UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{x} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_________TO________.
Commission File Number: 000-29617
INTERSIL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-3590018
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2401 Palm Bay Road NE
Palm Bay, Florida 32905
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (321)724-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes { } No {X}.
The number of shares outstanding of the issuer's classes of common stock as of
the close of business on December 31, 1999:
Title of Each Class Number of Shares
Class A Common Stock, par value $.01 per share 15,764,794
Class B Common Stock, par value $.01 per share 50,908,386
INTERSIL HOLDING CORPORATION AND SUBSIDARIES
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
For the 13 Weeks Ended December 31, 1999 and
January 1, 1999, for the 20 Weeks Ended December 31,
1999, the 6 Weeks Ended August 13, 1999 and
the 26 Weeks Ended January 1, 1999........................ 3
Condensed Consolidated Balance Sheets as of December 31, 1999,
August 14, 1999 and July 2, 1999.......................... 4
Condensed Consolidated Statements of Cash Flows
For the 20 Weeks Ended December 31, 1999, the 6
Weeks Ended August 13, 1999 and the 26 Weeks
Ended January 1, 1999..................................... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations................................. 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 25
Item 6. Exhibits and Reports on Form 8-K....................................... 26
SIGNATURES...................................................................... 26
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Successor Predecessor Successor Predecessor
----------------- --------------- ----------------- ---------------------------------
13 Weeks Ended 13 Weeks Ended 20 Weeks Ended 6 Weeks Ended 26 Weeks Ended
----------------- --------------- ----------------- --------------- ---------------
December 31, 1999 January 1, 1999 December 31, 1999 August 13, 1999 January 1, 1999
----------------- --------------- ----------------- --------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
(in thousands, except per share amounts)
Revenue
Product Sales .................... $ 158,197 $ 124,076 $ 234,745 $ 57,336 $ 246,625
Costs and expenses
Cost of product sales ............. 96,605 85,108 142,494 39,681 165,619
Research and development .......... 17,554 14,947 25,952 8,499 29,726
Selling, administrative and
general ........................ 26,980 20,065 38,252 10,908 41,333
Harris corporate expense
allocation ...................... - 2,181 - 1,164 4,314
Intangible amortization ........... 2,524 573 3,942 326 1,146
In-process R&D charge ............. (557) - 20,239 - -
--------- --------- --------- --------- ---------
Operating income (loss) ............. 15,091 1,202 3,866 (3,242) 4,487
Interest, net ..................... 15,649 (193) 24,314 (111) (410)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes .................... (558) 1,395 (20,448) (3,131) 4,897
Income taxes (benefit) ............ 1,177 (393) 1,399 (102) (1,380)
--------- --------- --------- --------- ---------
Net income (loss) ................. (1,735) 1,788 (21,847) (3,029) 6,277
Preferred dividends ................. 2,482 - 3,851 - -
--------- --------- ------ --------- ---------
Net income (loss) to common
shareholders ..................... $ (4,217) $ 1,788 $ (25,698) $ (3,029) $ 6,277
========= ========= ========= ========= =========
Loss per share:
Basic ............................. $ (0.06) $ (0.39)
========= =========
Diluted ........................... $ (0.06) $ (0.39)
========= =========
Weighted average common
shares outstanding (in
millions):
Basic ............................. $ 66.7 $ 66.7
======== =========
Diluted ........................... $ 66.7 $ 66.7
======== =========
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Successor Predecessor Successor Predecessor
----------------- --------------- ----------------- ---------------------------------
13 Weeks Ended 13 Weeks Ended 20 Weeks Ended 6 Weeks Ended 26 Weeks Ended
----------------- -------------- ----------------- --------------- ---------------
December 31, 1999 January 1, 1999 December 31, 1999 August 13, 1999 January 1, 1999
----------------- --------------- ----------------- --------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
(in thousands)
Net income (loss) .................. $ (1,735) $ 1,788 $ (21,847) $ (3,029) $ 6,277
Other comprehensive
income (loss):
Currency translation
adjustments .................... (146) 358 280 2,475 1,714
--------- --------- --------- --------- ---------
Comprehensive income
(loss) ........................... $ (1,881) $ 2,146 $ (21,567) $ (554) $ 7,991
========= ========= ========= ========= =========
See notes to Condensed Consolidated Financial Statements.
3
INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
Successor Predecessor
----------------------------------- ------------
December 31, 1999 August 14, 1999 July 2, 1999
----------------- --------------- ------------
(Unaudited)
(in thousands)
Assets
Cash ........................................................................ $ 40,122 $ 7,377 $ -
Trade receivables, less allowances for collection loss ($823 as of
December 31, 1999, $755 as of August 14, 1999 and $582 in 1999 ) ............ 91,748 83,042 100,674
Inventories .................................................................. 154,016 153,044 153,822
Prepaid expenses and other current assets .................................... 7,562 3,624 8,728
--------- --------- ---------
Total Current Assets ................................................... 293,448 247,087 263,224
Other Assets
Property, plant and equipment, less allowance for depreciation ($22,402 as of
December 31, 1999, -0- as of August 14, 1999 and $582,616 in 1999) ........ 318,147 348,514 410,530
Intangibles, less accumulated amortization ( 3,942 as of
December 31, 1999, -0- as of August 14, 1999 and $19,929 in 1999) ......... 84,652 90,715 45,368
Other ........................................................................ 20,784 21,463 42,057
--------- --------- ---------
Total Other Assets ..................................................... 423,583 460,692 497,955
--------- --------- ---------
Total Assets .......................................................... $ 717,031 $ 707,779 $ 761,179
========= ========= =========
Liabilities and Stockholders' Equity/Business Equity
Current Liabilities
Trade accounts payables ..................................................... $ 35,338 $ 29,365 $ 31,068
Retirement plan accruals ..................................................... 7,563 2,445 13,640
Accrued compensation ......................................................... 24,279 15,842 19,283
Accrued interest and sundry taxes ............................................ 14,530 3,877 3,193
Other accrued items .......................................................... 25,670 27,789 16,985
Distributor reserves ......................................................... 6,356 6,512 6,542
Long-term debt--current portion .............................................. 2,415 2,410 360
--------- --------- ---------
Total Current Liabilities .............................................. 116,151 88,240 91,071
Other Liabilities
Deferred income taxes ........................................................ - 8,199 7,022
Long-term debt ............................................................... 531,836 541,525 4,207
Mandatorily Redeemable Preferred Stock--1,000,000 shares designated 12% Series A
Cumulative Compounding preferred stock, $1,000 stated value; 2,000,000 shares
authorized, 85,000 shares authorized, 83,434 shares issued and outstanding at
December 31, 1999 and August 14, 1999 ........................................ 87,860 84,009 -
Stockholder's Equity/Business Equity
Class A Common Stock, $.01 par value, voting 300,000,000 shares authorized,
15,764,794 shares issued and outstanding December 31, 1999 and at
August 14, 1999 ........................................................... 158 158 -
Class B Common Stock, $.01 par value, non-voting; 300,000,000 shares
authorized, 50,908,386 shares issued and outstanding at
December 31, 1999 and August 14, 1999 ..................................... 509 509 -
Additional paid-in Capital ..................................................... 2,656 5,935 -
Business equity ................................................................ - - 661,388
Retained deficit ............................................................... (21,847) (20,796) -
Unearned compensation .......................................................... (572) - -
Accumulated other comprehensive (loss) income .................................. 280 - (2,509)
--------- --------- ---------
Total Stockholders' Equity/Business Equity ............................. (18,816) (14,194) 658,879
--------- --------- ---------
Total Liabilities and Stockholders' Equity/Business Equity ............ $ 717,031 $ 707,779 $ 761,179
========= ========= =========
See notes to Condensed Consolidated Financial Statements.
4
INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Successor Predecessor
------------------- -------------------------------------
20 Weeks Ended 6 Weeks Ended 26 Weeks Ended
----------------- --------------- --------------
December 31, 1999 August 13, 1999 January 1, 1999
----------------- --------------- ---------------
(Unaudited) (Unaudited)
(in thousands)
Operating Activities:
Net Income (loss) .................. $(21,847) $ (3,029) $ 6,277
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities
Depreciation .................... 22,402 8,747 38,068
Amortization .................... 3,942 326 1,146
Write-off of in-process
technology .................... 20,239 - -
Non-current deferred
income taxes .................. - (4,756) (815)
Changes in assets and
liabilities:
Trade receivables ............... (8,706) 14,532 24,570
Inventories ..................... (973) (1,649) 15,324
Prepaid expenses ................ (4,511) 674 724
Trade payables and
accrued liabilities ........... 33,245 (18,705) (28,228)
Unearned service income ......... (438) - (163)
Income taxes .................... 1,127 4,430 (101)
Other ........................... 17,388 2,812 (15,520)
-------- -------- --------
Net cash provided by
operating activities ........ 61,868 3,382 41,282
Investing Activities:
Plant and equipment .................. (12,634) (1,887) (18,149)
-------- -------- --------
Net cash used in
investing activities ........ (12,634) (1,887) (18,149)
Financing Activities
Proceeds from borrowings ........... - - 750
Payments of borrowings ............. (15,144) (32) (113)
Net cash transfer and
billings from (to) parent ....... - (1,198) (23,078)
-------- -------- --------
Net cash used in
financing activities ........ (15,144) (1,230) (22,441)
Effect of exchange rates on
cash and cash equivalents .......... (1,345) 1,177 (692)
-------- -------- --------
Net increase in cash .......... 32,745 1,442 -
Cash at the beginning
of the period ................. 7,377 - -
-------- -------- --------
Cash at the end of the
period ........................ $ 40,122 $ 1,442 $ -
======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
5
Intersil Holding Corporation
Notes to Consolidated Financial Statements
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
Organization
Intersil Holding Corporation (Intersil Holding) was formed on August
13, 1999 through a series of transactions, in which Intersil Holding and its
wholly-owned subsidiary, Intersil Corporation (Intersil), acquired the
Semiconductor Business (Semiconductor Business or Predecessor) of Harris
Corporation (Harris). Intersil Holding currently has no operations but holds
common stock related to its investment in Intersil and certain indebtedness
related to the Semiconductor Business acquisition (Harris acquisition). Intersil
and its wholly-owned domestic and foreign subsidiaries include the operations of
the Predecessor.
Basis of Presentation
The Successor consolidated balance sheet as of August 14, 1999 reflects
the initial capitalization of Intersil Holding and the acquisition of the
Semiconductor Business. The condensed consolidated balance sheet as of July 2,
1999 and the condensed consolidated statements of operations, comprehensive
income and cash flows for the 13 weeks ended January 1, 1999, the 6 weeks ended
August 13, 1999 and the 26 weeks ended January 1, 1999 include the accounts of
the Semiconductor Business, the Predecessor company.
Accordingly, the consolidated financial statements include the power,
communications, space and defense product lines of Harris' Semiconductor
Business that were purchased in the transaction. The transaction did not include
Harris' semiconductor suppression business or photomask operations or certain
patents in the memory field that were retained by Harris. The Semiconductor
Business, which was wholly-owned by Harris, designs, manufactures and sells
discrete semiconductors and standard and custom integrated circuits to the
semiconductor markets. The Semiconductor Business' manufacturing facilities
perform manufacturing operations related to other Harris Semiconductor Product
Lines. The Semiconductor Business was not a separate legal entity and the assets
and liabilities associated with the Semiconductor Business were components of a
larger business.
The Predecessor's consolidated statements of operations include all
revenues and costs attributable to the Semiconductor Business. For cost of
sales, material costs are directly attributable to a product line and are
charged accordingly. Indirect costs are assigned using activity based costing.
Operating expenses (engineering, marketing, and administration & general) have
been allocated to the product lines based on sales or labor, as appropriate.
Harris Corporate expense allocations are based on a percentage of the
Semiconductor Business' net sales. Interest expense is provided on direct
borrowings of the Semiconductor Business. Interest expense of Harris has not
been allocated to the Semiconductor Business.
All of the allocations and estimates in the Predecessor's combined
statements of operations are based on assumptions that management believes are
reasonable under the circumstances. However, these allocations and estimates are
not necessarily indicative of the costs that would have resulted if the
Semiconductor Business had been operated on a stand alone basis.
6
The Semiconductor Business sells products to other affiliated
operations of Harris. Sales to these operations were not material.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments, all of
which are of a normal recurring nature, necessary for a fair presentation of the
results for these interim periods and are not necessarily indicative of full
year results. This report should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission.
NOTE B--INVENTORIES
Inventories are summarized below (in thousands):
(Successor) (Predecessor)
----------- -------------------------
December 31 August 14, July 2
1999 1999 1999
----------- ---------- ------
(Unaudited)
Finished products ............... $ 61,221 $ 59,708 $ 58,041
Work in progress ................ 106,208 104,262 102,457
Raw materials and supplies ...... 8,769 9,137 11,441
--------- --------- ---------
$176,198 $ 173,107 $ 171,939
Less inventory reserve .......... (22,182) (20,063) (18,117)
--------- --------- ---------
$ 154,016 $ 153,044 $ 153,822
========= ========= =========
At December 31, 1999, August 14, 1999 and July 2, 1999 Intersil Holding was
committed to purchase $19.7 million, $22.8 million and $22.5 million,
respectively of inventory from suppliers. Management believes the cost of this
inventory approximates current market value.
NOTE C--RESTRUCTURING
In connection with the acquisition of the Semiconductor Business,
Intersil formulated a restructuring plan and will involuntarily terminate the
employment of 372 employees of the Semiconductor Business. At August 13, 1999,
Intersil recorded $11.0 million in severance benefits and this is included in
the allocation of the acquisition cost. The severance includes the following:
Location No. of Employees Amounts
-------- ---------------- -------
(in millions)
Europe............................ 17 $ 5.6
Malaysia.......................... 262 1.9
North America..................... 93 3.5
--- -----
372 $11.0
=== =====
7
During both the 13 weeks ended December 31, 1999 and the 20 weeks ended
December 31, 1999, approximately $2.5 million of these restructuring costs had
been paid out. As of December 31, 1999, the restructuring liability was $6.0
million. Intersil Holding will complete the restructuring plan by the end of the
fiscal year 2000.
NOTE D--LOSS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share (in thousands, except per share amounts).
(Successor)
---------------------------------------------------
13 Weeks ended 20 Weeks ended
------------------------- -------------------------
December 31, 1999 December 31, 1999
------------------------- -------------------------
(Unaudited)
Numerator:
Net loss available to common shareholders (numerator for basic and
diluted earnings per share) .................................... $ (4,217) $(25,698)
========= ========
Denominator:
Denominator for basic earnings per share-weighted average
common shares .................................................. 66,673 66,673
Effect of dilutive securities:
Stock options .................................................. -- --
Warrants ....................................................... -- --
--------- --------
Denominator for diluted earnings per share-adjusted weighted
average shares ................................................. 66,673 66,673
========= ========
Basic loss per share ................................................... $ (0.06) $ (0.39)
========= ========
Diluted loss per share ................................................. $ (0.06) $ (0.39)
========= ========
The effect of dilutive securities is not included in the computation
for the 13 weeks ended December 31, 1999 and the 20 weeks ended December 31,
1999 because to do so would be antidilutive.
NOTE E--COMMON STOCK
On January 21, 2000, Intersil Holding filed a registration statement
with the Securities and Exchange Commission for a public offering of shares of
its common stock. In connection with the planned public offering, Intersil
Holding effected a 1 for 1.5 reverse stock split of its Class A and Class B
common shares as of February 23, 2000. All references to common shares in the
accompanying unaudited, condensed consolidated financial statements reflect
Intersil Holding's reverse stock split, retroactively applied to all periods
presented.
Intersil Holding is authorized to issue 600.0 million shares of
Intersil Holding common stock, par value $0.01 per share, divided into two
classes consisting of 300.0 million shares of Intersil Holding Class A Common
Stock and 300.0 million shares of Intersil Holding Class B Common Stock. Holders
of Class A Common Stock are entitled to one vote for each share held and holders
of Class B Common
8
Stock have no voting rights. A holder of either class of Intersil Holding common
stock may convert any or all shares into an equal number of shares of the other
class of Intersil Holding common stock.
On August 13, 1999, Intersil Holding sold 15.76 million shares of Class
A Common Stock and 50.91 million shares of Class B Common Stock for
approximately $5.0 million. The $5.0 million proceeds, along with the $83.4
million proceeds from the sales of Series A Preferred Stock was used as a cash
equity contribution from Intersil Holding to Intersil for the acquisition of the
Semiconductor Business.
On August 13, 1999, in connection with Intersil Holding's issuance of
the 13.5% Subordinated Holding PIK Note, Intersil Holding issued to Citicorp
Mezzanine partners, L.P. warrants to purchase 3,703,707 shares of Intersil
Holding Class A Common at an exercise price of $.001 per share, subject to
certain anti-dilution adjustments. If Intersil Holding prepays in full the 13.5%
Subordinated Holding PIK Note within 24 months after issuance, the warrants will
be exercisable for 2,222,224 shares of Intersil Holding Class A Common Stock.
The warrants were valued at $0.3 million and will be treated as additional
interest related to the 13.5% Subordinated Holding PIK Note and amortized over
the life of the 13.5% Subordinated Holding PIK Note on an effective yield
method.
During the unaudited 20 weeks ended December 31, 1999, Intersil Holding
recorded $0.6 million of unearned compensation for the excess of the fair value
of the Class A Common Stock over the grant price for stock sold to certain
executives by the majority shareholder of Intersil Holding. The compensation
expense is being recognized over the stock vesting period of five years. Upon an
initial public offering, the shares sold become fully vested.
Intersil Holding had an option to purchase 1,161,905 shares from a
majority shareholder at $0.075 per share pursuant to an agreement executed at
the initial capitalization. Intersil Holding repurchased the 1,161,905 shares in
January 2000.
NOTE F--EQUITY COMPENSATION PLAN
On November 5, 1999, to be effective August 14, 1999, Intersil Holding
adopted the 1999 Equity Compensation Plan (the "Plan") for salaried officers and
key employees. The Plan authorizes the grant of options for up to 2.0 million
shares of Intersil Holding Class A Common Stock and can include (i) options
intended to constitute incentive stock options ("ISOs") under the Internal
Revenue Code, (ii) non-qualified stock options, (iii) restricted stock, (iv)
stock appreciation rights, and (v) phantom share awards. The exercise price of
each option granted under the Plan shall be as determined by a committee of the
Board of Directors (the "Board"). 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 Board, currently
vesting ratably over approximately 5 years. Employees receiving options under
the Plan may not receive in any one year period options to purchase more than
666,667 shares of common stock. During the 20 weeks ended December 31, 1999,
Intersil Holding granted 1,549,333 options to acquire Intersil Holding Class A
Common Stock at a price of $2.25 per share. The Company accounts for its Equity
Compensation Plan in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". 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 20 weeks ended December 31, 1999,
the Company recorded no deferred compensation. Had compensation
9
cost for the Company's stock option plan been determined consistent with SFAS
Statement No. 123, the Company would have reported a net loss of $1.8 million
for the thirteen weeks ended December 31, 1999 and a net loss of $21.9 million
for the 20 weeks ended December 31, 1999.
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.
December 31, 1999
-----------------
Expected volatility................ --
Dividend yield..................... --
Risk-free interest rate............ 8.17%
Expected life, in years............ 7
A summary of the status of the Company's stock option plan as of
December 31, 1999, and changes during the 20 weeks then ended are presented in
the table below.
December 31, 1999
-----------------
Weighted
Average
Exercise
Shares Price
------ ----------
Outstanding at beginning of period....................... -- --
Granted.................................................. 1,549 $2.25
Exercised................................................ -- --
Canceled................................................. -- --
----- -----
Outstanding at end of period............................. 1,549 $2.25
===== =====
Exercisable at end of period.............................
-- --
Weighted average fair value of options granted........... $0.98
Information with respect to stock options outstanding and stock options
exercisable at December 31, 1999 is as follows:
Options Outstanding Options Exercisable
--------------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Price Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
----------------- ---------------- ---------------- --------------- ----------------
(in (in
thousands) thousands)
$2.25 1,549 9.69 $2.25 0 $2.25
===== =
10
NOTE G - FINANCIAL INFORMATION FOR GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
Intersil Holding is a holding company for Intersil. All of the
operations are conducted through Intersil and its wholly-owned domestic and
foreign subsidiaries. On August 13, 1999, in connection with the Harris
acquisition, Intersil issued the Senior Subordinated Notes and Senior Credit
Facilities, which are fully and unconditionally guaranteed on a joint and
several basis by Intersil Holding (Parent), Intersil and all of Intersil's
wholly-owned current and future domestic subsidiaries (the "Guarantor
Subsidiaries"). Intersil's wholly-owned foreign subsidiaries are not guarantors
(the "Non-Guarantor Subsidiaries"). In management's opinion, separate financial
statements of the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries are
not material to investors.
The condensed consolidating financial information presented below
includes the predecessor consolidated balance sheet as of July 2, 1999 and the
predecessor condensed consolidated statements of income for the 13 weeks ended
January 1, 1999, the 6 weeks ended August 13, 1999 and the 26 weeks ended
January 1, 1999 and the predecessor condensed consolidated statements of cash
flows for the 6 weeks ended August 13, 1999 and the 26 weeks ended January 1,
1999 for the Predecessor Guarantor and Non-Guarantor subsidiaries. The condensed
consolidated balance sheets as of December 31, 1999 and August 14, 1999 and the
condensed consolidated statements of income for the 13 weeks ended December 31,
1999 and the 20 weeks ended December 31, 1999 and the condensed consolidated
statements of cash flows for the 20 weeks ended December 31, 1999 reflect the
Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
11
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 31, 1999
(UNAUDITED)
Successor
-------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
(in thousands)
Revenue
Product sales ......................... $ - $ 149,285 $ 143,255 $ (134,343) $ 158,197
Costs and Expenses
Cost of product sales ................. - 113,319 122,889 (139,603) 96,605
Research and development .............. - 17,554 - - 17,554
Selling, administrative and general ... - 20,817 6,163 - 26,980
Harris corporate expense allocation ... - - - - -
Intangible amortization ............... - 2,524 - - 2,524
In-process R&D charge ................. - (557) - - (557)
--------- ---------- ---------- ----------- ----------
Operating income (loss) .................. - (4,372) 14,203 5,260 15,091
Interest, net ......................... 3,566 12,083 - - 15,649
Equity in subsidiary (income) loss .... (2,252) - - 2,252 -
--------- ---------- ---------- ----------- ----------
Income (loss) before income taxes ..... (1,314) (16,455) 14,203 3,008 (558)
Income taxes (benefit) ................ - (268) (402) 1,847 1,177
--------- ---------- ---------- ----------- ----------
Net income (loss) ..................... (1,314) (16,187) 14,605 1,161 (1,735)
--------- ---------- ---------- ----------- ----------
Preferred dividends ................... 2,482 2,482 - (2,482) 2,482
--------- ---------- ---------- ----------- ----------
Net income (loss) to common
shareholders ......................... $ (3,796) $ (18,669) $ 14,605 $ 3,643 $ (4,217)
========= ========== ========== =========== ==========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999
(UNAUDITED)
Predecessor
----------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
------------ ------------- ----------- ------------
(in thousands)
Revenue
Product sales ......................... $ 116,392 $ 110,646 $ (102,962) $ 124,076
Costs and Expenses
Cost of product sales ................. 111,321 118,753 (144,966) 85,108
Research and development .............. 15,226 (87) (192) 14,947
Selling, administrative and general ... 18,317 4,509 (2,761) 20,065
Harris corporate expense allocation ... 1,399 197 585 2,181
Intangible amortization ............... 573 - - 573
---------- ------------ ----------- -----------
Operating income (loss) .................. (30,444) (12,726) 44,372 1,202
Interest, net ......................... (212) (204) 223 (193)
---------- ------------ ----------- -----------
Income (loss) before income taxes ..... (30,232) (12,522) 44,149 1,395
Income taxes (benefit) ................ (14,592) 497 13,702 (393)
---------- ------------ ----------- -----------
Net income (loss) ..................... $ (15,640) $ (13,019) $ 30,447 $ 1,788
========== ============ =========== ===========
12
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY WEEKS ENDED DECEMBER 31, 1999
(UNAUDITED)
Successor
-------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
(in thousands)
Revenue
Product sales ......................... $ - $ 232,133 $ 212,234 $(209,622) $ 234,745
Costs and Expenses
Cost of product sales ................. - 163,851 186,792 (208,149) 142,494
Research and development .............. - 25,952 - - 25,952
Selling, administrative and general ... - 27,945 10,307 - 38,252
Harris corporate expense allocation ... - - - - -
Intangible amortization ............... - 3,942 - - 3,942
In-process R&D charge ................. - 20,239 - - 20,239
---------- ---------- --------- ---------- ----------
Operating income (loss) .................. - (9,796) 15,135 (1,473) 3,866
Interest, net ......................... 5,455 18,859 - - 24,314
Equity in subsidiary (income)loss ..... 13,520 - - (13,520) -
---------- ---------- --------- ---------- ----------
Income (loss) before income taxes ..... (18,975) (28,655) 15,135 12,047 (20,448)
Income taxes (benefit) ................ - - 1,399 - 1,399
---------- ---------- --------- ---------- ----------
Net income (loss) ..................... (18,975) (28,655) 13,736 12,047 (21,847)
---------- ---------- --------- ---------- ----------
Preferred dividends ................... 3,851 3,851 - (3,851) 3,851
---------- ---------- --------- ---------- ----------
Net income (loss) to common
shareholders ......................... $ (22,826) $ (32,506) $ 13,736 $ 15,898 $ (25,698)
========== ========== ========= ========== ==========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX WEEKS ENDED AUGUST 13, 1999
Predecessor
----------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
------------ ------------- ----------- ------------
(in thousands)
Revenue
Product sales ......................... $ 39,470 $ 129,546 $ (111,680) $ 57,336
Costs and Expenses
Cost of product sales ................. 37,484 139,292 (137,095) 39,681
Research and development .............. 8,511 (12) - 8,499
Selling, administrative and general ... 8,986 1,778 144 10,908
Harris corporate expense allocation ... 1,393 (85) (144) 1,164
Intangible amortization ............... 326 - - 326
--------- ---------- ----------- ---------
Operating income (loss) .................. (17,230) (11,427) 25,415 (3,242)
Interest, net ......................... (161) 50 - (111)
--------- ---------- ----------- ---------
Income (loss) before income taxes ..... (17,069) (11,477) 25,415 (3,131)
Income taxes (benefit) ................ (4,943) (15) 4,856 (102)
--------- ---------- ----------- ---------
Net income (loss) ..................... $(12,126) $ (11,462) $ 20,559 $ (3,029)
========= ========== =========== =========
13
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTYSIX WEEKS ENDED JANUARY 1, 1999
(UNAUDITED)
Predecessor
------------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
------------ ------------- ----------- ------------
(in thousands)
Revenue
Product sales ......................... $ 240,586 $ 205,188 $(199,149) $ 246,625
Costs and Expenses
Cost of product sales ................. 212,307 209,083 (255,771) 165,619
Research and development .............. 33,811 (53) (4,032) 29,726
Selling, administrative and general ... 34,323 8,519 (1,509) 41,333
Harris corporate expense allocation ... 4,314 - - 4,314
Intangible amortization ............... 1,146 - - 1,146
--------- --------- --------- ---------
Operating income (loss) ..................... (45,315) (12,361) 62,163 4,487
Interest, net ......................... (423) (446) 459 (410)
--------- --------- --------- ---------
Income (loss) before income taxes ..... (44,892) (11,915) 61,704 4,897
Income taxes (benefit) ................ (22,725) 1,650 19,695 (1,380)
--------- --------- --------- ---------
Net income (loss) ..................... $ (22,167) $ (13,565) $ 42,009 $ 6,277
========= ========= ========= =========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1999
(UNAUDITED)
Successor
------------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ------------ ------------
(in thousands)
Assets
Cash....................................... $ - $ 34,083 $ 6,039 $ - $ 40,122
Trade receivables, net..................... - 87,325 4,423 - 91,748
Intercompany balances...................... - 17,078 (16,079) (999) -
Inventories................................ - 130,546 33,260 (9,790) 154,016
Other current assets....................... - 7,237 325 - 7,562
Property, plant and equipment, net......... - 230,986 87,161 - 318,147
Intangibles, net........................... - 84,343 309 - 84,652
Investment in subsidiaries................. 215,466 306,502 95,613 (617,581) -
Other non-current assets................... - 18,184 2,600 - 20,784
--------- --------- --------- ---------- ---------
Total Assets........................... $ 215,466 $ 916,284 $ 213,651 $ (628,370) $ 717,031
========= ========= ========= ========== =========
Liabilities and Business Equity
Accounts payable........................... $ - $ 20,449 $ 14,889 $ - $ 35,338
Compensation and benefits.................. - 26,460 5,382 - 31,842
Other current liabilities.................. - 48,434 537 - 48,971
Long-term debt............................. 125,155 406,681 - - 531,836
Other non-current liabilities.............. - - - - -
Preferred stock............................ 87,860 - - - 87,860
Common stock............................... 667 - - - 667
Additional paid in capital................. 2,356 300 - - 2,656
Retained deficit........................... - 413,960 192,843 (628,370) (21,567)
Unearned compensation...................... (572) - - - (572)
Total Liabilities and Stockholders'
--------- --------- --------- ---------- ---------
Equity.............................. $ 215,466 $ 916,284 $ 213,651 $ (628,370) $ 717,031
========= ========= ========= ========== =========
14
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
August 14, 1999
Successor
-----------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------- ---------- ------------
(in thousands)
Assets
Cash ...................................................... $ - $ 5,932 $ 1,445 $ - $ 7,377
Trade receivables, net .................................... - 79,242 3,800 - 83,042
Intercompany balances ..................................... - (155,306) (29,102) 184,408 -
Inventories ............................................... - 147,441 5,643 (40) 153,044
Other current assets ...................................... - 9,898 (903) (5,371) 3,624
Property, plant and equipment, net ........................ - 252,796 95,718 - 348,514
Intangibles, net .......................................... - 90,715 - - 90,715
Investment in subsidiaries ................................ 210,011 23,240 68 (233,319) -
Other non-current assets .................................. - 20,086 752 625 21,463
--------- --------- --------- --------- ---------
Total Assets........................................... $ 210,011 $ 474,044 $ 77,421 $ (53,697) $ 707,779
========= ========= ========= ========= =========
Liabilities and Business Equity
Accounts payable .......................................... $ - $ 16,532 $ 11,390 $ 1,443 $ 29,365
Compensation and benefits ................................. - 13,164 5,186 (63) 18,287
Other current liabilities ................................. - 41,774 (1,593) 407 40,588
Long-term debt ............................................ 119,700 421,825 - - 541,525
Other non-current liabilities ............................. - (7,370) 5,933 9,636 8,199
Preferred stock ........................................... 84,009 - - - 84,009
Common stock .............................................. 667 - - - 667
Additional paid in capital ................................ 5,635 300 - - 5,935
Retained deficit .......................................... - (12,181) 56,505 (65,120) (20,796)
--------- --------- --------- --------- ---------
Total Liabilities and Stockholders'
Equity ............................................. $ 210,011 $ 474,044 $ 77,421 $ (53,697) $ 707,779
========= ========= ========= ========= =========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
July 2, 1999
Predecessor
---------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
------------ -------------- ----------- ------------
Assets
Trade receivables, net............................. $ 97,043 $ 3,631 $ - $ 100,674
Intercompany balances.............................. (139,993) 19,554 120,439 -
Inventories........................................ 86,986 86,049 (19,213) 153,822
Other current assets............................... 7,782 946 - 8,728
Property, plant and equipment, net................. 291,645 118,885 - 410,530
Intangibles, net................................... 45,368 - - 45,368
Investment in subsidiaries......................... 10,907 72,195 (83,102) -
Other non-current assets........................... 39,721 2,336 - 42,057
--------- --------- -------- ---------
Total Assets................................... $ 439,459 $ 303,596 $ 18,124 $ 761,179
========= ========= ======== =========
Liabilities and Business Equity
Accounts payable................................... $ 21,503 $ 9,565 $ - $ 31,068
Compensation and benefits.......................... 26,120 6,803 - 32,923
Other current liabilities.......................... 42,778 (8,254) (7,444) 27,080
Other non-current liabilities...................... 11,229 - - 11,229
Business equity.................................... 337,829 295,482 25,568 658,879
--------- --------- -------- ---------
Total Liabilities and Stockholders'
Equity...................................... $ 439,459 $ 303,596 $ 18,124 $ 761,179
========= ========= ======== =========
15
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY WEEKS ENDED DECEMBER 31, 1999
(UNAUDITED)
Successor
---------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ---------- ------------
(in thousands)
Operating Activities:
Net income (loss) ............................... $ (5,455) $(28,655) $ 13,736 $ (1,473) $(21,847)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization ................... - 20,665 5,679 - 26,344
Changes in working capital ...................... 5,455 58,599 (8,156) 1,473 57,371
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities .................... - 50,609 11,259 - 61,868
Investing Activities:
Plant and equipment ............................... - (7,314) (5,320) - (12,634)
-------- -------- -------- -------- --------
Net cash used in investing activities ..... - (7,314) (5,320) - (12,634)
Financing Activities:
Payments of borrowings ......................... - (15,144) - - (15,144)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities ............................ - (15,144) - - (15,144)
Effect of exchange rates on cash and cash
equivalents ................................... - - (1,345) - (1,345)
-------- -------- -------- -------- --------
Net increase in cash .............................. - 28,151 4,594 - 32,745
Cash at the beginning of the period ............... - 5,932 1,445 - 7,377
-------- -------- -------- -------- --------
Cash at the end of the period ..................... $ - $ 34,083 $ 6,039 $ - $ 40,122
======== ======== ======== ======== ========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX WEEKS ENDED AUGUST 13, 1999
Predecessor
---------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
------------ ------------- ----------- ------------
Operating Activities:
Net income (loss) ............................... $ (11,462) $ (12,126) $ 20,559 $ (3,029)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization ................... 2,380 6,693 - 9,073
Non-current deferred income taxes ............... - 4,815 (9,571) (4,756)
Changes in working capital ...................... 210,864 128,451 (337,221) 2,094
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities .................... 201,782 127,833 (326,233) 3,382
Investing Activities:
Plant and equipment ............................... (1,020) (867) - (1,887)
--------- --------- --------- ---------
Net cash used in investing activities ..... (1,020) (867) - (1,887)
Financing Activities:
Payments of borrowings ......................... - 4,535 (4,567) (32)
Net cash transfer and billings from (to)
parent ..................................... (200,497) (131,501) 330,800 (1,198)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities ............................ (200,497) (126,966) 326,233 (1,230)
Effect of exchange rates on cash and cash
equivalents ................................... 1,177 - - 1,177
--------- --------- --------- ---------
Net increase in cash .............................. 1,442 - - 1,442
Cash at the beginning of the period ............... - - - -
--------- --------- --------- ---------
Cash at the end of the period ..................... $ 1,442 $ - $ - $ 1,442
========= ========= ========= =========
16
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JANUARY 1, 1999
(UNAUDITED)
Predecessor
-----------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
------------ ------------- ------------ -----------
Operating Activities:
Net income (loss)................................ $ (22,167) $ (13,565) $ 42,009 $ 6,277
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization.................... 29,534 9,680 - 39,214
Non-current deferred income taxes................ (59,182) - 58,367 (815)
Changes in working capital....................... (137,676) (57,417) 191,699 (3,394)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities..................... (189,491) (61,302) 292,075 41,282
Investing Activities:
Plant and equipment................................ (10,602) (7,547) - (18,149)
---------- ---------- ---------- ----------
Net cash used in investing activities...... (10,602) (7,547) - (18,149)
Financing Activities:
Proceeds from borrowings........................ 750 - - 750
Payments of borrowings.......................... (4,818) - 4,705 (113)
Net cash transfer and billings from (to) -
parent....................................... 204,161 69,541 (296,780) (23,078)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities.............................. 200,093 69,541 (292,075) (22,441)
Effect of exchange rates on cash and cash
equivalents.................................... - (692) - (692)
---------- ---------- ---------- ----------
Net increase in cash............................... - - - -
Cash at the beginning of the period................ - - - -
---------- ---------- ---------- ----------
Cash at the end of the period...................... $ - $ - $ - $ -
========== ========== ========== ==========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to our Consolidated Financial Statements,
including the notes thereto. Except for historical information, the discussions
in this section contain forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed
below.
Results of Operations
The following table sets forth income statement data for the periods
indicated as a percentage of revenue:
13 Weeks Ended 26 Weeks Ended
--------------------------------------- ---------------------------------------
December 31, 1999 January 1, 1999 Combined December January 1, 1999
31, 1999
--------------------------------------- ---------------------------------------
Revenue
Analog & Mixed Signal ..... 59.5% 69.5% 60.6% 67.3%
Discrete Power ............ 34.6% 28.0% 34.1% 29.7%
Wireless .................. 5.9% 2.5% 5.3% 3.0%
----- ----- ----- -----
Total .................. 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses
Cost of product sales ..... 61.1% 68.6% 62.4% 67.3%
Research and development .. 11.1% 12.0% 11.8% 12.0%
Selling, administrative and
general ................ 17.1% 17.9% 17.2% 18.5%
Intangible amortization ... 1.6% 0.5% 1.5% 0.4%
In-process R&D charge ..... -0.4% 0.0% 6.9% 0.0%
----- ----- ----- -----
Operating income (loss) ..... 9.5% 1.0% 0.2% 1.8%
Interest, net ............. 9.8% -0.2% 8.3% -0.2%
----- ----- ----- -----
Income (loss) before
income taxes ............ -0.3% 1.2% -8.1% 2.0%
Income taxes (benefit) .... 0.8% -0.3% 0.4% -0.6%
----- ----- ----- -----
Net income (loss) ......... -1.0% 1.5% -8.5% 2.6%
===== ===== ===== =====
Revenue
Revenue for the three months ended December 31, 1999 increased 27.5% to
$158.2 million from $124.1 million during the three months ended January 1,
1999. Revenue for the six months ended December 31, 1999 increased 18.4% to
$292.0 million from $246.6 million during the six months ended
18
January 1, 1999. The growth in both periods is the result of improved demand
across all business units, primarily because of improved market conditions.
Wireless sales growth over last year of 200% for the three months ended December
31, 1999 and 112% for the six months ended December 31, 1999 was driven by
increased market acceptance of our PRISM(R) products.
Geographically, 49.1%, 23.0% and 27.9% of product sales were derived in
North America, Europe and Asia, respectively, during the three months ended
December 31, 1999 compared to 53.6%, 24.1% and 22.3% during the three months
ended January 1, 1999. For the six months ended December 31, 1999, 48.9%, 22.9%
and 28.2% of product sales were derived in North America, Europe and Asia,
respectively, compared to 54.1%, 24.9% and 21.0% during the six months ended
January 1, 1999.
Gross Margin
Cost of goods sold consists primarily of purchased materials, labor and
overhead (including depreciation) associated with product manufacturing, plus
royalty, warranty and sustaining engineering expenses pertaining to products
sold. In the three months ended December 31, 1999, gross margin on product sales
increased 57.9% to $61.6 million from $39.0 million in the three months ended
January 1, 1999. Gross margin on product sales increased 35.7% to $109.9 million
in the six months ended December 31, 1999 from $81.0 million in the six months
ended January 1, 1999. As a percent of sales, gross margin was 38.9% during the
three months ended December 31, 1999 and 37.6% during the six months ended
December 31, 1999 compared to 31.4% during the three months ended January 1,
1999 and 32.8% during the six months ended January 1, 1999. This increase was
substantially due to a decrease in depreciation expense resulting from a
revaluation of our property, plant and equipment due to purchase accounting,
greater capacity utilization, to 81% during the three months ended December 31,
1999 from 64% during the three months ended January 1, 1999 and to 80% during
the six months ended December 31, 1999 from 62% during the six months ended
January 1, 1999, and increased manufacturing efficiencies resulting from cost
reductions related to headcount reductions.
Operating Expenses
R&D expenses consist primarily of salaries and selected costs of
employees engaged in product/process research, design and development
activities, as well as related subcontracting activities, prototype development,
cost of design tools and technology license agreement expenses. R&D expenses
increased 18.1% to $17.6 million during the three months ended December 31, 1999
from $14.9 million during the three months ended January 1, 1999 and 16.2% to
$34.5 million during the six months ended December 31, 1999 from $29.7 million
during the first half of fiscal 1999. As a percent of sales, R&D expenses
remained relatively flat at 11.1% for the three months ended December 31, 1999
from 12.0% for the three months ended January 1, 1999 and 11.8% for the six
months ended December 31, 1999 from 12.0% for the six months ended January 1,
1999. During the current fiscal year, R&D expense included continued investment
in the PRISM(R) chip sets and in the power management integrated circuits area,
focusing in the categories of communications and computing, which led our growth
of new product revenue during fiscal 1999.
In connection with the acquisition, we allocated $20.2 million of the
purchase price to in-process R&D projects. This allocation represents the
estimated fair value based on risk-adjusted cash flows related to the incomplete
products. At the date of acquisition, the development of these projects had not
yet reached technological feasibility and the in-process R&D had no alternative
future uses.
19
Accordingly, these costs were expensed as a one-time charge to earnings in the
combined six months ended December 31, 1999.
In making the purchase price allocation, we relied on present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contribution and project risk. The amounts
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established.
The fair values assigned prior to allocation of negative goodwill to
each of the significant projects and the stage of completion are reported below:
Fair Value Stage of
Product (in millions) Completion
------- ------------- ----------
SMPS IGBT $ 2.4 60%
PRISM II 2.4 90
HIP 6601/2/3 1.5 75
HC 1540 0.4 80
HC 7581 3.4 60
HIP 6210/6220 2.4 50
DC to DC Power Converters 2.2 35
Gen III Radiation Hardened MOSFETs 8.0 60
Other 6.3 38
-----
Total $29.0
=====
A discussion of the most significant projects follows:
SMPS IGBT
SMPS IGBT refers to a project researched and in development in our
discrete power product line area. AC to DC power supplies are designed to use
high voltage power metal oxide semiconductor field effect transistors, or
MOSFETs, to convert an AC voltage into a DC voltage. The new switch mode power
supply, or SMPS, family of insulated gate bipolar transistors, or IGBTs, will
combine the fast speed, unclamped inductive switching and low gate charge speed
of the power MOSFET with the high current density and low forward voltage drop
of the IGBT. The result will be a lower cost and more efficient product than
currently available high voltage MOSFET products.
PRISM II
PRISM II refers to a project researched and in development in our
wireless product line area. PRISM II will be a complete silicon solution for the
design of Wireless Local Area Networks, or WLANs. Comprised of five highly
integrated chips incorporating advanced silicon germanium technology, PRISM II
will deliver all required analog and digital circuitry for the physical and
medium access controller layers, while providing a complete
"antenna-to-computer" solution for high data rate WLANs. The product will
provide end-users in the computer market with a low cost, small and lightweight
medium for WLAN connection.
20
HIP6601/2/3
HIP6601/2/3 refers to another chipset family researched and in
development in our analog and mixed signal product line area. HIP6601/2/3 will
be designed to support the next generation Intel and AMD processors that will be
used in file servers, desktops, and workstations. The HIP6601, HIP6602 and
HIP6603 will be a family of similar controllers and drivers designed to support
various high performance CPU power supply conversion requirements.
HC1540
HC1540 refers to an integrated circuit and relay researched and in
development in our analog and mixed signal product line area. HC1540 will be a
high voltage switch for use in the telecom industry.
HC7581
HC7581 refers to a new subscriber line interface circuit, or SLIC,
researched and in development in our analog and mixed signal product line area.
SLICs are required in all telecom exchange systems to interface with signals
entering into telecommunication systems.
HIP6210/6220
HIP6210/6220 refer to a chipset researched and in development in our
analog and mixed signal product line area. HIP6210/6220 are designed to support
the personal computer market by saving energy. These chips will sense different
power requirement levels and regulate the flow of the power based on essential
needs.
DC to DC Power Converters
DC to DC power converters refer to a project researched and in
development in our space and defense group. The DC to DC power converter will be
the first in a series of radiation-hardened, high reliability power supplies.
This power supply source will be smaller in size, of less weight and more
efficient than currently available technology. The initial market will be for
usage in satellites. However, a variety of other commercial and military space
applications are envisioned.
Gen III Radiation Hardened MOSFETs
Gen III radiation hardened metal oxide semiconductor field effect
transistors, or MOSFETs, refer to a project researched and in development in our
discrete power product line area. This technology will reduce the die size used
in commercial satellites by 50% while maintaining a high degree of radiation
hardness. Launch costs of commercial satellites are directly proportional to a
satellite's size and weight. The die size reduction will enable us to place our
silicon in packages that are smaller and lighter thereby providing the end-user
with a more economical printed circuit board.
The value assigned to purchased in-process R&D was determined by
estimating the costs to develop the purchased in-process R&D into commercially
viable products and discounting the net cash flows to their present value.
21
Remaining development efforts for these in-process R&D projects include
various phases of design, development and testing. The anticipated completion
dates for the in-process R&D projects will occur within the next one and one
half years, after which we expect to begin generating economic benefits from the
technologies. Expenditures to complete these projects are expected to total
approximately $12.1 million in fiscal year 2000, and $1.3 million in fiscal year
2001.
These estimates are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur. We expect to continue these development efforts and
believe we have a reasonable chance of successfully completing the R&D programs.
However, there is risk associated with the completion of the projects and there
is no assurance that any will meet with either technological or commercial
success.
SG&A costs, which include marketing, selling, administrative and
general expenses, and Harris corporate expense allocation, increased to $27.0
million during the three months ended December 31, 1999 from $22.2 million
during the three months ended January 1, 1999 and to $50.2 million during the
six months ended December 31, 1999 from $45.7 million during the six months
ended January 1, 1999. The increase in both periods was due to additional
selling costs resulting from higher sales in fiscal 2000 and additional
marketing costs associated with the new company branding initiative. Operating
expenses include allocated charges by Harris to us for legal, financial and
other administrative expenses of $2.2 million for the three months ended January
1, 1999, $1.2 million for the six weeks ended August 13, 1999, and $4.3 million
for the six months ended January 1, 1999.
Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. These assets are being amortized over
their useful lives ranging from five to eleven years.
Interest Expense
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities. See "--Liquidity and Capital Resources."
Interest expense related to this debt for Intersil Holding during the three
months ended December 31, 1999 was $16.1 million and $24.8 million during the
six months ended December 31, 1999, excluding interest income of $0.4 million
and $0.6 million respectively.
Tax Expense
The tax provision for the three months ended December 31, 1999 and for
the combined six months ended December 31, 1999 is not comparable to the three
months ended January 1, 1999 and the six months ended January 1, 1999, due to
the different tax structures of the semiconductor business and Intersil Holding.
Backlog
We had backlog at December 31, 1999 of $192.4 million compared to
$174.0 million at July 2, 1999.
22
Liquidity and Capital Resources
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities, which provide for a Senior Term Facility of
$205.0 million and a Revolving Credit Facility in an aggregate amount up to
$70.0 million. Both the Senior Term Facility and the Revolving Credit Facility
will mature in 2005.
The Senior Term Facility is subject to amortization payments which
required 1.0% of the original principal amount to be repaid in each of the first
five years. The Revolving Credit Facility is available until 2005 unless sooner
terminated. As of December 31, 1999, the Revolving Credit Facility was undrawn.
Our principal capital requirements are to fund working capital needs,
to meet required debt payments and to complete planned maintenance and
expansion. We anticipate that our operating cash flow, together with available
borrowing under the Revolving Credit Facility, will be sufficient to meet our
working capital, capital expenditure and interest requirements on our debt
obligations for the foreseeable future. On January 21, 2000, Intersil Holding
filed a registration statement with the Securities and Exchange Commission for
an initial public offering of shares of its common stock. The proceeds of this
offering are expected to be used to repay the entire 13.5% Senior Subordinated
PIK Note due 2010 and the entire 11.13% Seller Holding PIK Note due 2010 and a
portion of the Senior Term Facility and the 13 1/4% Senior Subordinated Notes
due 2009. As of December 31, 1999 our total debt and stockholders' equity as
adjusted for this offering would have been $191.8 million and $403.7 million,
respectively.
Net cash generated by operating activities for the six months ended
December 31, 1999 was $65.3 million. Net cash used in investing activities for
the six months ended December 31, 1999 was $14.5 million for capital
expenditures to support our expanded operations. Net cash used to repay debt for
the six months ended December 31, 1999 was $15.2 million. Our cash balance at
December 31, 1999 was $40.1 million.
Our senior credit facility contains financial covenants and
restrictions including restrictions on our ability to pay cash dividends or to
effect mergers or acquisitions, incur certain indebtedness or to make certain
investments without the bank's prior approval. We are currently in compliance
with such financial covenants and restrictions.
Receivables and Inventories
Trade accounts and the current portion of notes receivable less the
allowance for collection losses totaled $91.7 million at December 31, 1999
compared to $100.7 million at July 2, 1999. This decrease was due to continued
emphasis on improving the receivable collection cycle. Inventories remained
relatively flat at December 31, 1999, increasing to $154.0 million at December
31, 1999 from $153.8 million at July 2, 1999.
Capital Expenditures
Capital expenditures for the six months ended December 31, 1999 were
$14.5 million compared to $18.1M for the six months ended January 1, 1999. Our
previous owner invested approximately $303.9 million in capital expenditures
since the beginning of fiscal year 1997 for upgrading our existing
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facilities with state-of-the-art manufacturing equipment and for the building
and equipping of the world's first 8-inch wafer fab for discrete power
semiconductors. As a result, we do not anticipate substantial capital
expenditures in the foreseeable future. During the fiscal year 2000, we intend
to spend about $45.0 million in capital expenditures.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued FAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
statement establishes standards for recording derivative financial instruments
and the recognition of gains or losses resulting from changes in the fair values
of those instruments. We plan to adopt the new standard no later than the first
quarter of fiscal year 2001. However, we have not yet determined the anticipated
impact of FAS No 133.
CAUTIONARY STATEMENT. This Quarterly Report contains statements relating to
future results of the Company (including certain projections and business
trends) that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties. These risks
and uncertainties include, but are not limited to: global economic and market
conditions, including the cyclical nature of the semiconductor industry and the
markets addressed by the Company's and its customers' products; demand for, and
market acceptance of, new and existing products; successful development of new
products; the timing of new product introductions; the successful integration of
acquisitions; the availability and extent of utilization of manufacturing
capacity and raw materials; pricing pressures and other competitive factors;
changes in product mix; fluctuations in manufacturing yields; product
obsolescence; the ability to develop and implement new technologies and to
obtain protection of the related intellectual property; and the uncertainties of
litigation, as well as other risks and uncertainties detailed from time to time
in the Company's Securities and Exchange Commission filings. Reference is made
to the "Risk Factors" section on pages 6 through 13 of the Preliminary
Prospectus dated February 4, 2000. These forward-looking statements are made
only as of the date hereof, and the Company undertakes no obligation to update
or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We, in the normal course of doing business, are exposed to the risks
associated with foreign currency exchange rates and changes in interest rates.
We employ established policies and procedures governing the use of financial
instruments to manage our exposure to these risks.
We use foreign exchange contracts and options to hedge both balance
sheet and off-balance sheet foreign currency commitments. Specifically, these
foreign exchange contracts offset foreign currency denominated inventory and
purchase commitments from suppliers, and accounts receivable from, and future
committed sales to customers and intercompany loans. We believe the use of
foreign currency financial instruments should reduce the risks that arise from
doing business in international markets. Our policy, effective August 1999 is to
hedge firm foreign currency exposure up to six months of anticipated
requirements. At December 31, 1999, we had open foreign exchange contracts with
a notional amount of $27.6 million, all of which were to hedge off-balance-sheet
commitments. At
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August 13, 1999 we had open foreign exchange contracts with a notional amount of
$6.1 million, all of which were to hedge off-balance-sheet commitments. At July
2, 1999, we had open foreign exchange contracts with a notional amount of $22.0
million, all of which were to hedge off balance-sheet commitments. Our hedging
activities provide only limited protection against accuracy of sales estimates,
volatility of currency markets, and the cost and availability of hedging
instruments. A 10% adverse change in currency exchange rates for our foreign
currency derivatives held at December 31, 1999, would have an impact of
approximately $1.3 million on the fair values of these instruments. This
qualification of exposure to the market risk associated with foreign exchange
financial instruments does not take into account the offsetting impact of
changes in the fair values of foreign denominated assets, liabilities and firm
commitments.
Additionally, we use foreign exchange contracts to hedge anticipated
foreign cash flow commitments up to 6 months. Hedges on anticipated foreign cash
flow commitments do not qualify for deferral and therefore, gains and losses on
changes in the fair market value of the foreign exchange contract are recognized
in income. We are exposed to market risks related to fluctuations in interest
rates on our variable rate debt, which consists of borrowings at December 31
1999, of $205.0 million under our Tranche B Senior Term Facility. As of December
31, 1999, we also had fixed rate debt of approximately $329.3 million comprised
primarily of the 13 1/4% Senior Subordinated Notes due 2009, the 13.5% Senior
Subordinated PIK Note Due 2010 and the 11.13% Seller Holding PIK Note due 2010.
We are not currently utilizing any type of derivative financial instrument to
control our interest rate risk.
For fixed rate debt, changes in interest rates generally affect the
fair market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. We manage our interest exposure by
using a combination of fixed and variable rate debt. Holding the variable rate
debt balance constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in interest
expense for fiscal year 2000 of approximately $2.2 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings arising
in the ordinary course of business. A countersuit brought against Harris by
Ericsson, a competitor of Harris, in which patent infringement claims have been
asserted is currently pending in the Sherman Division of the United States
District Court for the Eastern District of Texas. The action was initially
instituted by Harris against Ericsson on August 17, 1998 in Dallas, Texas.
Ericsson countersued Harris, claiming infringement by Harris of four of its
patents relating to telephone subscriber line interface circuits. On September
1, 1999, Ericsson joined us in this action. Ericsson seeks an injunction plus
damages, including lost profits and/or a reasonable royalty, costs of suit,
treble damages, prejudgment interest and attorneys' fees. However, to the extent
our liability from this litigation, if any, arises out of the conduct of the
semiconductor business by Harris prior to closing, this liability will be
covered by Harris' agreement in connection with the acquisition of the
semiconductor business to provide us with certain indemnities. We believe that
there is no litigation pending that could have, individually or in the
aggregate, a material adverse effect on our business, financial condition,
results of operations or cash flows.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 Financial Data Schedule
b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended and the six months ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Intersil Holding Corporation
(Registrant)
Date February 25, 2000 /s/ DANIEL J. HENEGHAN
-----------------------------
NAME: DANIEL J. HENEGHAN
TITLE: CHIEF FINANCIAL OFFICER
Date February 25, 2000 /s/ DANIEL J. HENEGHAN
-----------------------------
NAME: DANIEL J. HENEGHAN
TITLE: CHIEF FINANCIAL OFFICER
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