1
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 30, 2001
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 May 8, 2001:
Title of Each Class Number of Shares
Class A Common Stock, par value $.01 per share 68,274,820
Class B Common Stock, par value $.01 per share 37,206,996
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INTERSIL HOLDING CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
and Comprehensive Income for the 13 Weeks Ended
March 30, 2001 and March 31, 2000 3
Condensed Consolidated Balance Sheets as of March 30, 2001
and December 29, 2000 4
Condensed Consolidated Statements of Cash Flows for the
13 Weeks Ended March 30, 2001 and March 31, 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
13 Weeks Ended
March 30, 2001 March 31, 2000
----------------------- ----------------------
(Unaudited) (Unaudited)
(in thousands, except per share amounts)
REVENUE
Product sales $ 127,768 $ 117,655
COSTS AND EXPENSES
Cost of product sales 85,623 67,425
Research and development 26,789 18,066
Selling, general & administrative 25,658 25,601
Intangible amortization 11,662 1,975
Impairment of long-lived assets 7,583 -
Restructuring 32,419 -
Other - 1,312
----------------------- ----------------------
OPERATING INCOME (LOSS) (61,966) 3,276
Interest expense 1,587 12,941
Interest income (4,770) (1,271)
Impairment on investments 8,242 -
----------------------- ----------------------
Loss before sale of certain assets,
income taxes and extraordinary item (67,025) (8,394)
Operating results of certain operations
disposed of during 2001
Net sales 38,429 53,220
Costs and expenses (41,079) (39,703)
----------------------- ----------------------
(2,650) 13,517
Gain of sale of certain operations 168,437 -
----------------------- ----------------------
165,787 13,517
----------------------- ----------------------
Income before income taxes and
extraordinary item 98,762 5,123
Income taxes 48,170 2,275
----------------------- ----------------------
Income before extraordinary item 50,592 2,848
Extraordinary item - loss on
extinguishment of debt, net of tax effect (12,185) (25,518)
----------------------- ----------------------
Net income (loss) 38,407 (22,670)
Preferred dividends - (1,540)
----------------------- ----------------------
Net income (loss) to common shareholders $ 38,407 $ (24,210)
======================= ======================
Basic income (loss) per share
Income before extraordinary item $ 0.48 $ 0.02
Extraordinary item (0.12) (0.34)
----------------------- ----------------------
Net income (loss) $ 0.36 $ (0.32)
======================= ======================
Diluted income (loss) per share
Income before extraordinary item $ 0.46 $ 0.02
Extraordinary item (0.11) (0.34)
----------------------- ----------------------
Net income (loss) $ 0.35 $ (0.32)
======================= ======================
Weighted average common shares
outstanding (in millions):
Basic 105.3 75.0
======================= ======================
Diluted 108.6 75.0
======================= ======================
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
13 Weeks Ended
March 30, 2001 March 31, 2000
----------------------- ----------------------
(Unaudited) (Unaudited)
(in thousands)
Net income (loss) $ 38,407 $ (22,670)
Other comprehensive income (loss):
Currency translation adjustments (232) (250)
----------------------- ----------------------
Comprehensive income (loss) $ 38,175 $ (22,920)
======================= ======================
See notes to condensed consolidated financial statements.
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INTERSIL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 30, 2001 December 29, 2000
-------------- -----------------
(Unaudited)
(in thousands)
Assets
Current Assets
Cash and cash equivalents $ 605,981 $ 352,597
Trade receivables, less allowances for collection loss ($1,560
as of March 30, 2001 and $736 as of December 29, 2000) 99,797 123,979
Inventories 72,365 126,198
Prepaid expenses and other current assets 9,252 10,569
Deferred income taxes 21,804 27,756
----------- -----------
Total Current Assets 809,199 641,099
Other Assets
Property, plant & equipment, less allowances for depreciation
($47,775 as of March 30, 2001 and $55,673 as of December 29,
2000) 128,644 235,559
Intangibles, less accumulated amortization ($34,922 as of March
30, 2000 and $27,057 as of December 29, 2000) 272,384 307,183
Other 37,479 45,927
----------- -----------
Total Other Assets 438,507 588,669
----------- -----------
Total Assets $ 1,247,706 $ 1,229,768
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Trade payables $ 25,021 $ 43,209
Retirement plan accruals 3,708 5,507
Accrued compensation 20,826 28,203
Accrued interest and sundry taxes 3,198 6,684
Exit costs 14,393 --
Restructuring costs 32,422 --
Other accrued items 26,121 26,039
Distributor reserves 6,521 8,002
Unearned service income -- 6
Income taxes payable 61,128 --
Long-term debt -- current portion - 484
------------ -----------
Total Current Liabilities 193,338 118,134
Other Liabilities
Deferred income taxes 6,144 35,632
Long-term debt -- 64,966
Shareholders' Equity
Preferred Stock, $1000 par value, 100,000 shares authorized,
no shares issued or outstanding -- --
Class A Common Stock, $.01 par value, voting; 300,000,000
shares authorized, 68,180,887 shares issued at March 30,
2001 and 68,099,740 shares issued at December 29, 2000 681 680
Class B Common Stock, $.01 par value, non-voting; 300,000,000
shares authorized, 37,206,996 shares issued at March 30, 2001
and December 29, 2000 372 372
Additional paid-in capital 1,051,729 1,051,213
Retained earnings (deficit) 2,712 (35,699)
Unearned compensation (3,021) (3,857)
Accumulated other comprehensive (loss) income (1,905) (1,673)
----------- -----------
1,050,568 1,011,036
Treasury shares, at cost, 160,000 shares (2,344) --
------------ -----------
Total Shareholders' Equity 1,048,224 1,011,036
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,247,706 $ 1,229,768
=========== ===========
See notes to condensed consolidated financial statements.
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INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
13 Weeks Ended
March 30, 2001 March 31, 2000
----------------------- ----------------------
(Unaudited)
(in thousands)
OPERATING ACTIVITIES:
Net income (loss) $ 38,407 $ (22,670)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 19,053 16,793
Provisions for inventory obsolescence 15,672 --
Restructuring and impairments 48,244 --
Gain on sale of certain operations (168,437) --
Deferred income taxes (23,536) --
Changes in assets and liabilities:
Trade receivables 24,182 (6,498)
Inventories (3,146) 5,435
Prepaid expenses 1,317 (1,988)
Trade payables and accrued liabilities (23,213) 631
Income taxes 59,594 365
Other 12 6,696
--------- ---------
Net cash used in operating activities (11,851) (1,236)
INVESTING ACTIVITIES:
Proceeds from sale of certain operations 338,016 --
Property, plant and equipment (8,834) (12,684)
---------- ---------
Net cash provided by (used in) investing activities 329,182 (12,684)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 373 --
Proceeds from borrowings -- 515,625
Repurchase of treasury stock (2,344) --
Payments of borrowings (61,545) (402,646)
---------- ----------
Net cash provided by (used in) financing activities (63,516) 112,979
Effect of exchange rates on cash and cash equivalents (431) 1,777
---------- ---------
Net increase in cash and cash equivalents 253,384 100,836
Cash and cash equivalents at the beginning of the period 352,597 40,122
---------- ---------
Cash and cash equivalents at the end of the period $ 605,981 $ 140,958
========== =========
Supplemental Disclosures--Non-Cash Activities:
Additional paid-in capital from tax benefit on exercise of non-qualified
stock options $ 144 --
========== ==========
See Notes to Consolidated Financial Statements.
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Intersil Holding Corporation
Notes to Condensed Consolidated Financial Statements
NOTE A -- BASIS OF PRESENTATION
The condensed consolidated balance sheet of Intersil Holding
Corporation (the "Company") as of March 30, 2001, and the condensed consolidated
statements of operations for the 13 weeks ended March 30, 2001 and March 31,
2000 and the condensed consolidated statements of cash flows for the 13 weeks
ended March 30, 2001 and March 31, 2000 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (which are of a
normal recurring nature) necessary to present fairly the financial position,
results of operations and cash flows at March 30, 2001, and for all periods
presented, have been made. The condensed consolidated balance sheet at December
29, 2000, has been derived from the Company's audited consolidated financial
statements at that date.
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. 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
December 29, 2000.
On March 16, 2001, the Company sold its Discrete Power products group
to Fairchild Semiconductor Corporation ("Fairchild"). The condensed
consolidated balance sheet as of March 30, 2001 has been reduced by the assets
and liabilities assumed by Fairchild.
The results of operations for the 13 weeks ended March 30, 2001, are
not necessarily indicative of results that may be expected for any other interim
period or for the full calendar year.
NOTE B -- INVENTORIES
Inventories are summarized below (in thousands):
March 30, December 29,
2001 2000
------------------ -----------------
(Unaudited)
Finished products $ 36,523 $ 51,583
Work in progress 74,561 94,477
Raw materials and supplies 3,352 9,002
------------------ -----------------
114,436 155,062
Less inventory reserves (42,071) (28,864)
------------------ -----------------
$ 72,365 $ 126,198
================== =================
At March 30, 2001 and December 29, 2000 Intersil Holding was committed
to purchase $11.1 million and $24.4 million, respectively, of inventory from
suppliers. Management believes the cost of this inventory approximates current
market value.
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NOTE C -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share amounts).
13 Weeks Ended
March 30, 2001 March 31, 2000
----------------------- ----------------------
(Unaudited) (Unaudited)
Numerator:
Net income available to common shareholders (numerator for
basic and diluted earnings per share) $ 38,407 $ (24,210)
========= ==========
Denominator:
Denominator for basic earnings per share-weighted average
common shares 105,324 74,977
Effect of dilutive securities:
Stock options 1,170 --
Warrants 2,064 --
--------- ----------
Denominator for diluted earnings per share-adjusted weighted
average common shares 108,558 74,977
======== =========
Basic earnings (loss) per share $ 0.36 $ (0.32)
======== ========
Diluted earnings (loss) per share $ 0.35 $ (0.32)
======== ========
The effect of dilutive securities is not included in the computation
for the 13 weeks ended March 31, 2000, because to do so would be antidilutive.
NOTE D -- MARKETABLE SECURITIES AND INVESTMENT IMPAIRMENT
Marketable securities consist of shares of ChipPAC, Inc. common stock
that have been classified as other assets. They are recorded at fair value,
which is determined based on quoted market prices.
During the quarter ended March 30, 2001, the Company recorded an
impairment charge of $8.2 million ($4.0 million after tax) related to its
investment in ChipPAC, Inc. common stock which reflected an other than temporary
decline in value based on two consecutive quarters where the quoted market price
was less than the carrying value.
NOTE E -- COMMON STOCK
In March 2001, the Board of Directors authorized a stock repurchase
program under which the Company may repurchase up to $50 million of its
outstanding common stock. The number of shares to be repurchased and timing of
purchases will be based on a variety of factors, including general market
conditions, and the market price and trading volume of its shares. As of March
30, 2001, 160,000 shares at an approximate cost of $2.3 million had been
repurchased and are held in treasury stock.
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NOTE F -- SALE OF CERTAIN OPERATIONS
On March 16, 2001, the Company sold its Discrete Power products group
to Fairchild for a purchase price of $338.0 million in cash and the assumption
by Fairchild of certain assets and liabilities of the product group. As a
result of the sale, the Company recognized a gain of $168.4 million
($81.8 million after tax), which was net of the assets and liabilities assumed
by Fairchild, transaction fees and other exit costs associated with the sale.
The exit costs include employee termination benefits that will be incurred
within one year from the sale date. A summary of the exit costs and the
remaining accrual follows:
Balance
(in millions) Additions Utilization 03/30/01
----------- ----------- --------
Exit costs
Employee termination costs $ 5.4 $ (0.3) $ 5.1
Information technology costs 7.4 (0.2) 7.2
Asset removal and related costs 16.7 (15.3) 1.4
Lease termination and other location closing costs 0.7 -- 0.7
------- -------- --------
$ 30.2 $ (15.8) $ 14.4
======= ======== ========
At the date of the sale, Fairchild made offers of employment to a
portion of the Intersil employees who supported the Discrete Power products
group. Approximately 185 employees who were not offered jobs with Fairchild or
who did not accept an employment offer were notified that their employment would
be terminated and of the specifics of their severance benefits. Those positions
included manufacturing, selling and general and administrative employees with
158 of the employees being located in the United States, 22 in Europe and 5 in
Asia. As of April 27, 2000, approximately 70% of the affected employees had been
terminated with the balance to be terminated before the end of the calendar
year.
Other exit costs included information technology costs required to
cover transferred software license fees and system modifications necessary to
support the business transition activity. A transition services agreement
provided that Intersil provide systems support to Fairchild for up to twelve
months from the date of sale. Intersil wrote off $14.8 million of intangible
assets as well as other miscellaneous assets attributable to the Discrete Power
products group. Intersil also identified approximately five foreign sales
offices that it would close as a result of the sale. These offices will be
closed prior to the end of the calendar year.
NOTE G -- RESTRUCTURING AND OTHER NON-RECURRING CHARGES
In March 2001, the Board of Directors approved and the Company
announced several major restructuring activities to improve on-going operations
and product gross margins. The restructuring plans included the phased closure
of the Company's Findlay, Ohio manufacturing operation, the exit of the modem
board assembly manufacturing process in Scottsdale, Arizona and the exit of the
valued-added-reseller's channel in Europe for wireless assess end products. As a
result of the restructuring, the Company recorded expenses of approximately
$32.4 million ($15.7 million after tax) in the current quarter. The plans
include certain exit costs and employee termination benefits. Benefits from
these restructurings will be realized as each of the specific actions are
completed in the form of reduced employee expenses, lower depreciation expense
and lower operating costs. A summary of the restructuring charges and the
remaining accrual follows:
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Balance
(in millions) Additions Utilization 03/30/01
----------- ------------ --------
Restructuring costs
Employee termination costs
Findlay plant closure $ 16.4 $ (0.1) $ 16.3
SiCOM board business exit 0.3 -- 0.3
NWN VAR business exit 0.2 -- 0.2
------- ------- ------
16.9 (0.1) 16.8
Other exit costs
Findlay facility decommission costs 4.5 -- 4.5
SiCOM asset removal and related costs 10.0 (9.5) 0.5
SiCOM contract cancellation costs 1.0 -- 1.0
------- ------- ------
15.5 (9.5) 6.0
------- ------- ------
Total restructuring costs $ 32.4 $ (9.6) $ 22.8
======= ======= ======
In connection with the announced restructurings, approximately 183
employees were notified that their employment would be terminated and of the
specifics of their severance benefits. Those positions included manufacturing,
selling and general and administrative employees with 170 of the employees being
located in the United States and 13 in Europe. As of April 27, 2000,
approximately 33% of the affected employees had been terminated, due to the
timing of the phased closure of the Findlay, Ohio manufacturing operation, the
remaining employees will be terminated over the next 18 months.
Other exit costs include costs to decommission (removal of
semiconductor specific equipment and leasehold improvements) the Findlay site
to a marketable condition. Intersil wrote off $9.5 million of intangible assets
as well as other miscellaneous assets attributable to the exit of the modem
board assembly manufacturing process. The Company plans to terminate some
existing contracts in connection with the planned exit of the modem board
assembly manufacturing process and has recognized the associated termination
costs as part of this restructuring. These contracts will be terminated prior
to the end of the calendar year.
In connection with the planned phased closure of the Findlay, Ohio
manufacturing operation, the Company recorded an impairment of $7.6 million
($3.7 million after tax) on its property, plant and equipment. The impairment
was determined by comparing the carrying value of the assets to an appraised
value on the land, equipment and buildings and the expected future undiscounted
net cash flows from the equipment to be disposed.
NOTE H -- EXTRAORDINARY ITEM
In March 2001, the Company tendered all of the $61.4 million in
outstanding 13.25% senior subordinated notes. The Company recorded an
extraordinary charge of $19.7 million ($12.2 million after tax) related to
pre-payment penalties and the write-off of deferred financing fees.
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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. The information contained in this
Quarterly Report on Form 10-Q is not a complete description of our business or
the risks associated with an investment in our common stock. 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.
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 Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. 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 period ended December 29, 2000 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.
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OVERVIEW
We are a systems oriented designer and manufacturer of analog and
digital integrated circuits for the wireless access and communications analog
markets. We provide system level solutions for the growing communications
semiconductor market. Communications semiconductors enable the convergence of
voice, data and video. Within 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.
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly
revenue of our remaining product groups; we sold the Discrete Power product
group to Fairchild Semiconductor Corporation ("Fairchild") in March 2001:
CALENDAR
COMBINED YEAR
CALENDAR YEAR 1999 CALENDAR YEAR 2000 2001
------------------------------- ------------------------------------------- -------------
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
------------------------------- ------------------------------------------- -------------
(in millions)
Revenue
Wireless Access $13.7 $11.9 $14.9 $22.1 $29.8 $51.4 $ 59.8 $ 35.9
Communications Analog 32.0 33.0 33.1 44.3 54.3 56.6 51.8 42.6
Other Analog 59.0 44.1 55.4 51.3 54.1 58.2 53.1 49.3
------------------------------- ------------------------------------------- -------------
Total $104.7 $89.0 $103.4 $117.7 $138.2 $166.2 $ 164.7 $ 127.8
=============================== =========================================== =============
In the first quarter of calendar year 2001, the semiconductor industry
experienced a slowdown in the overall communications analog and wireless access
markets as many of the end users were working through over inventory positions.
Additionally, we experienced slowing demand for our other analog products aimed
primarily at the automotive and industrial markets. Our focus on communications
related products has helped position us for the next wave of growth in our
targeted markets.
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.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data in dollars
and as a percentage of revenue for the periods indicated:
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13 Weeks Ended 13 Weeks Ended
---------------------------------------- ------------------------------------------
March 30, 2001 March 31, 2000 December 29, 2000 December 31, 1999
----------------- ------------------- ------------------ --------------------
(in thousands)
REVENUE
Wireless Access $ 35,872 $ 22,090 28.1% 18.8%
Communication Analog 42,585 44,292 33.3% 37.6%
Other Analog 49,311 51,273 38.6% 43.6%
------- ------- -------- -------
Total 127,768 117,655 100.0% 100.0%
COSTS AND EXPENSES
Cost of product sales 85,623 67,425 67.0% 57.3%
Research and development 26,789 18,066 21.0% 15.4%
Selling, general & administrative 25,658 25,601 20.1% 21.8%
Intangible amortization 11,662 1,975 9.1% 1.7%
Impairment of long-lived assets 7,583 -- 5.9% 0.0%
Restructuring 32,419 -- 25.4% 0.0%
Other -- 1,312 0.0% 1.1%
-------- -------- ------- ------
OPERATING INCOME (LOSS) (61,966) 3,276 -48.5% 2.8%
Interest expense 1,587 12,941 1.2% 11.0%
Interest income (4,770) (1,271) -3.7% -1.1%
Impairment on investments 8,242 -- 6.5% 0.0%
------ ------- ------- ------
Loss before sale of certain assets,
income taxes and extraordinary item (67,025) (8,394) -52.5% -7.1%
Operating results of certain operations
disposed of during 2001
Net sales 38,429 53,220 30.1% 45.2%
Costs and expenses (41,079) (39,703) -32.2% -33.7%
-------- -------- ------ ------
(2,650) 13,517 -2.1% 11.5%
Gain of sale of certain operations 168,437 -- 131.8% 0.0%
-------- ------- ------- ------
165,787 13,517 129.8% 11.5%
-------- ------- ------- -----
Income before income taxes and
extraordinary item 98,762 5,123 77.3% 4.4%
Income taxes 48,170 2,275 37.7% 1.9%
------- -------- -------- ------
Income before extraordinary item 50,592 2,848 39.6% 2.4%
Extraordinary item - loss on
extinguishment of debt, net of tax effect (12,185) (25,518) -9.5% -21.7%
-------- -------- -------- -------
Net income (loss) $ 38,407 $(22,670) 30.1% -19.3%
========= ========== ======= =======
Note: Amounts may not add due to rounding.
Revenue
Revenue for the 13 weeks ended March 30, 2001 increased 8.6% to $127.8
million from $117.7 million during the 13 weeks ended March 31, 2000. The growth
resulted from market penetration of our PRISM(R) products. Wireless Access sales
increased 62.4% for the 13 weeks ended March 30, 2001 versus the same time
period in calendar year 2000.
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Geographically, 36.6%, 24.3% and 39.1% of product sales were derived in
North America, Europe and Asia, respectively, during the 13 weeks ended March
30, 2001 compared to 53.8%, 20.1% and 26.1% during the 13 weeks ended March 31,
2000.
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 March 30, 2001, gross margin on product
sales declined 16.1% to $42.1 million from $50.2 million in the 13 weeks ended
March 31, 2000. As a percent of sales, gross margin was 33.0% during the 13
weeks ended March 30, 2001 compared to 42.7% during the 13 weeks ended March 31,
2000. We recorded an inventory charge of $19.2 million in the quarter ended
March 30, 2001 due to the exit of product lines and obsolescence related to
changing market conditions. We do not foresee any future unusual inventory
charges based on current market conditions. We anticipate that future gross
profit percentages will continue to be affected by factors such as product mix,
the timing of new product introductions, market conditions and manufacturing
volume.
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 48.3% to $26.8 million during the 13 weeks ended March 30, 2001 from
$18.1 million during the 13 weeks ended March 31, 2000. The increase was the
result of our continued investment in PRISM(R) chip sets, broadband wireless
access products and in power management integrated circuits, focusing on
communications and computing products. As a percent of sales, R&D expenses
increased to 21.0% for the 13 weeks ended March 30, 2001 from 15.4% for the 13
weeks ended March 31, 2000. We expect R&D expenses to moderately increase during
2001 as a result of continued development efforts in our wireless LAN and
broadband wireless product initiatives.
Selling, General and Administrative ("SG&A")
SG&A costs, which include marketing, selling, general and
administrative expenses remained relatively flat at $25.7 million during the 13
weeks ended March 30, 2001 versus $25.6 million during the 13 weeks ended March
31, 2000 on higher sales. As a percentage of sales, SG&A costs decreased to
20.1% for the 13 weeks ended March 30, 2001 from 21.8% for the 13 weeks ended
March 31, 2000. We expect SG&A expenses to decline in 2001 upon the completion
of our restructuring activities.
Amortization
Amortization of intangible assets increased to $11.7 million for the 13
weeks ended March 30, 2001 from $2.0 million for the same time period in
calendar year 2000. The increase was the result of goodwill and other certain
intangible assets that were recorded in connection with the acquisitions of No
Wires Needed, B.V. in May 2000 and SiCOM, Inc. in October 2000. These assets are
being amortized over their useful lives ranging from five to 11 years.
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Restructuring and Other Charges
In March 2001, the Board of Directors approved and we announced several
major restructuring activities to improve on-going operations and product gross
margins. The restructuring plans included the phased closure of our Findlay,
Ohio manufacturing operation, the exit of the modem board assembly manufacturing
process in Scottsdale, Arizona and the exit of the value-added-reseller's
channel in Europe for wireless assess and products. As a result of the
restructuring, we recorded expenses of approximately $32.4 million ($15.7
million after tax or $0.14 per diluted share) in the current quarter. The plans
include certain exit costs and employee termination benefits. Benefits from
these restructurings will be realized as each of the specific actions are
completed in the form of reduced employee expenses, lower depreciation expense
and lower operating costs. A summary of the restructuring charges and the
remaining accrual follows:
Balance
(in millions) Additions Utilization 03/30/01
--------- ------------ --------
Restructuring costs
Employee termination costs
Findlay plant closure $ 16.4 $ (0.1) $ 16.3
SiCOM board business exit 0.3 -- 0.3
NWN VAR business exit 0.2 -- 0.2
------- ------- -------
16.9 (0.1) 16.8
Other exit costs
Findlay facility decommission costs 4.5 -- 4.5
SiCOM asset removal and related costs 10.0 (9.5) 0.5
SiCOM contract cancellation costs 1.0 -- 1.0
------- ------- -------
15.5 (9.5) 6.0
------- -------- --------
Total restructuring costs $ 32.4 $ (9.6) $ 22.8
======= ======= ========
In connection with the announced restructurings, approximately 183
employees were notified that their employment would be terminated and of the
specifics of their severance benefits. Those positions included manufacturing,
selling and general and administrative employees with 170 of the employees being
located in the United States and 13 in Europe. As of April 27, 2000,
approximately 33% of the affected employees had been terminated, due to the
timing of the phased closure of the Findlay, Ohio manufacturing operation, the
remaining employees will be terminated over the next 18 months.
Other exit costs include costs to decommission (removal of
semiconductor specific equipment and leasehold improvements) the Findlay site
to a marketable condition. We wrote off $9.5 million of intangible assets as
well as other miscellaneous assets attributable to the exit of the modem board
assembly manufacturing process. We plan to terminate some existing contracts in
connection with the planned exit of the modem board assembly manufacturing
process and have recognized the associated termination costs as part of this
restructuring. These contracts will be terminated prior to the end of the
calendar year.
In connection with the planned phased closure of the Findlay, Ohio
manufacturing operation, we recorded an impairment of $7.6 million ($3.7 million
after tax or $0.03 per diluted share) on its property, plant and equipment. The
impairment was determined by comparing the carrying value of the assets to an
appraised value on the land and buildings and the expected future undiscounted
net cash flows from the equipment to be disposed.
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Impairment on Investments
Marketable securities consist of shares of ChipPAC, Inc. common stock
that have been classified as other assets. They are recorded at fair value,
which is determined based on quoted market prices.
During the quarter ended March 30, 2001, we recorded an impairment
charge of $8.2 million ($4.0 million after tax or $0.04 per diluted share)
related to our investment in ChipPAC, Inc. common stock which reflected an other
than temporary decline in value based on two consecutive quarters where the
quoted market price was less than the carrying value.
Gain on Sale of Certain Operations
On March 16, 2001, we sold our Discrete Power products group to
Fairchild for a purchase price of $338.0 million in cash and the assumption by
Fairchild of certain assets and liabilities of the product group. As a result of
the sale, we recognized a gain of $168.4 million ($81.8 million after tax or
$0.75 per diluted share), which was net of the assets and liabilities assumed by
Fairchild, transaction fees and other exit costs associated with the sale. The
exit costs include employee termination benefits that will be incurred within
one year from the sale date. A summary of the exit costs and the remaining
accrual follows:
Balance
(in millions) Additions Utilization 03/30/01
----------- ----------- --------
Exit costs
Employee termination costs $ 5.4 $ (0.3) $ 5.1
Information technology costs 7.4 (0.2) 7.2
Asset removal and related costs 16.7 (15.3) 1.4
Lease termination and other location closing costs 0.7 -- 0.7
--------- -------- -------
$ 30.2 $ (15.8) $ 14.4
========= ======== =======
At the date of the sale, Fairchild made offers of employment to a
portion of the our employees who supported the Discrete Power products group.
Approximately 185 employees who were not offered jobs with Fairchild or who did
not accept an employment offer were notified that their employment would be
terminated and of the specifics of their severance benefits. Those positions
included manufacturing, selling and general and administrative employees with
158 of the employees being located in the United States, 22 in Europe and 5 in
Asia. As of April 27, 2000, approximately 70% of the affected employees had been
terminated with the balance to be terminated before the end of the calendar
year.
Other exit costs included information technology costs required to
cover transferred software license fees and system modifications necessary to
support the business transition activity. A transition services agreement
provided that we supply systems support to Fairchild for up to twelve months
from the date of sale. We wrote off $14.8 million of intangible assets as well
as other miscellaneous assets attributable to the Discrete Power products group.
We also identified approximately five foreign sales offices that it would close
as a result of the sale. These offices will be closed prior to the end of the
calendar year.
Interest Income/Expense
Interest income increased to $4.8 million for the 13 weeks ended March
30, 2001 from $1.3 million for the same time period in calendar year 2000. The
increase was due to the increase in available cash and cash equivalents from the
sale of the Discrete Power products group.
Interest expense decreased to $1.6 million for the 13 weeks ended March
30, 2001 from $12.9 million for the 13 weeks ended March 31, 2000.
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The decrease was due to the continuous reduction and eventual elimination of our
long-term debt during calendar year 2000 and into the first quarter of calendar
year 2001.
Tax Expense
The tax provisions for the 13 weeks ended March 30, 2001 are not
comparable to the tax provisions for the 13 weeks ended March 31, 2000 due to
the gain generated from the sale of our Discrete Power products group and the
other restructuring activities that were recorded during the current quarter.
Extraordinary Item
During the 13 weeks ended March 30, 2001, we repurchased all $61.4
million of our outstanding 13.25% senior subordinated notes in the open market.
These repayments included certain pre-payment penalties and accrued interest. In
connection with the early extinguishment of debt, we recorded extraordinary
charges (net of tax effect) of $12.2 million. The extraordinary charges
consisted of the write-off of deferred financing fees and pre-payment penalties.
Backlog
We had backlog at March 30, 2001 of $159.0 million compared to $256.9
million at December 29, 2000. Approximately $72.3 million of our December
backlog was related to our Discrete Power products group which was sold during
the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are to fund working capital needs
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 and capital expenditure for the foreseeable future. As of March 30, 2001
our total shareholders' equity was $1,048.2 million.
Net cash used in operating activities for the 13 weeks ended March 30,
2001 was $11.9 million, resulting partially from $17.9 million in prepayment
penalties and fees to tender all of the outstanding debt. Net cash provided by
investing activities for the 13 weeks ended March 30, 2001 was $329.2 million,
primarily from the proceeds of the sale of our Discrete Power products group to
Fairchild Semiconductor. Net cash used in financing activities for the 13 weeks
ended March 30, 2001 was $63.5 million, primarily from the repayment of our all
of our outstanding debt. Our cash balance at March 30, 2001 was $606.0 million.
Our Revolving Credit Facility contains financial covenants and
restrictions including restrictions on our ability to pay cash dividends or to
effect mergers or acquisitions, incur certain indebtedness or to make certain
investments without the bank's prior approval. We are currently in compliance
with such financial covenants and restrictions.
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Receivables and Inventories
Trade accounts receivable less the allowance for collection losses
totaled $99.8 million at March 30, 2001 compared to $124.0 million at December
29, 2000. The decrease was due to lower sales quarter over quarter. Inventories
decreased to $72.4 million at March 30, 2001 from $126.2 million at December 29,
2000. The decrease was primarily due to the sale of our Discrete Power products
group to Fairchild along with the associated assets and inventory.
Distributor reserves fluctuate from year to year based on the level of
inventory at distributors. The reserve decreased 18.6% to $6.5 million at March
30, 2001 from $8.0 million at December 29, 2000 resulting from the sale of the
Discrete Power products group.
Capital Expenditures
Capital expenditures for the 13 weeks ended March 30, 2001 were $8.8
million compared to $27.2 million for the 13 weeks ended March 31, 2000. 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.
At March 30, 2001 we had open foreign exchange contracts with a
notional amount of $18.6 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 March 30, 2001
were $0.6 million. During the 13 weeks ended March 30, 2001 we purchased and
sold $7.7 million of foreign exchange forward and option contracts. The
derivatives were also recognized on the balance sheet at their fair value of
$0.8 million at March 30, 2001.
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 March 30,
2001, would have an impact of approximately $1.8 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Harris Corporation v. Giesting & Associates, Inc.
Reorganization of Harris Corporation's sales representatives resulted
in the termination of the sales representative agreement with Giesting &
Associates, Inc. ("Giesting") in September 1998. In January 1999, Giesting
asserted a variety of business tort, contract, and statutory claims against
Harris in the U.S. District Court for the Middle District of Florida. Intersil
assumed both the defense and liability for this litigation when it purchased the
semiconductor business from Harris Corporation, and continued the defense of the
case in Harris' name. The Court dismissed Giesting's tort claims (for fraud and
tortious interference with contractual relations) and certain of its statutory
claims on motions to dismiss and for summary judgment. Giesting proceeded to
trial on the remainder of its contract and statutory claims in November 2000,
seeking damages in excess of $9 million. On November 21, 2000, the jury returned
a verdict in the amount of $748,336. On December 1, 2000, the District Court
entered judgment in that amount, and also awarded Giesting prejudgment interest
in the amount of $83,505.33. Both sides have filed motions for new trials with
the District Court, and we have also filed a motion for judgment as a matter of
law. While Giesting was awarded only a small portion of the damages it sought
(less than 10%), we continue to believe that Giesting's claims are entirely
without merit and plan to vigorously contest the jury's verdict.
Proxim, Inc. v. Intersil Corporation, et. al.
On or about March 10, 2001, Proxim, Inc. filed suit against Intersil
Corporation and Cisco Systems Inc. in the United States District Court for the
District of Massachusetts. Proxim is alleging that Intersil and Cisco have
infringed three United States Patents-5,077,753, 5,809,060, and 6,075,812-by
making, using, selling, or offering to sell certain wireless local area network
products. Intersil has engaged counsel and intends to vigorously defend itself
against the infringement charges. Intersil and Cisco have filed an action
against Proxim in the United States District Court for the District of Delaware
seeking that Proxim patents be found invalid, unenforceable and not infringed.
Further, Intersil and Cisco seek damages, costs and attorneys fees from Proxim
based upon breach of contract and an unfair competition.
Also, in mid-March 2001, Proxim initiated actions for patent
infringement of these same three patents against other companies in the United
States District Court for the District of Delaware and the United States
International Trade Commission. Intersil is not a party to these cases; however,
at least some of the companies involved in these proceedings are purchasers of
Intersil's products and, hence, could seek indemnification from Intersil.
Intersil is partially indemnified by Harris on this case.
Harris Corporation v. Ericsson, Inc. and Telefonaktiebolaget LM Ericsson
On November 23, 1998, Harris Corporation filed suit against Ericsson,
Inc. and Telefonaktiebolaget LM Ericsson for infringement of various cellular
technology patents. Ericsson countersued and filed a Complaint against Harris
for infringement of certain telecommunication patents in the United States
District Court for the Eastern District of Texas. Shortly after Intersil
purchased the semiconductor business from Harris, Ericsson joined Intersil in
the suit by filing an Amended Complaint on October 15, 1999. After Discovery and
Depositions by the parties, only Ericsson's U.S. patent 4,961,222 remains in the
suit. Ericsson is seeking damages from Harris and Intersil, as well as
injunctive relief prohibiting sales of accused products. Harris and Intersil
have engaged counsel and are vigorously defending against the infringement
charges. A
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jury trial is scheduled to commence May 14, 2001 in Sherman, Texas." Intersil is
fully indemnified by Harris on this case.
It is our belief that the above litigations 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
None
b) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K on January 25,
2001 to disclose the intended sale of its Discrete Power products
group to Fairchild Semiconductor Corporation, a Delaware corporation.
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 9, 2001 /s/ DANIEL J. HENEGHAN
------------ ---------------------------
NAME: DANIEL J. HENEGHAN
TITLE: CHIEF FINANCIAL OFFICER
Date May 9, 2001 /s/ STEPHEN M. MORAN
------------ ----------------------------
NAME: STEPHEN M. MORAN
TITLE: VICE PRESIDENT, GENERAL
COUNSEL & SECRETARY
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