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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 000-29617

 

 

INTERSIL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   59-3590018

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

1001 Murphy Ranch Road

Milpitas, California 95035

(Address of principal executive offices, including zip code)

(408) 432-8888

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act).

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the issuer’s classes of common stock as of the close of business on October 29, 2010:

 

Title of Each Class

  

Number of Shares

Class A common stock par value $.01 per share

   124,352,596

 

 

 


Table of Contents

 

INTERSIL CORPORATION

INDEX

 

         Page  
PART I. FINANCIAL INFORMATION   

Item 1.

 

Financial Statements

  
 

Unaudited Condensed Consolidated Statements of Operations for the quarter and three quarters ended October 1, 2010 and October 2, 2009

     3   
 

Unaudited Condensed Consolidated Balance Sheets as of October 1, 2010 and January 1, 2010

     4   
 

Unaudited Condensed Consolidated Statements of Cash Flows for the three quarters ended October 1, 2010 and October 2, 2009

     5   
 

Notes to Unaudited Condensed Consolidated Financial Statements

     6   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     21   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     28   

Item 4.

 

Controls and Procedures

     28   
PART II. OTHER INFORMATION   
Item 1.  

Legal Proceedings

     29   
Item 1A.  

Risk Factors

     29   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     29   
Item 3.  

Defaults Upon Senior Securities

     29   
Item 4.  

(Removed and Reserved)

     29   
Item 5.  

Other Information

     29   
Item 6.  

Exhibits

     29   
SIGNATURES      30   
INDEX TO EXHIBITS      30   
CERTIFICATIONS      31   

 

2


Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

INTERSIL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Quarter ended     Three quarters ended  
     October 1,
2010
    October 2,
2009
    October 1,
2010
    October 2,
2009
 
     ($ in thousands, except per share data)  

Revenue

   $ 219,140      $ 168,290      $ 628,421      $ 433,741   

Cost of revenue

     90,083        76,455        264,214        196,987   
                                

Gross profit

     129,057        91,835        364,207        236,754   

Operating costs and expenses:

        

Research and development

     47,491        38,432        136,370        108,235   

Selling, general and administrative

     33,390        31,910        100,581        87,296   

Amortization of purchased intangibles

     9,346        2,980        20,323        9,892   

Acquisition related costs

     403        613        7,900        613   

Restructuring and other related charges (credits)

     —          352        (3     2,293   
                                

Operating income

     38,427        17,548        99,036        28,425   

Gain on deferred compensation investments, net

     231        952        308        1,780   

Other-than-temporary impairment losses

     —          (14,305     (1,181     (14,305

Interest income

     757        1,226        2,303        4,290   

Interest expense and fees

     (4,196     (180     (7,574     (417
                                

Income before income taxes

     35,219        5,241        92,892        19,773   

Income tax expense (benefit)

     3,151        (7,039     92,553        (1,118
                                

Net income

   $ 32,068      $ 12,280      $ 339      $ 20,891   
                                

Earnings per share:

        

Basic

   $ 0.26      $ 0.10      $ 0.00      $ 0.17   
                                

Diluted

   $ 0.26      $ 0.10      $ 0.00      $ 0.17   
                                

Cash dividends declared per common share

   $ 0.12      $ 0.12      $ 0.36      $ 0.36   
                                

Weighted average common shares outstanding (in millions):

        

Basic

     123.9        122.3        123.5        122.1   
                                

Diluted

     124.0        122.3        124.5        122.2   
                                

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

 

INTERSIL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

     October 1,
2010
    January 1,
2010
 
     ($ in thousands, except share data)  
ASSETS     

Current Assets

    

Cash and cash equivalents

   $ 370,435      $ 347,667   

Short-term investments

     —          13,498   

Trade receivables, net of allowances ($7,811 as of October 1, 2010 and $8,463 as of January 1, 2010)

     101,097        73,633   

Inventories

     101,434        81,236   

Prepaid expenses and other current assets

     14,937        9,403   

Deferred income tax asset

     27,379        27,379   
                

Total Current Assets

     615,282        552,816   
                

Non-current Assets

    

Property, plant and equipment, net of accumulated depreciation ($202,285 as of October 1, 2010 and $193,348 as of January 1, 2010)

     102,261        102,251   

Purchased intangibles, net of accumulated amortization ($61,001 as of October 1, 2010 and $63,334 as of January 1, 2010)

     146,355        26,627   

Goodwill

     561,416        314,676   

Long-term investments

     66,062        63,937   

Deferred income tax asset

     96,364        90,975   

Other

     93,112        14,499   
                

Total Non-current Assets

     1,065,570        612,965   
                

Total Assets

   $ 1,680,852      $ 1,165,781   
                
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current Liabilities

    

Trade payables

   $ 45,324      $ 31,496   

Accrued compensation

     37,131        34,433   

Deferred net revenue

     14,987        9,687   

Other accrued expenses

     31,794        24,273   

Non-income taxes payable

     7,510        4,104   

Income taxes payable

     181,244        30,702   

Long-term debt – current portion

     3,000        —     
                

Total Current Liabilities

     320,990        134,695   
                

Non-Current Liabilities

    

Long-term debt

     296,250        —     

Deferred credit

     40,236        —     
                

Total Non-Current Liabilities

     336,486        —     
                

Shareholders’ Equity

    

Preferred stock, $0.01 par value, 2 million shares authorized; no shares issued or outstanding

     —          —     

Class A common stock, $.01 par value, voting; 600 million shares authorized; 124,253,651 shares issued and outstanding as of October 1, 2010 and 122,816,221 shares issued and outstanding as of January 1, 2010, respectively

     1,243        1,228   

Additional paid-in capital

     1,749,997        1,764,046   

Accumulated deficit

     (725,359     (725,697

Accumulated other comprehensive loss

     (2,505     (8,491
                

Total Shareholders’ Equity

     1,023,376        1,031,086   
                

Total Liabilities and Shareholders’ Equity

   $ 1,680,852      $ 1,165,781   
                

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

 

INTERSIL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Three Quarters Ended  
     October 1,
2010
    October 2,
2009
 
     ($ in thousands)  

Operating activities:

    

Net income

   $ 339      $ 20,891   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     35,883        25,934   

Gain on assets reclassified from held for sale status

     (1,078     —     

Impairment of assets held for sale

     —          1,018   

Provision for excess inventory obsolescence

     2,469        8,380   

Equity-based compensation

     23,279        20,937   

Tax effect of stock options and awards exercised

     —          439   

Excess tax benefits received on exercise of equity-based awards

     (70     (323

In-process research and development

     —          (215

Loss (gain) on sale of equipment

     586        (40

Other-than-temporary impairment losses

     1,181        14,305   

Deferred income taxes

     (51,675     (17,258

Changes in operating assets and liabilities:

    

Trade receivables

     (26,528     (4,339

Inventories

     (8,467     9,634   

Prepaid expenses and other current assets

     (6,254     (73

Trade payables and accrued liabilities

     13,779        (1,860

Income taxes

     149,837        3,534   

Other, net

     (24,704     (960
                

Net cash provided by operating activities

     108,577        80,004   
                

Investing activities:

    

Proceeds from sales or maturity of short-term investments

     43,033        17,589   

Purchases of short-term investments

     (2,106     (14,123

Proceeds from issuer calls of long-term investments

     52,436        —     

Purchases of long-term investments

     (8,737     —     

Acquisitions, net of cash received

     (404,912     (17,762

Proceeds from sale of property, plant and equipment

     52        40   

Purchase of property, plant and equipment

     (13,288     (6,034
                

Net cash used in investing activities

     (333,522     (20,290
                

Financing activities:

    

Proceeds from exercise of equity-based awards

     6,456        4,813   

Excess tax benefits received on exercise of equity-based awards

     70        323   

Proceeds of long-term debt

     300,000        —     

Repayments of long-term debt

     (750     —     

Debt issuance costs

     (10,751     —     

Credit facility commitment fee

     (1,125     —     

Dividends paid

     (45,023     (44,301
                

Net cash provided by (used in) financing activities

     248,877        (39,165
                

Effect of exchange rates on cash and cash equivalents

     (1,164     (41
                

Net increase in cash and cash equivalents

     22,768        20,508   

Cash and cash equivalents at the beginning of the period

     347,667        215,625   
                

Cash and cash equivalents at the end of the period

   $ 370,435      $ 236,133   
                

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

 

INTERSIL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation

Intersil Corporation (“Intersil”) is a global designer and manufacturer of high-performance analog and mixed-signal integrated circuits (ICs) for applications in the high-end consumer, industrial, communications and computing electronics markets.

In our opinion, these unaudited interim condensed consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the financial position, results of operations and cash flows for all periods presented. We prepared these unaudited financial statements in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, using management estimates where necessary. We derived the January 1, 2010 consolidated balance sheet from our audited consolidated year-end financial statements. You should read this interim report in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 1, 2010.

We utilize a 52/53 week fiscal year, ending on the nearest Friday to December 31. The next 53 week period will be in 2013. Quarterly or annual periods vary from exact calendar quarters or years.

Past financial performance may not be indicative of future financial performance for any other interim period or for the full fiscal year. For example, sales in the high-end consumer and computing markets have historically experienced weaker demand in the first and second fiscal quarters and stronger demand in the third and fourth quarters.

Certain amounts presented in prior periods have been reclassified to conform to current year presentation.

Note 2—Investments

Investments designated as available for sale (AFS) are reported at fair value. We record the unrealized gains and losses, net of tax, in stockholders’ equity as a component of other comprehensive income. We determine the cost of securities sold based on the specific identification method. Realized gains or losses and impairment losses, such as other-than-temporary losses on equity securities and the credit component of other-than-temporary losses on debt securities, are recorded in other-than-temporary impairment losses on the accompanying financial statements.

Investments designated as held to maturity (HTM) are reported at amortized cost. Securities are classified as HTM when we have the positive intent and ability to hold the investment until maturity. Gains and losses are not reported in the financial statements until realized or until a decline in value is deemed to be other-than-temporary.

On April 3, 2009, we adopted Financial Accounting Standards Board (FASB) guidance that requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the non-credit component in other comprehensive income (OCI) when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to recovery. This guidance also requires expanded disclosures about other-than-temporary impairments of debt and equity securities. These standards were effective for periods ending after June 15, 2009 and did not change the recognition of other-than-temporary impairment for equity securities.

In determining whether an other-than-temporary loss is due to credit loss, we consider many factors including, but not limited to, the adverse conditions related to a security, industry or geographic region, the failure of an issuer to make interest or principal payments, and rating changes of the security or issuer made by rating agencies. We did not recognize a non-credit component of an other-than-temporary impairment of a debt security in other comprehensive income in the quarter ended October 1, 2010.

We classify all investments maturing in one year or less as short-term and all investments maturing in more than one year as long-term.

 

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Table of Contents

 

     As of October 1, 2010  
     Amortized cost      Gross
unrealized  gains
     Gross
unrealized
losses
     Fair value      Maturity
range
(in years)
 
     (in millions)  

Long-term Investments

              

Debt securities

              

Auction rate securities (AFS)

   $ 73.6       $ 6.0       $ 13.5       $ 66.1         12-41   
                                      
     As of January 1, 2010  
     Amortized cost      Gross
unrealized  gains
     Gross
unrealized
losses
     Fair value      Maturity
range
(in years)
 
     (in millions)  

Short-term Investments

              

U.S. Treasuries (HTM)

   $ 0.5       $ —         $ —         $ 0.5         < 1   

Bank time deposits (AFS)

     13.0         —           —           13.0         < 1   
                                      

Total

   $ 13.5       $ —         $ —         $ 13.5      
                                      

Long-term Investments

              

Equity securities

              

Preferred shares (AFS)

   $ 1.1       $ 0.6       $ —         $ 1.7         N/A   

Debt securities

              

Auction rate securities (AFS)

     79.4         0.6         17.8         62.2         12-41   
                                      

Total

   $ 80.5       $ 1.2       $ 17.8       $ 63.9      
                                      

We classify auction rate securities (ARS) and preferred equity securities as available for sale and record them at fair value. During the quarter ended April 2, 2010, we determined that certain of the equity securities had declines in value that were other-than-temporary and we recorded a $1.1 million impairment charge on the securities. During the year ended January 1, 2010, we recorded a $14.3 million impairment charge on ARS securities. Impairment charges are included in other-than-temporary impairment losses in the accompanying financial statements. The amortized cost of these securities is reduced by the recognized losses.

The preferred shares listed in the table above represent auction rate securities that were converted to preferred shares at the option of the issuer during the year ended January 2, 2009.

The following table presents a rollforward of the amount of decline in fair value related to credit losses on debt securities that was recognized in earnings during the three quarters ended October 1, 2010 (in millions):

 

     AFS Debt
Securities
 

Beginning balance as of January 1, 2010

   $ 35.3   

Credit losses recognized in earnings

     —     
        

Ending balance as of October 1, 2010

   $ 35.3   
        

 

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Table of Contents

 

The following table summarizes our securities with unrealized losses and the length of time these securities have been in a loss position as of October 1, 2010 and January 1, 2010 (in millions).

 

     Less than 12 months     Greater than 12 months     Total  
     Fair value      Gross
unrealized
losses
    Fair value      Gross
unrealized
losses
    Fair value      Gross
unrealized
losses
 

AFS securities as of October 1, 2010

   $ —         $ —        $ 49.5       $ (13.5   $ 49.5       $ (13.5
                                                   

AFS securities as of January 1, 2010

   $ 4.0       $ (0.1   $ 51.0       $ (17.7   $ 55.0       $ (17.8
                                                   

We have recorded a total net unrealized loss on investments of $7.5 million and a related deferred tax benefit of $3.6 million, for a net unrealized loss of $3.9 million in accumulated other comprehensive loss. We have concluded this decline in the fair value of these securities should not be recorded in earnings because:

 

   

we do not intend to sell the securities;

 

   

we believe it is more likely than not that we will not be required to sell the securities prior to the recovery of amortized cost; and

 

   

the unrealized losses are due to conditions other than a credit loss.

We may be required to record additional impairment charges if additional declines in value are determined to be other-than-temporary. The fair value of these securities has been estimated based on prices provided by third parties along with estimates made by us, which could change significantly based on market conditions.

Trading Investments

Trading investments consist exclusively of a portfolio of marketable mutual funds and corporate owned life insurance in a qualified deferred employee compensation plan. We have an offsetting liability recorded for the investments. The funds are recorded at fair value. We recognize changes in fair value currently in gain (loss) on deferred compensation investments and we record changes in the liability in selling, general and administrative expense. We classify these investments as other non-current assets since we have no plan or intent of liquidating or otherwise using these securities in our business operations.

 

     Quarter
ended
October 1, 2010
     Quarter
ended
October 2, 2009
     Three quarters
ended
October 1, 2010
     Three quarters
ended
October 2, 2009
 
     (in thousands)  

By income statement line item

  

Gain on deferred compensation investments, net

   $ 231       $ 952       $ 308       $ 1,780   
                                   

Selling, general and administrative expense

   $ 269       $ 1,012       $ 415       $ 1,839   
                                   

 

     October 1, 2010      January 1, 2010  
     (in millions)  

Deferred compensation assets (trading)

   $ 11.9       $ 11.1   
                 

Deferred compensation liability

   $ 12.2       $ 11.2   
                 

 

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Note 3—Fair Value Measurements

In order to determine the fair value of our assets and liabilities, we utilize three levels of inputs, focusing on the most observable inputs when available. Observable inputs are generally developed based on market data obtained from independent sources, whereas unobservable inputs reflect our assumptions about what market participants would use to value the asset or liability, based on the best information available in the circumstances.

Level 1 – Quoted prices in active markets which are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly;

Level 3 – Prices or valuations that require inputs that are unobservable and significant to the overall fair value measurement.

We determine fair value on the following assets using these input levels (in millions):

 

     Fair value as of October 1, 2010 using:  
     Total     Quoted prices in
active markets
for identical
assets
(Level 1)
     Significant
other
observable
inputs
(Level 2)
    Significant
unobservable
inputs
(Level 3)
 

Trading securities

   $ 11.9      $ 2.2       $ 9.7      $ —     

Available for sale securities

     66.1        —           —          66.1   

Foreign exchange contracts

     0.2        —           0.2        —     

Interest rate swap agreements

     (2.5     —           (2.5     —     
                                 
   $ 75.7      $ 2.2       $ 7.4      $ 66.1   
                                 

For actively traded securities, we generally rely upon the valuations as provided by the custodian of these assets. For available-for-sale securities, such as illiquid auction rate securities and preferred stock, we use the present value of expected cash flows to determine fair value. Significant judgments are required in the estimation of fair value, including assumptions about the expected holding period, yield and appropriate discount rates.

If we use more than one level of input that significantly affects fair value, we include the fair value under the lowest input level used.

The following is a reconciliation of changes in the fair market values determined using Level 3 significant unobservable inputs as of October 1, 2010 (in millions):

 

     Level 3  

Available for sale securities as of January 1, 2010

   $ 63.9   

Sale of securities

     (5.7

Realized gains

     0.9   

Recognized losses

     (1.1

Unrealized gains

     8.1   
        

Available for sale securities as of October 1, 2010

   $ 66.1   
        

 

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Recognized losses are included in loss on certain investments in the statement of operations.

Note 4—Derivative Instruments and Hedging Activities

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments as required by ASC Topic 815, Derivatives and Hedging, and those utilized as economic hedges. We use interest rate-related derivative instruments to manage our exposure to fluctuations of interest rates, as well as foreign currency derivatives to manage exposure to foreign currency fluctuations. By entering into these instruments, we are exposed from time to time to market risk and credit risk.

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates or fluctuations in foreign currency rates. We minimize this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. The counterparties to the agreements relating to our derivative instruments consist of two of major international financial institutions with high credit ratings. We do not believe that there is significant risk of nonperformance by these counterparties because we continually monitor the credit ratings of such counterparties. Furthermore, none of our derivative transactions are subject to collateral or other security arrangements and none contain provisions that are dependent on our credit ratings from any credit rating agency. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of our exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed our obligations to the counterparties. As a result of the above considerations, we do not consider the risk of counterparty default to be significant.

Foreign Exchange Exposure Management — We purchase U.S. dollar call options to offset the impact of changes in foreign currency exchange rates on our operations, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Euro. We enter into these foreign currency exchange contracts to support transactions made in the normal course of business and accordingly, the contracts are not speculative in nature. We recognize changes in the fair value of these undesignated hedges in earnings immediately, which generally offset the changes in the value of the foreign currency denominated assets or liabilities being economically hedged. As of October 1, 2010, the total notional amount of these undesignated hedges was $18.8 million. The fair value of these hedging instruments in the condensed consolidated balance sheet as of October 1, 2010 was $0.2 million.

Interest Rate Exposure Management — On June 27, 2010, we entered into certain interest rate swap transactions with a notional value of $150 million to hedge a portion of the risk of changes in the benchmark interest rate (3-month LIBOR) related to our currently outstanding term loan. Under the terms of the interest rate swaps, we will effectively convert $150 million of our variable rate term loan to fixed interest rates through October 27, 2013. We designated these interest rate swaps as cash flow hedges to hedge the risk of changes in the benchmark interest. The fair value of the swaps at inception were zero and subsequent changes in the fair value of the interest rate swaps are recorded in other comprehensive income, net of tax benefit, to the extent they are effective in offsetting the variability of the hedged cash flows.

We record the fair value of our derivative financial instruments in the consolidated financial statements in other current assets, other assets or accrued liabilities, regardless of the purpose or intent for holding the derivative contract. Changes in the fair value of the derivative financial instruments are either recognized periodically in earnings or in shareholders’ equity as a component of other comprehensive income (OCI). Changes in the fair value of derivative instruments designated as a cash flow hedge are recorded in OCI, to the extent the derivative instrument is effective. Changes in the fair values of derivatives not designated for hedge accounting and any ineffectiveness measured in designated hedge transactions are reported in earnings as they occur.

 

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The fair value of these hedging instruments in the condensed consolidated balance sheet as of October 1, 2010 was as follows (in millions):

 

     Asset Derivatives  
    

Balance sheet

location

   Fair value
As of October 1,
2010
     Fair value
As of January 1,
2010
 

Derivatives Not Designated as Hedging Instruments

        

Foreign exchange options

   Prepaid expenses and other current assets    $ 0.2       $ 0.3   
     Liability Derivatives  
    

Balance sheet

location

   Fair value
As of October 1,
2010
     Fair value
As of January 1,
2010
 

Derivatives Designated as Hedging Instruments

        

Interest rate swap agreements

   Other accrued expenses    $ 2.5         —     

The effect of derivative instruments designated as cash flow hedges on the condensed consolidated statement of income for the quarter and three quarters ended October 1, 2010 was as follows (in thousands):

 

     Quarter
ended
October 1,
2010
     Three quarters
ended
October 1,
2010
 

Loss recognized in OCI on derivative, net of $927 and $927 tax benefit

   $ 1,544       $ 1,544   

There was no ineffectiveness for the three and nine months ended October 1, 2010.

Note 5—Inventories

Inventories are summarized below (in millions):

 

     October 1, 2010      January 1, 2010  

Finished products

   $ 39.8       $ 23.0   

Work in progress

     57.2         54.1   

Raw materials and supplies

     4.4         4.1   
                 

Total inventories

   $ 101.4       $ 81.2   
                 

Note 6—Acquisitions

On April 27, 2010, we completed the acquisition of Techwell, Inc. (“Techwell”), a semiconductor company that designs, markets and sells mixed signal integrated circuits for multiple video applications in the security surveillance and automotive infotainment markets. Techwell’s team and products will expand our leadership in two high-growth industrial markets and will help our customers build solutions that improve performance, reduce overall cost and shorten time-to-market. The acquisition will significantly increase our overall industrial business, while delivering a broader product offering to Techwell’s customers and creating numerous new product opportunities for Intersil’s customers.

 

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We acquired all of the outstanding shares of Techwell common stock, par value $0.001 per share, and the associated preferred stock purchase rights (together with the Techwell Common Stock, the “Shares”). The acquisition was structured as a two-step transaction, consisting of a tender offer by Intersil for the Shares at a price of $18.50 per share, without interest and less any applicable withholding or stock transfer taxes, followed by the merger of an indirect, wholly owned subsidiary of Intersil and Techwell, with Techwell surviving as an indirect, wholly owned subsidiary of Intersil. Techwell’s common stock ceased to be traded on the NASDAQ Global Select Market on April 27, 2010.

We entered into a $300 million bank term-loan with a term of 6 years at a floating interest rate of approximately 5% to complete the transaction. The remainder of the purchase price was paid through corporate cash.

On January 8, 2010, we acquired the business of Rock Semiconductor (“Rock”) for $4.5 million in cash. The purchase includes primarily intellectual property. Rock was a privately-held, fabless semiconductor company with technology leadership in highly integrated power management ICs.

On August 6, 2009, we acquired Quellan, Inc. (“Quellan”), a privately held leader in the design of high performance analog signal processing integrated circuits, for approximately $13.8 million in cash and contingent consideration of $3.3 million.

Acquisition related costs were approximately $0.4 million and $7.9 million in the quarter and three quarters ended October 1, 2010. We recorded $0.6 million in acquisition related expenses in the three quarters ended October 2, 2009. Under the provisions of ASC Topic 805, Business Combinations (SFAS 141R), which was effective for business acquisitions occurring after December 15, 2008, we have recorded acquisition costs in the accompanying condensed consolidated financial statements as a component of operating income.

The results of operations of all acquirees are included in our consolidated statements of operations from the respective dates of the acquisitions.

The allocation of the aggregate purchase price is summarized as follows (in millions):

 

     Techwell     Rock      Quellan  

Intangible assets:

       

Definite-lived: developed technologies

   $ 89.7      $ 2.3       $ 6.2   

Definite-lived: other

     48.1        —           2.7   

Indefinite-lived: goodwill

     243.0        2.2         1.2   

Deferred tax liabilities

     (45.3     —           9.1   

Other tangible net assets, excluding cash and cash equivalents

     65.8        —           (2.1
                         

Total purchase price, net of cash and cash equivalents acquired

   $ 401.3      $ 4.5       $ 17.1   
                         

The above allocations related to Techwell are preliminary pending additional information regarding tax issues.

The definite-lived developed technology purchased will be amortized over a five to eight year life. Other definite-lived intangible assets include backlog, customer relationships, in-process research and development and intellectual property. These assets have amortization lives ranging from six months to seven years.

None of the acquired goodwill will be deducted for tax purposes. We are responsible for the preliminary and final valuation estimates.

Certain acquisitions in 2008 and 2009 contained provisions in the purchase agreements for payment of additional consideration to former stockholders if revenue in excess of a base amount is attained within a specified post closing period. Under these provisions, we paid approximately $1.5 million additional consideration to the former shareholders of Zilker Labs, Inc. (“Zilker”) during the quarter ended October 1, 2010. The amount of the additional consideration was recorded as an increase in goodwill. The maximum remaining payout under these provisions is $14.0 million, based on revenue earned through March 2011.

 

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Pro forma financial information of the combined entities is not presented for Quellan and Rock due to immateriality of the financial results of the acquired entities, individually and in the aggregate. Pro forma combined financial information for Techwell and Intersil as if the acquisition had been consummated as of the beginning of the respective periods is as follows:

 

     Quarter
ended
October 1,  2010
     Quarter
ended
October 2,  2009
     Three  quarters
ended
October 1, 2010
     Three  quarters
ended
October 2, 2009
 
     (in thousands)  

Revenue

   $ 219,140       $ 186,305       $ 655,236       $ 474,133   
                                   

Net earnings (loss)

   $ 34,891       $ 5,080       $ 7,468       $ (13,728
                                   

The pro forma net earnings (loss) amounts above are adjusted for transactions directly attributable to the acquisition. Acquisition related costs for both Techwell and Intersil are excluded from net earnings (loss) and amortization of purchased intangibles, cost of revenue adjustments, interest expense and fees, and related tax effects are adjusted as if the acquisition occurred January 3, 2009.

Note 7—Goodwill and Purchased Intangibles

Goodwill is an indefinite-lived intangible asset that is not amortized, but instead is tested for impairment annually or more frequently if indicators of impairment exist. The following table summarizes changes in net goodwill balances for our one reportable segment (in millions):

 

Gross goodwill balance as of January 1, 2010

   $ 1,469.4   

Accumulated impairment charge (recorded in 2008)

     (1,154.7

Purchase of Rock

     2.2   

Purchase of Techwell

     243.0   

Adjustment to Zilker consideration

     1.5   
        

Goodwill balance as of October 1, 2010

   $ 561.4   
        

We recorded an impairment loss of $1,154.7 million against our goodwill in 2008, calculated as the excess of carrying amount of goodwill over the implied fair value of goodwill in our reporting units. The adjusted carrying amount of goodwill is the new accounting basis.

We perform a goodwill impairment analysis using the two-step method on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. During 2009, we had two reporting units for purposes of the analysis—analog & mixed signal and power management. The first step of the goodwill impairment test is to identify potential impairment. If the fair value of a reporting unit exceeds its carrying amount, no impairment of the goodwill of the reporting unit is indicated and the second step of the impairment test is unnecessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

Goodwill as of October 1, 2010 was $561.4 million. If we experience significant declines in our stock price, market capitalization or future expected cash flows, significant adverse changes in the business climate or continuing slower growth rates, we may need to perform additional impairment analysis of our goodwill in future periods prior to our annual test in the fourth quarter. We can provide no assurance that the significant assumptions used in our analysis will not change substantially and any additional analysis could result in additional impairment charges.

Purchased intangibles are definite-lived intangible assets which are amortized on a straight-line basis over their estimated useful lives. Substantially all of our purchased intangibles consist of multiple elements of developed technology which has estimated useful lives of 3 to 11 years. Other purchased intangibles consist of other identifiable assets, primarily customer relationships with an estimated useful life of six years.

 

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     As of October 1, 2010      As of January 1, 2010  
     Gross
carrying
amount
     Accumulated
amortization
     Gross
carrying
amount
     Accumulated
amortization
 
     (in millions)  

Definite-lived: developed technologies

   $ 149.0       $ 49.9       $ 79.6       $ 59.6   

Definite-lived: other

     58.4         11.1         10.3         3.7   
                                   

Total

   $ 207.4       $ 61.0       $ 89.9       $ 63.3   
                                   

We recorded amortization expense as follows (in thousands):

 

     Quarter
ended
October 1,  2010
     Quarter
ended
October 2,  2009
     Three  quarters
ended
October 1, 2010
     Three  quarters
ended
October 2, 2009
 

By income statement line item

           

Amortization of purchased intangibles

   $ 9,346       $ 2,980       $ 20,323       $ 9,892   
                                   

Cost of revenue

   $ —         $ 102       $ 31       $ 391   
                                   

Expected amortization expense by year is as follows (in millions):

 

To be recognized in:

  

Fiscal year 2010

   $ 27.7   

Fiscal year 2011

     28.9   

Fiscal year 2012

     27.7   

Fiscal year 2013

     25.0   

Fiscal year 2014

     23.3   

Thereafter

     34.0   
        

Total expected amortization expense

   $ 166.6   
        

We review long-lived assets, including intangible assets subject to amortization, which are our developed technology, backlog, customer relationships and intellectual property, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We measure recoverability of long-lived assets by comparing the carrying amount of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be impaired, we recognize an impairment charge for the amount by which the carrying amounts of the assets exceeds the fair value of the assets.

Note 8—Restructuring

During the year ended January 2, 2009, we initiated restructuring plans to reorganize certain operations, consolidate internal manufacturing facilities, and reduce our global workforce and other operating costs. During the three quarters ended October 2, 2009, we recorded expenses of approximately $2.3 million for severance, lease exit, legal and professional costs. All current restructuring plans have been completed.

Other accrued liabilities relating to the restructuring are summarized below (in millions).

 

Liability balance as of January 1, 2010

   $ 0.3   

Severance payments

     (0.3
        

Liability balance as of October 1, 2010

   $ —     
        

 

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Note 9—Income Taxes and Discontinued Operations

The table below summarizes activity in unrecognized tax benefits (UTBs) resulting from uncertain tax positions (in millions):

 

 

     As of October  1,
2010
    As of October  2,
2009
 

Beginning balance (includes interest and penalties of $3.2 million as of January 1, 2010)

   $ 32.4      $ 8.6   

Increases related to current year tax positions

     74.8        6.9   

Increases related to prior year tax positions

     68.6        —     

Decreases related to lapses of statutes of limitations

     (1.2     —     
                

Ending balance (includes interest and penalties of $12.8 million as of October 1, 2010)

   $ 174.6      $ 15.5   
                

Increases to current year tax positions relate primarily to a deferred charge required for the integration of Techwell.

Increases to prior year tax positions relate primarily to a provision established at the completion of field work on an Internal Revenue Service (“IRS”) tax audit for tax years 2005 through 2007. While the audit covered a number of different issues, the provision is largely due to the intercompany pricing of goods and services between different tax jurisdictions. We are currently contesting this matter through the IRS appeals office. As the final resolution of the appeals process remains uncertain, we continue to provide for the uncertain tax positions based on the more likely than not standards.

We are currently unable to estimate the amount of accruals that will significantly change in the next 12 months. The major tax jurisdictions in which we operate include the United States, various individual states and several foreign nations.

Note 10—Long-Term Debt

In April 2010, we entered into a $300.0 million bank term loan which matures April 2016 and bears interest at 3.25% over LIBOR subject to a LIBOR floor of 1.50%. We are required to make quarterly principal payments equal to 0.25% of the original loan amount. Accordingly, $3.0 million of the term loan is classified as a current liability. Interest is payable upon the expiration of the LIBOR term elected, not to exceed six months. The loan agreement contains certain covenants that require compliance with certain leverage and fixed charge coverage ratios based on the trailing twelve months of performance. As of October 1, 2010, we were in compliance with all applicable covenants of the loan agreement.

The aggregate annual maturities of long-term debt remaining as of October 1, 2010 are presented in the following table (in millions):

 

To be recognized in:

  

Fiscal year 2010

   $ 0.8   

Fiscal year 2011

     2.3   

Fiscal year 2012

     3.0   

Fiscal year 2013

     3.7   

Fiscal year 2014

     3.0   

Thereafter

     286.5   
        

Total expected maturities

   $ 299.2   
        

The fair value of the debt approximates the carrying value as of October 1, 2010.

Note 11—Shareholders’ Equity

Dividends—In July 2010, our Board of Directors declared a quarterly dividend of $0.12 per share of common stock. We paid dividends of $14.9 million on August 20, 2010 to shareholders of record as of the close of business on August 10, 2010. In October 2010, our Board of Directors declared a quarterly dividend of $0.12 per share of common stock. The dividend will be paid on November 19, 2010 to shareholders of record as of the close of business on November 9, 2010.

 

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Table of Contents

 

Class A Common Stock—Share activity for Class A common stock since January 1, 2010 (shares in thousands):

 

     Three quarters  ended
October 1, 2010
 

Balance as of January 1, 2010

     122,816   

Shares issued under stock plans

     1,438   
        

Balance as of October 1, 2010

     124,254   
        

Note 12—Comprehensive Income

 

     Quarter ended     Three quarters ended  
     October 1,
2010
    October 2,
2009
    October 1,
2010
    October 2,
2009
 
     (in thousands)  

Net income

   $ 32,068      $ 12,280      $ 339      $ 20,891   

Unrealized gain on available-for-sale investments

     332        (6,087     9,009        (2,821

Tax effect

     (78     1,533        (1,945     1,081   

Interest rate swap

     (2,471     —          (2,471     —     

Tax effect

     927        —          927        —     

Currency translation adjustments

     1,052        960        466        461   
                                

Comprehensive income

   $ 31,830      $ 8,686      $ 6,325      $ 19,612   
                                

Currency translation adjustments (CTA) result when we translate our foreign currency based financial statements into US dollars. A weakening US dollar will produce comprehensive income. Conversely, a strengthening US dollar will produce comprehensive loss.

Note 13—Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share ($ and shares in thousands, except per share amounts):

 

     Quarter ended      Three quarters ended  
     October 1,
2010
     October 2,
2009
     October 1,
2010
     October 2,
2009
 

Numerator:

           

Net income to common shareholders

   $ 32,068       $ 12,280       $ 339       $ 20,891   
                                   

Denominator:

           

Denominator for basic earnings per share-weighted average common shares

     123,870         122,348         123,542         122,090   

Effect of stock options and awards

     104         —           991         67   
                                   

Denominator for diluted earnings per share adjusted—weighted average common shares

     123,974         122,348         124,533         122,157   
                                   

Earnings per share

           

Basic

   $ 0.26       $ 0.10       $ 0.00       $ 0.17   
                                   

Diluted

   $ 0.26       $ 0.10       $ 0.00       $ 0.17   
                                   

Anti-dilutive shares not included in the above calculations

           

Awards

     4,368         2,612         1,144         2,611   
                                   

Options

     13,070         16,454         13,476         16,446   
                                   

 

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Note 14—Equity-Based Compensation

We use equity-based compensation plans to enhance our ability to attract, retain and reward talented employees. Shares issued under these plans are made from newly-issued stock. The plans allow several forms of equity compensation including stock options, restricted and deferred stock awards and employee stock purchase plans.

Valuations, Assumptions and Terms

We use a binomial lattice model to estimate the fair value of stock options, which is amortized as compensation cost over the lesser of the grantee’s requisite service period or the vesting term of the stock option. The lattice model uses historical exercise patterns to predict the life of stock options and estimates the future volatility of the underlying stock price, considering historical and implied volatility in its calculations.

We used the following assumptions in the lattice model for stock options awarded in the periods indicated.

 

     Three quarters ended
     October 1, 2010    October 2, 2009

Range of expected volatilities

   40.9 – 46.0%    39.8% – 51.1%

Weighted average volatility

   43.0%    46.6%

Range of dividend yields

   3.1 – 4.7%    3.2 – 5.0%

Weighted average dividend yield

   3.3%    4.0%

Range of risk-free interest rates

   1.0 – 3.4%    2.1 – 5.3%

Weighted average risk free interest rate

   2.5%    4.0%

Range of expected lives, in years

   1.3 – 5.7    4.9 – 5.7

Weighted average expected life, in years

   5.4    5.5

Generally, our stock options vest 25% in the first year and quarterly thereafter over three or four years and have seven year contract lives.

Market value at the date of grant is used as the fair value of stock awards. We amortize awards as compensation cost over the lesser of the requisite service period or the vesting term, which is generally three years for deferred stock units and four years for restricted stock units.

The compensation cost for shares issued under the employee stock purchase plan is 15% of the share price, the amount of the discount the employee obtains at the date of the purchase transaction.

 

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Equity-Based Compensation Summary

 

     Stock
Options
     Stock
Awards
    Aggregate
Information
 
     Shares  (in
thousands)
    Weighted
average
exercise
price
(per share)
     Weighted
average
remaining
contract
lives
(years)
     Shares  (in
thousands)
    Aggregate
intrinsic
value
(in
millions)
     Aggregate
unrecognized
compensation
cost

(in millions)
 

Outstanding as of January 1, 2010

     12,268      $ 19.18         4.2         2,528        

Granted (1) (3)

     2,431        14.51         6.5         3,036        

Performance adjustment

     —          —           —           (47     

Exercised (2)

     (307     11.23         0.7         (959     

Canceled

     (916     27.56         1.6         (189     
                           

Outstanding as of October 1, 2010

     13,476      $ 17.95         4.2         4,369      $ 52.0       $ 54.7   
                                                   

Exercisable/vested as of October 1, 2010 (2)

     7,140      $ 21.33         2.6         98      $ 2.7         —     
                                                   

Unexercisable/unvested as of October 1, 2010

     6,336      $ 14.14         6.0         4,271      $ 49.3       $ 54.7   
                                                   

Number vested and expected (as of October 1, 2010) to ultimately vest

     13,289      $ 17.99         4.2         2,550      $ 31.1      
                                             
           Stock
Options
            Stock
Awards
    Aggregate         

Weighted average fair value per share of awards granted in the three quarters ended October 1, 2010

     $ 4.33          $ 14.99      $ 10.25      
                                 

Weighted average fair value per share of awards granted in the three quarters ended October 2, 2009

     $ 4.00          $ 12.03      $ 6.72      
                                 

 

(1) Stock awards granted in 2010 include 232,003 performance-based grants. See Performance-based Grants section below.
(2) Exercised/exercisable awards have reached full vested status.
(3) Includes approximately 23,000 option shares and 1.5 million award shares issued in the Techwell Acquisition.

 

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Table of Contents

 

Additional Disclosures

   Three quarters
ended
October 1, 2010
     Three quarters
ended
October 2, 2009
 
     ($ in millions, share data in thousands)  

Shares issued under the employee stock purchase plan

     564         475   
                 

Aggregate intrinsic value of stock options exercised

   $ 1.2       $ 2.1   
                 

Impact on Financial Statements

 

     Quarter
ended
October 1, 2010
     Quarter
ended
October 2, 2009
     Three quarters
ended
October 1, 2010
     Three quarters
ended
October 2, 2009
 
     (in thousands)  

By income statement line item

  

Cost of revenue

   $ 560       $ 615       $ 1,596       $ 1,921   

Research and development

     4,171         2,879         11,184         9,311   

Selling, general and administrative

     3,827         3,399         10,499         9,705   

By stock plan

           

Stock options

   $ 2,671       $ 3,741       $ 8,218       $ 12,409   

Restricted and deferred stock awards

     5,614         2,920         14,205         7,854   

Employee stock purchase plan

     273         232         856         674   

 

     October 1,
2010
     January 1,
2010
 
     (in millions)  

Equity-based compensation capitalized in inventory

   $ 0.8       $ 0.9   
                 

Performance-based Grants

As of October 1, 2010, we had stock awards outstanding that include the usual service conditions as well as performance conditions relating to revenue and operating income relative to internal goals and performance by other companies in our industry. Under the terms of the agreements, participants may receive from 0 - 150% of the original grant.

 

     October 1, 2010  
     (in thousands)  

Performance-based deferred stock units (PDSU) outstanding

     821   

Maximum PDSU shares that could be issued assuming the highest level of performance

     1,229   

PDSU shares expected to vest (1)

     553   

 

(1) We periodically evaluate future performance expectations to estimate the number of shares that will ultimately vest.

Note 15—Segment Information

We report our results in one reportable segment. We design, develop, manufacture and market high-performance analog integrated circuits. Our chief executive officer is our chief operating decision maker.

 

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Note 16—Legal Matters and Indemnifications

Legal Matters—We are currently party to various claims and legal proceedings. In our opinion, no material loss is anticipated from such claims and proceedings.

Indemnifications—We generally provide customers with a limited indemnification against intellectual property infringement claims related to our products. We accrue for known indemnification issues and estimate unidentified issues based on historical activity.

Note 17—Recent Accounting Pronouncements

FASB ASC 105-10, “Generally Accepted Accounting Principles” (formerly FASB Statement No. 168, “The FASB Accounting Standards Codification ™ and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the Codification))—In June 2009, the FASB issued the Codification, which was launched on July 1, 2009. The Codification became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy contained in SFAS No. 162 and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification is currently effective and did not impact our condensed consolidated financial statements.

FASB ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements”—In January 2010, the FASB issued guidance to improve the disclosures for Level 1, Level 2 and Level 3 fair value measurements. ASU 2010-06 requires new disclosures for significant transfers in and out of Level 1 and Level 2 fair value measurements, and separately report information about purchases, sales, issuances and settlements of Level 3 fair value measurements. ASU 2010-06 also updates ASC 820-10, Fair Value Measurements and Disclosures, to require an entity to provide fair value measurement disclosures for each class of assets and liabilities. Entities should also provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 1 and Level 2 fair value measurements. ASU 2010-06 is currently effective, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which will be effective for interim and annual reporting periods beginning after December 15, 2010. This statement will have no impact on our consolidated results, but will result in additional disclosures on fair value measurements.

Note 18—Subsequent Events

We have evaluated subsequent events through the date these condensed consolidated financial statements were issued.

—End of Unaudited Condensed Consolidated Financial Statements—

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our condensed consolidated financial statements, including the notes thereto. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

Forward Looking Statements

This Quarterly Report contains statements relating to expected future results and business trends of Intersil that are based upon our current estimates, expectations and projections about our industry, and upon management’s beliefs, and certain assumptions we have made, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” and variations of these words or similar expressions are intended to identify “forward-looking statements.” In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances, including any underlying assumptions, are “forward-looking statements.” Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results may differ materially and adversely from those expressed in any “forward-looking statement” as a result of various factors. These factors include, but are not limited to: industry and global economic and market conditions, such as the cyclical nature of the semiconductor industry and the markets addressed by our and our customers’ products; demand for, and market acceptance of, new and existing products; successful development of new products; the timing of new product introductions; new product performance and quality; the successful integration of acquisitions; manufacturing difficulties, such as the availability and extent of utilization of manufacturing capacity and raw materials; procurement shortages; the failure of our suppliers or outsource providers to perform their obligations in a manner consistent with our expectations; the need for additional capital; pricing pressures and other competitive factors, such as competitor’s new products; competitors with significantly greater financial, technical, manufacturing and marketing resources; changes in product mix; fluctuations in manufacturing yields; product obsolescence; the ability to develop and implement new technologies and to obtain protection of the related intellectual property; legal challenges to our products and technology, such as intellectual property infringement and misappropriation claims; customer service; the extent that customers use our products and services in their business, such as the timing of the subsequent entry of our customers’ products containing our components into production, the size and timing of orders from customers and customer cancellations or shipment delays; changes in import export regulations; legislative, tax, accounting, or regulatory changes or changes in their interpretation; transportation, communication, demand, information technology or supply disruptions based on factors outside our control such as natural disasters, wars and terrorist activities; and exchange rate fluctuations. These “forward-looking statements” are made only as of the date hereof and we undertake no obligation to update or revise the “forward-looking statements,” whether as a result of new information, future events or otherwise.

Overview

We design, develop, manufacture and market high-performance analog and mixed signal integrated circuits (ICs). We believe our product portfolio addresses some of the fastest growing applications within the high-end consumer, industrial, computing and communications markets.

Critical Accounting Policies

You should refer to the disclosures regarding critical accounting policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2010.

 

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Results of Operations

Statement of operations data and percentage of revenue for the periods:

 

     Quarter ended     Three quarters ended  
     October 1,
2010
    October 2,
2009
    October 1,
2010
    October 2,
2009
 
     (% of revenue)  

Revenue

     100.0     100.0     100.0     100.0

Cost of revenue

     41.1     45.4     42.0     45.4
                                

Gross profit

     58.9     54.6     58.0     54.6

Operating costs and expenses

        

Research and development

     21.7     22.8     21.7     25.0

Selling, general and administrative

     15.2     19.0     16.0     20.1

Amortization of purchased intangibles

     4.3     1.8     3.2     2.3

Acquisition related costs

     0.2     0.4     1.3     0.1

Restructuring and other related charges (credits)

     —       0.2     (—   %)      0.5
                                

Operating income

     17.5     10.4     15.8     6.6

Gain on deferred compensation investments, net

     0.1     0.6     —       0.4

Other-than-temporary impairment losses

     —       (8.5 %)      (0.2 %)      (3.3 %) 

Interest income

     0.3     0.7     0.4     1.0

Interest expense and fees

     (1.9 %)      (0.1 %)      (1.2 %)      (0.1 %) 
                                

Income before income taxes

     16.1     3.1     14.8     4.6

Income tax expense (benefit)

     1.4     (4.2 %)      14.7     (0.3 %) 
                                

Net income

     14.6     7.3     0.1     4.8
                                

 

Note: Totals and percentages may not add or calculate precisely due to rounding. We have modified certain amounts in the quarter(s) ended October 2, 2009 to conform to the presentation in the quarter(s) ended October 1, 2010.

Revenue and Gross Profit

Revenue for the quarter ended October 1, 2010 increased $50.8 million or 30.2% to $219.1 million from $168.3 million during the quarter ended October 2, 2009. The increase in sales was primarily in the industrial market, driven primarily by recent acquisitions, as well as revenue increases in the communication and consumer end markets, partially offset by a decline in the computing end market. Sales into the industrial, communication and consumer end markets increased by 135%, 43% and 10%, respectively. Sales into the computing end market decreased by 19% from the third quarter of 2009 due to a reduction in worldwide demand in computing products.

Revenues by end market were as follows ($ in millions):

 

     Quarter ended
October 1, 2010
    Quarter ended
October 2, 2009
 
            % of revenue            % of revenue  

Industrial

   $ 75.4         34.4   $ 32.1         19.1

Computing

     46.4         21.2     57.2         34.0

Communication

     45.5         20.8     31.9         18.9

Consumer

     51.8         23.6     47.1         28.0
                                  

Total

   $ 219.1         100.0   $ 168.3         100.0
                                  

 

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In aggregate, a 6.5% increase in unit shipments increased net revenue from third quarter of 2009 levels by $11.0 million and average selling prices (ASPs) increased 22.3%, increasing revenues by $39.9 million. ASPs in the current period increased due to the addition of Techwell sales at higher ASPs. Declining sales prices at the product level has occurred within the semiconductor industry for much of its existence. While individual products generally experience ASP declines over time, we endeavor to continually introduce new products which typically enter the market at prices higher than existing products. Fluctuations in ASPs are expected to continue into the future.

Revenue for the three quarters ended October 1, 2010 increased $194.7 million or 44.9% to $628.4 million from $433.7 million during the three quarters ended October 2, 2009. The increase in sales was broad based and driven by recent acquisitions and revenue increases from all end markets. Sales into the industrial and communication end markets increased by 120% and 52%, respectively, and sales into the consumer and computing end markets increased 24% and 12% from the first three quarters of 2009.

Revenues by end market were as follows ($ in millions):

 

     Three quarters  ended
October 1, 2010
    Three quarters  ended
October 2, 2009
 
            % of revenue            % of revenue  

Industrial

   $ 190.4         30.3   $ 86.7         20.0

Computing

     163.4         26.0     145.6         33.5

Communication

     139.1         22.1     91.8         21.2

Consumer

     135.5         21.6     109.6         25.3
                                  

Total

   $ 628.4         100.0   $ 433.7         100.0
                                  

In aggregate, a 31.5% increase in unit shipments increased net revenue from the first three quarters of 2009 levels by $136.4 million and average selling prices (ASPs) increased 10.2%, increasing revenues by $58.2 million. ASPs in the current period increased due to the addition of Techwell sales at higher ASPs.

Geographically, year to date revenues were derived from the Asia/Pacific, North America and Europe regions as follows:

 

     October 1, 2010     October 2, 2009  
     (% of revenues)  

Asia/Pacific

     74     76

North America

     18        16   

Europe and other

     8        8   
                

Total

     100     100
                

We anticipate that our revenue from Asia/Pacific region customers will continue to grow in percentage terms as that region leads in the manufacture of the finished goods (consumer electronics, computers, communications equipment) in which our products are used. End market demand for those products is global, and therefore, dependent on aggregate global economic metrics and conditions such as personal incomes and business activity and not necessarily on Asian and Pacific Rim regional economic factors.

We sell our products to customers in many countries including, in descending order by revenue dollars for our top ten countries, China (including Hong Kong), the United States, South Korea, Taiwan, Japan, Germany, Singapore, Netherlands, Thailand, and Malaysia. Sales to customers in China, including Hong Kong, comprised approximately 48% of revenue, followed by the United States (17%) and South Korea (8%) during the three quarters ended October 1, 2010. Three distributors that support a wide range of customers around the world accounted for 11%, 9% and 9% of our revenues in the three quarters ended October 1, 2010. One original design manufacturer accounted for 9% of our revenues for the three quarters ended October 1, 2010.

 

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Cost of Revenue and Gross Profit

Cost of revenue consists primarily of purchased materials and services, labor and overhead associated with product manufacturing. During the quarter ended October 1, 2010, gross profit increased $37.2 million or 40.5% to $129.1 million from $91.8 million during the quarter ended October 2, 2009. As a percentage of sales, gross margin was 58.9% during the quarter ended October 1, 2010 compared to 54.6% during the quarter ended October 2, 2009. The increase in gross margin was primarily due to growth in our higher margin industrial end market, higher utilization of resources as sales continue to grow and fluctuations caused by product sales mix changes at the product family level. Generally, our computing and high-end consumer products have lower gross margins than our industrial and communications products.

During the three quarters ended October 1, 2010, gross profit increased $127.5 million or 53.8% to $364.2 million from $236.8 million during the three quarters ended October 2, 2009. As a percentage of sales, gross margin was 58.0% during the three quarters ended October 1, 2010 compared to 54.6% during the three quarters ended October 2, 2009. The increase in gross margin was primarily due to growth in our higher margin industrial end market, higher utilization of resources as sales continue to grow and fluctuations caused by product sales mix changes at the product family level.

We strive to improve gross margins from their present levels by emphasizing new high-margin products and cost saving opportunities in our manufacturing chain.

Operating Costs, Expenses and Other Income

Research and Development (R&D)

R&D expenses consist primarily of salaries and 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 $9.1 million or 23.6% to $47.5 million during the quarter ended October 1, 2010 from $38.4 million during the quarter ended October 2, 2009. R&D expenses increased $28.1 million or 26.0% to $136.4 million during the three quarters ended October 1, 2010 from $108.2 million during the three quarters ended October 2, 2009. The increases were due primarily to new employees from acquisitions, increased incentive plans in 2010, and lower costs in the first three quarters of 2009 due to short-term cost saving initiatives implemented in response to the changing economy.

Selling, General and Administrative (SG&A)

SG&A costs primarily include salary and incentive expenses of employees engaged in marketing and selling, as well as salaries and expenses required to perform our human resource, finance, legal and executive functions. SG&A costs increased by $1.5 million or 4.6% to $33.4 million during the quarter ended October 1, 2010 from $31.9 million during the quarter ended October 2, 2009. SG&A costs increased by $13.3 million or 15.2% to $100.6 million during the three quarters ended October 1, 2010 from $87.3 million during the three quarters ended October 2, 2009. The increases were due primarily to new employees from acquisitions, increased incentive plans in 2010, and lower costs in the first three quarters of 2009 due to short-term cost saving initiatives implemented in response to the changing economy.

Amortization of Purchased Intangible Assets

Amortization of purchased intangible assets increased $6.4 million or 213.6% to $9.3 million in the quarter ended October 1, 2010 from $3.0 million in the quarter ended October 2, 2009. Amortization of purchased intangible assets increased $10.4 million or 105.4% to $20.3 million in the three quarters ended October 1, 2010 from $9.9 million in the three quarters ended October 2, 2009. The increases resulted primarily from the acquisition of Techwell in the second quarter of 2010, slightly offset by certain balances that became fully amortized. We expect amortization of current definite-lived intangible asset balances to decrease by approximately $2.0 million to $7.3 million in the fourth quarter, then steadily decline as certain balances become fully amortized.

Acquisition Related Costs

Acquisition related costs were $0.4 million for the quarter ended October 1, 2010 and $7.9 million for the three quarters ended October 1, 2010. Acquisition related costs were $0.6 million during the quarter and three quarters ended October 2, 2009. The increase in year to date expense was due to the acquisitions of Techwell in the second quarter of 2010 and Rock in the first quarter of 2010.

 

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Restructuring

In fiscal year 2008, we implemented plans to consolidate our internal foundries, reduce the related workforce and reduce our world-wide workforce by approximately 9%, resulting in an estimated combined annual cost savings between $12 million and $14 million. We recorded minimal restructuring related charges in the quarter and three quarters ended October 1, 2010 compared to $0.4 million in the quarter ended October 2, 2009 and $2.3 million in the three quarters ended October 2, 2009 for employee severance, facility consolidation and other costs associated with our restructuring plans. All current restructuring plans have been completed and we have no remaining restructuring liability.

Gain on Deferred Compensation Investments, Net

We have a liability for a qualified deferred compensation plan. We maintain a portfolio of approximately $11.9 million of investments under the plan. Changes in the fair value of the asset are recorded as a (loss) gain on investments and changes in the fair value of the liability are recorded as a component of compensation expense in selling, general and administrative expense. In general, the compensation (benefit) expense is substantially offset by the gains and losses on the investment. During the quarter ended October 1, 2010, we recorded a gain on deferred compensation investments of $0.2 million and an increase in selling, general and administrative expense of $0.3 million. During the three quarters ended October 1, 2010, we recorded a gain on deferred compensation investments of $0.3 million and an increase in selling, general and administrative expense of $0.4 million.

Other-Than-Temporary Impairment Losses

During the three quarters ended October 1, 2010, we recorded an impairment charge of $1.1 million, before taxes, on certain preferred equity securities whose decline in fair value was determined to be other-than-temporary and a $0.1 million loss on the sale of certain investments, before taxes. We continue to monitor our securities and intend to hold all of these investments until the anticipated recovery in market value occurs.

Interest Income

Net interest income decreased to $0.8 million during the quarter ended October 1, 2010, from $1.2 million during the quarter ended October 2, 2009. Net interest income decreased to $2.3 million during the three quarters ended October 1, 2010, from $4.3 million during the three quarters ended October 2, 2009. The decreases are attributable to declining interest rates when compared to the same period last year.

Interest Expense and Fees

Interest expense and fees increased to $4.2 million during the quarter ended October 1, 2010, from $0.2 million during the quarter ended October 2, 2009. Interest expense and fees increased to $7.6 million during the three quarters ended October 1, 2010, from $0.4 million during the three quarters ended October 2, 2009. The increases are attributable to interest expense and fees associated with long-term debt used to fund the Techwell acquisition during the second quarter of 2010.

Income Tax

Income tax expense for the quarter ended October 1, 2010 was $3.2 million or 8.9% of income before taxes compared with a benefit of $7.0 million or 134.3% of income before taxes for the quarter ended October 2, 2009. The quarter ended October 1, 2010 included a discrete benefit of $5.9 million which offset non-discrete tax expense of $9.1 million. The discrete charge is due primarily to a decrease in the provision for uncertain tax positions. The quarter ended October 2, 2009 included a $6.2 million benefit related to a reversal of the valuation allowance associated with previously recorded impairments on auction rate securities. The third quarter of 2009 also included the benefit of $1.7 million from the move of our international headquarters. Our tax rate is expected to be approximately 23% to 25% in future quarters, exclusive of any benefit derived from the research tax credit.

Income tax expense for the three quarters ended October 1, 2010 was $92.6 million or 99.6% of income before taxes compared with a benefit of $1.1 million or 5.7% of income before taxes for the three quarters ended October 2, 2009. The three quarters ended October 1, 2010 included a discrete charge of $69.9 million which is due primarily to a provision established upon the completion of field work of a multi-year IRS examination. See Note 9 to our unaudited condensed consolidated financial statements for further details. The three quarters ended October 2, 2009 included a charge of $3.4 million related to the move of our international headquarters. The effective tax rate on income was increased by a greater portion of income in higher tax jurisdictions.

 

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In determining net income, we estimate and exercise judgment in the calculation of tax expense and tax liabilities and in assessing the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of assets and liabilities.

In the ordinary course of business, the ultimate tax outcome of many transactions and calculations is uncertain, as the calculation of tax liabilities involves the application of complex tax laws in the United States and other jurisdictions. We recognize liabilities for additional taxes that may be due on tax audit issues based on an estimate of the ultimate resolution of those issues. Although we believe the estimates are reasonable, the final outcome may be different than amounts we estimate. Such determinations could have a material impact on the income tax provision, effective tax rate and operating results in the period they occur. In addition, the effective tax rate reflected in our forward-looking statements is based on current enacted tax law. Significant changes in enacted tax law could materially affect our estimates.

Backlog

Our sales are made pursuant to purchase orders that are generally booked up to six months in advance of delivery. Our standard terms and conditions of sale provide that these orders become non-cancelable and unable to be rescheduled thirty days prior to the most current customer request date (CRD) for standard products and ninety days prior to CRD for semi-custom and custom products. Backlog is influenced by several factors, including market demand, pricing and customer order patterns in reaction to product lead times. Additionally, we believe backlog can fall faster than consumption rates in periods of weak end-market demand since production lead times can be shorter. Conversely, we believe backlog can grow faster than consumption in periods of strong end-market demand as cycle and delivery times increase and some customers may increase orders in excess of their current consumption to reduce their own risk of production disruptions.

We had a six-month backlog as of October 1, 2010 of $167.2 million compared to a six-month backlog of $227.1 million as of July 2, 2010 and of $143.1 million as of October 2, 2009. Although not always the case, backlog can be a leading indicator of performance for approximately the next two quarters.

Business Outlook

On October 20, 2010, we announced our outlook for the fourth quarter of 2010. Although we expected the recent inventory correction to end and shipments to become better aligned with consumption during the fourth quarter, we anticipated the revenues to be down sequentially and as of that time, we expected revenue to decrease to $202 million to $214 million. We expected GAAP earnings per diluted share of approximately $0.17 to $0.20. The full announcement can be referenced in the press release that is an exhibit to a Current Report on Form 8-K furnished on October 20, 2010.

Contractual Obligations and Off-Balance Sheet Arrangements

Our contractual obligations and off-balance sheet arrangements have not changed significantly from January 1, 2010. As of October 1, 2010, we had committed to purchase $27.0 million of inventory from suppliers.

Purchase agreements in connection with certain acquisitions in 2008 and 2009 contain provisions for payment of additional consideration to former stockholders if revenue in excess of a base amount is attained within a specified post closing period. The maximum remaining payout under these provisions is $14.0 million, based on revenue earned through March 2011.

Liquidity and Capital Resources

Our capital requirements depend on a variety of factors, including but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; revenue growth or decline; and potential acquisitions. We believe that we have the financial resources necessary to meet business requirements for the next 12 months, including capital expenditures for the expansion or upgrading of worldwide manufacturing capacity, working capital requirements, our dividend program and potential future acquisitions or strategic investments. As of October 1, 2010, our total shareholders’ equity was $1,023.4 million. As of that date, we had $370.4 million in cash and cash equivalents. We had $299.3 million in debt outstanding.

We have $66.1 million in long-term investments, primarily auction rate securities. The auction rate securities are composed of approximately $38.9 million of insurance related debt securities, $13.3 million of corporate debt securities, and $13.9 million of student loan based debt securities. We continue to accrue and receive interest on the securities based on a contractual rate. The weighted rate is currently approximately 190 basis points above one month LIBOR.

During the quarter ended July 2, 2010, we entered into a $300.0 million bank term loan with a term of 6 years at a floating interest rate of approximately five percent. This term loan and existing corporate cash was used to fund our purchase of Techwell in the second quarter of 2010. As of October 1, 2010, we were in compliance with all applicable covenants of the debt agreement.

 

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During the quarter ended July 2, 2010, we canceled our previously established $75.0 million revolving credit facility and established a new $75.0 million revolving credit facility with Morgan Stanley Senior Funding, Inc. as administrative agent and certain other banks. This credit line increases our available liquidity and enhances our ability to invest in our business. To date, we have not drawn on the line.

Our primary sources and uses of cash during the quarters ended October 1, 2010 and October 2, 2009 were as follows:

 

     Three quarters ended  
     October 1,
2010
    October 2,
2009
 
     (in millions)  

Sources of Cash

  

Existing business performance and activities

    

Operating activities, including working capital changes and excluding acquisition costs

   $ 109      $ 80   

Proceeds from exercise of compensatory stock plans, including tax benefits

     6        5   
                
   $ 115      $ 85   
                

Proceeds of long-term debt

    

Proceeds of long-term debt, net of fees

   $ 288      $ —     
                
   $ 288      $ —     
                

Uses of Cash

    

Business improvement investments

    

Business acquisitions, including acquisition costs

   $ (405   $ (18

Capital expenditures, net of sale proceeds

     (13     (6
                
   $ (418   $ (24
                

Returned to shareholders

    

Dividends paid

     (45     (44
                
   $ (45   $ (44
                

Cash/Investment Management Activities

    

Decrease in investments, debt and foreign exchange effects

   $ 83      $ 3   
                

Net increase in cash and cash equivalents

   $ 23      $ 21   
                

For the three quarters ended October 1, 2010, our cash from business performance and activities was $115 million compared to $85 million in the three quarters ended October 2, 2009, an increase of $30 million. We received $288 million from the issuance of long-term debt. We used approximately $13 million for capital expenditures and $405 million for the acquisitions of Techwell and Rock. We returned $45 million to shareholders in the form of dividends. Investment and debt repayments were $83 million in the three quarters ended October 1, 2010 compared to $3 million during the three quarters ended October 2, 2009, resulting in net cash provided of $23 million overall.

We strive to constantly improve the cash flows from our existing business activities and return the majority of that cash flow to shareholders. We maintain and improve our existing business performance with necessary capital expenditures and acquisitions that may further improve our business and return on investment. Cash, debt, stock or any combination thereof may be issued to fund additional acquisitions to improve our business.

Non-cash Working Capital

Trade accounts receivable, less valuation allowances, increased by $27.5 million to $101.1 million as of October 1, 2010 from $73.6 million as of January 1, 2010. This increase primarily reflects the increased sales in the past three quarters compared to the fourth quarter of 2009. Inventories, net of reserves, increased by $20.2 million to $101.4 million as of October 1, 2010 from $81.2 million as of January 1, 2010.

 

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Capital Expenditures

Capital expenditures were $13.3 million for the three quarters ended October 1, 2010 and $6.0 million for the three quarters ended October 2, 2009. We anticipate capital expenditures will remain at current levels in the near term.

Proceeds from exercises of Stock Options and our Stock Purchase Plan

For the three quarters ended October 1, 2010, cash flow from exercises of stock options and related tax benefits and sales under our ESPP increased to approximately $6.5 million as compared with $5.1 million for the three quarters ended October 2, 2009. Exercises are decisions of grantees and are influenced by the level of our stock price and by other considerations of grantees. While the level of cash inflow from exercises is difficult to forecast or control, we believe it will remain a secondary source of cash.

Stock Dividends

In July 2010, our Board of Directors declared a quarterly dividend of $0.12 per share of common stock. The dividend was paid on August 20, 2010 to shareholders of record as of the close of business on August 10, 2010. In October 2010, our Board of Directors also declared a dividend of $0.12 per share, to be paid on November 19, 2010 to shareholders of record as of the close of business on November 9, 2010.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Global economic conditions pose a risk to the overall economy as consumers and businesses may defer purchases in response to the uncertainty around tighter credit and negative financial news. These conditions could reduce product demand and affect other related matters. Demand could be different from our expectations due to many factors including changes in business and economic conditions, conditions in the credit market that could affect consumer confidence, customer acceptance of our products, changes in customer order patterns including order cancellations and changes in the level of inventory held by vendors.

Credit markets have tightened as a result of the recent financial crises, resulting in lower liquidity in many financial markets and excess volatility in fixed income, credit and equity markets. We could experience a number of resulting effects, including product delays due to effects experienced by key suppliers; reduced orders and payments as customers are affected by tighter credit markets and/or insolvency; decreased investing and financing options in a tighter market; increased expenses; increased impairments resulting from lower orders and sales as customers experience difficulties obtaining financing; and volatility and extreme changes in the earnings and fair value of our investments.

Moreover, 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, entered into for purposes other than trading purposes, to manage our exposure to these risks. See Note 4 to our unaudited condensed consolidated financial statements for additional quantitative and qualitative details.

Our cash equivalents and investments are subject to three market risks: interest rate risk, credit risk and secondary market risk. Our investments are primarily held in money market funds and auction rate securities (ARS). Some of these investments are insured for credit risk. ARS are subject to the risk that the secondary market might fail to provide the liquidity opportunity at the rate reset points. This risk, which we have recently encountered with regard to our ARS, manifests itself in sponsoring broker-dealers withdrawing from the auction process that provides the rate reset and liquidity. See Note 2 to our unaudited condensed consolidated financial statements for additional quantitative and qualitative details.

For further discussion of the risk related to foreign currency exchange rates and market risk, see our 2009 Annual Report on Form 10-K filed with the SEC on March 2, 2010.

 

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of October 1, 2010. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our officers concluded that, as of October 1, 2010, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our CEO and CFO by others within those entities, particularly during the period in which this report was being prepared and (2) effective to

 

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ensure that all material information required to be disclosed by Intersil in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such material information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

(b) Changes in Internal Controls. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the fiscal quarter ended October 1, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

There were no material legal proceedings filed against Intersil during the quarter ended October 1, 2010, nor were there any material developments in existing legal proceedings to which Intersil is a party. Please reference our 2009 Annual Report on Form 10-K filed with the SEC on March 2, 2010 for a discussion of the material legal proceedings to which we are a party.

 

Item 1A. Risk Factors

In addition to the cautionary information included in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in our 2009 Annual Report on Form 10-K, filed with the SEC on March 2, 2010, which could materially adversely affect our business, financial condition and/or results of operations.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. (Removed and Reserved)

 

Item 5. Other Information

None.

 

Item 6. Exhibits

The list of exhibits required by Item 601 of Regulation S-K to be filed as part of this Quarterly Report is incorporated by reference to the Index to Exhibits following the signatures herein.

 

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

INTERSIL CORPORATION

(Registrant)

/s/ Jonathan A. Kennedy

Jonathan A. Kennedy
Chief Financial Officer

Date: November 5, 2010

INDEX TO EXHIBITS

 

Exhibit No.

  

Description

3.1    Amended and Restated Certificate of Incorporation of Intersil Corporation (incorporated by reference to Exhibit 3.01 to the Quarterly Report on Form 10-Q, filed August 9, 2005).
3.2    Restated Bylaws of Intersil (incorporated by reference to Exhibit 3.02 to the Quarterly Report on Form 10-Q, filed August 7, 2009).
4    Specimen Certificate of Intersil Corporation’s Class A Common Stock (incorporated by reference to Exhibit 4.01 to the Annual Report on Form 10-K, filed on February 27, 2007).
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32    Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS    XBRL Instance document
101.SCH    XBRL Taxonomy Extension Schema
101.CAL    XBRL Taxonomy Extension Calculation Linkbase
101.LAB    XBRL Taxonomy Extension Label Linkbase
101.PRE    XBRL Taxonomy Extension Presentation Linkbase

 

 

* Filed herewith.

 

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