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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transaction
period from to .
Commission File Number 000-29617
Intersil Holding Corporation
(Exact name of Registrant as specified in its charter)
Delaware 59-3590018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7585 Irvine Center Drive
Irvine, California 92618
(949) 341-7062
(Address and telephone number
of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Title of class Name of each exchange on which registered
-------------- -----------------------------------------
Class A Common Nasdaq Stock Market
Stock par value
$.01 per share
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The approximate aggregate market value of the registrant's voting common stock
held by non-affiliates, computed by reference to the last sale price per share
as of July 31, 2000 was $1,830,306,209.
The number of shares outstanding of the registrant's Class A and Class B Common
Stock as of July 31, 2000 was 44,803,398 and 49,746,482, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
INTERSIL HOLDING CORPORATION
FORM 10-K
June 30, 2000
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................................................................... 4
Item 2. Properties.............................................................................................12
Item 3. Legal Proceedings......................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders....................................................14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................14
Item 6. Selected Financial Data................................................................................14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................................15
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk..................................................................................22
Item 8. Financial Statements and Supplementary Data............................................................22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................................................55
PART III
Item 10. Directors and Executive Officers of the Registrant.....................................................55
Item 11. Executive Compensation.................................................................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................60
Item 13. Certain Relationships and Related Transactions.........................................................62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................64
Signatures.......................................................................................................71
3
PART I
Item 1. Business
GENERAL
We are a systems oriented designer and manufacturer of analog and digital
integrated circuits and discrete semiconductors for the communications and power
management end-user markets. The majority of our revenue is derived from sales
of our analog and mixed-signal products. We use our proprietary technologies and
design capabilities to provide systems solutions for rapidly growing wireless
applications. We own over 1,250 patents and have substantial expertise in the
design and manufacturing of components that perform many of the essential
functions relating to the supply, distribution and regulation of electric power
in electronic products. Our core competencies include the design of analog,
mixed-signal, digital signal processing, radio frequency and discrete power
semiconductor products. Our products include components performing complex
communications functions, such as our PRISM(R) chip sets for wireless data
communications, digital radios and high speed converters in cellular base
stations and power management integrated circuits and discrete semiconductors
used in Internet servers and computers. We were formed on August 13, 1999
through a series of transactions in which we and a wholly-owned subsidiary
acquired the semiconductor business of Harris Corporation, or Harris.
OUR BUSINESS STRATEGY
We provide systems level solutions for the growing integrated
communications semiconductor market. Integrated communications semiconductors
enable the convergence of voice, data and video communications. Within
integrated communications, we are focused on several key markets including high
data rate wireless connectivity, power management and communications integrated
circuits for wireless and wired communications infrastructure. We use our
expertise in digital and analog semiconductors and radio and software design in
order to deliver chip sets, components, software and licensable application
designs for communications equipment customers. For fiscal year 2000, we
allocated about 92% of our research and development investment to the
development of products for the integrated communications market.
Our business strategy emphasizes the following key elements:
o Focus on High Growth, Integrated Communications Markets. In light of the
rapid expansion of communication applications and the increased
requirement for power management in electronic systems, we focus our
investments in these areas. We believe these markets have attractive
growth characteristics and enable us to draw on our core competencies.
Accordingly, we are pursuing opportunities in communications, wireless
and power management.
o Maintain Technology Leadership. We focus our research and development
investments on integrated communications. We have 220 engineers working
on innovative wireless and power management architectures. We also have
significant experience in analog and mixed-signal process technology and
high volume manufacturing. In conjunction with these efforts, we will
continue to expand our strong intellectual property position by seeking
to increase our existing portfolio of over 1,250 patents.
o Provide Systems Level Solutions to Our Customers. We design and develop
our semiconductors with a systems level approach that we believe enhances
the value of our products as they are designed into and incorporated in
our customers' electronic systems. This approach yields early integration
of our products into our customers' products, provides opportunities for
current design wins, and ultimately increases revenue as our solutions
are incorporated within a targeted end application.
o Focus on Partnering with Industry Leaders. We partner with industry
leaders in each of our target end-user markets to take our strong
engineering and design capabilities to commercial levels. Our customer
base of industry leaders illustrates the acceptance of our products to
date, and we continue to partner with these customers and others to
develop and market our next generation products. Our applications and
design engineers support our customers' end product development.
o Maintain High Quality Customer Service. Quality customer service is
critical to our customer retention and sales growth. Through our customer
relations initiatives, we believe we distinguish ourselves from our
competitors. Additionally, our sales force and authorized representatives
and distributors provide customer information programs and support our
comprehensive customer service efforts.
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PRODUCTS AND TECHNOLOGY
Our products are organized into three principal product groups: Analog &
Mixed-Signal, Discrete Power and Wireless.
ANALOG & DISCRETE
MIXED-SIGNAL POWER WIRELESS
-------------------------- ------------------------ ---------------------
FISCAL YEAR 2000 REVENUES........... $396.8 million $205.9 million $51.5 million
PERCENTAGE OF REVENUES.............. 60.7% 31.4% 7.9%
KEY CUSTOMERS....................... Cisco Asustek Cisco
Compaq Bosch Nokia
Dell Compaq Siemens
Intel Emerson Sony
Siemens 3Com
ANALOG & MIXED-SIGNAL
Our Analog & Mixed-Signal portfolio represented 60.7% of our fiscal year
2000 revenue. We deliver leading-edge analog, mixed-signal and digital signal
processing semiconductors and groups of semiconductors that are designed to work
together, also known as chip set solutions, for today's fastest-growing
communications markets. Our design focus targets such opportunities as wired
networks, subscriber line interface circuits, or SLICs, which interface analog
and digital signals for telecom systems, and high-speed digital radios for
cellular basestations. The two analog product lines include the following:
Signal Processing Products. We have a portfolio of linear, mixed-signal
and digital signal processing integrated circuits optimized for high-speed
communications applications. Communications analog and mixed-signal integrated
circuits are primarily targeted at wired and wireless voice and data
communications infrastructure applications. We have developed a complete
portfolio of digital radio signal processing products and a line of 8-, 12- and
14-bit high speed data acquisition converter integrated circuits for cellular
basestations, wireless data links, wireless local loop and broadband wireless
access, which we refer to as the wireless infrastructure market. These products,
designated CommLink(TM), enable our customers to increase the amount of data
that can be transmitted, enabling the addition of high speed data transmission
to cellular communications networks. These integrated circuits enable faster
wireless data links between remote basestations and also enable more efficient
cable "headends"--the ground station for the satellite links and broadband
wireless access--which is sometimes called Wireless Cable or LMDS. Our products
support cellular standards including 2G Digital such as IS-95 CDMA and GSM, 2.5G
such as Edge and IS-95+, and 3G such as Wideband CDMA. We utilize both systems
level engineering and integrated circuit expertise to offer superior products
for wireless communications systems. This combination of expertise enabled us to
introduce the industry's first digital signal processing-based single chip, the
HSP50016, which increased the efficiency of signal chain implementation through
component reductions. We continue that leadership with the HSP50216 Quad
programmable down converter for use in 2.5G cellular basestation designs.
New generations of high performance digital signal processing
communications integrated circuits require ever increasing performance from the
analog-to-digital and digital-to-analog converters that convert between digital
signals and analog radio frequency signals for wireless applications. We
currently market a family of 6- to 14-bit, CMOS analog-to-digital and
digital-to-analog converters in multiple speed ranges and functional
combinations in order to complement our digital radio wireless infrastructure
solutions.
With more than 15 years of experience in their design and development, we
continue to expand our portfolio of SLICs. SLICs, which are used in many
telephone applications, serve two primary functions. First, they interface
analog voice signals with digital processors. Second, they serve the simple, yet
essential, function of ringing a telephone to signal an incoming call. Recently,
we introduced an advanced ringing SLIC, which combined both functions into a
single SLIC. Thus, the ringing SLIC acts as both an interface into the telephone
and also rings the telephone. Our newest ringing SLIC product, a voice over
internet protocol, or VoIP, product, enables the use of analog phones in the
emerging Internet telephony market. Our SLIC portfolio of advanced telecom
linecard solutions are ideal for today's universal telecom exchange
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systems, including Plain Old Telephone Service, or POTS, Private Branch
Exchanges, Central Office, Loop Carrier, Fiber in the Loop and Wireless Local
Loop.
Included in our legacy base product portfolio are operational amplifiers,
which are referred to as op amps, interface integrated circuits, industrial and
video integrated circuits and digital products which serve both defense and
commercial systems, with microprocessor, memory and data communications
products. These products typically have long life cycles and are designed into
our customers' products. These include the industry standard BiCMOS high speed
op amp and the low power instrumentation converter. This portfolio is sold to a
broad range of customers in industrial, medical, computer, avionics and test and
measurement instrumentation markets, primarily through distribution partners.
These products typically have long life cycles and are designed into our
customers' products thereby supporting long-term sales. Our end-user markets
include wireless communications, video and image processing, high-speed
satellite communications, test/measurement equipment and medical
instrumentation.
We supply our communications products to Cisco, Dell, IBM, Lucent, Siemens
and other customers.
Power Management Integrated Circuits. We develop power system
architectures and provide a portfolio of computer products, file server/storage
system products, networking and VoIP products. Our power management products for
computing applications operate in a voltage range of 1 to 30 volts and are
designed into desktop personal computers, file servers and workstations. We have
also developed new power management circuits for 24x7 server networks supporting
e-commerce on the Internet.
Our highly successful HIP6000 family of pulse width modulator controller
integrated circuits are used in about 30% of all personal computers that use
Pentium, Pentium II and Pentium III class processors. We are currently working
with motherboard manufacturers to have our pulse width modular controller
integrated circuits designed into motherboards utilizing the recently introduced
Pentium 4 processor. We expect to begin shipping products for Pentium 4
motherboards as Pentium 4 processors begin to ship in greater volumes in the
near term. Based on our current design wins, we believe that we also will have a
substantial share of the volume of pulse width modulator controller integrated
circuits used in motherboards utilizing Athlon processors.
We have introduced an advanced architecture which delivers multiphase power
to higher speed microprocessors. This is a requirement for Intel and AMD
microprocessors above 800 MHz. This new platform of products consists of three
controllers (HIP6301, HIP6302 and HIP6303) and three gate drivers (HIP6601,
HIP6602 and HIP6603). We also offer a complete advanced configuration power
interface solution for instant on and sleep mode capability used to save energy
in personal computers.
We provide complete power solutions for the file server and redundant array
of independent disks, or RAID, market. Internet growth, especially e-commerce,
is driving the need for high reliability/availability in these applications. Our
family of hot plug products allows repair and maintenance of a file server and
RAID without a complete shutdown of the file server.
We are currently expanding our space-qualified portfolio by offering our
Starpower(TM) family of radiation hardened power management products for
commercial satellite applications. We are developing what we believe will be an
industry-leading radiation hardened DC/DC Converter power module line to provide
highly reliable power management in communications satellites. Our radiation
hardened integrated circuit product portfolio includes logic, memories, signal
processing components, microprocessors and custom devices, providing system
designers with a full complement of products for radiation hardened systems used
in commercial space and defense applications.
Our power management integrated circuits are also used in industrial
control and automotive engine management systems.
We supply our power management products to Asustek, Compaq, Dell, IBM,
Intel and other customers.
6
DISCRETE POWER
Our Discrete Power portfolio represented 31.4% of our revenue for fiscal
year 2000. Discrete Power products, coupled with our power management integrated
circuits, provide unique power management solutions for the integrated
communications market. Our metal oxide semiconductor field effect transistors,
or MOSFETs have been designed in conjunction with our multiphase power
integrated circuits for faster, next generation computers. We also manufacture
efficient power MOSFETs used in servers supporting the Internet. We are
investing in new, efficient trench power devices for cellular phones and
portable information appliances.
In 1980, we invented IGBTs, or insulated gate bipolar transistors, and hold
some of the fundamental patents that cover their production. We introduced our
600V SMPS, or switch mode power supply Series IGBT family of high-speed, high
efficiency IGBTs specifically tailored for operation in today's switched mode
power supplies. Our portfolio also includes radiation hardened N- and P-channel
metal oxide semiconductor field effect transistors, or MOSFETs, for
high-reliability applications such as communications satellites.
In addition, our IGBTs, MOSFETs and rectifiers are used in automotive and
industrial applications. These include motor management, automotive ignition,
welding, instrumentation and other industrial applications. Like our base analog
and mixed-signal products, our base power MOSFETs are designed into our
customers' products with life cycles spanning several years.
We supply our Discrete Power products to Asustek, Bosch, Compaq, Emerson
and Siemens and other customers who use our products for personal computer
motherboard power, diesel fuel injection, body and chassis controls and
industrial power supplies.
WIRELESS
Our Wireless portfolio represented 7.9% of our revenue for fiscal year
2000. We are the leading developer of semiconductor solutions for the emerging
wireless local area networking market. Our PRISM(R) family of chip sets
addresses the growing demand for wireless networking for use in both the home
and business providing cost effective, wireless access to high data rate
broadband communications networks. We believe we are the only supplier of an
integrated wireless networking product solution, including reference designs,
software and all integrated circuits necessary for wireless data communications
at data rates of 11 megabits-per-second.
The PRISM II chip set is composed of five highly integrated semiconductors.
They are the 2.4GHz power amplifier, RF/IF up and down converter, IF/BV
quadrature modulator/demodulator, baseband processor and the medium access
controller. These integrated circuits represent design and manufacturing
competence in radio frequency, or RF, mixed-signal and digital technologies. The
2.4GHz power amplifier, RF/IF up and down converter, and the quadrature
modular/demodulator are designed and manufactured using a high performance RF
silicon germanium process technology. The baseband processor and medium access
controller are designed and manufactured using submicron complementary metal
oxide semiconductor, or CMOS, process technologies.
Because we design all of the components of our wireless chip set, including
reference designs and software, we believe we provide our customers with the
best available performance and value. Providing our customers with a turnkey
wireless data radio solution enables them to have the fastest time to market for
their systems which we believe is a critical competitive advantage in this
emerging market. More than 40 companies, including Cisco, Compaq, Nokia, Samsung
and Sony, have adopted use of the PRISM(R) chip set in their products. Our PRISM
II chip set is our second-generation chip set capable of delivering high-speed
wireless networking at data rates of 11 megabits-per-second. The PRISM II chip
set incorporates advanced integrated circuit design with silicon germanium
process technology which makes the PRISM II chip set five times faster while
reducing power consumption by 50% compared to the original PRISM(R) chip set.
Since the introduction of the PRISM II chip set, we have been developing
relationships with original equipment manufacturers, including Cisco, Compaq,
Nokia, Nortel, Siemens, Sony, Symbol and 3Com, for use of the PRISM II chip set
in a variety of wireless local area network applications for home and business.
As of May 29, 2000, we acquired privately held No Wires Needed B.V., or
NWN, for 3.35 million shares of our Class A Common Stock. Based in Bilthoven,
The Netherlands, NWN provides high performance wireless-to-broadband access
point reference designs. NWN utilizes the PRISM(R) chip set together with its
own high data rate digital controller integrated circuits allowing end users to
wirelessly connect multiple computers and hand-held or Internet appliances to a
wired broadband network. NWN also provides wireless encryption software which
enhances the security of a wireless local area
7
network. Additionally, NWN has designed a high data rate digital controller
integrated circuit, which is a component we believe will enhance the performance
of future generations of our PRISM(R) chip set. The NWN digital integrated
circuit, which we refer to as a medium access controller, or MAC, is compliant
with the IEEE802.11b standard and can support data rates of up to 54
megabits-per second, which is vital for multi-channel voice and digital video in
homes and offices. The acquisition of NWN added 52 new employees.
CUSTOMERS AND APPLICATIONS
We seek to capitalize on our core competencies by focusing on the
integrated communications market. Within the integrated communications market,
our products include communication integrated circuits, power management
semiconductors and PRISM(R) wireless local area network chip sets.
END MARKETS APPLICATIONS KEY CUSTOMERS
------------------------ -------------------------------------- -------------------
Communications Wireless local area Wireless local area networks providing Cisco, Compaq,
networks, network wireless access to broadband Dell, IBM, Lucent,
communications, (cable, ethernet, xDSL, ISDN) Nokia, Nortel,
telecommunications networks, video, wired and wireless Samsung, Siemens,
telephony, home gateways, networking Sony, Symbol, 3Com
Power Management Networking and computing File servers, PC motherboards, Asustek, Compaq,
printers, workstations Dell, IBM, Intel
Outside of our targeted end markets, our remaining category is industrial
products. Applications in this category include automotive applications such as
fuel injection and ignition circuits, industrial applications including power
supplies and defense applications such as smart munitions and tactical and
strategic missiles. We sell to, among others, DaimlerChrysler, Siemens, Boeing,
Lockheed Martin and Emerson.
SALES, MARKETING AND DISTRIBUTION
In fiscal years 2000 and 1999, we derived about 60% and 66%, respectively,
of our sales from original equipment manufacturer, or OEM, customers through our
global sales organizations and 40% and 34%, respectively, of our sales through
distributors. We operate sales organizations in the Americas, Europe and the
Asia/Pacific region. Our sales organizations are supported by logistics
organizations. Product orders flow to our manufacturing facilities or to one of
our foundries where the product is made. Products are then shipped to the
customer either directly or indirectly via our warehouses in the United States,
Europe and Asia.
We have dedicated direct sales organizations operating in the Americas,
Europe and Asia/Pacific regions that serve our major OEM customers. We have
strategically located our sales offices near these major OEM customers. We also
have a large network of distributors and manufacturers' representatives to
distribute our products around the world. To serve our customer base, we
maintain a small, highly focused, direct sales force selling products for each
of our targeted product areas, combined with an extensive network of
distributors and manufacturers' representatives. Our sales force is segmented by
end-user markets, thereby ensuring each salesperson has an end-user market
expertise and focus. We also maintain a dedicated marketing organization, which
supports each product area on a regional basis.
Typically, distributors handle a wide variety of products, including
products that compete with our products, and fill orders for many customers.
Some of our sales to distributors are made under agreements allowing for market
price fluctuations and/or the right of return on some unsold merchandise.
Virtually all distribution agreements contain an industry standard stock
rotation provision allowing for minimum levels of inventory returns. In our
experience, these inventory returns can usually be resold. Manufacturers'
representatives generally do not offer products that compete directly with our
products, but may carry complementary items manufactured by others.
Manufacturers' representatives do not maintain a product inventory; instead,
their customers place large quantity orders directly with us and are referred to
distributors for smaller orders.
8
RESEARCH AND DEVELOPMENT
We believe that the continued introduction of new products in our target
markets is essential to our growth. We believe that we must continue to
innovate, enhance and expand our products and services to maintain our
leadership position, and we intend to achieve this through in-house research and
development efforts and selective acquisitions. As of June 30, 2000, we had 571
employees engaged in research and development efforts. Our research and
development efforts are focused on new product development and improvements in
process technology in our growth areas of communications and power management.
For fiscal year 2000, we allocated about 92% of our research and development
investment towards development of products for the integrated communications
market.
Our expenditures for research and development in fiscal years 1998, 1999
and 2000 were $75.1 million, $67.0 million and $78.0 million, respectively. Each
of our product areas maintains independent research and development
organizations. We work closely with our major customers in many research and
development situations to increase the likelihood that our products will be
designed directly into the customers' products and achieve rapid and lasting
market acceptance.
MANUFACTURING
We fabricate wafers at three locations in the United States--Mountaintop,
Pennsylvania, Palm Bay, Florida, and Findlay, Ohio. We also use a number of
outside wafer fabrication foundries for the manufacture of device types where we
do not have the necessary technologies resident in house. We also utilize
advanced manufacturing processes of outside foundries for certain components of
our PRISM(R) products.
We recently sold our principal assembly and test facility, located in Kuala
Lumpur, Malaysia, to ChipPAC, Inc. and entered into a multi-year supply
agreement with ChipPAC under which the Malaysian facility became our preferred
provider of semiconductor assembly and test services. We also have limited
assembly and test capability in Palm Bay, Florida. We use a number of assembly
and test subcontractors for device types and packages that cannot be assembled
and tested at ChipPAC's facility in Kuala Lumpur.
Our wafer fabs are among the most productive and efficient in the industry.
We believe we can continue to maintain competitive cost, further increase
productivity and enhance our process efficiency by investing in people and
assets, where necessary.
We utilize an extensive set of manufacturing processes to fabricate our
products, including technologies such as: ULTRAFET(R), IGBT, BiCMOS, Power
BiCMOS, High Frequency Bipolar, CMOS and Rad Hard Processes. The table below
sets forth some information regarding our manufacturing facilities, products,
wafer diameter and annual wafer capacity:
FABRICATION FACILITIES
ANNUAL CAPACITY
LOCATION PRODUCTS/FUNCTIONS WAFER DIAMETER (6" EQUIVALENT WAFERS)
- --------------------- -------------------------------------------------- ---------------- ---------------------------
Mountaintop, MOSFETs, IGBTs, rectifiers 6", 8" 420,000
Pennsylvania
Findlay, Ohio Standard linear/interface integrated circuits, 5" 120,000
power integrated circuits
Palm Bay, Florida Power integrated circuits, telecom SLICs, rad hard 4", 6" 175,000
integrated circuits
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Our manufacturing processes use many raw materials, including silicon
wafers and various chemicals and gases. We obtain our raw materials and supplies
from a large number of sources on a just-in-time basis. Although supplies for
the raw materials used by us are currently adequate, shortages could occur in
various essential materials due to interruption of supply or increased demand in
the industry.
BACKLOG
Our sales are made pursuant to purchase orders that are generally booked
from one to six months in advance of delivery. Backlog is influenced by several
factors including market demand, pricing and customer order patterns in reaction
to product lead times. Although quantities actually purchased by customers may
vary between booking and delivery to the extent customer needs or industry
conditions change, our backlog has historically been a reliable indicator of our
future revenues. Our backlog was about $188.5 million at July 3, 1998, $174.0
million at July 2, 1999 and $259.5 million at June 30, 2000. We expect to ship
the backlog at June 30, 2000 within twelve months of that date.
SEASONALITY
A lower percentage of our products is sold to the computer end-user or into
the computer market than is sold by other semiconductor manufacturers. Sales in
the computer market fluctuate more than in other semiconductor markets. As a
result, we experience less seasonal fluctuation than the semiconductor industry
as a whole. Historically, our first quarter has been the weakest due to model
year changeovers in the automotive industry and summer holiday seasons,
primarily in Europe. Our increasing focus on integrated communications products
has resulted in a higher percentage of our sales coming from the communications
markets in the second half of our fiscal year. Sales made into the
communications market generally experience less seasonality than sales of our
historical mix of products.
COMPETITION
We compete in different markets to various degrees on the basis of price,
technical performance, product features, product system compatibility,
customized design, availability, quality and sales and technical support. Our
ability to compete successfully depends on elements both within and outside of
our control, including successful and timely development of new products and
manufacturing processes, product performance and quality, manufacturing yields,
product availability, intellectual property protection obtained by us and our
competitors, customer service, pricing, industry trends and general economic
trends.
The following chart sets forth our principal competitors by business unit:
BUSINESS UNIT PRINCIPAL COMPETITORS
- -------------------------- ----------------------------------------------------------------------------
Analog & Mixed-Signal Analog Devices, Linear Technology, Semtech, Texas Instruments
Discrete Power International Rectifier, STMicroelectronics, Vishay
Wireless Lucent, Philips, Texas Instruments
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TRADEMARKS AND PATENTS
We own rights to a number of trademarks and patents that are important to
our business. Among others, we consider Intersil, PRISM(R), ULTRAFET(R) and
CommLink to be trademarks that are material to our operations.
Our corporate policy is to protect proprietary products by obtaining
patents for these products when practicable. We currently possess about 1,250
patents.
EMPLOYEES
Our worldwide workforce consisted of 2,930 employees (full- and part-time)
as of June 30, 2000, of whom 730 were represented by collective bargaining
arrangements. Of our employees, 1,715 were engaged in manufacturing, 571 were
engaged in engineering, 394 were engaged in marketing and sales, 145 were
engaged in administration and 105 were engaged in operating our management
information systems. Of our employees, 1,786 were employed in the Analog &
Mixed-Signal area; 882 were employed in the Discrete Power area; and 262 were
employed in the Wireless area. We believe that our relations with our employees
are good.
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws in the countries in which
we operate that regulate, among other things, air, ground and water emissions at
our manufacturing facilities; the management and disposal of hazardous
substances; and the investigation and remediation of environmental
contamination. As with other companies engaged in like businesses, the nature of
our operations exposes us to the risk of environmental liabilities or claims. We
believe, however, that our operations are in substantial compliance with
applicable environmental requirements. Our costs to comply with environmental
regulations were about $6.3 million, $7.4 million and $4.8 million in each of
fiscal years 1998, 1999 and 2000, respectively.
Our facilities in Findlay, Ohio have ongoing remediation projects to
respond to releases of hazardous substances that occurred prior to the
acquisition of Harris' semiconductor business. Our facilities in Mountaintop,
Pennsylvania have groundwater and subsurface soil contamination from past
operations, some of which occurred prior to Harris' acquisition of those
facilities, for which remediation has been conducted, and additional remediation
may be required. In addition, Harris' facilities in Palm Bay, Florida, a portion
of which includes our business, are listed on the National Priorities List for
clean-up under the Comprehensive Environmental Response, Compensation, and
Liability Act ("Superfund"). Remediation activities are ongoing in Palm Bay in
accordance with consent decrees entered into by Harris with the United States
Environmental Protection Agency. Harris has agreed to indemnify us for the cost
of these projects at all of our facilities,
11
including at Findlay, Ohio, Mountaintop, Pennsylvania and Palm Bay, Florida and
our former facility at Kuala Lumpur, Malaysia to the extent these costs exceed
financial reserve amounts at the time of our acquisition of the semiconductor
business of Harris. Based on the historical costs of these projects and because
the remediation projects are in advanced stages, we do not believe that the
future cleanup costs will be material, even without the indemnity.
In connection with the closure of a waste storage pad at our former Kuala
Lumpur facility in Malaysia, a June 2000 environmental investigation identified
evidence of potential releases to the groundwater of hazardous substances that
were previously stored on the pad. Based on the composition of the groundwater
impacts, it appears that the hazardous substances were those used by Harris or
its predecessors, and not us. Harris has agreed to indemnify us for addressing
environmental conditions created prior to our ownership, and accordingly we put
Harris on notice of the potential environmental claim. We sold the business
which operates out of the Kuala Lumpur, Malaysia facility to ChipPAC in June
2000 (See Business--Manufacturing) and we gave ChipPAC a similar indemnity.
ChipPAC provided us with a claim for indemnification by letter dated August 1,
2000. We do not have adequate information to determine the extent of the impacts
to groundwater, but we do not believe future cleanup costs, if needed, will be
material, even without the Harris indemnity.
Future laws or regulations and changes in existing environmental laws or
regulations may subject our operations to different, additional or more
stringent standards. While historically the cost of compliance with
environmental laws has not had a material adverse effect on our business,
financial condition or results of operations, we cannot predict with certainty
our future costs of compliance because of changing standards and requirements.
We cannot assure you that material costs will not be incurred in connection with
the future compliance with environmental laws or with future cleanup costs
related to currently unknown contamination.
Item 2. Properties
In the United States, we lease our corporate headquarters in Irvine,
California. Additional manufacturing, warehouse and office facilities are housed
in about 846,000 square feet, 445,000 square feet and 270,000 square feet of
space in properties owned by us in Palm Bay, Florida, Mountaintop, Pennsylvania
and Findlay, Ohio, respectively.
Our primary engineering activity takes place in Palm Bay, Florida and at
our other manufacturing facilities. In addition, we have engineering activities
taking place in our corporate headquarters and in leased facilities in Durham,
North Carolina (Research Triangle Park), Branchburg, New Jersey,
San Antonio, Texas, Seattle, Washington and Bilthoven, The Netherlands.
We maintain regional sales offices in Orange County, California, Palm Bay,
Florida; Burlington, Massachusetts; Dallas, Texas; San Jose, California; Munich,
Germany; Milan, Italy; Camberly, United Kingdom; and Taipei, Taiwan and other
sales offices around the world. All our offices are leased generally under short
term leases, except our offices in Palm Bay, Florida.
We believe that our facilities around the world, whether owned or leased,
are well-maintained. Our manufacturing facilities contain sufficient production
capacity to meet our needs for the foreseeable future.
12
Item 3. Legal Proceedings
From time to time we are involved in legal proceedings arising in the
ordinary course of business. A countersuit brought against Harris by Ericsson, a
competitor of Harris and one of our customers, in which patent infringement
claims have been asserted is currently pending in the Sherman Division of the
United States District Court for the Eastern District of Texas. The action was
initially instituted by Harris against Ericsson on August 17, 1998 in Dallas,
Texas. Ericsson countersued Harris, claiming infringement by Harris of four of
its patents relating to telephone subscriber line interface circuits. On
September 1, 1999, Ericsson joined us in this action. Ericsson seeks an
injunction plus damages, including lost profits and/or a reasonable royalty,
costs of suit, treble damages, prejudgment interest and attorneys' fees.
However, to the extent our liability from this litigation, if any, arises out of
the conduct of the semiconductor business by Harris prior to closing, this
liability will be covered by Harris' agreement in connection with the
acquisition of the semiconductor business to provide us with certain
indemnities.
An additional countersuit brought against Harris by
Geisting & Associates, a former sales representative, in which claims for
commissions and lost receivables on sales of our PRISM(R) chip set have been
asserted against Harris, and is pending in the United States District Court for
the Middle District of Florida-Orlando. The action was initially instituted by
Harris against Geisting on December 10, 1998. Geisting has not joined us as a
co-defendant in this action. We are litigating in Harris' name. Geisting seeks
damages, including lost profits, and attorneys' fees.
We believe that there is no litigation pending that could have,
individually or in the aggregate, a material adverse effect on our business,
financial condition or results of operations.
13
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Our Class A Common Stock has been traded on the Nasdaq Stock Market's
National Market since February 23, 2000 under the symbol "ISIL." Prior to that
time, there was no public market for our common stock, and there is currently no
public market for our Class B Common Stock. The following table sets forth, for
the periods indicated, the high and low closing prices per share of our Class A
Common Stock as reported in Nasdaq Stock Market trading.
HIGH LOW
------ ------
First quarter of 2000 (from February 23, 2000 to March 31, 2000)..................... $66.00 $46.50
Second quarter of 2000 (from April 1, 2000 to June 30, 2000)......................... $58.50 $27.50
(b) Holders. On August 11, 2000, the last reported sale price for our Class
A Common Stock was $43.00 per share. As of August 11, 2000, there were about
8,900 holders of record of our Class A Common Stock.
(c) Dividends. We have never paid a cash dividend and do not anticipate
declaring or paying any cash dividends on shares of our common stock in the
foreseable future. In addition, any determination to declare and pay dividends
will be made by our board of directors in light of our earnings, financial
position, capital requirements, contractual limitations contained in our debt
instruments and such other factors as the board of directors deems relevant.
(d) Recent Sales of Unregistered Securities.
On August 13, 1999, pursuant to an Amended and Restated Master Transaction
Agreement, we and a subsidiary acquired selected portions of the semiconductor
business of Harris (the "Acquisition"). In connection with the Acquisition, (i)
we issued an 11.13% subordinated promissory note to Harris in the principal
amount of $90.0 million; (ii) Harris paid about $9.0 million in cash to us to
purchase shares of 12% Series A Cumulative Compounding Preferred Stock
("Intersil Holding Preferred Stock") and shares of common stock ("Intersil
Holding Common Stock"); (iii) we sold to Sterling Holding Company, LLC shares of
Intersil Holding Preferred Stock and Intersil Holding Common Stock and to senior
management and other key employees and certain other investors shares of
Intersil Holding Common Stock for a total of about $81.0 million in cash, (iv)
Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to us in
exchange for a 13.5% subordinated promissory note and warrants to purchase about
3,703,707 shares of our Class A Common Stock. In addition, we granted to senior
managers a sign-on bonus in the aggregate amount of about $574,000, in the form
of options to purchase Intersil Holding Preferred Stock. We have determined that
the issuance of the subordinated notes, the Intersil Holding Preferred Stock,
the Intersil Holding Common Stock, the warrants, the options to purchase
Intersil Holding Preferred Stock were exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, or the Securities Act.
Also in connection with the Acquisition, a subsidiary of us offered Senior
Subordinated Notes due 2009, the old notes, to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act). That offering was
consummated on August 13, 1999 with the sale of 200,000 units, each unit
consisting of one 13 1/4% Senior Subordinated Note due 2009 of a subsidiary of
us with a principal amount of $1,000 and one warrant to purchase 18.5185 shares
our Class A Common Stock. An exchange offer registration statement became
effective on January 12, 2000 with respect to the exchange of the old notes for
registered notes having substantially identical terms, the new notes. A
registration statement was filed by us on November 20, 1999 to register the
warrants and the shares of Common Stock issuable upon exercise of the warrants.
Pursuant to the 1999 Equity Compensation Plan, we granted certain salaried
officers and key employees options to acquire 1,549,333 shares of Intersil
Holding Class A Common Stock, effective as of August 14, 1999. The options vest
20% per year over five years, and 20% became immediately vested upon the initial
public offering. We have determined that the issuance of the options to purchase
our Class A Common Stock were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Selected Financial Data
SELECTED HISTORICAL FINANCIAL DATA AND OTHER DATA
The following table sets forth selected historical financial data and
supplemental data for Intersil Holding and its predecessor. The historical
financial data as of and for the fiscal years 1998 and 1999 and the six weeks
ended August 13, 1999 are derived from our predecessor's audited Consolidated
Financial Statements included elsewhere herein, except for revenue categorized
by product line, which is derived from our predecessor's books and records. The
historical financial data as of and for the fiscal years 1996 and 1997, which
are not included elsewhere herein, are derived from our predecessor's unaudited
and audited Consolidated Financial Statements, respectively. The historical
financial data as of and for the 46 weeks ended June 30, 2000 are derived from
our audited Consolidated Financial Statements included elsewhere herin. This
information should be read in conjunction with the Consolidated Financial
Statements included elsewhere herein and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
PREDECESSOR PREDECESSOR SUCCESSOR
--------------------------------- --------------- -------------
46 WEEKS
FISCAL YEARS SIX WEEKS ENDED ENDED
--------------------------------- --------------- -------------
1996 1997 1998 1999 AUGUST 13, 1999 JUNE 30, 2000
------ ------ ------ ------ --------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal.................................... $393.6 $384.4 $390.4 $352.8 $ 36.3 $ 360.5
Discrete Power........................................... 176.6 154.5 176.4 161.6 18.0 187.9
Wireless................................................. -- 6.4 10.0 18.3 3.1 48.4
------ ------ ------ ------ ------- -------
Total revenue................................................. $570.2 $545.3 $576.8 $532.7 $ 57.4 $ 596.8
====== ====== ====== ====== ======= =======
Gross margin.................................................. $227.1 $199.3 $207.5 $182.9 $ 17.7 $ 244.3
Research and development...................................... 69.4 75.2 75.1 67.0 8.5 69.5
Selling, general and administrative........................... 103.6 99.3 98.2 84.0 10.9 97.2
Harris corporate expense allocation........................... 10.3 10.0 10.0 9.3 1.2 --
Intangible amortization....................................... 2.3 2.3 2.3 2.4 0.3 10.7
In-process research and development........................... -- -- -- -- -- 20.2
Other......................................................... -- -- -- -- -- 1.2
------ ------ ------ ------ ------- -------
Operating income (loss)....................................... 41.5 12.5 21.9 20.2 (3.2) 45.5
Loss on sale of Malaysian operation........................... -- -- -- -- -- 24.8
Interest, net................................................. (1.0) (0.6) (0.9) (1.2) (0.1) 38.2
------ ------ ------ ------ ------- -------
Income (loss) before income taxes and extraordinary item...... 42.5 13.1 22.8 21.4 (3.1) (17.5)
Income taxes (benefit)........................................ 2.6 1.9 9.9 (6.0) (0.1) (0.3)
------ ------ ------ ------ ------- -------
Income (loss) before extraordinary item....................... 39.9 11.2 12.9 27.4 (3.0) (17.2)
Extraordinary item--loss on extinguishment of debt, net of tax
effect...................................................... -- -- -- -- -- (25.5)
------ ------ ------ ------ ------- -------
Net income (loss)............................................. 39.9 11.2 12.9 27.4 (3.0) (42.7)
Preferred dividends........................................... -- -- -- -- -- 5.4
------ ------ ------ ------ ------- -------
Net income (loss) to common shareholders...................... $ 39.9 $ 11.2 $ 12.9 $ 27.4 $ (3.0) $ (48.1)
====== ====== ====== ====== ======= =======
BASIC AND DILUTED LOSS PER SHARE:
Loss before extraordinary item................................................................................... $ (0.30)
Extraordinary item............................................................................................... (0.33)
-------
Net loss......................................................................................................... $ (0.63)
=======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted.................................................................................................. 76.7
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents..................................... $ -- $ -- $ -- $ -- $ 1.4 $ 211.9
Total assets.................................................. 647.0 773.3 810.3 761.2 736.1 933.9
Long-term debt, including current portion..................... -- 1.4 4.1 4.6 4.5 116.6
Total shareholders' equity/business equity.................... 520.9 646.2 699.1 658.9 657.3 679.0
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to the Consolidated Financial Statements,
including the notes thereto appearing elsewhere herein. Except for historical
information, the discussions in this section of this Report contain
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those discussed below.
OVERVIEW
We are a systems oriented designer and manufacturer of analog and digital
integrated circuits and discrete semiconductors for the communications and power
management end-user markets. We provide systems level solutions for the growing
integrated communications semiconductor market. Integrated communications
semiconductors enable the convergence of voice, data and video. Within
integrated communications, we are focused on several key markets including high
data rate wireless connectivity, power management and wireless and wired
communications infrastructure. We use our expertise in digital and analog
semiconductors and radio and software design to deliver chip sets, components,
software and licensable application designs for communications equipment
customers. We sell over 4,500 products to more than 28,000 customers worldwide.
BASIS OF PRESENTATION
We were formed on August 13, 1999 through a series of transactions, in
which we and our wholly-owned subsidiary, Intersil, acquired the semiconductor
business of Harris. Intersil and its wholly-owned domestic and foreign
subsidiaries include the operations of the predecessor. Our fiscal year 2000
began on July 3, 1999 and ended on June 30, 2000.
The total purchase price of the semiconductor business acquisition was
$614.3 million, which included transaction costs of approximately $7.8 million
and deferred financing costs of $12.2 million. The consideration paid by
Intersil Holding was $504.3 million in cash, of which $420.0 million was
financed through borrowings from the senior credit facilities, the 13.25% Senior
Subordinated Notes due 2009, the 13.50% Subordinated Holding "Pay-In-Kind" (PIK)
Note and the issuance of a $90.0 million 11.13% PIK Note to Harris.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the operating results of the semiconductor business have been
included in Intersil's consolidated financial statements since the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
value. The fair value of the net assets acquired exceeded the purchase price
resulting in negative goodwill of $200.0 million. This negative goodwill was
allocated to the identified intangibles and property and equipment based on
their relative fair values. The most significant effects were to decrease
property, plant and equipment and to increase certain intangibles and
liabilities. Accordingly, certain financial information for the periods prior to
August 13, 1999 is not comparable to periods subsequent to August 13, 1999. All
statement of operations information for fiscal year 2000 represents the combined
results of the semiconductor business from July 3, 1999 through August 13, 1999
and Intersil Holding from August 14, 1999 through June 30, 2000.
On February 25, 2000, we issued 22,000,000 shares of our Class A Common
Stock in a registered underwritten initial public offering at a price of $25.00
per share. See "--Liquidity and Capital Resources."
15
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly revenue
and gross margin of our three product groups:
COMBINED
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED JULY 3, 1998 ENDED JULY 2, 1999 ENDED JUNE 30, 2000
--------------------------------- --------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
REVENUE
Analog & Mixed-Signal..... $ 96.3 $ 93.9 $ 95.2 $105.0 $ 79.8 $ 86.2 $ 88.5 $ 98.3 $ 82.8 $ 94.0 $103.4
Discrete Power............ 44.7 45.2 45.7 40.8 38.5 34.8 42.3 46.0 44.9 54.8 53.2
Wireless.................. 2.9 2.2 2.6 2.3 4.2 3.1 4.6 6.4 6.3 9.3 14.3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $143.9 $141.3 $143.5 $148.1 $122.5 $124.1 $135.4 $150.7 $134.0 $158.1 $170.9
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS MARGIN PERCENTAGE
Analog & Mixed-Signal..... 36% 42% 42% 44% 41% 39% 43% 43% 42% 45% 44%
Discrete Power............ 24 27 23 25 21 14 17 21 24 28 32
Wireless.................. 31 5 42 57 21 26 35 50 35 39 45
Total................. 32 37 36 39 34 31 35 36 36 39 41
COMBINED
FISCAL YEAR
ENDED JUNE 30, 2000
------------------------
(DOLLARS IN MILLIONS)
Q4
------
REVENUE
Analog & Mixed-Signal..... $116.6
Discrete Power............ 53.0
Wireless.................. 21.6
------
Total................. $191.2
======
GROSS MARGIN PERCENTAGE
Analog & Mixed-Signal..... 46%
Discrete Power............ 34
Wireless.................. 50
Total................. 43
Historically, our first fiscal quarter has been the weakest due to model
year changeovers in the automotive industry and summer holiday seasons,
primarily in Europe. Our increasing focus on integrated communications products
has resulted in a higher percentage of our sales coming from the communications
markets in the second half of our fiscal year. Revenues from integrated
communications products accounted for 53.1% of our total fourth quarter fiscal
year 2000 sales versus 39.1% of our total fourth quarter fiscal year 1999 sales.
Sales made into the communications market generally experience less seasonality
than sales of our historical mix of products.
The semiconductor industry has historically experienced declining selling
prices over the past 15 years, and we expect that trend to continue in the
future. We expect to realize productivity gains which will offset the decline in
average selling prices and therefore we do not anticipate a significant adverse
effect on our financial condition.
Industry demand weakened significantly in the first half of fiscal 1999 due
to widespread inventory adjustments which led to excess manufacturing capacity
and steep declines in product prices. This trend affected all three of our
product groups. Our results, and those of the industry as a whole, began to
strengthen in the third fiscal quarter of 1999, with an increase in sales of
9.1% from the second quarter to the third quarter and 11.3% from the third
quarter to the fourth quarter. We experienced sales growth of over 25% in each
of the last three quarters of fiscal year 2000 as compared to the same periods
in fiscal year 1999 due to increased demand for our communication products and
an overall improvement in market conditions. Additionally, the introduction of
our new PRISM II wireless product has accelerated growth in the Wireless product
group.
16
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data for the
periods indicated as a percentage of revenue:
FISCAL YEARS ENDED
-------------------------------------------------
COMBINED
JULY 3, 1998 JULY 2, 1999 JUNE 30, 2000
------------ ------------ -------------
Revenue:
Analog & Mixed-Signal............................... 67.7% 66.2% 60.7%
Discrete Power...................................... 30.6 30.4 31.4
Wireless............................................ 1.7 3.4 7.9
------ ------ -------
Total............................................ 100.0 100.0 100.0
------ ------ -------
Cost and Expenses:
Cost of goods sold.................................. 64.0 65.6 59.9
Research and development............................ 13.0 12.6 11.9
Selling, general and administrative................. 18.8 17.5 16.7
Intangible amortization............................. 0.4 0.5 1.7
In-process research and development................. -- -- 3.1
Other............................................... -- -- 0.2
------ ------ -------
Operating income................................. 3.8 3.8 6.5
Loss on sale of Malaysian operation.............. -- -- 3.8
Interest, net....................................... (0.2) (0.2) 5.9
------ ------ -------
Income (loss) before income taxes and extraordinary
item............................................. 4.0 4.0 (3.2)
Income taxes (benefit)................................ 1.8 (1.1) (0.1)
------ ------ -------
Income (loss) before extraordinary item............... 2.2 5.1 (3.1)
Extraordinary item--loss on extinguishment of debt,
net of tax effect................................... -- -- (3.9)
------ ------ -------
Net income (loss)..................................... 2.2% 5.1% (7.0)%
====== ====== =======
FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999
Revenue
Revenue for fiscal year 2000 increased 22.8% to $654.2 million from
$532.7 million in fiscal year 1999. This growth is the result of increased
demand for communications products and overall improved market conditions.
Wireless sales growth of 181% was driven by increased market acceptance of our
PRISM(R) products.
Geographically, 49.2%, 22.0% and 28.8% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, during fiscal year 2000,
compared to 53.5%, 24.6% and 21.9%, respectively, in fiscal year 1999. This
change in mix is the result of increased demand from Asian-based customers and
from other customers moving manufacturing facilities to Asia.
Gross Margin
Cost of goods sold consists primarily of purchased materials, labor and
overhead (including depreciation) associated with product manufacturing, plus
royalty, warranty and sustaining engineering expenses pertaining to products
sold. Gross margin on product sales increased 43.2% to $262.0 million in fiscal
year 2000 from $182.9 million in fiscal year 1999. As a percentage of sales,
gross margin was 40.0% in fiscal year 2000 as compared to 34.3% in fiscal year
1999. This increase was primarily due to increased capacity utilization in all
three fabrication facilities, improved product costs from yield enhancements and
manufacturing cost improvement projects. Additionally, wireless products, which
generally carry higher margins, increased as a
17
percentage of our total sales. Headcount reductions and a decrease in
depreciation expense resulting from a revaluation of our property and equipment
due to purchase accounting also contributed to the margin improvement.
Research and Development ("R&D")
R&D expenses consist primarily of salaries and selected costs of employees
engaged in product/process research, design and development activities, as well
as related subcontracting activities, prototype development, cost of design
tools and technology license agreement expenses. R&D expenses increased 16.4% to
$78.0 million in fiscal year 2000 from $67.0 million in fiscal year 1999. The
increase was the result of our continued investment in PRISM(R) chip sets and in
power management integrated circuits, focusing in the categories of
communications and computing products. As a percentage of sales, R&D expenses
declined slightly to 11.9% in fiscal year 2000 from 12.6% in fiscal year 1999.
In-Process R&D Charge
In connection with the acquisition of the semiconductor business of Harris,
we allocated $20.2 million of the purchase price to in-process R&D projects. At
the date of acquisition, the development of these projects had not yet reached
technological feasibility and the in-process R&D had no alternative future uses.
Accordingly, these costs were expensed as a one-time charge to earnings in the
combined fiscal year ended June 30, 2000.
In making the purchase price allocation, we relied on present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contribution and project risk. The amounts
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established,
and by estimating the costs to develop the purchased in-process R&D into
commercially viable products and discounting the net cash flows to their present
value. The fair values assigned prior to allocation of negative goodwill to each
of the significant projects and the state of completion are reported below.
Fair Value Stage of
Product (in millions) Completion
------- ------------- ----------
SMPS IGBT ................................. $ 2.4 60%
PRISM II .................................. 2.4 90
HTP 6601/2/3 .............................. 1.5 75
HC 1540 ................................... 0.4 80
HC 7581 ................................... 3.4 60
HIP 6210/6220 ............................. 2.4 50
DC to DC Power Converters ................. 2.2 35
Gen III Radiation Hardened MOSFETs ........ 8.0 60
Other ..................................... 6.3 38
-------
Total ................................ $ 29.0
=======
Development efforts for these R&D projects include various phases of
design, development and testing. The SMPS IGBT, PRISM II, HIP 6601/2/3 and HC
1540 projects were completed as of June 30, 2000 on schedule and within the
original cost estimates. The remaining projects are anticipated to be completed
by January 2001. Expenditures to complete these projects are expected to total
approximately $1.8 million.
These estimates are subject to change given the uncertainies of the
development process, and no assurance can be given that deviations from these
estimates will not occur. However, there is risk associated with the completion
of the projects and there can be no assurance that any will meet with either
technological or commercial success.
Selling, General and Administrative ("SG&A")
SG&A costs, which include marketing, selling, general and administrative
expenses, increased 17.1% to $109.3 million in fiscal year 2000 from
$93.3 million in fiscal year 1999. The increase was due to additional selling
costs resulting from higher sales in fiscal year 2000 and additional marketing
costs associated with our new company branding initiative. Operating expenses
include charges allocated by Harris to us for legal, financial and other
administrative expenses of $1.2 million for the six weeks ended August 13, 1999,
and $9.3 million for the twelve months ended July 2, 1999. As a percentage of
sales, SG&A costs decreased to 16.7% in fiscal year 2000 from 17.5% in fiscal
year 1999.
Intangible Assets
Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. We also recorded goodwill in June 2000
as a result of the acquisition of No Wires Needed B.V. These assets are being
amortized over their useful lives ranging from five to eleven years.
Loss on Sale of Malaysian Operation
On June 30, 2000, we completed the sale of our Kuala Lumpur, Malaysia-based
semiconductor assembly and test operations to ChipPAC, Inc. As consideration for
the sale we received approximately $52.5 million in cash and $15.8 million in
ChipPAC preferred convertible stock and we recognized a non-recurring, non-cash
charge of $24.8 million for loss on sale.
Interest Expense
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities. See "--Liquidity and Capital Resources."
Interest expense related to this debt for Intersil Holding during the fiscal
year 2000 was $41.9 million, excluding interest income of $3.8 million.
18
Extraordinary Item
On February 25, 2000, we issued 22,000,000 shares of our Class A Common
Stock in a registered underwritten initial public offering. From the proceeds of
the offering, we repaid approximately $419.0 million of debt incurred through
the acquisition of the semiconductor business, which included certain prepayment
penalties and accrued interest. In connection with the early extinguishment of
debt, we recorded extraordinary charges (net of tax effect) of $25.5 million.
The extraordinary charges consisted of the write-off of deferred financing fees
and prepayment penalties.
Tax Expense
The tax benefit for the combined twelve months ended June 30, 2000 is not
comparable to the twelve months ended July 2, 1999, due to the differences in
our tax structure as compared to that of the semiconductor business of Harris.
Backlog
We had backlog at June 30, 2000 of $259.5 million compared to
$174.0 million at July 2, 1999. The increase was due to increased demand for our
integrated communications products and improved market conditions.
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
Revenue
Revenue for fiscal year 1999 decreased 7.6% to $532.7 million from $576.8
million in fiscal year 1998. This decrease was the result of continued soft
market conditions and resulting adverse effects on semiconductor demand. This
trend continued through the second quarter of fiscal 1999. We believe that the
principal causes for the decline were initially high inventory levels of our
products at our distributors, which decreased 17% from fiscal year 1998 to
fiscal year 1999, as well as high levels of inventory at customers. This was
followed by an overall drop in global semiconductor demand of 8.5% in calendar
year 1998. Particularly hard hit were our Discrete Power products where prices
of power metal oxide semiconductor field effect transistors, or MOSFETs,
declined by nearly 15%. Additionally, distributors and major original equipment
manufacturers reduced the amount of pipeline inventory in the channel, taking
advantage of the shorter lead-times and lower prices. During the third fiscal
quarter of 1999, we began to experience an increase in new orders, which
resulted in a 9.1% increase in sales in the third quarter versus the preceding
quarter. The positive trend continued into the fourth quarter with an increase
in sales of 11.3% from the third quarter.
Geographically, 53.5%, 24.6% and 21.9% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, during fiscal year 1999,
compared to 53.8%, 28.0% and 18.2% in fiscal year 1998. Gross Margin
Gross margin on product sales declined 11.9% to $182.9 million in fiscal
year 1999 from $207.5 million in fiscal year 1998. As a percent of sales, gross
margin was 34.3% in fiscal year 1999 and 36.0% in fiscal year 1998. This
decrease was substantially due to price pressure worldwide for our Discrete
Power products and a $13.2 million increase in our depreciation expense
resulting from the additional capital expenditures that went into our 8-inch
wafer fab in Mountaintop, Pennsylvania. Our gross margin decline was partially
offset by a series of cost reduction initiatives which resulted in lower
operating costs and improved pricing and terms with our suppliers of raw
materials.
R&D
R&D expenses decreased 10.8% to $67.0 million in fiscal year 1999 from
$75.1 million in fiscal year 1998. During fiscal year 1999, we focused our
resources on targeted applications and reduced programs that did not support our
emphasis. Major investment continued on the PRISM(R) chip set which addresses
the wireless local area network
19
market. R&D for products designed for the power management market was
principally focused on computing and communications which led our growth of new
product revenue during fiscal year 1999.
SG&A
SG&A costs decreased 13.8% to $93.3 million in fiscal year 1999 from $108.2
million in fiscal year 1998. The decrease in SG&A was primarily due to increased
efficiencies resulting from a reorganization of the internal sales force and
external sales representative firms and reduction of administrative expenses
including headcount reductions. Operating expenses include allocated charges by
Harris to us for legal, financial and other administrative expenses of
$9.3 million for fiscal year 1999 and $10.0 million for fiscal year 1998. As a
percentage of sales, SG&A costs decreased to 17.5% in fiscal year 1999 from
18.8% in fiscal year 1998.
Tax Expenses
The tax benefit of $6.0 million in fiscal year 1999 was primarily driven by
changes in the Malaysian tax system, resulting in fiscal year 1999 income not
being subject to tax.
Backlog
We had backlog at July 2, 1999 of $174.0 million compared to backlog of
about $188.5 million at July 3, 1998. The decrease in backlog was primarily due
to shorter industry lead-times.
LIQUIDITY AND CAPITAL RESOURCES
On February 25, 2000, we issued 22,000,000 shares of Class A Common Stock
at a price of $25.00 per share. We received net proceeds from this offering,
after deducting underwriting discounts and commissions and other fees, of
approximately $513.1 million, of which $435.2 million was subsequently used to
repay debt incurred as a result of our acquisition of the semiconductor business
of Harris.
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities, which provided for a Revolving Credit
Facility in an aggregate amount up to $70.0 million. We may request, subject to
the agreement of our lenders, that the amount of the Revolving Credit Facilities
be increased to as much as $150 million. The Revolving Credit Facility will
mature in 2005 unless terminated earlier and was undrawn as of June 30, 2000.
Our principal capital requirements are to fund working capital needs, to
meet required debt payments and to complete planned maintenance and expansion.
We anticipate that our operating cash flow and our cash on hand, together with
available borrowings under the Revolving Credit Facility, will be sufficient to
meet our working capital, capital expenditure and interest requirements on our
debt obligations for the foreseeable future. As of June 30, 2000, our total debt
and shareholders' equity was $116.6 million and $679.0 million, respectively.
Because our business was operated as a subsidiary of Harris during fiscal
year 1998 to August 13, 1999, we do not believe our prior years' cash flows are
indicative of our business on a stand-alone basis. Net cash generated by
operating activities for the fiscal year ended June 30, 2000 was
$111.1 million. Net cash provided by investing activities for the fiscal year
ended June 30, 2000 was $13.7 million. Net cash used to repay debt for the
twelve months ended June 30, 2000 was $435.2 million. Our cash and cash
equivalents balance at June 30, 2000 was $211.9 million.
Our Revolving Credit Facility and the indenture governing the Notes contain
financial covenants and restrictions including restrictions on our ability to
pay cash dividends or to effect mergers or acquisitions, incur certain
indebtedness or to make certain investments without prior approval. We are
currently in compliance with such financial covenants and restrictions.
20
Receivables and Inventories
Trade accounts receivable less the allowance for collection losses totaled
$111.7 million at June 30, 2000 compared to $100.7 million at July 2, 1999. This
increase was due to higher product shipments from increased demand. Inventories
declined 17.8% from $153.8 million at July 2, 1999 to $126.5 million at
June 30, 2000. The inventory decrease was a result of the sale of our Malaysian
operation and a management initiative to reduce our inventory through portfolio
management and process improvements.
Distributor reserves have fluctuated from year to year based on the level
of inventory at distributors. The reserve increased 13.8% from $6.5 million at
July 2, 1999 to $7.4 million at June 30, 2000 resulting from increasing
inventory levels at distributors in response to higher demand and overall market
improvement.
Capital Expenditures
Capital expenditures for the fiscal year ended June 30, 2000 were
$40.7 million compared to $38.6 million in fiscal year 1999. We do not
anticipate substantial capital expenditures in the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. (SFAS) 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of SFAS 133."
SFAS 137 amends Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," to defer its effective date
to all fiscal quarters of all fiscal years beginning after June 15, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments including standalone instruments, as forward currency exchange
contracts and interest rate swaps or embedded derivatives and requires that
these instruments be marked-to-market on an ongoing basis. These market value
adjustments are to be included either in the income statement or shareholders'
equity, depending on the nature of the transaction. We are required to adopt
SFAS 133 in the first quarter of our fiscal year 2001. We believe that SFAS 133
will not have a material adverse effect on our financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued SAB
No. 101, "Revenue Recognition in Financial Statements," which provides guidance
on the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 outlines the basic criteria that must
be met to recognize revenue and provides guidance for disclosure related to
revenue recognition policies. We believe that SAB No. 101 will not have a
material effect on our financial position or results of operations.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25." Among other issues, this
interpretation clarifies the definition of employees for purposes of applying
Opinion No. 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in the
interpretations cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation is recognized on a prospective basis from July 1, 2000. We are
currently reviewing our stock grants to determine the impact, if any, that may
arise from implementation of this interpretation, although we do not expect the
impact, if any, to be material to our financial statements.
21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of doing business, we are exposed to the risks
associated with foreign currency exchange rates and changes in interest rates.
We employ established policies and procedures governing the use of financial
instruments to manage our exposure to these risks.
In August 1999, we began to use foreign exchange contracts to hedge
anticipated foreign cash flow commitments of up to six months. Hedges on
anticipated foreign cash flow commitments do not qualify for deferral and,
therefore, gains and losses on changes in the fair market value of the foreign
exchange contracts are recognized in income.
Prior to August 1999, we used foreign exchange contracts and options to
hedge both balance sheet and off-balance sheet foreign currency commitments.
Specifically, these foreign exchange contracts offset foreign currency
denominated inventory and purchase commitments from suppliers, accounts
receivable from, and future committed sales to, customers and intercompany
loans. Foreign currency financial instruments were used to reduce the risks that
arise from doing business in international markets.
At June 30, 2000, we had open foreign exchange contracts with a notional
amount of $30.9 million, all of which were to hedge anticipated foreign cash
flow commitments. At July 2, 1999, we had open foreign exchange contracts with a
notional amount of $22.0 million, all of which were to hedge off-balance-sheet
commitments. Additionally, during fiscal year 2000, we purchased and sold
$87.4 million of foreign exchange forward and option contracts, compared to
$120.7 million for the prior year. See Note O "Financial Instruments" in the
Notes to Consolidated Financial Statements for further information with respect
to commitments to buy or sell foreign currencies. Our hedging activities provide
only limited protection against currency exchange risks. Factors that could
impact the effectiveness of our hedging programs include accuracy of sales
estimates, volatility of currency markets and the cost and availability of
hedging instruments. A 10% adverse change in currency exchange rates for our
foreign currency derivatives held at June 30, 2000, would have an impact of
approximately $3.8 million on the fair value of these instruments. This
qualification of exposure to the market risk associated with foreign exchange
financial instruments does not take into account the offsetting impact of
changes in the fair value of our foreign denominated assets, liabilities and
firm commitments.
As of June 30, 2000, we also had fixed rate debt of approximately
$116.6 million consisting primarily of the 13.25% Senior Subordinated Notes due
2009. For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows.
Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements, and the related Notes
thereto, of Intersil Holding Corporation and the Independent Certified Public
Accountants' Report are filed as a part of this Report.
22
INDEX TO FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
PAGE
----
Independent Certified Public Accountants' Report........................................................... 24
Consolidated Statements of Operations and Comprehensive Income............................................. 25
Consolidated Balance Sheets................................................................................ 26
Consolidated Statements of Cash Flows...................................................................... 27
Consolidated Statement of Shareholders' Equity............................................................. 28
Notes to Consolidated Financial Statements................................................................. 29
23
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors
Intersil Holding Corporation
We have audited the accompanying consolidated balance sheet of Harris
Semiconductor Business (Semiconductor Business) (Predecessor), which was wholly
owned by Harris Corporation, as of July 2, 1999 and the related statement of
operations, comprehensive income and cash flows for each of the two fiscal years
in the period ended July 2, 1999 and the six weeks ended August 13, 1999,
respectively. We have also audited the accompanying consolidated balance sheet
of Intersil Holding Corporation (Successor) as of June 30, 2000 and the related
statements of operations, comprehensive income, shareholders' equity, and cash
flows for the 46 weeks ended June 30, 2000. Our audits also included the
financial statement schedule listed at Item 16. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying Predecessor consolidated financial statements were prepared on
the basis of presentation as described in Note A. The results of operations are
not necessarily indicative of the results of operations that would be recorded
by Semiconductor Business on a stand-alone basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intersil Holding
Corporation as the Successor and Predecessor companies at June 30, 2000 and
July 2, 1999 and the consolidated results of their operations and their cash
flows for each of the two years in the period ended July 2, 1999 and for the six
weeks and 46 weeks ended August 13, 1999 and June 30, 2000, respectively, on the
basis described in Note A, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Jacksonville, Florida Ernst & Young LLP
July 21, 2000
24
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR PREDECESSOR SUCCESSOR
---------------------------- --------------- --------------
FISCAL YEAR ENDED SIX WEEKS ENDED 46 WEEKS ENDED
---------------------------- --------------- --------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUE
Product sales................................................ $576,836 $532,718 $ 57,336 $596,849
COSTS AND EXPENSES
Cost of product sales........................................ 369,332 349,776 39,681 352,513
Research and development..................................... 75,125 67,079 8,499 69,456
Selling, general and administrative.......................... 98,184 83,998 10,908 97,227
Harris corporate expense allocation.......................... 9,962 9,303 1,164 --
Intangible amortization...................................... 2,292 2,414 326 10,686
In-process research and development.......................... -- -- -- 20,239
Other........................................................ -- -- -- 1,178
-------- -------- --------- --------
Operating income (loss)........................................ 21,941 20,148 (3,242) 45,550
Loss on sale of Malaysian operation.......................... -- -- -- 24,825
Interest expense............................................. 43 129 -- 41,924
Interest income.............................................. (957) (1,360) (111) (3,720)
-------- -------- --------- --------
Income (loss) before income taxes and
extraordinary item........................................ 22,855 21,379 (3,131) (17,479)
Income taxes (benefit)....................................... 9,944 (6,027) (102) (289)
-------- -------- --------- --------
Net income (loss) before extraordinary item.................. 12,911 27,406 (3,029) (17,190)
Extraordinary item--loss on extinguishment of debt, net of
tax effect................................................ -- -- -- (25,518)
-------- -------- --------- --------
NET INCOME (LOSS).............................................. 12,911 27,406 (3,029) (42,708)
Preferred dividends............................................ -- -- -- 5,391
-------- -------- --------- --------
Net income (loss) to common shareholders....................... $ 12,911 $ 27,406 $ (3,029) $(48,099)
======== ======== ========= ========
BASIC AND DILUTED LOSS PER SHARE:
Loss before extraordinary item............................... $ (0.30)
Extraordinary item........................................... $ (0.33)
--------
Net loss..................................................... $ (0.63)
========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN MILLIONS):
Basic and diluted............................................ 76.7
========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PREDECESSOR PREDECESSOR SUCCESSOR
---------------------------- --------------- --------------
FISCAL YEAR ENDED SIX WEEKS ENDED 46 WEEKS ENDED
---------------------------- --------------- --------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- --------------
(IN THOUSANDS)
Net income (loss).............................................. $ 12,911 $ 27,406 $(3,029) $(42,708)
Other comprehensive income (loss):
Currency translation adjustments............................. (1,851) (574) 2,475 1,636
-------- -------- ------- --------
Comprehensive income (loss).................................... $ 11,060 $ 26,832 $ (554) $(41,072)
======== ======== ======= ========
See Notes to Consolidated Financial Statements.
25
INTERSIL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
PREDECESSOR SUCCESSOR
------------ -------------
JULY 2, 1999 JUNE 30, 2000
------------ -------------
(IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents....................................................................... $ -- $ 211,940
Trade receivables, less allowances for collection loss ($582 as of July 2, 1999 and $1,341 as of
June 30, 2000)................................................................................ 100,674 111,695
Inventories..................................................................................... 153,822 126,481
Prepaid expenses................................................................................ 3,725 10,645
Income tax receivable........................................................................... 1,527 1,254
Deferred income taxes........................................................................... 3,476 25,768
-------- ---------
Total Current Assets....................................................................... 263,224 487,783
Other Assets
Property, plant and equipment, less allowance for depreciation ($582,616 as of July 2, 1999 and
$36,699 as of June 30, 2000).................................................................. 410,530 225,484
Intangibles, less accumulated amortization ($19,929 as of July 2, 1999 and $10,686
as of June 30, 2000).......................................................................... 45,368 190,150
Other........................................................................................... 42,057 30,521
-------- ---------
Total Other Assets......................................................................... 497,955 446,155
-------- ---------
Total Assets...................................................................................... $761,179 $ 933,938
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY/BUSINESS EQUITY
Current Liabilities
Trade payables.................................................................................. $ 31,068 $ 36,991
Retirement plan accruals........................................................................ 13,640 6,228
Accrued compensation............................................................................ 19,283 32,398
Accrued interest and sundry taxes............................................................... 3,193 10,512
Other accrued items............................................................................. 16,418 22,734
Distributor reserves............................................................................ 6,542 7,366
Unearned service income......................................................................... 567 129
Long-term debt--current portion................................................................. 360 404
-------- ---------
Total Current Liabilities.................................................................. 91,071 116,762
Other Liabilities
Deferred income taxes........................................................................... 7,022 21,992
Long-term debt.................................................................................. 4,207 116,188
Shareholders' Equity/Business Equity
Preferred Stock, $1,000 par value, 100,000 shares authorized, no shares issued or
outstanding at June 30, 2000.................................................................. -- --
Class A Common Stock, $.01 par value, voting; 300,000,000 shares authorized, 44,773,152 shares
issued and outstanding at June 30, 2000....................................................... -- 448
Class B Common Stock, $.01 par value, non-voting; 300,000,000 shares authorized, 49,746,482
shares issued and outstanding at June 30, 2000................................................ -- 497
Additional paid-in capital...................................................................... -- 719,123
Business equity................................................................................. 661,388 --
Retained deficit................................................................................ -- (42,708)
Accumulated other comprehensive (loss) income................................................... (2,509) 1,636
-------- ---------
Total Shareholders' Equity/Business Equity................................................. 658,879 678,996
-------- ---------
Total Liabilities and Shareholders' Equity/Business Equity................................. $761,179 $ 933,938
======== =========
See Notes to Consolidated Financial Statements.
26
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR
PREDECESSOR ---------------
---------------------------- SIX WEEKS
FISCAL YEAR ENDED ENDED
---------------------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999
------------ ------------ ---------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)............................................ $ 12,911 $ 27,406 $ (3,029)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation............................................... 65,036 78,217 8,747
Amortization............................................... 2,295 2,414 326
Provisions for inventory obsolescence...................... 7,317 3,894 1,919
Write-off of in-process research and development........... -- -- --
Write-off of unearned compensation......................... -- -- --
Loss on sale of Malaysian operation........................ -- -- --
Non-current deferred income taxes.......................... (461) 1,896 (4,756)
Changes in assets and liabilities:
Trade receivables.......................................... 1,270 10,001 14,532
Inventories................................................ (17,176) 22,516 (3,568)
Prepaid expenses........................................... 506 933 674
Trade payables and accrued liabilities..................... (14,399) (13,950) (18,705)
Unearned service income.................................... (32) 319 --
Income taxes............................................... (3,866) (4,486) 4,430
Other...................................................... (5,070) (17,911) 2,812
-------- -------- ---------
Net cash provided by operating activities................ 48,331 111,249 3,382
INVESTING ACTIVITIES:
Proceeds from sale of Malaysian operation...................... -- -- --
Cash paid for acquired business................................ -- (1,335) --
Property, plant and equipment.................................. (90,184) (38,563) (1,887)
-------- -------- ---------
Net cash provided by (used in) investing activities...... (90,184) (39,898) (1,887)
FINANCING ACTIVITIES:
Proceeds from offering....................................... -- -- --
Proceeds from exercise of stock options...................... -- -- --
Proceeds from borrowings..................................... 2,750 800 --
Payments of borrowings....................................... (83) (302) (32)
Net cash transfer and billings from (to) parent.............. 41,844 (67,030) (1,198)
-------- -------- ---------
Net cash provided by (used in) financing activities...... 44,511 (66,532) (1,230)
Effect of exchange rates on cash and cash equivalents........ (2,658) (4,819) 1,177
-------- -------- ---------
Net increase in cash and cash equivalents................ -- -- 1,442
Cash and cash equivalents at the beginning of the
period................................................ -- -- --
-------- -------- ---------
Cash and cash equivalents at the end of the period....... $ -- $ -- $ 1,442
======== ======== =========
SUPPLEMENTAL DISCLOSURES--NON-CASH ACTIVITIES:
Exchange of preferred stock for common stock...................................................................
Common Stock issued in acquisition of No Wires Needed B.V......................................................
Additional paid-in capital from tax benefit on
exercise of non-qualified stock options......................................................................
SUCCESSOR
-----------------
46 WEEKS ENDED
-----------------
JUNE 30, 2000
-----------------
OPERATING ACTIVITIES:
Net income (loss)............................................ $ (42,708)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation............................................... 50,602
Amortization............................................... 10,686
Provisions for inventory obsolescence...................... 23,906
Write-off of in-process research and development........... 20,239
Write-off of unearned compensation......................... 878
Loss on sale of Malaysian operation........................ 24,825
Non-current deferred income taxes.......................... (4,680)
Changes in assets and liabilities:
Trade receivables.......................................... (24,991)
Inventories................................................ (5,668)
Prepaid expenses........................................... (7,737)
Trade payables and accrued liabilities..................... 43,046
Unearned service income.................................... (437)
Income taxes............................................... 2,290
Other...................................................... 20,898
---------
Net cash provided by operating activities................ 111,139
INVESTING ACTIVITIES:
Proceeds from sale of Malaysian operation...................... 52,500
Cash paid for acquired business................................ --
Property, plant and equipment.................................. (38,813)
---------
Net cash provided by (used in) investing activities...... 13,687
FINANCING ACTIVITIES:
Proceeds from offering....................................... 513,114
Proceeds from exercise of stock options...................... 1,985
Proceeds from borrowings..................................... --
Payments of borrowings....................................... (435,204)
Net cash transfer and billings from (to) parent.............. --
---------
Net cash provided by (used in) financing activities...... 79,895
Effect of exchange rates on cash and cash equivalents........ (158)
---------
Net increase in cash and cash equivalents................ 204,563
Cash and cash equivalents at the beginning of the
period................................................ 7,377
---------
Cash and cash equivalents at the end of the period....... $ 211,940
=========
SUPPLEMENTAL DISCLOSURES--NON-CASH ACTIVITIES:
Exchange of preferred stock for common stock................. $ 89,400
=========
Common Stock issued in acquisition of No Wires Needed B.V.... $ 111,348
=========
Additional paid-in capital from tax benefit on
exercise of non-qualified stock options.................... $ 2,132
=========
See Notes to Consolidated Financial Statements.
27
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------ PAID-IN RETAINED COMPREHENSIVE
CLASS A CLASS B CAPITAL DEFICIT INCOME TOTAL
------- ------- ---------- -------- ------------- --------
(IN THOUSANDS)
Initial capitalization at August 14, 1999............. $ 158 $ 509 $ 5,935 $ -- $ -- $ 6,602
Net (loss)............................................ -- -- -- (42,708) -- (42,708)
Shares issued in initial public offering.............. 220 -- 512,894 -- -- 513,114
Shares issued under Stock Option Plan................. 2 -- 4,115 -- -- 4,117
Shares sold to certain executives and foreign
employees........................................... -- -- 878 -- (878) --
Write-off of unearned compensation.................... -- -- -- -- 878 878
Shares issued for acquisition of No Wires Needed
B.V................................................. 30 -- 111,318 -- -- 111,348
Exchange of preferred stock........................... 26 -- 89,374 -- -- 89,400
Exchange of common stock.............................. 12 (12) -- -- -- --
Preferred dividends................................... -- -- (5,391) -- -- (5,391)
Foreign currency translation.......................... -- -- -- -- 1,636 1,636
----- ----- -------- -------- ------- --------
Balance at June 30, 2000.............................. $ 448 $ 497 $719,123 $(42,708) $ 1,636 $678,996
===== ===== ======== ======== ======= ========
See Notes to Consolidated Financial Statements.
28
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Intersil Holding Corporation (Intersil Holding or Successor) was formed on
August 13, 1999 through a series of transactions in which Intersil Holding and
its wholly-owned subsidiary, Intersil Corporation (Intersil), acquired the
semiconductor business (semiconductor business or Predecessor) of Harris
Corporation (Harris) (the acquisition). Intersil Holding currently has no
operations but holds common stock related to its investment in Intersil.
Intersil and its wholly-owned domestic and foreign subsidiaries include the
operations of the Predecessor.
BASIS OF PRESENTATION
The accompanying Successor consolidated financial statements subsequent to
August 13, 1999 include the accounts of Intersil Holding and Intersil
(collectively, the Company). All material intercompany transactions have been
eliminated in consolidation. The consolidated balance sheet as of July 2, 1999
and the consolidated statements of operations, comprehensive income and cash
flows for the fiscal years ended July 3, 1998 and July 2, 1999 and the six weeks
ended August 13, 1999 include the accounts of the semiconductor business, the
Predecessor company.
Accordingly, the consolidated financial statements include the power,
communications, space and defense product lines of Harris' Semiconductor
Business that were purchased in the transaction. The transaction did not include
Harris' semiconductor suppression business or photomask operations or certain
patents in the memory field that were retained by Harris. The semiconductor
business, which was wholly-owned by Harris, designs, manufactures and sells
discrete semiconductors and standard and custom integrated circuits to the
semiconductor markets. The semiconductor business' manufacturing facilities
perform manufacturing operations related to other Harris Semiconductor Product
Lines. The semiconductor business was not a separate legal entity and the assets
and liabilities associated with the semiconductor business were components of a
larger business.
The Predecessor's consolidated statements of operations include all
revenues and costs attributable to the semiconductor business. For cost of
sales, material costs are directly attributable to a product line and are
charged accordingly. Indirect costs are assigned using activity based costing.
Operating expenses (engineering, marketing, and administration & general) have
been allocated to the product lines based on sales or labor, as appropriate.
Harris corporate expense allocations were based on a percentage of the
semiconductor business' net sales. Interest expense was provided on direct
borrowings of the semiconductor business. Interest expense of Harris has not
been allocated to the Semiconductor Business.
All of the allocations and estimates in the Predecessor's combined
statements of operations are based on assumptions that management believes are
reasonable under the circumstances. However, these allocations and estimates are
not necessarily indicative of the costs that would have resulted if the
Semiconductor Business had been operated on a stand alone basis.
The semiconductor business sells products to other affiliated operations of
Harris. Sales to these operations are not material.
ACQUISITION OF HARRIS' SEMICONDUCTOR BUSINESS
The total purchase price of the semiconductor business acquisition was
$614.3 million, which included transaction costs of approximately $7.8 million
and deferred financing costs of $12.2 million (Note H). The consideration paid
by Intersil Holding was $504.3 million in cash of which $420.0 million was
financed
29
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
through borrowings from the senior credit facilities, the 13.25% Senior
Subordinated Notes and 13.5% Subordinated Holding "Pay-In-Kind" (PIK) Note and
the issuance of a $90.0 million PIK Note note to Harris.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the operating results of the Semiconductor Business have been
included in Intersil's consolidated financial statements since the date of
acquisition. The total purchase price was allocated to the assets and
liabilities of the Semiconductor Business based upon their approximate fair
values. The fair values of the net assets acquired exceeded the purchase price
resulting in negative goodwill. This negative goodwill was allocated to the
identified intangibles and property and equipment based on their relative fair
values as follows (in millions).
Purchase price:
Cash paid to Harris........................... $ 504.3
13.5% Subordinated PIK Note................... 90.0
Transaction costs and fees.................... 20.0
-------
Total purchase price............................ $ 614.3
=======
ALLOCATION OF
FAIR VALUE OF EXCESS FAIR ADJUSTED
ACQUIRED ASSETS VALUE FAIR VALUE
--------------- ------------- -------------
Net current assets.............................. $ 160.6 $ -- $ 160.6
Other........................................... 17.2 -- 17.2
Property and equipment.......................... 481.0 (153.2) 327.8
Developed Technology............................ 80.0 (23.9) 56.1
Customer base................................... 33.0 (10.0) 23.0
In-process research and development............. 29.0 (8.8) 20.2
Assembled workforce............................. 13.5 (4.1) 9.4
------- ------- -------
$ 814.3 $(200.0) $ 614.3
======= ======= =======
Excess fair value of net assets acquired over
purchase price................................ $ 200.0
=======
The appraisal of the acquired semiconductor business included $20.2 million
of purchased in-process research and development, which was related to various
products under development. This valuation represents the 10 year after-tax cash
flow of this in-process technology using a discount rate of 20%. The acquired
technology had not yet reached technological feasibility and had no future
alternative uses. Accordingly, it was written off at the time of the
acquisition. The remaining identified intangibles (developed technology,
customer base and assembled workforce) are being amortized over 5 to 11 years.
In connection with the acquisition of the semiconductor business, Intersil
formulated a restructuring plan that included the termination of the employment
of 372 employees of the semiconductor business. At
30
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
August 13, 1999, Intersil recorded $11.0 million in severance benefits and this
is included in the allocation of the acquisition cost. The severance includes
the following:
NO. OF
LOCATION EMPLOYEES AMOUNTS
- --------------------------------------------------------------------- --------- -------------
(IN MILLIONS)
Europe............................................................... 17 $ 5.6
Malaysia............................................................. 262 1.9
North America........................................................ 93 3.5
--- -----
372 $11.0
=== =====
For the 46 weeks ended June 30, 2000, approximately $10.1 million of these
restructuring costs had been paid out. As of June 30, 2000, the restructuring
liability was $0.9 million. Intersil Holding will complete the restructing plan
by the end of August 2000.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The 1998 fiscal year includes the 53 weeks ended July 3, 1998;
fiscal year 1999 includes the 52 weeks ended July 2, 1999; and fiscal year 2000
includes the six weeks ended August 13, 1999 and the 46 weeks ended June 30,
2000.
CASH AND CASH EQUIVALENTS--Intersil Holding considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
INVENTORIES--Inventories are carried at the lower of standard cost, which
approximates actual cost, determined by the First-In-First-Out (FIFO) method, or
market.
PROPERTY, PLANT AND EQUIPMENT--Machinery and equipment are carried on the
basis of cost. The estimated useful lives of buildings range between 5 and
50 years. The estimated useful lives of machinery and equipment range between 3
and 10 years. Depreciation is computed by the straight-line method using the
estimated useful life of the asset.
REVENUE RECOGNITION--Revenue is recognized from sales to all customers,
including distributors, when a product is shipped. Sales to distributors are
made under agreements which provide the distributors rights of return and price
protection on unsold merchandise they hold. Accordingly, sales are reduced for
estimated returns from distributors and estimated future price reductions of
unsold merchandise held by distributors. Product sales to two distributors for
the fiscal years ended July 3, 1998 and July 2, 1999, and the six weeks ended
August 13, 1999 and 46 weeks ended June 30, 2000 amounted to 19.0%, 16.6%, 29.3%
and 15.7%, respectively, of total product sales.
RESEARCH AND DEVELOPMENT--Research and development costs, consisting of the
cost of designing, developing, and testing new or significantly enhanced
products, are expensed as incurred.
RETIREMENT BENEFITS--Intersil Holding provides retirement benefits to
substantially all employees primarily through a retirement plan having
profit-sharing and savings elements. Contributions by Intersil Holding to the
retirement plan are based on profits and employees' savings with no other
funding requirements. Intersil Holding may make additional contributions to the
fund at its discretion.
31
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The savings element of the retirement plan is a defined contribution plan,
which is qualified under Internal Revenue Service Code Section 401(k). All
employees of the Company may elect to participate in the 401(k) retirement plan
(the "401(k) plan"). Under the 401(k) plan, participating employees may defer a
portion of their pretax earnings up to certain limits prescribed by the Internal
Revenue Service. The Company provides matching contributions under the
provisions of the plan. Employees fully vest in the Company's matching
contributions upon the completion of 7 years of service.
Retirement benefits also include an unfunded limited healthcare plan for
U.S.-based retirees and employees on long-term disability. Intersil Holding
accrues the estimated cost of these medical benefits, which are not material,
during an employee's active service life.
Retirement plans expense was $15.6 million in 1998, $14.8 million in 1999,
$1.4 million for the six weeks ended August 13, 1999 and $10.4 million for the
46 weeks ended June 30, 2000.
INCOME TAXES--For the Predecessor financial statements, the semiconductor
business was included with its parent, Harris, in a consolidated federal income
tax return. Harris required each of its businesses to provide for taxes on
financial statement pre-tax income or loss at applicable statutory tax rates.
United States local amounts receivable or payable for current and prior years'
income taxes were treated as intercompany transactions and were recorded in the
Semiconductor Business equity. Intersil Holding follows the liability method of
accounting for income taxes. International current income taxes payable and
deferred income taxes resulting from temporary differences between the financial
statements and the tax basis of assets and liabilities of Intersil Holding's
international subsidiaries are separately classified on the balance sheet.
ASSET IMPAIRMENT--Intersil Holding accounts for long-lived asset impairment
under Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amounts. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. Fair value is estimated based on discounted future
cash flows. Long-lived assets to be disposed of are recorded at the lower of
their carrying amount or estimated fair value less cost to sell.
INTANGIBLES--Intangibles resulting from acquisitions are being amortized by
the straight-line method over five to 11 years. Recoverability of
intangibles is assessed using estimated undiscounted cash flows of related
operations. Intangibles that are not expected to be recovered through future
undiscounted cash flows are charged to expense when identified. Amounts charged
to expense are amounts in excess of the fair value of the intangible asset. Fair
value is determined by calculating the present value of estimated expected
future cash flows using a discount rate commensurate with the risks involved.
FUTURES AND FORWARD CONTRACTS--When Intersil Holding sells products outside
the United States or enters into purchase commitments, the transactions are
frequently denominated in currencies other than U.S. dollars. To minimize the
impact on revenue and cost from currency fluctuations, Intersil Holding enters
into currency exchange agreements that qualify for hedge accounting treatment.
It is Intersil Holding's policy not to speculate in foreign currencies. Currency
exchange agreements are designated as, and are effective as, hedges of foreign
currency commitments. In addition, these agreements are consistent with the
designated currency of the underlying transaction and mature on or before the
underlying transaction. Gains and losses on currency exchange agreements that
qualify as hedges are deferred and recognized as an adjustment of the carrying
amount of the hedged asset, liability or commitment. Gains and losses on
currency exchange
32
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
agreements that do not qualify as hedges are recognized in operations based on
changes in the fair market value of the currency exchange agreement.
FOREIGN CURRENCY TRANSLATION--The functional currency for the Malaysian
subsidiary was the U.S. dollar, and for other international subsidiaries it is
the local currency. Assets and liabilities are translated at current rates of
exchange, and income and expense items are translated at the weighted average
exchange rate for the year. The resulting translation adjustments are recorded
as a separate component of shareholders' equity (Business Equity in the
Predecessor's financial statements). Cumulative translation gains (losses) were
$(0.6) million and $1.6 million at July 2, 1999 and June 30, 2000, respectively.
LOSS PER SHARE--Loss per share is computed and presented in accordance with
SFAS No. 128, "Earnings per Share" and the Securities and Exchange Commission
Staff Accounting Bulletin No. 98. Net loss per common share is presented for the
46 weeks ended June 30, 2000 only because it is not meaningful for earlier
periods since the Company did not have common stock outstanding for any of the
earlier periods.
USE OF ESTIMATES--These statements have been prepared in conformity with
accounting principles generally accepted in the United States and require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with current year classifications.
NOTE C--ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. (SFAS) 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS 137 amends SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments including
standalone instruments, such as forward currency exchange contracts and interest
rate swaps or embedded derivatives and requires that these instruments be
marked-to-market on an ongoing basis. These market value adjustments are to be
included either in the income statement or shareholders' equity, depending on
the nature of the transaction. The Company is required to adopt SFAS 133 in the
first quarter of its fiscal year 2001. We believe that SFAS 133 will not have a
material adverse effect on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued SAB
No. 101. "Revenue Recognition in Financial Statements," which provides guidance
on the recognition, presentation, and disclosures of revenue in financial
statements filed with the SEC. SAB No. 101 outlines the basic criteria that must
be met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. We believe that SAB No. 101 will not have a
material adverse effect on the Company's financial position or results of
operations.
33
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998 AND JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND 46 WEEKS ENDED JUNE 30, 2000
NOTE C--ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25." Among other issues, that
interpretation clarifies the definition of employees for purposes of applying
Opinion No. 25, the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in the
interpretation cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation is recognized on a prospective basis from July 1, 2000. We are
currently reviewing stock grants to determine the impact, if any, that may arise
from implementation of this interpretation, although we do not expect the
impact, if any, to be material to our financial statements.
NOTE D--INVENTORIES
Inventories are summarized below (in thousands):
(PREDECESSOR) (SUCCESSOR)
------------- -------------
JULY 2, JUNE 30,
1999 2000
------------- -------------
Finished products.......................................................... $ 58,041 $ 45,064
Work in process............................................................ 102,457 96,278
Raw materials and supplies................................................. 11,441 7,072
--------- ---------
171,939 148,414
Less inventory reserves.................................................... 18,117 21,933
--------- ---------
$ 153,822 $ 126,481
========= =========
At July 2, 1999 and June 30, 2000 Intersil Holding was committed to
purchase $22.5 million and $24.9 million, respectively of inventory from
suppliers. Management believes the cost of this inventory approximates current
market value.
34
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE E--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below (in thousands):
(PREDECESSOR) (SUCCESSOR)
------------- -------------
JULY 2, JUNE 30,
1999 2000
------------- -------------
Land........................................................................... $ 3,966 $ 3,860
Buildings...................................................................... 266,364 78,940
Machinery and equipment........................................................ 722,816 179,383
--------- ---------
993,146 262,183
Less allowances for depreciation............................................... 582,616 36,699
--------- ---------
$ 410,530 $ 225,484
========= =========
NOTE F--INTANGIBLES
Intangibles are summarized below (in thousands):
(PREDECESSOR) (SUCCESSOR)
------------- -------------
PERIOD OF JULY 2, JUNE 30,
AMORTIZATION 1999 2000
------------- ------------- -------------
Developed technology............................................ 11 years $ -- $ 56,925
Customer base................................................... 7 years -- 23,482
Assembled workforce............................................. 5 years -- 9,606
Goodwill........................................................ 5-7 years 65,297 110,823
------- ---------
65,297 200,836
Less accumulated amortization................................... 19,929 10,686
------- ---------
$45,368 $ 190,150
======= =========
35
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE G--LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share (in thousands, except per share amounts):
(SUCCESSOR)
-----------------
JUNE 30, 2000
---------
Numerator:
Net loss available to common shareholders (numerator for basic and
diluted earnings per share)........................................... $ (48,099)
=========
Denominator:
Denominator for basic earnings per share-weighted average common
shares................................................................ 76,745
Effect of dilutive securities:
Stock options......................................................... --
Warrants.............................................................. --
---------
Denominator for diluted earnings per share-adjusted weighted average
shares................................................................ 76,745
=========
Basic and diluted loss per share........................................... $ (0.63)
=========
The effect of dilutive securities is not included in the computation for
the 46 weeks ended June 30, 2000 because to do so would be antidilutive.
NOTE H--LONG-TERM DEBT
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
(PREDECESSOR) (SUCCESSOR)
------------- --------------
JULY 2, 1999 JUNE 30, 2000
------------- --------------
13.25% Senior Subordinated Notes.......................................... $ -- $112,384
Other..................................................................... 4,567 4,208
------- --------
4,567 116,592
Less current portion...................................................... 360 404
------- --------
$ 4,207 $116,188
======= ========
36
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE H--LONG-TERM DEBT--(CONTINUED)
Scheduled future principal payments under Intersil Holding's and Intersil's
indebtedness are as follows (in thousands):
2001.................................................................... $ 404
2002.................................................................... 416
2003.................................................................... 429
2004.................................................................... 388
2005.................................................................... 373
Thereafter.............................................................. 114,582
--------
$116,592
========
13.25% Senior Subordinated Notes and Warrants
On August 13, 1999, in connection with the acquisition of the Semiconductor
Business, Intersil completed an offering of 200,000 units consisting of $200
million of its 13.25% Senior Subordinated Notes due 2009 and warrants to
purchase 3,703,707 shares of Class A Common Stock of Intersil Holding. Each unit
consisted of $1,000 principal amount of 13.25% Senior Subordinated Notes of
Intersil and one warrant to purchase 18.5185 shares of Class A Common Stock of
Intersil Holding. The total gross proceeds from the sale of the 13.25% Senior
Subordinated Notes were $194.0 million, net of $6.0 million of deferred
financing fees. The $6.0 million deferred financing fees were treated as
additional interest related to the 13.25% Senior Subordinated Notes and
amortized over the life of the 13.25% Senior Subordinated Notes on an effective
yield method.
The 13.25% Senior Subordinated Notes are unsecured and are fully and
unconditionally guaranteed by Intersil Holding and all of Intersil's current and
future domestic subsidiaries. The 13.25% Senior Subordinated Notes are not
guaranteed by Intersil's foreign subsidiaries. The 13.25% Senior Subordinated
Notes require semi-annual interest payments beginning on February 15, 2000
through maturity on August 15, 2009. The 13.25% Senior Subordinated Notes may be
redeemed at the option of Intersil Holding after August 15, 2004 upon the
payment of certain redemption premiums, although up to 35% of the 13.25% Senior
Subordinated Notes can be redeemed prior to August 15, 2002 with the proceeds of
certain equity offerings and upon the payment of certain redemption premiums.
The 13.25% Senior Subordinated Notes contain various restrictive covenants,
including limitations on the incurrence of additional indebtedness, restrictions
and limitations on payment of dividends, making investments, engaging in
transactions with affiliates, consolidating, merging or transfering assets and
restrictions and limitations on the sales of certain assets, among others. The
13.25% Senior Subordinated Notes also require the maintenance of certain ratios.
Each warrant entitles the holder to purchase 18.5185 shares of Intersil
Holding Class A Common Stock at a price of $.001 per share. The warrants are
exercisable beginning on the first anniversary of their issue date (August 13,
1999) and expire on August 15, 2009. Warrant holders have no voting rights. The
warrants were preliminarily valued at $0.3 million and will be treated as
additional interest related to the 13.25% Senior Subordinated Notes and
amortized over the life of the 13.25% Senior Subordinated Notes on an effective
yield method.
Extinguishment of Debt
On August 13, 1999, in connection with the acquisition of the semiconductor
business, Intersil entered into senior credit facilities with a syndicate of
financial institutions. The senior credit facilities include a $205.0 million
funded term loan facility (the "Tranche B Senior Term Facility") and a revolving
line of
37
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE H--LONG-TERM DEBT--(CONTINUED)
credit (the "Revolving Credit Facility"). The Revolving Credit Facility provides
for up to $70.0 million of which no amounts were outstanding as of June 30,
2000.
The Revolving Credit Facility bears interest ranging from LIBOR + 2.00% to
LIBOR + 3.25%, depending on the results of applicable ratios. The Revolving
Credit Facility matures in 2005.
The senior credit facilities are unconditionally guaranteed, jointly and
severally, by Intersil Holding, Intersil and existing and subsequently acquired
or organized domestic subsidiaries. The Company's obligations and those of the
guarantors under the Senior Credit Facilities are secured by a pledge of all of
Intersil's capital stock and by substantially all of the assets of Intersil
Holding, Intersil and each of Intersil's existing and subsequently acquired or
organized domestic (and, to the extent no adverse consequences will result,
foreign) subsidiaries. The senior credit facilities contain various restrictive
covenants, including, incurrence of indebtedness, payment of dividends, making
certain investments and acquisitions, disposing of assets, among others. The
senior credit facilities also require the maintenance of certain ratios.
Also on August 13, 1999, in connection with the acquisition of the
semiconductor business, Intersil Holding issued to Harris a $90.0 million 11.13%
Seller Holding PIK Note and issued to Citicorp Mezzanine Partners, L.P. a
$30.0 million 13.5% Subordinated Holding PIK Note.
On February 25, 2000, the Company issued 22,000,000 shares of common stock
at a price of $25.00 per share. From the proceeds of the initial public
offering, the Company paid off approximately $419.0 million of debt incurred
through the acquisition of the semiconductor business, including all amounts
then outstanding under the Tranche B Senior Term Facility, the 11.13% Seller
Holding PIK Note and the 13.5% Subordinated PIK Note. In connection with the
early extinguishment of debt, the Company recorded extraordinary charges (net of
tax) of $25.5 million.
Other
The other debt consists of five loans made by agencies of the Commonwealth
of Pennsylvania with maturity dates ranging from 2003 to 2017 and are secured by
Intersil's manufacturing facility in Mountaintop, Pennsylvania, which has a net
carrying value of $4.6 million at July 2, 1999 and $4.2 million at June 30,
2000, respectively. The weighted average interest rate for this debt was 3.0% at
July 2, 1999 and June 30, 2000.
NOTE I--PREFERRED STOCK
Intersil Holding has 100,000 shares of preferred stock authorized, stated
value of $1,000 per share. The rights of holders of preferred stock will be
stipulated at the time of issuance as determined by the board of directors
pursuant to the adoption of a shareholder rights plan. On August 13, 1999,
Intersil Holding sold 83,434 shares of its 12% Series A Cumulative Compounding
Preferred Stock to certain buyers, including Sterling Holding Company, LLC,
Harris and certain members of management. The $83.4 million received from the
sale was used as a cash equity contribution from Intersil Holding to Intersil
for the acquisition of the semiconductor business.
On August 13, 1999, Intersil Holding granted to certain members of
management options to purchase 766.67 shares of Series A Preferred Stock at an
option price of $250 per share, and a sign-on bonus in the aggregate amount of
$575,025, representing the difference between the stated par value and the
option price. The preferred stock options vest immediately. Intersil Holding
recorded compensation expense for the $575,025 as of the grant date.
Concurrent with the initial public offering, Intersil Holding exchanged all
outstanding shares of its 12% Series A Cumulative Compounding Preferred Stock
plus accrued and unpaid dividends for approximately
38
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE I--PREFERRED STOCK--(CONTINUED)
2.6 million shares of its Class A Common Stock. Also, the outstanding options to
purchase 766.67 shares of Series A Preferred Stock were exchanged for options to
purchase 40,881 shares of Class A Common Stock.
NOTE J--LEASE COMMITMENTS
Total rental expense amounted to $6.3 million in fiscal year 1998,
$6.3 million in fiscal year 1999, $0.6 million for the six weeks ended
August 13, 1999 and $5.0 million for the six weeks ended June 30, 2000. Future
minimum rental commitments under noncancelable operating leases, primarily used
for land and office buildings amounted to approximately $11.8 million at
June 30, 2000. These commitments for the years following 2000 (which exclude the
estimated rental expense for annually renewable contracts) are: 2001--
$2.4 million, 2002--$1.6 million, 2003--$1.0 million, 2004--$0.6 million,
2005--$0.5 million and $5.7 million thereafter.
NOTE K--BUSINESS EQUITY
Changes in the business equity of the Predecessor's financial statements
are summarized as follows (in thousands):
FISCAL YEAR ENDED SIX WEEKS ENDED
--------------------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999
------------ ------------ ---------------
Balance at beginning of period............................................ $646,173 $699,077 $ 658,879
Net income (loss)......................................................... 12,911 27,406 (3,029)
Foreign currency translation adjustments.................................. (1,851) (574) 2,475
Net cash transfers and billings from (to) Harris Corporation.............. 41,844 (67,030) (1,198)
Purchase price elimination................................................ -- -- (657,127)
-------- -------- ---------
Balance at end of period.................................................. $699,077 $658,879 $ --
======== ======== =========
NOTE L--COMMON STOCK
On February 25, 2000, Intersil Holding completed the filing of a
registration statement with the Securities and Exchange Commission for a public
offering of shares of its Class A Common Stock. Intersil Holding issued
22,000,000 shares of its Class A Common Stock at a price of $25.00 per share.
The net proceeds of this offering, after deducting underwriting discounts and
commissions, were approximately $513.1 million. In connection with the public
offering, Intersil Holding effected a 1-for-1.5 reverse stock split of its Class
A and Class B Common Stock as of February 23, 2000. All references to common
shares in the accompanying financial statements reflect Intersil Holding's
reverse stock split, retroactively applied to all periods presented.
39
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE L--COMMON STOCK--(CONTINUED)
Intersil Holding is authorized to issue 600.0 million shares of Intersil
Holding common stock, par value $0.01 per share, divided into two classes
consisting of 300.0 million shares of Intersil Holding Class A Common Stock and
300.0 million shares of Intersil Holding Class B Common Stock. Holders of
Class A Common Stock are entitled to one vote for each share held and holders of
Class B Common Stock have no voting rights. A holder of either class of Intersil
Holding common stock may convert any or all shares into an equal number of
shares of the other class of Intersil Holding common stock.
On August 13, 1999, Intersil Holding sold 15.76 million shares of Class A
Common Stock and 50.91 million shares of Class B Common Stock for approximately
$5.0 million. The $5.0 million proceeds, along with the $83.4 million proceeds
from the sale of Series A Preferred Stock were used as a cash equity
contribution from Intersil Holding to Intersil for the acquisition of the
semiconductor business.
On August 13, 1999, in connection with Intersil Holding's issuance of the
13.5% Subordinated Holding PIK Holding issued to Citicorp Mezzanine Partners,
L.P. warrants to purchase 3,703,707 shares of Intersil Holding Class A Common
Stock at an exercise price of $.001 per share, subject to certain anti-dilution
adjustments. These warrants may be exercised at any time after August 13, 2001
and expire on August 15, 2009. As Intersil Holding's has prepaid in full the
13.5% Subordinated Holding PIK Note within 24 months after issuance, the
warrants have become exercisable for 2,222,224 shares of Intersil Holding
Class A Common Stock. The warrants were valued at $0.3 million and were treated
as additional interest related to the 13.5% Subordinated Holding PIK Note.
On May 29, 2000, Intersil Holding acquired 100% of the outstanding capital
stock of Bilthoven, The Netherlands-based No Wires Needed B.V. ("NWN").
Consideration for the acquisition of NWN was 3.35 million shares of Intersil
Holding Class A Common Stock valued at $111.3 million at the date of closing.
(Note Q)
During the 46 weeks ended June 30, 2000, Intersil Holding recorded $0.9
million of unearned compensation for the excess of the fair value of the Class A
Common Stock over the grant price for stock sold to certain executives by the
majority shareholder of Intersil Holding. Upon the Company's initial public
offering, the stock sold became fully vested and the unearned compensation was
written off.
Intersil Holding had an option to purchase 1,161,905 shares from a majority
shareholder at $0.075 per share pursuant to an agreement executed at the initial
capitalization. Intersil Holding repurchased the 1,161,905 shares in January
2000.
In the third quarter of fiscal year 2000, approximately 1.2 million shares
of Class B Common Stock were exchanged for an equivalent number of Class A
Common Stock. The exchanged Class B Common Stock is included in the authorized
and unissued shares.
40
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE M--INCOME TAXES
The provisions for income taxes are summarized below (pro forma for
predecessor financial statements) (in thousands):
SUCCESSOR (46 WEEKS ENDED JUNE 30, 2000)
Current taxes:
Federal.................................................................. $ --
State.................................................................... --
Foreign.................................................................. 4,391
------
4,391
Deferred taxes:
Federal.................................................................. (4,198)
State.................................................................... (482)
Foreign.................................................................. --
------
(4,680)
------
Income tax benefit................................................................. $ (289)
======
SIX WEEKS
ENDED
FISCAL YEAR ENDED --------------
--------------------------- AUGUST 13,
PREDECESSOR JULY 3, 1998 JULY 2, 1999 1999
------------ ------------ --------------
United States (benefit)................................................... $4,221 $ (6,626) $ (399)
International............................................................. 4,910 1,605 352
State and local (benefit)................................................. 813 (1,006) (55)
------ -------- --------
$9,944 $ (6,027) $ (102)
====== ======== ========
The benefit related to tax deductions for the Company's stock option plans
is recorded as an increase to additional paid in capital when realized. For the
46 weeks ended June 30, 2000, the Company realized tax benefits of approximately
$2.1 million related to its stock option plans.
In the year 2000, the Malaysian taxing authority converted its income tax
system to a self-assessment system. The new self-assessment system requires
Malaysian corporate taxpayers to begin making estimated tax payments in year
2000 based on year 2000 estimated taxable income. Previously, Malaysian
corporate taxpayers submitted tax payments following the year of assessment. In
fiscal year 1999, the Semiconductor Business made Malaysian taxing payments
based on fiscal year 1998's taxable income. As a result of the change in the
Malaysian taxing system, the semiconductor business was not required to make tax
payments on its fiscal year 1999 Malaysian taxable income, and therefore has not
provided a tax provision for Malaysian taxes for the fiscal year ended July 2,
1999, which would have amounted to approximately $15.1 million. The Malaysian
tax holiday is effective for Intersil's fiscal year ended July 2, 1999 only, and
does not impact the six weeks ended August 13, 1999 or the 46 weeks ended
June 30, 2000.
41
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE M--INCOME TAXES--(CONTINUED)
The components of deferred income tax assets (liabilities) are as follows
(in thousands):
(PREDECESSOR) (SUCCESSOR)
--------------------- ----------------------
JULY 2, 1999 JUNE 30, 2000
--------------------- ----------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- -------- -----------
Receivables......................................................... $ -- $ -- $ 239 $ --
Inventory........................................................... -- -- 8,664 --
Fixed Assets........................................................ -- -- -- (21,590)
Intangibles......................................................... -- -- -- (14,363)
Accrued Expenses.................................................... -- -- 18,582 --
NOL Carryforward.................................................... -- -- -- 13,961
Depreciation........................................................ -- (7,022) -- --
All other--net...................................................... 3,476 -- (1,717) --
------- ------- -------- ---------
$3,476 $(7,022) $ 25,768 $ (21,992)
======= ======= ======== =========
A reconciliation of the statutory United States income tax rate to the
Company's effective income tax rate follows:
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
--------------------------- --------------- ---------------
FISCAL YEAR ENDED SIX WEEKS ENDED 46 WEEKS ENDED
--------------------------- --------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- ---------------
Statutory U.S. income tax rate.......................... 35.0% 35.0% 35.0% 35.0%
State taxes............................................. 2.3 (3.1) 1.1 1.1
International income.................................... 5.2 (61.9) (29.7) 7.6
Research credits........................................ (2.9) (2.7) 2.2 0.8
In-process research and development..................... -- -- -- (16.5)
Subpart F............................................... -- -- -- (7.6)
Goodwill amortization................................... 3.5 4.0 (4.9) (1.2)
Effect of sale of Malaysian operations.................. -- -- -- (18.0)
Other items............................................. .4 0.5 (0.5) (0.5)
------ ------ ----- -----
Effective income tax rate............................... 43.5% (28.2)% 3.2% 0.7%
====== ====== ===== =====
United States income taxes have not been provided on undistributed earnings
of international subsidiaries because of Intersil Holding's intention to
reinvest these earnings. The determination of unrecognized deferred U.S. tax
liability for the undistributed earnings of international subsidiaries is not
practicable.
Pretax income (loss) of international subsidiaries was $10.2 million in
fiscal year 1998, $41.9 million in fiscal year 1999, $(1.6) million for the six
weeks ended August 13, 1999 and $21.6 million for the 46 weeks ended June 30,
2000.
Income taxes paid were $14.8 million in fiscal year 1998, $3.4 million in
fiscal year 1999, $0.2 million for the six weeks ended August 13, 1999 and
$0.6 million for the 46 weeks ended June 30, 2000.
The Company has a tax year-end of December 31 for federal and state income
tax purposes and has estimated that as of December 31, 1999, it had a cumulative
federal and state operating loss carryforward of $17.0 million. The federal net
operating loss carryforwards will expire in 2020. The state net operating loss
carryforwards will expire in varying amounts beginning in 2005. Calculated as of
June 30, 2000, the
42
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE M--INCOME TAXES--(CONTINUED)
Company recorded a deferred tax asset associated with federal and state net
operating loss carryforwards of $14.0 million.
The federal and state net operating loss and tax credit carryforwards could
be subject to limitation if, within any three year period prior to the
expiration of the applicable carryforward period, there is a greater than 50%
change in ownership of the Company.
No valuation allowance has been provided in connection with the net
deferred tax asset as the Company expects to be able to utilize its deferred tax
assets against future taxable income. Based on the Company's projected taxable
income and estimates of future profitability, management has concluded that
operating income will more likely than not be sufficient to give rise to income
tax expense to cover all deferred tax assets.
NOTE N--GEOGRAPHIC INFORMATION
Intersil Holding operates exclusively in the semiconductor industry.
Substantially all revenues result from the sale of semiconductor products. All
intercompany revenues and balances have been eliminated.
A summary of the operations by geographic area is summarized below (in
thousands):
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
--------------------------- --------------- ---------------
FISCAL YEAR ENDED SIX WEEKS ENDED 46 WEEKS ENDED
--------------------------- --------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 13, 1999 JUNE 30, 2000
------------ ------------ --------------- ---------------
United States operations
Net sales............................................... $563,180 $519,555 $ 54,664 $ 574,867
Long-lived assets....................................... 386,333 371,448 366,386 333,668
International
Net sales............................................... 13,656 13,163 2,672 21,982
Long-lived assets....................................... 122,397 121,330 118,277 112,487
Export sales included in U.S. operations were, $258.4 million in fiscal
year 1998, $254.8 million in fiscal year 1999, $30.4 million for the six weeks
ended August 13, 1999 and $340.3 million for the 46 weeks ended June 30, 2000.
NOTE O--FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, accounts payable and short-term
debt approximates fair value due to the short-term maturities of these assets
and liabilities. The fair value of long-term debt is based on quoted market
prices or pricing models using prevailing financial market information at the
date of measurement.
Letters of credit are issued by Intersil during the ordinary course of
business through major financial institutions as required by certain vendor
contracts. As of June 30, 2000, Intersil had outstanding letters of credit
totaling $2.7 million.
Intersil Holding markets its products for sale to customers, including
distributors, primarily in the United States, Europe and Asia/Pacific. Credit is
extended based on an evaluation of the customer's financial condition and
collateral is generally not required. Intersil Holding maintains an allowance
for losses based upon the expected collectibility of all accounts receivable.
Intersil Holding believes it is adequately reserved with regard to receivables
from its domestic and international customers.
43
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
In August 1999, Intersil Holding began to use foreign exchange contracts to
hedge anticipated foreign cash flow commitments up to six months. Hedges on
anticipated foreign cash flow commitments do not qualify for deferral and
therefore, gains and losses on changes in the fair market value of the foreign
exchange contracts are recognized in income. Total net gains on foreign exchange
contracts for the 46 weeks ended June 30, 2000 were $3.2 million. At June 30,
2000, open foreign exchange contracts were $30.9 million, all of which were to
hedge anticipated foreign cash flow commitments. For the year ended June 30,
2000, Intersil Holding purchased and sold $87.4 million of foreign exchange
forward contracts.
Prior to August 1999, Intersil Holding used foreign exchange contracts and
options to hedge intercompany accounts and off-balance-sheet foreign currency
commitments. Specifically, these foreign exchange contracts offset foreign
currency denominated inventory and purchase commitments from suppliers, accounts
receivable from and future committed sales to customers and firm committed
operating expenses. Foreign currency financial instruments were used to reduce
the risks that arise from doing business in international markets. Such
contracts generally had a term of one year or less. At July 2, 1999, open
foreign exchange contracts were $22.0 million, all of which were to hedge
off-balance-sheet commitments. Additionally, for the year ended July 2, 1999,
the Semiconductor Business purchased and sold $120.7 million of foreign exchange
forward contracts.
Deferred gains and losses are included on a net basis in the Consolidated
Balance Sheets as other assets and are recorded in operations as part of the
underlying transaction when recognized. At July 2, 1999, Intersil Holding had
deferred foreign exchange contract losses on future commitments of approximately
$28.6 million.
Total open foreign exchange contracts and options at July 2, 1999 and
June 30, 2000, are described in the table below:
JULY 2, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
CONTRACT AMOUNT
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (IN MONTHS)
- ------------------------------------------------------------- ---------------- ------- -------- -----------
(IN THOUSANDS)
Malaysian Ringgit............................................ 80,589 $19,000 $2,208 1-2
COMMITMENTS TO SELL FOREIGN CURRENCIES
CONTRACT AMOUNT
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (IN MONTHS)
- ------------------------------------------------------------- ---------------- ------- -------- -----------
(IN THOUSANDS)
French Franc................................................. 10,900 $ 1,857 $ 138 1-2
British Pound................................................ 691 1,094 2 1
44
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
JUNE 30, 2000
OPTIONS TO SELL FOREIGN CURRENCIES
CONTRACT AMOUNT
--------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. (IN MONTHS)
- -------- ---------------- ------- -----------
(IN THOUSANDS)
Euro.................................................................... 3,000 $ 2,883 5-6
COMMITMENTS TO SELL FOREIGN CURRENCIES
CONTRACT AMOUNT
--------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. (IN MONTHS)
- -------- ---------------- ------- -----------
(IN THOUSANDS)
Euro.................................................................... 16,500 $15,697 1-6
British Pound........................................................... 2,300 3,572 1-6
Japanese Yen............................................................ 1,190,000 11,655 1-7
NOTE P--EMPLOYEE BENEFIT PLANS
Equity Compensation Plan
On November 5, 1999, Intersil Holding adopted the 1999 Equity Compensation
Plan (the "Plan") which became effective on August 13, 1999 for salaried
officers and key employees. The Plan authorizes the grant of options for up to
7.5 million shares of Intersil Holding Class A Common Stock and can include
(i) options intended to constitute incentive stock options under the Internal
Revenue Code, (ii) non-qualified stock options, (iii) restricted stock,
(iv) stock appreciation rights, and (v) phantom share awards. The exercise price
of each option granted under the Plan shall be determined by a committee of the
Board of Directors (the "Board"). The maximum term of any option shall be ten
years from the date of grant for incentive stock options and ten years and one
day from the date of grant for non-qualified stock options. Options granted
under the Plan are exercisable at the determination of the Board, currently
vesting ratably over approximately 5 years. Employees receiving options under
the Plan may not receive in any one year period options to purchase more than
666,667 shares of common stock. During the 46 weeks ended June 30, 2000,
Intersil Holding granted 1,596,793 options to acquire Intersil Holding Class A
Common Stock at a price of $2.25 per share, 1,239,291 options at a price of
$25.00 per share, and 118,100 options at an average price of $45.65 per share.
The Company accounts for its Equity Compensation Plan in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As such, compensation expense is recorded on the date of grant only
if the current market price of the underlying stock exceeds the exercise price.
During the 46 weeks ended June 30, 2000, the Company recorded no deferred
compensation. Had compensation cost for the Company's stock option plan been
determined consistent with SFAS Statement No. 123, the Company would have
reported a net loss of $43.7 million for the 46 weeks ended June 30, 2000.
The Company estimates the fair value of each option as of the date of grant
using a Black-Scholes pricing model with the following weighted average
assumptions.
45
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE P--EMPLOYEE BENEFIT PLANS--(CONTINUED)
JUNE 30, 2000
-------------
Expected volatility............................................................ 0.5
Dividend yield................................................................. --
Risk-free interest rate........................................................ 6.25%
Expected life, in years........................................................ 7
A summary of the status of the Company's stock option plan as of June 30,
2000, and changes during the 46 weeks then ended are presented in the
table below.
JUNE 30, 2000
--------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------------- --------
(IN THOUSANDS)
Outstanding at beginning of period.................................. -- $ --
Granted............................................................. 3,177 15.41
Exercised........................................................... (194) 10.21
Canceled............................................................ (28) 15.20
------ ------
Outstanding at end of period........................................ 2,955 $15.76
====== ======
Exercisable at end of period........................................ 191 $ 2.25
====== ======
Weighted average fair value of options granted...................... $ 5.07
======
Information with respect to stock options outstanding and stock options
exercisable at June 30, 2000, is as follows:
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
AVERAGENG WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
PRICE CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------------------------------------- ----------- ----------- --------- ----------- ---------
(IN (IN
THOUSANDS) THOUSANDS)
$2.25.............................................. 1,458 9.19 $ 2.25 191 $2.25
$25.00............................................. 1,156 9.65 $ 25.00 -- --
$28.50-$42.13...................................... 208 9.89 $ 36.62 -- --
$42.94-$58.50...................................... 133 9.89 $ 47.40 -- --
Employee Stock Purchase Plan
In February 2000, Intersil Holding adopted the Employee Stock Purchase
Plan ("the ESPP") whereby eligible employees can purchase shares of Intersil
Holding's common stock. Intersil has received 1,333,334 shares of common stock
for issuance under the Plan. The ESPP permits employees to purchase common
stock through payroll deductions, which may not exceed 10% of an employee's
compensation, at a price not less than 85% of the market value of the stock on
specified dates. In no event, may any participant purchase more than $25,000
worth of shares in any calendar year and no more than 16,667 shares may be
46
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE P--EMPLOYEE BENEFIT PLANS--(CONTINUED)
purchased by an employee on any purchase date. Unless sooner terminated by the
Board, the ESPP shall terminate upon the earliest of (1) February 28, 2010,
(2) the date on which all shares available for issuance under the ESPP shall
have been sold pursuant to purchase rights exercised under the ESPP, or
(3) the date on which all purchase rights are exercised in connection with a
Corporate Transaction (as defined in the ESPP). As of June 30, 2000, no shares
have been issued under the ESPP.
NOTE Q--ACQUISITION OF NO WIRES NEEDED B.V.
On May 29, 2000, Intersil Holding acquired 100% of the outstanding capital
stock of Bilthoven, The Netherlands-based No Wires Needed B.V. ("NWN").
Consideration for the acquisition of NWN was 3.35 million shares of Intersil
Holding Class A Common Stock valued at $111.3 million at the date of closing.
The NWN acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of NWN have been included in the
accompanying consolidated financial statements since the acquisition date. The
preliminary purchase price exceeded the fair value of the net tangible assets
acquired by approximately $109.0 million. NWN had completed all in-process
research and development programs prior to its acquisition. Therefore, none of
the preliminary purchase price in excess of the fair value of the net tangible
assets was allocated to purchase in-process research and development. The
preliminary purchase price in excess of fair value of net tangible assets was
allocated to goodwill, which will be amortized on a straight-line basis over
seven years.
The following unaudited pro forma consolidated results of operations are
presented as if the NWN acquisition occurred on August 14, 1999 (in millions,
except per share data):
46 Weeks Ended
June 30, 2000
--------------
Product sales................................................................ $603.2
Net loss before extraordinary item........................................... (31.7)
Net loss..................................................................... (57.3)
Net loss to common shareholders.............................................. (62.7)
Net loss per basic and diluted share:........................................ (0.79)
The pro forma results of operations include adjustments to give affect to
additional depreciation and amortization related to the increased value of
acquired assets and identifiable intangibles. The unaudited pro forma
information is not necessarily indicative of the results of operations that
would have occurred had the acquisition actually been made at the beginning of
the period presented or the future results of the combined operations.
NOTE R-- SALE OF INTERSIL'S KUALA LUMPUR, MALAYSIA-BASED SEMICONDUCTOR ASSEMBLY
AND TEST OPERATIONS
On June 30, 2000, Intersil Holding completed the sale of its Kuala Lumpur,
Malaysia-based semiconductor assembly and test operations to ChipPAC, Inc.
("ChipPAC") which, under a multi-year supply agreement, will supply integrated
circuit (IC) assembly and test services to Intersil Holding. Under the terms of
the transaction, ChipPAC acquired all of Intersil's Kuala Lumpur assets,
including a 524,000 square foot semiconductor assembly and test facility,
wireless and analog/mixed-signal capabilities, product distribution center as
well as the operation's management team and approximately 2,900 employees. As
consideration for the sale, Intersil received approximately $52.5 million in
cash and $15.8 million in
47
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JULY 3, 1998, JULY 2, 1999, SIX WEEKS ENDED AUGUST 13, 1999,
AND THE 46 WEEKS ENDED JUNE 30, 2000
NOTE R-- SALE OF INTERSIL'S KUALA LUMPUR, MALAYSIA-BASED SEMICONDUCTOR
ASSEMBLY AND TEST OPERATIONS--(CONTINUED)
ChipPAC preferred convertible stock. Intersil Holding recognized a non-recurring
charge of $24.8 million for the loss on sale in connection with the transaction.
NOTE S-- FINANCIAL INFORMATION FOR GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
Intersil Holding is a holding company for Intersil. All of the operations
are conducted through Intersil and its wholly-owned domestic and foreign
subsidiaries. On August 13, 1999, in connection with the acquisition, Intersil
issued the Notes and entered into the Senior Credit Facilities (Note H), which
are fully and unconditionally guaranteed on a joint and several basis by
Intersil Holding (Parent), Intersil and all of Intersil's wholly-owned current
and future domestic subsidiaries (the "Guarantor Subsidiaries"). Intersil's
wholly-owned foreign subsidiaries are not guarantors (the "Non-Guarantor
Subsidiaries"). In management's opinion, separate financial statements of the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries are not material
to investors.
The condensed consolidating financial information presented below includes
the Predecessor consolidated balance sheet as of July 2, 1999 and the
Predecessor consolidated statements of operations and cash flows for the fiscal
years ended July 3, 1998, and July 2, 1999, and the six weeks ended August 13,
1999 for the Predecessor Guarantor and Non-Guarantor Subsidiaries. The condensed
consolidated balance sheet as of June 30, 2000 and the condensed consolidated
statements of income operations and cash flows for the 46 weeks ended
June 30, 2000 reflect the Parent, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries.
48
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 3, 1998
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales.......................................... $609,136 $ 418,721 $(451,021) $576,836
COSTS AND EXPENSES
Cost of product sales.................................. 402,892 388,729 (422,289) 369,332
Research and development............................... 74,466 659 -- 75,125
Selling, general and administrative.................... 79,547 18,637 -- 98,184
Harris corporate expense allocations................... 10,941 (979) -- 9,962
Goodwill amortization.................................. 2,292 -- -- 2,292
-------- --------- --------- --------
Operating income (loss).................................. 38,998 11,675 (28,732) 21,941
Interest net........................................... 40,793 (5,325) (36,382) (914)
-------- --------- --------- --------
Income (loss) before income taxes...................... (1,795) 17,000 7,650 22,855
Income taxes (benefit)................................. (887) (1,418) 12,249 9,944
-------- --------- --------- --------
NET INCOME (LOSS)...................................... $ (908) $ 18,418 $ (4,599) $ 12,911
======== ========= ========= ========
YEAR ENDED JULY 2, 1999
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales.......................................... $524,142 $ 480,981 $(472,405) $532,718
COSTS AND EXPENSES
Cost of product sales.................................. 379,282 337,287 (366,793) 349,776
Research and development............................... 67,316 (237) -- 67,079
Selling, general and administrative.................... 65,866 18,132 -- 83,998
Harris corporate expense allocations................... 10,115 (812) -- 9,303
Goodwill amortization.................................. 2,414 -- -- 2,414
-------- --------- --------- --------
Operating income (loss).................................. (851) 126,611 (105,612) 20,148
Interest, net.......................................... 33,894 (4,975) (30,150) (1,231)
-------- --------- --------- --------
Income (loss) before income taxes...................... (34,745) 131,586 (75,462) 21,379
Income taxes (benefit)................................. (39,176) 10,313 22,836 (6,027)
-------- --------- --------- --------
NET INCOME (LOSS)...................................... $ 4,431 $ 121,273 $ (98,298) $ 27,406
======== ========= ========= ========
49
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX WEEKS ENDED AUGUST 13, 1999
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales.......................................... $ 39,470 $ 129,546 $(111,680) $ 57,336
COSTS AND EXPENSES
Cost of product sales.................................. 37,484 139,292 (137,095) 39,681
Research and development............................... 8,511 (12) -- 8,499
Selling, general and administrative.................... 8,986 1,778 144 10,908
Harris corporate expense allocations................... 1,393 (85) (144) 1,164
Intangible amortization................................ 326 -- -- 326
-------- --------- --------- --------
Operating income (loss).................................. (17,230) (11,427) 25,415 (3,242)
Interest, net.......................................... (161) 50 -- (111)
-------- --------- --------- --------
Income (loss) before income taxes...................... (17,069) (11,477) 25,415 (3,131)
Income taxes (benefit)................................. (4,943) (15) 4,856 (102)
-------- --------- --------- --------
NET INCOME (LOSS)...................................... $(12,126) $ (11,462) $ 20,559 $ (3,029)
======== ========= ========= ========
46 WEEKS ENDED JUNE 30, 2000
SUCCESSOR
------------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
REVENUE
Product sales.............................. $ -- $568,091 $ 527,695 $(498,937) $596,849
COSTS AND EXPENSES
Cost of product sales...................... -- 362,807 499,438 (509,732) 352,513
Research and development................... -- 69,341 115 -- 69,456
Selling, general and administrative........ 123 75,609 21,495 -- 97,227
Harris corporate expense allocation........ -- -- -- -- --
Intangible amortization.................... -- 9,124 1,562 -- 10,686
In-process research and development........ -- 20,239 -- -- 20,239
Other...................................... 300 878 -- -- 1,178
-------- -------- --------- --------- --------
Operating income (loss)...................... (423) 30,093 5,085 10,795 45,550
Loss on sale of Malaysian operation........ -- 24,825 -- -- 24,825
Interest, net.............................. 7,855 30,404 (91) 36 38,204
Equity in subsidiary (loss)................ (19,960) -- -- 19,960 --
-------- -------- --------- --------- --------
Income (loss) before income taxes and
extraordinary item....................... 11,682 (25,136) 5,176 (9,201) (17,479)
Income taxes (benefit)..................... -- 193 (482) -- (289)
-------- -------- --------- --------- --------
Income (loss) before extraordinary item.... 11,682 (25,329) 5,658 (9,201) (17,190)
Extraordinary item--loss on extinguishment
of debt, net of tax effect............... (568) (24,950) -- -- (25,518)
-------- -------- --------- --------- --------
Net income (loss).......................... 11,114 (50,279) 5,658 (9,201) (42,708)
Preferred dividends........................ 5,391 5,391 -- (5,391) 5,391
-------- -------- --------- --------- --------
NET INCOME (LOSS) TO COMMON SHAREHOLDERS... $ 5,723 $(55,670) $ 5,658 $ (3,810) $(48,099)
======== ======== ========= ========= ========
50
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 2, 1999
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Trade receivables, net................................. $ 97,043 $ 3,631 $ -- $100,674
Intercompany balances.................................. (139,993) 19,554 120,439 --
Inventories............................................ 86,986 86,049 (19,213) 153,822
Other current assets................................... 7,782 946 -- 8,728
Property, plant and equipment, net..................... 291,645 118,885 -- 410,530
Intangibles, net....................................... 45,368 -- -- 45,368
Investment in subsidiaries............................. 10,907 72,195 (83,102) --
Other non-current assets............................... 39,721 2,336 -- 42,057
-------- --------- --------- --------
Total Assets......................................... $439,459 $ 303,596 $ 18,124 $761,179
======== ========= ========= ========
LIABILITIES AND BUSINESS EQUITY
Trade payables......................................... $ 21,503 $ 9,565 $ -- $ 31,068
Compensation and benefits.............................. 26,120 6,803 -- 32,923
Other current liabilities.............................. 42,778 (8,254) (7,444) 27,080
Other non-current liabilities.......................... 11,229 -- -- 11,229
Business Equity........................................ 337,829 295,482 25,568 658,879
-------- --------- --------- --------
Total Liabilities and Business Equity................ $439,459 $ 303,596 $ 18,124 $761,179
======== ========= ========= ========
JUNE 30, 2000
SUCCESSOR
------------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
ASSETS
Cash and cash equivalents............... $ -- $ 200,237 $ 11,703 $ -- $211,940
Trade receivables, net.................. -- 104,769 6,926 -- 111,695
Intercompany balances................... -- (3,009) 3,009 -- --
Inventories............................. -- 126,313 168 -- 126,481
Other current assets.................... -- 37,295 372 -- 37,667
Property, plant and equipment, net...... -- 223,852 1,632 -- 225,484
Intangibles, net........................ -- 80,888 109,262 -- 190,150
Investment in subsidiaries.............. 719,768 323,526 1,370 (1,044,664) --
Other non-current assets................ -- 28,927 1,594 30,521
-------- ---------- --------- ----------- --------
Total Assets.......................... $719,768 $1,122,798 $ 136,036 $(1,044,664) $933,938
======== ========== ========= =========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade payables.......................... $ -- $ 32,953 $ 4,038 $ -- $ 36,991
Compensation and benefits............... -- 35,254 3,372 -- 38,626
Other current liabilities............... -- 35,823 5,322 -- 41,145
Long-term debt.......................... -- 116,188 -- -- 116,188
Other non-current liabilities........... -- 21,992 -- -- 21,992
Common stock............................ 945 -- -- -- 945
Additional paid-in capital.............. 718,823 300 -- -- 719,123
Retained deficit........................ -- 880,288 121,668 (1,044,664) (42,708)
Accumulated other comprehensive income.. -- -- 1,636 -- 1,636
-------- ---------- --------- ----------- --------
Total Liabilities and Shareholders'
Equity.............................. $719,768 $1,122,798 $ 136,036 $(1,044,664) $933,938
======== ========== ========= =========== ========
51
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 3, 1998
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)...................................... $ (908) $18,418 $ (4,599) $ 12,911
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization.......................... 51,295 16,036 -- 67,331
Provision for inventory obsolescence................... 7,317 -- -- 7,317
Changes in working capital............................. (162,132) 12,669 110,235 (39,228)
-------- ------- --------- --------
Net cash provided by (used in) operating
activities......................................... (104,428) 47,123 105,636 48,331
INVESTING ACTIVITIES:
Property, plant and equipment............................ (49,762) (40,422) -- (90,184)
-------- ------- --------- --------
Net cash used in investing activities................ (49,762) (40,422) -- (90,184)
FINANCING ACTIVITIES:
Proceeds from borrowings............................... 2,750 -- -- 2,750
Payments of borrowings................................. (83) -- -- (83)
Net cash transfer and billings from (to) parent........ 151,523 (4,043) (105,636) 41,844
-------- ------- --------- --------
Net cash provided by (used in) financing
activities......................................... 154,190 (4,043) (105,636) 44,511
Effect of exchange rates on cash......................... -- (2,658) -- (2,658)
-------- ------- --------- --------
Net increase in cash..................................... -- -- -- --
Cash at the beginning of the period...................... -- -- -- --
-------- ------- --------- --------
Cash at the end of the period............................ $ -- $ -- $ -- $ --
======== ======= ========= ========
YEAR ENDED JULY 2, 1999
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)...................................... $ 4,431 $ 121,273 $ (98,298) $ 27,406
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization.......................... 59,615 21,016 -- 80,631
Provision for inventory obsolescense................... 3,894 -- -- 3,894
Changes in working capital............................. 144,087 19,084 (163,853) (682)
---------- --------- --------- --------
Net cash provided by (used in) operating
activities......................................... 212,027 161,373 (262,151) 111,249
INVESTING ACTIVITIES:
Cash paid for acquired business.......................... (1,335) -- -- (1,335)
Property, plant and equipment............................ (21,648) (16,915) -- (38,563)
---------- --------- --------- --------
Net cash used in investing activities................ (22,983) (16,915) -- (39,898)
FINANCING ACTIVITIES:
Proceeds from borrowings............................... 800 -- -- 800
Payments of borrowings................................. (302) -- -- (302)
Net cash transfer and billings from (to) parent........ (189,542) (139,639) 262,151 (67,030)
---------- --------- --------- --------
Net cash provided by (used in) financing
activities......................................... (189,044) (139,639) 262,151 (66,532)
Effect of exchange rates on cash......................... -- (4,819) -- (4,819)
---------- --------- --------- --------
Net increase in cash..................................... -- -- -- --
Cash at the beginning of the period...................... -- -- -- --
---------- --------- --------- --------
Cash at the end of the period............................ $ -- $ -- $ -- $ --
========== ========= ========= ========
52
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX WEEKS ENDED AUGUST 13, 1999
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)...................................... $ (11,462) $ (12,126) $ 20,559 $ (3,029)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization.......................... 2,380 6,693 -- 9,073
Provision for inventory obsolescense................... 1,919 -- -- 1,919
Non-current deferred income taxes...................... -- 4,815 (9,571) (4,756)
Changes in working capital............................. 208,945 128,451 (337,221) 175
---------- --------- --------- --------
Net cash provided by (used in) operating
activities........................................ 201,782 127,833 (326,233) 3,382
INVESTING ACTIVITIES:
Property, plant and equipment............................ (1,020) (867) -- (1,887)
---------- --------- --------- --------
Net cash used in investing activities................ (1,020) (867) -- (1,887)
FINANCING ACTIVITIES:
Payments of borrowings................................. -- 4,535 (4,567) (32)
Net cash transfer and billings from (to) parent........ (200,497) (131,501) 330,800 (1,198)
---------- --------- --------- --------
Net cash provided by (used in) financing
activities........................................ (200,497) (126,966) 326,233 (1,230)
Effect of exchange rates on cash......................... 1,177 -- -- 1,177
---------- --------- --------- --------
Net increase in cash..................................... 1,442 -- -- 1,442
Cash at the beginning of the period...................... -- -- -- --
---------- --------- --------- --------
Cash at the end of the period............................ $ 1,442 $ -- $ -- $ 1,442
========== ========= ========= ========
46 WEEKS ENDED JUNE 30, 2000
SUCCESSOR
-------------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
--------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)........................... $ 11,114 $ (50,279) $ 5,658 $(9,201) $ (42,708)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization............... -- 52,500 8,788 -- 61,288
Provision for inventory obsolescense........ -- 23,906 -- -- 23,906
Write-off of in-process research and
development............................... -- 20,239 -- -- 20,239
Write-off of unearned compensation.......... 878 -- -- -- 878
Loss on sale of Malaysian operations........ -- -- 24,825 -- 24,825
Non-current deferred income taxes........... -- (4,680) -- -- (4,680)
Changes in working capital.................. (527,091) 622,854 (77,573) 9,201 27,391
--------- ---------- --------- ------- ----------
Net cash provided by (used in) operating
activities.............................. (515,099) 664,540 (38,302) -- 111,139
INVESTING ACTIVITIES:
Sale of Malaysian operation................... -- -- 52,500 -- 52,500
Property, plant and equipment................. -- (35,031) (3,782) -- (38,813)
--------- ---------- --------- ------- ----------
Net cash provided by (used in) investing
activities.............................. -- (35,031) 48,718 -- 13,687
FINANCING ACTIVITIES:
Proceeds from offering........................ 513,114 -- -- -- 513,114
Proceeds from exercise of stock options....... 1,985 -- -- -- 1,985
Payments of borrowings........................ -- (435,204) -- -- (435,204)
--------- ---------- --------- ------- ----------
Net cash provided by (used in) financing
activities................................ 515,099 (435,204) -- -- 79,895
Effect of exchange rates on cash and cash
equivalents................................. -- -- (158) -- (158)
--------- ---------- --------- ------- ----------
Net increase in cash and cash equivalents..... -- 194,305 10,258 -- 204,563
Cash at the beginning of the period........... -- 5,932 1,445 -- 7,377
--------- ---------- --------- ------- ----------
Cash and cash equivalents at the end of the
period ..................................... $ -- $ 200,237 $ 11,703 $ -- $ 211,940
========= ========== ========= ======= ==========
53
NOTE T--QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS ENDED
---------------------------------------------------
OCTOBER 1, DECEMBER 31, MARCH 31, JUNE 30,
1999 1999 2000 2000
---------- ------------ --------- --------
(IN MILLIONS)
Net sales........................................................ $134.0 $158.1 $ 170.9 $191.2
Gross margin..................................................... 48.3 61.7 69.4 82.6
Income (loss) before extraordinary item.......................... (23.1) (1.7) 2.8 1.8
Extraordinary item............................................... -- -- (25.5) --
------ ------ ------- ------
Net income (loss)................................................ $(23.1) $ (1.7) $ (22.7) $ 1.8
====== ====== ======= ======
Net income (loss) to common shareholders......................... $(24.5) $ (4.2) $ (24.2) $ 1.8
Per Share (Basic):
Income (loss) before extraordinary item........................ $(0.37) $(0.06) $ 0.02 $ 0.02
Extraordinary item............................................. -- -- (0.34) --
------ ------ ------- ------
Net income (loss).............................................. $(0.37) $(0.06) $ (0.32) $ 0.02
====== ====== ======= ======
Per Share (Diluted):
Income (loss) before extraordinary item........................ $(0.37) $(0.06) $ 0.02 $ 0.02
Extraordinary item............................................. -- -- (0.34) --
------ ------ ------- ------
Net income (loss).............................................. $(0.37) $(0.06) $ (0.32) $ 0.02
====== ====== ======= ======
54
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the persons
who are members of our Board of Directors, key employees or executive officers.
With the exception of Messrs. Conn, Peeters and Pokelwaldt, who joined as
directors on April 19, 2000, each of our directors has served as director since
our formation on June 2, 1999. Our directors will continue to hold office until
the next annual meeting of shareholders or until a successor has been elected
and qualified. With one exception, each of our officers has served as an officer
since our formation, and each of our officers will hold office until the first
meeting of directors after its next annual meeting of shareholders or until a
successor has been elected and qualified.
NAME AGE TITLE
- ------------------------------------------ --- ---------------------------------------------------------------
Gregory L. Williams....................... 47 Chief Executive Officer, Director
Daniel J. Heneghan........................ 44 Vice President, Chief Financial Officer and Assistant Secretary
Larry W. Sims............................. 43 Vice President, Marketing and Sales
Lawrence J. Ciaccia....................... 41 Vice President, General Manager, PRISM(R) Wireless
W. Russell Morcom......................... 54 Vice President, General Manager, Discrete Power
Stephen M. Moran.......................... 43 Vice President, General Counsel and Secretary
Julie B. Forbes........................... 43 Vice President, Human Resources
Robert W. Conn............................ 58 Director
Gary E. Gist.............................. 53 Director
Jan Peeters............................... 49 Director
Robert N. Pokelwaldt...................... 64 Director
James A. Urry............................. 45 Director
Gregory L. Williams, Chief Executive Officer, Director. Mr. Williams is
our Chief Executive Officer and one of our directors. From October 1998 to
August 1999, Mr. Williams was President of the semiconductor business at Harris.
From January 1998 to October 1998, Mr. Williams was Vice President and General
Manager of the Power Products Division at Harris. From 1984 to 1998,
Mr. Williams also served as Vice President and Assistant General Manager of the
Semiconductor Components Group, Vice President and General Manager of the Power
Products Division, and Vice President and Director of Automotive World Marketing
at Motorola Semiconductor, and from 1977 to 1984, Mr. Williams served with
General Electric Company.
Daniel J. Heneghan, Vice President, Chief Financial Officer and Assistant
Secretary. Mr. Heneghan is our Vice President, Chief Financial Officer and
Assistant Secretary. From 1996 to August 1999, Mr. Heneghan was Vice President
and Controller of the semiconductor business at Harris. From 1994 to 1996,
Mr. Heneghan was Vice President of Digital Products of the semiconductor
business at Harris. Mr. Heneghan also served at various times as Division
Controller of the semiconductor business at Harris, Director of Planning at
Harris, Director of Finance at Harris and Senior Financial Analyst with Royal
Crown Cola.
Larry W. Sims, Vice President, Marketing and Sales. Mr. Sims is our Vice
President, Marketing and Sales. From August 1998 to August 1999, Mr. Sims was
Vice President, Sales of the semiconductor business at Harris. From 1979 to
1998, Mr. Sims served in various sales management positions at Motorola
Semiconductor.
Lawrence J. Ciaccia, Vice President, General Manager, PRISM(R) Wireless.
Mr. Ciaccia is our Vice President and General Manager, PRISM(R) Wireless
Products Business Unit. From February 1998 to December 1999, Mr. Ciaccia was
Vice President and Director of Engineering for the PRISM(R) Wireless Products
business at Harris. From 1997 to 1998 Mr. Ciaccia was Director of Strategic and
Product Marketing for the Multimedia Products business at Harris. Mr. Ciaccia
also served at various times from 1993 to 1997 as Director of Engineering for
several different semiconductor businesses at Harris.
W. Russell Morcom, Vice President, General Manager, Discrete
Power. Mr. Morcom is our Vice President and General Manager, Discrete Power.
From 1997 to August 1999, Mr. Morcom was Vice
55
President and General Manager, Operations and Quality of the semiconductor
business at Harris. From 1991 to 1997, Mr. Morcom was Vice President and General
Manager, Semiconductor Products Division of the semiconductor business of
Harris.
Julie B. Forbes, Vice President, Human Resources. Ms. Forbes joined our
company as Vice President, Human Resources in August 1999. Prior to joining us,
Ms. Forbes was the Vice President and Director of Human Resources for the
Satellite Communications Group of Motorola from 1998 to 1999. From 1992 until
1998, Ms. Forbes served in various other Human Resources positions in the
Semiconductor Products Sector of Motorola.
Stephen M. Moran, Vice President, General Counsel and Secretary. Mr. Moran
joined our company as Vice President, General Counsel, and Secretary in January
of 2000. Prior to joining us, Mr. Moran served with Toshiba America, Inc. from
September 1996 until January 2000 and served as the Vice President and General
Counsel for Toshiba America Electronic Components, Inc. (Toshiba America's
Semiconductor Company) from January 1998 to January 2000. From March 1992 until
September 1996, Mr. Moran was the General Counsel of ITT Cannon, Inc., an ITT
Industries corporation.
Robert W. Conn, Director. Dr. Conn is one of our directors. Dr. Conn has
been the Dean of the Jacobs School of Engineering, University of California, San
Diego, and the Walter J. Zable Endowed Chair in Engineering since 1994. Prior to
joining University of California, San Diego, Dr. Conn served as Professor of
Engineering and Applied Sciences and founding Director of the Institute of
Plasma and Fusion Research at the University of California, Los Angeles. Dr.
Conn has been editor of the journal Fusion Engineering and Design, since 1986.
Dr. Conn recently served as a member of the President's Committee of Advisors on
Science and Technology Panel on Energy R&D Policy for the 21st Century, which
service ended in 1998.
Gary E. Gist, Director. Mr. Gist is one of our directors. Mr. Gist has
served as the President and Chief Executive Officer of Palomar Technological
Companies since 1995, a corporation made up of a diverse group of companies that
focus on designing and manufacturing electronic products including the following
companies: HID Corporation, AML Wireless Systems, Inc., Palomar Display
Products, Inc., Palomar Products, Inc. and Palomar Technologies, Inc. Prior to
1995, he was Division Manager of the Technology Products Division of Hughes
Industrial Electronics Company.
Jan Peeters, Director. Mr. Peeters is one of our directors. Mr. Peeters is
the founder, Chairman, President, Chief Executive Officer and a major
shareholder of Olameter Inc., a communications and data management service
provider which he formed in 1998. Mr. Peeters was a founder, Vice-Chairman,
President and Chief Executive Officer of Fonorola Inc. where he held the
position of President and Chief Executive Officer since 1990 and the position of
Vice-Chairman since 1994, until that company was sold to Call-Net Enterprises in
June 1998. Mr. Peeters serves on the Board of Directors of Call-Net Enterprises
and Cogeco, Inc.
Robert N. Pokelwaldt, Director. Mr. Pokelwaldt is one of our directors.
Mr. Pokelwaldt retired as the Chairman and Chief Executive Officer of YORK
International Corporation, an independent supplier of heating, ventilating, air
conditioning, and refrigeration products in the U.S. and internationally in
November 1999. He became President and Chief Executive Officer of YORK in 1991,
and Chairman of YORK in January 1993. Mr. Pokelwaldt joined YORK as President of
Applied Systems Worldwide, a YORK Division, in 1988, and two years later was
appointed President and Chief Operating Officer of YORK International. Mr.
Pokelwaldt serves on the Board of Directors of Mohawk Industries, Susquehanna
Pfaltzgraff, Inc. and Carpenter Technology.
James A. Urry, Director. Mr. Urry is one of our directors. Mr. Urry has
been with Citibank, N.A. since 1981 serving as a Vice President since 1986. He
has been a Vice President of Citicorp Venture Capital Ltd., which is an
affiliate of ours, since 1989. He is also a Director of Airxcel, Inc., Hancor
Holding Corporation, IKS Corporation, Palomar Technological Companies and York
International Corporation.
Our Board of Directors currently consists of six directors, determined as
follows: our chief executive officer, one individual designated by Sterling, up
to two independent directors designated by Sterling (to the extent permitted by
applicable law as determined in Sterling's sole discretion) and, in the event
the Board includes two independent directors designated by Sterling, one
additional individual designated by Sterling.
56
The holders of a majority of the outstanding shares of Class A Common Stock
(including any shares of Class A Common Stock held by Sterling) have the right
to veto the election of any independent directors designated by Sterling. Under
our Shareholders' Agreement, each of our shareholders prior to the initial
public offering (owning in the aggregate 18,554,703 shares, or approximately
41%, of the outstanding Class A Common Stock, our only class of voting stock,
and 49,746,482 shares, or 100%, of Class B Common Stock which are convertible
into shares of Class A Common Stock on a one-to-one basis) agrees to take all
action necessary (including voting his, her or its shares, calling special
meetings and executing and delivering written consents) to ensure our Board of
Directors will be composed at all times as described in this paragraph.
DIRECTOR COMPENSATION AND ARRANGEMENTS
Those directors who are employed by us or by Citicorp Venture Capital Ltd.
do not receive compensation for their services as directors. All other directors
receive cash in the amount of $10,000 per year and $1,500 and $1,000,
respectively, per board and committee meeting attended and non-cash compensation
of a one-time appointment grant of options to purchase 7,500 shares of our
Class A Common Stock and an annual grant of options to purchase 5,000 shares of
our Class A Common Stock. All directors will be reimbursed for travel and other
expenses incurred in attending meetings of the Board of Directors or its
committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE
James A. Urry and Gary E. Gist are the members of our Compensation
Committee. Jan Peeters, Gary E. Gist, and Robert N. Pokelwaldt are the members
of our Audit Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
On the basis of reports and representations submitted by or on behalf of the
directors, executive officers and ten percent shareholders of us, all Forms 3,
4 and 5 showing ownership of and changes in ownership in our equity securities
during fiscal year 2000 were timely filed with the Securities and Exchange
Commission as required by Section 16(a) of the Securities Exchange Act of 1934,
as amended.
57
Item 11. Executive Compensation
The following table sets forth certain information concerning the
compensation received by our five most highly compensated officers for services
rendered in fiscal years 1999 and 2000.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------
AWARDS
ANNUAL COMPENSATION ------------- PAYOUTS
------------------------------------------ SECURITIES ----------
NAME AND FISCAL OTHER ANNUAL UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2)(3) OPTIONS(4) PAYOUTS COMPENSATION(5)
- ---------------------- ------ -------- -------- ------------------ ------------- ---------- ---------------
Gregory L. Williams... 2000 $399,615 $ 49,559 $430,052 140,000 $ 0 $29,312
Chief Executive 1999 318,615 20,531 6,925 0 0 12,207
Officer
Larry W. Sims......... 2000 239,231 41,698 421,239 63,334 0 6,666
Vice President, 1999 185,769 117,953 47,174 0 0 1,889
Marketing and Sales
George L. Gidzinski... 2000 190,769 22,173 0 63,334 19,620 10,899
Vice President and 1999 133,269 46,683 3,264 0 28,350 15,128
General Manager,
Analog and
Mixed-Signal
W. Russell Morcom..... 2000 186,923 51,360 0 63,334 49,050 16,099
Vice President and 1999 170,000 113,623 10,798 0 70,875 57,114
General Manager,
Discrete Power
Daniel J. Heneghan.... 2000 179,712 44,287 0 63,334 17,249 10,405
Vice President, 1999 121,980 44,121 1,920 0 24,924 23,774
Chief Financial
Officer and
Assistant Secretary
- ------------------
(1) This category includes Annual Incentive Plan bonus for all officers and a
sales incentive compensation bonus for Mr. Sims. It also includes a
disruption bonus for Mr. Heneghan in the amount of $25,000 in fiscal year
2000 and a disruption and signing bonus for Mr. Sims in the amount of
$65,000 in fiscal 1999.
(2) Except for Mr. Williams and Mr. Sims, none of the executive officers named
in the Summary Compensation Table received personal benefits in excess of
$50,000 or 10% of annual salary and bonus for fiscal year 2000.
Mr. Williams' and Mr. Sims' personal benefits for fiscal year 2000 included
relocation expenses and applicable taxes associated with their relocation to
the corporate office in Irvine, California.
(3) Except for Mr. Sims, none of the executive officers named in the Summary
Compensation Table received personal benefits in excess of the lesser of
$50,000 or 10% of annual salary and bonus for fiscal year 1999. Mr. Sims'
personal benefits for fiscal year 1999 included relocation expenses and
applicable taxes associated with his relocation to Melbourne, Florida. The
other amounts reported represent dividend equivalent payments on outstanding
performance shares granted under Harris' Stock Incentive Plan for which the
performance period had not expired.
(4) All stock options were granted under the Intersil Holding Corporation 1999
Equity Compensation Plan. The stock option grants terminate ten years from
the date of grant and vest over a five year period--20% upon each of the
first five anniversary dates of the grant.
(5) Amounts reported reflect contributions and allocations to defined
contribution retirement plans and the value of insurance premiums for term
life insurance and disability insurance.
58
The following table provides information concerning stock options granted
to the executive officers named in the Summary Compensation Table during fiscal
year 2000.
POTENTIAL REALIZABLE
OPTIONS GRANTED IN LAST FISCAL YEAR VALUE AT
------------------------------------------------------------ ASSUMED ANNUAL RATES
PERCENTAGE OF OF STOCK
ALL OPTIONS PRICE APPRECIATION
NUMBER OF GRANTED TO FOR OPTION
SECURITIES ALL EMPLOYEES TERM (4)
UNDERLYING IN FISCAL EXERCISE EXPIRATION ------------------------
NAME OPTIONS (1) YEAR (2) PRICE DATE (3) 5% 10%
- ------------------------------------ ----------- ----------------- ---------- ---------- ---------- ----------
Gregory L. Williams................. 140,000 4.4% $25.00 2/24/2010 $2,201,131 $5,578,099
Larry W. Sims....................... 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
George L. Gidzinski................. 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
W. Russell Morcom................... 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
Daniel J. Heneghan.................. 63,334 2.0 25.00 2/24/2010 995,760 2,523,452
- ------------------
(1) These options vest in twenty-percent increments on the first five
anniversaries of the grant date of February 24, 2000.
(2) A total of 3,177,184 options were granted to Intersil employees under the
Intersil Stock Option Plan in fiscal year 2000.
(3) The options will expire ten years after the grant date of February 24, 2000.
(4) Represents the potential realizable value of the underlying shares of
Intersil common stock at the expiration date based on an assumed annual
appreciation rate of 5% and 10%, set by the Securities and Exchange
Commission. The amounts shown are not intended to forecast future
appreciation in the price of our Class A Common Stock.
The following table sets forth information regarding the number and value
of options held by the executive officers named in the Summary Compensation
Table at the end of fiscal year 2000.
OPTION VALUES AT END OF LAST FISCAL YEAR
NUMBER OF SECURITIES NET VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Gregory L. Williams....................................... -- 140,000 -- $ 4,068,400
Larry W. Sims............................................. -- 63,334 -- 1,840,486
George L. Gidzinski....................................... -- 63,334 -- 1,840,486
W. Russell Morcom......................................... -- 63,334 -- 1,840,486
Daniel J. Heneghan........................................ -- 63,334 -- 1,840,486
- ------------------
(1) Reflects net pre-tax amounts determined by subtracting the exercise price
from $54.06 per share, the fair market value of common stock at the end of
fiscal year 2000.
EMPLOYMENT AGREEMENTS
We and Intersil entered into an employment agreement with Mr. Williams for
him to serve as our Chief Executive Officer and a member of our Board of
Directors. His employment agreement provides for an annual base salary of
$425,000, subject to increases and annual performance bonuses at the
discretion of the Board of Directors. The agreement also provides for
Mr. Williams to receive our standard benefits. The term of the agreement is
60 months from August 13, 1999, subject to automatic renewal for successive one
year terms, unless either we give or Mr. Williams gives prior notice of
non-renewal. Mr. Williams is subject to a noncompetition covenant during the
term of his agreement and for a period of one year following termination or
expiration of the agreement.
59
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of each holder of 5% or more of the outstanding shares of our Class A
Common Stock (the only voting class of stock) and Class B Common Stock, each
director and each executive officer named in the Summary Compensation Table, and
all directors and officers as a group, as of June 30, 2000. The table does not
include shares of our Class A Common Stock issuable upon conversion of the
warrants and the warrants issued in connection with the 13.5% Subordinated
Holding PIK Note due 2010.
Unless otherwise indicated, the address of each person owning more than 5%
of our outstanding shares is c/o Intersil Holding Corporation, 7585 Irvine
Center Drive, Suite 100, Irvine, California 92618.
CLASS A CLASS B
COMMON STOCK (1) COMMON STOCK (2)
------------------- ------------------- PERCENT OF ALL
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT COMMON STOCK (3)
- ------------------------------- ---------- ------- ---------- ------- ----------------
Sterling Holding Company, ..... 10,738,026 23.98% 45,214,898 90.89% 59.20%
LLC(4)(5)
Harris Corporation(6) ......... 892,806 2.00% 4,531,584 9.11% 5.74%
1025 W. NASA Boulevard
Melbourne, Florida 32919
Gregory L. Williams(7) ........ 2,090,056 4.67% -- -- 2.21%
W. Russell Morcom(8) .......... 573,570 1.28% -- -- *
Larry W. Sims(9)............... 669,629 1.56% -- -- *
George L. Gidzinski(10)........ 461,098 1.03% -- -- *
Daniel J. Heneghan(11) ........ 394,199 * -- -- *
Karl McCalley ................. 285,006 * -- -- *
Ray D. Odom(12) ............... 357,074 * -- -- *
Julie B. Forbes(13) ........... 277,486 * -- -- *
Lawrence J. Ciaccia(14) ....... 355,238 * -- -- *
Stephen M. Moran............... 33,334 * -- -- *
James A. Urry(15) ............. 32,024 * -- -- *
Gary E. Gist(16) .............. 4,708 * 33,478 * *
Robert W. Conn................. -- * -- -- *
Jan Peeters.................... 3,034 * -- -- *
Robert N. Pokelwaldt........... -- * -- -- *
All directors, officers and
other management investors as a
group (15 persons) ............ 5,564,942 12.43% 33,478 * 5.89%
- ------------------
* Less than 1%.
(1) Does not include shares of Class A Common Stock issuable upon conversion of
Class B Common Stock. A holder of Class B Common Stock may convert any or
all of his, her or its shares into an equal number of shares of Class A
Common Stock, provided that such conversion would be permitted only to the
extent that the holder of shares to be converted would be permitted under
applicable law to hold the total number of shares of Class A Common Stock
which would be held after giving effect to the conversion.
(2) Does not include shares of Class B Common Stock issuable upon conversion of
Class A Common Stock. A holder of Class A Common Stock may convert any or
all of his, her or its shares into an equal number of shares of Class B
Common Stock.
(3) Represents the percentage of the total number of shares of Class A Common
Stock and Class B Common Stock combined.
(4) An affiliate of Credit Suisse First Boston Corporation owns an interest in
Sterling and could have the right to acquire up to 1,070,733 shares of
Class A Common Stock.
(5) Citicorp Venture Capital Ltd. owns an interest in Sterling and could have
the right to acquire up to 42,055,184 shares of Class A or Class B Common
Stock. Citicorp Mezzanine Partners, L.P., the general partner of which is
an affiliate of Citicorp Venture Capital, contributed $30.0 million in cash
to our company in exchange for the 13.5%
(Footnotes continued on next page)
60
(Footnotes continued from previous page)
Subordinated Holding PIK Note due 2010 and warrants to purchase 3,703,707
shares of our Class A Common Stock. We contributed the $30.0 million to
Intersil as a capital contribution. Upon repayment of the 13.5%
Subordinated PIK Note due 2010, the warrants became exercisable for
2,222,224 shares of our Class A Common Stock.
(6) The shares reported by Harris are owned by Manatee Investment Corporation,
a wholly owned subsidiary of Harris. Harris may be deemed to beneficially
own these shares.
(7) Includes 2,053,116 shares owned by Gregory L. Williams and Linda H.
Williams. Does not include 66,667 shares owned by the Gregory L. Williams
and Linda H. Williams Trust dated 1/28/00 FBO Brooke M. Williams, 66,667
shares held by the Gregory L. Williams and Linda H. Williams Trust dated
1/28/00 FBO Tina L. Williams and 26,667 shares owned by the Gregory L.
Williams and Linda H. Williams Trust dated 1/28/00 FBO Millard L. Williams
and Jeanette M. Williams for which Mr. Willaims disclaims beneficial
ownership. Includes 21,798 shares owned by Linsco/Private Ledger, as
Trustee for Gregory L. Williams IRA Account. Includes currently exercisable
options to purchase 15,142 shares of our Class A Common Stock.
(8) Includes 569,027 shares owned by W. Russell Morcom Revocable Trust. Does
not include 66,667 shares owned by W. Russell Morcom Irrevocable Trust FBO
Brad Allen Morcom dated 12/23/99 and 66,667 shares owned by W. Russell
Morcom Irrevocable Trust FBO Todd Russell Morcom dated 12/23/99 for which
Mr. Morcom disclaims beneficial ownership. Includes currently exercisable
options to purchase 4,543 shares of our Class A Common Stock.
(9) Includes 569,027 shares owned by Larry W. Sims and Elizabeth Sims, 100,000
shares owned by Lesgrat No. 00-1, a trust holding shares on behalf of its
beneficial owners, 13,334 shares owned by Larry and Elizabeth Sims, LS
Parents Trust No. 00-1 and 13,334 shares owned by ES Parents Trust No.
00-1. Includes currently exercisable options to purchase 4,543 shares of
our Class A Common Stock.
(10) Includes currently exercisable options to purchase 4,543 shares of our
Class A Common Stock.
(11) Includes 389,656 shares owned by Daniel J. Heneghan and Barbara Heneghan.
Includes currently exercisable options to purchase 3,029 shares of our
Class A Common Stock.
(12) Does not include 13,334 shares owned by the Jennifer Odom Irrevocable Trust
U/T/D 12/29/99 and 13,334 shares owned by the Brian Odom Irrevocable Trust
U/T/D 12/29/99 for which Mr. Odom disclaims beneficial ownership. Includes
currently exercisable options to purchase 3,029 shares of our Class A
Common Stock.
(13) Includes 126,259 shares owned by Julie B. Forbes Trust D/T/D 3/23/00,
126,258 shares owned by the Peter K. Forbes Trust D/T/D 3/23/00, 9,456
shares owned by the Peter K. Forbes and Julie B. Forbes Trust dated 1/20/00
FBO Jake P. Forbes and 9,456 shares owned by Peter K. Forbes and Julie B.
Forbes Trust dated 1/20/00 FBO Jennifer Leigh Forbes. Includes currently
exercisable options to purchase 6,057 shares of our Class A Common Stock.
(14) Includes 288,570 shares owned by Lawrence J. Ciaccia and Marcia R. Ciaccia
and 66,668 shares owned by the Lawrence J. Ciaccia and Marcia R. Ciaccia
Trust dated 1/20/00.
(15) James A. Urry, who is one of our directors, is affiliated with Sterling in
the capacities described under "Management--Directors and Executive
Officers" and footnote (6) above. All shares reported for Mr. Urry are held
by Sterling, but do not include all shares held by Sterling, which Mr. Urry
may be deemed to beneficially own as a result of his affiliation with
Sterling. Mr. Urry disclaims beneficial ownership of all shares held by
Sterling, except for those shares reported for Mr. Urry, which Mr. Urry has
the right to acquire in exchange for an ownership interest in Sterling.
(16) Gary E. Gist owns an interest in Sterling and could have the right to
exchange that interest for up to 38,186 shares of our common stock.
------------------
Sterling Holding Company, LLC, or Sterling, our principal shareholder, also
owns 7.1% of Class A Common Stock and 100% of Class B Common Stock of Fairchild
Semiconductor International, Inc., one of our competitors. Fairchild
Semiconductor Corporation is a wholly owned subsidiary of Fairchild
Semiconductor International, Inc.
61
Item 13. Certain Relationships and Related Transactions
Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to us
in exchange for the 13.5% Subordinated PIK Note due 2010 and warrants to
purchase 3,703,707 shares of our Class A Common Stock. The 13.5% Subordinated
PIK Note due 2010 was repaid in full with the proceeds of our initial public
offering and, as a result of early repayment, the number of shares subject to
such warrants was reduced to 2,222,224 shares. We contributed the $30.0 million
from Citicorp Mezzanine Partners, L.P. to Intersil as a capital contribution.
The general partner of Citicorp Mezzanine Partners, L.P. is an affiliate of
Citicorp Venture Capital Ltd. Citicorp Venture Capital Ltd. owns an interest in
Sterling, one of our principal shareholders.
Sterling Holding Company, LLC, Harris and certain members of our senior
management entered into a Shareholders' Agreement containing certain agreements
among the shareholders regarding our capital stock and corporate governance. We
exercised our option under the Shareholders' Agreement to repurchase from
Sterling Holding Company, LLC a total of 1,833,333 shares of Class A Common
Stock for an aggregate purchase price of $137,500 to reissue to our employees.
We purchased from Harris selected portions of the semiconductor business.
Harris entered into with us various agreements, including the Intellectual
Property Agreement, the Patent Assignment and Services Agreement, the License
Assignment Agreement, the Secondary Trademark Assignment and License Agreement,
the Harris Trademark License Agreement and the Royalty Agreement.
o The Intellectual Property Agreement provides for the assignment by Harris
to us of its entire ownership, right, title and interest in some
intangible property rights owned by Harris and specific to the
semiconductor business.
o The Patent Assignment and Services Agreement provides for the assignment
by Harris to us, subject to pre-existing license rights, of about 1,300
patent rights. Harris retained the rights to some patents for up to three
years before assigning their entire right, title and interest therein to
us (provided that the patents are not in litigation at the time, and no
royalties are owed on licenses to the patents). During the interim
preceding the assignment of these retained patents, Harris granted us a
worldwide, royalty-free, non-exclusive license thereto, without the right
to sublicense.
o The License Assignment Agreement provides for the assignment by Harris to
us of certain license agreements that may be assigned without the consent
of third party licensors and licensees and also provides that Harris will
provide us with the economic benefit of certain other material license
agreements that may not be assigned without the consent of third party
licensors and licensees.
o The Secondary Trademark Assignment and License Agreement provides for the
assignment by Harris to us of some trademarks related to products of the
semiconductor business and provides that we grant back to Harris
worldwide, non-exclusive, royalty-free licenses recognizing transitional
use of some visible trademarks assigned by Harris to us.
62
o The Harris Trademark License Agreement provides for the grant by Harris
to us of non-exclusive, royalty-free licenses recognizing transitional
use of some visible trademarks and product-embedded trademarks, which
embedded trademarks will not be eliminated until the relevant product is
discontinued.
o The Royalty Agreement provides for our payment to Harris of 2% of the
revenue generated by the sales of the PRISM(R)chip sales until
August 13, 2004.
In June 2000, we sold our assembly and test facilities in Malaysia along
with related intellectual property to ChipPAC in exchange for $52.5 million in
cash and preferred stock of ChipPAC that has an aggregate liquidation preference
of $17.5 million. We also assigned to ChipPAC patents, copyrights and technical
information used exclusively in or associated exclusively with our assembly and
test facilities in Malaysia and granted ChipPAC a worldwide, nonexclusive,
royalty-free license under other of our patents, copyrights and technical
information that is also used in or related to the operation of the assembly and
test facilities in Malaysia. Any intellectual property rights in the bonding
diagrams, test programs, mask works and test boards uniquely related to our
products for which ChipPAC will provide packaging and test services under the
supply agreement are licensed to ChipPAC only for use in providing those
services. We also entered into a long term joint services agreement with ChipPAC
in connection with the sale under which each party is required to assist the
other in a smooth transition of each party's operations following the sale.
Under our supply agreement with ChipPAC, we have agreed to continue to use
the Malaysian facility to provide 100% (until June 30, 2003), 90% (from July 1,
2003 to June 30, 2004) and 80% (from July 1, 2004 to June 30, 2005) of our
semiconductor package configuration assembly and test requirements for all
products assembled and tested at the Malaysian facility on the date of the
supply agreement and any new or additional products we may develop after that
date. In addition, ChipPAC will ensure that we are allocated 100% of the
utilized capacity that was in place on the date of the supply agreement.
One of the principal shareholders of ChipPAC is an affiliate of Sterling,
our principal shareholder.
The terms of the agreements listed above were the result of arms-length
negotiations and in our opinion are no less favorable to us than those that
could be obtained from non-affiliated parties.
63
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. The Consolidated Financial Statements and related Notes thereto as set
forth under Item 8 of this Report on Form 10-K are incorporated herein by
reference.
2.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS $)
ADDITIONS
CHARGED ADDITIONS BALANCE
BALANCE AT TO COSTS CHARGED DEDUCTION AT
BEGINNING AND TO OTHER FROM END OF
OF PERIOD EXPENSES ACCOUNTS RESERVES PERIOD
---------- --------- --------- --------- ---------
Valuation and qualifying accounts deducted from the
assets to which they apply:
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
2000................................................... $ 582 $ 423 $ 395 $ 59 $ 1,341
1999................................................... $ 571 $ 487 $ -- $ 476 $ 582
1998................................................... $ 1,336 $ 324 $ -- $ 1,089 $ 571
INVENTORY RESERVE
2000................................................... $ 18,117 $38,074 $ 573 $34,831 $21,933
1999................................................... $ 24,482 $ 8,373 $ 257 $14,995 $18,117
1998................................................... $ 31,736 $ 9,846 $ 120 $17,220 $24,482
DISTRIBUTOR RESERVES
2000................................................... $ 6,542 $37,408 $ -- $36,584 $ 7,366
1999................................................... $ 6,189 $52,965 $ -- $52,612 $ 6,542
1998................................................... $ 11,278 $66,062 $ -- $71,151 $ 6,189
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
(b) No reports on Form 8-K were filed during the quarter ended June 30, 2000.
(c) The following is a list of exhibits required by Item 601 of Regulation S-K
to be filed as part of this Report. Where so indicated by footnote, exhibits
which were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filing is
indicated in parentheses.
64
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
2.01 Amended and Restated Master Transaction Agreement dated as of June 2, 1999, by and among Intersil
Holding Corporation ("Holding"), Intersil Corporation ("Intersil") and Harris Corporation ("Harris")
(incorporated by reference to Exhibit 2.01 to the Registration Statement on Form S-1 previously filed by
Intersil Holding Corporation on November 10, 1999 (Registration No. 333-90857) ("Registration Statement
on Form S-1")).
2.02 Agreement Concerning Deferred Closings dated as of August 13, 1999, by and among Harris and Intersil
(incorporated by reference to Exhibit 2.02 to the Registration Statement on Form S-1).
2.03 Transition Services Agreement dated as of August 13, 1999, by and among Intersil and Harris
(incorporated by reference to Exhibit 2.03 to the Registration Statement on Form S-1).
2.04 Share Sale Agreement dated August 13, 1999, between Harris Airport Systems (Malaysia) Sdn. Bhd., Harris
Solid State (Malaysia) Sdn. Bhd. and Sapphire Worldwide Investments, Inc. (incorporated by reference to
Exhibit 2.04 to the Registration Statement on Form S-1).
2.05 Agreement for the Sale and Purchase of the Business and Assets of Harris Semiconductor Limited dated as
of August 13, 1999, between Harris Semiconductor Limited and Intersil Limited (incorporated by
reference to Exhibit 2.05 to the Registration Statement on Form S-1).
2.06 Asset Purchase Agreement dated as of August 20, 1999, between Harris Semiconductor Design & Sales Pte.
Ltd. and Intersil Pte. Ltd. (incorporated by reference to Exhibit 2.06 to the Registration Statement on
Form S-1).
2.07 Purchase Agreement of Corporate Quotas of a Limited Liability Company, dated as of August 13, 1999,
between Harris Semiconductor BV, Harris Semiconductor Limited and Intersil (incorporated by reference
to Exhibit 2.07 to the Registration Statement on Form S-1).
2.08 Assignment of Shares, dated as of August 13, 1999, between Intersil and Harris for the transfer by
Harris of all of its shares of Harris Semiconducteurs, Sarl to Intersil (incorporated by reference to
Exhibit 2.08 to the Registration Statement on Form S-1).
2.09 Share Transfer Agreement, dated as of August 1, 1999, between Harris and Intersil for the transfer of
stock of Harris Semiconductor Y.H. (incorporated by reference to Exhibit 2.09 to the Registration
Statement on Form S-1).
2.10 Equity Purchase Agreement, dated as of August 13, 1999, between Harris Advanced Technology (Malaysia)
Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit 2.10 to the
Registration Statement on Form S-1).
2.11 Agreement Re: China Subsidiaries, dated as of August 13, 1999, between Harris and Intersil
(incorporated by reference to Exhibit 2.11 to the Registration Statement on Form S-1).
2.12 Agreement Re: Anshan Joint Venture, dated as of August 13, 1999, between Harris Advanced Technology
(Malaysia) Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit
2.12 to the Registration Statement on Form S-1).
2.13 Agreement Re: Guangzhou Joint Venture, dated as of August 13, 1999, between Harris Advanced Technology
(Malaysia) Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit
2.13 to the Registration Statement on Form S-1).
2.14 Agreement Re: Suzhou Harris, dated as of August 13, 1999, between Harris Advanced Technology (Malaysia)
Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit 2.14 to the
Registration Statement on Form S-1).
2.15 Intellectual Property Agreement, dated as of August 13, 1999, among Harris, Harris Semiconductor
Patents, Inc. and Holding (incorporated by reference to Exhibit 2.15 to the Registration Statement on
Form S-1).
65
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
2.16 Patent Assignment and Services Agreement, dated as of August 13, 1999, among Harris, Harris
Semiconductor Patents, Inc. and Holding (incorporated by reference to Exhibit 2.16 to the Registration
Statement on Form S-1).
2.17 License Assignment Agreement, dated as of August 13, 1999, among Harris, Harris Semiconductor Patents,
Inc. and Holding (incorporated by reference to Exhibit 2.17 to the Registration Statement on Form S-1).
2.18 Harris Trademark License Agreement, dated as of August 13, 1999, among Harris, HAL Technologies, Inc.
and Holding (incorporated by reference to Exhibit 2.18 to the Registration Statement on Form S-1).
2.19 Secondary Trademark Assignment and License Agreement, dated as of August 13, 1999, between Harris and
Holding (incorporated by reference to Exhibit 2.19 to the Registration Statement on Form S-1).
2.20 PRISM(R) Intellectual Property Assignment, dated August 13, 1999, between Holding and Intersil
(incorporated by reference to Exhibit 2.20 to the Post-Effective Amendment No. 1 to the Registration
Statement on Form S-1).
2.21 Tax Sharing Agreement, dated as of August 13, 1999, among Holding, Intersil and Choice Microsystems,
Inc. (incorporated by reference to Exhibit 2.21 to the Registration Statement on Form S-1).
2.22 Royalty Agreement, dated as of August 13, 1999, among Harris and Intersil (incorporated by reference to
Exhibit 2.22 to the Registration Statement on Form S-1).
2.23 Option Agreement, dated as of August 13, 1999, among Intersil and Intersil PRISM, LLC. (incorporated by
reference to Exhibit 2.23 to the Registration Statement on Form S-1).
2.24 Stock Purchase Agreement among ChipPAC Limited, ChipPAC, Inc., Sapphire Worldwide Investments, Inc. and
Intersil Corporation dated as of June 30, 2000 (incorporated by reference to Exhibit 2.1 to the Current
Report on Form 8-K previously filed by ChipPAC, Inc. on July 14, 2000 (Commission File No.
333-91641)).
2.25 Share Purchase Agreement dated April 27, 2000 by and among Holding, Intersil B.V., No Wires Needed
B.V., Gilde It Fund B.V., Parnib B.V., 3Com Corporation, Kennet I L.P., Hans B. Van Der Hoek and the
shareholders named therein.*
2.26 Amendment No. 1 to the Share Purchase Agreement dated April 27, 2000 by and among Holding, Intersil
B.V., No Wires Needed B.V., Gilde It Fund B.V., Parnib B.V., 3Com Corporation, Kennet I L.P., Hans B.
Van Der Hoek and the shareholders named therein.*
3.01 Restated Certificate of Incorporation of Holding (incorporated by reference to Exhibit 3.01 to the
Post-Effective Amendment No. 1 to the Registration Statement on Form S-1).
3.02 Bylaws of Holding (incorporated by reference to Exhibit 3.02 to the Registration Statement on Form
S-1).
4.01 Specimen Certificate of Holding's Class A Common Stock (incorporated by reference to Exhibit 4.01 to
Amendment No. 2 to the Registration Statement on Form S-1 (Registration Number 333-95199)).
4.02 Amended and Restated Registration Rights Agreement, dated as of January 21, 2000, by and among Holding,
Sterling Holding Company, L.L.C., Manatee Investment Corporation, Citicorp Mezzanine Partners, L.P. and
the management investors named therein (incorporated by reference to Exhibit 4.02 to the Registration
Statement on Form 8-A previously filed by Intersil Holding Corporation on February 18, 2000).
10.01 Warrant Agreement, dated as of August 13, 1999, between Holding and United States Trust Company of New
York (incorporated by reference to Exhibit 4.01 to the Registration Statement on Form S-1).
66
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.02 Purchase Agreement, dated as of August 6, 1999, between Intersil, Holding, Harris Semiconductor, LLC,
Harris Semiconductor (Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC, Choice Microsystems, Inc.,
Credit Suisse First Boston Corporation, J. P. Morgan Securities Inc. and Salomon Smith Barney Inc.
(incorporated by reference to Exhibit 4.02 to the Registration Statement on Form S-1).
10.03 Registration Rights Agreement, dated as of August 6, 1999, between Intersil, Holding, Harris
Semiconductor, LLC, Harris Semiconductor (Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC, Choice
Microsystems, Inc., Credit Suisse First Boston Corporation, J. P. Morgan Securities Inc. and Salomon
Smith Barney Inc. (incorporated by reference to Exhibit 4.03 to the Registration Statement on Form
S-1).
10.04 Indenture, dated as of August 13, 1999, among Intersil, Holding, Harris Semiconductor, LLC, Harris
Semiconductor (Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC, Choice Microsystems, Inc. and
United States Trust Company of New York for 13 1/4% Senior Subordinated Notes due 2009 (incorporated by
reference to Exhibit 10.01 to the Registration Statement on Form S-1).
10.05 Form of 13 1/4% Senior Subordinated Notes due 2009 (included in Exhibit 10.01).
10.06 Credit Agreement, dated as of August 13, 1999, among Intersil, the Lender Parties thereto, Credit
Suisse First Boston, as the Administrative Agent, Salomon Smith Barney, as Syndication Agent, and
Morgan Guaranty Trust Company of New York, as Documentation Agent (incorporated by reference to Exhibit
10.03 to the Registration Statement on Form S-1).
10.07 Amendment No. 1 and Waiver, dated as of January 28, 2000, to the Credit Agreement, dated as of August
13, 1999, among Intersil, Holding, Credit Suisse First Boston, as the Administrative Agent, Salomon
Smith Barney, Syndication Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent
(incorporated by reference to Exhibit 10.07 to the Amendment No. 2 to the Registration Statement on
Form S-1).
10.08 Subordinated Credit Agreement, dated as of August 13, 1999, among Holding and Citicorp Mezzanine
Partners, L.P. for 13 1/2% Subordinated Pay-In-Kind Note due 2010 (incorporated by reference to Exhibit
10.04 to the Registration Statement on Form S-1).
10.09 Form of 13 1/2% Subordinated Pay-In-Kind Note due 2010 (included in Exhibit 10.04).
10.10 Indenture, dated as of August 13, 1999, among Holding and United States Trust Company of New York for
11.13% Subordinated Pay-In-Kind Notes due 2010 (incorporated by reference to Exhibit 10.06 to the
Registration Statement on Form S-1).
10.11 Form of 11.13% Subordinated Pay-In-Kind Note due 2010 (included in Exhibit 10.06).
10.12 Securities Purchase and Holders Agreement, dated as of August 13, 1999, among Holding, Sterling Holding
Company, LLC, Manatee Investment Corporation, Intersil Prism LLC, Citicorp Mezzanine Partners, L.P.,
William N. Stout and the management investors named therein (incorporated by reference to Exhibit 10.09
to the Registration Statement on Form S-1).
10.13 Option Award Agreement, dated as of August 13, 1999 (incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1).
10.14 Employment Agreement, dated as of August 9, between Intersil and Gregory L. Williams (incorporated by
reference to Exhibit 10.11 to the Registration Statement on Form S-1).
10.15 Agreement between Harris and Local Union No. 1907 International Brotherhood of Electrical Workers,
AFL-CIO (Findlay, OH Facility), effective as of July 1, 1996 (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1).
10.16 Agreement between Harris and Local Union 177 International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers, AFL-CIO (Mountaintop, PA Facility), effective December 1, 1998
(incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1).
67
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.17 Machinery and Equipment Loan Agreement, dated September 9, 1996, between Commonwealth of Pennsylvania,
Department of Community and Economic Development and Harris (incorporated by reference to Exhibit 10.14
to the Registration Statement on Form S-1).
10.18 Machinery and Equipment Loan Agreement, dated as of November 3, 1998, between Commonwealth of
Pennsylvania, Department of Community and Economic Development and Harris (incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form S-1).
10.19 Master Agreement, dated as of December 2, 1997, between Harris Semiconductor and Optum Software
(incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1).
10.20 Purchase Agreement, dated as of March 14, 1997, between Harris Semiconductor and Praxair, Inc.
(incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-1).
10.21 Asset Purchase Agreement, dated as of July 2, 1999, by and among Align-Rite International, Inc.,
Align-Rite, Inc. and Harris (incorporated by reference to Exhibit 10.18 to the Registration Statement
on Form S-1).
10.22 Bill of Sale and Assignment, dated as of July 2, 1999, by Harris in favor of Align-Rite International,
Inc. and Align-Rite, Inc. (incorporated by reference to Exhibit 10.19 to the Registration Statement on
Form S-1).
10.23 Lease Agreement, dated as of July 2, 1999, by and among Harris Corporation Semiconductor Business Unit
and Align-Rite, Inc. (incorporated by reference to Exhibit 10.20 to the Registration Statement on Form
S-1).
10.24 Photomask Supply and Strategic Alliance Agreement, dated as of July 2, 1999, by and among Harris,
Align-Rite International, Inc. and Align-Rite, Inc. (incorporated by reference to Exhibit 10.21 to the
Registration Statement on Form S-1).
10.25 Site Services Agreement, dated as of July 2, 1999, by and among Harris Corporation Semiconductor
Business Unit and Align-Rite, Inc. (incorporated by reference to Exhibit 10.22 to the Registration
Statement on Form S-1).
10.26 Software License Agreement, dated as of July 31, 1984, between Harris and Consilium Associates, Inc.
(incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1).
10.27 Addendum Software License and Maintenance Agreement, dated as of October 27, 1995, between Harris and
Consilium, Inc. (incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-1).
10.28 Specialty Gas Supply Agreement, dated as of October 15, 1996, between Air Products and Chemicals, Inc.
and Harris (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-1).
10.29 Silicon Wafer Purchase Agreement, dated as of January 1, 1997, between Mitsubishi Silicon America
Corporation and Harris (incorporated by reference to Exhibit 10.26 to the Registration Statement on
Form S-1).
10.30 Nitrogen Supply Agreement, dated as of September 22, 1992, between Harris Corporation Semiconductor
Sector and Liquid Air Corporation Merchant Gases Division (incorporated by reference to Exhibit 10.27
to the Registration Statement on Form S-1).
10.31 Nitrogen Supply System Agreement, Amendment Number 1, dated as of September 15, 1996, between Air
Liquide America Corporation and Harris Corporation Semiconductor Sector (incorporated by reference to
Exhibit 10.28 to the Registration Statement on Form S-1).
10.32 Site Subscription Agreement, dated as of July 1, 1993, between Harris Semiconductor Sector of Harris
and Cadence Design Systems, Inc. (incorporated by reference to Exhibit 10.29 to the Registration
Statement on Form S-1).
68
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.33 Site Subscription Addendum, dated December 19, 1997, between Harris Semiconductor Sector of Harris and
Cadence Design Systems, Inc. (incorporated by reference to Exhibit 10.30 to the Registration Statement
on Form S-1).
10.34 HMCD--HSS Memorandum of Agreement, dated March 26, 1999, between Harris Microwave Communication
Division and Harris Semiconductor Sector (incorporated by reference to Exhibit 10.31 to the
Registration Statement on Form S-1).
10.35 Investment Agency Appointment and Participation Authorization, dated September 3, 1999, between
Intersil, Intersil Corporation Master Trust and T. Rowe Price Trust Company (incorporated by reference
to Exhibit 10.32 to the Registration Statement on Form S-1).
10.36 Investment Agency Appointment and Participation Authority, dated September 3, 1999, between Intersil
Corporation Master Trust and T. Rowe Price Trust Company (incorporated by reference to Exhibit 10.33 to
the Registration Statement on Form S-1).
10.37 Investment Advisory Agreement (Equity Growth Fund), dated September 3, 1999, between T. Rowe Price
Associates, Inc. and Intersil Corporation Retirement Committee (incorporated by reference to Exhibit
10.34 to the Registration Statement on Form S-1).
10.38 Investment Advisory Agreement (Equity Income Fund), dated September 3, 1999, between T. Rowe Price
Associates, Inc. and Intersil Corporation Retirement Committee (incorporated by reference to Exhibit
10.35 to the Registration Statement on Form S-1).
10.39 Intersil Corporation Retirement Plan (Non-Union), dated September 3, 1999 (incorporated by reference to
Exhibit 10.36 to the Registration Statement on Form S-1).
10.40 Intersil Corporation Retirement Plan (Union), dated September 3, 1999 (incorporated by reference to
Exhibit 10.37 to the Registration Statement on Form S-1).
10.41 Commercial Supply Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated and
Harris (incorporated by reference to Exhibit 10.38 to the Registration Statement on Form S-1).
10.42 Military Supply Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated and
Harris (incorporated by reference to Exhibit 10.39 to the Registration Statement on Form S-1).
10.43 Intellectual Property Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated,
Harris, Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris Southwest Properties, Inc.
(incorporated by reference to Exhibit 10.40 to the Registration Statement on Form S-1).
10.44 Asset Transfer Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated and
Harris Advanced Technology (Malaysia) Sdn. Bhd. (incorporated by reference to Exhibit 10.41 to the
Registration Statement on Form S-1).
10.45 Military Asset Purchase Agreement, dated October 23, 1998, by and between Texas Instruments
Incorporated, Harris, Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris Southwest Properties,
Inc. (incorporated by reference to Exhibit 10.42 to the Registration Statement on Form S-1).
10.46 Commercial Asset Purchase Agreement, dated October 23, 1998, by and between Texas Instruments
Incorporated, Harris, Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris Southwest Properties,
Inc. (incorporated by reference to Exhibit 10.43 to the Registration Statement on Form S-1).
10.47 Certificate of Leasehold Property for Land Office No. 7668 by Harris Advanced Technology (M) Sdn. Bhd.
(incorporated by reference to Exhibit 10.44 to the Registration Statement on Form S-1).
10.48 State Lease for Lot No. 7716 by Harris Advanced Technology (Malaysia) Sdn. Bhd. (incorporated by
reference to Exhibit 10.45 to the Registration Statement on Form S-1).
69
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.49 Certificate of Leasehold Property for Land Office No. 7666 by Harris Advanced Technology (M) Sdn. Bhd.
(incorporated by reference to Exhibit 10.46 to the Registration Statement on Form S-1).
10.50 Amendment No. 1, dated as of December 13, 1999, to the Securities Purchase and Holders Agreement by and
among Holding, Sterling Holding Company, LLC, Manatee Investment Corporation, Citicorp Mezzanine
Partners, L.P. and the management investors named therein.
10.51 Amendment No. 2, dated as of May 31, 2000, to the Securities Purchase and Holders Agreement, by and
among Holding, Sterling Holding Company, LLC, Manatee Investment Corporation, Citicorp Mezzanine
Partners, L.P. and the management investors named therein.
10.52 Supply Agreement entered into as of June 30, 2000 by and between ChipPAC Limited and Intersil
Corporation (incorporated by reference to Exhibit 10.33 to the Registration Statement on Form S-1
previously filed by ChipPAC, Inc. on July 14, 2000 (Registration No. 333-39428)).
10.53 Intellectual Property Agreement entered into as of June 30, 2000 between Intersil Corporation and
ChipPAC Limited (incorporated by reference to Exhibit 10.32 to the Registration Statement on Form S-1
previously filed by ChipPAC, Inc. on July 14, 2000 (Registration No. 333-39428)).
10.54 Intersil Holding Corporation 1999 Equity Compensation Plan, effective as of August 13, 1999.*
10.55 The Intersil Holding Corporation Employee Stock Purchase Plan, effective as of February 25, 2000.*
21.01 Subsidiaries of Intersil Holding Corporation.*
23.02 Consent of Ernst & Young LLP.*
27.01 Financial Data Schedule.*
- --------------
* Filed herewith.
70
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Intersil Holding Corporation
/s/ Gregory L. Williams
------------------------------------
Gregory L. Williams
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
/s/ Gregory L. Williams
- ------------------------------------ Chief Executive Officer and Director August 17, 2000
Gregory L. Williams (Principal Executive Officer)
/s/ Daniel J. Heneghan
- ------------------------------------ Vice President and Chief Financial Officer August 17, 2000
Daniel J. Heneghan (Principal Financial and Accounting Officer)
/s/ Robert W. Conn
- ------------------------------------ Director August 17, 2000
Robert W. Conn
/s/ Gary E. Gist
- ------------------------------------ Director August 17, 2000
Gary E. Gist
/s/ Jan Peeters
- ------------------------------------ Director August 17, 2000
Jan Peeters
/s/ Robert N. Pokelwaldt
- ------------------------------------ Director August 17, 2000
Robert N. Pokelwaldt
/s/ James A. Urry
- ------------------------------------ Director August 17, 2000
James A. Urry
71
Exhibit Index
------- -----
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
2.01 Amended and Restated Master Transaction Agreement dated as of June 2, 1999, by and among Intersil
Holding Corporation ("Holding"), Intersil Corporation ("Intersil") and Harris Corporation ("Harris")
(incorporated by reference to Exhibit 2.01 to the Registration Statement on Form S-1 previously filed by
Intersil Holding Corporation on November 10, 1999 (Registration No. 333-90857) ("Registration Statement
on Form S-1")).
2.02 Agreement Concerning Deferred Closings dated as of August 13, 1999, by and among Harris and Intersil
(incorporated by reference to Exhibit 2.02 to the Registration Statement on Form S-1).
2.03 Transition Services Agreement dated as of August 13, 1999, by and among Intersil and Harris
(incorporated by reference to Exhibit 2.03 to the Registration Statement on Form S-1).
2.04 Share Sale Agreement dated August 13, 1999, between Harris Airport Systems (Malaysia) Sdn. Bhd., Harris
Solid State (Malaysia) Sdn. Bhd. and Sapphire Worldwide Investments, Inc. (incorporated by reference to
Exhibit 2.04 to the Registration Statement on Form S-1).
2.05 Agreement for the Sale and Purchase of the Business and Assets of Harris Semiconductor Limited dated as
of August 13, 1999, between Harris Semiconductor Limited and Intersil Limited (incorporated by
reference to Exhibit 2.05 to the Registration Statement on Form S-1).
2.06 Asset Purchase Agreement dated as of August 20, 1999, between Harris Semiconductor Design & Sales Pte.
Ltd. and Intersil Pte. Ltd. (incorporated by reference to Exhibit 2.06 to the Registration Statement on
Form S-1).
2.07 Purchase Agreement of Corporate Quotas of a Limited Liability Company, dated as of August 13, 1999,
between Harris Semiconductor BV, Harris Semiconductor Limited and Intersil (incorporated by reference
to Exhibit 2.07 to the Registration Statement on Form S-1).
2.08 Assignment of Shares, dated as of August 13, 1999, between Intersil and Harris for the transfer by
Harris of all of its shares of Harris Semiconducteurs, Sarl to Intersil (incorporated by reference to
Exhibit 2.08 to the Registration Statement on Form S-1).
2.09 Share Transfer Agreement, dated as of August 1, 1999, between Harris and Intersil for the transfer of
stock of Harris Semiconductor Y.H. (incorporated by reference to Exhibit 2.09 to the Registration
Statement on Form S-1).
2.10 Equity Purchase Agreement, dated as of August 13, 1999, between Harris Advanced Technology (Malaysia)
Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit 2.10 to the
Registration Statement on Form S-1).
2.11 Agreement Re: China Subsidiaries, dated as of August 13, 1999, between Harris and Intersil
(incorporated by reference to Exhibit 2.11 to the Registration Statement on Form S-1).
2.12 Agreement Re: Anshan Joint Venture, dated as of August 13, 1999, between Harris Advanced Technology
(Malaysia) Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit
2.12 to the Registration Statement on Form S-1).
2.13 Agreement Re: Guangzhou Joint Venture, dated as of August 13, 1999, between Harris Advanced Technology
(Malaysia) Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit
2.13 to the Registration Statement on Form S-1).
2.14 Agreement Re: Suzhou Harris, dated as of August 13, 1999, between Harris Advanced Technology (Malaysia)
Sdn. Bhd. and Harris Airport Systems (M) Sdn. Bhd. (incorporated by reference to Exhibit 2.14 to the
Registration Statement on Form S-1).
2.15 Intellectual Property Agreement, dated as of August 13, 1999, among Harris, Harris Semiconductor
Patents, Inc. and Holding (incorporated by reference to Exhibit 2.15 to the Registration Statement on
Form S-1).
72
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
2.16 Patent Assignment and Services Agreement, dated as of August 13, 1999, among Harris, Harris
Semiconductor Patents, Inc. and Holding (incorporated by reference to Exhibit 2.16 to the Registration
Statement on Form S-1).
2.17 License Assignment Agreement, dated as of August 13, 1999, among Harris, Harris Semiconductor Patents,
Inc. and Holding (incorporated by reference to Exhibit 2.17 to the Registration Statement on Form S-1).
2.18 Harris Trademark License Agreement, dated as of August 13, 1999, among Harris, HAL Technologies, Inc.
and Holding (incorporated by reference to Exhibit 2.18 to the Registration Statement on Form S-1).
2.19 Secondary Trademark Assignment and License Agreement, dated as of August 13, 1999, between Harris and
Holding (incorporated by reference to Exhibit 2.19 to the Registration Statement on Form S-1).
2.20 PRISM(R) Intellectual Property Assignment, dated August 13, 1999, between Holding and Intersil
(incorporated by reference to Exhibit 2.20 to the Post-Effective Amendment No. 1 to the Registration
Statement on Form S-1).
2.21 Tax Sharing Agreement, dated as of August 13, 1999, among Holding, Intersil and Choice Microsystems,
Inc. (incorporated by reference to Exhibit 2.21 to the Registration Statement on Form S-1).
2.22 Royalty Agreement, dated as of August 13, 1999, among Harris and Intersil (incorporated by reference to
Exhibit 2.22 to the Registration Statement on Form S-1).
2.23 Option Agreement, dated as of August 13, 1999, among Intersil and Intersil PRISM, LLC. (incorporated by
reference to Exhibit 2.23 to the Registration Statement on Form S-1).
2.24 Stock Purchase Agreement among ChipPAC Limited, ChipPAC, Inc., Sapphire Worldwide Investments, Inc. and
Intersil Corporation dated as of June 30, 2000 (incorporated by reference to Exhibit 2.1 to the Current
Report on Form 8-K previously filed by ChipPAC, Inc. on July 14, 2000 (Commission File No.
333-91641)).
2.25 Share Purchase Agreement dated April 27, 2000 by and among Holding, Intersil B.V., No Wires Needed
B.V., Gilde It Fund B.V., Parnib B.V., 3Com Corporation, Kennet I L.P., Hans B. Van Der Hoek and the
shareholders named therein.*
2.26 Amendment No. 1 to the Share Purchase Agreement dated April 27, 2000 by and among Holding, Intersil
B.V., No Wires Needed B.V., Gilde It Fund B.V., Parnib B.V., 3Com Corporation, Kennet I L.P., Hans B.
Van Der Hoek and the shareholders named therein.*
3.01 Restated Certificate of Incorporation of Holding (incorporated by reference to Exhibit 3.01 to the
Post-Effective Amendment No. 1 to the Registration Statement on Form S-1).
3.02 Bylaws of Holding (incorporated by reference to Exhibit 3.02 to the Registration Statement on Form
S-1).
4.01 Specimen Certificate of Holding's Class A Common Stock (incorporated by reference to Exhibit 4.01 to
Amendment No. 2 to the Registration Statement on Form S-1 (Registration Number 333-95199)).
4.02 Amended and Restated Registration Rights Agreement, dated as of January 21, 2000, by and among Holding,
Sterling Holding Company, L.L.C., Manatee Investment Corporation, Citicorp Mezzanine Partners, L.P. and
the management investors named therein (incorporated by reference to Exhibit 4.02 to the Registration
Statement on Form 8-A previously filed by Intersil Holding Corporation on February 18, 2000).
10.01 Warrant Agreement, dated as of August 13, 1999, between Holding and United States Trust Company of New
York (incorporated by reference to Exhibit 4.01 to the Registration Statement on Form S-1).
73
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.02 Purchase Agreement, dated as of August 6, 1999, between Intersil, Holding, Harris Semiconductor, LLC,
Harris Semiconductor (Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC, Choice Microsystems, Inc.,
Credit Suisse First Boston Corporation, J. P. Morgan Securities Inc. and Salomon Smith Barney Inc.
(incorporated by reference to Exhibit 4.02 to the Registration Statement on Form S-1).
10.03 Registration Rights Agreement, dated as of August 6, 1999, between Intersil, Holding, Harris
Semiconductor, LLC, Harris Semiconductor (Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC, Choice
Microsystems, Inc., Credit Suisse First Boston Corporation, J. P. Morgan Securities Inc. and Salomon
Smith Barney Inc. (incorporated by reference to Exhibit 4.03 to the Registration Statement on Form
S-1).
10.04 Indenture, dated as of August 13, 1999, among Intersil, Holding, Harris Semiconductor, LLC, Harris
Semiconductor (Ohio), LLC, Harris Semiconductor (Pennsylvania), LLC, Choice Microsystems, Inc. and
United States Trust Company of New York for 13 1/4% Senior Subordinated Notes due 2009 (incorporated by
reference to Exhibit 10.01 to the Registration Statement on Form S-1).
10.05 Form of 13 1/4% Senior Subordinated Notes due 2009 (included in Exhibit 10.01).
10.06 Credit Agreement, dated as of August 13, 1999, among Intersil, the Lender Parties thereto, Credit
Suisse First Boston, as the Administrative Agent, Salomon Smith Barney, as Syndication Agent, and
Morgan Guaranty Trust Company of New York, as Documentation Agent (incorporated by reference to Exhibit
10.03 to the Registration Statement on Form S-1).
10.07 Amendment No. 1 and Waiver, dated as of January 28, 2000, to the Credit Agreement, dated as of August
13, 1999, among Intersil, Holding, Credit Suisse First Boston, as the Administrative Agent, Salomon
Smith Barney, Syndication Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent
(incorporated by reference to Exhibit 10.07 to the Amendment No. 2 to the Registration Statement on
Form S-1).
10.08 Subordinated Credit Agreement, dated as of August 13, 1999, among Holding and Citicorp Mezzanine
Partners, L.P. for 13 1/2% Subordinated Pay-In-Kind Note due 2010 (incorporated by reference to Exhibit
10.04 to the Registration Statement on Form S-1).
10.09 Form of 13 1/2% Subordinated Pay-In-Kind Note due 2010 (included in Exhibit 10.04).
10.10 Indenture, dated as of August 13, 1999, among Holding and United States Trust Company of New York for
11.13% Subordinated Pay-In-Kind Notes due 2010 (incorporated by reference to Exhibit 10.06 to the
Registration Statement on Form S-1).
10.11 Form of 11.13% Subordinated Pay-In-Kind Note due 2010 (included in Exhibit 10.06).
10.12 Securities Purchase and Holders Agreement, dated as of August 13, 1999, among Holding, Sterling Holding
Company, LLC, Manatee Investment Corporation, Intersil Prism LLC, Citicorp Mezzanine Partners, L.P.,
William N. Stout and the management investors named therein (incorporated by reference to Exhibit 10.09
to the Registration Statement on Form S-1).
10.13 Option Award Agreement, dated as of August 13, 1999 (incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1).
10.14 Employment Agreement, dated as of August 9, between Intersil and Gregory L. Williams (incorporated by
reference to Exhibit 10.11 to the Registration Statement on Form S-1).
10.15 Agreement between Harris and Local Union No. 1907 International Brotherhood of Electrical Workers,
AFL-CIO (Findlay, OH Facility), effective as of July 1, 1996 (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1).
10.16 Agreement between Harris and Local Union 177 International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers, AFL-CIO (Mountaintop, PA Facility), effective December 1, 1998
(incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1).
74
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.17 Machinery and Equipment Loan Agreement, dated September 9, 1996, between Commonwealth of Pennsylvania,
Department of Community and Economic Development and Harris (incorporated by reference to Exhibit 10.14
to the Registration Statement on Form S-1).
10.18 Machinery and Equipment Loan Agreement, dated as of November 3, 1998, between Commonwealth of
Pennsylvania, Department of Community and Economic Development and Harris (incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form S-1).
10.19 Master Agreement, dated as of December 2, 1997, between Harris Semiconductor and Optum Software
(incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1).
10.20 Purchase Agreement, dated as of March 14, 1997, between Harris Semiconductor and Praxair, Inc.
(incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-1).
10.21 Asset Purchase Agreement, dated as of July 2, 1999, by and among Align-Rite International, Inc.,
Align-Rite, Inc. and Harris (incorporated by reference to Exhibit 10.18 to the Registration Statement
on Form S-1).
10.22 Bill of Sale and Assignment, dated as of July 2, 1999, by Harris in favor of Align-Rite International,
Inc. and Align-Rite, Inc. (incorporated by reference to Exhibit 10.19 to the Registration Statement on
Form S-1).
10.23 Lease Agreement, dated as of July 2, 1999, by and among Harris Corporation Semiconductor Business Unit
and Align-Rite, Inc. (incorporated by reference to Exhibit 10.20 to the Registration Statement on Form
S-1).
10.24 Photomask Supply and Strategic Alliance Agreement, dated as of July 2, 1999, by and among Harris,
Align-Rite International, Inc. and Align-Rite, Inc. (incorporated by reference to Exhibit 10.21 to the
Registration Statement on Form S-1).
10.25 Site Services Agreement, dated as of July 2, 1999, by and among Harris Corporation Semiconductor
Business Unit and Align-Rite, Inc. (incorporated by reference to Exhibit 10.22 to the Registration
Statement on Form S-1).
10.26 Software License Agreement, dated as of July 31, 1984, between Harris and Consilium Associates, Inc.
(incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1).
10.27 Addendum Software License and Maintenance Agreement, dated as of October 27, 1995, between Harris and
Consilium, Inc. (incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-1).
10.28 Specialty Gas Supply Agreement, dated as of October 15, 1996, between Air Products and Chemicals, Inc.
and Harris (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-1).
10.29 Silicon Wafer Purchase Agreement, dated as of January 1, 1997, between Mitsubishi Silicon America
Corporation and Harris (incorporated by reference to Exhibit 10.26 to the Registration Statement on
Form S-1).
10.30 Nitrogen Supply Agreement, dated as of September 22, 1992, between Harris Corporation Semiconductor
Sector and Liquid Air Corporation Merchant Gases Division (incorporated by reference to Exhibit 10.27
to the Registration Statement on Form S-1).
10.31 Nitrogen Supply System Agreement, Amendment Number 1, dated as of September 15, 1996, between Air
Liquide America Corporation and Harris Corporation Semiconductor Sector (incorporated by reference to
Exhibit 10.28 to the Registration Statement on Form S-1).
10.32 Site Subscription Agreement, dated as of July 1, 1993, between Harris Semiconductor Sector of Harris
and Cadence Design Systems, Inc. (incorporated by reference to Exhibit 10.29 to the Registration
Statement on Form S-1).
75
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.33 Site Subscription Addendum, dated December 19, 1997, between Harris Semiconductor Sector of Harris and
Cadence Design Systems, Inc. (incorporated by reference to Exhibit 10.30 to the Registration Statement
on Form S-1).
10.34 HMCD--HSS Memorandum of Agreement, dated March 26, 1999, between Harris Microwave Communication
Division and Harris Semiconductor Sector (incorporated by reference to Exhibit 10.31 to the
Registration Statement on Form S-1).
10.35 Investment Agency Appointment and Participation Authorization, dated September 3, 1999, between
Intersil, Intersil Corporation Master Trust and T. Rowe Price Trust Company (incorporated by reference
to Exhibit 10.32 to the Registration Statement on Form S-1).
10.36 Investment Agency Appointment and Participation Authority, dated September 3, 1999, between Intersil
Corporation Master Trust and T. Rowe Price Trust Company (incorporated by reference to Exhibit 10.33 to
the Registration Statement on Form S-1).
10.37 Investment Advisory Agreement (Equity Growth Fund), dated September 3, 1999, between T. Rowe Price
Associates, Inc. and Intersil Corporation Retirement Committee (incorporated by reference to Exhibit
10.34 to the Registration Statement on Form S-1).
10.38 Investment Advisory Agreement (Equity Income Fund), dated September 3, 1999, between T. Rowe Price
Associates, Inc. and Intersil Corporation Retirement Committee (incorporated by reference to Exhibit
10.35 to the Registration Statement on Form S-1).
10.39 Intersil Corporation Retirement Plan (Non-Union), dated September 3, 1999 (incorporated by reference to
Exhibit 10.36 to the Registration Statement on Form S-1).
10.40 Intersil Corporation Retirement Plan (Union), dated September 3, 1999 (incorporated by reference to
Exhibit 10.37 to the Registration Statement on Form S-1).
10.41 Commercial Supply Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated and
Harris (incorporated by reference to Exhibit 10.38 to the Registration Statement on Form S-1).
10.42 Military Supply Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated and
Harris (incorporated by reference to Exhibit 10.39 to the Registration Statement on Form S-1).
10.43 Intellectual Property Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated,
Harris, Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris Southwest Properties, Inc.
(incorporated by reference to Exhibit 10.40 to the Registration Statement on Form S-1).
10.44 Asset Transfer Agreement, dated December 3, 1998, by and between Texas Instruments Incorporated and
Harris Advanced Technology (Malaysia) Sdn. Bhd. (incorporated by reference to Exhibit 10.41 to the
Registration Statement on Form S-1).
10.45 Military Asset Purchase Agreement, dated October 23, 1998, by and between Texas Instruments
Incorporated, Harris, Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris Southwest Properties,
Inc. (incorporated by reference to Exhibit 10.42 to the Registration Statement on Form S-1).
10.46 Commercial Asset Purchase Agreement, dated October 23, 1998, by and between Texas Instruments
Incorporated, Harris, Harris Advanced Technology (Malaysia) Sdn. Bhd. and Harris Southwest Properties,
Inc. (incorporated by reference to Exhibit 10.43 to the Registration Statement on Form S-1).
10.47 Certificate of Leasehold Property for Land Office No. 7668 by Harris Advanced Technology (M) Sdn. Bhd.
(incorporated by reference to Exhibit 10.44 to the Registration Statement on Form S-1).
10.48 State Lease for Lot No. 7716 by Harris Advanced Technology (Malaysia) Sdn. Bhd. (incorporated by
reference to Exhibit 10.45 to the Registration Statement on Form S-1).
76
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
10.49 Certificate of Leasehold Property for Land Office No. 7666 by Harris Advanced Technology (M) Sdn. Bhd.
(incorporated by reference to Exhibit 10.46 to the Registration Statement on Form S-1).
10.50 Amendment No. 1, dated as of December 13, 1999, to the Securities Purchase and Holders Agreement by and
among Holding, Sterling Holding Company, LLC, Manatee Investment Corporation, Citicorp Mezzanine
Partners, L.P. and the management investors named therein.
10.51 Amendment No. 2, dated as of May 31, 2000, to the Securities Purchase and Holders Agreement, by and
among Holding, Sterling Holding Company, LLC, Manatee Investment Corporation, Citicorp Mezzanine
Partners, L.P. and the management investors named therein.
10.52 Supply Agreement entered into as of June 30, 2000 by and between ChipPAC Limited and Intersil
Corporation (incorporated by reference to Exhibit 10.33 to the Registration Statement on Form S-1
previously filed by ChipPAC, Inc. on July 14, 2000 (Registration No. 333-39428)).
10.53 Intellectual Property Agreement entered into as of June 30, 2000 between Intersil Corporation and
ChipPAC Limited (incorporated by reference to Exhibit 10.32 to the Registration Statement on Form S-1
previously filed by ChipPAC, Inc. on July 14, 2000 (Registration No. 333-39428)).
10.54 Intersil Holding Corporation 1999 Equity Compensation Plan, effective as of August 13, 1999.*
10.55 The Intersil Holding Corporation Employee Stock Purchase Plan, effective as of February 25, 2000.*
21.01 Subsidiaries of Intersil Holding Corporation.*
23.02 Consent of Ernst & Young LLP.*
27.01 Financial Data Schedule.*
- --------------
* Filed herewith.
77