to the Chief Executive Officer (“CEO”). The CEO allocates resources to each of these groups using information on their revenues and operating profits before interest, taxes and non-recurring items. The CEO has been identified as the Chief Operating Decision Maker as defined by SFAS No. 131. Fairchild’s products in all operating groups are sold to original equipment manufacturers and distributors throughout the world.
     During Stub Year 1999, the Company integrated the power device business acquired from Samsung Electronics in April of 1999, into its existing Analog and Mixed Signal Products Division and its Discrete Power and Signal Technologies Products Group product line operation segments. Fiscal 1999 segment information has been restated to reflect the integration of this previously reported segment into other reported segments.
     In addition to the operating segments mentioned above, the Company also operates sales and marketing, information systems, finance and administration groups that are led by vice presidents and that also report to the CEO. The expenses of these groups are allocated to the operating segments and are included in the operating results reported below. The Company does not allocate income taxes to its operating segments, and while interest expense allocations are made for informational purposes, the operating segments are principally evaluated on operating profit before interest and taxes.
     Although the Company does not specifically identify and allocate all assets by operating segment, it is the Company’s strategy to have its capital intensive manufacturing plants dedicated to its operating segments and 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.
     Statement of operations information on reportable segments for Stub Year 1999, Fiscal 1999, Fiscal 1998 and Fiscal 1997 is as follows:

(In millions)	Seven Months Ended December 26, 1999			Year Ended

				May 30, 1999			May 31, 1998			May 25, 1997

Revenue and Operating Income (Loss): Analog and Mixed Signal Products Division —Trade revenue		$173.5			$95.8			$32.0			$—
—Operating income		24.0			8.1			2.2			—

Discrete Power and Signal Technologies Products Group —Trade revenue		$316.9			$222.8			$187.3			$164.5
—Contract manufacturing revenue		26.2			9.1			34.5			15.1
—Operating income		36.7			7.0			44.9			21.7

Interface and Logic Products Group —Trade revenue		$184.0			$267.6			$303.0			$285.3
—Contract manufacturing revenue		46.0			71.9			118.9			89.1
—Operating income		29.7			35.7			70.0			21.3

Non-Volatile Memory Division —Trade revenue		$39.6			$73.4			$113.5			$138.0
—Operating income (loss)		0.4			(26.4	)		(14.2	)		5.0

Other (1) —Trade revenue		$—			$(5.5	)		$—			$—
—Operating income (loss)		(8.3	)		(71.8	)		(15.6	)		(16.1	)

Total Consolidated —Trade revenue		$714.0			$654.1			$635.8			$587.8
—Contract manufacturing revenue		72.2			81.0			153.4			104.2
—Operating income (loss)		82.5			(47.4	)		87.3			31.9

Property, plant and equipment (including molds and tooling) and depreciation and amortization by reportable operating segment as of and for the seven months ended December 26, 1999 and for the fiscal year ended May 30, 1999 is as follows:

(In millions)	December 26, 1999		May 30, 1999

Property, Plant and Equipment and Depreciation and Amortization: Analog and Mixed Signal Products Division —Property, plant and equipment		$54.7	$52.1
—Depreciation and amortization		15.9	12.0

Discrete Power and Signal Technologies Group —Property, plant and equipment		$159.8	$153.4
—Depreciation and amortization		31.4	28.6

Interface and Logic Products Group —Property, plant and equipment		$162.6	$154.2
—Depreciation and amortization		31.2	53.2

Non-Volatile Memory Division —Property, plant and equipment		$—	$—
—Depreciation and amortization		2.4	9.9

Other —Property, plant and equipment		$2.7	$5.9
—Depreciation and amortization		—	—

Total Consolidated —Property, plant and equipment		$379.8	$365.6
—Depreciation and amortization		$80.9	$103.7

Geographic revenue information for the seven months ended December 26, 1999 and for the fiscal years ended May 30, 1999, May 31, 1998, and May 25, 1997 are based on the locations of the selling entities within the indicated geographic areas. No individual foreign country except Korea is material to total revenues.
Revenues from unaffiliated customers by geographic region were as follows:

In Stub Year 1999, Fiscal 1999, Fiscal 1998 and Fiscal 1997, National Semiconductor accounted for 6.9%, 11.0%, 19.4% and 15.1% of the Company’s total revenues. In Stub Year 1999, sales to Samsung Electronics accounted for approximately 7.0% of the Company’s total revenues.

Geographic property, plant and equipment balances as of December 26, 1999 and May 30, 1999 are based on the physical locations within the indicated geographic areas and are as follows:

NOTE 16—SUPPLEMENTAL CASH FLOW INFORMATION
As described in Note 1, National Semiconductor’s cash management system was not designed to trace centralized cash and related financing transactions to the specific cash requirements of the Business. In addition, National Semiconductor’s corporate transaction systems were not designed to track receivables and certain liabilities and cash receipts and payments on a business specific basis. Given these constraints, the following data is presented to facilitate analysis of key components of cash flow activity for Fiscal Year 1997:

(In millions)	Year Ending May 25, 1997

Operating activities: —Revenues less expenses		$15.5
—Depreciation and amortization		77.1
—Deferred taxes		(20.3	)
—Loss on disposal of equipment, molds and tooling		1.0
—Non-cash interest expense		1.9
—Increase in accounts receivable		(79.6	)
—Decrease in inventories		20.0
—Increase in prepaid expenses and other current assets		(5.8	)
—Increase in other assets		0.9
—Increase in accounts payable		12.2
—Increase in accrued expenses and other liabilities		21.6
—Net financing provided to National Semiconductor*		(25.4	)

——Cash provided by operating activities		19.1

Investing activities: —Capital expenditures		(47.1	)
—Purchase of molds and tooling		(7.2	)

——Cash used by investing activities		(54.3	)

Financing activities: —Issuance of long-term debt		420.0
—Debt acquisition costs		(20.3	)
—Issuance of common stock		7.8
—Issuance of preferred stock		70.0
—Distribution to National Semiconductor		(401.6	)

——Cash provided by financing activities		75.9

Net change in cash and cash equivalents		40.7
Cash and cash equivalents at beginning of year		—

Cash and cash equivalents at end of year		$40.7

Cash paid for interest by the Company totaled $0.1 million for the period from March 11, 1997 through May 25, 1997. The Business did not make any cash payments for interest prior to March 11, 1997, as discussed in Note 1. No cash payments were made for income taxes.
During the year ended May 25, 1997, the Company issued a note to National Semiconductor in the principal amount of approximately $77.0 million as additional purchase consideration for the capital stock of Fairchild. The Company recorded the note as an increase to long-term debt and accumulated deficit. For Stub Year 1999, Fiscal 1999 and 1998, and for the period from March 11 through May 25, 1997, the Company accumulated dividends on the redeemable preferred stock of approximately $2.0 million, $9.8 million, $8.6 million and $1.8 million, respectively. The Company recorded the accumulated dividends as an increase to the carrying value of the redeemable preferred stock and accumulated deficit.

NOTE 17—ACQUISITIONS
     In April 1999, the Company completed the acquisition of the power device business of Samsung Electronics for a purchase price of approximately $414.9 million, including related acquisition expenses. The power device business designs, manufactures and markets power discrete semiconductors and standard analog integrated circuits serving the personal computer, industrial, telecommunications and consumer electronics markets. The purchase includes all of the worldwide operations and assets of the power device business, which are comprised in part of a high volume wafer fabrication plant in Puchon, South Korea, design and development operations in Puchon, South Korea, secured services for high volume assembly and test operations and worldwide sales and marketing operations. The purchase price was financed through a combination of borrowings under the Company’s Senior Credit Facilities, the CMP Note and the 10 3/8% Notes. (See Note 4)
     The power device business acquisition was accounted for by the purchase method of accounting and accordingly, the results of operations of the power device business are included in the accompanying consolidated financial statements since the acquisition date. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The purchase price exceeded the fair value of the net tangible assets acquired by approximately $289.5 million. Approximately $34.0 million of the purchase price in excess of fair value of net tangible assets was allocated to purchased in-process research and development. Accordingly, the Company recorded a non-recurring charge for this purchased in-process research and development concurrent with the acquisition in Fiscal 1999. The remaining purchase price in excess of fair value of net tangible assets was allocated to various intangible assets, which are amortized on a straight-line basis over three to fifteen years.
     On December 31, 1997, the Company acquired all of the outstanding common stock of Raytheon for approximately $117.0 million in cash plus transaction expenses. Raytheon, based in Mountain View, California, designs, manufactures and markets high performance analog and mixed signal integrated circuits for the personal computer, communications, broadcast video and industrial markets. The acquisition was accounted for by the purchase method of accounting and accordingly, the results of operations of Raytheon are included in the accompanying consolidated financial statements since that date. The purchase price exceeded the fair value of the net tangible assets by approximately $48.4 million. Approximately $15.5 million of the purchase price in excess of fair value of net tangible assets was allocated to purchased in-process research and development. Accordingly, the Company recorded a non-recurring charge for this purchased in-process research and development concurrent with the acquisition in Fiscal 1998. The remaining purchase price in excess of fair value of net tangible assets was allocated to various intangible assets, which are amortized on a straight-line basis over three to fifteen years.
     The following unaudited pro forma consolidated results of operations are presented as if the power device business and Raytheon acquisitions were made at the beginning of the periods presented below:

The pro forma results of operations include adjustments to give effect to the contracts the Company entered into with Samsung Electronics, additional depreciation and amortization related to the increased value of acquired fixed assets and identifiable intangibles, interest expense on debt assumed issued to finance the purchases, as well as adjustments to eliminate historical expenses which will not be incurred by the Company. The unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the acquisitions been made at the beginning of the periods presented or the future results of the combined operations.

NOTE 18—CHANGE IN ACCOUNTING PRINCIPLE
Effective in the third quarter of Fiscal 1998, the Company adopted the provisions of Emerging Issues Task Force Issue 97-13 “Accounting for Business Process Reengineering Costs.” This Issue requires companies to write-off business process reengineering costs that had been previously capitalized. The Company had been capitalizing such costs in conjunction with its enterprise software implementation project. The Issue requires companies to write-off these costs in the quarter that contains November 20, 1997.
The cumulative effect of adoption of this Issue resulted in a charge of $1.5 million; net of taxes of $0.8 million for the year ended May 31, 1998. Of the pre-tax write-off, $1.6 million applies to costs incurred in Fiscal 1998, while $0.7 million applies to costs incurred in Fiscal 1997. The charge relates specifically to costs incurred to assess the system’s capabilities in light of the Company’s current business processes, which under prior guidance was capitalizable to the cost of the software.

NOTE 19—CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Below are condensed consolidating balance sheets, statements of operations and statements of cash flows of Fairchild International as of and for the seven months ended December 26, 1999 and for the fiscal years ended May 30, 1999 and May 31, 1998.

	December 26, 1999

(In millions)	Unconsolidated Fairchild Semiconductor International, Inc.			Unconsolidated Fairchild Semiconductor Corporation			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated Fairchild Semiconductor International, Inc.

Assets
Current assets: —Cash and cash equivalents		$—			$117.3			$—			$21.4			$—			$138.7
—Accounts receivable, net		—			39.5			0.5			100.3			—			140.3
—Inventories		—			93.0			10.3			63.0			—			166.3
—Other current assets		—			8.4			0.2			5.1			—			13.7

———Total current assets		—			258.2			11.0			189.8			—			459.0
Property, plant and equipment, net		—			168.2			4.1			203.5			—			375.8
Deferred income taxes, net		—			14.7			7.5			(18.4	)		—			3.8
Intangible assets, net		—			7.5			26.5			227.4			—			261.4
Investment in subsidiaries		209.9			335.0			148.4			—			(693.3	)		—
Other assets		—			25.8			1			10.8			—			37.6


———Total assets		$209.9			$809.4			$198.5			$613.1			$(693.3	)		$1,137.6

Liabilities and Stockholders’ Equity
Current liabilities: —Current portion of long-term debt		$—			$1.4			$—			$—			$—			$1.4
—Accounts payable		—			52.2			0.6			56.5			—			109.3
—Accrued expenses and
——other current liabilities		—			58.4			5.2			32.4			—			96.0

———Total current liabilities		—			112.0			5.8			88.9			—			206.7
Long-term debt, less current portion		—			717.2			—			—			—			717.2
Net intercompany (receivable) payable		(3.3	)		(231.1	)		(33	)		267.4			—			—
Other liabilities		—			1.4			—			(0.9	)		—			0.5

———Total liabilities		(3.3	)		599.5			(27.2	)		355.4			—			924.4

Commitments and contingencies Stockholders’ equity: —Class A Common Stock		0.6			—			—			—			—			0.6
—Class B Common Stock		0.3			—			—			—			—			0.3
—Additional paid-in capital		449.5			—			—			—			—			449.5
—Accumulated earnings (deficit)		(231.3	)		209.9			225.7			257.7			(693.3	)		(231.3	)
—Less treasury stock (at cost)		(5.9	)		—			—			—			—			(5.9	)

——Total stockholders’ equity		213.2			209.9			225.7			257.7			(693.3	)		213.2

——Total liabilities ———and stockholders’ equity		$209.9			$809.4			$198.5			$613.1			$(693.3	)		$1,137.6

Seven Months Ended December 26, 1999

(In millions)

Unconsolidated
Fairchild
Semiconductor
International, Inc.

Unconsolidated
Fairchild
Semiconductor
Corporation

Guarantor
Subsidiary

Non-Guarantor
Subsidiaries

Eliminations

Consolidated
Fairchild
Semiconductor
International, Inc.

Revenue:
—Net sales—trade

$—

$116.8

$12.4

$584.8

$—

$714.0

—Net sales—intercompany

—

466.9

7.9

82.7

(557.5

)

—

—Contract manufacturing

—

72.2

—

72.2

——Total revenue

—

655.9

20.3

667.5

(557.5

)

786.2

Operating expenses:
—Cost of sales—trade

—

23.1

8.5

468.3

—

499.9

—Cost of sales—intercompany

—

493.0

7.7

56.8

(557.5

)

—

—Cost of contract manufacturing

—

51.4

—

51.4

—Research and development

—

17.5

6.7

10.8

—

35.0

—Selling, general and administrative

—

52.9

5.5

59.0

—

117.4

——Total operating expenses

—

637.9

28.4

594.9

(557.5

)

703.7

Operating income (loss)

—

18.0

(8.1

)

72.6

—

82.5

Interest expense, net

4.4

52.0

—

(0.2

)

—

56.2

Equity in subsidiary income

(25.7

)

(57.1

)

(55.1

)

—

137.9

—

Income before income taxes

21.3

23.1

47.0

72.8

(137.9

)

26.3

Provision (benefit) for income taxes

—

(2.6

)

0.4

7.2

—

5.0

Net income

$21.3

$25.7

$46.6

$65.6

$(137.9

)

$21.3

Seven Months Ended December 26, 1999

(In millions)

Unconsolidated
Fairchild
Semiconductor
International, Inc.

Unconsolidated
Fairchild
Semiconductor
Corporation

Guarantor
Subsidiary

Non-Guarantor
Subsidiaries

Consolidated
Fairchild
Semiconductor
International, Inc.

Cash flows provided by (used in)
—operating activities:

$—

$97.0

$(0.8

)

$19.5

$115.7

Cash flows from investing activities:
—Capital expenditures

—

(31.4

)

(0.4

)

(43.0

)

(74.8

)

—Proceeds from sale of property,
—plant and equipment

—

0.9

—

0.9

—Purchase of molds and tooling

—

(1.3

)

(1.3

)

—Refund of value added tax

——paid in connection with acquisition

—

40.9

)

—Investment (in) from affiliate

(190.6

)

180.5

—

10.1

—

———Cash provided by (used in)
————investing activities

(190.6

)

149.1

0.5

6.7

(34.3

)

Cash flows from financing activities:
—Repayment of long-term debt

(154.4

)

(191.4

)

—

(345.8

)

—Proceeds from issuance of common stock, net

345.0

—

345.0

—Net intercompany financing

—

33.8

—

(33.8

)

—

—Purchase of treasury stock

—

5.9

)

—

(5.9

)

—Proceeds from exercise of stock options

—

1.6

—

1.6

———Cash provided by (used in)
————financing activities

190.6

(161.9

)

—

(33.8

)

(5.1

)

Net change in cash and cash equivalents

—

84.2

(0.3

)

(7.6

)

76.3

Cash and cash equivalents at beginning of period

—

33.1

0.3

29.0

62.4

Cash and cash equivalents at end of period

$—

$117.3

$—

$21.4

$138.7

Supplemental Cash Flow Information:
—Cash paid (refunded) during the year for:

——Income taxes

$—

$(0.3

)

$—

$2.1

$1.8

——Interest

$—

$42.1

$—

$42.1

May 30, 1999

(In millions)

Unconsolidated
Fairchild
Semiconductor
International, Inc.

Unconsolidated
Fairchild
Semiconductor
Corporation

Guarantor
Subsidiary

Non-Guarantor
Subsidiaries

Eliminations

Consolidated
Fairchild
Semiconductor
International, Inc.

Assets

Current assets:
—Cash and cash equivalents

$—

$33.1

$0.3

$29.0

$—

$62.4

—Accounts receivable, net

—

35.6

10.4

83.7

—

129.7

—Inventories

—

83.4

17.0

48.2

—

148.6

—Other current assets

—

15.0

0.4

50.3

—

65.7

——Total current assets

—

167.1

28.1

211.2

—

406.4

Property, plant and equipment, net

—

166.1

8.3

185.8

—

360.2

Deferred income taxes, net

—

10.0

7.8

(15.0

)

—

2.8

Intangible assets, net

—

8.0

28.1

242.4

—

278.5

Investment in subsidiaries

(6.4

)

267.8

83.2

—

(344.6

)

—

Other assets

—

36.6

1.6

9.6

—

47.8

——Total assets

$(6.4

)

$655.6

$157.1

$634.0

(344.6

)

$1,095.7

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:
—Current portion of long-term debt

$—

$14.1

$—

$14.1

—Accounts payable

—

45.4

4.4

55.9

(6.1

)

99.6

—Accrued expenses and
——other current liabilities

—

50.0

8.0

27.0

—

85.0

——Total current liabilities

—

109.5

12.4

82.9

(6.1

)

198.7

Long-term debt, less current portion

150.0

895.9

—

1,045.9

Net intercompany (receivable) payable

(6.1

)

(344.2

)

(24.3

)

368.5

6.1

—

Other liabilities

—

0.8

—

0.6

—

1.4

——Total liabilities

143.9

662.0

(11.9

)

452.0

—

1,246.0

Redeemable preferred stock

90.1

—

90.1

Commitments and contingencies
Stockholders’ equity (deficit):
—Class A Common Stock

0.3

—

0.3

—Class B Common Stock

0.3

—

0.3

—Additional paid-in capital

9.6

62.0

—

(62.0

)

9.6

—Accumulated earnings (deficit)

(250.6

)

(68.4

)

169.0

182.0

(282.6

)

(250.6

)

——Total stockholders’ equity (deficit)

(240.4

)

(6.4

)

169.0

182.0

(344.6

)

(240.4

)

——Total liabilities
———and stockholders’ equity (deficit)

$(6.4

)

$655.6

$157.1

$634.0

$(344.6

)

$1,095.7

Year Ended May 30, 1999

(In millions)

Unconsolidated
Fairchild
Semiconductor
International, Inc.

Unconsolidated
Fairchild
Semiconductor
Corporation

Guarantor
Subsidiary

Non-Guarantor
Subsidiaries

Eliminations

Consolidated
Fairchild
Semiconductor
International, Inc.

Revenue:
—Net sales—trade

$—

$177.1

$64.2

$412.8

$—

$654.1

—Net sales—intercompany

—

536.8

—

101.1

(637.9

)

—

—Contract manufacturing—
——National Semiconductor

—

81.0

—

81.0

———Total revenue

—

794.9

64.2

513.9

(637.9

)

735.1

Operating expenses:
—Cost of sales—trade

—

57.1

39.7

421.6

—

518.4

—Cost of sales—intercompany

—

596.9

—

41.0

(637.9

)

—

—Cost of contract manufacturing—
——National Semiconductor

—

64.4

—

64.4

—Research and development

—

26.1

10.8

2.4

—

39.3

—Selling, general and administrative

—

62.9

13.8

28.4

—

105.1

—Purchased in-process
——research and development

—

34.0

—

34.0

—Restructuring and impairments

—

8.6

12.7

—

21.3

———Total operating expenses

—

816.0

77.0

527.4

(637.9

)

782.5

Operating income (loss)

—

(21.1

)

(12.8

)

(13.5

)

—

(47.4

)

Interest expense, net

11.3

54.1

4.4

2.0

—

71.8

Equity in subsidiary (income) loss

102.7

33.6

22.8

—

(159.1

)

—

Income (loss) before income taxes

(114.0

)

(108.8

)

(40.0

)

(15.5

)

159.1

(119.2

)

Provision (benefit) for income taxes

0.1

(6.1

)

(1.2

)

2.1

—

(5.1

)

Net income (loss)

$(114.1

)

$(102.7

)

$(38.8

)

$(17.6

)

$159.1

$(114.1

)

Year Ended May 30, 1999

(In millions)

Unconsolidated
Fairchild
Semiconductor
International, Inc.

Unconsolidated
Fairchild
Semiconductor
Corporation

Guarantor
Subsidiary

Non-Guarantor
Subsidiaries

Consolidated
Fairchild
Semiconductor
International, Inc.

Cash flows provided by (used in) operating activities:

$—

$(14.7

)

$(29.4

)

$88.2

$44.1

Cash flows from investing activities:
—Capital expenditures

—

(26.6

)

(0.5

)

(19.1

)

(46.2

)

—Proceeds from sale of property, plant and equipment

—

1.0

30.2

—

31.2

—Purchase of molds and tooling

—

(3.8

)

(3.8

)

—Refundable payment of value added tax
——associated with acquisitions

—

(40.9

)

(40.9

)

—Investment (in) from affiliate

(50.0

)

50.0

—

—Net intercompany investing

—

(406.8

)

—

406.8

—

—Acquisitions, net of cash acquired

—

(8.1

)

—

(406.8

)

(414.9

)

——Cash provided by (used in) investing activities

(50.0

)

(390.5

)

29.7

(63.8

)

(474.6

)

Cash flows from financing activities:
—Repayment of long-term debt

—

(151.3

)

—

(151.3

)

—Issuance of long-term debt

50.0

610.0

—

660.0

—Debt issuance costs

—

(22.3

)

—

(22.3

)

——Cash provided by financing activities

50.0

436.4

—

486.4

Net change in cash and cash equivalents

—

31.2

0.3

24.4

55.9

Cash and cash equivalents at beginning of period

—

1.9

—

4.6

6.5

Cash and cash equivalents at end of period

$—

$33.1

$0.3

$29.0

$62.4

Supplemental Cash Flow Information:
—Cash paid (refunded) during the year for:
——Income taxes

$—

$(2.0

)

$—

$2.0

$—

Interest

$—

$46.6

$—

$46.6

	Year Ended May 31, 1998

(In millions)	Unconsolidated Fairchild Semiconductor International, Inc.			Unconsolidated Fairchild Semiconductor Corporation			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Eliminations			Consolidated Fairchild Semiconductor International, Inc.

Revenue: —Net sales—trade		$—			$222.1			$32.10		$381.60			$—			$635.80
—Net sales—intercompany		—			786.6			—		114.4			(901	)		—
—Contract manufacturing— ——National Semiconductor		—			153.4			—		—			—			153.4

———Total revenue		—			1,162.10			32.1		496			(901	)		789.2
Operating expenses: —Cost of sales—trade		—			39.3			20		382.3			—			441.6
—Cost of sales—intercompany		—			830			—		71			(901	)		—
—Cost of contract manufacturing— ——National Semiconductor		—			117.1			—		—			—			117.1
—Research and development		—			30.1			4.6		1			—			35.7
—Selling, general and administrative		—			65.8			5.1		21.1			—			92
—Purchased in-process ——research and development		—			15.5			—		—			—			15.5

———Total operating expenses		—			1,097.80			29.7		475.4			(901	)		701.9

Operating income		—			64.3			2.4		20.6			—			87.3
Interest expense, net		9.8			43			1.8		(0.1	)		—			54.5
Equity in subsidiary income		(28.7	)		(16.9	)		—		—			45.6			—

Income before income taxes		18.9			38.2			0.6		20.7			(45.6	)		32.8
Provision (benefit) for income taxes		(3.2	)		9.5			0.2		4.2			—			10.7

Income before cumulative effect —of change in accounting principle		22.1			28.7			0.4		16.5			(45.6	)		22.1
Cumulative effect of change —in accounting principle, ——net of tax effect of $0.8 million		(1.5	)		—			—		—			—			(1.5	)

Net income		$20.60			$28.7			$0.4		$16.5			$(45.6	)		$20.6

	Year Ended May 31, 1998

(In millions)	Unconsolidated Fairchild Semiconductor International, Inc.		Unconsolidated Fairchild Semiconductor Corporation			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations		Consolidated Fairchild Semiconductor International, Inc.

Cash flows provided by operating activities:		$—		$105.4			$0.4			$30.3			$—		$136.1

Cash flows from investing activities: —Capital expenditures		—		(48.7	)		(0.4	)		(28.9	)		—		(78.0	)
—Purchase of molds and tooling		—		—			—			(5.7	)		—		(5.7	)
—Acquisitions, net of cash acquired		—		(116.8	)		—			—			—		(116.8	)

——Cash used by investing activities		—		(165.5	)		(0.4	)		(34.6	)		—		(200.5	)

Cash flows from financing activities: —Repayment of long-term debt		—		(58.7	)		—			—			—		(58.7	)
—Issuance of long-term debt		—		90.0			—			—			—		90.0
—Debt issuance costs		—		(1.1	)		—			—			—		(1.1	)

——Cash provided by financing activities		—		30.2			—			—			—		30.2

Net change in cash and cash equivalents		—		(29.9	)		—			(4.3	)		—		(34.2	)
Cash and cash equivalents at beginning of period		—		31.8			—			8.9			—		40.7

Cash and cash equivalents at end of period		$—		$1.9			$—			$4.6			$—		$6.5

Supplemental Cash Flow Information: —Cash paid during the year for: ——Income taxes		$—		$7.7			$—			$1.2			$—		$8.9

——Interest		$—		$43.8			$—			$—			$—		$43.8

NOTE 20—UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial information for Stub Year 1999 and Fiscal 1999:

Fiscal 1999

First

Second

Third

Fourth

Total revenue (c)

$151.3

$167.9

$169.4

$246.5

Gross profit (c)

36.7

35.6

41.0

45.3

Net income (loss) (b) (c)

(16.2

)

(9.9

)

(11.1

)

(76.9

)

Net income (loss) applicable to common stockholders (b) (c)

(18.5

)

(12.3

)

(13.6

)

(79.5

)

Basic earnings (loss) per common share

$(0.29

)

$(0.20

)

$(0.22

)

$(1.26

)

Diluted earnings (loss) per common share

$(0.29

)

$(0.20

)

$(0.22

)

$(1.26

)

NOTE 21—SUBSEQUENT EVENT
On January 25, 2000, the Company completed a follow-on public offering of 23,500,000 shares of its Class A Common Stock at a price of $33.4375 per share. The underwriting discount was $1.50 per share. The 23,500,000 shares included 6,140,880 newly issued shares sold by the Company and 17,359,120 shares sold by existing stockholders including all remaining shares owned by National Semiconductor. The Company did not receive any of the proceeds from shares sold by the existing stockholders. In addition, the Company sold 1,410,000 additional shares pursuant to the underwriter’s overallotment option. The net proceeds to the Company after the underwriting discount and other related expenses were approximately $239.7 million.

(In millions)	December 26, 1999		May 30, 1999

Term loans payable: Tranche A		$—		$100.0
Tranche B		118.6		210.0
Senior subordinated notes payable		600.0		600.0
PIK note payable		—		99.2
CMP note payable		—		50.8

—Total long-term debt		718.6		1,060.0
Less current portion		1.4		14.1

—Long-term portion		$717.2		$1,045.9

	Options Outstanding					Options Exercisable

Range of Exercise Prices	(000’s) Number Outstanding		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		(000’s) Number Exercisable	Weighted Average Exercise Price

$0.13–0.13		2,086	7.48		$0.13	732		$0.13
$10.00–10.00		2,881	9.13		10.00	444		10.00
$18.50–25.25		1,917	9.61		18.54	155		18.5
$28.00–28.50		80	9.93		28.44	—		—

		6,964	8.78		$9.60	1,331		$5.56

Fourth quarter Fiscal 1999 Mountain View Restructuring (in millions):

Total charge	$10.0
Non-cash items	(3.4	)

—Accrual balance as of May 30, 1999	6.6
Cash payments	(4.0	)

—Accrual balance as of December 26, 1999	$2.6

(In millions, except per share data)	Year Ended

	May 30, 1999			May 31, 1998

Revenues		$1,111.90			$1,300.70
Net income (loss)		(155.90	)		20.60
Net income (loss) applicable to common stockholders		(165.70	)		11.90
Net earnings (loss) per share —Basic		$(2.63	)		$0.19
—Europe		$(2.63	)		$0.18

(In millions, except per share data)	Stub Year 1999

	First			Second		Third (d)

Total revenue		$324.5			$356.8		$104.9
Gross profit		95.5			113.3		26.1
Net income (loss) (a)		(8.0			22.5		6.8
Net income (loss) applicable to common stockholders (a)		(10.0	)		22.5		6.8
Basic earnings (loss) per common share		$(0.15	)		$0.25		$0.08
Diluted earnings (loss) per common share		$(0.15	)		$0.24		$0.07

(In millions)
2000		$1.4
2001		1.2
2002		1.2
2003		1.2
2004		113.6
Thereafter		600.0

		$718.6

Year ended December,	(In millions)

2000		$9.9
2001		5.6
2002		4.6
2003		4.0
2004		4.0
Thereafter		12.1

		$40.2