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 MARCH 31, 2000
{ } 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 March 31, 2000:
Title of Each Class Number of Shares
Class A Common Stock, par value $.01 per share 41,635,439
Class B Common Stock, par value $.01 per share 49,746,481
1
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 March 31, 2000 and April 2, 1999, for the
33 Weeks Ended March 31, 2000, the 6 Weeks Ended
August 13, 1999 and the 39 Weeks Ended April 2, 1999 3
Condensed Consolidated Balance Sheets as of March 31, 2000,
August 14, 1999 and July 2, 1999 4
Condensed Consolidated Statements of Cash Flows
For the 33 Weeks Ended March 31, 2000, the 6
Weeks Ended August 13, 1999 and the 39 Weeks
Ended April 2, 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 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 29
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 33 Weeks Ended 6 Weeks Ended 39 Weeks Ended
------------------ ------------------ ----------------- ------------------ -----------------
March 31, 2000 April 2, 1999 March 31, 2000 August 13, 1999 April 2, 1999
------------------ ------------------ ----------------- ------------------ -----------------
(Unaudited) (Unaudited) (Unaudited)
(in thousands, except per share amounts)
Revenue $ 57,336 $ 381,992
Product Sales $ 170,875 $ 135,367 $ 405,621
Costs and expenses 39,681 253,848
Cost of product sales 101,426 88,229 243,920 8,499 47,872
Research and development 20,974 18,146 46,927
Selling, administrative and 10,908 58,741
general 27,808 17,408 66,059
Harris corporate expense 1,164 6,679
allocation - 2,365 - 326 1,719
Intangible amortization 2,562 573 6,505 - -
In-process R&D charge - - 20,239 - -
Other 1,312 - 1,312 -------- ---------
--------- --------- --------- (3,242) 13,133
Operating income (loss) 16,793 8,646 20,659 (111) (1,082)
Interest, net 11,670 (672) 35,983 -------- ---------
--------- --------- ---------
Income (loss) before
income taxes and (3,131) 14,215
extraordinary item 5,123 9,318 (15,324) (102) (4,008)
Income taxes (benefit) 2,275 (2,628) 3,674 -------- ---------
--------- --------- ---------
Income (loss) before (3,029) 18,223
extraordinary item 2,848 11,946 (18,998)
Extraordinary item - loss on
extinguishment of debt, net - -
of tax effect (25,518) - (25,518) -------- ---------
--------- --------- --------- (3,029) 18,223
Net income (loss) (22,670) 11,946 (44,516) - -
Preferred dividends 1,540 - 5,391 -------- ---------
--------- --------- ---------
Net income (loss) to common $ (3,029) $ 18,223
shareholders $ (24,210) $ 11,946 $ (49,907) ======== =========
========= ========= =========
Basic and diluted loss per share:
Income (loss) before
extraordinary item $ 0.02 $ (0.35)
Extraordinary item (0.34) (0.36)
--------- ---------
Net income (loss) $ (0.32) $ (0.71)
========= =========
Weighted average common
shares outstanding (in
millions):
Basic $ 75.0 $ 70.4
======== =========
Diluted $ 75.0 $ 70.4
======== =========
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Successor Predecessor Successor Predecessor
------------------ ------------------ ------------------ ---------------------------------------
13 Weeks Ended 13 Weeks Ended 33 Weeks Ended 6 Weeks Ended 39 Weeks Ended
------------------ ------------------ ------------------ ------------------- -----------------
March 31, 2000 April 2, 1999 March 31, 2000 August 13, 1999 April 2, 1999
------------------ ------------------ ------------------ ------------------- -----------------
(Unaudited) (Unaudited) (Unaudited)
(in thousands)
Net income (loss) $ (22,670) $ 11,946 $ (44,516) $ (3,029) $ 18,223
Other comprehensive
income (loss):
Currency translation
adjustments (250) (1,954) 30 2,475 (240)
--------- -------- --------- -------- --------
Comprehensive income
(loss) $ (22,920) $ 9,992 $ (44,486) $ (554) $ 17,983
========= ======== ========= ======== =========
See notes to Condensed Consolidated Financial Statements.
3
INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
Successor Predecessor
---------------------------------------- ------------------
March 31, 2000 August 14, 1999 July 2, 1999
------------------- ------------------- ------------------
(Unaudited)
(in thousands)
Assets
Cash $ 140,958 $ 7,377 $ -
Trade receivables, less allowances for collection loss ($871 as of
March 31, 2000, $755 as of August 14, 1999 and $582 in 1999) 98,246 83,042 100,674
Inventories 148,581 153,044 153,822
Prepaid expenses and other current assets 9,550 3,624 8,728
--------- --------- ---------
Total Current Assets 397,335 247,087 263,224
Other Assets
Property, plant and equipment, less allowance for depreciation
($36,853 as of March 31, 2000, -0- as of August 14, 1999
and $582,616 in 1999) 316,601 348,514 410,530
Intangibles, less accumulated amortization (6,505 as of
March 31, 2000, -0- as of August 14, 1999 and
$19,929 in 1999) 82,077 90,715 45,368
Other 12,529 21,463 42,057
--------- --------- ---------
Total Other Assets 411,207 460,692 497,955
--------- --------- ---------
Total Assets $ 808,542 $ 707,779 $ 761,179
========= ========= =========
Liabilities and Stockholders' Equity/Business Equity
Current Liabilities
Trade accounts payables $ 37,017 $ 29,365 $ 31,068
Retirement plan accruals 7,675 2,445 13,640
Accrued compensation 28,600 15,842 19,283
Accrued interest and sundry taxes 5,641 3,877 3,193
Other accrued items 27,222 27,789 16,985
Distributor reserves 6,177 6,512 6,542
Long-term debt--current portion 401 2,410 360
--------- --------- ---------
Total Current Liabilities 112,733 88,240 91,071
Other Liabilities
Deferred income taxes - 8,199 7,022
Long-term debt 133,604 541,525 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
August 14, 1999 - 84,009 -
Stockholder's Equity/Business Equity
Class A Common Stock, $.01 par value, voting 300,000,000
shares authorized, 41,635,439 shares issued and outstanding
March 31, 2000 and 15,764,794 shares issued and 405 158 -
outstanding at August 14, 1999
Class B Common Stock, $.01 par value, non-voting; 300,000,000
shares authorized, 49,746,481 shares issued and
outstanding at March 31, 2000 and 50,908,386 shares 509 509 -
issued and outstanding at August 14, 1999
Additional paid-in Capital 605,777 5,935 -
Business equity - - 661,388
Retained deficit (44,516) (20,796) -
Unearned compensation - - -
Accumulated other comprehensive (loss) income 30 - (2,509)
--------- --------- ---------
Total Stockholders' Equity/Business Equity 562,205 (14,194) 658,879
--------- --------- ---------
Total Liabilities and Stockholders' Equity/Business Equity $ 808,542 $ 707,779 $ 761,179
========= ========= =========
See notes to Condensed Consolidated Financial Statements.
4
INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Successor Predecessor
------------------- ---------------------------------------
33 Weeks Ended 6 Weeks Ended 39 Weeks Ended
------------------- ---------------------------------------
March 31, 2000 August 13, 1999 April 2, 1999
------------------- ----------------- ------------------
(Unaudited) (Unaudited)
(in thousands)
Operating Activities:
Net Income (loss) $ (44,516) $ (3,029) $ 18,223
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities
Depreciation 36,632 8,747 56,177
Amortization 6,505 326 1,721
Write-off of in-process
technology 20,239 - -
Non-current deferred
income taxes - (4,756) (1,731)
Changes in assets and
liabilities:
Trade receivables (15,204) 14,532 13,287
Inventories 4,462 (1,649) 22,808
Prepaid expenses (6,498) 674 3,177
Trade payables and
accrued liabilities 33,875 (18,705) (33,750)
Unearned service income (437) - 244
Income taxes 1,492 4,430 506
Other 24,082 2,812 (23,879)
----------- ---------- ----------
Net cash provided by
operating activities 60,632 3,382 56,783
Investing Activities:
Cash paid for acquired business - - (1,335)
Plant and equipment (25,318) (1,887) (25,378)
----------- ---------- ----------
Net cash used in
investing activities (25,318) (1,887) (26,713)
Financing Activities
Proceeds from offering 515,625 - -
Proceeds from borrowings - - 800
Payments of borrowings (417,790) (32) (219)
Net cash transfer and
billings from (to) parent - (1,198) (31,492)
----------- ---------- ----------
Net cash provided by (used in)
financing activities 97,835 (1,230) (30,911)
Effect of exchange rates on
cash and cash equivalents 432 1,177 841
----------- ---------- ----------
Net increase in cash 133,581 1,442 -
Cash at the beginning
of the period 7,377 - -
----------- ---------- ----------
Cash at the end of the
period $ 140,958 $ 1,442 $ -
=========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
5
Intersil Holding Corporation
Notes to Condensed 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 April 2, 1999, the 6 weeks ended
August 13, 1999 and the 39 weeks ended April 2, 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 and Form S-4 filed with the Securities and Exchange
Commission.
NOTE B--INVENTORIES
Inventories are summarized below (in thousands):
(Successor) (Predecessor)
------------------------ -------------
March 31, August 14, July 2,
2000 1999 1999
------------------------ --------------
(Unaudited)
Finished products $ 61,075 $ $59,708 $ 58,041
Work in progress 105,181 104,262 102,457
Raw materials and supplies 8,319 9,137 11,441
----------- ----------- --------------
174,575 173,107 171,939
Less inventory reserve (25,994) (20,063) (18,117)
----------- ----------- --------------
$ 148,581 $ 153,044 $ 153,822
=========== =========== ==============
At March 31, 2000, August 14, 1999 and July 2, 1999 Intersil Holding was
committed to purchase $26.2 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 involuntarily terminated 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 included 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 the 13 weeks ended March 31, 2000 and the 33 weeks ended March
31, 2000, approximately $2.5 million and $7.5 million of these restructuring
costs were paid out. As of March 31, 2000, the restructuring liability was $3.5
million. Intersil Holding will complete the restructuring plan by August of
calendar 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 33 Weeks ended
------------------------- ----------------------
March 31, 2000 March 31, 2000
------------------------- ----------------------
(Unaudited)
Numerator:
Net loss available to common shareholders (numerator for basic and
diluted earnings per share) $(24,210) $(49,907)
========= =========
Denominator:
Denominator for basic earnings per share-weighted average
common shares 74,977 70,448
Effect of dilutive securities:
Stock options 1,001 967
Warrants 5,926 5,926
------ ------
Denominator for diluted earnings per share-adjusted weighted
average shares 81,904 77,341
====== ======
Basic loss per share $(0.32) $(0.71)
======= =======
Diluted loss per share $(0.32) $(0.71)
======= =======
The effect of dilutive securities is not included in the computation for
the 13 weeks ended March 31, 2000 and the 33 weeks ended March 31, 2000 because
to do so would be antidilutive.
NOTE E--EXTRAORDINARY ITEM
On February 25, 2000, the Company completed the filing of a
registration statement with the Securities and Exchange Commission for an
initial public offering of 22,000,000 of its shares of common stock. From the
proceeds of the initial public offering, the Company paid off approximately
$419.0 million of debt incurred through the acquisition of the Semiconductor
Business, which included certain prepayment penalties and accrued interest. In
connection with the early extinguishment of debt, the Company recorded
extraordinary charges of $25.5 million. The extraordinary charges consisted of
the write-off of deferred financing fees and prepayment penalties incurred.
There was no income tax effect in connection with this extinguishment.
8
NOTE F--COMMON STOCK
On February 25, 2000, Intersil Holding completed the filing of a
registration statement with the Securities and Exchange Commission for a public
offering of shares of its common stock. Intersil Holding issued 22,000,000
shares of its Class A Common Stock at a price of $25.00 per share. The net
proceeds of this offering, after deducting underwriting discounts and
commissions, were approximately $515.6 million. In connection with the 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 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. As Intersil Holding has prepaid in full the
13.5% Subordinated Holding PIK Note within 24 months after issuance, the
warrants have become 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 33 weeks ended March 31, 2000, Intersil Holding
recorded $1.0 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. Upon the initial
public offering, the shares sold became fully vested and the unearned
compensation was written off.
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 G--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 7.5 million
shares of Intersil Holding Class A Common Stock and can include
9
(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 33 weeks ended March 31, 2000,
Intersil Holding granted 1,595,459 options to acquire Intersil Holding Class A
Common Stock at a price of $2.25 per share, 1,164,077 options at a price of
$25.00 per share, and 16,134 options at an average price of $51.39 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 33 weeks ended March 31, 2000, the Company recorded no deferred
compensation. Had compensation 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 $23.0 million for the 13 weeks ended March 31, 2000 and a
net loss of $45.0 million for the 33 weeks ended March 31, 2000.
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.
March 31, 2000
--------------
Expected volatility 0.5
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 March
31, 2000, and changes during the 33 weeks then ended are presented in the table
below.
March 31, 2000
--------------
Weighted
Average
Exercise
Shares Price
--------------------
(in
thousands)
Outstanding at beginning of period 1,549 $2.25
Granted 1,227 $24.49
Exercised 81 $2.25
Canceled ----- -----
-----
Outstanding at end of period 2,695 $12.37
=====
10
Exercisable at end of period 14 $2.25
Weighted average fair value of
options granted - $5.45
Information with respect to stock options outstanding and stock options
exercisable at March 31, 2000 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 1,515 9.45 $2.25 14 $2.25
$25.00 1,164 9.90 $25.00 - -
$46.50 - $55.13 16 9.96 $51.39 - -
NOTE H - SUBSEQUENT EVENTS
In April 2000, Intersil Holding announced that it had agreed to acquire
Bilthoven, Netherlands-based No Wires Needed B.V. ("No Wires Needed"), an
established industry leader in wireless solutions that serves the rapidly
expanding high data rate wireless local area network (WLAN) market with
easy-to-use, flexible and mobile wireless connections to broadband
communications in small offices, homes and throughout corporate campuses.
Consideration for the acquisition of No Wires Needed will be between 3.0 million
and 3.35 million shares of Intersil Holding common stock, depending upon the
closing market price of Intersil Holding stock for an agreed-upon period
preceding the closing. The transaction is subject to customary closing
conditions and is expected to be completed during the fourth quarter of fiscal
2000. The acquisition will be recorded using the purchase method of accounting.
Also, in May 2000, Intersil Holding announced that it will sell its
Kuala Lumpur, Malaysia-based semiconductor assembly and test operationss to
ChipPAC, Inc. ("ChipPAC") which, under a multi-year supply agreement, will
furnish integrated circuit (IC) assembly and test services to Intersil Holding
on a subcontract basis. ChipPAC, based in California, with facilities throughout
the world, is one of the few assembly and test companies in the world that is a
full-portfolio supplier, offering a full array of packaging, from basic 6-pin to
2000-pin BGA/CSP and leaded packages. Under terms of the transaction, ChipPAC
will acquire all of Intersil's Kuala Lumpur assets, including a 524,000 square
foot semiconductor assembly and test facility, wireless and analog/mixed-signal
test capabilities, product distribution center as well as the operation's
management team and approximately 2,900 employees. As consideration for the
acquisition, Intersil will receive approximately $52.5 million in cash and $17.5
million in ChipPAC preferred convertible stock; and Intersil Holding anticipates
it will recognize a non-recurring, after-tax charge of between $10 million and
$15 million in the quarter ending June 30, 2000. The transaction is subject to
customary closing conditions and is expected to be completed during the fourth
quarter of fiscal 2000.
NOTE I - 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 condensed consolidated balance sheet as of July 2, 1999
and the predecessor condensed consolidated statements of income for the 13 weeks
ended April 2, 1999, the 6 weeks ended August 13, 1999 and the 39 weeks ended
April 2, 1999 and the predecessor condensed consolidated statements of cash
flows for the 6 weeks ended August 13, 1999 and the 39 weeks ended April 2, 1999
for the Predecessor Guarantor and Non-Guarantor subsidiaries. The condensed
consolidated balance sheets as of March 31, 2000 and August 14, 1999 and the
condensed consolidated statements of income for the 13 weeks ended March 31,
2000 and the 33 weeks ended March 31, 2000 and the condensed consolidated
statement of cash flows for the 33 weeks ended March 31, 2000 reflect the
Parent Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
11
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 31, 2000
(UNAUDITED)
Successor
--------------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
-------------- ---------------- ------------- -------------- ------------
(in thousands)
Revenue
Product sales $ -- $ 162,399 $ 144,391 $(135,915) $ 170,875
Costs and Expenses
Cost of product sales -- 99,394 140,607 (138,575) 101,426
Research and development -- 20,974 -- -- 20,974
Selling, administrative and general 88 22,280 5,440 -- 27,808
Harris corporate expense allocation -- -- -- -- --
Intangible amortization -- 2,562 -- -- 2,562
In-process R&D charge -- -- -- -- --
Other 300 1,012 -- -- 1,312
--------- --------- --------- --------- ---------
Operating income (loss) (388) 16,177 (1,656) 2,660 16,793
Interest, net 2,400 9,330 (65) 5 11,670
Equity in subsidiary (income) loss 5,256 -- -- (5,256) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item (8,044) 6,847 (1,591) 7,911 5,123
Income taxes (benefit) -- -- 2,275 -- 2,275
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item (8,044) 6,847 (3,866) 7,911 2,848
Extraordinary item - loss on extinguishment
of debt, net of tax effect -- (25,518) -- -- (25,518)
--------- --------- --------- --------- ---------
Net income (loss) (8,044) (18,671) (3,866) 7,911 (22,670)
Preferred dividends 1,540 1,540 -- (1,540) 1,540
--------- --------- --------- --------- ---------
Net income (loss) to common shareholders $ (9,584) $ (20,211) $ (3,866) $ 9,451 $ (24,210)
========= ========= ========= ========= =========
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 2, 1999
(UNAUDITED)
Predecessor
-----------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
--------------- ---------------- ------------- ------------------
(in thousands)
Revenue
Product sales $ 137,293 $ 102,694 $ (104,620) $ 135,367
Costs and Expenses
Cost of product sales 103,692 103,211 (118,674) 88,229
Research and development 19,213 (130) (937) 18,146
Selling, administrative and general 15,139 3,967 (1,698) 17,408
Harris corporate expense allocation 4,462 (604) (1,493) 2,365
Intangible amortization 573 - - 573
--------------- ---------------- ------------- ------------------
Operating income (loss) (5,786) (3,750) 18,182 8,646
Interest, net 559 (3,470) 2,239 (672)
--------------- ---------------- ------------- ------------------
Income (loss) before income taxes (6,345) (280) 15,943 9,318
Income taxes (benefit) (12,045) 1,277 8,140 (2,628)
--------------- ---------------- ------------- ------------------
Net income (loss) $ 5,700 $ (1,557) $ 7,803 $ 11,946
=============== ================ ============= ==================
12
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THIRTY-THREE WEEKS ENDED MARCH 31, 2000
(UNAUDITED)
Successor
-------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ----------- ------------
(in thousands)
Revenue
Product sales $ -- $ 394,532 $ 356,625 $(345,536) $ 405,621
Costs and Expenses
Cost of product sales -- 263,245 327,399 (346,724) 243,920
Research and development -- 46,927 -- -- 46,927
Selling, administrative and general 88 50,224 15,747 -- 66,059
Harris corporate expense allocation -- -- -- -- --
Intangible amortization -- 6,505 -- -- 6,505
In-process R&D charge -- 20,239 -- -- 20,239
Other 300 1,012 -- -- 1,312
--------- --------- --------- --------- ---------
Operating income (loss) (388) 6,380 13,479 1,188 20,659
Interest, net 7,855 28,188 (65) 5 35,983
Equity in subsidiary (income)loss (8,264) -- -- 8,264 --
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item 21 (21,808) 13,544 (7,081) (15,324)
Income taxes (benefit) -- -- 3,674 -- 3,674
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item 21 (21,808) 9,870 (7,081) (18,998)
Extraordinary item - loss on extinguishment
of debt, net of tax effect -- (25,518) -- -- (25,518)
--------- --------- --------- --------- ---------
Net income (loss) 21 (47,326) 9,870 (7,081) (44,516)
Preferred dividends 5,391 5,391 -- (5,391) 5,391
--------- --------- --------- --------- ---------
Net income (loss) to common shareholders $ (5,370) $ (52,717) $ 9,870 $ (1,690) $ (49,907)
========= ========= ========= ========= =========
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
THIRTY-NINE WEEKS ENDED APRIL 2, 1999
(UNAUDITED)
Predecessor
-----------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
--------------- ---------------- ------------- ------------------
(in thousands)
Revenue
Product sales $ 377,879 $ 307,882 $ (303,769) $ 381,992
Costs and Expenses
Cost of product sales 315,999 312,294 (374,445) 253,848
Research and development 53,024 (183) (4,969) 47,872
Selling, administrative and general 49,462 12,486 (3,207) 58,741
Harris corporate expense allocation 8,776 (604) (1,493) 6,679
Intangible amortization 1,719 - - 1,719
--------------- ---------------- ------------- ------------------
Operating income (loss) (51,101) (16,111) 80,345 13,133
Interest, net 136 (3,916) 2,698 (1,082)
--------------- ---------------- ------------- ------------------
Income (loss) before income taxes (51,237) (12,195) 77,647 14,215
Income taxes (benefit) (34,770) 2,927 27,835 (4,008)
--------------- ---------------- ------------- ------------------
Net income (loss) $ (16,467) $ (15,122) $ 49,812 $ 18,223
=============== ================ ============= ==================
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2000
(UNAUDITED)
Successor
----------------------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
---------------- ------------------ ----------------- -------------- ---------------
(in thousands)
Assets
Cash................................... $ - $ 130,378 $ 10,580 $ - $ 140,958
Trade receivables, net................. - 94,881 3,365 - 98,246
Intercompany balances.................. - 8,058 (7,058) (1,000) -
Inventories............................ - 124,953 32,403 (8,775) 148,581
Other current assets................... - 9,176 374 - 9,550
Property, plant and equipment, net..... - 231,576 85,025 - 316,601
Intangibles, net....................... - 81,781 296 - 82,077
Investment in subsidiaries............. 606,391 (299,898) 95,613 (402,106) -
Other non-current assets............... - 10,601 1,928 - 12,529
---------------- ------------------ ----------------- -------------- ---------------
Total Assets....................... $ 606,391 $ 391,506 $ 222,526 $ (411,881) $ 808,542
================ ================== ================= ============== ===============
Liabilities and Business Equity
Accounts payable....................... $ - $ 22,581 $ 14,436 $ - $ 37,017
Compensation and benefits.............. - 30,627 5,648 - 36,275
Other current liabilities.............. - 24,186 11,674 3,581 39,441
Long-term debt......................... - 133,604 - - 133,604
Other non-current liabilities.......... - - - - -
Preferred stock........................ - - - - -
Common stock........................... 914 - - - 914
Additional paid in capital............. 605,477 300 - - 605,777
Retained deficit....................... - 180,208 190,768 (415,462) (44,486)
Unearned compensation.................. - - - - -
---------------- ------------------ ----------------- -------------- ---------------
Total Liabilities and Stockholders'
Equity.......................... $ 606,391 $ 391,506 $ 222,526 $ (411,881) $ 808,542
================ ================== ================= ============== ===============
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
------------------ ----------------- --------------- ---------------
(in thousands)
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
THIRTY-THREE WEEKS ENDED MARCH 31, 2000
(UNAUDITED)
Successor
---------------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Parent Subsidiaries Subsidiaries Entries Consolidated
------------- ---------------- ------------- -------------- --------------
(in thousands)
Operating Activities:
Net income (loss)............................. $ (8,243) $ (46,326) $ 9,870 $ 183 $ (44,516)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization................. - 33,425 9,712 - 43,137
Changes in working capital.................... (507,382) 591,149 (21,573) (183) 62,011
------------- ---------------- ------------- ----------- --------------
Net cash provided by (used in)
operating activities.................. (515,625) 578,248 (1,991) - 60,632
Investing Activities:
Plant and equipment............................. - (36,012) 10,694 - (25,318)
------------- ---------------- ------------- ----------- --------------
Net cash provided by (used in)
investing activities ................. - (36,012) 10,694 - (25,318)
Financing Activities:
Proceeds from offering....................... 515,625 - - - 515,625
Payments of borrowings....................... - (417,790) - - (417,790)
------------- ---------------- ------------- ----------- --------------
Net cash provided by (used in) financing
activities.......................... 515,625 (417,790) - - 97,835
Effect of exchange rates on cash and cash
equivalents................................. - - 432 - 432
------------- ---------------- ------------- ----------- --------------
Net increase in cash............................ - 124,446 9,135 - 133,581
Cash at the beginning of the period............. - 5,932 1,445 - 7,377
------------- ---------------- ------------- ----------- --------------
Cash at the end of the period................... $ - $ 130,378 $ 10,580 $ - $ 140,958
============= ================ ============= =========== ==============
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
------------------- ------------------- ---------------- ---------------
(in thousands)
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
THIRTY-NINE WEEKS ENDED APRIL 2, 1999
(UNAUDITED)
Predecessor
---------------------------------------------------------------------------
Foreign
Guarantor Non-Guarantor Eliminating
Subsidiaries Subsidiaries Entries Consolidated
----------------- ------------------- ---------------- ---------------
(in thousands)
Operating Activities:
Net income (loss) ................................ $ (16,467) $ (15,122) $ 49,812 $ 18,223
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization .................... 44,981 12,917 - 57,898
Non-current deferred income taxes ................ (60,098) - 58,367 (1,731)
Changes in working capital ....................... (143,235) (56,589) 182,217 (17,607)
---------------- ------------------- ---------------- ---------------
Net cash provided by (used in)
operating activities ..................... (174,819) (58,794) 290,396 56,783
Investing Activities:
Cash paid for acquired business .................... (1,335) - - (1,335)
Plant and equipment ................................ (16,019) (9,359) - (25,378)
---------------- ------------------- ---------------- ---------------
Net cash used in investing activities ...... (17,354) (9,359) - (26,713)
Financing Activities:
Proceeds from borrowings ........................ 800 - - 800
Payments of borrowings .......................... (219) - - (219)
Net cash transfer and billings from (to) -
parent ...................................... 191,592 67,312 (290,396) (31,492)
---------------- ------------------- ---------------- ---------------
Net cash provided by (used in) financing
activities ............................. 192,173 67,312 (290,396) (30,911)
Effect of exchange rates on cash and cash
equivalents .................................... - 841 - 841
---------------- ------------------- ---------------- ---------------
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.
Overview
We are a systems level designer and manufacturer of analog, mixed
signal, discrete power and wireless communications semiconductors. We use our
proprietary technologies and design capabilities to provide systems solutions
for the communications power management and wireless markets. We sell over 4,500
products to more than 28,000 customers worldwide.
On February 25, 2000, we completed the filing of a registration
statement with the Securities and Exchange Commission for an initial public
offering of shares of its common stock. We issued 22,000,000 shares of its Class
A Common Stock at a price of $25.00 per share. See "--Liquidity and Capital
Resources."
Basis of Presentation
We were formed on August 13, 1999 through a series of transactions, in
which we and our wholly-owned subsidiary, Intersil, acquired the semiconductor
business of Harris. Intersil and its wholly owned domestic and foreign
subsidiaries include the operations of the Predecessor. Our fiscal year 2000
began on July 3, 1999 and our third fiscal quarter ended March 31, 2000.
18
The total purchase price of the semiconductor business acquisition was
$614.3 million, which included transaction costs of approximately $7.8 million
and deferred financing costs of $12.2 million. The consideration paid by
Intersil Holding was $504.3 million in cash of which $420.0 million was financed
through borrowings from the senior credit facilities, the 13 1/4% Senior
Subordinated Notes due 2009 and 13.5% Subordinated Holding "Pay-In-Kind" (PIK)
note and the issuance of a $90.0 million 11.13% PIK Note to Harris.
The acquisition was accounted for using the purchase method of
accounting and accordingly, the operating results of the semiconductor business
have been included in Intersil's consolidated financial statements since thes
date of acquisition. The total purchase price was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase price
resulting in negative goodwill of $200.0 million. This negative goodwill was
allocated to the identified intangibles and property and equipment based on
their relative fair values. The most significant effects were to decrease
property, plant and equipment and to increase certain intangibles and
liabilities. Accordingly, certain financial information for the periods prior to
August 13, 1999 is not comparable to periods subsequent to August 13, 1999. All
income statement information for the first nine months ending March 31, 2000 of
the fiscal year 2000 represents the combined results of the semiconductor
business from July 3, 1999 through August 13, 1999 and Intersil Holding from
August 14, 1999 through March 31, 2000.
Quarterly Results
The following table sets forth the unaudited historical quarterly
revenue and gross margin of our product groups:
Combined
Fiscal Year 1999 Fiscal Year 2000
---------------------------------- ---------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3
---------------------------------- ---------------------------
Revenue
Analog & Mixed Signal $79.8 $86.2 $88.5 $98.3 $82.8 $94.0 $ 103.4
Discrete Power 38.5 34.8 42.3 46.0 44.9 54.8 53.2
Wireless 4.2 3.1 4.6 6.4 6.2 9.3 14.3
---------------------------------- ---------------------------
Total $122.5 $124.1 $135.4 $150.7 $133.9 $158.1 $ 170.9
================================== ===========================
Gross Margin Percentage
Analog & Mixed Signal 41% 39% 43% 43% 42% 45% 44%
Discrete Power 21 14 17 21 24 28 33
Wireless 21 26 35 50 35 39 45
Total 34 31 35 36 36 39 41
Our first fiscal quarter is generally the weakest due to summer holiday
seasons, primarily in Europe, and timing of computer demand.
19
The semiconductor industry has historically experienced declining selling
prices over the past 15 years, and we expect that trend to continue in the
future. We expect to realize productivity gains that will offset the decline in
average selling prices and therefore we do not anticipate a significant adverse
effect on our financial condition.
Industry demand weakened significantly in the first half of fiscal 1999
due to widespread inventory adjustments, which led to excess manufacturing
capacity and steep declines in product prices. This trend impacted all three
product groups. Our results, and the industry as a whole, began to strengthen in
the third fiscal quarter of 1999, with an increase in sales of 9.1% from the
second quarter to the third quarter and 11.3% from the third quarter to the
fourth quarter. For the nine months ended March 31, 2000, industry conditions
have continued to improve. Additionally, the introduction of our new PRISM II
wireless product has accelerated growth in the Wireless product group.
As Wireless is an emerging business, gross margins have fluctuated during
the start-up period due to timing of sales and variability of yield performance.
Results of Operations
The following table sets forth income statement data for the periods
indicated as a percentage of revenue:
13 Weeks Ended 39 Weeks Ended
------------------------------------ ------------------------------------
March 31, 2000 April 2, 1999 Combined April 2, 1999
March 31, 2000
---------------- ---------------- ------------------------------------
Revenue
Analog & Mixed Signal 60.5% 65.4% 60.5% 66.6%
Discrete Power 31.1 31.2 33.0 30.3
Wireless 8.4 3.4 6.5 3.1
---------------- ---------------- ---------------- ----------------
Total 100.0 100.0 100.0 100.0
Costs and expenses
Cost of product sales 59.3 65.2 61.2 66.5
Research and development 12.3 13.4 12.0 12.5
Selling, administrative and
general 16.3 14.6 16.9 17.1
Intangible amortization 1.5 0.4 1.5 0.5
In-process R&D charge/other 0.8 - 4.6 -
---------------- ---------------- ---------------- ----------------
Operating income (loss) 9.8 6.4 3.8 3.4
Interest, net 6.8 (0.5) 7.8 (0.3)
---------------- ---------------- ---------------- ----------------
Income (loss) before
income taxes and
extraordinary item 3.0 6.9 (4.0) 3.7
Income taxes (benefit) 1.3 (1.9) 0.8 (1.1)
---------------- ---------------- ---------------- ----------------
Net income (loss) before
extraordinary item 1.6 8.8 (4.8) 4.8
Extraordinary item - loss on
extinguishment of debt (14.9) - (5.5) -
---------------- ---------------- ---------------- ----------------
Net income (loss) (13.3)% 8.8% (10.3)% 4.8%
================ ================ ================ ================
20
Revenue
Revenue for the three months ended March 31, 2000 increased 26.2% to
$170.9 million from $135.4 million during the three months ended April 2, 1999.
Revenue for the nine months ended March 31, 2000 increased 21.2% to $463.0
million from $382.0 million during the nine months ended April 2, 1999. The
growth in both periods is the result of increased demand for communications
products and overall improved market conditions. Wireless sales growth over last
year of 211% for the three months ended March 31, 2000 and 150% for the nine
months ended March 31, 2000 was driven by increased market acceptance of our
PRISM(R) products.
Geographically, 51.1%, 22.7% and 26.2% of product sales were derived in
North America, Europe and Asia, respectively, during the three months ended
March 31, 2000 compared to 53.5%, 25.6% and 20.9% during the three months ended
April 2, 1999. For the nine months ended March 31, 2000, 49.7%, 22.9% and 27.4%
of product sales were derived in North America, Europe and Asia, respectively,
compared to 53.9%, 25.1% and 21.0% during the nine months ended April 2, 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 March 31, 2000, gross margin on product sales
increased 47.3% to $69.5 million from $47.1 million in the three months ended
April 2, 1999. Gross margin on product sales increased 40.0% to $179.4 million
in the nine months ended March 31, 2000 from $128.1 million in the nine months
ended April 2, 1999. As a percent of sales, gross margin was 40.6% during the
three months ended March 31, 2000 and 38.7% during the nine months ended March
31, 2000 compared to 34.8% during the three months ended April 2, 1999 and 33.5%
during the nine months ended April 2, 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 March 31, 2000 from 64% during
the three months ended April 2, 1999 and to 80% during the nine months ended
March 31, 2000 from 62% during the nine months ended April 2, 1999, and
increased manufacturing efficiencies resulting from cost reductions related to
headcount reductions.
Operating Expenses/Research and Development ("R&D")
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 16.0% to $21.0 million during the three months ended March 31, 2000
from $18.1 million during the three months ended April 2, 1999 and 15.7% to
$55.4 million during the nine months ended March 31, 2000 from $47.9 million
during the nine months ended April 2, 1999. As a percent of sales, R&D expenses
went down slightly to 12.3% for the three months ended March 31, 2000 from 13.4%
for the three months ended April 2, 1999 and remained relatively flat at 12.0%
for the nine months ended March 31, 2000 from 12.5% for the nine months ended
April 2, 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.
21
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. Accordingly, these costs were expensed as a one-time charge to
earnings in the combined nine months ended March 31, 2000.
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
22
WLANs. The product will provide end-users in the computer market with a low
cost, small and lightweight medium for WLAN connection.
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 refers 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.
23
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.
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 are expected to be 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.
Selling, General and Administrative ("SG&A")
SG&A costs, which include marketing, selling, administrative and
general expenses, and Harris corporate expense allocation, increased to $27.8
million during the three months ended March 31, 2000 from $19.8 million during
the three months ended April 2, 1999 and to $78.1 million during the nine months
ended March 31, 2000 from $65.4 million during the nine months ended April 2,
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 $2.4 million for the three months ended April 2, 1999, $1.2 million for the
six weeks ended August 13, 1999, and $6.7 million for the nine months ended
April 2, 1999.
Amortization of Intangibles
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 Intersil Holding's credit facilities was $13.0
million during the three months ended March 31, 2000 and $37.8 million during
the nine months ended March 31, 2000, excluding interest income of $1.3 million
and $1.9 million respectively.
Extraordinary Item
On February 25, 2000, we completed the filing of a registration
statement with the Securities and Exchange Commission for an initial public
offering of 22,000,000 of our shares of common stock. From the proceeds of the
initial public offering, we paid off approximately $419.0 million of debt
incurred through the acquisition of the Semiconductor Business, which included
certain prepayment penalties and
24
accrued interest. In connection with the early extinguishment of debt, we
recorded extraordinary charges of $25.5 million. The extraordinary charges
consisted of the write-off of deferred financing fees and prepayment penalties
incurred. There was no income tax effect in connection with this extinguishment.
Tax Expense
The tax provision for the three months ended March 31, 2000 and for the
combined nine months ended March 31, 2000 is not comparable to the three months
ended April 2, 1999 and the nine months ended April 2, 1999, due to the
different tax structures of the semiconductor business and Intersil Holding.
Backlog
We had backlog at March 31, 2000 of $216.9 million compared to $174.0
million at July 2, 1999.
Liquidity and Capital Resources
On February 25, 2000, Intersil Holding completed the filing of a
registration statement with the Securities and Exchange Commission for an
initial public offering of shares of its common stock. Intersil Holding issued
22,000,000 shares of its Class A Common Stock at a price of $25.00 per share.
The net proceeds of this offering, after deducting underwriting discounts and
commissions, were approximately $515.6 million. The following table sets forth
the sources and uses of funds related to the offering as of March 31, 2000:
Amount Amount
------ ------
(in millions) (in millions)
Sources: Uses:
Gross Offering Proceeds $ 550.0 Repaid Senior Credit Facilities (1) $ 210.3
Repaid 13 1/4% Senior Subordinated
Notes in part (2) 80.5
Repaid 13.5% Subordinated Holding PIK
Note (3) 32.3
Repaid 11.13% Seller Holding PIK
Note (4) 95.6
Cash on Hand for General Corporate
Purposes 96.9
Fees and Expenses (5) 34.4
----------------- -----------------
Total Sources $ 550.0 Total Uses $ 550.0
================= =================
(1) In connection with the acquisition of the semiconductor business
of Harris, we borrowed $205.0 million under our Tranche B Senior
Term Facility and $15.0 million under our Revolving Credit
Facility. Of the offering proceeds, $210.3 million were used to
repay the Tranche B Senior Term Facility in full, including $4.1
million of prepayment premium and $1.2 million of accrued interest
expense. The $15.0 million revolver borrowings were repaid
independently in December of 1999.
25
(2) In connection with the acquisition of the semiconductor business
of Harris, we issued the 13 1/4% Senior Subordinated Notes due
2009 in the original principal amount of $200.0 million. The $80.5
million of the offering proceeds used to repay part of the Senior
Subordinated Notes include the principal amount of $70.0 million,
a prepayment premium of $9.3 million, and $1.2 million of accrued
interest expense.
(3) In connection with the acquisition of the semiconductor business
of Harris, we issued to Citicorp Mezzanine Partners, L.P. the
13.5% Subordinated Holding PIK Note due 2010 in the original
principal amount of $30.0 million. The amount of $32.3 million
used to repay the Subordinated Holding PIK Note includes the
principal amount of $30.0 million and accrued interest of $2.3
million.
(4) In connection with the acquisition of the semiconductor business
of Harris, we issued to Harris the 11.13% Seller Holding PIK Note
due 2010 in the original principal amount of $90.0 million. The
amount of $95.6 million used to repay the Seller Holding PIK Note
includes the principal amount of $90.0 million and accrued
interest of $5.6 million
(5) Includes underwriting discounts and commissions.
In connection with the acquisition of the semiconductor business of
Harris, we entered into new credit facilities, which provided for a Revolving
Credit Facility in an aggregate amount up to $70.0 million. The Revolving Credit
Facility will mature in 2005 unless sooner terminated and was undrawn as of
March 31, 2000.
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.
As of March 31, 2000 our total debt and stockholders' equity was $134.0
million and $562.2 million, respectively.
Net cash generated by operating activities for the nine months ended
March 31, 2000 was $64.0 million. Net cash used in investing activities for the
nine months ended March 31, 2000 was $27.2 million for capital expenditures to
support our expanded operations. Net cash used to repay debt for the nine months
ended March 31, 2000 was $417.8 million. Our cash balance at March 31, 2000 was
$141.0 million.
Our Revolving Credit Facility and the Senior Subordinated Notes contain
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.
Recent Developments
In April 2000, Intersil Holding announced that it had agreed to acquire
Bilthoven, Netherlands-based No Wires Needed B.V. ("No Wires Needed"), an
established industry leader in wireless solutions that serves the rapidly
expanding high data rate wireless local area network (WLAN) market with
easy-to-use, flexible and mobile wireless connections to broadband
communications in small offices, homes and throughout corporate campuses.
Consideration for the acquisition of No Wires Needed will be
26
between 3.0 million and 3.35 million shares of Intersil Holding common stock,
depending upon the closing market price of Intersil Holding stock for an
agreed-upon period preceding the closing. The transaction is subject to
customary closing conditions. While no assurance can be given, the transaction
is expected to be completed during the fourth quarter of fiscal 2000.
Also, in May 2000, Intersil Holding announced that it will sell its
Kuala Lumpur, Malaysia-based semiconductor assembly and test operations to
ChipPAC, Inc. ("ChipPAC") which, under a multi-year supply agreement, will
furnish integrated circuit (IC) assembly and test services to Intersil Holding
on a subcontract basis. ChipPAC, based in California, with facilities throughout
the world, is one of the few assembly and test companies in the world that is a
full-portfolio supplier, offering a full array of packaging, from basic 6-pin to
2000-pin BGA/CSP and leaded packages. Under terms of the transaction, ChipPAC
will acquire all of Intersil's Kuala Lumpur assets, including a 524,000 square
foot semiconductor assembly and test facility, wireless and analog/mixed-signal
test capabilities, product distribution center as well as the operation's
management team and approximately 2,900 employees. As consideration for the
acquisition, Intersil will receive approximately $52.5 million in cash and $17.5
million in ChipPAC preferred convertible stock; and Intersil Holding anticipates
it will recognize a non-recurring, after-tax charge of between $10 million and
$15 million in the quarter ending June 30, 2000. The transaction is subject to
customary closing conditions. While no assurance can be given, the transaction
is expected to be completed during the fourth quarter of fiscal 2000.
Receivables and Inventories
Trade accounts and the current portion of notes receivable less the
allowance for collection losses totaled $98.2 million at March 31, 2000 compared
to $100.7 million at July 2, 1999. This decrease was due to continued emphasis
on improving the receivable collection cycle. Inventories decreased to $148.6
million at March 31, 2000 from $153.8 million at July 2, 1999. The decrease of
$5.2 million is a result of management's continued effort to reduce our
inventory through portfolio management and process improvements.
Capital Expenditures
Capital expenditures for the nine months ended March 31, 2000 were
$27.2 million compared to $26.7 million for the nine months ended April 2, 1999.
Our previous owner invested approximately $303.9 million in capital expenditures
since the beginning of fiscal year 1997 for upgrading our existing 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.
27
CAUTIONARY STATEMENT. This Quarterly Report contains statements relating to
expected future results and business trends of the Company that are based upon
our current estimates, expectations, and projections about our industry, and
upon management's beliefs, and certain assumptions we have made, that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "may," "will," and variations of these words
or similar expressions are intended to identify "forward looking statements." In
addition, any statements that refer to expectations, projections, or other
characterizations of future events or circumstances, including any underlying
assumptions, are "forward looking statements." Such statements are not
guarantees of future performance and are subject to certain risks,
uncertainties, and assumptions that are difficult to predict. Therefore, our
actual results may differ materially and adversely from those expressed in any
"forward looking statement" as a result of various factors. These factors
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; the need for additional capital; 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.
The information contained in the Quarterly Report is not a complete description
of our business or the risks associated with an investment in our common stock.
We urge you to carefully review and consider the various disclosures made by us
in this Report and in our other reports filed with the Securities Exchange
Commission ("SEC"). The section entitled "Risk Factors" in our Final Prospectus
dated February 24, 2000, and in other SEC filings, discusses some of the
important risk factors that may affect our business, results of operations, and
financial condition. 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 March 31, 2000, we had open foreign exchange contracts with a
notional amount of $22.0 million, all of which were to hedge off-balance-sheet
commitments. At 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
28
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 March 31, 2000, would have an impact of
approximately $2.3 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 not currently exposed to market risks related to fluctuations
in interest rates on our variable rate debt as our Revolving Credit Facility was
undrawn at March 31, 2000. As of March 31, 2000, we also had fixed rate debt of
approximately $134.0 million comprised primarily of the 13 1/4% Senior
Subordinated Notes due 2009. 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. By repaying all our variable debt,
we have virtually eliminated our exposure to interest rate risk. See
"--Liquidity and Capital Resources."
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.
An action was initiated by Harris Corporation against Giesting & Associates,
a former sales representative for Harris, on December 10, 1998 in the Orlando
Division of the United States District Court for the Middle District of Florida.
Harris sought declaratory judgment that it properly terminated its contract with
Giesting. Giesting counter-claimed against Harris, seeking monetary damages for
breach of contract, unjust enrichment, and violation of various state statutes.
Intersil assumed the liability for this litigation when it bought the
semiconductor business from Harris. We believe that this litigation will not
have a material adverse effect on our business, financial condition, results of
operations or cash flows, and that this case will be resolved favorably for
Intersil.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 Financial Data Schedule
b) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K on March 29, 2000
to disclose a change in its fiscal year end from the Friday
closest to June 30 to the Friday closest to December 31.
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 May 15, 2000 DANIEL J. HENEGHAN
---------------------- -------------------------------
NAME: DANIEL J. HENEGHAN
TITLE: CHIEF FINANCIAL OFFICER
Date May 15, 2000 STEPHEN M. MORAN
---------------------- -------------------------------
NAME: STEPHEN M. MORAN
TITLE: VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
29