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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 SEPTEMBER 29, 2000
OR
[ ] 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.)
7585 IRVINE CENTER DRIVE
SUITE 100
IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 341-7040
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 [X] No [ ].
The number of shares outstanding of the issuer's classes of common stock as of
the close of business on November 9, 2000:
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TITLE OF EACH CLASS NUMBER OF SHARES
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Class A Common Stock, par value $.01 per share.............. 64,918,527
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Class B Common Stock, par value $.01 per share.............. 37,206,996
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INTERSIL HOLDING CORPORATION AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and
Comprehensive Income For the 13 Weeks Ended September 29,
2000, the Seven Weeks Ended October 1, 1999 and the Six
Weeks Ended August 13, 1999................................. 2
Condensed Consolidated Balance Sheets as of September 29,
2000 and June 30, 2000...................................... 3
Condensed Consolidated Statements of Cash Flows For the 13
Weeks Ended September 29, 2000, the Seven Weeks Ended
October 1, 1999 and the Six Weeks Ended August 13, 1999..... 4
Notes to Condensed Consolidated Financial Statements........ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 23
Item 6. Exhibits and Reports on Form 8-K............................ 23
SIGNATURES........................................................... 24
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUCCESSOR PREDECESSOR
------------------------------------- ---------------
13 WEEKS ENDED 7 WEEKS ENDED 6 WEEKS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999 AUGUST 13, 1999
------------------ --------------- ---------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUE
Product sales............................... $218,641 $ 76,548 $57,336
COSTS AND EXPENSES
Cost of product sales....................... 117,344 45,889 39,681
Research and development.................... 25,867 8,398 8,499
Selling, general and administrative......... 34,797 11,272 10,908
Harris corporate expense allocation......... -- -- 1,164
Intangible amortization..................... 6,488 1,418 326
In-process research and development......... -- 20,796 --
-------- -------- -------
Operating income (loss)....................... 34,145 (11,225) (3,242)
Interest expense............................ 4,363 8,755 --
Interest income............................. (3,370) (90) (111)
-------- -------- -------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle..................... 33,152 (19,890) (3,131)
Income taxes (benefit)...................... 13,841 222 (102)
-------- -------- -------
Income (loss) before cumulative effect of a
change in accounting principle........... 19,311 (20,112) (3,029)
Cumulative effect of adoption of SFAS 133,
net of tax effect........................ (197) -- --
-------- -------- -------
NET INCOME (LOSS)............................. 19,114 (20,112) (3,029)
Preferred dividends........................... -- 1,369 --
-------- -------- -------
Net income (loss) to common shareholders...... $ 19,114 $(21,481) $(3,029)
======== ======== =======
BASIC INCOME (LOSS) PER SHARE:................ $ 0.20 $ (0.32)
======== ========
DILUTED INCOME (LOSS) PER SHARE:.............. $ 0.19 $ (0.32)
======== ========
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic....................................... 96.9 66.7
======== ========
Diluted..................................... 102.3 66.7
======== ========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SUCCESSOR PREDECESSOR
------------------------------------- ---------------
13 WEEKS ENDED 7 WEEKS ENDED 6 WEEKS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999 AUGUST 13, 1999
------------------ --------------- ---------------
(UNAUDITED)
(UNAUDITED) (IN THOUSANDS)
Net income (loss)............................. $19,114 $(20,112) $(3,029)
Other comprehensive income (loss):
Currency translation adjustments............ (2,120) 426 2,475
------- -------- -------
Comprehensive income (loss)................... $16,994 $(19,686) $ (554)
======= ======== =======
See notes to condensed consolidated financial statements.
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INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SUCCESSOR
-----------------------------------
SEPTEMBER 29, 2000 JUNE 30, 2000
------------------ -------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents................................. $ 371,587 $211,940
Trade receivables, less allowances for collection loss
($661 as of September 29, 2000 and $1,341 as of June
30, 2000).............................................. 128,081 111,695
Inventories............................................... 124,131 126,481
Prepaid expenses and other current assets................. 37,237 37,667
---------- --------
Total Current Assets.............................. 661,036 487,783
Other Assets
Property, plant and equipment, less allowances for
depreciation ($46,206 as of September 29, 2000 and
$36,699 as of June 30, 2000)........................... 228,788 225,484
Intangibles, less accumulated amortization ($17,144 as of
September 29, 2000 and $10,686 as of June 30, 2000).... 182,147 190,150
Other..................................................... 42,376 30,521
---------- --------
Total Other Assets................................ 453,311 446,155
---------- --------
Total Assets...................................... $1,114,347 $933,938
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade payables............................................ $ 42,767 $ 36,991
Retirement plan accruals.................................. 3,847 6,228
Accrued compensation...................................... 23,747 32,398
Accrued interest and sundry taxes......................... 6,864 10,512
Other accrued items....................................... 27,271 22,734
Distributor reserves...................................... 7,863 7,366
Unearned service income................................... -- 129
Income taxes payable...................................... 10,464 --
Long-term debt -- current portion......................... 407 404
---------- --------
Total Current Liabilities......................... 123,230 116,762
Other Liabilities
Deferred income taxes..................................... 21,992 21,992
Long-term debt............................................ 112,842 116,188
Shareholders' Equity
Preferred Stock, $1,000 par value, 100,000 shares
authorized, no shares issued or outstanding at
September 29, 2000 or June 30, 2000.................... -- --
Class A Common Stock, $.01 par value, voting; 300,000,000
shares authorized, 64,733,493 shares issued and
outstanding at September 29, 2000 and 44,773,152 shares
issued and outstanding at June 30, 2000................ 643 448
Class B Common Stock, $.01 par value, non-voting;
300,000,000 shares authorized, 37,206,996 shares issued
and outstanding at September 29, 2000 and 49,746,482
shares issued and outstanding at June 30, 2000......... 372 497
Additional paid-in capital................................ 879,346 719,123
Retained deficit.......................................... (23,594) (42,708)
Accumulated other comprehensive (loss) income............. (484) 1,636
---------- --------
Total Shareholders' Equity........................ 856,283 678,996
---------- --------
Total Liabilities and Shareholders' Equity........ $1,114,347 $933,938
========== ========
See notes to condensed consolidated financial statements.
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INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SUCCESSOR PREDECESSOR
------------------------------------ ---------------
13 WEEKS ENDED 7 WEEKS ENDED 6 WEEKS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999 AUGUST 13, 1999
------------------ --------------- ---------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)............................... $ 19,114 $(20,112) $ (3,029)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation.................................... 9,572 8,740 8,747
Amortization.................................... 6,488 1,418 326
Provision for inventory obsolescence............ 8,888 1,766 1,919
Write-off of in-process research and
development.................................. -- 20,796 --
Non-current deferred income taxes............... -- -- (4,756)
Changes in assets and liabilities:
Trade receivables............................... (16,386) (1,735) 14,532
Inventories..................................... (6,538) (5,106) (3,568)
Prepaid expenses................................ (823) (4,214) 674
Trade payables and accrued liabilities.......... (3,869) 27,927 (18,705)
Unearned service income......................... -- (31) --
Income taxes.................................... 12,806 (48) 4,430
Other........................................... (12,293) (1,686) 2,812
-------- -------- --------
Net cash provided by operating activities.... 16,959 27,715 3,382
INVESTING ACTIVITIES:
Property, plant and equipment................... (12,876) (2,424) (1,887)
-------- -------- --------
Net cash used in investing activities........ (12,876) (2,424) (1,887)
FINANCING ACTIVITIES
Proceeds from offering.......................... 158,983 -- --
Proceeds from exercise of stock options and
warrants..................................... 222 -- --
Payments of borrowings.......................... (3,342) (65) (32)
Net cash transfer and billings to parent........ -- -- (1,198)
-------- -------- --------
Net cash provided by (used in) financing
activities................................. 155,863 (65) (1,230)
Effect of exchange rates on cash and cash
equivalents..................................... (299) 1,217 1,177
-------- -------- --------
Net increase in cash and cash equivalents....... 159,647 26,443 1,442
Cash and cash equivalents at the beginning of
the period................................... 211,940 7,377 --
-------- -------- --------
Cash and cash equivalents at the end of the
period....................................... $371,587 $ 33,820 $ 1,442
======== ======== ========
SUPPLEMENTAL DISCLOSURES -- NON-CASH ACTIVITIES:
Additional paid-in capital from tax benefit on
exercise of non-qualified stock options...... $ 1,088 $ -- $ --
======== ======== ========
See notes to condensed consolidated financial statements.
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INTERSIL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Intersil Holding Corporation (Intersil Holding or Successor) 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. Intersil and its
wholly-owned domestic and foreign subsidiaries include the operations of the
Predecessor.
BASIS OF PRESENTATION
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 accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, 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 Annual Report on Form 10-K for the fiscal year ended June 30, 2000.
The Successor condensed consolidated financial statements subsequent to
August 13, 1999 include the accounts of Intersil Holding and Intersil
(collectively, the Company). All material intercompany transactions have been
eliminated in consolidation. The condensed consolidated statements of operations
and comprehensive income for the six weeks ended August 13, 1999 include the
accounts of the Predecessor company.
All of the allocations and estimates in the Predecessor's condensed
consolidated statement 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.
The semiconductor business sold products to other affiliated operations of
Harris. Sales to these operations were not material.
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INTERSIL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE B -- INVENTORIES
Inventories are summarized below (in thousands):
SUCCESSOR
-------------------------
SEPTEMBER 29, JUNE 30,
2000 2000
------------- --------
(UNAUDITED)
Finished products........................................... $ 50,973 $ 45,064
Work in progress............................................ 95,045 96,278
Raw materials and supplies.................................. 8,589 7,072
-------- --------
154,607 148,414
Less inventory reserves..................................... (30,476) (21,933)
-------- --------
$124,131 $126,481
======== ========
At September 29, 2000 and June 30, 2000 Intersil Holding was committed to
purchase $23.8 million and $24.9 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 costs.
During the 13 weeks ended September 29, 2000 and the seven weeks ended
October 1, 1999, approximately $0.4 and $2.2 million, respectively, of these
restructuring costs were paid out. As of September 29, 2000 and June 30, 2000,
the restructuring liability was $0.5 and $0.9 million, respectively. Intersil
Holding completed all restructuring activities in August of calendar year 2000.
Severance payments will continue through March of calendar year 2001.
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INTERSIL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share amounts):
SUCCESSOR PREDECESSOR
------------------ ---------------
13 WEEKS ENDED 7 WEEKS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999
------------------ ---------------
(UNAUDITED) (UNAUDITED)
Numerator:
Net income available to common shareholders (numerator for
basic and diluted earnings per share).................. $ 19,114 $21,481
======== =======
Denominator:
Denominator for basic earnings per share-weighted average
common shares.......................................... 96,859 66,667
Effect of dilutive securities:
Stock options.......................................... 1,080 --
Warrants............................................... 4,400 --
-------- -------
Denominator for diluted earnings per share-adjusted
weighted average shares................................ 102,339 66,667
======== =======
Basic earnings (loss) per share............................. $ 0.20 $ (0.32)
======== =======
Diluted earnings (loss) per share........................... $ 0.19 $ (0.32)
======== =======
The effect of dilutive securities is not included in the computation for
the seven weeks ended October 1, 1999, because to do so would be antidilutive.
NOTE E -- COMMON STOCK
In connection with the Company's initial public offering on February 25,
2000, 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.
On September 20, 2000, the Company issued 3,000,000 shares of its Class A
Common Stock at a price of $48.00 per share. Net proceeds received from this
offering, after deducting the underwriting discount and estimated offering
expenses of $7.8 million, were approximately $136.2 million. Pursuant to this
public offering, the Company issued an additional 500,000 shares of its Class A
Common Stock at $48.00 per share upon the exercise of the over-allotment option
by the underwriters on September 26, 2000. Net proceeds received from the
exercise of the over-allotment option, after deducting the underwriting discount
and estimated offering expenses of $1.2 million, were approximately $22.8
million. The Company intends to use the proceeds from the offering and the
exercise of the over-allotment option for general corporate purposes, including
expenditures for research and development of new products and sales and
marketing efforts. In addition, the Company intends to use a portion of the
proceeds to acquire complementary products, technology or businesses or to
retire portions of its outstanding debt.
At June 30, 2000, Intersil had 200,000 outstanding warrants (issued with
the 13.25% Senior Subordinated Notes) to purchase 3,703,707 shares of Class A
Common Stock of Intersil Holding. Each warrant entitles the holder to purchase
18.5185 shares at a price of $.0015 per share. The warrants became exercisable
on August 13, 2000 and expire on August 15, 2009. As of September 29, 2000,
185,925 warrants had been exercised for 3,443,050 shares of Intersil Holding
Class A Common Stock.
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INTERSIL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Citicorp Mezzanine Partners, L.P. ("CMP") also holds warrants to purchase
2,222,224 shares of Intersil Holding Class A Common Stock at an exercise price
of $.0015 per share, subject to certain anti-dilution adjustments. These
warrants may be exercised at any time after August 13, 2001 and expire on August
15, 2009. The Company agreed to the early exercise of warrants to purchase
360,633 of the underlying shares.
On September 18, 2000, Manatee Investment Corporation, a wholly owned
subsidiary of Harris Corporation, converted all 4,531,584 shares of its Intersil
Holding Class B Common Stock into an equivalent number of shares of Intersil
Holding Class A Common Stock.
NOTE F -- EMPLOYEE BENEFIT PLANS
Equity Compensation Plan
During the 13 weeks ended September 29, 2000, Intersil Holding granted
440,800 options to acquire Intersil Holding Class A Common Stock at a average
price of $53.60 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 13 weeks ended September 29, 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 income of $18.1 million for the 13 weeks ended
September 29, 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:
SEPTEMBER 29, 2000
------------------
Expected volatility......................................... 0.5
Dividend yield.............................................. --
Risk-free interest rate..................................... 5.92%
Expected life, in years..................................... 7
A summary of the status of the Company's stock option plan as of September
29, 2000, and changes during the 13 weeks then ended are presented in the table
below:
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
-------------- ---------
(IN THOUSANDS)
Outstanding at beginning of period.......................... 2,995 $15.76
Granted..................................................... 441 $53.60
Exercised................................................... 44 $ 2.25
Canceled.................................................... 73 $26.71
-----
Outstanding at end of period................................ 3,319 $20.63
=====
Exercisable at end of period................................ 189 $ 2.93
Weighted average fair value of options granted.............. $15.77
Information with respect to stock options outstanding and stock options
exercisable at September 29, 2000 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- -------------- -------------- ---------------- --------- -------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
$2.25 1,414 9.17 $ 2.25 148 $2.25
$5.63 41 8.88 $ 5.63 41 $5.63
$25.00-$35.88 1,107 9.54 $25.07 -- --
$37.56-$55.13 719 9.71 $48.81 -- --
$57.31-$63.06 38 9.78 $58.33 -- --
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INTERSIL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE G -- ADOPTION OF FINANCIAL ACCOUNTING STANDARD NO. 133
Effective July 1, 2000, the Company adopted Financial Accounting Standard
No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging
Activities," as amended, which requires that all derivative instruments be
reported on the balance sheet at fair value and establishes a criterion for
designation and effectiveness of hedging relationships. In accordance with the
transition provisions of FAS 133, the Company recorded a cumulative-effect-type
adjustment, net of tax, of $(0.2) million to recognize the fair value of the
derivatives. The derivatives were also recognized on the condensed consolidated
balance sheet at their fair value of $1.6 million at September 29, 2000.
At September 29, 2000 the Company had open foreign exchange contracts with
a notional amount of $38.7 million, which was to hedge anticipated foreign cash
flow commitments up to six months. As hedges on anticipated foreign cash flow
commitments do not qualify for deferral, gains and losses on changes in the fair
market value of the foreign exchange contracts are recognized in income. Total
net gains on foreign exchange contracts for the 13 weeks ended September 29,
2000 were $0.5 million.
NOTE H -- SUBSEQUENT EVENTS
In October 2000, Intersil Holding acquired Arizona-based SiCOM, Inc., or
SiCOM. SiCOM is a fabless semiconductor manufacturer that offers broadband modem
silicon reference designs and software, programmable Application Specific
Standard Parts and board level products for equipment manufacturers serving
fixed wireless infrastructure and access markets. Consideration for the
acquisition of SiCOM was 3,605,778 shares (which includes 434,909 shares
issuable upon exercise of options) of the Company's Class A Common Stock. The
acquisition will be recorded using the purchase method of accounting.
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 statements of operations and cash flows
for the six weeks ended August 13, 1999 for the Predecessor Guarantor and
Non-Guarantor subsidiaries. The condensed consolidated balance sheets as of
September 29, 2000 and June 30, 2000 and the condensed consolidated statements
of operations and cash flows for the 13 weeks ended September 29, 2000 and the
seven weeks ended October 1, 1999 reflect the Successor Parent, Guarantor
Subsidiaries and Non-Guarantor Subsidiaries.
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INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
13 WEEKS ENDED SEPTEMBER 29, 2000
(UNAUDITED)
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------- ------------ -------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales............................... $ -- $221,897 $163,344 $(166,600) $ 218,641
COSTS AND EXPENSES
Cost of product sales....................... -- 122,444 150,659 (155,759) 117,344
Research and development.................... -- 25,297 570 -- 25,867
Selling, general and administrative......... 36 29,358 5,403 -- 34,797
Intangible amortization..................... -- 2,643 3,845 -- 6,488
------- -------- -------- --------- ---------
Operating income (loss)....................... (36) 42,155 2,867 (10,841) 34,145
Interest, net............................... -- 1,036 (43) -- 993
Equity in subsidiary income (loss).......... 44,029 -- -- (44,029) --
------- -------- -------- --------- ---------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle...................... 43,993 41,119 2,910 (54,870) 33,152
Income taxes (benefit)...................... (14) 15,533 2,117 (3,795) 13,841
------- -------- -------- --------- ---------
Income (loss) before cumulative effect of a
change in accounting principle............ 44,007 25,586 793 (51,075) 19,311
Cumulative effect of adoption of SFAS 133
(net of tax).............................. -- (197) -- -- (197)
------- -------- -------- --------- ---------
NET INCOME (LOSS) TO COMMON SHAREHOLDERS...... $44,007 $ 25,389 $ 793 $ (51,075) $ 19,114
======= ======== ======== ========= =========
SEVEN WEEKS ENDED OCTOBER 1, 1999
(UNAUDITED)
SUCCESSOR
--------------------------------------------------------------------
FOREIGN
NON-
GUARANTOR GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------- ------------ -------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales............................... $ -- $ 82,848 $ 68,979 $(75,279) $ 76,548
COSTS AND EXPENSES
Cost of product sales....................... -- 50,532 63,903 (68,546) 45,889
Research and development.................... -- 8,398 -- -- 8,398
Selling, general and administrative......... -- 7,128 4,144 -- 11,272
Intangible amortization..................... -- 7,322 (15,996) 10,092 1,418
In-process research and development......... -- 20,796 -- -- 20,796
------- -------- -------- -------- --------
Operating income (loss)....................... -- (11,328) 16,928 (16,825) (11,225)
Interest, net............................... 1,889 8,605 2,267 (4,096) 8,665
Equity in subsidiary income (loss).......... (5,272) -- -- 5,272 --
------- -------- -------- -------- --------
Income (loss) before income taxes........... (7,161) (19,933) 14,661 (7,457) (19,890)
Income taxes (benefit)...................... -- 268 1,801 (1,847) 222
------- -------- -------- -------- --------
Net income (loss)........................... (7,161) (20,201) 12,860 (5,610) (20,112)
Preferred dividends......................... 1,369 1,369 -- (1,369) 1,369
------- -------- -------- -------- --------
NET INCOME (LOSS) TO COMMON SHAREHOLDERS...... $(8,530) $(21,570) $ 12,860 $ (4,241) $(21,481)
======= ======== ======== ======== ========
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INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX WEEKS ENDED AUGUST 13, 1999
(UNAUDITED)
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, general and administrative.... 8,986 1,778 144 10,908
Harris corporate expense allocations... 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)
======== ======== ========= =======
11
13
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 29, 2000
(UNAUDITED)
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Cash and cash equivalents......................... -- $ 357,105 $ 14,482 $ -- $ 371,587
Trade receivables, net............................ -- 119,061 9,020 128,081
Intercompany balances............................. -- 18,124 (18,124) --
Inventories....................................... -- 105,442 29,531 (10,842) 124,131
Other current assets.............................. -- 36,787 450 -- 37,237
Property, plant and equipment, net................ -- 227,328 1,460 -- 228,788
Intangibles, net.................................. -- 78,245 103,902 -- 182,147
Investment in subsidiaries........................ 895,975 (777,530) (112,450) (5,995) --
Other non-current assets.......................... -- 40,870 1,506 -- 42,376
-------- ---------- --------- ----------- ----------
Total Assets................................ $895,975 $ 205,432 $ 29,777 $ (16,837) $1,114,347
======== ========== ========= =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade payables.................................... $ -- $ 30,526 $ 12,241 $ -- $ 42,767
Compensation and benefits......................... -- 24,445 3,149 -- 27,594
Other current liabilities......................... (3,086) 53,518 6,232 (3,795) 52,869
Long-term debt.................................... -- 112,842 -- -- 112,842
Other non-current liabilities..................... -- 21,992 -- -- 21,992
Common stock...................................... 1,015 -- -- -- 1,015
Additional paid-in capital........................ 879,046 300 -- -- 879,346
Retained earnings (deficit)....................... 19,000 (38,191) 8,641 (13,044) (23,594)
Accumulated other comprehensive income (loss)..... -- -- (486) 2 (484)
-------- ---------- --------- ----------- ----------
Total Liabilities and Shareholders'
Equity.................................... $895,975 $ 205,432 $ 29,777 $ (16,837) $1,114,347
======== ========== ========= =========== ==========
JUNE 30, 2000
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Cash and cash equivalents......................... $ -- $ 200,237 $ 11,703 $ -- $ 211,940
Trade receivables, net............................ -- 104,769 6,926 -- 111,695
Intercompany balances............................. -- (3,009) 3,009 -- --
Inventories....................................... -- 126,313 168 -- 126,481
Other current assets.............................. -- 37,295 372 -- 37,667
Property, plant and equipment, net................ -- 223,852 1,632 -- 225,484
Intangibles, net.................................. -- 80,888 109,262 -- 190,150
Investment in subsidiaries........................ 719,768 323,526 1,370 (1,044,664) --
Other non-current assets.......................... -- 28,927 1,594 -- 30,521
-------- ---------- --------- ----------- ----------
Total Assets................................ $719,768 $1,122,798 $ 136,036 $(1,044,664) $ 933,938
======== ========== ========= =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade payables.................................... $ -- $ 32,953 $ 4,038 $ -- $ 36,991
Compensation and benefits......................... -- 35,254 3,372 -- 38,626
Other current liabilities......................... -- 35,823 5,322 -- 41,145
Long-term debt.................................... -- 116,188 -- -- 116,188
Other non-current liabilities..................... -- 21,992 -- -- 21,992
Common stock...................................... 945 -- -- -- 945
Additional paid-in capital........................ 718,823 300 -- -- 719,123
Retained earnings (deficit)....................... -- 880,288 121,668 (1,044,664) (42,708)
Accumulated other comprehensive income............ -- -- 1,636 -- 1,636
-------- ---------- --------- ----------- ----------
Total Liabilities and Shareholders'
Equity.................................... $719,768 $1,122,798 $ 136,036 $(1,044,664) $ 933,938
======== ========== ========= =========== ==========
12
14
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
13 WEEKS ENDED SEPTEMBER 29, 2000
(UNAUDITED)
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
--------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)............................ $ 44,007 $ 25,389 $ 793 $(51,075) $ 19,114
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization................ -- 12,069 3,991 -- 16,060
Provision for inventory obsolescence......... -- 8,888 -- -- 8,888
Changes in working capital................... (203,212) 126,762 (1,728) 51,075 (27,103)
--------- -------- ------- -------- --------
Net cash provided by (used in) operating
activities................................. (159,205) 173,108 3,056 -- 16,959
INVESTING ACTIVITIES:
Property, plant and equipment.................. -- (12,898) 22 -- (12,876)
--------- -------- ------- -------- --------
Net cash used in investing activities...... -- (12,898) 22 -- (12,876)
FINANCING ACTIVITIES
Proceeds from offering....................... 158,983 -- -- -- 158,983
Proceeds from exercise of stock options and
warrants................................... 222 -- -- -- 222
Payments of borrowings....................... -- (3,342) -- -- (3,342)
--------- -------- ------- -------- --------
Net cash provided by (used in) financing
activities............................... 159,205 (3,342) -- -- 155,863
Effect of exchange rates on cash and cash
equivalents.................................. -- -- (299) -- (299)
--------- -------- ------- -------- --------
Net increase in cash and cash
equivalents.............................. -- 156,868 2,779 -- 159,647
Cash and cash equivalents at the beginning
of the period............................ -- 200,237 11,703 -- 211,940
--------- -------- ------- -------- --------
Cash and cash equivalents at the end of the
period................................... -- 357,105 14,482 -- 371,587
========= ======== ======= ======== ========
SEVEN WEEKS ENDED OCTOBER 1, 1999
(UNAUDITED)
SUCCESSOR
-------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss).............................. $(1,889) $(20,201) $12,860 $(10,882) $(20,112)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization.................. -- 7,628 2,530 -- 10,158
Changes in working capital..................... 1,889 30,573 (5,675) 10,882 37,669
------- -------- ------- -------- --------
Net cash provided by operating activities.... -- 18,000 9,715 -- 27,715
INVESTING ACTIVITIES:
Property, plant and equipment.................... -- 2,867 (5,291) -- (2,424)
------- -------- ------- -------- --------
Net cash provided by (used in) investing
activities................................. -- 2,867 (5,291) -- (2,424)
FINANCING ACTIVITIES
Payments of borrowings......................... -- (65) -- -- (65)
------- -------- ------- -------- --------
Net cash used in financing activities........ -- (65) -- -- (65)
Effect of exchange rates on cash and cash
equivalents.................................... -- -- 1,217 -- 1,217
------- -------- ------- -------- --------
Net increase in cash and cash equivalents.... -- 20,802 5,641 -- 26,443
Cash and cash equivalents at the beginning of
the period................................. -- 5,932 1,445 -- 7,377
------- -------- ------- -------- --------
Cash and cash equivalents at the end of the
period..................................... $ -- $ 26,734 $ 7,086 $ -- $ 33,820
======= ======== ======= ======== ========
13
15
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX WEEKS ENDED AUGUST 13, 1999
(UNAUDITED)
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net Income (loss)................................ $ (11,462) $ (12,125) $ 20,559 $(3,029)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) 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:
Property, plant and equipment...................... (1,020) (867) -- (1,867)
--------- --------- --------- -------
Net cash used in investing activities.......... (1,020) (867) -- (1,867)
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) (126,965) 326,233 (1,230)
Effect of exchange rates on cash and cash
equivalents...................................... 1,177 -- -- 1,177
--------- --------- --------- -------
Net increase in cash and cash equivalents........ 1,442 -- -- 1,442
Cash at the beginning of the period.............. -- -- -- --
--------- --------- --------- -------
Cash at the end of the period.................... $ 1,442 $ -- $ -- $ 1,442
========= ========= ========= =======
14
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to our Condensed Consolidated Financial
Statements, including the notes thereto.
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"), including our Annual Report on Form 10-K for the fiscal year
ended June 30, 2000 and our filing on Form S-1 (as amended) which discuss 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.
OVERVIEW
We are a systems oriented designer and manufacturer of analog and digital
integrated circuits and discrete semiconductors for the communications and power
management end-user. We provide system level solutions for the growing
integrated semiconductor market. Integrated communications semiconductors enable
the convergence of voice, data and video. Within integrated communications, we
are focused on several key markets including high data rate wireless
connectivity, power management and wireless and wired software design to deliver
chip sets, component software and licensable applicable designs for
communications equipment customers. We sell over 4,500 products to more than
28,000 customers worldwide.
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.
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 13.25% Senior
Subordinated Notes due 2009 and 13.50% Subordinated Holding "Pay-In-Kind" (PIK)
note and the issuance of a $90.0 million 11.13% PIK Note to Harris.
15
17
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 the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
values. The fair values 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
statement of operations information for the 13 weeks and the 39 weeks ended
October 1, 1999 represents the combined results of the semiconductor business
from July 3, 1999 and January 2, 1999, respectively, through August 13, 1999 and
Intersil Holding from August 14, 1999 through October 1, 1999.
On September 20, 2000, we issued 3,000,000 shares of our Class A Common
Stock in a registered underwritten public offering at a price of $48.00 per
share. On September 26, 2000, we issued an additional 500,000 shares of our
Class A Common Stock at a price of $48.00 per share upon the exercise of the
over-allotment option by the underwriters pursuant to the registered public
offering on September 20, 2000. See "-- Liquidity and Capital Resources."
Pursuant to a Form 8-K filed on March 29, 2000, we elected to change our
fiscal year end from the Friday closest to June 30 to the Friday closest to
December 31. Our short calendar year 2000 began on July 1, 2000 and our third
calendar quarter ended September 29, 2000. We have included supplemental
discussions below on the 39 weeks ended September 29, 2000 versus the combined
39 weeks ended October 1, 1999 as if we had been reporting on a calendar year
basis for the entire year.
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly revenue
and gross margin of our product groups:
COMBINED
CALENDAR YEAR 1999 CALENDAR YEAR 2000
--------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT FOR PERCENTAGES)
REVENUE
Analog & Mixed Signal.................... $ 88.5 $ 98.3 $ 82.8 $ 94.0 $103.4 $116.6 $122.0
Discrete Power........................... 42.3 46.0 44.9 54.8 53.2 53.0 52.5
Wireless................................. 4.6 6.4 6.3 9.3 14.3 21.6 44.1
------ ------ ------ ------ ------ ------ ------
Total........................... $135.4 $150.7 $134.0 $158.1 $170.9 $191.2 $218.6
====== ====== ====== ====== ====== ====== ======
GROSS MARGIN PERCENTAGE
Analog & Mixed Signal.................... 43% 43% 42% 45% 44% 46% 51%
Discrete Power........................... 17 21 24 28 32 34 30
Wireless................................. 35 50 35 39 45 50 53
Total........................... 35 36 36 39 41 43 46
Historically, our third calendar quarter has been our weakest due to model
changeovers in the automotive industry and summer holiday seasons, primarily in
Europe. Our increasing focus on integrated communications products has resulted
in higher percentage of our sales coming from the communications markets in
calendar year 2000. Revenues from integrated communications products accounted
for 57.8% of our total third quarter calendar year 2000 sales versus 45.2% of
our total third quarter calendar year 1999 sales. Sales made into the
communications market generally experience less seasonality than sales of our
historical mix of products.
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.
16
18
For the 39 weeks ended September 29, 2000, we experienced sales growth of
over 25% in each of the quarters of calendar year 2000 as compared to the same
periods in calendar year 1999 due to increased demand of our communication
products. Additionally, the introduction of our new PRISM II wireless product
has accelerated growth in the Wireless product group.
17
19
RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the periods
indicated:
SUPPLEMENTAL
---------------------------------------
SUCCESSOR COMBINED SUCCESSOR COMBINED
------------------ --------------- ------------------ ------------------
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------------ ---------------------------------------
SEPTEMBER 29, 2000 OCTOBER 1, 1999 SEPTEMBER 29, 2000 OCTOBER 1, 1999
------------------ --------------- ------------------ ------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
REVENUE
Product sales............. $218,641 $133,884 $580,745 $419,977
COSTS AND EXPENSES
Cost of product sales..... 117,344 85,570 327,363 269,727
Research and
development............ 25,867 16,897 69,371 54,250
Selling, general and
administrative......... 34,797 22,180 93,770 64,845
Harris corporate expense
allocation............. -- 1,164 -- 6,153
Intangible amortization... 6,488 1,744 13,232 3,012
In-process research and
development............ -- 20,796 -- 20,796
Other..................... -- -- 1,178 --
-------- -------- -------- --------
Operating income (loss)..... 34,145 (14,467) 75,831 1,194
Loss on sale of Malaysian
operation.............. -- -- 24,825 --
Interest, net............. 993 8,554 14,885 7,750
-------- -------- -------- --------
Income (loss) before
income taxes,
extraordinary item and
cumulative effect of a
change in accounting
principle.............. 33,152 (23,021) 36,121 (6,556)
Income taxes (benefit).... 13,841 120 12,152 (4,527)
-------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of a
change in accounting
principle................. 19,311 (23,141) 23,969 (2,029)
Extraordinary item -- loss
on extinguishment of
debt, net of tax
effect................. -- -- (25,518) --
-------- -------- -------- --------
Income (loss) before
cumulative effect of a
change in accounting
principle.............. 19,311 (23,141) (1,549) (2,029)
Cumulative effect of
adoption of SFAS 133,
net of tax effect...... (197) -- (197) --
-------- -------- -------- --------
NET INCOME (LOSS)........... $ 19,114 $(23,141) $ (1,746) $ (2,029)
======== ======== ======== ========
18
20
The following table sets forth statement of operations data for the periods
indicated as a percentage of revenue:
SUPPLEMENTAL
------------------------------------
SUCCESSOR COMBINED SUCCESSOR COMBINED
------------------ --------------- ------------------ ---------------
13 WEEKS ENDED 39 WEEKS ENDED
------------------------------------ ------------------------------------
SEPTEMBER 29, 2000 OCTOBER 1, 1999 SEPTEMBER 29, 2000 OCTOBER 1, 1999
------------------ --------------- ------------------ ---------------
REVENUE
Analog & Mixed Signal.......... 55.8% 61.8% 58.9% 64.2%
Discrete Power................. 24.0 33.5 27.3 31.7
Wireless....................... 20.2 4.7 13.8 4.1
----- ----- ----- -----
Total.................. 100.0 100.0 100.0 100.0
COSTS AND EXPENSES
Cost of product sales.......... 53.7 63.9 56.4 64.2
Research and development....... 11.8 12.6 11.9 12.9
Selling, general and
administrative.............. 15.9 16.6 16.1 15.4
Intangible amortization........ 3.0 1.3 2.3 0.7
In-process research and
development................. -- 15.5 -- 5.0
Other.......................... -- 0.9 0.2 1.5
----- ----- ----- -----
Operating income (loss).......... 15.6 (10.8) 13.1 0.3
Loss on sale of Malaysian
operation...................... -- -- 4.3 --
Interest, net 0.5 6.4 2.6 1.9
----- ----- ----- -----
Income (loss) before income
taxes, extraordinary item
and cumulative effect of a
change in accounting
principle................... 15.1 (17.2) 6.2 (1.6)
Income taxes (benefit)......... 6.3 (0.1) 2.1 (1.1)
----- ----- ----- -----
Income (loss) before
extraordinary item and
cumulative effect of a
change in accounting
principle................... 8.8 (17.3) 4.1 (0.5)
Extraordinary item -- loss on
extinguishment of debt, net
of tax effect............... -- -- 4.4 --
Income (loss) before cumulative
effect of a change in
accounting principle........ 8.8 (17.3) (0.3) (0.5)
Cumulative effect of adoption
of SFAS 133, net of tax
effect...................... (0.1) -- -- --
Net income (loss)........... 8.7% (17.3)% (0.3) % (0.5) %
===== ===== ===== =====
Revenue
Revenue for the 13 weeks ended September 29, 2000 increased 63.1% to $218.6
million from $134.0 million during the combined 13 weeks ended October 1, 1999.
Revenue for the 39 weeks ended September 29, 2000 increased 38.2% to $580.7
million from $420.0 million during the combined 39 weeks ended October 1, 1999.
The growth in both periods is the result of increased demand for communications
products and overall improved market conditions. Wireless sales growth of 600%
for the 13 weeks ended September 29, 2000 and 362% for the 39 weeks ended
September 29, 2000 versus the same time periods in calendar year 1999 was driven
by increased market acceptance of our PRISM(R) products.
Geographically, 45.5%, 19.0% and 35.5% of product sales were derived in
North America, Europe and Asia, respectively, during the 13 weeks ended
September 29, 2000 compared to 48.7%, 22.8% and 28.5%
19
21
during the combined 13 weeks ended October 1, 1999. For the 39 weeks ended
September 29, 2000, 48.0%, 20.4% and 31.6% of product sales were derived in
North America, Europe and Asia, respectively, compared to 51.9%, 23.8% and 24.4%
during the combined 39 weeks ended October 1, 1999.
Gross Margin
Cost of product sales 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 13 weeks ended September 29, 2000, gross margin on product sales
increased 109.7% to $101.3 million from $48.3 million in the combined 13 weeks
ended October 1, 1999. Gross margin on product sales increased 68.6% to $253.4
million in the 39 weeks ended September 29, 2000 from $150.3 million in the
combined 39 weeks ended October 1, 1999. As a percent of sales, gross margin was
46.3% during the 13 weeks ended September 29, 2000 and 43.6% during the 39 weeks
ended September 29, 2000 compared to 36.1% during the combined 13 weeks ended
October 1, 1999 and 35.8% during the combined 39 weeks ended October 1, 1999.
This increase was due primarily to a sales mix shift from our historical mix of
products to a higher percentage of our integrated communications products. Our
integrated communications products, which include our wireless products,
generally carry higher margins. Increased capacity utilization in all three
fabrication facilities, improved product costs from yield enhancements and
manufacturing cost improvement projects contributed to the margin improvement.
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 53.3% to
$25.9 million during the 13 weeks ended September 29, 2000 from $16.9 million
during the combined 13 weeks ended October 1, 1999 and 27.9% to $69.4 million
during the 39 weeks ended September 29, 2000 from $54.3 million during the
combined 39 weeks ended October 1, 1999. The increase was the result of our
continued investment in PRISM(R) chip sets and in power management integrated
circuits, focusing in the categories of communications and computing products.
As a percent of sales, R&D expenses declined to 11.8% for the 13 weeks ended
September 29, 2000 from 12.6% for the combined 13 weeks ended October 1, 1999
and to 11.9% for the 39 weeks ended September 29, 2000 from 12.9% for the
combined 39 weeks ended October 1, 1999.
In-Process R&D Charge
In connection with the acquisition of the semiconductor business of Harris,
we allocated $20.2 million of the purchase price to in-process R&D projects.
These projects were in various stages of completion ranging from 35-90%
completion. The present value of $29.0 million of in-process R&D was primarily
determined by discounting 10 year after tax cash flow projections of the
individual projects using a discount rate of 20%. The value was then reduced by
negative goodwill resulting from the acquisition.
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 13 weeks and combined 39 weeks ended October 1, 1999.
Selling, General and Administrative ("SG&A")
SG&A costs, which include marketing, selling, general and administrative
expenses increased to $34.8 million during the 13 weeks ended September 29, 2000
from $22.2 million during the combined 13 weeks ended October 1, 1999 and to
$93.8 million during the 39 weeks ended September 29, 2000 from $64.8 million
during the combined 39 weeks ended October 1, 1999. The increase in both periods
was due to additional selling costs resulting from higher sales in calendar year
2000 and additional marketing costs associated with our new company branding
initiative. As a percentage of sales, SG&A costs decreased to 15.9% for the 13
weeks ended September 29, 2000 from 16.6% for the combined 13 weeks ended
October 1, 1999 and increased to 16.1% for the 39 weeks ended September 29, 2000
from 15.4% for the combined 39 weeks ended October 1, 1999.
20
22
Interest Expense
In connection with the acquisition of the semiconductor business of Harris,
we entered into new credit facilities. Pursuant to the initial public offering
in February 2000, we retired a significant portion of those same credit
facilities. Interest expense for the 13 weeks and 39 weeks ended September 29,
2000 is not comparable to interest expense for the combined 13 weeks and
combined 39 weeks ended October 1, 1999.
Tax Expense
The tax provisions for the 13 weeks and 39 weeks ended September 29, 2000
are not comparable to the tax benefits for the combined 13 weeks and combined 39
weeks ended October 1, 1999 due to the differences in our tax structure as
compared to that of the semiconductor business of Harris.
Backlog
We had backlog at September 29, 2000 of $275.1 million compared to $259.5
million at June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
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 and our cash on hand, 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 September 29, 2000 our total
debt and shareholders' equity was $113.2 million and $856.3 million,
respectively.
Because our business was operated as a subsidiary of Harris prior to August
13, 1999, we do not believe our cash flows prior to August 13, 1999 are
indicative of our business on a stand-alone basis. Net cash generated by
operating activities for the 13 weeks ended September 29, 2000 was $17.0
million. Net cash used in investing activities for the 13 weeks ended September
29, 2000 was $12.9 for capital expenditures to support our expanded operations.
Net cash provided by financing activities for the 13 weeks ended September 29,
2000 was $155.9 million, primarily from the proceeds of our September 2000
public offering. Our cash balance at September 29, 2000 was $371.6 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.
On September 20, 2000, we issued 3,000,000 shares of Class A Common Stock
at a price of $48.00 per share. We received net proceeds from this offering,
after deducting the underwriting discount and estimated offering expenses of
$7.8 million, of approximately $136.2 million. Pursuant to this public offering,
we issued an additional 500,000 shares of Class A Common Stock at $48.00 per
share upon the exercise of the over-allotment option by the underwriters on
September 26, 2000. We received net proceeds from the exercise of the
over-allotment option, after deducting the underwriting discount and estimated
offering expenses of $1.1 million, of approximately $22.9 million. We intend to
use the proceeds from the offering and the exercise of the over-allotment option
for general corporate purposes, including expenditures for research and
development of new products and sales and marketing efforts. In addition, we
intend to use a portion of the proceeds to acquire complementary products,
technology or businesses or to retire portions of our outstanding debt.
Recent Developments
In October 2000, we acquired Arizona-based SiCOM, Inc., or SiCOM, in an
all-stock transaction. SiCOM is a fabless semiconductor manufacturer that offers
broadband modem silicon reference designs and software, programmable Application
Specific Standard Parts and board level products for equipment manufacturers
serving fixed wireless infrastructure and access markets. SiCOM's engineering
talent, broadband wireless solutions and patent portfolio will bring our
customers closer to a high-data-rate, end-to-end solution for wireless
connectivity.
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This acquisition underscores our commitment to provide wireless
semiconductor and software architectures supporting the growing demand for
wireless access to broadband content within homes, offices, airports, hotels and
other public places. Consideration for the acquisition of SiCOM was 3,605,778
shares (which includes 434,909 shares issuable upon exercise of options) of our
Class A Common Stock.
Receivables and Inventories
Trade accounts receivable less the allowance for collection losses totaled
$128.1 million at September 29, 2000 compared to $111.7 million at June 30,
2000. The increase was due to higher sales quarter over quarter. Inventories
decreased to $124.1 million at September 29, 2000 from $126.5 million at June
30, 2000. The decrease was primarily due to management's continued efforts to
reduce inventory through portfolio management and process improvements.
Distributor reserves fluctuate from year to year based on the level of
inventory at distributors. The reserve increased 6.7% from $7.4 million at June
30, 2000 to $7.9 million at September 29, 2000 resulting from increasing
inventory levels at distributions in response to higher demand and overall
market improvement. Inventory turnover at distributors remained flat quarter
over quarter.
Capital Expenditures
Capital expenditures for the 13 weeks and 39 weeks ended September 29, 2000
were $12.9 and $39.1 million, respectively, compared to $4.3 and $24.8 million
for the combined 13 weeks and combined 39 weeks ended October 1, 1999,
respectively. We do not anticipate substantial capital expenditures in the
foreseeable future.
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.
Effective July 1, 2000, we adopted Financial Accounting Standard No. 133
(FAS 133), "Accounting for Derivative Instruments and Hedging Activities," as
amended, which requires that all derivative instruments be reported on the
balance sheet at fair value and establishes a criterion for designation and
effectiveness of hedging relationships. In accordance with the transition
provisions of FAS 133, we recorded a cumulative-effect-type adjustment, net of
tax, of $(0.2) million to recognize the fair value of the derivatives. The
derivatives were also recognized on the condensed consolidated balance sheet at
their fair value of $1.6 million at September 29, 2000.
At September 29, 2000 we had open foreign exchange contracts with a
notional amount of $38.7 million, which was to hedge anticipated foreign cash
flow commitments up to six months. As hedges on anticipated foreign cash flow
commitments do not qualify for deferral, gains and losses on changes in the fair
market value of the foreign exchange contracts are recognized in income. Total
net gains on foreign exchange contracts for the 13 weeks ended September 29,
2000 were $0.5 million. During the 13 weeks ended September 29, 2000 we
purchased and sold $10.0 million of foreign exchange forward and option
contracts.
Our hedging activities provide only limited protection against currency
exchange risks. Factors that could impact the effectiveness of our hedging
programs include 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 September
29, 2000, would have an impact of approximately $2.0 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.
As of September 29, 2000, we also had fixed rate debt of approximately
$113.2 million consisting primarily of the 13.25% Senior Subordinated Notes due
2009. For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reorganization of Harris Corporation's sales representatives resulted in
the termination of the sales representative agreement with Giesting E.
Associates, Inc. ("Giesting") on September 21, 1998. Harris Corporation filed
suit in the U.S. District Court, Middle District of Florida, requesting a
Declaratory Judgement stating that Harris Corporation did not breach the sales
representative agreement with Giesting, along with an injunction prohibiting the
disclosure of Harris Corporation trade secrets. Giesting answered the Complaint
and asserted an 8-count counterclaim against Harris Corporation, alleging
damages for reduced commissions, unavoidable expenses and lost future profits of
$7,800,000. Harris Corporation answered the counterclaim and filed a Motion to
Dismiss/Summary Judgement. Intersil assumed the liability for this litigation
when it purchased the semiconductor business from Harris Corporation. On July
14, 2000, the court rendered its decision on the motion and denied our motion on
5 of the counts. Jury trial is scheduled to commence on November 13, 2000,
before a federal magistrate judge in Orlando, Florida. While it is difficult to
predict the final outcome in any jury trial, we believe that Giesting's claims
are without merit and that this litigation will not have a material adverse
effect on our business, financial condition, results of operations or cash
flows.
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 July 12, 2000 to
disclose the sale of its Malaysia-based semiconductor assembly and test
operations to ChipPAC, Inc., a California corporation.
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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)
/s/ DANIEL J. HENEGHAN
--------------------------------------
Name: Daniel J. Heneghan
Title: Chief Financial Officer
Date: November 14, 2000
/s/ STEPHEN M. MORAN
--------------------------------------
Name: Stephen M. Moran
Title: Vice President, General Counsel
& Secretary
Date; November 14, 2000
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