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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transaction
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 (I.R.S. Employer
incorporation or organization) Identification No.)
7585 Irvine Center Drive
Irvine, California 92618
(949) 341-7062
(Address and telephone number
of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Title of class Name of each exchange on which registered
-------------- -----------------------------------------
Class A Common Nasdaq Stock Market
Stock par value
$.01 per share
Indicated 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: [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The approximate aggregate market value of the registrant's voting common stock
held by non-affiliates, computed by reference to the last sale price per share
as of July 31, 2000 was $1,830,306,209.
The number of shares outstanding of the registrant's Class A and Class B Common
Stock as of July 31, 2000 was 44,803,398 and 49,746,482, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
INTERSIL HOLDING CORPORATION
FORM 10-K
June 30, 2000
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................................................................... 4
Item 2. Properties.............................................................................................12
Item 3. Legal Proceedings......................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders....................................................14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................14
Item 6. Selected Financial Data................................................................................14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................................15
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk..................................................................................22
Item 8. Financial Statements and Supplementary Data............................................................22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................................................55
PART III
Item 10. Directors and Executive Officers of the Registrant.....................................................55
Item 11. Executive Compensation.................................................................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................60
Item 13. Certain Relationships and Related Transactions.........................................................62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................64
Signatures.......................................................................................................71
3
PART I
Item 1. Business
GENERAL
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 markets. The majority of our revenue is derived from sales
of our analog and mixed-signal products. We use our proprietary technologies and
design capabilities to provide systems solutions for rapidly growing wireless
applications. We own over 1,250 patents and have substantial expertise in the
design and manufacturing of components that perform many of the essential
functions relating to the supply, distribution and regulation of electric power
in electronic products. Our core competencies include the design of analog,
mixed-signal, digital signal processing, radio frequency and discrete power
semiconductor products. Our products include components performing complex
communications functions, such as our PRISM(R) chip sets for wireless data
communications, digital radios and high speed converters in cellular base
stations and power management integrated circuits and discrete semiconductors
used in Internet servers and computers. We were formed on August 13, 1999
through a series of transactions in which we and a wholly-owned subsidiary
acquired the semiconductor business of Harris Corporation, or Harris.
OUR BUSINESS STRATEGY
We provide systems level solutions for the growing integrated
communications semiconductor market. Integrated communications semiconductors
enable the convergence of voice, data and video communications. Within
integrated communications, we are focused on several key markets including high
data rate wireless connectivity, power management and communications integrated
circuits for wireless and wired communications infrastructure. We use our
expertise in digital and analog semiconductors and radio and software design in
order to deliver chip sets, components, software and licensable application
designs for communications equipment customers. For fiscal year 2000, we
allocated about 92% of our research and development investment to the
development of products for the integrated communications market.
Our business strategy emphasizes the following key elements:
o Focus on High Growth, Integrated Communications Markets. In light of the
rapid expansion of communication applications and the increased
requirement for power management in electronic systems, we focus our
investments in these areas. We believe these markets have attractive
growth characteristics and enable us to draw on our core competencies.
Accordingly, we are pursuing opportunities in communications, wireless
and power management.
o Maintain Technology Leadership. We focus our research and development
investments on integrated communications. We have 220 engineers working
on innovative wireless and power management architectures. We also have
significant experience in analog and mixed-signal process technology and
high volume manufacturing. In conjunction with these efforts, we will
continue to expand our strong intellectual property position by seeking
to increase our existing portfolio of over 1,250 patents.
o Provide Systems Level Solutions to Our Customers. We design and develop
our semiconductors with a systems level approach that we believe enhances
the value of our products as they are designed into and incorporated in
our customers' electronic systems. This approach yields early integration
of our products into our customers' products, provides opportunities for
current design wins, and ultimately increases revenue as our solutions
are incorporated within a targeted end application.
o Focus on Partnering with Industry Leaders. We partner with industry
leaders in each of our target end-user markets to take our strong
engineering and design capabilities to commercial levels. Our customer
base of industry leaders illustrates the acceptance of our products to
date, and we continue to partner with these customers and others to
develop and market our next generation products. Our applications and
design engineers support our customers' end product development.
o Maintain High Quality Customer Service. Quality customer service is
critical to our customer retention and sales growth. Through our customer
relations initiatives, we believe we distinguish ourselves from our
competitors. Additionally, our sales force and authorized representatives
and distributors provide customer information programs and support our
comprehensive customer service efforts.
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PRODUCTS AND TECHNOLOGY
Our products are organized into three principal product groups: Analog &
Mixed-Signal, Discrete Power and Wireless.
ANALOG & DISCRETE
MIXED-SIGNAL POWER WIRELESS
-------------------------- ------------------------ ---------------------
FISCAL YEAR 2000 REVENUES........... $396.8 million $205.9 million $51.5 million
PERCENTAGE OF REVENUES.............. 60.7% 31.4% 7.9%
KEY CUSTOMERS....................... Cisco Asustek Cisco
Compaq Bosch Nokia
Dell Compaq Siemens
Intel Emerson Sony
Siemens 3Com
ANALOG & MIXED-SIGNAL
Our Analog & Mixed-Signal portfolio represented 60.7% of our fiscal year
2000 revenue. We deliver leading-edge analog, mixed-signal and digital signal
processing semiconductors and groups of semiconductors that are designed to work
together, also known as chip set solutions, for today's fastest-growing
communications markets. Our design focus targets such opportunities as wired
networks, subscriber line interface circuits, or SLICs, which interface analog
and digital signals for telecom systems, and high-speed digital radios for
cellular basestations. The two analog product lines include the following:
Signal Processing Products. We have a portfolio of linear, mixed-signal
and digital signal processing integrated circuits optimized for high-speed
communications applications. Communications analog and mixed-signal integrated
circuits are primarily targeted at wired and wireless voice and data
communications infrastructure applications. We have developed a complete
portfolio of digital radio signal processing products and a line of 8-, 12- and
14-bit high speed data acquisition converter integrated circuits for cellular
basestations, wireless data links, wireless local loop and broadband wireless
access, which we refer to as the wireless infrastructure market. These products,
designated CommLink(TM), enable our customers to increase the amount of data
that can be transmitted, enabling the addition of high speed data transmission
to cellular communications networks. These integrated circuits enable faster
wireless data links between remote basestations and also enable more efficient
cable "headends"--the ground station for the satellite links and broadband
wireless access--which is sometimes called Wireless Cable or LMDS. Our products
support cellular standards including 2G Digital such as IS-95 CDMA and GSM, 2.5G
such as Edge and IS-95+, and 3G such as Wideband CDMA. We utilize both systems
level engineering and integrated circuit expertise to offer superior products
for wireless communications systems. This combination of expertise enabled us to
introduce the industry's first digital signal processing-based single chip, the
HSP50016, which increased the efficiency of signal chain implementation through
component reductions. We continue that leadership with the HSP50216 Quad
programmable down converter for use in 2.5G cellular basestation designs.
New generations of high performance digital signal processing
communications integrated circuits require ever increasing performance from the
analog-to-digital and digital-to-analog converters that convert between digital
signals and analog radio frequency signals for wireless applications. We
currently market a family of 6- to 14-bit, CMOS analog-to-digital and
digital-to-analog converters in multiple speed ranges and functional
combinations in order to complement our digital radio wireless infrastructure
solutions.
With more than 15 years of experience in their design and development, we
continue to expand our portfolio of SLICs. SLICs, which are used in many
telephone applications, serve two primary functions. First, they interface
analog voice signals with digital processors. Second, they serve the simple, yet
essential, function of ringing a telephone to signal an incoming call. Recently,
we introduced an advanced ringing SLIC, which combined both functions into a
single SLIC. Thus, the ringing SLIC acts as both an interface into the telephone
and also rings the telephone. Our newest ringing SLIC product, a voice over
internet protocol, or VoIP, product, enables the use of analog phones in the
emerging Internet telephony market. Our SLIC portfolio of advanced telecom
linecard solutions are ideal for today's universal telecom exchange
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systems, including Plain Old Telephone Service, or POTS, Private Branch
Exchanges, Central Office, Loop Carrier, Fiber in the Loop and Wireless Local
Loop.
Included in our legacy base product portfolio are operational amplifiers,
which are referred to as op amps, interface integrated circuits, industrial and
video integrated circuits and digital products which serve both defense and
commercial systems, with microprocessor, memory and data communications
products. These products typically have long life cycles and are designed into
our customers' products. These include the industry standard BiCMOS high speed
op amp and the low power instrumentation converter. This portfolio is sold to a
broad range of customers in industrial, medical, computer, avionics and test and
measurement instrumentation markets, primarily through distribution partners.
These products typically have long life cycles and are designed into our
customers' products thereby supporting long-term sales. Our end-user markets
include wireless communications, video and image processing, high-speed
satellite communications, test/measurement equipment and medical
instrumentation.
We supply our communications products to Cisco, Dell, IBM, Lucent, Siemens
and other customers.
Power Management Integrated Circuits. We develop power system
architectures and provide a portfolio of computer products, file server/storage
system products, networking and VoIP products. Our power management products for
computing applications operate in a voltage range of 1 to 30 volts and are
designed into desktop personal computers, file servers and workstations. We have
also developed new power management circuits for 24x7 server networks supporting
e-commerce on the Internet.
Our highly successful HIP6000 family of pulse width modulator controller
integrated circuits are used in about 30% of all personal computers that use
Pentium, Pentium II and Pentium III class processors. We are currently working
with motherboard manufacturers to have our pulse width modular controller
integrated circuits designed into motherboards utilizing the recently introduced
Pentium 4 processor. We expect to begin shipping products for Pentium 4
motherboards as Pentium 4 processors begin to ship in greater volumes in the
near term. Based on our current design wins, we believe that we also will have a
substantial share of the volume of pulse width modulator controller integrated
circuits used in motherboards utilizing Athlon processors.
We have introduced an advanced architecture which delivers multiphase power
to higher speed microprocessors. This is a requirement for Intel and AMD
microprocessors above 800 MHz. This new platform of products consists of three
controllers (HIP6301, HIP6302 and HIP6303) and three gate drivers (HIP6601,
HIP6602 and HIP6603). We also offer a complete advanced configuration power
interface solution for instant on and sleep mode capability used to save energy
in personal computers.
We provide complete power solutions for the file server and redundant array
of independent disks, or RAID, market. Internet growth, especially e-commerce,
is driving the need for high reliability/availability in these applications. Our
family of hot plug products allows repair and maintenance of a file server and
RAID without a complete shutdown of the file server.
We are currently expanding our space-qualified portfolio by offering our
Starpower(TM) family of radiation hardened power management products for
commercial satellite applications. We are developing what we believe will be an
industry-leading radiation hardened DC/DC Converter power module line to provide
highly reliable power management in communications satellites. Our radiation
hardened integrated circuit product portfolio includes logic, memories, signal
processing components, microprocessors and custom devices, providing system
designers with a full complement of products for radiation hardened systems used
in commercial space and defense applications.
Our power management integrated circuits are also used in industrial
control and automotive engine management systems.
We supply our power management products to Asustek, Compaq, Dell, IBM,
Intel and other customers.
6
DISCRETE POWER
Our Discrete Power portfolio represented 31.4% of our revenue for fiscal
year 2000. Discrete Power products, coupled with our power management integrated
circuits, provide unique power management solutions for the integrated
communications market. Our metal oxide semiconductor field effect transistors,
or MOSFETs have been designed in conjunction with our multiphase power
integrated circuits for faster, next generation computers. We also manufacture
efficient power MOSFETs used in servers supporting the Internet. We are
investing in new, efficient trench power devices for cellular phones and
portable information appliances.
In 1980, we invented IGBTs, or insulated gate bipolar transistors, and hold
some of the fundamental patents that cover their production. We introduced our
600V SMPS, or switch mode power supply Series IGBT family of high-speed, high
efficiency IGBTs specifically tailored for operation in today's switched mode
power supplies. Our portfolio also includes radiation hardened N- and P-channel
metal oxide semiconductor field effect transistors, or MOSFETs, for
high-reliability applications such as communications satellites.
In addition, our IGBTs, MOSFETs and rectifiers are used in automotive and
industrial applications. These include motor management, automotive ignition,
welding, instrumentation and other industrial applications. Like our base analog
and mixed-signal products, our base power MOSFETs are designed into our
customers' products with life cycles spanning several years.
We supply our Discrete Power products to Asustek, Bosch, Compaq, Emerson
and Siemens and other customers who use our products for personal computer
motherboard power, diesel fuel injection, body and chassis controls and
industrial power supplies.
WIRELESS
Our Wireless portfolio represented 7.9% of our revenue for fiscal year
2000. We are the leading developer of semiconductor solutions for the emerging
wireless local area networking market. Our PRISM(R) family of chip sets
addresses the growing demand for wireless networking for use in both the home
and business providing cost effective, wireless access to high data rate
broadband communications networks. We believe we are the only supplier of an
integrated wireless networking product solution, including reference designs,
software and all integrated circuits necessary for wireless data communications
at data rates of 11 megabits-per-second.
The PRISM II chip set is composed of five highly integrated semiconductors.
They are the 2.4GHz power amplifier, RF/IF up and down converter, IF/BV
quadrature modulator/demodulator, baseband processor and the medium access
controller. These integrated circuits represent design and manufacturing
competence in radio frequency, or RF, mixed-signal and digital technologies. The
2.4GHz power amplifier, RF/IF up and down converter, and the quadrature
modular/demodulator are designed and manufactured using a high performance RF
silicon germanium process technology. The baseband processor and medium access
controller are designed and manufactured using submicron complementary metal
oxide semiconductor, or CMOS, process technologies.
Because we design all of the components of our wireless chip set, including
reference designs and software, we believe we provide our customers with the
best available performance and value. Providing our customers with a turnkey
wireless data radio solution enables them to have the fastest time to market for
their systems which we believe is a critical competitive advantage in this
emerging market. More than 40 companies, including Cisco, Compaq, Nokia, Samsung
and Sony, have adopted use of the PRISM(R) chip set in their products. Our PRISM
II chip set is our second-generation chip set capable of delivering high-speed
wireless networking at data rates of 11 megabits-per-second. The PRISM II chip
set incorporates advanced integrated circuit design with silicon germanium
process technology which makes the PRISM II chip set five times faster while
reducing power consumption by 50% compared to the original PRISM(R) chip set.
Since the introduction of the PRISM II chip set, we have been developing
relationships with original equipment manufacturers, including Cisco, Compaq,
Nokia, Nortel, Siemens, Sony, Symbol and 3Com, for use of the PRISM II chip set
in a variety of wireless local area network applications for home and business.
As of May 29, 2000, we acquired privately held No Wires Needed B.V., or
NWN, for 3.35 million shares of our Class A Common Stock. Based in Bilthoven,
The Netherlands, NWN provides high performance wireless-to-broadband access
point reference designs. NWN utilizes the PRISM(R) chip set together with its
own high data rate digital controller integrated circuits allowing end users to
wirelessly connect multiple computers and hand-held or Internet appliances to a
wired broadband network. NWN also provides wireless encryption software which
enhances the security of a wireless local area
7
network. Additionally, NWN has designed a high data rate digital controller
integrated circuit, which is a component we believe will enhance the performance
of future generations of our PRISM(R) chip set. The NWN digital integrated
circuit, which we refer to as a medium access controller, or MAC, is compliant
with the IEEE802.11b standard and can support data rates of up to 54
megabits-per second, which is vital for multi-channel voice and digital video in
homes and offices. The acquisition of NWN added 52 new employees.
CUSTOMERS AND APPLICATIONS
We seek to capitalize on our core competencies by focusing on the
integrated communications market. Within the integrated communications market,
our products include communication integrated circuits, power management
semiconductors and PRISM(R) wireless local area network chip sets.
END MARKETS APPLICATIONS KEY CUSTOMERS
------------------------ -------------------------------------- -------------------
Communications Wireless local area Wireless local area networks providing Cisco, Compaq,
networks, network wireless access to broadband Dell, IBM, Lucent,
communications, (cable, ethernet, xDSL, ISDN) Nokia, Nortel,
telecommunications networks, video, wired and wireless Samsung, Siemens,
telephony, home gateways, networking Sony, Symbol, 3Com
Power Management Networking and computing File servers, PC motherboards, Asustek, Compaq,
printers, workstations Dell, IBM, Intel
Outside of our targeted end markets, our remaining category is industrial
products. Applications in this category include automotive applications such as
fuel injection and ignition circuits, industrial applications including power
supplies and defense applications such as smart munitions and tactical and
strategic missiles. We sell to, among others, DaimlerChrysler, Siemens, Boeing,
Lockheed Martin and Emerson.
SALES, MARKETING AND DISTRIBUTION
In fiscal years 2000 and 1999, we derived about 60% and 66%, respectively,
of our sales from original equipment manufacturer, or OEM, customers through our
global sales organizations and 40% and 34%, respectively, of our sales through
distributors. We operate sales organizations in the Americas, Europe and the
Asia/Pacific region. Our sales organizations are supported by logistics
organizations. Product orders flow to our manufacturing facilities or to one of
our foundries where the product is made. Products are then shipped to the
customer either directly or indirectly via our warehouses in the United States,
Europe and Asia.
We have dedicated direct sales organizations operating in the Americas,
Europe and Asia/Pacific regions that serve our major OEM customers. We have
strategically located our sales offices near these major OEM customers. We also
have a large network of distributors and manufacturers' representatives to
distribute our products around the world. To serve our customer base, we
maintain a small, highly focused, direct sales force selling products for each
of our targeted product areas, combined with an extensive network of
distributors and manufacturers' representatives. Our sales force is segmented by
end-user markets, thereby ensuring each salesperson has an end-user market
expertise and focus. We also maintain a dedicated marketing organization, which
supports each product area on a regional basis.
Typically, distributors handle a wide variety of products, including
products that compete with our products, and fill orders for many customers.
Some of our sales to distributors are made under agreements allowing for market
price fluctuations and/or the right of return on some unsold merchandise.
Virtually all distribution agreements contain an industry standard stock
rotation provision allowing for minimum levels of inventory returns. In our
experience, these inventory returns can usually be resold. Manufacturers'
representatives generally do not offer products that compete directly with our
products, but may carry complementary items manufactured by others.
Manufacturers' representatives do not maintain a product inventory; instead,
their customers place large quantity orders directly with us and are referred to
distributors for smaller orders.
8
RESEARCH AND DEVELOPMENT
We believe that the continued introduction of new products in our target
markets is essential to our growth. We believe that we must continue to
innovate, enhance and expand our products and services to maintain our
leadership position, and we intend to achieve this through in-house research and
development efforts and selective acquisitions. As of June 30, 2000, we had 571
employees engaged in research and development efforts. Our research and
development efforts are focused on new product development and improvements in
process technology in our growth areas of communications and power management.
For fiscal year 2000, we allocated about 92% of our research and development
investment towards development of products for the integrated communications
market.
Our expenditures for research and development in fiscal years 1998, 1999
and 2000 were $75.1 million, $67.0 million and $78.0 million, respectively. Each
of our product areas maintains independent research and development
organizations. We work closely with our major customers in many research and
development situations to increase the likelihood that our products will be
designed directly into the customers' products and achieve rapid and lasting
market acceptance.
MANUFACTURING
We fabricate wafers at three locations in the United States--Mountaintop,
Pennsylvania, Palm Bay, Florida, and Findlay, Ohio. We also use a number of
outside wafer fabrication foundries for the manufacture of device types where we
do not have the necessary technologies resident in house. We also utilize
advanced manufacturing processes of outside foundries for certain components of
our PRISM(R) products.
We recently sold our principal assembly and test facility, located in Kuala
Lumpur, Malaysia, to ChipPAC, Inc. and entered into a multi-year supply
agreement with ChipPAC under which the Malaysian facility became our preferred
provider of semiconductor assembly and test services. We also have limited
assembly and test capability in Palm Bay, Florida. We use a number of assembly
and test subcontractors for device types and packages that cannot be assembled
and tested at ChipPAC's facility in Kuala Lumpur.
Our wafer fabs are among the most productive and efficient in the industry.
We believe we can continue to maintain competitive cost, further increase
productivity and enhance our process efficiency by investing in people and
assets, where necessary.
We utilize an extensive set of manufacturing processes to fabricate our
products, including technologies such as: ULTRAFET(R), IGBT, BiCMOS, Power
BiCMOS, High Frequency Bipolar, CMOS and Rad Hard Processes. The table below
sets forth some information regarding our manufacturing facilities, products,
wafer diameter and annual wafer capacity:
FABRICATION FACILITIES
ANNUAL CAPACITY
LOCATION PRODUCTS/FUNCTIONS WAFER DIAMETER (6" EQUIVALENT WAFERS)
- --------------------- -------------------------------------------------- ---------------- ---------------------------
Mountaintop, MOSFETs, IGBTs, rectifiers 6", 8" 420,000
Pennsylvania
Findlay, Ohio Standard linear/interface integrated circuits, 5" 120,000
power integrated circuits
Palm Bay, Florida Power integrated circuits, telecom SLICs, rad hard 4", 6" 175,000
integrated circuits
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Our manufacturing processes use many raw materials, including silicon
wafers and various chemicals and gases. We obtain our raw materials and supplies
from a large number of sources on a just-in-time basis. Although supplies for
the raw materials used by us are currently adequate, shortages could occur in
various essential materials due to interruption of supply or increased demand in
the industry.
BACKLOG
Our sales are made pursuant to purchase orders that are generally booked
from one to six months in advance of delivery. Backlog is influenced by several
factors including market demand, pricing and customer order patterns in reaction
to product lead times. Although quantities actually purchased by customers may
vary between booking and delivery to the extent customer needs or industry
conditions change, our backlog has historically been a reliable indicator of our
future revenues. Our backlog was about $188.5 million at July 3, 1998, $174.0
million at July 2, 1999 and $259.5 million at June 30, 2000. We expect to ship
the backlog at June 30, 2000 within twelve months of that date.
SEASONALITY
A lower percentage of our products is sold to the computer end-user or into
the computer market than is sold by other semiconductor manufacturers. Sales in
the computer market fluctuate more than in other semiconductor markets. As a
result, we experience less seasonal fluctuation than the semiconductor industry
as a whole. Historically, our first quarter has been the weakest due to model
year changeovers in the automotive industry and summer holiday seasons,
primarily in Europe. Our increasing focus on integrated communications products
has resulted in a higher percentage of our sales coming from the communications
markets in the second half of our fiscal year. Sales made into the
communications market generally experience less seasonality than sales of our
historical mix of products.
COMPETITION
We compete in different markets to various degrees on the basis of price,
technical performance, product features, product system compatibility,
customized design, availability, quality and sales and technical support. Our
ability to compete successfully depends on elements both within and outside of
our control, including successful and timely development of new products and
manufacturing processes, product performance and quality, manufacturing yields,
product availability, intellectual property protection obtained by us and our
competitors, customer service, pricing, industry trends and general economic
trends.
The following chart sets forth our principal competitors by business unit:
BUSINESS UNIT PRINCIPAL COMPETITORS
- -------------------------- ----------------------------------------------------------------------------
Analog & Mixed-Signal Analog Devices, Linear Technology, Semtech, Texas Instruments
Discrete Power International Rectifier, STMicroelectronics, Vishay
Wireless Lucent, Philips, Texas Instruments
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TRADEMARKS AND PATENTS
We own rights to a number of trademarks and patents that are important to
our business. Among others, we consider Intersil, PRISM(R), ULTRAFET(R) and
CommLink to be trademarks that are material to our operations.
Our corporate policy is to protect proprietary products by obtaining
patents for these products when practicable. We currently possess about 1,250
patents.
EMPLOYEES
Our worldwide workforce consisted of 2,930 employees (full- and part-time)
as of June 30, 2000, of whom 730 were represented by collective bargaining
arrangements. Of our employees, 1,715 were engaged in manufacturing, 571 were
engaged in engineering, 394 were engaged in marketing and sales, 145 were
engaged in administration and 105 were engaged in operating our management
information systems. Of our employees, 1,786 were employed in the Analog &
Mixed-Signal area; 882 were employed in the Discrete Power area; and 262 were
employed in the Wireless area. We believe that our relations with our employees
are good.
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws in the countries in which
we operate that regulate, among other things, air, ground and water emissions at
our manufacturing facilities; the management and disposal of hazardous
substances; and the investigation and remediation of environmental
contamination. As with other companies engaged in like businesses, the nature of
our operations exposes us to the risk of environmental liabilities or claims. We
believe, however, that our operations are in substantial compliance with
applicable environmental requirements. Our costs to comply with environmental
regulations were about $6.3 million, $7.4 million and $4.8 million in each of
fiscal years 1998, 1999 and 2000, respectively.
Our facilities in Findlay, Ohio have ongoing remediation projects to
respond to releases of hazardous substances that occurred prior to the
acquisition of Harris' semiconductor business. Our facilities in Mountaintop,
Pennsylvania have groundwater and subsurface soil contamination from past
operations, some of which occurred prior to Harris' acquisition of those
facilities, for which remediation has been conducted, and additional remediation
may be required. In addition, Harris' facilities in Palm Bay, Florida, a portion
of which includes our business, are listed on the National Priorities List for
clean-up under the Comprehensive Environmental Response, Compensation, and
Liability Act ("Superfund"). Remediation activities are ongoing in Palm Bay in
accordance with consent decrees entered into by Harris with the United States
Environmental Protection Agency. Harris has agreed to indemnify us for the cost
of these projects at all of our facilities,
11
including at Findlay, Ohio, Mountaintop, Pennsylvania and Palm Bay, Florida and
our former facility at Kuala Lumpur, Malaysia to the extent these costs exceed
financial reserve amounts at the time of our acquisition of the semiconductor
business of Harris. Based on the historical costs of these projects and because
the remediation projects are in advanced stages, we do not believe that the
future cleanup costs will be material, even without the indemnity.
In connection with the closure of a waste storage pad at our former Kuala
Lumpur facility in Malaysia, a June 2000 environmental investigation identified
evidence of potential releases to the groundwater of hazardous substances that
were previously stored on the pad. Based on the composition of the groundwater
impacts, it appears that the hazardous substances were those used by Harris or
its predecessors, and not us. Harris has agreed to indemnify us for addressing
environmental conditions created prior to our ownership, and accordingly we put
Harris on notice of the potential environmental claim. We sold the business
which operates out of the Kuala Lumpur, Malaysia facility to ChipPAC in June
2000 (See Business--Manufacturing) and we gave ChipPAC a similar indemnity.
ChipPAC provided us with a claim for indemnification by letter dated August 1,
2000. We do not have adequate information to determine the extent of the impacts
to groundwater, but we do not believe future cleanup costs, if needed, will be
material, even without the Harris indemnity.
Future laws or regulations and changes in existing environmental laws or
regulations may subject our operations to different, additional or more
stringent standards. While historically the cost of compliance with
environmental laws has not had a material adverse effect on our business,
financial condition or results of operations, we cannot predict with certainty
our future costs of compliance because of changing standards and requirements.
We cannot assure you that material costs will not be incurred in connection with
the future compliance with environmental laws or with future cleanup costs
related to currently unknown contamination.
Item 2. Properties
In the United States, we lease our corporate headquarters in Irvine,
California. Additional manufacturing, warehouse and office facilities are housed
in about 846,000 square feet, 445,000 square feet and 270,000 square feet of
space in properties owned by us in Palm Bay, Florida, Mountaintop, Pennsylvania
and Findlay, Ohio, respectively.
Our primary engineering activity takes place in Palm Bay, Florida and at
our other manufacturing facilities. In addition, we have engineering activities
taking place in our corporate headquarters and in leased facilities in Durham,
North Carolina (Research Triangle Park), Branchburg, New Jersey,
San Antonio, Texas, Seattle, Washington and Bilthoven, The Netherlands.
We maintain regional sales offices in Orange County, California, Palm Bay,
Florida; Burlington, Massachusetts; Dallas, Texas; San Jose, California; Munich,
Germany; Milan, Italy; Camberly, United Kingdom; and Taipei, Taiwan and other
sales offices around the world. All our offices are leased generally under short
term leases, except our offices in Palm Bay, Florida.
We believe that our facilities around the world, whether owned or leased,
are well-maintained. Our manufacturing facilities contain sufficient production
capacity to meet our needs for the foreseeable future.
12
Item 3. Legal Proceedings
From time to time we are involved in legal proceedings arising in the
ordinary course of business. A countersuit brought against Harris by Ericsson, a
competitor of Harris and one of our customers, in which patent infringement
claims have been asserted is currently pending in the Sherman Division of the
United States District Court for the Eastern District of Texas. The action was
initially instituted by Harris against Ericsson on August 17, 1998 in Dallas,
Texas. Ericsson countersued Harris, claiming infringement by Harris of four of
its patents relating to telephone subscriber line interface circuits. On
September 1, 1999, Ericsson joined us in this action. Ericsson seeks an
injunction plus damages, including lost profits and/or a reasonable royalty,
costs of suit, treble damages, prejudgment interest and attorneys' fees.
However, to the extent our liability from this litigation, if any, arises out of
the conduct of the semiconductor business by Harris prior to closing, this
liability will be covered by Harris' agreement in connection with the
acquisition of the semiconductor business to provide us with certain
indemnities.
An additional countersuit brought against Harris by
Geisting & Associates, a former sales representative, in which claims for
commissions and lost receivables on sales of our PRISM(R) chip set have been
asserted against Harris, and is pending in the United States District Court for
the Middle District of Florida-Orlando. The action was initially instituted by
Harris against Geisting on December 10, 1998. Geisting has not joined us as a
co-defendant in this action. We are litigating in Harris' name. Geisting seeks
damages, including lost profits, and attorneys' fees.
We believe that there is no litigation pending that could have,
individually or in the aggregate, a material adverse effect on our business,
financial condition or results of operations.
13
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Our Class A Common Stock has been traded on the Nasdaq Stock Market's
National Market since February 23, 2000 under the symbol "ISIL." Prior to that
time, there was no public market for our common stock, and there is currently no
public market for our Class B Common Stock. The following table sets forth, for
the periods indicated, the high and low closing prices per share of our Class A
Common Stock as reported in Nasdaq Stock Market trading.
HIGH LOW
------ ------
First quarter of 2000 (from February 23, 2000 to March 31, 2000)..................... $66.00 $46.50
Second quarter of 2000 (from April 1, 2000 to June 30, 2000)......................... $58.50 $27.50
(b) Holders. On August 11, 2000, the last reported sale price for our Class
A Common Stock was $43.00 per share. As of August 11, 2000, there were about
8,900 holders of record of our Class A Common Stock.
(c) Dividends. We have never paid a cash dividend and do not anticipate
declaring or paying any cash dividends on shares of our common stock in the
foreseable future. In addition, any determination to declare and pay dividends
will be made by our board of directors in light of our earnings, financial
position, capital requirements, contractual limitations contained in our debt
instruments and such other factors as the board of directors deems relevant.
(d) Recent Sales of Unregistered Securities.
On August 13, 1999, pursuant to an Amended and Restated Master Transaction
Agreement, we and a subsidiary acquired selected portions of the semiconductor
business of Harris (the "Acquisition"). In connection with the Acquisition, (i)
we issued an 11.13% subordinated promissory note to Harris in the principal
amount of $90.0 million; (ii) Harris paid about $9.0 million in cash to us to
purchase shares of 12% Series A Cumulative Compounding Preferred Stock
("Intersil Holding Preferred Stock") and shares of common stock ("Intersil
Holding Common Stock"); (iii) we sold to Sterling Holding Company, LLC shares of
Intersil Holding Preferred Stock and Intersil Holding Common Stock and to senior
management and other key employees and certain other investors shares of
Intersil Holding Common Stock for a total of about $81.0 million in cash, (iv)
Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to us in
exchange for a 13.5% subordinated promissory note and warrants to purchase about
3,703,707 shares of our Class A Common Stock. In addition, we granted to senior
managers a sign-on bonus in the aggregate amount of about $574,000, in the form
of options to purchase Intersil Holding Preferred Stock. We have determined that
the issuance of the subordinated notes, the Intersil Holding Preferred Stock,
the Intersil Holding Common Stock, the warrants, the options to purchase
Intersil Holding Preferred Stock were exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, or the Securities Act.
Also in connection with the Acquisition, a subsidiary of us offered Senior
Subordinated Notes due 2009, the old notes, to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act). That offering was
consummated on August 13, 1999 with the sale of 200,000 units, each unit
consisting of one 13 1/4% Senior Subordinated Note due 2009 of a subsidiary of
us with a principal amount of $1,000 and one warrant to purchase 18.5185 shares
our Class A Common Stock. An exchange offer registration statement became
effective on January 12, 2000 with respect to the exchange of the old notes for
registered notes having substantially identical terms, the new notes. A
registration statement was filed by us on November 20, 1999 to register the
warrants and the shares of Common Stock issuable upon exercise of the warrants.
Pursuant to the 1999 Equity Compensation Plan, we granted certain salaried
officers and key employees options to acquire 1,549,333 shares of Intersil
Holding Class A Common Stock, effective as of August 14, 1999. The options vest
20% per year over five years, and 20% became immediately vested upon the initial
public offering. We have determined that the issuance of the options to purchase
our Class A Common Stock were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Selected Financial Data
SELECTED HISTORICAL FINANCIAL DATA AND OTHER DATA
The following table sets forth selected historical financial data and
supplemental data for Intersil Holding and its predecessor. The historical
financial data as of and for the fiscal years 1998 and 1999 and the six weeks
ended August 13, 1999 are derived from our predecessor's audited Consolidated
Financial Statements included elsewhere herein, except for revenue categorized
by product line, which is derived from our predecessor's books and records. The
historical financial data as of and for the fiscal years 1996 and 1997, which
are not included elsewhere herein, are derived from our predecessor's unaudited
and audited Consolidated Financial Statements, respectively. The historical
financial data as of and for the 46 weeks ended June 30, 2000 are derived from
our audited Consolidated Financial Statements included elsewhere herin. This
information should be read in conjunction with the Consolidated Financial
Statements included elsewhere herein and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
PREDECESSOR PREDECESSOR SUCCESSOR
--------------------------------- --------------- -------------
46 WEEKS
FISCAL YEARS SIX WEEKS ENDED ENDED
--------------------------------- --------------- -------------
1996 1997 1998 1999 AUGUST 13, 1999 JUNE 30, 2000
------ ------ ------ ------ --------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal.................................... $393.6 $384.4 $390.4 $352.8 $ 36.3 $ 360.5
Discrete Power........................................... 176.6 154.5 176.4 161.6 18.0 187.9
Wireless................................................. -- 6.4 10.0 18.3 3.1 48.4
------ ------ ------ ------ ------- -------
Total revenue................................................. $570.2 $545.3 $576.8 $532.7 $ 57.4 $ 596.8
====== ====== ====== ====== ======= =======
Gross margin.................................................. $227.1 $199.3 $207.5 $182.9 $ 17.7 $ 244.3
Research and development...................................... 69.4 75.2 75.1 67.0 8.5 69.5
Selling, general and administrative........................... 103.6 99.3 98.2 84.0 10.9 97.2
Harris corporate expense allocation........................... 10.3 10.0 10.0 9.3 1.2 --
Intangible amortization....................................... 2.3 2.3 2.3 2.4 0.3 10.7
In-process research and development........................... -- -- -- -- -- 20.2
Other......................................................... -- -- -- -- -- 1.2
------ ------ ------ ------ ------- -------
Operating income (loss)....................................... 41.5 12.5 21.9 20.2 (3.2) 45.5
Loss on sale of Malaysian operation........................... -- -- -- -- -- 24.8
Interest, net................................................. (1.0) (0.6) (0.9) (1.2) (0.1) 38.2
------ ------ ------ ------ ------- -------
Income (loss) before income taxes and extraordinary item...... 42.5 13.1 22.8 21.4 (3.1) (17.5)
Income taxes (benefit)........................................ 2.6 1.9 9.9 (6.0) (0.1) (0.3)
------ ------ ------ ------ ------- -------
Income (loss) before extraordinary item....................... 39.9 11.2 12.9 27.4 (3.0) (17.2)
Extraordinary item--loss on extinguishment of debt, net of tax
effect...................................................... -- -- -- -- -- (25.5)
------ ------ ------ ------ ------- -------
Net income (loss)............................................. 39.9 11.2 12.9 27.4 (3.0) (42.7)
Preferred dividends........................................... -- -- -- -- -- 5.4
------ ------ ------ ------ ------- -------
Net income (loss) to common shareholders...................... $ 39.9 $ 11.2 $ 12.9 $ 27.4 $ (3.0) $ (48.1)
====== ====== ====== ====== ======= =======
BASIC AND DILUTED LOSS PER SHARE:
Loss before extraordinary item................................................................................... $ (0.30)
Extraordinary item............................................................................................... (0.33)
-------
Net loss......................................................................................................... $ (0.63)
=======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted.................................................................................................. 76.7
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents..................................... $ -- $ -- $ -- $ -- $ 1.4 $ 211.9
Total assets.................................................. 647.0 773.3 810.3 761.2 736.1 933.9
Long-term debt, including current portion..................... -- 1.4 4.1 4.6 4.5 116.6
Total shareholders' equity/business equity.................... 520.9 646.2 699.1 658.9 657.3 679.0
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to the Consolidated Financial Statements,
including the notes thereto appearing elsewhere herein. Except for historical
information, the discussions in this section of this Report contain
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those discussed below.
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 markets. We provide systems level solutions for the growing
integrated communications 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
communications infrastructure. We use our expertise in digital and analog
semiconductors and radio and software design to deliver chip sets, components,
software and licensable application 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. Our fiscal year 2000
began on July 3, 1999 and ended on June 30, 2000.
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, the 13.50% Subordinated Holding "Pay-In-Kind" (PIK)
Note and the issuance of a $90.0 million 11.13% PIK Note to Harris.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the operating results of the semiconductor business have been
included in Intersil's consolidated financial statements since the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase price
resulting in negative goodwill of $200.0 million. This negative goodwill was
allocated to the identified intangibles and property and equipment based on
their relative fair values. The most significant effects were to decrease
property, plant and equipment and to increase certain intangibles and
liabilities. Accordingly, certain financial information for the periods prior to
August 13, 1999 is not comparable to periods subsequent to August 13, 1999. All
statement of operations information for fiscal year 2000 represents the combined
results of the semiconductor business from July 3, 1999 through August 13, 1999
and Intersil Holding from August 14, 1999 through June 30, 2000.
On February 25, 2000, we issued 22,000,000 shares of our Class A Common
Stock in a registered underwritten initial public offering at a price of $25.00
per share. See "--Liquidity and Capital Resources."
15
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly revenue
and gross margin of our three product groups:
COMBINED
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED JULY 3, 1998 ENDED JULY 2, 1999 ENDED JUNE 30, 2000
--------------------------------- --------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
REVENUE
Analog & Mixed-Signal..... $ 96.3 $ 93.9 $ 95.2 $105.0 $ 79.8 $ 86.2 $ 88.5 $ 98.3 $ 82.8 $ 94.0 $103.4
Discrete Power............ 44.7 45.2 45.7 40.8 38.5 34.8 42.3 46.0 44.9 54.8 53.2
Wireless.................. 2.9 2.2 2.6 2.3 4.2 3.1 4.6 6.4 6.3 9.3 14.3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $143.9 $141.3 $143.5 $148.1 $122.5 $124.1 $135.4 $150.7 $134.0 $158.1 $170.9
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS MARGIN PERCENTAGE
Analog & Mixed-Signal..... 36% 42% 42% 44% 41% 39% 43% 43% 42% 45% 44%
Discrete Power............ 24 27 23 25 21 14 17 21 24 28 32
Wireless.................. 31 5 42 57 21 26 35 50 35 39 45
Total................. 32 37 36 39 34 31 35 36 36 39 41
COMBINED
FISCAL YEAR
ENDED JUNE 30, 2000
------------------------
(DOLLARS IN MILLIONS)
Q4
------
REVENUE
Analog & Mixed-Signal..... $116.6
Discrete Power............ 53.0
Wireless.................. 21.6
------
Total................. $191.2
======
GROSS MARGIN PERCENTAGE
Analog & Mixed-Signal..... 46%
Discrete Power............ 34
Wireless.................. 50
Total................. 43
Historically, our first fiscal quarter has been the weakest due to model
year changeovers in the automotive industry and summer holiday seasons,
primarily in Europe. Our increasing focus on integrated communications products
has resulted in a higher percentage of our sales coming from the communications
markets in the second half of our fiscal year. Revenues from integrated
communications products accounted for 53.1% of our total fourth quarter fiscal
year 2000 sales versus 39.1% of our total fourth quarter fiscal 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 which will offset the decline in
average selling prices and therefore we do not anticipate a significant adverse
effect on our financial condition.
Industry demand weakened significantly in the first half of fiscal 1999 due
to widespread inventory adjustments which led to excess manufacturing capacity
and steep declines in product prices. This trend affected all three of our
product groups. Our results, and those of the industry as a whole, began to
strengthen in the third fiscal quarter of 1999, with an increase in sales of
9.1% from the second quarter to the third quarter and 11.3% from the third
quarter to the fourth quarter. We experienced sales growth of over 25% in each
of the last three quarters of fiscal year 2000 as compared to the same periods
in fiscal year 1999 due to increased demand for our communication products and
an overall improvement in market conditions. Additionally, the introduction of
our new PRISM II wireless product has accelerated growth in the Wireless product
group.
16
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data for the
periods indicated as a percentage of revenue:
FISCAL YEARS ENDED
-------------------------------------------------
COMBINED
JULY 3, 1998 JULY 2, 1999 JUNE 30, 2000
------------ ------------ -------------
Revenue:
Analog & Mixed-Signal............................... 67.7% 66.2% 60.7%
Discrete Power...................................... 30.6 30.4 31.4
Wireless............................................ 1.7 3.4 7.9
------ ------ -------
Total............................................ 100.0 100.0 100.0
------ ------ -------
Cost and Expenses:
Cost of goods sold.................................. 64.0 65.6 59.9
Research and development............................ 13.0 12.6 11.9
Selling, general and administrative................. 18.8 17.5 16.7
Intangible amortization............................. 0.4 0.5 1.7
In-process research and development................. -- -- 3.1
Other............................................... -- -- 0.2
------ ------ -------
Operating income................................. 3.8 3.8 6.5
Loss on sale of Malaysian operation.............. -- -- 3.8
Interest, net....................................... (0.2) (0.2) 5.9
------ ------ -------
Income (loss) before income taxes and extraordinary
item............................................. 4.0 4.0 (3.2)
Income taxes (benefit)................................ 1.8 (1.1) (0.1)
------ ------ -------
Income (loss) before extraordinary item............... 2.2 5.1 (3.1)
Extraordinary item--loss on extinguishment of debt,
net of tax effect................................... -- -- (3.9)
------ ------ -------
Net income (loss)..................................... 2.2% 5.1% (7.0)%
====== ====== =======
FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999
Revenue
Revenue for fiscal year 2000 increased 22.8% to $654.2 million from
$532.7 million in fiscal year 1999. This growth is the result of increased
demand for communications products and overall improved market conditions.
Wireless sales growth of 181% was driven by increased market acceptance of our
PRISM(R) products.
Geographically, 49.2%, 22.0% and 28.8% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, during fiscal year 2000,
compared to 53.5%, 24.6% and 21.9%, respectively, in fiscal year 1999. This
change in mix is the result of increased demand from Asian-based customers and
from other customers moving manufacturing facilities to Asia.
Gross Margin
Cost of goods sold consists primarily of purchased materials, labor and
overhead (including depreciation) associated with product manufacturing, plus
royalty, warranty and sustaining engineering expenses pertaining to products
sold. Gross margin on product sales increased 43.2% to $262.0 million in fiscal
year 2000 from $182.9 million in fiscal year 1999. As a percentage of sales,
gross margin was 40.0% in fiscal year 2000 as compared to 34.3% in fiscal year
1999. This increase was primarily due to increased capacity utilization in all
three fabrication facilities, improved product costs from yield enhancements and
manufacturing cost improvement projects. Additionally, wireless products, which
generally carry higher margins, increased as a
17
percentage of our total sales. Headcount reductions and a decrease in
depreciation expense resulting from a revaluation of our property and equipment
due to purchase accounting also 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 16.4% to
$78.0 million in fiscal year 2000 from $67.0 million in fiscal year 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 percentage of sales, R&D expenses
declined slightly to 11.9% in fiscal year 2000 from 12.6% in fiscal year 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. 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 fiscal year ended June 30, 2000.
In making the purchase price allocation, we relied on present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contribution and project risk. The amounts
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established,
and by estimating the costs to develop the purchased in-process R&D into
commercially viable products and discounting the net cash flows to their present
value. The fair values assigned prior to allocation of negative goodwill to each
of the significant projects and the state of completion are reported below.
Fair Value Stage of
Product (in millions) Completion
------- ------------- ----------
SMPS IGBT ................................. $ 2.4 60%
PRISM II .................................. 2.4 90
HTP 6601/2/3 .............................. 1.5 75
HC 1540 ................................... 0.4 80
HC 7581 ................................... 3.4 60
HIP 6210/6220 ............................. 2.4 50
DC to DC Power Converters ................. 2.2 35
Gen III Radiation Hardened MOSFETs ........ 8.0 60
Other ..................................... 6.3 38
-------
Total ................................ $ 29.0
=======
Development efforts for these R&D projects include various phases of
design, development and testing. The SMPS IGBT, PRISM II, HIP 6601/2/3 and HC
1540 projects were completed as of June 30, 2000 on schedule and within the
original cost estimates. The remaining projects are anticipated to be completed
by January 2001. Expenditures to complete these projects are expected to total
approximately $1.8 million.
These estimates are subject to change given the uncertainies of the
development process, and no assurance can be given that deviations from these
estimates will not occur. However, there is risk associated with the completion
of the projects and there can be no assurance that any will meet with either
technological or commercial success.
Selling, General and Administrative ("SG&A")
SG&A costs, which include marketing, selling, general and administrative
expenses, increased 17.1% to $109.3 million in fiscal year 2000 from
$93.3 million in fiscal year 1999. The increase was due to additional selling
costs resulting from higher sales in fiscal year 2000 and additional marketing
costs associated with our new company branding initiative. Operating expenses
include charges allocated by Harris to us for legal, financial and other
administrative expenses of $1.2 million for the six weeks ended August 13, 1999,
and $9.3 million for the twelve months ended July 2, 1999. As a percentage of
sales, SG&A costs decreased to 16.7% in fiscal year 2000 from 17.5% in fiscal
year 1999.
Intangible Assets
Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. We also recorded goodwill in June 2000
as a result of the acquisition of No Wires Needed B.V. These assets are being
amortized over their useful lives ranging from five to eleven years.
Loss on Sale of Malaysian Operation
On June 30, 2000, we completed the sale of our Kuala Lumpur, Malaysia-based
semiconductor assembly and test operations to ChipPAC, Inc. As consideration for
the sale we received approximately $52.5 million in cash and $15.8 million in
ChipPAC preferred convertible stock and we recognized a non-recurring, non-cash
charge of $24.8 million for loss on sale.
Interest Expense
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities. See "--Liquidity and Capital Resources."
Interest expense related to this debt for Intersil Holding during the fiscal
year 2000 was $41.9 million, excluding interest income of $3.8 million.
18
Extraordinary Item
On February 25, 2000, we issued 22,000,000 shares of our Class A Common
Stock in a registered underwritten initial public offering. From the proceeds of
the offering, we repaid approximately $419.0 million of debt incurred through
the acquisition of the semiconductor business, which included certain prepayment
penalties and accrued interest. In connection with the early extinguishment of
debt, we recorded extraordinary charges (net of tax effect) of $25.5 million.
The extraordinary charges consisted of the write-off of deferred financing fees
and prepayment penalties.
Tax Expense
The tax benefit for the combined twelve months ended June 30, 2000 is not
comparable to the twelve months ended July 2, 1999, due to the differences in
our tax structure as compared to that of the semiconductor business of Harris.
Backlog
We had backlog at June 30, 2000 of $259.5 million compared to
$174.0 million at July 2, 1999. The increase was due to increased demand for our
integrated communications products and improved market conditions.
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
Revenue
Revenue for fiscal year 1999 decreased 7.6% to $532.7 million from $576.8
million in fiscal year 1998. This decrease was the result of continued soft
market conditions and resulting adverse effects on semiconductor demand. This
trend continued through the second quarter of fiscal 1999. We believe that the
principal causes for the decline were initially high inventory levels of our
products at our distributors, which decreased 17% from fiscal year 1998 to
fiscal year 1999, as well as high levels of inventory at customers. This was
followed by an overall drop in global semiconductor demand of 8.5% in calendar
year 1998. Particularly hard hit were our Discrete Power products where prices
of power metal oxide semiconductor field effect transistors, or MOSFETs,
declined by nearly 15%. Additionally, distributors and major original equipment
manufacturers reduced the amount of pipeline inventory in the channel, taking
advantage of the shorter lead-times and lower prices. During the third fiscal
quarter of 1999, we began to experience an increase in new orders, which
resulted in a 9.1% increase in sales in the third quarter versus the preceding
quarter. The positive trend continued into the fourth quarter with an increase
in sales of 11.3% from the third quarter.
Geographically, 53.5%, 24.6% and 21.9% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, during fiscal year 1999,
compared to 53.8%, 28.0% and 18.2% in fiscal year 1998. Gross Margin
Gross margin on product sales declined 11.9% to $182.9 million in fiscal
year 1999 from $207.5 million in fiscal year 1998. As a percent of sales, gross
margin was 34.3% in fiscal year 1999 and 36.0% in fiscal year 1998. This
decrease was substantially due to price pressure worldwide for our Discrete
Power products and a $13.2 million increase in our depreciation expense
resulting from the additional capital expenditures that went into our 8-inch
wafer fab in Mountaintop, Pennsylvania. Our gross margin decline was partially
offset by a series of cost reduction initiatives which resulted in lower
operating costs and improved pricing and terms with our suppliers of raw
materials.
R&D
R&D expenses decreased 10.8% to $67.0 million in fiscal year 1999 from
$75.1 million in fiscal year 1998. During fiscal year 1999, we focused our
resources on targeted applications and reduced programs that did not support our
emphasis. Major investment continued on the PRISM(R) chip set which addresses
the wireless local area network
19
market. R&D for products designed for the power management market was
principally focused on computing and communications which led our growth of new
product revenue during fiscal year 1999.
SG&A
SG&A costs decreased 13.8% to $93.3 million in fiscal year 1999 from $108.2
million in fiscal year 1998. The decrease in SG&A was primarily due to increased
efficiencies resulting from a reorganization of the internal sales force and
external sales representative firms and reduction of administrative expenses
including headcount reductions. Operating expenses include allocated charges by
Harris to us for legal, financial and other administrative expenses of
$9.3 million for fiscal year 1999 and $10.0 million for fiscal year 1998. As a
percentage of sales, SG&A costs decreased to 17.5% in fiscal year 1999 from
18.8% in fiscal year 1998.
Tax Expenses
The tax benefit of $6.0 million in fiscal year 1999 was primarily driven by
changes in the Malaysian tax system, resulting in fiscal year 1999 income not
being subject to tax.
Backlog
We had backlog at July 2, 1999 of $174.0 million compared to backlog of
about $188.5 million at July 3, 1998. The decrease in backlog was primarily due
to shorter industry lead-times.
LIQUIDITY AND CAPITAL RESOURCES
On February 25, 2000, we issued 22,000,000 shares of Class A Common Stock
at a price of $25.00 per share. We received net proceeds from this offering,
after deducting underwriting discounts and commissions and other fees, of
approximately $513.1 million, of which $435.2 million was subsequently used to
repay debt incurred as a result of our acquisition of the semiconductor business
of Harris.
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities, which provided for a Revolving Credit
Facility in an aggregate amount up to $70.0 million. We may request, subject to
the agreement of our lenders, that the amount of the Revolving Credit Facilities
be increased to as much as $150 million. The Revolving Credit Facility will
mature in 2005 unless terminated earlier and was undrawn as of June 30, 2000.
Our principal capital requirements are to fund working capital needs, to
meet required debt payments and to complete planned maintenance and expansion.
We anticipate that our operating cash flow and our cash on hand, together with
available borrowings 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 June 30, 2000, our total debt
and shareholders' equity was $116.6 million and $679.0 million, respectively.
Because our business was operated as a subsidiary of Harris during fiscal
year 1998 to August 13, 1999, we do not believe our prior years' cash flows are
indicative of our business on a stand-alone basis. Net cash generated by
operating activities for the fiscal year ended June 30, 2000 was
$111.1 million. Net cash provided by investing activities for the fiscal year
ended June 30, 2000 was $13.7 million. Net cash used to repay debt for the
twelve months ended June 30, 2000 was $435.2 million. Our cash and cash
equivalents balance at June 30, 2000 was $211.9 million.
Our Revolving Credit Facility and the indenture governing the 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 prior approval. We are
currently in compliance with such financial covenants and restrictions.
20
Receivables and Inventories
Trade accounts receivable less the allowance for collection losses totaled
$111.7 million at June 30, 2000 compared to $100.7 million at July 2, 1999. This
increase was due to higher product shipments from increased demand. Inventories
declined 17.8% from $153.8 million at July 2, 1999 to $126.5 million at
June 30, 2000. The inventory decrease was a result of the sale of our Malaysian
operation and a management initiative to reduce our inventory through portfolio
management and process improvements.
Distributor reserves have fluctuated from year to year based on the level
of inventory at distributors. The reserve increased 13.8% from $6.5 million at
July 2, 1999 to $7.4 million at June 30, 2000 resulting from increasing
inventory levels at distributors in response to higher demand and overall market
improvement.
Capital Expenditures
Capital expenditures for the fiscal year ended June 30, 2000 were
$40.7 million compared to $38.6 million in fiscal year 1999. We do not
anticipate substantial capital expenditures in the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. (SFAS) 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of SFAS 133."
SFAS 137 amends Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," to defer its effective date
to all fiscal quarters of all fiscal years beginning after June 15, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments including standalone instruments, as forward currency exchange
contracts and interest rate swaps or embedded derivatives and requires that
these instruments be marked-to-market on an ongoing basis. These market value
adjustments are to be included either in the income statement or shareholders'
equity, depending on the nature of the transaction. We are required to adopt
SFAS 133 in the first quarter of our fiscal year 2001. We believe that SFAS 133
will not have a material adverse effect on our financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued SAB
No. 101, "Revenue Recognition in Financial Statements," which provides guidance
on the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 outlines the basic criteria that must
be met to recognize revenue and provides guidance for disclosure related to
revenue recognition policies. We believe that SAB No. 101 will not have a
material effect on our financial position or results of operations.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25." Among other issues, this
interpretation clarifies the definition of employees for purposes of applying
Opinion No. 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in the
interpretations cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation is recognized on a prospective basis from July 1, 2000. We are
currently reviewing our stock grants to determine the impact, if any, that may
arise from implementation of this interpretation, although we do not expect the
impact, if any, to be material to our financial statements.
21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of doing business, we 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.
In August 1999, we began to use foreign exchange contracts to hedge
anticipated foreign cash flow commitments of up to six months. Hedges on
anticipated foreign cash flow commitments do not qualify for deferral and,
therefore, gains and losses on changes in the fair market value of the foreign
exchange contracts are recognized in income.
Prior to August 1999, we used foreign exchange contracts and options to
hedge both balance sheet and off-balance sheet foreign currency commitments.
Specifically, these foreign exchange contracts offset foreign currency
denominated inventory and purchase commitments from suppliers, accounts
receivable from, and future committed sales to, customers and intercompany
loans. Foreign currency financial instruments were used to reduce the risks that
arise from doing business in international markets.
At June 30, 2000, we had open foreign exchange contracts with a notional
amount of $30.9 million, all of which were to hedge anticipated foreign cash
flow commitments. At July 2, 1999, we had open foreign exchange contracts with a
notional amount of $22.0 million, all of which were to hedge off-balance-sheet
commitments. Additionally, during fiscal year 2000, we purchased and sold
$87.4 million of foreign exchange forward and option contracts, compared to
$120.7 million for the prior year. See Note O "Financial Instruments" in the
Notes to Consolidated Financial Statements for further information with respect
to commitments to buy or sell foreign currencies. 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 June 30, 2000, would have an impact of
approximately $3.8 million on the fair value 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 value of our foreign denominated assets, liabilities and
firm commitments.
As of June 30, 2000, we also had fixed rate debt of approximately
$116.6 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.
Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements, and the related Notes
thereto, of Intersil Holding Corporation and the Independent Certified Public
Accountants' Report are filed as a part of this Report.
22
INDEX TO FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
PAGE
----
Independent Certified Public Accountants' Report........................................................... 24
Consolidated Statements of Operations and Comprehensive Income............................................. 25
Consolidated Balance Sheets................................................................................ 26
Consolidated Statements of Cash Flows...................................................................... 27
Consolidated Statement of Shareholders' Equity............................................................. 28
Notes to Consolidated Financial Statements................................................................. 29
23
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors
Intersil Holding Corporation
We have audited the accompanying consolidated balance sheet of Harris
Semiconductor Business (Semiconductor Business) (Predecessor), which was wholly
owned by Harris Corporation, as of July 2, 1999 and the related statement of
operations, comprehensive income and cash flows for each of the two fiscal years
in the period ended July 2, 1999 and the six weeks ended August 13, 1999,
respectively. We have also audited the accompanying consolidated balance sheet
of Intersil Holding Corporation (Successor) as of June 30, 2000 and the related
statements of operations, comprehensive income, shareholders' equity, and cash
flows for the 46 weeks ended June 30, 2000. Our audits also included the
financial statement schedule listed at Item 16. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying Predecessor consolidated financial statements were prepared on
the basis of presentation as described in Note A. The results of operations are
not necessarily indicative of the results of operations that would be recorded
by Semiconductor Business on a stand-alone basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intersil Holding
Corporation as the Successor and Predecessor companies at June 30, 2000 and
July 2, 1999 and the consolidated results of their operations and their cash
flows for each of the two years in the period ended July 2, 1999 and for the six
weeks and 46 weeks ended August 13, 1999 and June 30, 2000, respectively, on the
basis described in Note A, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Jacksonville, Florida Ernst & Young LLP
July 21, 2000
24
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR PREDECESSOR SUCCESSOR
---------------------------- --------------- --------------
FISCAL YEAR ENDED SIX WEEKS ENDED 46 WEEKS ENDED
---------------------------- --------------- --------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUE
Product sales................................................ $576,836 $532,718 $ 57,336 $596,849
COSTS AND EXPENSES
Cost of product sales........................................ 369,332 349,776 39,681 352,513
Research and development..................................... 75,125 67,079 8,499 69,456
Selling, general and administrative.......................... 98,184 83,998 10,908 97,227
Harris corporate expense allocation.......................... 9,962 9,303 1,164 --
Intangible amortization...................................... 2,292 2,414 326 10,686
In-process research and development.......................... -- -- -- 20,239
Other........................................................ -- -- -- 1,178
-------- -------- --------- --------
Operating income (loss)........................................ 21,941 20,148 (3,242) 45,550
Loss on sale of Malaysian operation.......................... -- -- -- 24,825
Interest expense............................................. 43 129 -- 41,924
Interest income.............................................. (957) (1,360) (111) (3,720)
-------- -------- --------- --------
Income (loss) before income taxes and
extraordinary item........................................ 22,855 21,379 (3,131) (17,479)
Income taxes (benefit)....................................... 9,944 (6,027) (102) (289)
-------- -------- --------- --------
Net income (loss) before extraordinary item.................. 12,911 27,406 (3,029) (17,190)
Extraordinary item--loss on extinguishment of debt, net of
tax effect................................................ -- -- -- (25,518)
-------- -------- --------- --------
NET INCOME (LOSS).............................................. 12,911 27,406 (3,029) (42,708)
Preferred dividends............................................ -- -- -- 5,391
-------- -------- --------- --------
Net income (loss) to common shareholders....................... $ 12,911 $ 27,406 $ (3,029) $(48,099)
======== ======== ========= ========
BASIC AND DILUTED LOSS PER SHARE:
Loss before extraordinary item............................... $ (0.30)
Extraordinary item........................................... $ (0.33)
--------
Net loss..................................................... $ (0.63)
========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN MILLIONS):
Basic and diluted............................................ 76.7
========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PREDECESSOR PREDECESSOR SUCCESSOR
---------------------------- --------------- --------------
FISCAL YEAR ENDED SIX WEEKS ENDED 46 WEEKS ENDED
---------------------------- --------------- --------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- --------------
(IN THOUSANDS)
Net income (loss).............................................. $ 12,911 $ 27,406 $(3,029) $(42,708)
Other comprehensive income (loss):
Currency translation adjustments............................. (1,851) (574) 2,475 1,636
-------- -------- ------- --------
Comprehensive income (loss).................................... $ 11,060 $ 26,832 $ (554) $(41,072)
======== ======== ======= ========
See Notes to Consolidated Financial Statements.
25
INTERSIL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
PREDECESSOR SUCCESSOR
------------ -------------
JULY 2, 1999 JUNE 30, 2000
------------ -------------
(IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents....................................................................... $ -- $ 211,940
Trade receivables, less allowances for collection loss ($582 as of July 2, 1999 and $1,341 as of
June 30, 2000)................................................................................ 100,674 111,695
Inventories..................................................................................... 153,822 126,481
Prepaid expenses................................................................................ 3,725 10,645
Income tax receivable........................................................................... 1,527 1,254
Deferred income taxes........................................................................... 3,476 25,768
-------- ---------
Total Current Assets....................................................................... 263,224 487,783
Other Assets
Property, plant and equipment, less allowance for depreciation ($582,616 as of July 2, 1999 and
$36,699 as of June 30, 2000).................................................................. 410,530 225,484
Intangibles, less accumulated amortization ($19,929 as of July 2, 1999 and $10,686
as of June 30, 2000).......................................................................... 45,368 190,150
Other........................................................................................... 42,057 30,521
-------- ---------
Total Other Assets......................................................................... 497,955 446,155
-------- ---------
Total Assets...................................................................................... $761,179 $ 933,938
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY/BUSINESS EQUITY
Current Liabilities
Trade payables.................................................................................. $ 31,068 $ 36,991
Retirement plan accruals........................................................................ 13,640 6,228
Accrued compensation............................................................................ 19,283 32,398
Accrued interest and sundry taxes............................................................... 3,193 10,512
Other accrued items............................................................................. 16,418 22,734
Distributor reserves............................................................................ 6,542 7,366
Unearned service income......................................................................... 567 129
Long-term debt--current portion................................................................. 360 404
-------- ---------
Total Current Liabilities.................................................................. 91,071 116,762
Other Liabilities
Deferred income taxes........................................................................... 7,022 21,992
Long-term debt.................................................................................. 4,207 116,188
Shareholders' Equity/Business Equity
Preferred Stock, $1,000 par value, 100,000 shares authorized, no shares issued or
outstanding at June 30, 2000.................................................................. -- --
Class A Common Stock, $.01 par value, voting; 300,000,000 shares authorized, 44,773,152 shares
issued and outstanding at June 30, 2000....................................................... -- 448
Class B Common Stock, $.01 par value, non-voting; 300,000,000 shares authorized, 49,746,482
shares issued and outstanding at June 30, 2000................................................ -- 497
Additional paid-in capital...................................................................... -- 719,123
Business equity................................................................................. 661,388 --
Retained deficit................................................................................ -- (42,708)
Accumulated other comprehensive (loss) income................................................... (2,509) 1,636
-------- ---------
Total Shareholders' Equity/Business Equity................................................. 658,879 678,996
-------- ---------
Total Liabilities and Shareholders' Equity/Business Equity................................. $761,179 $ 933,938
======== =========
See Notes to Consolidated Financial Statements.
26
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR
PREDECESSOR ---------------
---------------------------- SIX WEEKS
FISCAL YEAR ENDED ENDED
---------------------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999
------------ ------------ ---------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)............................................ $ 12,911 $ 27,406 $ (3,029)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation............................................... 65,036 78,217 8,747
Amortization............................................... 2,295 2,414 326
Provisions for inventory obsolescence...................... 7,317 3,894 1,919
Write-off of in-process research and development........... -- -- --
Write-off of unearned compensation......................... -- -- --
Loss on sale of Malaysian operation........................ -- -- --
Non-current deferred income taxes.......................... (461) 1,896 (4,756)
Changes in assets and liabilities:
Trade receivables.......................................... 1,270 10,001 14,532
Inventories................................................ (17,176) 22,516 (3,568)
Prepaid expenses........................................... 506 933 674
Trade payables and accrued liabilities..................... (14,399) (13,950) (18,705)
Unearned service income.................................... (32) 319 --
Income taxes............................................... (3,866) (4,486) 4,430
Other...................................................... (5,070) (17,911) 2,812
-------- -------- ---------
Net cash provided by operating activities................ 48,331 111,249 3,382
INVESTING ACTIVITIES:
Proceeds from sale of Malaysian operation...................... -- -- --
Cash paid for acquired business................................ -- (1,335) --
Property, plant and equipment.................................. (90,184) (38,563) (1,887)
-------- -------- ---------
Net cash provided by (used in) investing activities...... (90,184) (39,898) (1,887)
FINANCING ACTIVITIES:
Proceeds from offering....................................... -- -- --
Proceeds from exercise of stock options...................... -- -- --
Proceeds from borrowings..................................... 2,750 800 --
Payments of borrowings....................................... (83) (302) (32)
Net cash transfer and billings from (to) parent.............. 41,844 (67,030) (1,198)
-------- -------- ---------
Net cash provided by (used in) financing activities...... 44,511 (66,532) (1,230)
Effect of exchange rates on cash and cash equivalents........ (2,658) (4,819) 1,177
-------- -------- ---------
Net increase in cash and cash equivalents................ -- -- 1,442
Cash and cash equivalents at the beginning of the
period................................................ -- -- --
-------- -------- ---------
Cash and cash equivalents at the end of the period....... $ -- $ -- $ 1,442
======== ======== =========
SUPPLEMENTAL DISCLOSURES--NON-CASH ACTIVITIES:
Exchange of preferred stock for common stock...................................................................
Common Stock issued in acquisition of No Wires Needed B.V......................................................
Additional paid-in capital from tax benefit on
exercise of non-qualified stock options......................................................................
SUCCESSOR
-----------------
46 WEEKS ENDED
-----------------
JUNE 30, 2000
-----------------
OPERATING ACTIVITIES:
Net income (loss)............................................ $ (42,708)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation............................................... 50,602
Amortization............................................... 10,686
Provisions for inventory obsolescence...................... 23,906
Write-off of in-process research and development........... 20,239
Write-off of unearned compensation......................... 878
Loss on sale of Malaysian operation........................ 24,825
Non-current deferred income taxes.......................... (4,680)
Changes in assets and liabilities:
Trade receivables.......................................... (24,991)
Inventories................................................ (5,668)
Prepaid expenses........................................... (7,737)
Trade payables and accrued liabilities..................... 43,046
Unearned service income.................................... (437)
Income taxes............................................... 2,290
Other...................................................... 20,898
---------
Net cash provided by operating activities................ 111,139
INVESTING ACTIVITIES:
Proceeds from sale of Malaysian operation...................... 52,500
Cash paid for acquired business................................ --
Property, plant and equipment.................................. (38,813)
---------
Net cash provided by (used in) investing activities...... 13,687
FINANCING ACTIVITIES:
Proceeds from offering....................................... 513,114
Proceeds from exercise of stock options...................... 1,985
Proceeds from borrowings..................................... --
Payments of borrowings....................................... (435,204)
Net cash transfer and billings from (to) parent.............. --
---------
Net cash provided by (used in) financing activities...... 79,895
Effect of exchange rates on cash and cash equivalents........ (158)
---------
Net increase in cash and cash equivalents................ 204,563
Cash and cash equivalents at the beginning of the
period................................................ 7,377
---------
Cash and cash equivalents at the end of the period....... $ 211,940
=========
SUPPLEMENTAL DISCLOSURES--NON-CASH ACTIVITIES:
Exchange of preferred stock for common stock................. $ 89,400
=========
Common Stock issued in acquisition of No Wires Needed B.V.... $ 111,348
=========
Additional paid-in capital from tax benefit on
exercise of non-qualified stock options.................... $ 2,132
=========
See Notes to Consolidated Financial Statements.