UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended April 3, 2015

OR

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

For the transition period from              to             

Commission File Number: 000-29617

INTERSIL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

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

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

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

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

The number of shares outstanding of the issuer’s classes of common stock as of the close of business on April 27, 2015:

 

 

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INTERSIL CORPORATION

INDEX

 

 

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PART I-FINANCIAL INFORMATION

Item 1.Financial Statements.

 

INTERSIL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

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INTERSIL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 

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INTERSIL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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INTERSIL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

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INTERSIL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1—Basis of Presentation

 

Intersil Corporation (“Intersil,” which may also be referred to as “we,” “us” or “our”) is a leading provider of innovative power management and precision analog solutions. Our products address some of the largest markets within the industrial and infrastructure, consumer and computing, and high-end consumer markets.

 

In our opinion, these interim unaudited condensed consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the financial position, results of operations and cash flows for all periods presented. We prepared these unaudited condensed consolidated financial statements in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, using management estimates where necessary. We derived the January 2, 2015 condensed consolidated balance sheet from our audited consolidated year-end financial statements. You should read this interim report in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 2, 2015.

 

We utilize a 52/53 week fiscal year, ending on the nearest Friday to December 31. The next 53 week period will be in the second quarter of our fiscal year 2018. Quarterly or annual periods vary from exact calendar quarters or years.

Recent Accounting Guidance Not Yet Adopted

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is expected to be effective for Intersil for the fiscal year after December 15, 2017.  We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting. 

 

Note 2 — Fair Value Measurements

We determine the fair value of our assets and liabilities utilizing three levels of inputs, focusing on the most observable level of inputs when available. Level 1 inputs use quoted prices in active markets which are unadjusted and accessible as of the measurement date for identical, unrestricted assets or liabilities. Level 2 uses quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 uses prices or valuations that require inputs that are unobservable and significant to the overall fair value measurement.

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

 

 

There were no transfers into or out of Level 1, Level 2, or Level 3 financial assets during the quarters ended April 3, 2015 and April 4, 2014.

 

Note 3 — Inventories

 

Inventories are summarized below (in thousands):

 

 

 

 

Note 4 — Goodwill and Purchased Intangibles

 

Goodwill — We perform our annual test of impairment in our fiscal fourth quarter or if indicators of impairment exist, in interim periods. Factors that could trigger a goodwill impairment review include adverse legal factors, adverse changes in our business climate, unanticipated competition, regulatory issues, loss of key personnel, significant changes or losses in business operations, weakness in our industry, downward revisions to forecasts for future periods, restructuring plans and declines in market capitalization below equity book value. During our fiscal quarter ended April 3, 2015, we made certain organizational changes which resulted in a reorganization from four reporting units – specialty, mobile, precision, and industrial & infrastructure – into three reporting units – mobile, precision, and industrial & infrastructure.  As a result of this reorganization, we performed a fair value analysis immediately prior to the reallocation. In addition, we reallocated our existing goodwill balances to the new reporting units utilizing a relative fair value allocation approach in accordance with FASB ASC Topic 350. Based on our analyses, no impairment was indicated, and consequently, there was no change in the consolidated carrying value of goodwill during the fiscal quarter ended April 3, 2015. 

 

Purchased Intangibles — Substantially all of our purchased intangibles consist of multiple elements of developed technology which have estimated useful lives of five years. Other purchased intangibles consist primarily of customer relationships and other identifiable assets, which have an estimated useful life of four to seven years (in thousands).

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Expected remaining amortization expense by year to the end of the current amortization schedule is as follows (in thousands):

 

 

 

 

Note 5 — Restructuring and Related Costs

 

Our restructuring plans have been described in prior period filings. During the quarter ended April 3, 2015 no new restructuring plans were initiated.

The restructuring and related costs balance as of the period ended April 3, 2015 primarily relates to the July 2013 plan. The balance outstanding was $0.7 million as of April 3, 2015 and January 2, 2015, respectively, and is included in “Other accrued expenses and liabilities” on the unaudited condensed consolidated balance sheet. 

 

 

 

Note 6 — Income Taxes

 

Income tax expense was $5.5 million, an effective tax rate of negative 8.74%, for the quarter ended April 3, 2015 compared to an income tax expense of $4.6 million, an effective tax rate of 32.12%, for the quarter ended April 4, 2014.

 

The effective tax rate is negative for the fiscal quarter ended April 3, 2015, primarily due to losses in foreign jurisdictions related to the TAOS litigation.  The $79.5 million accrual recorded for the TAOS litigation is being treated as an unusual and discrete item for the quarter, for which the future tax benefit is $1.2 million, and the loss was allocated primarily to our Malaysian operations. 

 

The effective tax rate differs from the 35% statutory corporate tax rate primary due to (losses) income in foreign jurisdictions, primarily in Malaysia, with lower statutory tax rates and permanent non-deductible items, such as equity based compensation associated with our cost sharing arrangement.

 

We have various uncertain tax positions and have estimated an ultimate resolution of those positions.  The table below summarizes activity in gross unrecognized tax benefits (“UTBs”) (in thousands):

 

 

The increases related to prior year tax positions were primarily due to accrued interest on the UTBs. The settlements are primarily related to tax and interest paid on the amended state income tax returns filed due to the 2008 -2011 IRS audit adjustments.

   

We believe events that could occur in the next 12 months and cause a material change in unrecognized tax benefits include, but are not limited to, the following:

 

 

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations.  We regularly assess our tax positions in light of legislative, bilateral tax treaty, regulatory, tax holiday arrangements and judicial developments in the countries in which we do business.  We believe it is reasonably possible that we may recognize $20 million of our existing unrecognized tax benefits (net of prepaid taxes) within the next 12 months as a result of the lapse of statutes of limitations or the resolution of agreements with domestic and various foreign tax authorities.

 

Additional Paid in Capital (“APIC”) Pool—The APIC pool represents the excess tax benefits related to equity-based compensation that are available to absorb future tax deficiencies.  If the amount of tax deficiencies is greater than the available APIC pool from prior years, we record the excess as income tax expense in our unaudited condensed consolidated statements of operations.  During the quarter ended April 3, 2015, we recognized $0.7 million of income tax expense resulting from tax deficiencies related to equity-based compensation in our unaudited condensed consolidated statements of operations. During the quarter ended April 4, 2014, we recognized $0.4 million of income tax expense resulting from tax deficiencies related to equity-based compensation in our unaudited condensed consolidated statements of operations.

 

Note 7 — Long-Term Debt

 

We have a five-year, $325.0 million revolving credit facility (the “Facility”) that matures on September 1, 2016 and is payable in full upon maturity. Under the Facility, $25.0 million is available for the issuance of standby letters of credit, $10.0 million is available as swing line loans and $50.0 million is available for multicurrency borrowings. Amounts repaid under the Facility may be re-borrowed. We did not have any outstanding borrowings against the Facility as of April 3, 2015 or January 2, 2015.

 

Standby Letters of Credit — We issue standby letters of credit during the ordinary course of business through major financial institutions as required for certain regulatory matters. We had outstanding letters of credit totaling $1.3 million and $1.4 million as of April 3, 2015 and January 2, 2015, respectively. The standby letters of credit are secured by pledged deposits. 

 

Note 8 — Common Stock and Dividends

 

Dividends —In January 2015, our Board of Directors declared a dividend of $0.12 per share of common stock resulting in cash dividends of $15.7 million on February 27, 2015, to shareholders of record as of the close of business on February 17, 2015.   During April 2015, our Board of Directors declared a dividend of $0.12 per share of common stock to be paid on May 29, 2015, to shareholders of record as of the close of business on May 19, 2015. 

 

Class A Common Stock — Share activity for Class A common stock since January 2, 2015 (in thousands, except per share amounts):

 

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Note 9 — Equity-based Compensation

 

The following table represents the weighted-average fair value compensation cost per share of restricted and deferred stock awards (“Awards”) granted:

 

Equity-based Compensation Summary — The following table presents information about Options and Awards as of April 3, 2015 and activity for the quarter ended April 3, 2015:

 

(1) Grants include 360,153 MSU Awards issued in fiscal 2015.

(2)  Awards exercised are those that have reached full vested status and have been delivered to the recipients as a taxable event due to elective deferral, available in the case of deferred stock units. Deferred stock units for which the deferral is elected timely are vested but still outstanding as Awards. Total un-issued shares related to deferred stock units as of April 3, 2015 were 86 thousand shares as shown in the Awards column as Exercisable/vested.

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Financial Statement Effects and Presentation — The following table shows total equity-based compensation expense for the periods indicated that are included in our unaudited condensed consolidated statements of operations (in thousands):

 

 

 

Market and Performance-based Grants — As of April 3, 2015, we had Options and Awards outstanding that include the usual service conditions as well as (1) market conditions related to total shareholder return and (2) performance conditions relating to revenue and operating income relative to peer companies. Under the terms of the agreements, participants may receive from 0 - 300% of the original grant. Equity-based compensation cost is measured at the grant date, based on the fair value of the number of shares ultimately expected to vest, and is recognized as an expense, on a straight line basis, over the requisite service period:

 

 

 

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Note 10 — (Loss) Earnings Per Share

 

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

 

 

 

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Note 11 — Segment Information

 

We report our results in one reportable segment. We design and develop innovative power management and precision analog integrated circuits (“ICs”). Our chief executive officer is our chief operating decision maker.

 

Note 12 — Legal Matters and Indemnifications

 

Legal Matters — Texas Advanced Optoelectronic Solutions, Inc. (“TAOS”) named Intersil as a defendant in a lawsuit filed on November 25, 2008, in the United States District Court for the Eastern District of Texas. In this action, TAOS alleged four claims consisting of patent infringement, breach of contract, trade secret misappropriation, and tortious interference with a business relationship. On March 6, 2015 a federal jury found in TAOS’ favor on each of the four claims.  The jury also recommended to the trial judge that Intersil pay $48.7 million in actual damages and $10.0 million in exemplary damages on the trade secret misappropriation claim which TAOS has elected along with $74 thousand in damages for patent infringement. After the trial, TAOS filed post-trial motions seeking unspecified attorneys’ fees, enhanced patent infringement damages, $18.1 million in pre-trial interest on the jury award and a permanent injunction enjoining us from making or selling certain ambient light sensor products. We intend to vigorously oppose each of these motions and believe that there are good grounds for overturning the jury verdict through post-trial motions and, if necessary, appeals to the U.S. Court of Appeals for the Federal Circuit.

 

As a consequence of the verdict, we recorded a provision of $81.1 million related to this matter, including estimated legal costs. During the quarter we incurred $1.6 million of legal costs, as such the accrual outstanding as of April 3, 2015 was $79.5 million. Given the unpredictable nature of this type of litigation and because the outcome remains subject to post-trial motions and appeal, the ultimate impact of this lawsuit may be materially different from our estimate. 

 

We are currently party to various claims and legal proceedings, including those discussed above. When we believe that a loss is probable and the amount of the loss can be reasonably estimated, we recognize the estimated amount of the loss. We include legal costs in the estimate of losses. As additional information becomes available, we reassess any potential liability related to these matters and, if necessary, revise the estimates.

We do not believe, based on currently available facts and circumstances, that the ultimate outcome of these matters, individually and in the aggregate will have a material adverse effect on our financial position or overall trends in results of our operations in excess of amounts already accrued. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur, including an award of substantial monetary damages or issuance of an injunction prohibiting us from selling one or more products. From time to time, we may enter into confidential discussions regarding the potential settlement of such lawsuits. Any settlement of pending litigation could require us to incur substantial costs and other ongoing expenses, such as future royalty payments in the case of an intellectual property dispute. There can be no assurances that the actual amounts required to satisfy any liabilities arising from the matters described above will not have a material adverse effect on our results of operations, financial position or cash flows.

Please reference our 2014 Annual Report on Form 10-K filed with the SEC on February 12, 2015 for additional details and other legal matters.  

 

Indemnifications — We incur indemnification obligations for intellectual property infringement claims related to our products. We accrue for known indemnification issues and estimate unidentified issues based on historical activity.

 

—End of Unaudited Condensed Consolidated Financial Statements—

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

 

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

 

Forward Looking Statements

This Quarterly Report on Form 10-Q  contains statements relating to expected future results and business trends of Intersil Corporation (“Intersil” which may also be referred to as “we,” “us” or “our”) that are based upon our current estimates, expectations, assumptions and projections about our industry, as well as upon certain views and beliefs held by management, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances, including any underlying assumptions, are “forward-looking statements.” These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These factors include, but are not limited to:

 

These “forward-looking statements” are made only as of the date hereof, and we undertake no obligation to update or revise the “forward-looking statements,” whether as a result of new information, future events or otherwise.

 

Overview

 

We design and develop innovative power management and precision analog integrated circuits (ICs).  We are a supplier of power management and precision analog technology for many of the most rigorous applications in the computing, consumer and industrial markets. We supply a full range of power IC solutions including battery management, computing power,

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display power, regulators and controllers and power modules; as well as precision analog components such as amplifiers and buffers, proximity and light sensors, data converters, optoelectronics and interface products.  As a major supplier to the military and aerospace industries, our product development methodologies reflect experience designing products to meet the highest standards for reliability and performance in challenging environments.

Critical Accounting Policies

 

There have been no significant changes to our critical accounting policies during the quarter ended April 3, 2015 as compared to the previous disclosures in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2015.

 

Recent Accounting Guidance Not Yet Adopted

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is expected to be effective for Intersil for the fiscal year after December 15, 2017.   We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

Results of Operations

 

Unaudited condensed consolidated statements of operations data and percentage of revenue for the periods (dollars are in thousands):

 

 

Revenue and Gross Margin

 

Revenue by end market was as follows ($ in thousands):

 

 

 

 

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Revenue decreased $5.9 million or 4.2% to $134.2 million during the quarter ended April 3, 2015 from $140.1 million during the quarter ended April 4, 2014.  Revenue from the industrial and infrastructure end market increased by 3.8% compared to the quarter ended April 4, 2014, while revenue from the consumer and computing end market decreased by 17.4%, which was impacted by overall weakness in computing products and lower sales of certain low-margin consumer products which were deemphasized.

 

On a sequential basis, we expect revenue from our industrial and infrastructure end market to be flat in the second quarter of 2015 while revenue from the consumer and computing end market is expected to increase modestly as our new consumer products ramp. 

 

In aggregate, lower overall unit demand in the quarter ended April 3, 2015, decreased revenue by $13.4 million from the quarter ended April 4, 2014, which was offset by a favorable impact from changes in average selling prices (“ASPs”) and product mix of $7.5 million.

 

Geographical revenue ($ in thousands and % of revenue):

 

 

 

 

Two distributors that support a wide range of customers around the world accounted for 22.0% and 8.6% of our revenue during the quarter ended April 3, 2015, compared to two distributors that accounted for 17.7% and 13.4% of our revenue during the quarter ended April 4, 2014.  Two original design manufacturers accounted for 7.8% and 2.7% of our revenue for the quarter ended April 3, 2015, compared to 7.4% and 4.4% of revenue during the quarter ended April 4, 2014.

 

Cost of Revenue and Gross Margin

 

Cost of revenue consists primarily of purchased materials and services, labor, overhead and depreciation associated with manufacturing pertaining to products sold.  As a percentage of sales, gross margin was 59.9% during the quarter ended April 3, 2015 compared to 56.3% during the quarter ended April 4, 2014.  The increase in gross margin was primarily due to a change in the mix of products sold.

 

 Operating Costs and Expenses

 

Research and Development (“R&D”)

 

R&D expenses consist primarily of salaries and expenses of employees engaged in product/process research, design and development activities, as well as related subcontracting activities, masks, design automation software, engineering wafers and technology license agreement expenses.

 

R&D expenses remained flat at $32.0 million during the quarter ended April 3, 2015, compared to $31.8 million during the quarter ended April 4, 2014.

 

Selling, General and Administrative (“SG&A”)

 

SG&A expenses consist primarily of salaries and expenses of employees engaged in selling and marketing of our products as well as the salaries and expenses required to perform our human resources, finance, information systems, legal, executive and other administrative functions.

 

SG&A expenses increased $2.7 million or 11.8% to $25.5 million during the quarter ended April 3, 2015 from $22.8 million during the quarter ended April 4, 2014.  The increase is primarily due to higher equity-based compensation recorded quarter ended April 3, 2015.

 

Amortization of Purchased Intangibles

 

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Amortization of purchased intangibles remained flat at $5.6 million during the quarters ended April 3, 2015 and April 4, 2014.

 

Provision for TAOS litigation

Texas Advanced Optoelectronic Solutions, Inc. (“TAOS”) named Intersil as a defendant in a lawsuit filed on November 25, 2008, in the United States District Court for the Eastern District of Texas. In this action, TAOS alleged four claims consisting of patent infringement, breach of contract, trade secret misappropriation, and tortious interference with a business relationship. On March 6, 2015 a federal jury found in TAOS’ favor on each of the four claims.  The jury also recommended to the trial judge that Intersil pay $48.7 million in actual damages and $10.0 million in exemplary damages on the trade secret misappropriation claim which TAOS has elected along with $74 thousand in damages for patent infringement. After the trial, TAOS filed post-trial motions seeking unspecified attorneys’ fees, enhanced patent infringement damages, $18.1 million in pre-trial interest on the jury award and a permanent injunction enjoining us from making or selling certain ambient light sensor products. We intend to vigorously oppose each of these motions and believe that there are good grounds for overturning the jury verdict through post-trial motions and, if necessary, appeals to the U.S. Court of Appeals for the Federal Circuit.

 

As a consequence of the verdict, we recorded a provision of $81.1 million related to this matter, including estimated legal costs. During the quarter we incurred $1.6 million of legal costs, as such the accrual outstanding as of April 3, 2015 was $79.5 million. Given the unpredictable nature of this type of litigation and because the outcome remains subject to post-trial motions and appeal, the ultimate impact of this lawsuit may be materially different from our estimate. 

 

Provision for export compliance settlement

 

We recorded a provision of $4.0 million during fiscal 2014 related to alleged violations associated with ITAR proceedings.    Please reference our 2014 Annual Report on Form 10-K filed with the SEC on February 12, 2015 for additional details and other legal matters.  

 

Interest expense and other

 

Interest expense and other during the quarter ended April 3, 2015 was $0.3 million compared to $0.5 million during the quarter ended April 4, 2014.

 

Gain on Investments, net

 

We have a liability for a non-qualified deferred compensation plan. We maintain a portfolio of $11.0 million in mutual fund investments and corporate owned life insurance under the plan. Changes in the fair value of the plan asset(s) are recorded as a gain or loss on deferred compensation investments and changes in the fair value of the deferred compensation assets are recorded as a component of compensation expense. In general, the compensation expense or benefit is substantially offset by the gains and losses on the investment.

 

During the quarter ended April 3, 2015, we recorded a gain of $0.2 million on deferred compensation investments and a $0.6 million gain on the recovery of auction rate securities that had previously been written off.

 

Income Taxes

 

Income tax expense was $5.5 million, an effective tax rate of negative 8.74%, for the quarter ended April 3, 2015 compared to an income tax expense of $4.6 million, an effective tax rate of 32.12%, for the quarter ended April 4, 2014.

 

The effective tax rate is negative for the fiscal quarter ended April 3, 2015, primarily due to losses in foreign jurisdictions related to the TAOS litigation.   The $79.5 million accrual recorded for the TAOS litigation is being treated as an unusual and discrete item for the quarter, for which the future tax benefit is $1.2 million, and the loss was allocated primarily to our Malaysian operations. 

 

As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations. We are subject to income taxes in the United States and foreign jurisdictions and significant judgment is required to determine worldwide tax liabilities. Our effective tax rate, as well as our actual taxes payable, could be adversely affected by changes in the mix of earnings between countries with differing tax rates. Our primary foreign operations are in Malaysia where we currently have a tax holiday resulting in a tax rate of 0%. This tax holiday began on July 1, 2009 and

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terminates on July 1, 2019. In order to retain this holiday in Malaysia, we must meet certain operating conditions, including compliance with warehouse and shipping quotas and specified manufacturing activities in Malaysia. Absent such tax incentives, the corporate income tax rate in Malaysia that would otherwise apply to us would be 25%. If we cannot or elect not to comply with these conditions, we could lose the related tax benefits. In such event, we may be required to modify our operational structure. Any such modified structure may not be as beneficial as the benefits provided under the present tax concession arrangement.

   

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

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Contractual Obligations and Off-Balance Sheet Arrangements

 

As of April 3, 2015, we had $13.4 million of open purchase orders for inventory from suppliers. We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Liquidity and Capital Resources

 

Our capital requirements depend on a variety of factors, including but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; revenue growth or decline; and potential acquisitions. We believe cash flows from operations together with our cash and investment balances and available credit facility will provide the financial resources necessary to meet business requirements for the next 12 months for both our domestic and foreign operations. These requirements include our dividend program, the requisite capital expenditures for the maintenance of worldwide manufacturing capacity, working capital requirements and potential acquisitions or strategic investments  As of April 3, 2015, our total shareholders’ equity was $906.5 million and we had $220.9 million in cash and cash equivalents. 

 

As of April 3, 2015, $164.3 million of our cash and cash equivalents and short-term investments was held by our foreign subsidiaries. We have provided for federal and state taxation at 37.5% in connection with the Revenue Procedure 99-32 election related to the 2008-2009 IRS examination periods which allows for the repatriation of $125.0 million. As of April 3, 2015, $112.9 million of our cash and cash equivalents held by our foreign subsidiaries would not be subject to further taxation upon repatriation.

 

 

Operating Activities

 

Cash provided by operating activities consists of net (loss) income adjusted for certain non-cash items and changes in certain assets and liabilities.

Our cash flows from operations increased by $8.9 million to $26.8 million during the quarter ended April 3, 2015, compared to $17.9 million during the quarter ended April 4, 2014. During the quarter ended April 3, 2015, net loss of $68.8 million was offset mainly by an increase in operating assets and liabilities of $80.5 million and depreciation and amortization of $10.1 million. The increase in in operating assets and liabilities during the quarter ended April 3, 2015 was primarily due to the following:

 

Investing activities

Investing cash flows consist primarily of capital expenditures and net investment purchases and maturities.

For the quarter ended April 3, 2015, our cash flows used in investing activities increased by $3.9 million to $4.4 million, compared to net cash used in investing activities of $0.5 million during the quarter ended April 4, 2014.  The cash outflows were primarily due to increased capital expenditures.  Capital expenditures were primarily focused on test and fab equipment. 

Financing activities

Financing cash flows consist primarily of payment of dividends to stockholders, proceeds from issuance of stock under our employee stock purchase plan and exercise of employee stock options.

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For the quarter ended April 3, 2015, our cash flows used in financing activities decreased by $3.6 million to $11.3 million, compared to net cash used in financing activities of $14.9 million during the quarter ended April 3, 2015.  The decrease was primarily due to the cash inflow from the net proceeds from equity-based awards. 

 

Dividends on Common Stock

 

In April 2015, our Board of Directors declared a dividend of $0.12 per share of common stock resulting in paid dividends on May 29, 2015, to shareholders of record as of the close of business on May 19, 2015.

 

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

 

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

 

Moreover, in the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments, entered into for purposes other than trading purposes, to manage our exposure to these risks.

 

Our cash equivalents and investments are subject to three market risks: interest rate risk, credit risk and liquidity risk. Our investments are primarily held in money market funds and bank time deposits.

 

For further discussion of the risk related to foreign currency exchange rates and market risk, see our 2014 Annual Report on Form 10-K filed with the SEC on February 12, 2015.

 

Item 4.Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of April 3, 2015. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our officers concluded that, as of April 3, 2015, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our CEO and CFO by others within those entities, particularly during the period in which this report was being prepared and (2) effective to ensure that all material information required to be disclosed by Intersil in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such material information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

(b) Changes in Internal Controls. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended April 3, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II-OTHER INFORMATION

 

Item 1.Legal Proceedings.

 

Please see Note 12 to our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q for further discussion.

 

Item 1A.Risk Factors.

 

In addition to the cautionary information included in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in our 2014 Annual Report on Form 10-K, filed with the SEC on February 12, 2015, which could materially adversely affect our business, financial condition and/or results of operations.

 

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

 

 

None.

 

Item 3.Defaults Upon Senior Securities.

 

None.

 

Item 4.Mine Safety Disclosures.

 

Not applicable.

 

Item 5.Other Information.

 

None.

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Item 6.Exhibits.

 

 

*Filed or furnished herewith.

 

Attached as Exhibit 101 to this report are the following, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Income,  (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) Unaudited Condensed Consolidated Balance Sheets, (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES

 

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

 

 

Date: May 1, 2015

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