<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 2000.
REGISTRATION NO. 333-95199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERSIL HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 59-3590018
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
2401 PALM BAY ROAD NE
PALM BAY, FLORIDA 32905
(321) 724-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GREGORY L. WILLIAMS
CHIEF EXECUTIVE OFFICER
2401 PALM BAY ROAD NE
PALM BAY, FLORIDA 32905
(321) 724-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
With Copies to:
<TABLE>
<S> <C>
CHRISTOPHER G. KARRAS, ESQ. KRIS F. HEINZELMAN, ESQ.
DECHERT PRICE & RHOADS CRAVATH, SWAINE & MOORE
4000 BELL ATLANTIC TOWER WORLDWIDE PLAZA
1717 ARCH STREET 825 EIGHTH AVENUE
PHILADELPHIA, PENNSYLVANIA 19103 NEW YORK, NEW YORK 10019
(215) 994-4000 (212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01 per share 23,000,000 shares $20.00(2) $460,000,000(2) $121,440(3)
</TABLE>
(1) Includes 3,000,000 shares that the underwriters have the option to purchase
solely to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 23, 2000
20,000,000 Shares
INTERSIL HOLDING CORPORATION
Class A Common Stock
------------------
We are selling 20,000,000 shares of our Class A Common Stock. Prior to this
offering, there has been no public market for our Class A Common Stock. We
expect the public offering price to be between $18.00 and $20.00 per share.
After pricing of the offering, we expect that the Class A Common Stock will be
listed on The Nasdaq Stock Market's National Market under the symbol "ISIL."
We have granted the underwriters an option to purchase a maximum of
2,000,000 additional shares to cover over-allotments of shares. Harris
Corporation, one of our stockholders, has granted the underwiters an option to
purchase a maximum of 1,000,000 additional shares to cover over-allotments of
shares.
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON
PAGE 6.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND INTERSIL HOLDING
PUBLIC COMMISSIONS CORPORATION
-------- ------------- ----------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>
Delivery of the shares of Class A Common Stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON SALOMON SMITH BARNEY
MERRILL LYNCH & CO. ROBERTSON STEPHENS SG COWEN
The date of this prospectus is , 2000.
<PAGE>
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDUSTRY DATA.................................. i
PROSPECTUS SUMMARY............................. 1
RISK FACTORS................................... 6
FORWARD-LOOKING STATEMENTS..................... 14
DEBT REPAYMENT AND PREFERRED STOCK CONVERSION
TRANSACTIONS................................. 15
USE OF PROCEEDS................................ 16
DIVIDEND POLICY................................ 17
CAPITALIZATION................................. 17
DILUTION....................................... 18
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS......................... 19
SELECTED HISTORICAL FINANCIAL DATA AND OTHER
DATA......................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 25
<CAPTION>
PAGE
----
<S> <C>
INDUSTRY OVERVIEW.............................. 35
BUSINESS....................................... 37
MANAGEMENT..................................... 46
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 51
PRINCIPAL AND SELLING STOCKHOLDERS............. 55
DESCRIPTION OF CAPITAL STOCK................... 57
DESCRIPTION OF CERTAIN INDEBTEDNESS............ 61
SHARES ELIGIBLE FOR FUTURE SALE................ 64
UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS.................... 66
UNDERWRITING................................... 68
LEGAL MATTERS.................................. 71
EXPERTS........................................ 71
WHERE YOU CAN FIND MORE
INFORMATION.................................. 71
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS.
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the
semiconductor market and its segments and competitors from Dataquest,
International Data Corporation, Semiconductor Industry Association, Worldwide
Semiconductor Trade Statistics, Venture Development Corporation, Johari
Associates, market research reports, analyst reports and other publicly
available sources. The listed market research firms are not aware of and have
not consented to being named in this prospectus. Although we believe that this
information is reliable, we have not independently verified the accuracy and
completeness of the information.
i
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should read this entire prospectus, including the financial data and
related notes, before making an investment decision. Unless otherwise
specifically stated, the information in this prospectus has been adjusted to
reflect the conversion of all our 12% Series A Cumulative Compounding Preferred
Stock into shares of Class A Common Stock and a 1 for 1.5 reverse stock split of
our previously issued common stock, but does not take into account the possible
sale of additional shares of Class A Common Stock to the underwriters pursuant
to the underwriters' right to purchase additional shares to cover
over-allotments. See "Debt Repayment and Preferred Stock Conversion
Transactions."
INTERSIL
We are a systems oriented designer and manufacturer of analog and digital
integrated circuits, which we refer to as integrated circuits or semiconductors,
and discrete semiconductors for the communications and power management end-user
markets.
o Wireless--We are the industry leader in providing wireless local area
networking semiconductor sets, which we refer to as our PRISM(R) chip
set, based upon data published by Dataquest and International Data
Corporation. The PRISM(R) chip set is our fastest growing product, which
has applications in wireless networking for the business or home and in
transmitting data to and from broadband home data gateways to multiple
end-user applications.
o Analog & Mixed-Signal--Our analog products include communications, analog
and mixed-signal semiconductors that are used in wireless and wired data
and voice communications products, power integrated circuits that perform
multiple power management tasks, industry standard signal processing
products that convert analog signals into digital format and digital
signals into analog format and products that are used in communications
satellites and military applications.
o Discrete Power--Our discrete semiconductors perform single power
management functions such as switching electricity on or off and are used
in computing, communications and automotive applications.
Business Strategy
Our business strategy is to utilize our core strengths to focus on high
growth, higher margin end-markets through partnerships with industry leaders
among our strategic customer base to quickly take our engineering and design
capabilities to commercial levels. To achieve these goals, we develop systems
level solutions that enhance the value of our products as they are designed and
incorporated into our customers' products and we leverage our high quality of
customer service as a means of differentiation from our competitors. We will
continue to invest in products designed for high-growth communications
applications. For calendar year 1999, approximately 88% of our research and
development investment was related to integrated communications products.
Sales and Manufacturing
We currently sell to many industry leaders in our targeted markets
including Asustek, Bosch, Cisco, Compaq, Emerson, Dell, Intel, Nokia, Siemens,
Sony and 3Com. We have been doing business with many of these industry leaders
for over ten years. We are also an analog and discrete power semiconductor
supplier to some of the world's largest semiconductor distributors, such as
Avnet and Arrow Electronics, which allows us to expand our global reach to
include the middle market and emerging technology companies. Our products are
sold worldwide with about 53.5%, 24.6% and 21.9% of our revenues for fiscal year
1999 being derived from North America, Europe and Asia/Pacific, respectively. We
service our customers through a dedicated sales force, about half of whom are
domiciled outside North America. We own fabrication facilities, which we refer
to as fabs, in Florida, Ohio and Pennsylvania, including our state-of-the-art
8-inch discrete power wafer fab in Mountaintop, Pennsylvania. We also have
assembly and test facilities in Malaysia and Florida.
Our principal executive office is located at 2401 Palm Bay Road NE, Palm
Bay, Florida 32905, and our telephone number is (321) 724-7000.
1
<PAGE>
THE OFFERING
The offering information provided below assumes that the underwriters'
over-allotment option is not exercised and excludes:
o shares of common stock reserved for issuance under our 1999 Equity
Compensation Plan, under which options to purchase 1,549,333 shares were
outstanding as of December 31, 1999 at a weighted average exercise price
of $2.25 per share, vesting 20% per year over five years, with 20%
becoming vested upon the closing of this offering, and
o warrants outstanding to purchase 5,925,931 shares at an exercise price of
$0.0015 per share (reduced from 7,407,413 shares upon repayment in full
of the 13.5% Subordinated Holding PIK Note due 2010 with the proceeds of
this offering).
<TABLE>
<S> <C>
Class A Common Stock offered.............. 20,000,000 shares
Common stock to be outstanding after this
offering................................ 40,738,205 shares of Class A Common Stock
49,746,481 shares of Class B Common Stock
Total..................................... 90,484,686 shares of common stock
Voting rights............................. Holders of Class A Common Stock are entitled to one vote per share on
all matters submitted to a vote of the stockholders. Our Restated
Certificate of Incorporation provides for cumulative voting in
elections of directors. Holders of Class B Common Stock have no
voting rights.
Other rights.............................. Except as to voting and conversion rights, each class of common stock
has the same rights. Shares of each class of common stock are
convertible on a one-to-one basis into shares of the other class of
common stock at the option of the holder.
Use of proceeds........................... We intend to use the net proceeds of this offering to:
o repay indebtedness, a substantial portion of which was incurred to
fund the acquisition of the semiconductor business from Harris
Corporation, including:
o amounts under our senior credit facilities and our 13 1/4% Senior
Subordinated Notes due 2009;
o all outstanding amounts under our 13.5% Subordinated Holding PIK
Note due 2010 and our 11.13% Seller Holding PIK Note due 2010; and
o pay fees and expenses of this offering.
Proposed Nasdaq National Market symbol.... ISIL
</TABLE>
RISK FACTORS
Investing in the securities involves substantial risks. See the "Risk
Factors" section of this prospectus for a description of some of the risks you
should carefully consider before investing in the securities.
2
<PAGE>
SUMMARY HISTORICAL, PRO FORMA AND OTHER DATA
The following summary historical financial data for the fiscal years ended
June 27, 1997, July 3, 1998 and July 2, 1999 for Intersil Holding were derived
from our predecessor's audited consolidated financial statements included
elsewhere in this prospectus, except for revenue categorized by product line
(Analog & Mixed-Signal, Discrete Power and Wireless), which were derived from
our books and records. The balance sheet data as of December 31, 1999
(Successor) have been derived from our unaudited consolidated financial
statements included elsewhere in this prospectus, and include, in the opinion of
management, all adjustments necessary to present fairly the balance sheet data
at the time. The summary pro forma financial information for the fiscal year
1999 (predecessor), six months ended January 1, 1999 (predecessor) and combined
six months ended December 31, 1999 (6 weeks ended August 13, 1999 (predecessor)
and 20 weeks ended December 31, 1999 (successor)) were derived from our pro
forma unaudited consolidated financial statements included elsewhere in this
prospectus.
During the period covered by our consolidated financial statements, our
activities were conducted as part of Harris' overall operations. Accordingly,
our consolidated financial statements contain various allocations for costs and
expenses attributable to services provided by Harris. Therefore, the
Consolidated Statement of Operations may not be indicative of the results of
operations that would have resulted if we had operated on a stand-alone basis.
Since the information in the tables below is a summary, you should read the
following tables in conjunction with other information contained under the
captions "Unaudited Pro Forma Combined Condensed Financial Statements,"
"Capitalization," "Selected Historical Financial Data," "Forward Looking
Statements," "Risk Factors--Risks Related to Use of Estimates in Pro Forma
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and with our financial statements and related notes and
other financial information contained elsewhere in this prospectus.
3
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED (1)
------------------------------------
SIX MONTHS ENDED
HISTORICAL --------------------------
--------------------------- COMBINED
FISCAL FISCAL FISCAL FISCAL JANUARY 1, DECEMBER 31,
1997 1998 1999 1999 1999 1999
------- ------ ------ ------ ---------- ------------
(PREDECESSOR) (PREDECESSOR)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal........................ $ 384.4 $390.4 $352.8 $352.8 $166.0 $176.8
Discrete Power............................... 154.5 176.4 161.6 161.6 73.3 99.7
Wireless..................................... 6.4 10.0 18.3 18.3 7.3 15.5
------- ------ ------ ------ ------ ------
Total revenue.................................. $ 545.3 $576.8 $532.7 $532.7 $246.6 $292.0
======= ====== ====== ====== ====== ======
Gross margin(2)................................ $ 199.3 $207.5 $182.9 $197.3 $ 88.2 $111.7
Research and development....................... 75.2 75.1 67.0 67.0 29.7 34.5
Selling, administrative and general............ 99.3 98.2 84.0 87.0 42.9 49.5
Harris corporate expense allocation............ 10.0 10.0 9.3 -- -- --
Intangible amortization........................ 2.3 2.3 2.4 12.7 6.2 5.4
In-process research and development............ -- -- -- -- -- 20.2
------- ------ ------ ------ ------ ------
Operating income (loss)........................ 12.5 21.9 20.2 30.6 9.4 2.1
Interest, net.................................. (0.6) (0.9) (1.2) 23.2 11.9 11.9
------- ------ ------ ------ ------ ------
Income (loss) before income taxes.............. 13.1 22.8 21.4 7.4 (2.5) (9.8)
Income taxes (benefit)......................... 1.9 9.9 (6.0) (11.5) (4.3) 6.6
------- ------ ------ ------ ------ ------
Net income (loss).............................. $ 11.2 $ 12.9 $ 27.4 $ 18.9 $ 1.8 $(16.4)
======= ====== ====== ====== ====== ======
NET INCOME (LOSS) PER COMMON SHARE:
Basic...................................................................... $ 0.21 $ 0.02 $(0.18)
Diluted.................................................................... 0.19 0.02 (0.18)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic...................................................................... 91.6 91.6 91.6
Diluted.................................................................... 98.4 98.4 91.6
SUPPLEMENTAL DATA:
Depreciation................................... $ 50.2 $ 65.0 $ 78.2 $ 63.8 $ 30.9 $ 29.4
Capital expenditures........................... 173.3 90.2 38.6 38.6 18.1 14.5
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
------- ------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................................................... $ 40.1 $ 40.1
Total assets(3)........................................................................... 717.0 709.1
Long-term debt, including current portion................................................. 534.3 191.8
Mandatorily redeemable preferred stock(4)................................................. 87.9 --
Total shareholders' equity (deficit)(5)................................................... (18.8) 403.7
</TABLE>
- ------------------
(1) The pro forma as adjusted information presented is a summary only and should
be read in conjunction with "Unaudited Pro Forma Combined Condensed
Financial Statements" included elsewhere in this prospectus.
4
<PAGE>
(Footnotes continued from previous page)
(2) Gross margin includes foreign exchange losses with respect to the Malaysian
Ringgit of $11.4 million for the pro forma as adjusted fiscal year 1999 and
$4.3 million for the pro forma as adjusted six months ended January 1, 1999.
These foreign exchange losses with respect to the Malaysian Ringgit
represent losses under contracts entered into by Harris and subsequently
terminated. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Market Risk Management."
(3) Total assets as adjusted have been reduced by $7.9 million for the one-time
write-off of unamortized debt issuance costs associated with the debt being
repaid.
(4) As adjusted assumes all of the outstanding shares of the 12% Series A
Cumulative Compounding Preferred Stock will be converted into common stock
at $1,000 per share plus accumulated and unpaid dividends, based on the per
share amount we will receive in this offering. See "Debt Repayment and
Preferred Stock Conversion Transactions."
(5) Shareholders' equity as adjusted has been reduced by $7.9 million for the
one-time write-off of unamortized debt issuance costs associated with the
debt being repaid, $12.2 million for prepayment premiums on the portions of
the 13 1/4% Senior Subordinated Notes due 2009 being repaid and the Tranche
B Senior Term Facility being repaid and $0.3 million for the write-off
related to the value ascribed to the warrants issued on the 13.5%
Subordinated Holding PIK Note due 2010 to be repaid.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not now known to us or that we currently deem
immaterial may also impair our business operations.
FLUCTUATION OF OPERATING RESULTS--OUR FUTURE OPERATING RESULTS ARE LIKELY TO
FLUCTUATE AND THEREFORE MAY FAIL TO MEET EXPECTATIONS WHICH COULD CAUSE OUR
STOCK PRICE TO DECLINE.
Our operating results have varied widely in the past and are likely to do
so in the future. In addition, our operating results may not follow any past
trends. Our future operating results will depend on many factors and may fail to
meet our expectations for a number of reasons, including those set forth in
these risk factors. Any failure to meet expectations could cause our stock price
to significantly fluctuate or decline.
Factors that could cause our operating results to fluctuate that relate to
our internal operations include:
o the need for continual, rapid new product introductions;
o changes in our product mix;
o our inability to adjust our fixed costs in the face of any declines in
sales; and
o the availability of production capacity and fluctuations in the
manufacturing yields at our facilities.
Factors that could cause our operating results to fluctuate that depend on
our suppliers and customers include:
o the timing of significant product orders, order cancellations and
reschedulings;
o the availability of production capacity and fluctuations in the
manufacturing yields at third parties' facilities that manufacture our
devices; and
o the cost of raw materials and manufacturing services from our suppliers.
Factors that could cause our operating results to fluctuate that are
industry risks include:
o the cyclical nature of the semiconductor industry;
o the new and evolving nature of the wireless LAN market and the
possibility that wireless LAN technology may not be adopted on a
widespread basis or may be replaced by a competing technology; and
o intense competitive pricing pressures.
CYCLICAL INDUSTRY--DOWNTURNS IN THE BUSINESS CYCLE COULD REDUCE THE REVENUES AND
PROFITABILITY OF OUR BUSINESS.
The semiconductor industry is highly cyclical. In 1998, the semiconductor
industry experienced a downturn. Our markets may experience other, possibly more
severe and prolonged, downturns in the future. We may also experience
significant changes in our operating profit margins as a result of variations in
sales, changes in product mix, price competition for orders and costs associated
with the introduction of new products.
The markets for our products depend on continued demand for personal
computer, industrial, telecommunications, consumer electronics and automotive
goods. There can be no assurance that these end-user markets will not experience
changes in demand that will adversely affect our prospects.
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE--OUR INABILITY TO INTRODUCE NEW
PRODUCTS COULD RESULT IN DECREASED REVENUES AND LOSS OF MARKET SHARE TO
COMPETITORS; NEW TECHNOLOGIES COULD ALSO REDUCE THE DEMAND FOR OUR PRODUCTS.
Rapidly changing technology and industry standards, along with frequent new
product introductions, characterize the semiconductor industry. Our success in
these markets depends on our ability to design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and
cost-effective basis. There can be no assurance that we will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner or that products or
6
<PAGE>
technologies developed by others will not render our products or technologies
obsolete or noncompetitive. A fundamental shift in technology in our product
markets could have a material adverse effect on us.
COMPETITION--OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD
REDUCE GROSS PROFIT MARGINS AND THE VALUE OF AN INVESTMENT IN OUR COMPANY.
The semiconductor industry, and the semiconductor product markets
specifically, are highly competitive. Competition is based on price, product
performance, quality, reliability and customer service. The gross profit margins
realizable in our markets can differ across regions, depending on the economic
strength of end-product markets in those regions. Even in strong markets, price
pressures may emerge as competitors attempt to gain more share by lowering
prices. Competition in the various markets in which we participate comes from
companies of various sizes, many of which are larger and have greater financial
and other resources than we have and thus can better withstand adverse economic
or market conditions. In addition, companies not currently in direct competition
with us may introduce competing products in the future.
ADDITIONAL BORROWINGS AVAILABLE--WE AND OUR SUBSIDIARIES WILL BE ABLE TO INCUR
SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED
BELOW.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the indenture governing the 13 1/4% Senior
Subordinated Notes due 2009 contains restrictions on the incurrence of
additional indebtedness, these restrictions are subject to a number of
qualifications and exceptions; and the indebtedness incurred in compliance with
these restrictions could be substantial. Also, these restrictions do not prevent
us from incurring obligations that do not constitute indebtedness. As of
December 31, 1999, our senior credit facilities provide for additional borrowing
of up to about $70.0 million. To the extent new debt is added to our and our
subsidiaries' currently anticipated debt levels, it could:
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
o increase our vulnerability to adverse general economic or industry
conditions;
o limit our flexibility in planning for, or reacting to, changes in our
business or the industry in which we operate;
o prevent us from raising the funds necessary to repurchase all 13 1/4%
Senior Subordinated Notes due 2009 tendered to us upon the occurrence of
certain changes of control in our ownership, which would constitute a
default under the indenture governing those notes; and
o place us at a competitive disadvantage compared to our competitors that
have less debt.
See "Capitalization," "Selected Historical Consolidated Financial Data" and
"Description of Certain Indebtedness."
RESTRICTIONS AND COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR
SENIOR CREDIT FACILITIES AND THE INDENTURE GOVERNING THE 13 1/4% SENIOR
SUBORDINATED NOTES DUE 2009 LIMIT OUR ABILITY TO ENGAGE IN OR ENTER INTO
BUSINESS, OPERATING AND FINANCING ARRANGEMENTS, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO TAKE ADVANTAGE OF POTENTIALLY PROFITABLE BUSINESS OPPORTUNITIES.
We cannot assure you that the operating and financial restrictions and
covenants in our debt instruments, including the senior credit facilities and
the 13 1/4% Senior Subordinated Notes due 2009, will not adversely affect our
ability to finance our future operations or capital needs or engage in other
business activities that may be in our interest.
Our senior credit facilities require us to maintain certain financial
ratios which become more restrictive over time. Our ability to comply with these
ratios may be affected by events beyond our control. A breach of any of these
covenants or our inability to comply with the required financial ratios could
result in a default under our senior credit facilities. In the event of any of
these defaults, the lenders under our senior credit facilities could elect to
declare all borrowings outstanding, together with accrued interest and other
fees, to be due and payable, to require us to apply all of our available cash to
repay these borrowings or to prevent us
7
<PAGE>
from making debt service payments on the 13 1/4% Senior Subordinated Notes due
2009, any of which would be an event of default under the notes.
See "Description of Certain Indebtedness."
HOLDING COMPANY STRUCTURE--AS A HOLDING COMPANY, WE ARE TOTALLY DEPENDENT ON
DIVIDENDS FROM OUR OPERATING SUBSIDIARIES TO MEET OUR DEBT OBLIGATIONS OR,
SHOULD WE SO CHOOSE, PAY DIVIDENDS. TO THE EXTENT WE DO NOT RECEIVE DIVIDENDS
FROM INTERSIL, WE COULD HAVE DIFFICULTY SATISFYING OUR OBLIGATIONS.
We are a holding company whose only material asset is the capital stock of
Intersil. We conduct no business (other than in connection with our ownership of
the capital stock of Intersil and certain other administrative obligations), and
depend on distributions from Intersil to meet our obligations. Because of
Intersil's ability to incur substantial indebtedness and our dependence upon the
operating performance of Intersil to generate distributions to us, there can be
no assurance that any of these distributions will be adequate to fund our
obligations when due. In addition, the senior credit facilities, the 13 1/4%
Senior Subordinated Notes due 2009 and applicable Federal and state law impose
restrictions on the payment of dividends and the making of loans by Intersil to
us. As a result of the foregoing restrictions, we may be required to:
o refinance our indebtedness,
o seek additional debt or equity financing,
o cause Intersil to refinance all or a portion of its indebtedness with
indebtedness containing covenants allowing us to gain access to
Intersil's cash flow or assets,
o cause Intersil to obtain modifications of the covenants restricting our
access to cash flow or assets of Intersil contained in Intersil's
financing documents (including, without limitation, the senior credit
facilities and the 13 1/4% Senior Subordinated Notes due 2009),
o merge Intersil with us, which merger would be subject to compliance with
applicable debt covenants and the consents of certain lenders, or
o pursue a combination of the foregoing actions.
The measures we may undertake to gain access to sufficient cash flow to
meet our future debt service requirements will depend on general economic and
financial market conditions, as well as our financial condition and the
financial condition of Intersil and other relevant factors existing at the time.
No assurance can be given that any of the foregoing measures can be
accomplished, and the failure to do so could have a material adverse effect on
the value of the Class A Common Stock.
RISKS RELATED TO USE OF ESTIMATES IN PRO FORMA FINANCIAL INFORMATION--IF ACTUAL
RESULTS DIFFER FROM THE ESTIMATES UNDERLYING SOME OF THE PRO FORMA FINANCIAL
INFORMATION, OUR RESULTS MAY REFLECT HIGHER EXPENSES AND LOWER OPERATING
RESULTS.
The pro forma financial information contained herein assumes that we would
have incurred annual expenses of $3.0 million to obtain general and
administrative services, either from Harris, under the Transition Services
Agreement, or otherwise. Charges under the Transition Services Agreement may
exceed historical charges or upon termination of the agreement we might not be
able to obtain similar facilities and services on comparable terms. See "Certain
Relationships and Related Transactions." If our actual expenses exceed the
estimates, our operating results will be less favorable than those set forth in
the pro forma financial statements. See "Unaudited Pro Forma Combined Condensed
Financial Statements."
CURRENCY EXCHANGE RATE FLUCTUATIONS--FLUCTUATIONS IN THE EXCHANGE RATE OF THE
U.S. DOLLAR AND OTHER FOREIGN CURRENCIES COULD INCREASE OPERATING EXPENSES AND
NEGATIVELY IMPACT OUR FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS.
While we and our subsidiaries transact business primarily in U.S. dollars
and most of our revenues are denominated in U.S. dollars, a portion of our costs
and revenues is denominated in other currencies, such as
8
<PAGE>
the Euro, the Malaysian Ringgit and the Japanese Yen. As a result, changes in
the exchange rates of these currencies or any other applicable currencies to the
U.S. dollar will affect our costs of goods sold and operating margins and could
result in exchange losses. The impact of future exchange rate fluctuations on
our results of operations cannot be accurately predicted. From time to time, we
have engaged in, and may continue to engage in, exchange rate hedging activities
in an effort to mitigate the impact of exchange rate fluctuations. However, any
hedging technique that we may implement may not be effective or may result in
foreign exchange hedging losses. In the past, we have incurred foreign exchange
hedging losses, including $13.3 million during fiscal year 1998 and
$11.4 million during fiscal year 1999.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS--OUR INTERNATIONAL OPERATIONS
SUBJECT US TO RISKS NOT FACED BY DOMESTIC COMPETITORS WHICH INCLUDE UNFAVORABLE
POLITICAL, REGULATORY, LABOR AND TAX CONDITIONS IN OTHER COUNTRIES.
We cannot be certain to what extent our future operations and earnings may
be adversely affected by the risks related to, or any other problems arising
from, operating in international markets. We have significant operations in
Kuala Lumpur, Malaysia and additionally generate approximately one-half of our
revenue from outside the United States. Risks inherent in doing business on an
international level include:
o unexpected changes in the laws and policies of the United States and of
the countries in which we manufacture and sell our products;
o economic and political instability;
o trade restrictions; and
o foreign currency fluctuations.
DEPENDENCE ON SOURCES OF SUPPLY--PRODUCTION TIME AND THE OVERALL COST OF OUR
PRODUCTS COULD INCREASE IF WE WERE TO LOSE ONE OF OUR LIMITED NUMBER OF
SUPPLIERS OR IF ONE OF THOSE SUPPLIERS INCREASED THE PRICES OF RAW MATERIALS.
Our results of operations could be adversely affected if we were unable to
obtain adequate supplies of raw materials in a timely manner or if the costs of
raw materials increased significantly. Our manufacturing operations depend upon
obtaining adequate supplies of raw materials on a timely basis. We purchase raw
materials, such as silicon wafers, lead frames, mold compound, ceramic packages
and chemicals and gases, from a limited number of suppliers on a just-in-time
basis. From time to time, suppliers may extend lead times, limit supplies or
increase prices due to capacity constraints or other factors.
MANUFACTURING RISKS--DUE TO OUR COMPLEX MANUFACTURING PROCESSES, DELAYS IN
PRODUCTION AT NEW FACILITIES, IMPLEMENTING NEW PRODUCTION TECHNIQUES OR IN
CURING PROBLEMS ASSOCIATED WITH TECHNICAL EQUIPMENT MALFUNCTIONS MAY LOWER
YIELDS AND REDUCE OUR REVENUES.
Our manufacturing processes are highly complex, require advanced and costly
equipment and are continuously being modified in an effort to improve yields and
product performance. Impurities or other difficulties in the manufacturing
process can lower yields. Our manufacturing efficiency will be an important
factor in our future profitability, and we cannot assure you that we will be
able to maintain our manufacturing efficiency or increase manufacturing
efficiency to the same extent as our competitors.
In addition, as is common in the semiconductor industry, we have from time
to time experienced difficulty in beginning production at new facilities or in
effecting transitions to new manufacturing processes. As a consequence, we have
suffered delays in product deliveries or reduced yields. We may experience
manufacturing problems in achieving acceptable yields or experience product
delivery delays in the future as a result of, among other things, capacity
constraints, construction delays, upgrading or expanding existing facilities or
changing our process technologies, any of which could result in a loss of future
revenues. Our operating results could also be adversely affected by the increase
in fixed costs and operating expenses related to increases in production
capacity if revenues do not increase proportionately.
9
<PAGE>
CONTROLLING SHAREHOLDERS--A LIMITED NUMBER OF PERSONS INDIRECTLY CONTROL OUR
COMPANY AND MAY EXERCISE THEIR CONTROL IN A MANNER ADVERSE TO YOUR INTERESTS.
Upon completion of this offering, Sterling and some key employees of our
company will own 14,196,452 shares, or approximately 34.8%, of the outstanding
Class A Common Stock, our only class of voting stock, and 44,267,843 shares of
Class B Common Stock which are convertible into shares of Class A Common Stock
on a one-to-one basis. By virtue of this stock ownership, they have the power to
direct our affairs and will be able to determine the outcome of all matters
required to be submitted to shareholders for approval, including the election of
a majority of our directors, any merger, consolidation or sale of all or
substantially all of our assets, and amendment of our Certificate of
Incorporation. Sterling also has a significant equity investment in Fairchild
Semiconductor, one of our competitors. Because a limited number of persons
control us, transactions could be difficult or impossible to complete without
the support of those persons. It is possible that these persons will exercise
control over us in a manner adverse to your interests. See "Principal and
Selling Stockholders."
DEPENDENCE ON INTELLECTUAL PROPERTY--WE USE A SIGNIFICANT AMOUNT OF INTELLECTUAL
PROPERTY IN OUR BUSINESS. IF WE ARE UNABLE TO PROTECT THIS INTELLECTUAL
PROPERTY, WE COULD LOSE OUR RIGHT TO EXCLUSIVE USE OF KEY TECHNOLOGY, RESULTING
IN DECREASED REVENUES.
Our future success and competitive position depend in part upon our ability
to obtain and maintain proprietary technology used in our principal products. We
rely on intellectual property rights, including, but not limited to, rights
existing under patent, trade secret, trademark, maskwork and copyright law, to
protect this technology. Some of our technology is not covered by any patent or
patent application, and there is risk that:
o some of the approximately 1,400 patents that we own and other numerous
patents that we license from Harris may be invalidated, circumvented,
challenged or licensed to others;
o the license rights granted by Harris, or the patents that we own, will
not provide competitive advantages to us; or
o some of our pending or future patent applications will not be issued
within the scope of the claims sought by us, if at all.
Further, others may develop technologies that are similar or superior to our
technology, duplicate our technology or design around our patents. In addition,
effective patent, trademark, copyright, maskwork and trade secret protection may
be unavailable, limited or not applied for in certain foreign countries.
We also seek to protect our proprietary technology, including technology
that may not be patented or patentable, in part by confidentiality agreements
and, if applicable, inventors' rights agreements with our collaborators,
advisors, employees and consultants. There can be no assurance that these
agreements will not be breached, that we will have adequate remedies for any
breach or that these persons or institutions will not assert rights to
intellectual property arising out of this research.
Some of our current licenses to use others' technology will expire during
the next several years, unless extended. In particular, we currently have access
to a portfolio of patents under cross-license agreements that expire in the year
2000. We will then need to negotiate renewals of these agreements or obtain the
technology from alternative sources. There is no guarantee that we will be able
to obtain renewals on substantially similar terms as those that currently exist.
DEPENDENCE ON INTELLECTUAL PROPERTY ACQUIRED FROM HARRIS--WE HAVE ACQUIRED
SUBSTANTIALLY ALL OF OUR INTELLECTUAL PROPERTY FROM HARRIS. TO THE EXTENT OUR
USE OF THIS INTELLECTUAL PROPERTY INFRINGES THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, WE MAY BE REQUIRED TO CEASE OUR USE OR SALE OF AFFECTED PRODUCTS.
Under our intellectual property agreement with Harris, Harris has limited,
royalty-free, worldwide, nonexclusive license rights (without right to
sublicense) to some of our technology. Under our patent assignment and services
agreements with Harris, Harris retained the ownership and rights to certain
patents for a period of three years after which time the patents will be
assigned to us, provided the patents are not the subject of litigation at that
time, and with the proviso that any binding obligations on third parties to
10
<PAGE>
make royalty or other payments respecting the patents will be retained by
Harris. Furthermore, the license agreements under which third parties are
licensed to our intellectual property (or intellectual property that is assigned
to us) and under which Harris was cross-licensed to the third party's
intellectual property, may not be assignable to us. For this situation, Harris
agreed to partially indemnify us for limited periods in limited situations
against claims that may be made that our activities infringe the intellectual
property rights of others. The extent and duration of this indemnification may
be insufficient to shield us from the need to make monetary payments to third
parties or to facilitate the continued manufacture, use or sale of some affected
products.
INTELLECTUAL PROPERTY UPON WHICH WE RELY MAY INFRINGE ON OTHER PARTIES'
INTELLECTUAL PROPERTY RIGHTS--WE MAY HAVE TO PAY OTHERS FOR INFRINGING THEIR
INTELLECTUAL PROPERTY RIGHTS OR DEFEND OURSELVES IN A LITIGATION, RESULTING IN
SIGNIFICANT EXPENSE TO US.
Vigorous protection and pursuit of intellectual property rights or
positions characterize the semiconductor industry. This vigor and pursuit have
resulted in significant and often protracted and expensive litigation. We may
from time to time be notified of claims that we may be infringing third party
patents or other intellectual property rights. A countersuit has been brought
against Harris by Ericsson, one of its competitors, alleging infringement of
four of its patents relating to telephone subscriber line interface circuits and
we have been joined as a party. We believe our liability from this litigation,
if any, that arises out of the conduct of the semiconductor business prior to
closing is covered by Harris' agreement to provide limited indemnities. We do
not believe that the litigation will have a material adverse effect on our
business, financial condition or results of operations. It is possible, however,
that the litigation will be resolved in a manner that is materially adverse to
us. If necessary or desirable, we may, from time to time, seek licenses to
patents or other intellectual property rights. However, we cannot be certain
that we will obtain these licenses or that the terms of any offered licenses
will be acceptable to us, and any acquisition or license could require
expenditure of substantial time and other resources. Furthermore, some licenses
or other rights to intellectual property of third parties that we use, such as
software, may not be freely assignable by Harris to us. Our failure to obtain a
license from a third party for technology we use could cause us to incur
substantial liabilities and to suspend the manufacture or shipment of products
or our use of processes requiring the technology. Litigation could result in
significant expense to us, adversely affecting sales of the challenged product
or technology and diverting the efforts of our technical and management
personnel, whether or not the litigation is determined in our favor. In the
event of an adverse outcome in any litigation, we may be required to:
o pay substantial damages and incur significant attorneys' fees;
o cease the manufacture, use, sale or importation of infringing products;
o expend significant resources to develop or acquire non-infringing
technology;
o discontinue the use of some processes; or
o obtain licenses to intellectual property covering the infringing
technology.
RISKS RELATING TO FUTURE ACQUISITIONS--WE MAY NOT BE ABLE TO CONSUMMATE FUTURE
ACQUISITIONS, AND THOSE ACQUISITIONS WHICH WE DO COMPLETE MAY BE DIFFICULT TO
INTEGRATE AND RESULT IN INCREASED DEBT AND LIABILITIES.
We plan to pursue acquisitions of related businesses. We might not be able
to consummate acquisitions, or, if we complete any acquisition, we may not
realize any of the benefits anticipated from these acquisitions. Financing for
acquisitions may not be available; and, depending on the terms of these
acquisitions, financing could be restricted by the terms of our senior credit
facilities and the indenture governing the 13 1/4% Senior Subordinated Notes due
2009. The process of integrating acquired operations into our existing
operations may result in unforeseen operating difficulties and may require
significant financial resources that would otherwise be available for the
ongoing development or expansion of our existing operations. Possible future
acquisitions could result in the incurrence of additional debt, contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, all of which could materially adversely affect our financial condition
and operating results.
11
<PAGE>
ENVIRONMENTAL LIABILITIES AND OTHER GOVERNMENTAL REGULATIONS--REGULATORY MATTERS
COULD FORCE US TO INCUR SIGNIFICANT CAPITAL AND OPERATIONAL COSTS.
We are subject to various environmental laws and regulations relating to
the management, disposal and, under some circumstances, remediation of hazardous
materials and wastes and the discharge of pollutants into the air and water. We
are also subject to laws and regulations relating to workplace safety and worker
health which, among other things, regulate employee exposure to hazardous
substances. Under the Master Transaction Agreement, Harris agreed to indemnify
us for substantially all environmental liabilities related to events or
activities occurring prior to the closing of the transactions contemplated by
the Master Transaction Agreement. The nature of our ongoing operations exposes
us to the risk of liabilities or claims with respect to environmental matters,
including those relating to the on- and off-site disposal and release of
hazardous materials, and there can be no assurance that material costs will not
be incurred in connection with these liabilities or claims.
Based on our experience, we believe that the future cost of compliance with
existing environmental and health and safety laws and regulations (and liability
for known environmental conditions even without the Harris indemnity) will not
have a material adverse effect on our business, financial condition or results
of operations. However, we cannot predict:
o what environmental or health and safety legislation or regulations will
be enacted in the future;
o how existing or future laws or regulations will be enforced, administered
or interpreted; or
o the amount of future expenditures which may be required to comply with
these environmental or health and safety laws or regulations or to
respond to future cleanup matters or other environmental claims.
See "Business--Environmental Matters."
ABSENCE OF TRADING MARKET--OUR CLASS A COMMON STOCK HAS NEVER BEEN PUBLICLY
TRADED SO WE CANNOT PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP
FOR OUR COMMON STOCK.
There has not been a public market for our common stock. We cannot predict
the extent to which a trading market will develop or how liquid that market
might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters and us, and may not be
indicative of prices that will prevail in the trading market.
RISKS RELATING TO FUTURE SALES--ALL OF OUR EXISTING STOCKHOLDERS HAVE THE RIGHT
TO REQUIRE US TO REGISTER THE PUBLIC SALE OF THEIR SHARES; ALL OF OUR TOTAL
OUTSTANDING SHARES OF COMMON STOCK MAY BE SOLD INTO THE MARKET IN THE NEAR
FUTURE; FUTURE SALES OF THOSE SHARES COULD DEPRESS THE MARKET PRICE OF OUR CLASS
A COMMON STOCK.
Immediately after this offering, the public market for our Class A Common
Stock will include only the 20,000,000 shares of Class A Common Stock that we
are selling in this offering, assuming the over-allotment option is not
exercised. At that time, there will be an additional 20,738,205 shares of Class
A Common Stock outstanding, including the shares of Class A Common Stock issued
in connection with the 12% Series A Cumulative Compounding Preferred Stock
conversion, and 49,746,481 shares of Class B Common Stock outstanding, which are
convertible into shares of Class A Common Stock on a one-to-one basis. Shares
held by our existing stockholders who own 63,636,971 shares of common stock
(including shares of common stock issuable upon conversion of the preferred
stock) are subject to "lock-up" agreements that prohibit them from selling
shares of Class A Common Stock in the public market for 180 days after the date
of this prospectus. When the 180-day "lock-up" period expires, or if Credit
Suisse First Boston Corporation consents, in its sole discretion, to an earlier
sale, our existing stockholders will be able to sell their shares in the public
market, subject to legal restrictions on transfer. All of our existing
stockholders are parties to agreements with us that provide these stockholders
with the right to require us to register the sale of shares owned by them.
Registration of the sale of these shares of our common stock would permit their
sale into the market without regard to the legal restrictions on transfer
mentioned above. If our existing stockholders sell a large number of shares, the
market price of shares of Class A Common Stock could decline, as these sales may
be viewed by the public as an indication of an upcoming or recently occurring
shortfall in the financial performance of our company. Moreover, the perception
in the public market that these stockholders might
12
<PAGE>
sell shares of Class A Common Stock could depress the market price of the Class
A Common Stock. See "Shares Eligible for Future Sale."
DILUTION--BECAUSE YOU WILL PAY MORE FOR YOUR SHARES THAN EXISTING STOCKHOLDERS,
THE VALUE OF YOUR INVESTMENT IN OUR CLASS A COMMON STOCK WILL BE DILUTED.
If you purchase Class A Common Stock in this offering, you will pay more
for your shares than the amount paid by existing stockholders or individuals or
companies which acquired shares by exercising options granted or warrants issued
before this offering. As a result, the value of your investment based on the
value of our net tangible assets, as recorded on our books, will be less than
the amount you pay for shares of Class A Common Stock in this offering. In
addition, the total amount of our capital will be less than what it would have
been had you and all of the existing stockholders, optionees and warrant holders
paid the same amount per share of Class A Common Stock as you will pay in this
offering. You may experience further dilution to the extent that additional
shares of our Class A Common Stock are issued upon the exercise of stock options
or warrants. See "Dilution."
13
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These statements
relate to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements also
relate to our future prospects, developments and business strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
other sections of this prospectus.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. These factors include, but are not limited to, the following: changes
in general economic and business conditions; changes in current pricing levels;
changes in political, social and economic conditions and local regulations;
changes in technology and the development of new technology; foreign currency
fluctuations; reductions in sales to any significant customers; changes in sales
mix; industry capacity; competition; disruptions of established supply channels;
manufacturing capacity constraints; and the availability, terms and deployment
of capital. Our risks are more specifically described in the "Risk Factors"
section of this prospectus. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our actual results
may vary materially from those expected, estimated or projected.
We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.
14
<PAGE>
DEBT REPAYMENT AND PREFERRED STOCK CONVERSION TRANSACTIONS
DEBT REPAYMENT
The terms of our senior credit facilities require us to apply 50% of the
net cash proceeds of this offering in excess of $50.0 million to the repayment
of the term loans under the senior credit facilities.
Under the terms of our 13 1/4% Senior Subordinated Notes due 2009, we may,
but are not required to, redeem up to $70.0 million principal amount of the
notes with the net cash proceeds of this offering at a price of 113 1/4% of the
principal amount of the notes, plus accrued and unpaid interest on the notes.
The terms of our 13.5% Subordinated Holding PIK Note due 2010 require that
we use all net cash proceeds of this offering to repay outstanding amounts due
under the note, except to the extent the proceeds are required to be used to
repay amounts under the senior credit facilities or are voluntarily used to
repay debt that is senior to the note. In addition, because the 13.5%
Subordinated Holding PIK Note due 2010 will be repaid prior to August 13, 2001,
the warrants to purchase Class A Common Stock relating to the 13.5% Subordinated
Holding PIK Note due 2010 will be exercisable for 2,222,224 shares of Class A
Common Stock, reduced from 3,703,707 shares of Class A Common Stock. See
"Description of Capital Stock--Warrants Relating to the 13.5% Subordinated
Holding PIK Note."
The terms of the 11.13% Seller Holding PIK Note due 2010 require that we
use the first $50.0 million in net cash proceeds from this offering to redeem
debt senior to the note, to the extent the terms of that senior debt require us
to do so. In addition, the 11.13% Seller Holding PIK Note due 2010 requires that
50% of the net cash proceeds from this offering in excess of $50.0 million be
used to redeem amounts due under the note.
After complying with all of these requirements, and assuming we completed
this offering on December 31, 1999, we would have repaid $150.2 million
(including a prepayment premium of $2.9 million) under the senior credit
facilities, $79.3 million (including a prepayment premium of $9.3 million) under
the 13 1/4% Senior Subordinated Notes due 2009, $31.6 million under the 13.5%
Subordinated Holding PIK Note due 2010 and $93.9 million under the 11.13% Seller
Holding PIK Note due 2010. See "Use of Proceeds."
CONVERSION OF PREFERRED STOCK
Concurrently with the completion of this offering, all of our outstanding
12% Series A Cumulative Compounding Preferred Stock will be converted into
shares of Class A Common Stock. The conversion will be accomplished through a
restatement of our certificate of incorporation. Each preferred stockholder will
receive shares of Class A Common Stock equal in aggregate value to $1,000 per
share of preferred stock held by the stockholder at the closing plus accumulated
and unpaid dividends. The number of shares of Class A Common Stock received by
each preferred stockholder will be determined based on the amount per share
received by us for shares of Class A Common Stock sold in this offering.
Assuming we complete this offering on March 1, 2000 at $17.86 per share (the
mid-point of the range shown on the cover of this prospectus, less assumed
underwriting discounts and commissions), a total of 4,973,411 shares of Class A
Common Stock will be exchanged for all outstanding shares of our 12% Series A
Cumulative Compounding Preferred Stock. No shares of 12% Series A Cumulative
Compounding Preferred Stock will be authorized for issuance following this
offering. See "Use of Proceeds."
15
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering, after deducting underwriting discounts
and commissions and estimated offering expenses, based on the assumed initial
public offering price of $19.00 per share (the mid-point of the range shown on
the cover of this prospectus), are estimated to be approximately
$355.0 million. The gross proceeds from this offering will be used as set forth
below. The following table sets forth the estimated sources and uses of funds as
of December 31, 1999, the latest date for which financial information
is available:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
------------ ------------
(IN (IN
MILLIONS) MILLIONS)
<S> <C> <C> <C>
Sources: Uses:
Repay Senior Credit Facilities in
Gross Offering Proceeds...................... $380.0 part(1)................................. $150.2
Repay 13 1/4% Senior Subordinated
Notes in part(2)........................ 79.3
Repay 13.5% Subordinated Holding PIK
Note(3)................................. 31.6
Repay 11.13% Seller Holding PIK
Note(4)................................. 93.9
Fees and Expenses(5).................... 25.0
------ ------
Total Sources................................ $380.0 Total Uses.............................. $380.0
====== ======
</TABLE>
- ------------------
(1) In connection with the acquisition of the semiconductor business of Harris,
we borrowed $205.0 million under our Tranche B Senior Term Facility and
$15.0 million under our Revolving Credit Facility, and we have since repaid
the $15.0 million revolver borrowings. The amount to be repaid includes
$147.3 million under our senior credit facilities, subject to the consent of
the lenders which is expected to be obtained prior to the completion of this
offering, and a prepayment premium of $2.9 million. At December 31, 1999,
the interest rate with respect to the term loans was 10.17%. The actual
amount repaid will be reduced by approximately $0.1 million per day, the sum
of accrued interest on the 13 1/4% Senior Subordinated Notes due 2009 to be
redeemed per day, accrued interest on the 13.5% Subordinated Holding PIK
Note due 2010 per day and accrued interest on the 11.13% Seller Holding PIK
Note due 2010 per day, until the closing of this offering.
(2) In connection with the acquisition of the semiconductor business of Harris,
we issued the 13 1/4% Senior Subordinated Notes due 2009 in the original
principal amount of $200.0 million. The 13 1/4% Senior Subordinated Notes
due 2009 mature on August 15, 2009 and bear interest at an annual rate of
13 1/4%. The amount to be repaid includes the principal amount of $70.0
million and a prepayment premium of $9.3 million due in accordance with the
terms of the notes upon prepayment.
(3) In connection with the acquisition of the semiconductor business of Harris,
we issued to Citicorp Mezzanine Partners, L.P. the 13.5% Subordinated
Holding PIK Note due 2010 in the original principal amount of $30.0 million.
The amount to be repaid includes the principal amount of $30.0 million, plus
accrued interest of $1.6 million. The 13.5% Subordinated Holding PIK Note
due 2010 matures on July 15, 2010 and bears interest at an annual rate equal
to 13.5%. The general partner of Citicorp Mezzanine Partners, L.P. is an
affiliate of Citicorp Venture Capital Ltd. Citicorp Venture Capital owns an
interest in Sterling Holding Company, LLC, one of our principal
stockholders.
(4) In connection with the acquisition of the semiconductor business of Harris,
we issued to Harris the 11.13% Seller Holding PIK Note due 2010 in the
original principal amount of $90.0 million. The amount to be repaid includes
the principal amount of $90.0 million, plus accrued interest of $3.9
million. The 11.13% Seller Holding PIK Note due 2010 matures on July 31,
2010 and bears interest at an annual rate of 11.13%.
(5) Includes underwriting discounts and commissions.
We will not receive any proceeds from the sale of the shares, if any, to be
sold by Harris upon exercise of the underwriters' over-allotment option.
16
<PAGE>
DIVIDEND POLICY
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 foreseeable
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. See "Description of
Indebtedness" and "Description of Capital Stock."
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual and as adjusted basis. This table should be read in conjunction
with "Unaudited Pro Forma Combined Condensed Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
--------------------------------------
ACTUAL AS ADJUSTED
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Cash.............................................................. $ 40.1 $ 40.1
======= =======
Long-term debt, including current portion:
Senior Credit Facilities:
Revolving Credit Facility..................................... $ -- $ --
Tranche B Senior Term Facility(1)............................. 205.0 57.7
13 1/4% Senior Subordinated Notes due 2009(2)................... 199.7 129.7
13.5% Subordinated Holding PIK Note due 2010(3)................. 31.3 --
11.13% Seller Holding PIK Note due 2010......................... 93.9 --
Other......................................................... 4.4 4.4
------- -------
Total long-term debt..................................... 534.3 191.8
------- -------
12% Series A Cumulative Compounding Preferred Stock(4)............ 87.9 --
Shareholders' equity:
Common stock.................................................... 0.7 0.9
Additional paid-in capital(2)(3)................................ 2.6 445.3
Retained deficit................................................ (21.8) (42.8)
Unearned compensation........................................... (0.6) --
Accumulated other comprehensive income.......................... 0.3 0.3
------- -------
Total shareholders' equity(5)............................ (18.8) 403.7
------- -------
Total capitalization................................ $ 603.4 $ 595.5
======= =======
</TABLE>
- ------------------
(1) The Tranche B Senior Term Facility will mature in 2005 and will require 1%
of the original principal amount to be repaid in each of the first five
years.
(2) The notes were issued as part of the units, which consisted of
$200.0 million principal amount of 13 1/4% Senior Subordinated Notes due
2009 and warrants to purchase 3,703,707 shares of Class A Common Stock.
Reflects the gross proceeds from the units offering of $200.0 million net of
$0.3 million ascribed to the warrants. The $0.3 million associated with the
sale of the warrants is reflected as an increase to additional paid-in
capital.
(3) Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash in
exchange for the 13.5% Subordinated Holding PIK Note due 2010 and warrants
to purchase 3,703,707 shares of Class A Common Stock (subject to reduction
to 2,222,224 shares of Class A Common Stock upon repayment in full of the
13.5% Subordinated Holding PIK Note due 2010 with the proceeds of this
offering). Reflects the gross proceeds of $30.0 million net of $0.3 million
ascribed to the warrants. The $0.3 million associated with the sale of the
warrants is reflected as an increase to additional paid-in capital.
(4) As adjusted assumes all of the outstanding shares of the 12% Series A
Cumulative Compounding Preferred Stock will be converted into common stock
at $1,000 per share plus accumulated and unpaid dividends, based on the per
share amount we will receive in this offering. See "Debt Repayment and
Preferred Stock Conversion Transactions."
(5) Shareholders' equity as adjusted for the offering has been reduced by
$7.9 million for the one-time write-off of unamortized debt issuance costs
associated with the debt being repaid, $12.2 million for prepayment premiums
on the portions of the 13 1/4% Senior Subordinated Notes due 2009 being
repaid and the Tranche B Senior Term Facility being repaid and $0.3 million
for the write-off related to the value ascribed to the warrants issued on
the 13.5% Subordinated Holding PIK Note due 2010 to be repaid.
17
<PAGE>
DILUTION
Purchasers of the Class A Common Stock offered by this prospectus will
suffer an immediate and substantial dilution in the net tangible book value per
share. Dilution is the amount by which the initial public offering price paid by
the purchasers of the shares of Class A Common Stock will exceed the net
tangible book value per share of common stock after the offering. The net
tangible book value per share of common stock is determined by subtracting total
liabilities from the total book value of the tangible assets and dividing the
difference by the number of shares of common stock deemed to be outstanding on
the date the book value is determined. As of December 31, 1999, we had a
negative tangible book value of $15.6 million, or $(0.23) per share. After
giving effect to this offering, based on an assumed sale of 20.0 million shares
at $19.00 per share (the mid-point of the range shown on the cover of this
prospectus), the application of the proceeds of this offering as described under
"Use of Proceeds" and the conversion of the 12% Series A Cumulative Compounding
Preferred Stock for shares of Class A Common Stock (as of March 1, 2000), and
after deducting the assumed underwriters' discounts and commissions and
estimated offering expenses, our pro forma tangible book value as of December
31, 1999, would have been $318.9 million, or $3.48 per share. This represents an
immediate increase in net tangible book value to existing stockholders of $3.71
per share and an immediate dilution to new investors of $15.52 per share. The
following table illustrates this per share dilution:
<TABLE>
<CAPTION>
PER
SHARE
------
<S> <C> <C>
Assumed initial public offering price................................................ $19.00
Net tangible book value before this offering....................................... $(0.23)
Increase in net tangible book value per share attributable to this offering........ 3.71
------
Pro forma net tangible book value after this offering................................ 3.48
------
Dilution to new investors............................................................ $15.52
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
March 1, 2000, the number of shares of common stock purchased from us, the
estimated value of the total consideration paid for or attributed to such common
stock, and the average price per share paid by or attributable to (i) existing
stockholders, (ii) stockholders converting the 12% Series A Cumulative
Compounding Preferred Stock into shares of Class A Common Stock and (iii) new
investors purchasing shares in this offering at the assumed initial public
offering price of $19.00 per share.
<TABLE>
<CAPTION>
TOTAL CASH
CONSIDERATION
-------------------------
SHARES OF COMMON STOCK
PURCHASED OR CONVERTED (IN MILLIONS) AVERAGE
---------------------- ------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 65,511,275 72.4% $ 4.9 1.0% $ 0.075
Converting preferred stockholders.................. 4,973,411 5.5 88.8 18.8 17.86
New investors...................................... 20,000,000 22.1 380.0 80.2 19.00
---------- ----- ------- -----
Total......................................... 90,484,686 100.0% $ 473.7 100.0%
========== ===== ======= =====
</TABLE>
The existing stockholders will hold 65,511,275 shares, or 72.4% of the
total number of shares of common stock outstanding after this offering, and the
stockholders converting the 12% Series A Cumulative Compounding Preferred Stock
into shares of Class A Common Stock will hold 4,973,411 shares, or 5.5% of the
total number of shares of common stock outstanding after this offering.
The foregoing tables assume no exercise of any outstanding stock options to
purchase Class A Common Stock under our 1999 Equity Compensation Plan and no
exercise of warrants issued to holders of the 13 1/4% Senior Subordinated Notes
or Citicorp Mezzanine Partners, L.P. As of December 31, 1999, there were
outstanding options to purchase an additional 1,549,333 shares of Class A Common
Stock at a weighted average exercise price of $2.25 per share. Upon repayment in
full of the 13.5% Subordinated Holding PIK Note due 2010 with the proceeds of
this offering, there will be outstanding warrants to purchase an additional
5,925,931 shares of Class A Common Stock at an exercise price of $0.0015 per
share. If all of the options and warrants had been exercised in connection with
the offering, the pro forma as adjusted tangible book value as of December 31,
1999 would have been $318.9 million and the pro forma net tangible book value
per share would have been $3.23 per share, causing dilution to new investors of
$15.77.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements for Intersil Holding
are based on or derived from our historical predecessor Consolidated Financial
Statements included elsewhere in this prospectus. The acquisition of the
semiconductor business was consummated on August 13, 1999.
The Unaudited Pro Forma Combined Statements of Operations of Intersil
Corporation and Intersil Holding give effect to the transactions as if they had
occurred as of July 4, 1998. The transactions and the related adjustments are
described in the accompanying notes. The pro forma financial statements do not
purport to represent what Intersil's or Intersil Holding's results of operations
or financial position would actually have been had the transactions in fact
occurred on the dates specified nor do they purport to project the results of
operations or financial position for any future period or at any future date.
The acquisition of the semiconductor business has been accounted for using
the purchase method of accounting. After the acquisition of the semiconductor
business, the total purchase cost of the acquisition was allocated to the
tangible and intangible assets and liabilities of the semiconductor business
based upon their respective fair values. In the opinion of our management, all
adjustments that are necessary to present fairly the pro forma data have been
made.
The Pro Forma Combined Condensed Financial Statements should be read in
conjunction with our Consolidated Financial Statements and notes thereto as of
December 31, 1999 and July 2, 1999 and for the fiscal year ended July 2, 1999,
the 6 weeks ended August 13, 1999, the unaudited 26 weeks ended January 1, 1999
and the unaudited 20 weeks ended December 31, 1999, included elsewhere in this
registration statement. See "Forward-Looking Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors--Risks Related to Use of Estimates in Pro Forma Financial
Information."
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 2, 1999
------------------------------------------------------------------------------------------------------
INTERSIL CORPORATION INTERSIL HOLDING
----------------------------------------- ---------------------------------------------------------
HISTORICAL CONSOLIDATED OFFERING PRO FORMA
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- ------------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales:
Product sales.......... $ 532.7 $ 532.7 $532.7 $ 532.7
Costs and Expenses:
Cost of product
sales................ 349.8 $ (14.4)(a) 335.4 335.4 335.4
Research and
development.......... 67.0 67.0 67.0 67.0
Selling, administrative
and general.......... 84.0 3.0 (b) 87.0 87.0 87.0
Harris corporate
expense allocation... 9.3 (9.3)(b) --
Intangible
amortization......... 2.4 10.3 (d) 12.7 12.7 12.7
------- ------- ------- ------ -------
Operating income........... 20.2 10.4 30.6 30.6 30.6
Interest, net.......... (1.2) 49.9 (c) 48.7 $ 14.1 (f) 62.8 $ (39.6)(h)(i) 23.2
------- ------- ------- ------- ------ ------- -------
Income (loss) before income
taxes.................... 21.4 (39.5) (18.1) (14.1) (32.2) 39.6 7.4
Income taxes (benefit)..... (6.0) (15.4)(e) (21.4) (5.5)(e) (26.9) 15.4 (j) (11.5)
------- ------- ------- ------- ------ ------- -------
Net income (loss).......... 27.4 (24.1) 3.3 (8.6) (5.3) 24.2 18.9
Preferred dividends........ -- -- -- (10.0)(g) (10.0) 10.0 (k) --
------- ------- ------- ------- ------ ------- -------
Net income (loss) to common
shareholders............. $ 27.4 $ (24.1) $ 3.3 $ (18.6) $(15.3) $ 34.2 $ 18.9
------- ------- ------- ------- ------ ------- -------
------- ------- ------- ------- ------ ------- -------
Net income (loss) per
common share(l):
Basic.............................................................................................................. $ 0.21
Diluted............................................................................................................ 0.19
Weighted average common
shares outstanding(l):
Basic.............................................................................................................. 91.6
Diluted............................................................................................................ 98.4
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
26 WEEKS ENDED JANUARY 1, 1999
---------------------------------------------------------------------------------------
INTERSIL CORPORATION INTERSIL HOLDING
----------------------------------------- ------------------------------------------
HISTORICAL CONSOLIDATED OFFERING
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS
------------- ----------- --------- ----------- ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Product sales...................... $ 246.6 $ 246.6 $246.6
Costs and Expenses:
Cost of product sales.............. 165.6 $ (7.2)(a) 158.4 158.4
Research and development........... 29.7 29.7 29.7
Selling, administrative and
general.......................... 41.3 1.6 (b) 42.9 42.9
Harris corporate expense
allocation....................... 4.3 (4.3)(b)
Intangible amortization............ 1.2 5.0 (d) 6.2 6.2
------- ------- ------- ------
Operating income....................... 4.5 4.9 9.4 9.4
Interest, net...................... (0.4) 25.0 (c) 24.6 $ 7.1 (f) 31.7 $ (19.8)(h)(i)
------- ------- ------- ------- ------ -------
Income (loss) before income taxes...... 4.9 (20.1) (15.2) (7.1) (22.3) 19.8
Income taxes (benefit)................. (1.4) (7.8)(e) (9.2) (2.8)(e) (12.0) 7.7 (j)
------- ------- ------- ------- ------ -------
Net income (loss)...................... 6.3 (12.3) (6.0) (4.3) (10.3) 12.1
Preferred dividends.................... -- -- -- (5.0)(g) (5.0) 5.0 (k)
------- ------- ------- ------- ------ -------
Net income (loss) to common
shareholders......................... $ 6.3 $ (12.3) $ (6.0) $ (9.3) $(15.3) $ 17.1
------- ------- ------- ------- ------ -------
------- ------- ------- ------- ------ -------
Net income (loss) per common share(l):
Basic..........................................................................................................................
Diluted........................................................................................................................
Weighted average common shares
outstanding(l):
Basic..........................................................................................................................
Diluted........................................................................................................................
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Sales:
Product sales...................... $ 246.6
Costs and Expenses:
Cost of product sales.............. 158.4
Research and development........... 29.7
Selling, administrative and
general.......................... 42.9
Harris corporate expense
allocation....................... --
Intangible amortization............ 6.2
-------
Operating income....................... 9.4
Interest, net...................... 11.9
-------
Income (loss) before income taxes...... (2.5)
Income taxes (benefit)................. (4.3)
-------
Net income (loss)...................... 1.8
Preferred dividends.................... --
-------
Net income (loss) to common
shareholders......................... $ 1.8
-------
-------
Net income (loss) per common share(l):
Basic................................ $ 0.02
Diluted.............................. 0.02
Weighted average common shares
outstanding(l):
Basic................................ 91.6
Diluted.............................. 98.4
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
26 WEEKS ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
6 WEEKS ENDED AUGUST 13, 1999
------------------------------------------------------ 20 WEEKS ENDED
PRO FORMA ADJUSTMENTS DECEMBER 31, 1999
INTERSIL ------------------------ INTERSIL
CORPORATION ---------------------- INTERSIL INTERSIL HOLDING
HISTORICAL INTERSIL INTERSIL CONSOLIDATED CORPORATION HOLDING CONSOLIDATED
(PREDECESSOR) CORPORATION HOLDING PRO FORMA HISTORICAL HISTORICAL PRO FORMA
------------- ----------- ------- ------------ ----------- ---------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales:
Product sales............ $57.3 $ 57.3 $ 234.7 $292.0
Costs and Expenses:
Cost of product sales.... 39.6 $(1.7)(a) 37.9 142.4 180.3
Research and
development............ 8.5 8.5 26.0 34.5
Selling, administrative
and general............ 10.9 0.3 (b) 11.2 38.3 49.5
Harris corporate expense
allocation............. 1.2 (1.2)(b) -- -- --
Intangible
amortization........... 0.3 1.2 (d) 1.5 3.9 5.4
In-process R&D charge.... -- -- 20.2 20.2
----- ----- ------ ------- ------
Operating income (loss)...... (3.2) 1.4 (1.8) 3.9 2.1
Interest, net............ (0.1) 5.9 (c) $ 1.6 (f) 7.4 18.8 $ 5.5 31.7
----- ----- ----- ------ ------- ------ ------
Income (loss) before income
taxes...................... (3.1) (4.5) (1.6) (9.2) (14.9) (5.5) (29.6)
Income taxes (benefit)....... (0.1) (1.8)(e) (0.6)(e) (2.5) 1.4 -- (1.1)
----- ----- ----- ------ ------- ------ ------
Net income (loss)............ (3.0) (2.7) (1.0) (6.7) (16.3) (5.5) (28.5)
Preferred dividends.......... -- -- (1.2)(g) (1.2) -- (3.8) (5.0)
----- ----- ----- ------ ------- ------ ------
Net income (loss) to common
shareholders............... $(3.0) $(2.7) $(2.2) $ (7.9) $ (16.3) $ (9.3) $(33.5)
----- ----- ----- ------ ------- ------ ------
----- ----- ----- ------ ------- ------ ------
Net income (loss) per common
share(l):
Basic........................................................................................................................
Diluted......................................................................................................................
Weighted average common
shares outstanding(l):
Basic........................................................................................................................
Diluted......................................................................................................................
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
Sales:
Product sales............ $ 292.0
Costs and Expenses:
Cost of product sales.... 180.3
Research and
development............ 34.5
Selling, administrative
and general............ 49.5
Harris corporate expense
allocation............. --
Intangible
amortization........... 5.4
In-process R&D charge.... 20.2
-------
Operating income (loss)...... 2.1
Interest, net............ $ (19.8)(h)(i) 11.9
------- -------
Income (loss) before income
taxes...................... 19.8 (9.8)
Income taxes (benefit)....... 7.7 (j) 6.6
------- -------
Net income (loss)............ 12.1 (16.4)
Preferred dividends.......... 5.0 (k) --
------- -------
Net income (loss) to common
shareholders............... $ 17.1 $ (16.4)
------- -------
------- -------
Net income (loss) per common
share(l):
Basic................................. $ (0.18)
Diluted............................... (0.18)
Weighted average common
shares outstanding(l):
Basic................................. 91.6
Diluted............................... 91.6
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statements of operations give effect
to the following adjustments:
(a) The total purchase price of $614.3 million 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. This negative goodwill was allocated
to property and equipment and identified intangible assets based on their
relative fair value as follows:
<TABLE>
<CAPTION>
ALLOCATION
FAIR VALUE OF OF EXCESS ADJUSTED
ASSETS ACQUIRED FAIR VALUE FAIR VALUE
--------------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Net current assets........................................... $ 160.6 -- $160.6
Other amounts................................................ 17.2 -- 17.2
Property & 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
-------- ------
-------- ------
Purchase price............................................... 614.3
-------
Excess fair value............................................ $ 200.0
-------
-------
</TABLE>
As a result of the allocation of negative goodwill to property, plant and
equipment, the net book carrying value at August 13, 1999 of $403.7 million
was reduced by $75.9 million to the fair value of $327.8 million. Therefore,
for pro forma purposes, depreciation expense was reduced by $14.4 million,
$7.2 million and $1.7 million for the fiscal year ended July 2, 1999, the 26
weeks ended January 1, 1999 and the 6 weeks ended August 13, 1999,
respectively.
(b) Historically, Harris allocated corporate headquarters expenses to the
semiconductor business based on the semiconductor business' net sales as a
percentage of Harris' net sales. This pro forma adjustment represents the
elimination of this allocation and our estimate of the cost of replacing
these services as a stand-alone company, calculated as follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED
FISCAL YEAR ENDED JANUARY 1, 6 WEEKS ENDED
JULY 2, 1999 1999 AUGUST 13, 1999
----------------- -------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Harris corporate expenses allocation............. $ 9.3 $ 4.3 $ 1.2
----- ------ -----
Intersil's anticipated expenses:
Finance, legal and professional............... 2.0 1.0 0.20
Human resources/benefits...................... 0.5 0.3 0.05
Other......................................... 0.5 0.3 0.05
----- ------ -----
Total anticipated expenses............... 3.0 1.6 0.3
----- ------ -----
Net reduction.................................... $ 6.3 $ 2.7 $ 0.9
----- ------ -----
----- ------ -----
</TABLE>
(c) Represents interest expense associated with the indebtedness incurred in
connection with the acquisition of the semiconductor business, calculated
as follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED
FISCAL YEAR ENDED JANUARY 1, 6 WEEKS ENDED
JULY 2, 1999 1999 AUGUST 13, 1999
----------------- -------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Interest on Senior Subordinated Notes (13.25% on
$200.0 million)............................... $26.5 $ 13.3 $ 3.1
Estimated interest on Senior Term Facility (9.94%
on $205.0 million)............................ 20.4 10.2 2.4
Estimated interest on Revolving Credit Facility
(9.19% on $15.0 million)...................... 1.4 0.7 0.2
----- ------ -----
Total cash interest expense.............. 48.3 24.2 5.7
Deferred financing fees.......................... 1.6 0.8 0.2
----- ------ -----
Total interest expense................... $49.9 $ 25.0 $ 5.9
----- ------ -----
----- ------ -----
</TABLE>
A change in the interest rate on the Senior Term Facility and the Revolving
Credit Facility of one-eighth of one percent (0.125%) would change interest
expense by $0.28 million for the fiscal year ended July 2,
21
<PAGE>
1999, $0.14 million for the twenty six weeks ended January 1, 1999 and $0.03
million for the six weeks ended August 13, 1999.
Financing fees are composed of $6.0 million on the Senior Subordinated Notes
(amortized over 10 years) and $6.2 million on the Senior Term Facility and
Revolving Credit Facility (amortized over 6 years).
(d) Represents the adjustment to reflect additional amortization expense for
the identified intangible assets. The appraisal of the acquired business,
after adjustment for negative goodwill, included $108.7 million of
identified intangible assets including, $56.1 million of developed
technology, $23.0 million to customer base, $9.4 million to assembled
workforce and $20.2 million of purchased in-process research and
development. The purchased in-process research and development related to
various products under development that had not yet reached technological
feasibility and had no future alternative uses. Pursuant to
Regulation S-X, the in-process research and development has been written
off against retained earnings and has not been reflected in the pro forma
consolidated statement of operations for the fiscal year ended
July 2, 1999. The remaining identified intangibles are being amortized over
the following lives:
<TABLE>
<CAPTION>
26 WEEKS ENDED
FISCAL YEAR ENDED JANUARY 1, 6 WEEKS ENDED
IDENTIFIED INTANGIBLE AMOUNT LIFE JULY 2, 1999 1999 AUGUST 13, 1999
- -------------------------------- ------ -------- ----------------- -------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Developed technology............ $56.1 11 years $ 5.1 $2.5 $ 0.6
Customer base................... 23.0 7 years 3.3 1.6 0.4
Assembled workforce............. 9.4 5 years 1.9 0.9 0.2
----- ---- -----
$10.3 $5.0 $ 1.2
===== ==== =====
</TABLE>
(e) Represents the adjustment of the pro forma income tax provision related to
the pro forma pretax adjustments for Intersil and Intersil Holding computed
on a stand-alone basis at the effective domestic tax rate of 39%.
(f) Represents interest expense associated with Intersil Holding's indebtedness
incurred in connection with the acquisition of the semiconductor business,
calculated as follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED
FISCAL YEAR ENDED JANUARY 1, 6 WEEKS ENDED
JULY 2, 1999 1999 AUGUST 13, 1999
----------------- -------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Interest on Subordinated Holding PIK Note
(13.50% on $30.0 million).....................
$ 4.1 $2.1 $ 0.5
Interest on Seller Holding PIK Note
(11.13% on $90.0 million)..................... 10.0 5.0 1.1
----- ---- -----
$14.1 $7.1 $ 1.6
===== ==== =====
</TABLE>
(g) Represents the adjustment for the accretion of the 12% cumulative dividends
on the 83,434 shares of the mandatorily redeemable 12% Series A Cumulative
Compounding Preferred Stock, with a stated value of $1,000 per share.
(h) Represents the elimination of interest expense associated with debt to be
repaid with the proceeds of the offering. Such amounts were $38.7 million
for the fiscal year ended July 2, 1999 and $19.4 million for the 26 weeks
ended January 1, 1999 and the 26 weeks ended December 31, 1999.
(i) Represents the elimination of the amortization of deferred financing and
debt issuance costs associated with the debt being repaid. Such amounts
were $0.9 million for the fiscal year ended July 2, 1999 and $0.4 million
for the 26 weeks ended January 1, 1999 and the 26 weeks ended December 31,
1999. In connection with the offering, we are required to write-off
unamortized debt issuance costs associated with debt being repaid.
Approximately $7.9 million will be written off concurrent with the
offering. This non-recurring charge has been excluded from the pro forma
combined condensed statements of operations.
(j) Represents the pro forma adjustment for income tax expense related to the
pro forma adjustments made to give effect to the offering at the effective
domestic tax rate of 39%.
(k) Assumes all of the outstanding shares of the 12% Series A Cumulative
Compounding Preferred Stock will be converted into common stock at $1,000
per share plus accumulated and unpaid dividends, based on the per share
amount we will receive in this offering. See "Debt Repayment and Preferred
Stock Conversion Transactions."
22
<PAGE>
(l) The following table sets forth the computation of pro forma as adjusted
basic and diluted net income (loss) per common share and weighted average
common shares outstanding as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 26 WEEKS 26 WEEKS
ENDED ENDED ENDED
JULY 2, JANUARY 1, DECEMBER 31,
1999 1999 1999
----------- ---------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Net income (loss) to common shareholders (basic and
diluted)......................................... $ 18.9 $ 1.8 $(16.4)
======= ====== ======
Denominator:
Basic:
Shares outstanding at December 31, 1999.......... 66.7 66.7 66.7
Conversion of Preferred Stock.................... 4.9 4.9 4.9
Class A Common Stock offering.................... 20.0 20.0 20.0
------- ------ ------
Total basic...................................... 91.6 91.6 91.6
Diluted:
Warrants............................................ 5.9 5.9 --
Common stock options................................ 0.8 0.8 --
Preferred stock options............................. 0.1 0.1 --
------- ------ ------
Total diluted....................................... 6.8 6.8 --
------- ------ ------
Total denominator..................................... 98.4 98.4 91.6
======= ====== ======
Net income (loss) per common share:
Basic............................................... $ 0.21 $ 0.02 $(0.18)
Diluted............................................. 0.19 0.02 (0.18)
</TABLE>
The effect of dilutive securities is not included in the computation for the
26 weeks ended December 31, 1999 because to do so would be antidilutive.
23
<PAGE>
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 fiscal years 1997, 1998, 1999 and the 6 weeks ended
August 13, 1999 are derived directly from our predecessor's audited Consolidated
Financial Statements included elsewhere in this prospectus, except for revenue
categorized by business unit, which is derived from our predecessor's books and
records. The historical financial data as of and for fiscal years ended 1995 and
1996, which are not included in this prospectus, and the 26 weeks ended January
1, 1999 included elsewhere in this prospectus, are derived directly from our
predecessor's unaudited Consolidated Financial Statements. The historical
financial data as of and for the 20 weeks ended December 31, 1999 are derived
directly from our unaudited Consolidated Financial Statements included elsewhere
in this prospectus. The unaudited Consolidated Financial Statements include all
adjustments necessary for the fair presentation of the financial condition and
the results of operations for these periods and as of these dates. This
information should be read in conjunction with the Consolidated Financial
Statements included elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR
PREDECESSOR ---------------------------------
----------------------------------------------
26 WEEKS ENDED
FISCAL YEARS -------------- 6 WEEKS ENDED
---------------------------------------------- JANUARY 1, ---------------
1995 1996 1997 1998 1999 1999 AUGUST 13, 1999
------ ------ ------ ------ ------ -------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal................ $379.2 $393.6 $384.4 $390.4 $352.8 $166.0 $ 36.3
Discrete Power....................... 128.2 176.6 154.5 176.4 161.6 73.3 18.0
Wireless............................. -- -- 6.4 10.0 18.3 7.3 3.0
------ ------ ------ ------ ------ ------ -------
Total revenue............................ $507.4 $570.2 $545.3 $576.8 $532.7 $246.6 $ 57.3
====== ====== ====== ====== ====== ====== =======
Gross margin............................. $178.5 $227.1 $199.3 $207.5 $182.9 $ 81.0 $ 17.7
Research and development................. 50.6 69.4 75.2 75.1 67.0 29.7 8.5
Selling, administrative and general...... 94.6 103.6 99.3 98.2 84.0 41.3 10.9
Harris corporate expense allocation...... 9.1 10.3 10.0 10.0 9.3 4.3 1.2
Intangible amortization.................. 2.3 2.3 2.3 2.3 2.4 1.2 0.3
In-process R&D charge.................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ -------
Operating income (loss).................. 21.9 41.5 12.5 21.9 20.2 4.5 (3.2)
Interest, net............................ 0.6 (1.0) (0.6) (0.9) (1.2) (0.4) (0.1)
------ ------ ------ ------ ------ ------ -------
Income (loss) before income taxes........ 21.3 42.5 13.1 22.8 21.4 4.9 (3.1)
Income taxes (benefit)................... (4.3) 2.6 1.9 9.9 (6.0) (1.4) (0.1)
------ ------ ------ ------ ------ ------ -------
Net income (loss)........................ 25.6 39.9 11.2 12.9 27.4 6.3 (3.0)
Preferred dividends...................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ -------
Net income (loss) to common
shareholders........................... $ 25.6 $ 39.9 $ 11.2 $ 12.9 $ 27.4 $ 6.3 $ (3.0)
====== ====== ====== ====== ====== ====== =======
LOSS PER SHARE:
Basic and diluted..............................................................................................................
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted..............................................................................................................
BALANCE SHEET DATA (END OF PERIOD):
Cash..................................... $ -- $ -- $ -- $ -- $ -- $ -- $ 1.4
Total assets............................. 546.2 647.0 773.3 810.3 761.2 766.0 736.1
Long-term debt, including current
portion................................ -- -- 1.4 4.1 4.6 4.7 4.5
Mandatorily redeemable preferred stock... -- -- -- -- -- -- --
Total shareholders' equity (deficit)..... 456.2 520.9 646.2 699.1 658.9 684.0 657.3
<CAPTION>
SUCCESSOR
-----------------
20 WEEKS ENDED
-----------------
DECEMBER 31, 1999
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal................ $ 140.5
Discrete Power....................... 81.7
Wireless............................. 12.5
-------
Total revenue............................ $ 234.7
=======
Gross margin............................. $ 92.3
Research and development................. 26.0
Selling, administrative and general...... 38.3
Harris corporate expense allocation...... --
Intangible amortization.................. 3.9
In-process R&D charge.................... 20.2
-------
Operating income (loss).................. 3.9
Interest, net............................ 24.3
-------
Income (loss) before income taxes........ (20.4)
Income taxes (benefit)................... 1.4
-------
Net income (loss)........................ (21.8)
Preferred dividends...................... 3.9
-------
Net income (loss) to common
shareholders........................... $ (25.7)
=======
LOSS PER SHARE:
Basic and diluted........................ $ (0.39)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted........................ 66.7
BALANCE SHEET DATA (END OF PERIOD):
Cash..................................... $ 40.1
Total assets............................. 717.0
Long-term debt, including current
portion................................ 534.3
Mandatorily redeemable preferred stock... 87.9
Total shareholders' equity (deficit)..... (18.8)
</TABLE>
24
<PAGE>
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 our Consolidated Financial Statements,
including the notes thereto appearing elsewhere in this prospectus. Except for
historical information, the discussions in this section of the prospectus
contain forward-looking statements that involve risks and uncertainties. Actual
results could differ materially from those discussed below.
OVERVIEW
We are a systems level designer and manufacturer of analog, mixed signal,
discrete power and wireless communications semiconductors. We use our
proprietary technologies and design capabilities to provide systems solutions
for the communications power management and wireless markets. 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 our second fiscal quarter ended December 31, 1999.
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 1/4% Senior
Subordinated Notes due 2009 and 13.5% 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
income statement information for the first six months ending December 31, 1999
of the 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 December 31, 1999.
25
<PAGE>
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly revenue
and gross margin of our product groups:
<TABLE>
<CAPTION>
COMBINED
FISCAL YEAR 1998 FISCAL YEAR 1999 FISCAL YEAR 2000
------------------------------------ ------------------------------------ ----------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Analog & Mixed-Signal..... $ 96.3 $ 93.9 $ 95.2 $105.0 $ 79.8 $ 86.2 $ 88.5 $ 98.3 $ 82.8 $ 94.0
Discrete Power............ 44.7 45.2 45.7 40.8 38.5 34.8 42.3 46.0 44.9 54.8
Wireless.................. 2.9 2.2 2.6 2.3 4.2 3.1 4.6 6.4 6.2 9.3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $143.9 $141.3 $143.5 $148.1 $122.5 $124.1 $135.4 $150.7 $133.9 $158.1
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS MARGIN
Analog & Mixed-Signal..... $ 34.2 $ 39.4 $ 39.9 $ 46.5 $ 33.0 $ 33.2 $ 38.3 $ 42.1 $ 35.1 $ 42.5
Discrete Power............ 10.8 12.4 10.6 10.3 8.1 5.0 7.2 9.5 11.0 15.5
Wireless.................. 0.9 0.1 1.1 1.3 0.9 0.8 1.6 3.2 2.2 3.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $ 45.9 $ 51.9 $ 51.6 $ 58.1 $ 42.0 $ 39.0 $ 47.1 $ 54.8 $ 48.3 $ 61.6
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS MARGIN PERCENTAGE
Analog & Mixed-Signal..... 36% 42% 42% 44% 41% 39% 43% 43% 42% 45%
Discrete Power............ 24 27 23 25 21 14 17 21 24 28
Wireless.................. 31 5 42 57 21 26 35 50 35 39
Total................. 32 37 36 39 34 31 35 36 36 39
</TABLE>
Our first fiscal quarter is generally the weakest due to slow demand from
government customers, model year changeovers in the automotive industry and
summer holiday seasons, primarily in Europe. Our fourth fiscal quarter is
generally the strongest due to strong demand from government customers.
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 impacted all three product
groups. Our results, and 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. For the six months ended December 31, 1999, industry conditions have
continued to improve. Additionally, the introduction of our new PRISM II
wireless product has accelerated growth in the Wireless product group.
As Wireless is an emerging business, gross margins have fluctuated during
the start-up period due to timing of sales and variability of yield performance.
26
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth income statement data for the periods
indicated as a percentage of revenue:
<TABLE>
<CAPTION>
26 WEEKS ENDED
----------------------------
FISCAL YEAR COMBINED
--------------------------- JANUARY 1, DECEMBER 31,
1997 1998 1999 1999 1999
----- ----- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Analog & Mixed-Signal.................. 70.5% 67.7% 66.2% 67.3% 60.6%
Discrete Power......................... 28.3 30.6 30.4 29.7 34.1
Wireless............................... 1.2 1.7 3.4 3.0 5.3
----- ----- ----- ------ ------
Total............................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ------
Cost and Expenses:
Cost of goods sold..................... 63.5 64.0 65.6 67.3 62.4
Research and development............... 13.8 13.0 12.6 12.0 11.8
Selling, administrative and general.... 20.0 18.8 17.5 18.5 17.2
Intangible amortization................ 0.4 0.4 0.5 0.4 1.5
In-process research and development.... -- -- -- -- 6.9
----- ----- ----- ------ ------
Operating income.................... 2.3 3.8 3.8 1.8 0.2
Interest, net.......................... (0.1) (0.2) (0.2) (0.2) 8.3
----- ----- ----- ------ ------
Income (loss) before income taxes........ 2.4 4.0 4.0 2.0 (8.1)
Income taxes (benefit)................... 0.3 1.8 (1.1) (0.6) 0.4
----- ----- ----- ------ ------
Net income (loss)........................ 2.1% 2.2% 5.1% 2.6% (8.5)%
===== ===== ===== ====== ======
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH SIX MONTHS ENDED JANUARY 1,
1999
Revenue
Revenue for the six months ended December 31, 1999 increased 18.4% to
$292.0 million from $246.6 million during the six months ended January 1, 1999.
This growth is the result of improved demand across all business units,
primarily as a result of improved market conditions. Wireless sales growth of
112% was driven by increased market acceptance of our PRISM(R) products.
Geographically, 48.9%, 22.9% and 28.2% of product sales were derived in
North America, Europe and Asia, respectively, during the six months ended
December 31, 1999, compared to 54.1%, 24.9% and 21.0% during the six months
ended January 1, 1999.
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 35.7% to $109.9 million in the six
months ended December 31, 1999 from $81.0 million in the six months ended
January 1, 1999. As a percent of sales, gross margin was 37.6% during the six
months ended December 31, 1999 and 32.8% during the six months ended January 1,
1999. This increase was substantially due to a decrease in depreciation expense
resulting from a revaluation of our property, plant and equipment due to
purchase accounting, greater capacity utilization, from 62% during the six
months ended January 1, 1999 to 80% during the six months ended December 31,
1999, and increased manufacturing efficiencies resulting from cost reductions
related to headcount reductions.
Operating Expenses
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
27
<PAGE>
16.2% to $34.5 million during the six months ended December 31, 1999 from $29.7
million during the first half of fiscal 1999. As a percent of sales, R&D
expenses remained relatively flat at 11.8% for the six months ended December 31,
1999 from 12.0% for the six months ended January 1, 1999. R&D expense included
continued investment in the PRISM(R) chip sets and in the power management
integrated circuits area, focusing in the categories of communications and
computing, which led our growth of new product revenue during fiscal 1999.
In connection with the acquisition, we allocated $20.2 million of the
purchase price to in-process R&D projects. This allocation represents the
estimated fair value based on risk-adjusted cash flows related to the incomplete
products. 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 six months ended December 31, 1999.
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.
The amounts assigned to the in-process R&D were determined by identifying
significant research projects for which technological feasibility had not been
established. The fair values assigned prior to allocation of negative goodwill
to each of the significant projects and the stage of completion are reported
below.
<TABLE>
<CAPTION>
FAIR VALUE STAGE OF
PRODUCT (IN MILLIONS) COMPLETION
- ------------------------------------------------------------------------------ ------------- ----------
<S> <C> <C>
SMPS IGBT..................................................................... $ 2.4 60%
PRISM II...................................................................... 2.4 90
HIP 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
=====
</TABLE>
A discussion of the most significant projects follows:
SMPS IGBT
SMPS IGBT refers to a project researched and in development in our discrete
power product line area. AC to DC power supplies are designed to use high
voltage power metal oxide semiconductor field effect transistors, or MOSFETs, to
convert an AC voltage into a DC voltage. The new switch mode power supply, or
SMPS, family of insulated gate bipolar transistors, or IGBTs, will combine the
fast speed, unclamped inductive switching and low gate charge speed of the power
MOSFET with the high current density and low forward voltage drop of the IGBT.
The result will be a lower cost and more efficient product than currently
available high voltage MOSFET products.
PRISM II
PRISM II refers to a project researched and in development in our wireless
product line area. PRISM II will be a complete silicon solution for the design
of Wireless Local Area Networks, or WLANs. Comprised of five highly integrated
chips incorporating advanced silicon germanium technology, PRISM II will deliver
all required analog and digital circuitry for the physical and medium access
controller layers, while providing a complete "antenna-to-computer" solution for
high data rate WLANs. The product will provide end-users in the computer market
with a low cost, small and lightweight medium for WLAN connection.
28
<PAGE>
HIP6601/2/3
HIP6601/2/3 refers to another chipset family researched and in development
in our analog and mixed signal product line area. HIP6601/2/33 will be designed
to support the next generation Intel and AMD processors that will be used in
file servers, desktops, and workstations. The HIP6601, HIP6602 and HIP6603 will
be a family of similar controllers and drivers designed to support various high
performance CPU power supply conversion requirements.
HC1540
HC1540 refers to an integrated circuit and relay researched and in
development in our analog and mixed signal product line area. HC1540 will be a
high voltage, switch for use in the telecom industry.
HC7581
HC7581 refers to a new subscriber line interface circuit, or SLIC,
researched and in development in our analog and mixed signal product line area.
SLICs are required in all telecom exchange systems to interface with signals
entering into telecommunication systems.
HIP6210/6220
HIP6210/6220 refer to a chipset researched and in development in our analog
and mixed signal product line area. HIP6210/6220 are designed to support the
personal computer market by saving energy. These chips will sense different
power requirement levels and regulate the flow of the power based on essential
needs.
DC to DC Power Converters
DC to DC power converters refer to a project researched and in development
in our space and defense group. The DC to DC power converter will be the first
in a series of radiation-hardened, high reliability power supplies. This power
supply source will be smaller in size, of less weight and more efficient than
currently available technology. The initial market will be for usage in
satellites. However, a variety of other commercial and military space
applications are envisioned.
Gen III Radiation Hardened MOSFETs
Gen III radiation hardened metal oxide semiconductor field effect
transistors, or MOSFETs, refer to a project researched and in development in our
discrete power product line area. This technology will reduce the die size used
in commercial satellites by 50% while maintaining a high degree of radiation
hardness. Launch costs of commercial satellites are directly proportional to a
satellite's size and weight. The die size reduction will enable us to place our
silicon in packages that are smaller and lighter thereby providing the end-user
with a more economical printed circuit board.
The value assigned to purchased in-process R&D was determined 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.
Remaining development efforts for these in-process R&D projects include
various phases of design, development and testing. The anticipated completion
dates for the in-process R&D projects will occur within the next one and one
half years, after which we expect to begin generating economic benefits from the
technologies. Expenditures to complete these projects are expected to total
approximately $12.1 million in fiscal year 2000, and $1.3 million in fiscal year
2001.
These estimates are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur. We expect to continue these development efforts and
believe we have a reasonable chance of successfully completing the R&D programs.
However, there is risk associated with the completion of the projects and there
is no assurance that any will meet with either technological or commercial
success.
29
<PAGE>
SG&A costs, which include marketing, selling, administrative and general
expenses, and Harris corporate expense allocation, increased to $50.2 million
during the six months ended December 31, 1999 from $45.7 million during the six
months ended January 1, 1999. This increase was due to additional selling costs
resulting from higher sales in fiscal 2000 and additional marketing costs
associated with the new company branding initiative. Operating expenses include
allocated charges by Harris to us for legal, financial and other administrative
expenses of $1.2 million for the six weeks ended August 13, 1999 and $4.3
million for the six months ended January 1, 1999.
Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. These assets are being amortized over
their useful lives ranging from five to eleven years.
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 six months
ended December 31, 1999 was $24.8 million, excluding interest income of
$0.6 million.
Tax Expense
The tax benefit for the combined six months ended December 31, 1999 is not
comparable to the six months ended January 1, 1999, due to the different tax
structures of the semiconductor business and Intersil Holding.
Backlog
We had backlog at December 31, 1999 of $192.4 million compared to
$174.0 million at July 2, 1999.
FISCAL 1999 COMPARED WITH 1998
Revenue
Revenue for fiscal year 1999 decreased 7.6% to $532.7 million from $576.8
million in fiscal year 1998. This decrease is 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 OEMs 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, 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.
30
<PAGE>
Operating Expenses
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 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 costs decreased 13.7% to $93.3 million in fiscal year 1999 from $108.1
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.
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.
FISCAL 1998 COMPARED WITH 1997
Revenue
Revenue for fiscal year 1998 increased 5.8% to $576.8 million from $545.3
million in fiscal year 1997. The increase was principally due to a 14% increase
in Discrete Power sales over the prior year primarily due to increased output
from our new 8-inch wafer fab in Mountaintop, Pennsylvania.
Geographically, 53.8%, 28.0%, and 18.2% of product sales were derived in
North America, Europe and Asia/Pacific, respectively, in fiscal year 1998,
compared to 55.4%, 26.6%, and 18.0% in fiscal year 1997.
Gross Margin
Gross margin in fiscal year 1998 increased 4.1% to $207.5 million from
$199.3 million in fiscal year 1997. The increase in gross margin was primarily
due to higher revenue and improved manufacturing efficiencies offset partially
by a $14.8 million increase in depreciation expense resulting from the expansion
of the Mountaintop, Pennsylvania 8-inch wafer fab. As a percentage of revenue,
our gross margin decreased to 36.0% in fiscal year 1998 compared to 36.5% for
fiscal year 1997 due primarily to the increased depreciation.
Operating Expenses
R&D expenses were $75.1 million, or 13.0% of sales in fiscal year 1998,
compared to $75.2 million, or 13.8% of sales in fiscal year 1997. During fiscal
year 1998, we continued to direct about two-thirds of our R&D investment to our
wireless and analog products.
SG&A expenses in fiscal year 1998 decreased 1.1% to $108.1 million,
compared to $109.3 million in fiscal year 1997. The decrease in SG&A as a
percent of sales from 20.0% to 18.7% was primarily due to our increased
operating efficiency and efforts to reduce selling and administrative expenses.
Operating expenses include charges by Harris for our share of legal, financial
and other administrative expenses of $10.0 million for fiscal year 1998 and
$10.0 million for fiscal year 1997.
31
<PAGE>
Tax Expenses
The favorable tax rate in fiscal year 1997 was primarily due to
fluctuations in foreign income and a reinvestment allowance on capital
expenditures in Malaysia.
Backlog
We had backlog at July 3, 1998 of about $188.5 million compared to backlog
of about $223.2 million at June 27, 1997. The decline in backlog was primarily
due to shorter industry lead times.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the acquisition of the semiconductor business, we
entered into new credit facilities, which provide for a Senior Term Facility of
$205.0 million and a Revolving Credit Facility in an aggregate amount up to
$70.0 million. Both the Senior Term Facility and the Revolving Credit Facility
will mature in 2005.
The Senior Term Facility is subject to amortization payments which require
1.0% of the original principal amount to be repaid in each of the first five
years. The Revolving Credit Facility is available until 2005 unless sooner
terminated. As of December 31, 1999, the Revolving Credit Facility was undrawn.
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, 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. The proceeds of this offering will be used to repay
the entire 13.5% Senior Subordinated PIK Note due 2010 and the entire 11.13%
Seller Holding PIK Note due 2010 and a portion of the Senior Term Facility and
the 13 1/4% Senior Subordinated Notes due 2009. As of December 31, 1999 our
total debt and stockholders' equity as adjusted for this offering would have
been $191.8 million and $403.7 million, respectively.
Because our business was operated as a subsidiary of Harris during fiscal
year 1997 through fiscal year 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 six months ended December 31, 1999 was $65.3
million. Net cash used in investing activities for the six months ended
December 31, 1999 was $14.5 million for capital expenditures to support our
expanded operations. Net cash used to repay debt for the six months ended
December 31, 1999 was $15.2 million. Our cash balance at December 31, 1999 was
$40.1 million.
Our senior credit facility contains financial covenants and restrictions
including restrictions on our ability to pay cash dividends or to effect mergers
or acquisitions, incur certain indebtedness or to make certain investments
without the bank's prior approval. We are currently in compliance with such
financial covenants and restrictions.
Receivables and Inventories
Trade accounts and the current portion of notes receivable less the
allowance for collection losses totaled $91.7 million at December 31, 1999
compared to $100.7 million at July 2, 1999. This decrease was due to continued
emphasis on improving the receivable collection cycle. Inventories remained
relatively flat at December 31, 1999, increasing from $153.8 million at July 2,
1999 to $154.0 million at December 31, 1999. The inventory decrease from the end
of fiscal year 1998 of $26.2 million was a result of a management initiative to
reduce our inventory through portfolio management and streamlining of processes,
resulting in less excess and obsolete inventory.
Distributor reserves have fluctuated from year to year based on the level
of inventory of distributions. In late fiscal year 1998, inventories at
distributors declined and the reserve was reduced accordingly. From fiscal year
1998 to fiscal year 1999, the reserve has remained relatively flat.
32
<PAGE>
Capital Expenditures
Capital expenditures for the six months ended December 31, 1999 were $14.5
million. During fiscal year 1999, capital expenditures were $38.6 million
compared to $90.2 million in fiscal year 1998. This decrease was due primarily
to the completion of our expansion of the Mountaintop, Pennsylvania 8-inch wafer
fab during fiscal year 1998. Our previous owner invested approximately $303.9
million in capital expenditures since the beginning of fiscal year 1997 for
upgrading our existing facilities with state-of-the-art manufacturing equipment
and for the building and equipping of the world's first 8-inch wafer fab for
discrete power semiconductors. As a result, we do not anticipate substantial
capital expenditures in the foreseeable future. During the fiscal year 2000, we
intend to spend about $45.0 million in capital expenditures.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. We plan to adopt the new standard no later than the first
quarter of fiscal year 2001. However, we have not yet determined the anticipated
impact of FAS No. 133.
MARKET RISK MANAGEMENT
We, in the normal course of doing business, are exposed to the risks
associated with foreign currency exchange rates and changes in interest rates.
We employ established policies and procedures governing the use of financial
instruments to manage our exposure to these risks.
We use 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, and accounts receivable from, and future committed
sales to customers and intercompany loans. We believe the use of foreign
currency financial instruments should reduce the risks that arise from doing
business in international markets. Our policy, effective August 1999, is to
hedge firm foreign currency exposure up to six months of anticipated
requirements. At December 31, 1999, we had open foreign exchange contracts with
a notional amount of $27.6 million, all of which were to hedge off-balance-sheet
commitments. At August 13, 1999 we had open foreign exchange contracts with a
notional amount of $6.1 million, all of which were to hedge off-balance-sheet
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. At July 3, 1998, we had open foreign exchange contracts with a
notional amount of $166.4 million, all of which were to hedge off-balance-sheet
commitments. Additionally, for the fiscal year ended July 2, 1999, we purchased
and sold $120.7 million of foreign exchange forward and option contracts,
compared to $139.4 million for the prior year. See Note O "Financial
Instruments" in the Notes to 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 December 31, 1999, would have an impact of
approximately $1.3 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.
Additionally, we use foreign exchange contracts to hedge anticipated
foreign cash flow commitments up to 6 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 contract are recognized
in income. We are exposed to market risks related to fluctuations in interest
rates on our variable rate debt, which consists of borrowings at December 31,
1999, of $205.0 million under our Tranche B Senior Term Facility. As of
December 31, 1999, we also had fixed rate debt of approximately $329.3 million
comprised primarily of the 13 1/4% Senior Subordinated Notes due 2009, the 13.5%
Senior Subordinated PIK Note due
33
<PAGE>
2010 and the 11.13% Seller Holding PIK Note due 2010. We are not currently
utilizing any type of derivative financial instrument to control our interest
rate risk.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. We manage our interest exposure by
using a combination of fixed and variable rate debt. Holding the variable rate
debt balance constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in interest
expense for fiscal year 2000 of approximately $2.2 million.
34
<PAGE>
INDUSTRY OVERVIEW
Semiconductors, which consist of integrated circuits and discrete
semiconductors, are the critical components used to create an increasing variety
of electronic products and systems. Integrated circuits operate at low power
levels and perform multiple functions to process and convey information in
electronic signal form. Integrated circuit capability is largely defined by
circuit density, which increases as its components are miniaturized. In contrast
to integrated circuits, discrete semiconductors perform a single function and
often have multiple uses in many different end-user applications.
Worldwide Semiconductor Trade Statistics, or WSTS, forecasts strong growth
of approximately 15.5% for the semiconductor industry over the next three years.
We sell our semiconductors into high-growth segments of the market including the
communications analog & mixed-signal market, which is forecast by the
Semiconductor Industry Association, or SIA, to grow 18.4% in calendar year 2000
from calendar year 1999, the power management market, which is forecast by WSTS
to grow at 20.2% in calendar year 2000 from calendar year 1999, and the wireless
LAN market, which is forecast by Intex Management Services to grow 39.0% in
calendar year 2000 from calendar year 1999.
SEMICONDUCTOR CLASSIFICATIONS
The following table sets forth the worldwide semiconductor total available
market, or TAM, for each of five product functions of the semiconductor industry
according to WSTS. Our products fit within the Analog and Discrete Power
classifications listed in the table.
WORLDWIDE SEMICONDUCTOR TAM
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 CAGR
----- ----- ----- ----- ------ ------ ------ ------ ------ ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Analog..................... $ 7.8 $ 8.3 $ 8.7 $10.7 $ 13.6 $ 16.6 $ 17.0 $ 19.8 $ 19.1 11.8%
Discrete Power............. 4.3 4.4 4.5 5.2 6.3 8.2 7.8 8.1 7.4 7.0
Microcomponents............ 9.2 11.4 13.9 19.1 23.8 33.4 39.8 47.8 47.3 22.8
Memory..................... 11.8 12.2 14.8 21.3 32.5 53.5 36.0 29.3 23.0 8.7
Other...................... 17.5 18.2 17.9 21.1 25.7 32.7 31.3 32.2 28.8 6.4
----- ----- ----- ----- ------ ------ ------ ------ ------
Total...................... $50.6 $54.5 $59.8 $77.4 $101.9 $144.4 $131.9 $137.2 $125.6 12.1
----- ----- ----- ----- ------ ------ ------ ------ ------
----- ----- ----- ----- ------ ------ ------ ------ ------
</TABLE>
Analog integrated circuits are used to shape or condition electrical
signals, to amplify electrical signal strengths, to convert electrical signals
to and from digital "one or zero" levels, to regulate voltage levels and to
provide interfaces between other products within an electrical system. Power
semiconductors can be either discrete power devices or analog integrated
circuits. Discrete devices perform a single function, such as switching
electricity on and off. Analog integrated circuits perform multiple functions
such as controlling and regulating currents. Microcomponents include
microprocessors and microcontrollers that process data according to instructions
embedded within the semiconductors themselves. These are considered the "brains"
of the electronic system and are at the center of the system architecture.
Memory are devices that store data and instructions. The "other" category
includes all electronic devices whose functions do not include one of the four
previously mentioned product functions.
ANALOG
Analog signals are not discrete binary numerical values, but rather
continuously variable electrical signals that represent continuous data
variables or wave signals, such as sound waves. The analog market is split into
two major segments: standard linear and mixed signal. The standard linear market
is comprised of building block products such as amplifiers, voltage regulators,
data conversion, interface circuits and comparators. These products are used in
all end systems, from computers and telecommunications, to industrial,
automotive and consumer applications. The mixed signal market consists of more
complex analog products, which also contain some digital circuitry for timing,
information control and data flow. Mixed signal products are often developed for
specific applications, such as video encoding, hard disk drive control, data
transmission, motor control and power management.
DISCRETE POWER
Discrete power semiconductors, such as a transistor or diode (a device that
allows current to flow in only one direction), typically contain one active
element. These devices perform a single function such as efficiently switching
electricity on and off. Examples of discrete power semiconductors include power
metal oxide semiconductor field effect transistors, or MOSFETs, and insulated
gate bipolar transistors, or IGBTs.
35
<PAGE>
MOSFETs are semiconductors that convert, switch or otherwise shape or condition
electricity. IGBTs typically serve the switch function in power conversion
applications that require higher current and voltage than power MOSFETs can
handle efficiently. IGBTs combine the ease of voltage-driven power MOSFET
technology with the conduction efficiency of bipolar transistor technology.
INDUSTRY TRENDS
As the performance of semiconductor devices has increased and size and cost
have decreased, demand for semiconductors has expanded beyond their original
primary applications in computer systems to applications in telecommunications
systems, automotive products, consumer products and industrial automation and
control systems. In addition, system users and designers have driven the demand
for systems with increased functionality, higher levels of performance, greater
reliability and shorter design cycle times, all in smaller packages at lower
costs. These demands have resulted in increased semiconductor dollar content of
electronic products. The demand for electronic systems has also expanded
geographically with the emergence of new markets, particularly in the
Asia/Pacific region. We believe that future demand for semiconductors will be
driven by the growing trend towards use of the Internet and portable
electronics, including consumer electronics, computers and cellular telephones,
and the resulting need for semiconductors that can manage connectivity and power
for longer periods of use and that require less space.
Today, nearly every form of communication is being revolutionized by the
growing use of digital communications to move all types of data, voice and video
around the world. Different technologies, protocols and media have evolved which
are uniquely suited to particular applications in this rapidly evolving
environment. Advances in broadband communications are accelerating the reach of
cost effective, fast data highways to both homes and offices. Communications
semiconductors will be used extensively in broadband communication
networks/facilities, portable communications devices, and in servers and
infrastructure supporting the Internet. Each of these technologies requires
specific transport and access hardware devices, including handsets and base
stations for wireless telephony, switches and routers for telecommunications and
data networking, set-top boxes for cable and satellite communications, and
digital cable and digital subscriber line, or xDSL, modems for Internet access.
The advent of the Internet as a communications medium has dramatically
increased business and consumer demand for high-speed access to multimedia and
entertainment content. As business and consumers increasingly rely on the
Internet and intranets, many existing networks are under significant stress. A
bandwidth constraint has emerged, particularly at the "last mile" of network
infrastructures, challenging users and industry participants in a number of
communications segments. In response to growing network demands,
telecommunications, data communications and cable network operators are making
significant investments to alleviate congestion and support emerging high
bandwidth, integrated data, voice and video services. Specific technologies
addressing bandwidth capacity constraints include cable modems and xDSL,
including asymmetric digital subscriber line, or ADSL, for residential
applications, high speed digital subscriber line, or HDSL, symmetric digital
subscriber line, or SDSL, and T1/E1 for high speed network access in commercial
applications, and ATM and SONET, for network backbone transmission. The
importance of the Internet as a communications medium and the increased ability
to deliver access to content available through the Internet will increase the
demand for home and small business networking solutions, provided these
networking solutions are cost-effective.
In addition, these solutions depend on enhanced performance capabilities of
advanced electronic systems. As electronic systems continue to increase in
performance and sophistication, they demand more complex power management
solutions. The latest generation personal computers rely on advances in power
conversion to operate at ever-lower voltages in order to reduce power
consumption, increase efficiency and, in notebook personal computers, prolong
battery life. Further, advanced electronic systems outside of communications
applications also have greater power management requirements. All of these
systems, including efficient power supplies for communications and computing
networks and engine and chassis management in automobiles, require advanced
power management semiconductors for more complex digital signal processors and
microcontrollers and for efficient power inverters.
The growth in Internet infrastructure, portable battery-powered computing
and communication devices and continually faster microprocessors are driving the
development of, and demand for, successively more efficient power management
integrated circuits and discrete power semiconductors. As a result of these
industry trends, we have strategically focused on designing and manufacturing
high performance analog and mixed-signal and discrete power semiconductors for
solving communications, data conversion, wireless data and power management
problems.
36
<PAGE>
BUSINESS
GENERAL
We design, manufacture and market analog, mixed-signal and wireless LAN
integrated circuits and power management semiconductors for rapidly growing
communications markets. The majority of our revenue is derived from sales of our
analog and mixed-signal products developed primarily for the communications and
power management markets. Additionally, we use our proprietary technologies and
design capabilities to provide systems solutions for rapidly growing wireless
applications. We own about 1,400 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 analog mixed signal,
digital signal processor, radio frequency, discrete power and radiation
hardening technologies. 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.
OUR BUSINESS STRATEGY
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. In addition, while we will continue to offer base
products such as certain automotive integrated circuits, defense and
other legacy products, we do not intend to focus investment in the
development of new products in these areas.
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 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 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 are expanding customer information programs and
augmenting our comprehensive customer support efforts.
o Maintain Technology Leadership. We focus our research and development
investments on integrated communications. Of our over 620 engineers, 220
are 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
1,400 patents.
37
<PAGE>
PRODUCTS AND TECHNOLOGY
We design, develop and manufacture a broad range of products used in a wide
variety of microelectronic applications in the communications, wireless and
power management end-user markets. Our products are organized into three
principal product groups: Analog & Mixed-Signal, Discrete Power and Wireless.
<TABLE>
<CAPTION>
ANALOG & DISCRETE
MIXED-SIGNAL POWER WIRELESS
-------------------------- ------------------------ ---------------------
<S> <C> <C> <C>
FISCAL YEAR 1999 REVENUES........... $352.8 million $161.6 million $18.3 million
PERCENTAGE OF REVENUES.............. 66.2% 30.3% 3.5%
KEY CUSTOMERS....................... Siemens Asustek Nokia
Compaq Emerson Sony
Dell Compaq Siemens
Intel Bosch 3Com
Cisco
</TABLE>
ANALOG & MIXED-SIGNAL
Our Analog & Mixed-Signal portfolio represented 66.2% of our fiscal year
1999 revenue. We deliver leading-edge analog, mixed signal, digital signal
processors 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
three analog product lines include the following:
Signal Processing Products. We have a portfolio of linear, mixed-signal
and digital signal processor integrated circuits optimized for high-speed
communications applications. We also have a limited portfolio of legacy base
products for industrial markets.
Communications Analog & 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 Generation 2 Digital such as IS-95 CDMA and GSM, Generation 2.5 such
as Edge and IS-95+, and Generation 3 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 provided the technology base used to separate telephone calls
for cellular basestations. We continue that leadership with the recently
announced HSP50216 Quad programmable down converter for use in Generation 2.5
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 digital signals
to analog radio frequency signals for wireless applications. We currently market
a broad 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 the design and development of
SLICs, we continue to expand our family 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
38
<PAGE>
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 family portfolio of advanced telecom linecard
solutions are ideal for today's universal telecom exchange 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 and industrial
and video integrated circuits. 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 ensuring us long-term sales. Our end-user
markets include wireless communications, video and image processing, high-speed
satellite communications, test/measurement equipment and medical
instrumentation.
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 recently introduced an advanced architecture which delivers multiphase
power to next generation, high 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 power management integrated circuits are also used in industrial
control and automotive engine management systems.
Defense. 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. We also have a set of legacy digital product lines 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.
39
<PAGE>
DISCRETE POWER
Our power portfolio represented 30.3% of our revenue for fiscal year 1999.
Discrete power products coupled with our power management integrated circuits
provide unique power management solutions for the integrated communications
market. Our 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 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 continue to
develop next-generation IGBTs and recently introduced our new 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, we have a base legacy business with IGBTs, MOSFETs and
rectifiers 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 3.5% of our revenue for fiscal year
1999. We are the leading developer of semiconductor solutions for the emerging
wireless local area networking market. Our PRISM(R) family of chip sets address
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 comprised of five highly integrated
semiconductors. They are the 2.4GHz power amplifier, RF/IF up and down
converter, 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 mixed signal and digital process
technologies.
Because we design all 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 Nokia, Compaq, Samsung,
Aironet and Sony, have adopted use of the PRISM(R) chip set in their products.
We recently announced our PRISM II chip set, 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 the PRISM(R) chip set. Since the introduction of the PRISM II
chip set, we are developing relationships with original equipment manufacturers,
including among others, Aironet, Compaq, Zoom, Nokia, Nortel, Siemens and 3Com,
for use of the PRISM II chip set in a variety of wireless local area network
applications for home and business.
40
<PAGE>
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 and
PRISM(R) wireless LAN chip sets.
<TABLE>
<CAPTION>
END MARKETS APPLICATIONS KEY CUSTOMERS
------------------------ -------------------------------------- -------------------
<S> <C> <C> <C>
Communications Signal processing, Video (cable television systems, Cisco, Lucent,
wireless communications, digital video), telephony (central Dell, IBM, Siemens
telecommunications office switching solutions, digital
cellular basestations, PBX systems),
home gateways, networking, satellites
Power Management Networking and computing File servers, PC motherboards, Asustek, Compaq,
printers, workstations Dell, IBM, Intel
Wireless Wireless local area Wireless local area networks providing 3Com, Compaq,
networks network wireless access to broadband Nokia, Northern
(cable, ethernet, xDSL, ISDN) networks Telecom, Samsung,
Siemens, Sony
</TABLE>
Outside of our targeted end markets, our remaining category includes
automotive integrated circuits, industrial and defense products. Applications in
this category include automotive applications including fuel injection and
ignition circuits, industrial applications including power supplies and defense
applications including 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 1999, we derived about 66% of our sales from original equipment
manufacturer, or OEM, customers through our global sales organizations and 34%
of our sales through distributors. We operate sales organizations in the
Americas, Europe and the Asia/Pacific region with about 240 employed
salespersons. Our sales organizations are supported by logistics organizations.
Product orders flow to our manufacturing facilities, where the product is made.
Products are then shipped to the customer either directly or indirectly via our
warehouses in the United States and Europe.
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. We believe that maintaining a small,
highly focused, direct sales force selling products for each of our targeted
product areas, combined with an extensive network of distributors and
manufacturer's representatives, is the most efficient way to serve our customer
base. 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.
41
<PAGE>
RESEARCH AND DEVELOPMENT
Manufacturing technology is a key determinant in the improvement of
semiconductor products. Each new generation of process technology has resulted
in products with higher speed, greater performance and lower costs of
production. Infrastructure investments made in recent years will enable us to
continue to achieve high volume, high-reliability and low-cost production using
leading edge process technology. Our research and development efforts are
focused on new product development and improvements in process technology in our
growth areas which include communications, power management and wireless.
Our expenditures for research and development in fiscal years 1997, 1998
and 1999 were $75.2 million, $75.1 million and $67.0 million, respectively. Each
of our product areas maintain 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 many of our PRISM(R)
products.
Our principal assembly and test facility is located in Kuala Lumpur,
Malaysia. Established in 1974, this facility has 524,000 square feet on 22 acres
of land. It has the capacity to assemble and test 350 million units of plastic
integrated circuits, 25 million hermetically sealed ceramic packaged integrated
circuit units and 500 million power semiconductor units each year. 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 in Kuala Lumpur.
Our previous owner made significant capital expenditures to increase
capacity and improve our manufacturing efficiency. As a result, our wafer fabs
and assembly and test facilities 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:
MANUFACTURING FACILITIES
<TABLE>
<CAPTION>
ANNUAL CAPACITY
LOCATION PRODUCTS/FUNCTIONS WAFER DIAMETER (6" EQUIVALENT WAFERS)
- --------------------- -------------------------------------------------- ---------------- ---------------------------
<S> <C> <C> <C>
FABRICATION
FACILITIES:
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
ASSEMBLY AND TEST
FACILITIES:
Kuala Lumpur, Assembly and testing of most of our products
Malaysia
Palm Bay, Florida Assembly and testing of most of our products used
in military applications
</TABLE>
42
<PAGE>
Our manufacturing processes use many raw materials, including silicon
wafers, copper lead frames, mold compound, ceramic packages 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 $223.2 million at June 27, 1997, about
$188.5 million at July 3, 1998, $174.0 million at July 2, 1999 and $192.4
million at December 31, 1999. We expect to ship the backlog at December 31, 1999
within twelve months of that date.
Approximately 30% of our revenue is generated under annual, fixed-price
contracts with key customers. These contracts allow us to schedule production
capacity in advance and allow our customers to manage their inventory levels
consistent with just- in-time principles while shortening the cycle times
required to produce ordered products. However, quantity and price agreements
under these contracts are, as a matter of industry practice, difficult to
maintain and implement.
SEASONALITY
A lower percentage of our products is sold to the computer end-user or into
the computer market than the percentage of products sold by other semiconductor
manufacturers to the computer end-user or into the computer market. 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. We typically experience lower revenue in the first fiscal quarter,
primarily due in large part to slow demand from government customers,
changeovers in automotive models and customer demand adjustments as a result of
summer and holiday seasons around the world, particularly Europe. Revenue
usually has a seasonal peak in our fourth fiscal quarter due to our customers'
need to meet government delivery requirements.
COMPETITION
Markets for our products are highly competitive. Although only a few
companies compete with us in all of our product lines, we face significant
competition within each of our product lines from major international
semiconductor companies. Some of our competitors may have substantially greater
financial and other resources with which to pursue engineering, manufacturing,
marketing and distribution of their products. Competitors include manufacturers
of standard semiconductors, application specific integrated circuits and fully
customized integrated circuits, as well as customers who develop their own
integrated circuit products.
We compete in different product lines 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
and 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:
<TABLE>
<CAPTION>
BUSINESS UNIT PRINCIPAL COMPETITORS
- -------------------------- ----------------------------------------------------------------------------
<S> <C>
Analog & Mixed-Signal Analog Devices, Burr Brown, Linear Technology, Maxim, Semtech
Discrete Power International Rectifier, ON Semiconductor, Siliconix, STMicroelectronics
Wireless Lucent, Philips, Proxim
</TABLE>
43
<PAGE>
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 1,400
patents.
EMPLOYEES
Our worldwide workforce consisted of 5,693 employees (full- and part-time)
as of December 31, 1999 of whom 733 were represented by collective bargaining
arrangements. Of our employees, 4,650 were engaged in manufacturing, 516 were
engaged in engineering, 333 were engaged in marketing and sales, 98 were engaged
in administration and 96 were engaged in management information systems. Of our
employees, 3,389 were employed in the Analog & Mixed-Signal area; 1,968 were
employed in the Discrete Power area; and 336 were employed in the Wireless area.
We believe that our relations with our employees are satisfactory.
PROPERTIES
In the United States, our corporate headquarters as well as some
manufacturing and warehouse operations are located in about 846,000 square feet
of space in properties owned by us in Palm Bay, Florida. Additional
manufacturing, warehouse and office facilities are housed in about 445,000
square feet and 270,000 square feet of space in properties owned by us in
Mountaintop, Pennsylvania and Findlay, Ohio, respectively.
In Kuala Lumpur, Malaysia, we own about 524,000 square feet of
manufacturing and warehouse space located upon land leased by us under three
long-term ground leases. The initial term of these leases will expire in 2086.
The improvements located upon the leased land are owned by us.
Our primary engineering activity takes place in Palm Bay, Florida and at
our other manufacturing facilities. In addition to this, we have engineering
activities taking place in leased facilities in Durham, North Carolina (Research
Triangle Park), Branchburg, New Jersey and San Antonio, Texas.
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.
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws and regulations in the
countries in which we operate that regulate, among other things, air and water
emissions and discharges at our manufacturing facilities; the management and
disposal of hazardous substances and wastes; the investigation and remediation
of environmental contamination; and the release of contaminants into the
environment at or from properties operated by us and at other sites. 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 laws
and regulations. Our costs to comply with environmental regulations were about
$4.5 million, $6.3 million and $7.4 million in each of fiscal years 1997, 1998
and 1999, respectively.
Our facilities in Findlay, Ohio have ongoing remediation projects to
respond to some releases of hazardous substances that occurred prior to the
consummation of 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
44
<PAGE>
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 under the Comprehensive
Environmental Response, Compensation and Liability Act. Remediation activities
are ongoing in Palm Bay in accordance with Consent Decrees entered into by
Harris with the United States Environmental Protection Agency. Under the Master
Transaction Agreement, Harris has agreed to indemnify us for the cost of these
projects at all of our facilities, including at Findlay, Ohio, Mountaintop,
Pennsylvania, Kuala Lumpur, Malaysia and Palm Bay, Florida to the extent these
costs are not currently allocated in the current balance sheet for the
Semiconductor Business. Based on the historical costs of these projects and
because the remediation projects are in advance stages, we do not believe that
the future cleanup costs will be material, even without the 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 results of
operations, business or financial condition, 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.
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, 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. 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, results of operations or
cash flows.
45
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding the persons
who are members of our Board of Directors, executive officers or key employees.
Each of our directors has served as director since our formation on June 2, 1999
and will continue to hold office until the next annual meeting of shareholders
or until a successor has been elected and qualified. Each of our officers has
served as officer since our formation and will hold office until the first
meeting of directors after its next annual meeting of shareholders.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Gregory L. Williams....................... 46 Chief Executive Officer, Director
W. Russell Morcom......................... 53 Vice President, General Manager, Discrete Power
George L. Gidzinski....................... 44 Vice President, General Manager, Analog and Mixed Signal
Daniel J. Heneghan........................ 44 Vice President, Chief Financial Officer and Assistant Secretary
Larry W. Sims............................. 42 Vice President, Marketing and Sales
Lawrence J. Ciaccia....................... 41 Vice President, General Manager, PRISM(R) Wireless
Stephen M. Moran.......................... 43 Vice President, General Counsel and Secretary
James A. Urry............................. 45 Director
Gary E. Gist.............................. 53 Director
</TABLE>
Gregory L. Williams, Chief Executive Officer, Director. Mr. Williams is
our Chief Executive Officer. From October, 1998, to August, 1999, Mr. Williams
was President of the semiconductor business at Harris. From January 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.
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 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.
George L. Gidzinski, Vice President, General Manager, Analog and Mixed
Signal. Mr. Gidzinski is our Vice President and General Manager, Analog and
Mixed Signal Business Unit. From 1998 until August, 1999, Mr. Gidzinski was Vice
President and General Manager of the Power Products Business of the
semiconductor business at Harris. From 1995 to 1998, Mr. Gidzinski served as
Vice President of Intelligent Power Products of the semiconductor business at
Harris and from 1991 to 1995, Mr. Gidzinski served as Vice President of
Worldwide Marketing of the semiconductor business at Harris.
Daniel J. Heneghan, Vice President, Assistant Secretary and Chief Financial
Officer. Mr. Heneghan is our Vice President, Assistant Secretary and Chief
Financial Officer. 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. Prior to joining
Harris, Mr. Sims served in various sales management positions at Motorola
Semiconductor.
46
<PAGE>
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.
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 Intersil, 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.
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., CORT
Business Services, CLARK Material Handling Corporation, Hancor Holding
Corporation, IKS Corporation, Palomar Technological Companies and York
International Corporation.
Gary E. Gist, Director. Mr. Gist is one of our directors. Mr. Gist is the
President and Chief Executive Officer of, and has been with, 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.
Our Board of Directors currently consists of three directors. We expect
that two additional individuals will be elected to the Board prior to the
consummation of this offering. Our Board of Directors will then consist of five
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. 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 Stockholders' Agreement, each of our stockholders prior to the offering
(representing in the aggregate 100% of the ownership of the Class A Common
Stock) 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. Compensation for
other directors has not yet been determined. Members of the Board of Directors
are elected according to the voting agreements outlined in the Stockholders'
Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James A. Urry and Gary E. Gist are the members of our Compensation
Committee.
47
<PAGE>
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 year 1999.
SUMMARY COMPENSATION TABLE
FISCAL YEAR 1999
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS
----------
ANNUAL COMPENSATION SECURITIES PAYOUTS
---------------------------------------------- UNDERLYING ---------- ALL OTHER
NAME AND OTHER ANNUAL OPTIONS LTIP COMPENSATION
PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($)(2) (#)(3) PAYOUTS($) ($)(4)
- --------------------------------- --------- ----------- ------------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Williams ............. 318,615 20,531 6,925 25,000 0 12,207
Chief Executive Officer
W. Russell Morcom ............... 170,000 113,623 10,798 6,000 70,875 57,114
Vice President--General
Manager--Discrete Power
George L. Gidzinski ............. 133,269 46,683 3,264 5,000 28,350 15,128
Vice President--General
Manager--Analog and Mixed
Signal
Daniel J. Heneghan .............. 121,980 44,121 1,920 3,500 24,924 23,774
Vice President--Chief Financial
Officer--Secretary
Larry W. Sims ................... 185,769 117,953 47,174 0 0 1,889
Vice President--Marketing and
Sales
</TABLE>
- ------------------
(1) This category includes Annual Incentive Plan bonus for all officers and a
sales incentive compensation bonus for Mr. Sims. It also includes awards for
Mr. Williams and for Mr. Heneghan of $50 each, a bonus of $7,108 for
Mr. Heneghan and disruption and signing bonuses, totaling $65,000, for
Mr. Sims.
(2) 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. 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.
(3) All options granted were for Harris common stock under Harris' Stock
Incentive Plan. We did not assume Harris' obligations under the Stock
Incentive Plan.
(4) Amounts reported include:
(A) Contributions to the Harris Retirement Plan for fiscal 1999:
Mr. Williams--$3,959; Mr. Morcom--$17,703; Mr. Gidzinski--$14,984;
Mr. Heneghan--$19,659; and Mr. Sims--$1,293
(B) Contributions to Harris' Supplemental Executive Retirement Plan for
fiscal 1999: Mr. Williams--$5,943; Mr. Morcom--$38,677;
Mr. Gidzinski--$0; Mr. Heneghan--$3,700; and Mr. Sims--$0.
(C) The taxable portion of premiums on life insurance provided by Harris for
fiscal 1999: Mr. Williams--$2,305; Mr. Morcom--$734;
Mr. Gidzinski--$144; Mr. Heneghan--$415; and Mr. Sims--$596.
48
<PAGE>
The following table provides information with respect to individual grants
made by Harris of options for shares of Harris common stock to the named
executive officers during fiscal year 1999.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT
------------------------------------------------------------- ASSUMED ANNUAL
PERCENT OF RATE OF STOCK
TOTAL PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED EXERCISE OPTION
UNDERLYING TO EMPLOYEES OR TERM (4)
OPTIONS IN FISCAL YEAR BASE PRICE EXPIRATION -----------------
NAME GRANTED (#) (1) (%) (2) ($/SH) DATE (3) 5% ($) 10% ($)
- --------------------------------------------- --------------- -------------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Williams.......................... 25,000 3.17 34.0625 11/11/99 51,788 104,405
W. Russell Morcom............................ 6,000 .76 34.0625 11/11/99 12,429 25,057
George L. Gidzinski.......................... 5,000 .63 34.0625 11/11/99 10,358 20,881
Daniel J. Heneghan........................... 3,500 .44 34.0625 11/11/99 7,250 14,617
Larry W. Sims................................ 0 0 0 0 0 0
</TABLE>
- ------------------
(1) All options granted were for Harris common stock pursuant to the Harris
Stock Incentive Plan. We did not assume Harris' obligations under the Stock
Incentive Plan.
(2) A total of 789,340 options were granted to Harris employees under the Harris
Stock Incentive Plan in fiscal year 1999.
(3) Under the terms of the Harris Stock Incentive Plan, the options expire 10
years after they are granted; however, in the event a grantee ceases to be
an employee of Harris, the options expire 90 days after the date the grantee
ceases to be an employee of Harris.
(4) Represents the potential realizable value of the underlying shares of Harris
common stock at the expiration date based on an assumed annual appreciation
rate of 5% and 10%, each compounded annually. The actual value, if any, that
may be realized will depend on the excess of the stock price over the
exercise price on the date the options exercised, so there can be no
assurance that the actual value realized will be at or near the value
estimated in the table.
The following table provides information with respect to the named
executive officers concerning the exercise of Harris options during fiscal year
1999, and unexercised Harris options held as of the end of fiscal year 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-
SHARES VALUE (#) (3) END ($) (4)
AQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) (1) ($) (2) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ---------------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Gregory L. Williams.............................. 0 0 0/25,000 0/132,813
W. Russell Morcom................................ 3,186 45,201 19,500/10,500 231,469/44,906
George L. Gidzinski.............................. 1,200 12,300 2,846/6,800 0/31,775
Daniel J. Heneghan............................... 2,000 12,799 2,500/5,000 13,031/22,938
Larry W. Sims.................................... 0 0 0 0
</TABLE>
- ------------------
(1) Options exercised were for Harris common stock.
(2) Represents the difference between the market price per share of Harris
common stock on the date of exercise and the exercise price.
(3) All unexercised options were for Harris common stock.
(4) Represents the difference between the market price per share of Harris
common stock at fiscal year end and the exercise price.
49
<PAGE>
EMPLOYMENT AGREEMENT
In connection with the acquisition of the semiconductor business of Harris,
we 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, 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.
RETIREMENT AND SAVINGS PROGRAM
We provide retirement benefits to substantially all employees primarily
through a retirement plan having profit-sharing and savings elements.
Contributions by us to the retirement plan are based on profits and employees'
savings with no other funding requirements. We are able to make additional
contributions to the fund at our discretion. We also have non-contributory
defined benefit pension plans which are fully funded.
Retirement benefits also include an unfunded limited healthcare plan for
U.S.-based retirees and employees on long-term disability. We accrue the
estimated cost of these medical benefits, which are not material, during an
employee's active service life.
1999 EQUITY COMPENSATION PLAN
We adopted the 1999 Equity Compensation Plan, effective August 13, 1999,
which we refer to as the Plan. Under the Plan, we may grant to our salaried
officers and key employees options for up to 7,500,000 shares of Class A Common
Stock. Options to acquire 1,549,333 shares of Class A Common Stock were granted,
effective as of August 14, 1999 and are the only options granted under the Plan
as of December 31, 1999. The Plan authorizes us to grant either (1) options
intended to constitute incentive stock options under the Internal Revenue Code
of 1986, as amended, (2) non-qualified stock options, (3) shares of restricted
stock, (4) stock appreciation rights or (5) phantom share awards. Under the
Plan, a committee of the Board of Directors will determine the exercise price of
each option granted, provided that the minimum exercise price is equal to the
fair market value of the underlying stock on the date the option is granted. The
maximum term of any option will 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 will be exercisable at the
determination of the Board of Directors, and the options will vest ratably over
about five years. Within any one-year period, an employee may not receive
options to purchase more than 666,667 shares of Class A Common Stock.
In addition to options, the committee may award restricted stock, stock
appreciation rights and phantom share awards under the Plan.
A grant of restricted stock represents the right to become the owner of
that stock upon the lapse of restrictions, which will usually require the
performance of substantial additional services to us by the recipient of the
grant. If the restrictions are not satisfied, the restricted stock is forfeited.
If the restrictions are satisfied, the individual in question becomes the owner
of those shares. In the interim, the individual is entitled to any dividends
that may be paid on the restricted shares and is allowed to vote them. The
individual cannot, however, sell, assign or otherwise transfer the subject
shares.
A stock appreciation right entitles the recipient to a payment, in cash or
in shares of Class A Common Stock of an amount equal to the excess of the fair
market value of Class A Common Stock on the date the stock appreciation right is
exercised over the "exercise price" of the stock appreciation right, which will
usually be the fair market value of the subject Class A Common Stock on the date
the stock appreciation right is granted.
A phantom stock award entitles the recipient to a payment in cash or in
shares of Class A Common Stock of an amount equal to the appreciation in the
value of the underlying Class A Common Stock over the period from the grant of
the phantom share award to the date of settlement specified in the award.
50
<PAGE>
The terms and conditions of grants of restricted stock, stock appreciation
rights and phantom stock awards will be governed by the Plan and by the terms of
the agreement making the grant or award, as determined by the committee of the
Board of Directors.
Any Class A Common Stock awarded as restricted stock, awarded upon exercise
of a stock appreciation right or awarded in settlement of a phantom stock award
will count against the 7,500,000 share overall limit under the Plan and against
the 666,667 individual annual limit.
EMPLOYEE STOCK PURCHASE PLAN
In connection with this offering, we adopted the Intersil Holding
Corporation Employee Stock Purchase Plan, which we refer to as the Employee
Stock Purchase Plan. Pursuant to the Employee Stock Purchase Plan, our employees
will have an opportunity to purchase up to 1,333,333 shares of our Class A
Common Stock at up to a 15% discount to the current market price. All of our
employees who render more than 20 hours of service per week for more than five
months per calendar year, other than those who own 5% or more of our outstanding
securities, are eligible to participate in the Employee Stock Purchase Plan. The
Employee Stock Purchase Plan will expire 10 years from its effective date. The
Employee Stock Option Purchase Plan is intended to comply with the provisions of
Section 423 of the Internal Revenue Code of 1986.
Employees purchase shares pursuant to the Employee Stock Option Purchase
Plan by electing to have a percentage of their base compensation withheld from
their paychecks for the duration of a six month purchase period. We hold such
compensation in notional accounts for the benefit of the participating
employees. At the end of each purchase period, the money that has accumulated in
each employee's notional account will be used to buy shares of our Class A
Common Stock at a price equal to no less than 85% of the lesser of the fair
market value of the stock on the first day of the purchase period and the fair
market value of the stock on the last day of the purchase period. Within any one
calendar year, an employee may not purchase more than $25,000 worth of our
Class A Common Stock under the Employee Stock Purchase Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following contains summaries of the material agreements which we
entered into in connection with the acquisition of the semiconductor business
from Harris in August 1999. The descriptions in the summaries of the terms and
provisions of the agreements are complete in all material respects, but for
detailed information you should read the agreements themselves, copies of which
have been filed or incorporated by reference as exhibits to the registration
statement of which this prospectus is a part.
MASTER TRANSACTION AGREEMENT
In accordance with the Master Transaction Agreement,
o Harris transferred to us portions of the semiconductor business in
exchange for (a) $504.3 million in cash, and (b) our subordinated
promissory note, referred to as the 11.13% Seller Holding PIK Note, in
the principal amount of $90.0 million, which permits us to pay interest
in the form of additional notes, which we call pay-in-kind, or PIK,
notes;
o Harris paid about $9.0 million in cash to us to purchase shares of our
12% Series A Cumulative Compounding Preferred Stock and common stock;
o we sold to Sterling Holding Company, LLC, referred to as Sterling, and to
senior management and other key employees, referred to as the management
investors, and certain other investors shares of 12% Series A Cumulative
Compounding Preferred Stock and common stock for a total of about
$81.0 million in cash;
o we contributed cash in the amount of about $90.0 million to Intersil's
capital as well as assets with a fair market value of about
$90.0 million;
51
<PAGE>
o Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to us
in exchange for our subordinated promissory note, referred to as the
13.5% Subordinated Holding PIK Note due 2010, and warrants to purchase
3,703,707 shares of Class A Common Stock (reduced to 2,222,224 upon
repayment in full of the 13.5% Subordinated Holding PIK Note due 2010
with the proceeds of this offering);
o we contributed cash in the amount of $30.0 million received from Citicorp
Mezzanine Partners, L.P. to Intersil's capital; and
o Intersil borrowed $220.0 million available under its new senior credit
facilities and received the gross proceeds of $200.0 million from the
sale of 200,000 units, each unit consisting of $1,000 principal amounts
of Senior Subordinated Notes of Intersil and one warrant to purchase
18.5185 shares of our Class A Common Stock.
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 stockholders. The assets we purchased from Harris
under the Master Transaction Agreement include, among other things, some
properties located at Palm Bay, Florida, Mountaintop, Pennsylvania, Findlay,
Ohio and Kuala Lumpur, Malaysia (see "Business--Properties"), as well as, with
some exceptions and limitations, all of the manufacturing equipment, motor
vehicles, office furniture, inventory, governmental permits and licenses and
other assets necessary to operate our business. In addition, purchased assets
include:
o contractual rights and obligations which primarily relate to the
semiconductor business;
o intellectual property rights; and
o all of the capital stock and membership interests of four domestic and
twelve foreign entities (corporations and limited liability companies)
owned by Harris. We acquired eleven of the twelve foreign entities or
their assets either directly or through a foreign subsidiary wholly owned
by us. The twelfth foreign entity, a corporation which operates our
assembly and test facility in Kuala Lumpur, Malaysia, was acquired by a
British Virgin Islands corporation that is wholly owned by our wholly-
owned Malaysian subsidiary. The acquisition of this twelfth foreign
entity was made under a separate transaction agreement and was financed
with funds both contributed by us and loaned by our wholly-owned Cayman
Islands subsidiary to our Malaysian subsidiary (the loan proceeds from
the Cayman Islands subsidiary consisting of funds contributed to this
subsidiary by us) which in turn were loaned and contributed to the
British Virgin Islands corporation.
Among the liabilities we did not assume are the environmental liabilities
relating to the operations of the semiconductor business and the transferred
Harris subsidiaries prior to closing. The agreement provides that Harris must
indemnify us for any damages arising from these excluded liabilities. The
agreement also provides that we must offer to employ all our employees on
substantially the same terms and conditions as they were employed immediately
before the acquisition of the semiconductor business. In addition, the agreement
contains a provision that, subject to some limitations, forbids Harris for a
period of five years after the consummation of the acquisition of the
semiconductor business from engaging in business competing with most of our
products in existence on the date the transactions were consummated.
Under the terms of the Master Transaction Agreement, Harris entered into
with us the Intellectual Property Agreement, the Patent Assignment and Services
Agreement, the License Assignment Agreement, the Harris Trademark License
Agreement, the Secondary Trademark Assignment and License Agreement, the
Transition Services Agreement and the Royalty Agreement.
Under the Master Transaction Agreement, our stockholders entered into a
Stockholders' Agreement and Registration Rights Agreement containing certain
agreements among the stockholders regarding the capital stock and corporate
governance of Intersil and Intersil Holding. We exercised our option under the
Stockholders' Agreement to repurchase from Sterling Holding Company, LLC a total
of 1,833,333 shares of our common stock for an aggregate purchase price of
$137,500 to reissue to our employees. See "Description of Capital
Stock--Stockholders' Agreement" and "--Registration Rights Agreement."
52
<PAGE>
INTELLECTUAL PROPERTY AGREEMENT
Under the Intellectual Property Agreement, Harris assigned to us its entire
ownership, right, title and interest in some intangible property rights existing
under laws respecting copyright, maskwork and trade secrets, which intangible
property rights are owned by Harris and that were specific to the operations of
the semiconductor business. Harris also granted to us a royalty-free,
non-exclusive, worldwide license, with a limited right to sublicense, under
certain copyrights, maskworks and trade secrets to make, have made, use and sell
certain products, which copyrights, maskworks and trade secrets are specific to
the products or are used in the semiconductor business. The Intellectual
Property Agreement lists those licenses to software that are unassignable
without the permission of the licensor.
PATENT ASSIGNMENT AND SERVICES AGREEMENT
Under the Patent Assignment and Services Agreement, Harris assigned to us,
subject to pre-existing license rights, about 1,400 patents. Harris also granted
us a worldwide, royalty-free, non-exclusive license, without the right to
sublicense, under some other applicable patents, for the life of such patents,
to make, have made, use and sell certain of our products. 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.
LICENSE ASSIGNMENT AGREEMENT
Under the License Assignment Agreement, Harris assigned to us its entire
right, title and interest in and to certain license agreements by and between
Harris and third party licensors and licensees, which license agreements may be
assigned without the consent of the third parties. The agreement provides that
Harris will use commercially reasonable efforts, as requested by us in writing,
to provide us with the economic benefit of certain other license agreements
between Harris and third party licensors and licensees, which license agreements
are material to the semiconductor business and require the consent of the third
parties to assign. Harris will assign to us any revenue received under certain
other royalty bearing license agreements between Harris and third party
licensees, which agreements require the consent of the third party licensees to
assign, and will use commercially reasonable efforts to obtain the consent of
the third party licensees to these assignments.
The agreement also provides that Harris will, at our written request and to
the extent that Harris is authorized to do so and that the license is relevant
to our business as of August 13, 1999, grant us a sublicense under the License
Agreement between Harris and Lemelson Medical, Education & Research Foundation,
Limited Partnership dated April 30, 1999. The agreement with Lemelson Medical
and subsequent sublicenses will authorize us to use the inventions identified in
up to one hundred eighty patents and patent applications concerning chemical
manufacturing, optical measurement and tracking of production lots, all of which
are technologies used in manufacturing semiconductors. The License Assignment
Agreement further provides that Harris will assign all remaining rights in the
retained license agreements to us. The assignment of each retained license
agreement is to occur at the time that all the amounts that are due, or are to
become due under that retained license agreement, have been paid to Harris. In
the event that a retained license agreement cannot be assigned at that time,
Harris will use commercially reasonable efforts, as requested by us, to provide
us with the economic benefit of that retained license agreement. The assignment
of, or commercially reasonable efforts to provide us the economic benefit of,
each retained license agreement is to occur at the time that all the amounts
that are due, or are to become due under the retained license agreement, have
been paid to Harris. The agreement still further provides that we accept the
assignments or transfers effected under the License Assignment Agreement and
assume the liabilities of Harris to each of the license agreements so assigned
or transferred.
53
<PAGE>
HARRIS TRADEMARK LICENSE AGREEMENT
Under the Harris Trademark License Agreement, Harris granted to us
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.
AGREEMENT COVERING PRISM(R) REVENUES
Under an agreement covering PRISM(R) revenues, we agreed to pay Harris 2%
of the revenue generated by the sales of the PRISM chip sets for a period of
five years after the closing of the transactions consummated under the Master
Transaction Agreement.
SECONDARY TRADEMARK ASSIGNMENT AND LICENSE AGREEMENT
Under the Secondary Trademark Assignment and License Agreement, Harris
assigned to us some trademarks related to products of the semiconductor business
and we granted back to Harris worldwide, non-exclusive, royalty-free licenses
recognizing transitional use of some visible trademarks assigned by Harris to
us. The agreement further provides that Harris will cooperate with us, at our
expense, in any judicial or administrative proceedings contemplated or commenced
by us under any of the trademarks assigned to us under this agreement.
TRANSITION SERVICES AGREEMENT
Under the Transition Services Agreement, Harris will provide a number of
business support services to us that will assist in the conversion of the
semiconductor business to an independent entity. From the consummation of the
acquisition for, in most instances, up to 8 months, Harris is obligated to make
available to us:
o data processing and communication services;
o financial and administrative support; and
o human resources and benefits services.
Generally, the agreement provides that Harris will invoice us for the cost of
services provided, plus 5%, with some charges based on a fixed cost and other
charges based on Harris' actual incurred costs. We are not currently utilizing
any of these services from Harris.
Under the Transition Services Agreement, we have also agreed to provide
Harris with certain services for a period of 18 months and certain products for
a period of 24 months related to the suppression products business. For the
services and products to be provided by us to Harris, Harris has agreed to pay
5% on top of all costs except third-party costs.
The terms of the agreements listed above were the result of arms-length
negotiations and in our opinion are no less favorable to Intersil and us than
those that could be obtained from non-affiliated parties.
54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
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 (our 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 January 31, 2000 and as adjusted to
give effect to this offering. All share information would be the same as of
March 1, 2000 except that the number of shares of Class A Common Stock issuable
upon conversion of our 12% Series A Cumulative Compounding Preferred Stock will
increase subsequent to January 31, 2000 as a result of additional dividends. The
number of shares of Class A Common Stock issuable as of March 1, 2000 is set
forth in footnote (7) below. The numbers shown in the table below assume no
exercise by the underwriters of their over-allotment option. We have granted the
underwriters an option to purchase up to 2,000,000 additional shares of Class A
Common Stock from us and Harris has granted the underwriters an option to
purchase up to 1,000,000 shares of Class A Common Stock held by Harris to cover
over-allotments, if any.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK(1)
------------------------------------------------ CLASS B COMMON
NUMBER OF NUMBER OF STOCK(2)
SHARES PERCENT SHARES PERCENT -------------------- PERCENT OF ALL
PRIOR TO PRIOR TO AFTER AFTER NUMBER OF COMMON STOCK
NAME OF BENEFICIARY OFFERING OFFERING OFFERING(3) OFFERING SHARES PERCENT AFTER OFFERING(4)
- ----------------------------- ------------- -------- ---------- -------- ---------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sterling Holding Company,
LLC (5)(6)(7) ............... 7,392,557.67 46.89% 11,744,716 28.86% 45,214,898 90.89% 62.98%
c/o Intersil Corporation
2401 Palm Bay Road NE
Palm Bay, Florida 32905
Harris Corporation(7) ....... 1,508,685.24 9.57% 2,008,392 4.94% 4,531,584 9.11% 7.23%
1025 W. NASA Boulevard
Melbourne, Florida 32919
Gregory L. Williams(7) ...... 2,231,543.63 14.16% 2,235,927 5.49% -- -- 2.47%
W. Russell Morcom(7) ........ 683,498.30 4.34% 708,036 1.74% -- -- .78%
George L. Gidzinski(7) ...... 456,375.84 2.89% 456,609 1.12% -- -- .50%
Daniel J. Heneghan(7) ....... 388,422.73 2.46% 390,027 .96% -- -- .43%
Larry W. Sims(7) ............ 557,277.45 3.53% 565,858 1.39% -- -- .63%
James A. Urry (7)(8) ........ -- -- 41,660 .10% -- -- .05%
Gary E. Gist (7)(9) ......... 79.33 * 5,633 .01% -- -- .01%
All directors, officers and
other management investors as
a group (18 persons)
(7)(8)(9) . 6,863,630 43.54% 6,989,276 17.17% -- -- 7.73%
</TABLE>
- ------------------
* Less than .01%.
(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 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 shares into an equal number of shares of Class B Common Stock.
(3) Includes the number of shares of Class A Common Stock issuable upon
conversion of our 12% Series A Cumulative Compounding Preferred Stock.
(4) Represents the percentage of the total number of shares of Class A Common
Stock and Class B Common Stock combined.
(Footnotes continued on next page)
55
<PAGE>
(Footnotes continued from previous page)
(5) An affiliate of Credit Suisse First Boston Corporation owns an interest in
Sterling and could have the right to exchange that interest for up to
1,089,997 shares of common stock (including 83,285 shares issuable upon
exchange of our 12% Series A Cumulative Compounding Preferred Stock for our
common stock).
(6) Citicorp Venture Capital Ltd. owns an interest in Sterling and could have
the right to exchange that interest for up to 42,807,215 shares of our
common stock (including 3,251,205 shares issuable upon exchange of our 12%
Series A Cumulative Compounding Preferred Stock for our 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% 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 in full of the 13.5% Subordinated PIK Note due 2010 with the
proceeds of this offering, the warrants will be exercisable for 2,222,224
shares of our Class A Common Stock.
(7) The following table sets forth information with respect to the security
ownership of the 12% Series A Cumulative Compounding Preferred Stock. All of
the outstanding shares of the 12% Series A Cumulative Compounding Preferred
Stock are being converted into shares of Class A Common Stock in connection
with this offering at the assumed initial public offering price (the
mid-point of the range shown on the cover of this prospectus), less assumed
underwriting discounts and commissions, of $1.14 per share. The number of
shares of Class A Common Stock to be received upon conversion of the 12%
Series A Cumulative Compounding Preferred Stock (without giving effect to
those shares issuable upon exercise of options) is included in the column
"Number of Shares after Offering."
<TABLE>
<CAPTION>
12% SERIES A NUMBER OF SHARES OF CLASS A
CUMULATIVE COMMON STOCK RECEIVED UPON
COMPOUNDING CONVERSION
PREFERRED STOCK -----------------------------------
-------------------- AS OF AS OF
NAME OF BENEFICIAL OWNER NUMBER PERCENT JANUARY 31, 2000 MARCH 1, 2000
- --------------------------------------------------------- --------- ------- ---------------- --------------
<S> <C> <C> <C> <C>
Sterling Holding Company, LLC............................ 73,650.44 87.33% 4,352,158 4,390,223
c/o Intersil Corporation
2401 Palm Bay Road NE
Palm Bay, Florida 32905
Harris Corporation....................................... 8,456.38 10.03% 499,706 504,076
1025 W. NASA Boulevard
Melbourne, Florida 32919
Gregory L. Williams...................................... 407.49 .48% 4,383 4,421
W. Russell Morcom........................................ 515.23 .61% 24,537 24,751
George L. Gidzinski...................................... 103.93 .12% 233 234
Daniel J. Heneghan....................................... 93.80 .11% 1,604 1,618
Larry W. Sims............................................ 245.19 .29% 8,580 8,655
James A. Urry............................................ 705.00 .84% 41,660 42,024
Gary E. Gist............................................. 93.96 .11% 5,553 5,601
All directors, officers and other management investors as
a group (18 persons)..................................... 3,026.27 3.59% 125,646 126,745
</TABLE>
(8) James A. Urry, who is one of our directors, is affiliated with Sterling in
the capacities described under "Management--Directors, Executive Officers
and Key Employees" and footnote (6) above. All shares reported for Mr. Urry
in footnote (7) above 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.
(9) Gary E. Gist owns an interest in Sterling and could have the right to
exchange that interest for up to 5,633 shares of our common stock (including
5,553 shares issuable upon exchange of our 12% Series A Cumulative
Compounding Preferred Stock for our common stock).
Sterling, one of our principal stockholders, 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.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock gives effect to this
offering, as well as the conversion of all outstanding shares of 12% Series A
Cumulative Compounding Preferred Stock into Class A Common Stock and the 1 for
1.5 reverse stock split. Our capital stock consists of 600,000,000 authorized
shares of common stock, par value $.01 per share, divided into two classes
consisting of (a) 300,000,000 shares of Class A Common Stock, of which
40,738,205 shares are outstanding and (b) 300,000,000 shares of Class B Common
Stock, of which 49,746,481 shares are outstanding. Our capital stock also
consists of 100,000 authorized shares of preferred stock, par value $.01 per
share, none of which is issued or outstanding.
The following description of the terms and provisions of our capital stock
is not complete, and you should read our Bylaws and Restated Certificate of
Incorporation (which will become effective when this offering is completed)
which have been filed as exhibits to the Registration Statement of which this
prospectus is a part.
CLASS A COMMON STOCK
The holders of Class A Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders other than
elections of directors. Our Restated Certificate of Incorporation will provide
for cumulative voting for directors. With cumulative voting, at each election
for directors, each holder of Class A Common Stock will be entitled to as many
votes as would equal the number of shares he or she holds multiplied by the
number of directors to be elected. The holder may cast all of his or her votes
for a single candidate or may distribute them among any number of candidates.
Under cumulative voting, a minority holder has a greater possibility of
influencing the election of directors because, for example, the minority holder
can increase the number of votes such holder may cast for an individual
director. The holders of Class A Common Stock will be entitled to such dividends
as may be declared at the discretion of our Board of Directors out of funds
legally available for that purpose. The holders of Class A Common Stock will be
entitled to share ratably with holders of Class B Common Stock in the net assets
of our company upon liquidation after payment or provision for all liabilities.
A holder of Class A Common Stock may convert any or all of his shares into an
equal number of shares of Class B Common Stock. We have never paid and we do not
anticipate declaring or paying any cash dividends on shares of our Class A
Common Stock in the foreseeable future. See "Dividend Policy." As of December
31, 1999, there were 19 holders of record of our Class A Common Stock.
CLASS B COMMON STOCK
Except as required by law, the holders of Class B Common Stock have no
voting rights. The holders of Class B Common Stock will be entitled to such
dividends as may be declared at the discretion of our Board of Directors out of
funds legally available for that purpose. The holders of Class B Common Stock
will be entitled to share ratably with holders of Class A Common Stock in the
net assets of our company upon liquidation after payment or provision for all
liabilities. A holder of Class B Common Stock may convert any or all of his
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 such
shares to be converted certifies to us in writing that the holder 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. We have
never paid and we do not anticipate declaring or paying any cash dividends on
shares of our Class B Common Stock in the foreseeable future. As of December 31,
1999, there were 2 holders of record of our Class B Common Stock.
PREFERRED STOCK
Under our Restated Certificate of Incorporation, our Board of Directors
will have the authority to issue up to 100,000 shares of preferred stock, but
only in connection with the adoption of a stockholder rights plan. A stockholder
rights plan may only be adopted by our Board of Directors with the approval of
holders of a majority of outstanding shares of Class A Common Stock or with the
unanimous consent of our Board of Directors, unless Sterling and its affiliates
hold less than 15% of our outstanding common stock, in which case approval by a
majority of our Board of Directors is required. See "-- Other Provisions of Our
Restated Certificate of Incorporation." If our Board of Directors has such
requisite authority, it will be authorized to issue preferred stock in
connection with a stockholder rights plan in one or more series, and to fix the
voting powers, designations, preferences, and relative, participating, optional
or other special rights and qualifications, limitations and restrictions of each
series, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares constituting any
series. The ability of our Board of Directors to issue preferred stock could
have the effect of making it more difficult for
57
<PAGE>
a third party to acquire, or discouraging a third party from acquiring, a
majority of our outstanding Class A Common Stock. Our Board of Directors'
ability to establish the preferences and rights of the shares of any series of
preferred stock may also afford holders of any preferred stock preferences,
powers and rights (including voting rights) senior to the rights of holders of
our Class A Common Stock. We have no present plans to issue any shares of
preferred stock.
12% SERIES A CUMULATIVE COMPOUNDING PREFERRED STOCK
Until this offering is completed, we will have 100,000 shares of 12% Series
A Cumulative Compounding Preferred Stock authorized, of which 83,434 will be
issued and outstanding. The 12% Series A Cumulative Compounding Preferred Stock
has a stated value of $1,000 per share and is entitled to annual dividends when,
as and if declared, which dividends are cumulative, whether or not earned or
declared, accruing at a rate of 12% and compounding annually. All outstanding
shares of 12% Series A Cumulative Compounding Preferred Stock will be converted
into shares of Class A Common Stock in connection with this offering and no 12%
Series A Cumulative Compounding Preferred Stock will be authorized after this
offering. See "Debt Repayment and Preferred Stock Conversion Transactions."
OTHER PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION
Our Restated Certificate of Incorporation, which will become effective when
this offering is completed, contains provisions affecting the rights of our
stockholders and the powers of our Board of Directors, including the following:
o We will not be subject to the provisions of Section 203 of the General
Corporation Law of Delaware regulating takeovers. Section 203 generally
makes it more difficult for a third party to take control of a company by
prohibiting a third party owning more than 15% of the company's stock
from entering into transactions with the company unless the board of
directors or stockholders unaffiliated with the third party approve
either the third party or the transaction at issue, before the third
party becomes a 15% owner or the third party acquires at least 85% of the
company's stock.
o A stockholder rights plan can be adopted only with the consent of holders
of a majority of outstanding Class A Common Stock or with the unanimous
consent of our Board of Directors, except that if Sterling's and its
affiliates' ownership is less than 15% of our outstanding common stock,
then a stockholder rights plan can be adopted with the consent of a
majority of our Board of Directors. A stockholder rights plan generally
makes it more difficult for a hostile bidder to take control of a company
by providing existing stockholders with special rights which would make
it uneconomical for the third party to acquire additional interests. If
our Board of Directors is authorized to and decides to implement a
stockholder rights plan, the plan adopted by the Board may deter
acquisitions which you might deem to be in your best interests.
o Our Board of Directors must have no fewer than three and no more than
seven members and may not be divided into classes. The term of each
member of the Board of Directors expires at each annual stockholders'
meeting. Having a minimum number of Directors ensures that cumulative
voting will operate to protect the interests of minority shareholders,
since with a smaller Board it would take a greater percentage of votes to
elect one director. Similarly, by prohibiting a classified Board, our
Restated Certificate of Incorporation ensures that stockholders may
replace the entire Board at each annual election.
o Stockholders may act by written consent, without a meeting and without
notice or a vote. This provision enables stockholders to act on matters
subject to a stockholder vote without waiting until the next annual or
special meeting of stockholders.
o Each of the provisions of our Restated Certificate of Incorporation
described above, and the provision described above under "Preferred
Stock" that limits the Board of Directors' ability to issue preferred
stock other than in connection with a stockholder rights plan, may be
amended only with the approval of holders of 75% of our outstanding Class
A Common Stock. Amending other provisions requires approval by holders of
a majority of our outstanding Class A Common Stock. The provision
requiring a supermajority vote also cannot be amended without the consent
of holders of 75% of the Class A Common Stock. If a third party--that is,
a person or entity other than our principal stockholders or members of
our management--acquires more than 40% of the Class A Common Stock, then
the holders of a majority of the Class A Common Stock could amend the
foregoing provisions. If, after any transfer by Sterling Holding Company,
LLC and its affiliates, Sterling and the affiliates together own less
than 15% of our outstanding common stock, then holders of a majority of
the Class A
58
<PAGE>
Common Stock could amend the supermajority provisions. The effect of each
supermajority provision is that holders of 25% of our Class A Common
Stock could block amendments to our Restated Certificate of Incorporation
affecting the provisions described above.
WARRANTS RELATING TO THE ISSUANCE OF THE UNITS
We originally issued and sold warrants, referred to as the Warrants, to
Credit Suisse First Boston Corporation, J.P. Morgan Securities, Inc. and Salomon
Smith Barney Inc. pursuant to a private placement by Intersil Holding and
Intersil of 200,000 units, each unit consisting of $1,000 principal amount of
13 1/4% Senior Subordinated Notes due 2009 and one Warrant to purchase 18.5185
shares of Class A Common Stock at an exercise price (the "Exercise Price") of
$0.0015. The Exercise Price and the number of shares of Common Stock issuable
upon exercise of a Warrant may be subject to adjustment. The Warrants initially
entitle the holders to acquire, in the aggregate, 3,703,707 shares of Class A
Common Stock.
The Warrants may be exercised at any time after August 13, 2000; provided,
however, that the holder of Warrants will be able to exercise the Warrants only
if a shelf registration statement relating to the Class A Common Stock
underlying the Warrants is effective or the exercise of those Warrants is exempt
from the registration requirements of the Securities Act, and such securities
are qualified for sale or exempt from qualification under the applicable
securities laws of the states or other jurisdictions in which such holders
reside. Intersil Holding has filed a shelf registration statement to cover the
Warrants for resale and in the issuance of the Class A Common Stock upon
exercise of the Warrants, and the Securities and Exchange Commission has
declared it effective. Unless earlier exercised, the Warrants will expire on
August 15, 2009 (the "Expiration Date"). We will give notice of expiration not
less than 90 nor more than 120 days prior to the Expiration Date to the
registered holders of the then outstanding Warrants. If we fail to give the
expiration notice, the Warrants will nevertheless expire and become void on the
Expiration Date.
WARRANTS RELATING TO THE 13.5% SUBORDINATED HOLDING PIK NOTE
We issued to Citicorp Mezzanine Partners, L.P. warrants to purchase our
Class A Common Stock. These warrants entitle the holder to purchase up to
3,703,707 shares of Class A Common Stock upon exercise of the warrants beginning
on August 13, 2001 and ending on August 15, 2009 at an exercise price of $0.0015
per share, subject to anti-dilution adjustments. Upon prepayment in full of the
13.5% Subordinated Holding PIK Note due 2010 with the proceeds of this offering,
these warrants will be exercisable for 2,222,224 shares of Class A Common Stock.
STOCKHOLDERS' AGREEMENT
Prior to our initial public offering, the then-existing stockholders of our
company entered into a Securities Purchase and Holders Agreement, which we refer
to as the Stockholders' Agreement, containing agreements among the stockholders
with respect to our capital stock and corporate governance.
The Stockholders' Agreement contains provisions which restrict our ability
to issue common stock. We cannot issue shares of common stock to Sterling,
Citicorp Venture Capital Ltd. or any of their respective affiliates without
offering the other parties to the Stockholders' Agreement an equal opportunity
to purchase our shares. In addition, Sterling and its affiliates have the right
to have observers present at meetings of our Board of Directors if they are not
represented on our Board of Directors as long as they own at least 5% of the
common stock then outstanding. The Stockholders' Agreement continues to subject
some of our executive officers' common stock to risk of forfeiture.
REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Stockolders' Agreement, Intersil
Holding, Sterling, the management investors, Harris and our other stockholders
entered into a Registration Rights Agreement (the "Registration Rights
Agreement"). According to the Registration Rights Agreement, upon the written
request of Sterling and subject to our option to defer action for 180 days, we
will prepare and file a registration statement with the Securities and Exchange
Commission concerning the distribution of all or part of the shares held by
Sterling and use our best efforts to cause such registration statement to become
effective. If at any time we file a registration statement for the common stock
because of a request by Sterling or otherwise, we will use our best efforts to
allow the other parties to the Registration Rights Agreement to have their
shares of common stock (or a portion of their shares under circumstances set
forth in the Registration Rights Agreement) included in the registered offering
of common stock. We are not bound by this requirement if we are filing a
registration statement on Form S-8, Form S-4 or any similar form filed in
connection with an exchange offer or an offering solely to our employees or
existing shareholders, or a registration statement
59
<PAGE>
registering a unit offering consisting of a public offering of debt and our
equity securities in which (i) not more than twenty percent of the gross
proceeds received from the sale of those securities is attributed to the equity
securities and (ii) after the public offering, we do not have a class of equity
securities required to be registered under the Securities Exchange Act of 1934.
Most registration expenses of the selling shareholders will be paid by us. We
will not pay expenses relating to underwriting commissions, brokerage fees and
transfer taxes applicable to the shares sold by the shareholders or in certain
cases the fees and expenses of any accountants or other representatives retained
by a selling shareholder.
TRANSFER AGENT AND REGISTRANT
The Transfer Agent and Registrar for the Class A Common Stock is Equiserve
Trust Company.
60
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of Intersil and of
Intersil Holding. To the extent such summary contains descriptions of documents
relating to the notes, the senior credit facilities and other loan documents,
such descriptions do not purport to be complete and are qualified in their
entirety by reference to such documents, which are available upon request to us.
We intend to repay a substantial amount of our indebtedness with the proceeds of
this offering. See "Use of Proceeds."
13 1/4% SENIOR SUBORDINATED NOTES DUE 2009
On August 13, 1999, Intersil and Intersil Holding issued 200,000 units,
each unit consisting of $1,000 principal amount of 13 1/4% Senior Subordinated
Notes Due 2009 of Intersil and one warrant to purchase 18.5185 shares of Class A
Common Stock of Intersil Holding, in connection with the unit offering for gross
proceeds of approximately $200.0 million. The notes were issued under an
indenture dated as of August 13, 1999 (the "Indenture") between Intersil and
United States Trust Company of New York, as Trustee. The warrants were issued
under a separate warrant agreement. The net proceeds of the unit offering,
together with the net proceeds of certain other funds, were used to pay the cash
consideration for the acquisition of the semiconductor business from Harris and
pay related fees and expenses. See "Certain Relationships and Related
Transactions."
The notes were initially in the principal amount of $200.0 million and
mature on August 15, 2009. Interest on the notes accrues at 13 1/4% per annum
and is payable semiannually in arrears on February 15 and August 15, commencing
February 15, 2000. Subject to certain covenants set forth in the Indenture,
Intersil may issue more notes under the Indenture in an unlimited principal
amount. Any additional notes that are actually issued will be treated as issued
and outstanding notes (and as the same class as the initial notes) for most
purposes. The notes are unsecured senior subordinated obligations of Intersil,
are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined in the Indenture) of Intersil, and are senior in right
of payment to all future Subordinated Indebtedness (as defined in the Indenture)
of Intersil. The notes are guaranteed by Intersil Holding and each Subsidiary
Guarantor (as defined in the Indenture). The Guaranties are senior subordinated
obligations of Intersil Holding and the relevant Subsidiary Guarantor.
Under the terms of the notes, we may, but are not required, to redeem up to
$70.0 million principal amount of the notes with the net cash proceeds of this
offering at a price of 113 1/4% of the principal amount of the notes, plus
accrued and unpaid interest on the notes.
On or after August 15, 2004, the notes may be redeemed at the option of
Intersil, in whole or in part, at the following redemption prices (expressed as
percentages of principal amount at maturity), plus accrued and unpaid interest,
if redeemed during the 12 months beginning August 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- ----------
<S> <C>
2004.............................................................................. 106.625%
2005.............................................................................. 104.969
2006.............................................................................. 103.313
2007.............................................................................. 101.656
2008 and thereafter............................................................... 100.000
</TABLE>
Upon a Change of Control (as defined in the Indenture), each holder of
notes may require Intersil to repurchase all or any portion of the holder's
notes at a purchase price equal to 101% of the principal amount plus accrued and
unpaid interest to the date of purchase.
The Indenture contains certain covenants that, among other things, limit
(i) the incurrence of additional debt by Intersil and certain of its
subsidiaries, (ii) the payment of dividends on capital stock of Intersil and the
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (iii) investments, (iv) certain transactions with affiliates,
(v) sales of assets, including capital stock of subsidiaries, and (vi) certain
consolidations, mergers and transfers of assets. The Indenture also prohibits
certain restrictions on distributions from certain subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
61
<PAGE>
Under a registration rights agreement dated August 13, 1999 among Intersil
Holding, Intersil and the initial purchasers, Intersil exchanged the notes for
new notes in an exchange offer registered under the Securities Act.
SENIOR CREDIT FACILITIES
General. In connection with the acquisition of the semiconductor business
from Harris, Intersil entered into the senior credit facilities with a syndicate
of certain financial institutions, as lenders, Credit Suisse First Boston, New
York branch, an affiliate of one of the underwriters, as the Administrative
Agent, Salomon Smith Barney Inc., one of the underwriters, as Syndication Agent,
and Morgan Guaranty Trust Company of New York, as Documentation Agent. The
description below is only a summary of the principal terms of the senior credit
facilities and related loan documents.
The senior credit facilities provide for up to $275.0 million of aggregate
borrowing capacity, consisting of:
o a secured $205.0 million funded term loan (the "Tranche B Senior Term
Facility"); and
o a secured $70.0 million revolving line of credit, $15.0 million of which
was funded at closing of the acquisition of the semiconductor business
(the "Revolving Credit Facility").
Use of the Senior Credit Facilities. Intersil used the proceeds from the
senior credit facilities, together with $30.0 million of proceeds from the 13.5%
Subordinated Holding PIK Note due 2010, $90.0 million of proceeds from the
11.13% Seller Holding PIK Note due 2010, the proceeds of the unit offering and
the equity contribution from Intersil Holding, (i) to fund the acquisition of
the semiconductor business, (ii) to pay related fees and expenses and (iii) for
general corporate purposes.
Guaranties; Security. Intersil's obligations under the senior credit
facilities are unconditionally guaranteed, jointly and severally, by Intersil
Holding and each of Intersil's existing and subsequently acquired or organized
domestic subsidiaries. Intersil'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 tax consequences will result, foreign)
subsidiaries. No foreign subsidiary is required to guarantee the senior credit
facilities and less than two-thirds of the capital stock of certain foreign
subsidiaries is required to be pledged to secure the senior credit facilities.
Amortization; Interest; Fees; Maturity. The Senior Term Facility is
subject to certain specified amortization payments required to be made in
quarterly installments until final payment is made upon maturity. The Revolving
Credit Facility is available until 2005 unless terminated earlier under the
terms of the senior credit facilities.
Borrowings under the senior credit facilities bear interest at a rate equal
to, at Intersil's option, either (i) the base rate (which is based on the prime
rate most recently announced by the Administrative Agent or the Federal Funds
rate plus one-half of 1%) or (ii) the applicable London interbank offered rate,
in each case plus the applicable margin. In addition, the senior credit
facilities are subject to a commitment fee of 0.50% per annum of the undrawn
portion of the Revolving Credit Facility, and letter of credit fees regarding
each letter of credit outstanding under the senior credit facilities equal to
(i) the applicable margin over the Adjusted LIBOR Rate (as defined in the Credit
Agreement) in effect for loans under the Revolving Credit Facility and
(ii) 0.25% per annum on the face amount of all outstanding letters of credit.
Prepayments. The terms of our senior credit facilities require us to apply
50% of the net cash proceeds of this offering in excess of $50.0 million to the
prepayment of the term loans under the senior credit facilities. We expect to
repay $147.3 million of our Tranche B Senior Term Facility. The loans under the
Senior Term Facility are required to be prepaid with certain asset and capital
stock sales and dispositions, certain incurrences of indebtedness, certain
offerings of common equity securities and by certain percentages of our annual
Excess Cash Flow (as defined in the Credit Agreement). Voluntary prepayments may
be made in whole or in part without premium or penalty.
Covenants and Events of Default. The senior credit facilities contain,
among other things, covenants restricting Intersil's ability and its
subsidiaries' ability to dispose of assets, merge, pay dividends, repurchase
62
<PAGE>
or redeem capital stock and indebtedness (including the notes), incur
indebtedness or guaranties, create liens, enter into agreements with negative
pledge clauses, make certain investments or acquisitions, enter into sale and
leaseback transactions, enter into transactions with affiliates, change
Intersil's business or make fundamental changes, and otherwise restrict
corporate actions. The senior credit facilities also contain a number of
financial maintenance covenants.
The senior credit facilities also include events of default usual for these
types of credit facilities and transactions, including but not limited to
nonpayment of principal or interest, violation of covenants, incorrectness of
representations and warranties, cross defaults and cross acceleration,
bankruptcy, material judgments, ERISA, actual or asserted invalidity of the
guaranties or the security documents and certain changes of control of Intersil.
The occurrence of any event of default could result in the acceleration of
Intersil's and the guarantors' obligations under the senior credit facilities,
which could materially and adversely affect holders of the Class A Common Stock.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Sales of substantial amounts of
our common stock in the public market after any restrictions on sale lapse could
adversely affect the prevailing market price of the common stock and impair our
ability to raise equity capital in the future.
Upon completion of the offering, we will have 90,484,686 outstanding shares
of common stock, outstanding options to purchase 1,549,333 shares of common
stock and outstanding warrants to purchase 7,407,413 shares of common stock
(subject to reduction to 5,925,931 shares of common stock upon repayment in full
of the 13.5% Subordinated Holding PIK Note due 2010 with the proceeds of this
offering), assuming no additional option or warrant grants or exercises after
January 31, 2000. We expect that the 20,000,000 shares sold in this offering,
plus any shares issued or sold, as the case may be, upon exercise of the
underwriters' over-allotment option, will be freely tradable without restriction
under the Securities Act, unless purchased by our "affiliates" as that term is
defined in Rule 144 under the Securities Act. In general, affiliates include
officers, directors and 10% or greater stockholders.
The remaining 70,484,686 shares outstanding and 7,475,264 shares subject to
outstanding options and warrants are "restricted securities" within the meaning
of Rule 144. Restricted securities may be sold in the public market only if the
sale is registered or if it qualifies for an exemption from registration, such
as under Rules 144 or 144(k) promulgated under the Securities Act, which are
summarized below. Sales of restricted securities in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the common stock.
LOCK-UP AGREEMENTS
Our directors, officers, Harris and other stockholders, who together hold
substantially all of our securities, have entered into lock-up agreements in
connection with this offering. These lock-up agreements generally provide that
these holders will not offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the date of this prospectus without the prior written consent of the
representatives of the underwriters of this offering. The lock-up agreements
executed by our employees and directors also cover any shares they may acquire
through our directed share program or upon the exercise of options. Shares
subject to lock-up agreements may not be sold until these agreements expire or
are waived Credit Suisse First Boston Corporation. Assuming that Credit Suisse
First Boston Corporation does not release any security holders from the lock-up
agreements and assuming no exercise of outstanding options or warrants, the
following shares will be eligible for sale in the public market at the following
times:
o Beginning on the effective date of the registration statement of which
this prospectus forms a part, all of the 20,000,000 shares sold in this
offering will be immediately available for sale in the public market.
o Beginning on August 14, 2000, an additional 70,484,686 shares will be
eligible for sale pursuant to Rule 144.
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o one percent of the number of shares of common stock then outstanding,
which will equal approximately 904,847 shares immediately after this
offering; and
o the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
64
<PAGE>
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
REGISTRATION RIGHTS
Beginning 180 days after the effective date of the registration statement
of which this prospectus forms a part, some of our stockholders have the right
to cause us to register the sale of their shares under the Securities Act and
our other current stockholders may have the right to have their shares covered
by the registration statement. See "Description of Capital Stock--Registration
Rights Agreement."
EMPLOYEE PLANS
We intend to file a registration statement under the Securities Act after
the effective date of this offering to register shares to be issued pursuant to
our employee benefit plans. As a result, any options or rights exercised under
the 1999 Equity Compensation Plan and the Intersil Holding Corporation Employee
Stock Purchase Plan will also be freely tradable in the public market. However,
shares held by affiliates will still be subject to the volume limitation, manner
of sale, notice and public information requirements of Rule 144. As of December
31, 1999, we had granted options to purchase 1,549,333 shares of common stock,
none of which were exercisable. As of that date we had reserved 5,950,667
additional shares for possible future issuance under our 1999 Equity
Compensation Plan and 1,333,333 shares for possible future issuance under our
Employee Stock Purchase Plan. See "Risk Factors--Risks Relating to Future
Sales," "Description of Capital Stock--1999 Equity Compensation Plan" and
"Description of Capital Stock--Employee Stock Purchase Plan."
65
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the Class
A Common Stock applicable to Non-United States Holders of such Class A Common
Stock. A "Non-United States Holder" is any holder that for United States federal
income tax purposes is not a United States person. For purposes of this
discussion, the term "United States person" means: (i) a citizen or resident of
the United States; (ii) a corporation or other entity taxable as a corporation
created or organized in the United States or under the laws of the United States
or of any political subdivision thereof; (iii) an estate the income of which is
included in gross income for United States federal income tax purposes
regardless of its source; or (iv) a trust if its administration is subject to
the primary supervision of a United States court and one or more United States
persons have the authority to control all substantial decisions of the trust. If
a partnership holds our Class A Common Stock, the tax treatment of a partner
generally will depend upon the status of the partner and upon the activities of
the partnership. Partners of partnerships holding our Class A Common Stock
should consult their tax advisors.
This discussion does not address all aspects of United States federal
income and estate taxation that may be relevant in light of such Non-United
States Holder's particular facts and circumstances (such as being a U.S.
expatriate) and does not address any tax consequences arising under the laws of
any state, local or non-United States taxing jurisdiction. Furthermore, the
following discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended (the "Code") and administrative and judicial interpretations
thereof, all as in effect on the date hereof, and all of which are subject to
change, possibly with retroactive effect.
We have not and will not seek a ruling from the Internal Revenue Service
with respect to the United States federal income and estate tax consequences
described below, and as a result, there can be no assurance that the IRS will
not disagree with or challenge any of the conclusions set forth in this
discussion.
Investors are urged to consult their own tax advisors with respect to the
income tax consequences of the ownership and disposition of our common stock,
including the application and effect of the laws of any state, local, foreign or
other taxing jurisdiction.
DIVIDENDS
We have never paid, and do not anticipate that we will pay cash dividends
on our Class A Common Stock. Should we ever pay a cash dividend, any dividend
paid to a Non-United States Holder of Class A Common Stock generally would be
subject to United States withholding tax at the then-effective U.S. withholding
tax rate (currently 30% of the gross amount of the dividend) or such lower rate
as may be specified by an applicable tax treaty. Dividends received by a
Non-United States Holder that are effectively connected with a United States
trade or business conducted by such Non-United States Holder or, if a tax treaty
applies, attributable to a United States permanent establishment of such
Non-United States Holder, would be exempt from such withholding tax, provided
such Non-United States Holder complies with applicable certification and
disclosure requirements. However, any such effectively connected or attributable
dividends, net of deductions and credits, would be taxed at the same graduated
rates that apply to United States persons.
Dividends may be subject to backup withholding at the rate of 31% unless
the Non-United States Holder certifies to required information in accordance
with United States Treasury Regulations applicable to withholding and
information reporting. Currently, backup withholding does not apply to dividends
paid to a Non-United States Holder at an address outside the United States.
However, under final regulations regarding withholding and information
reporting, which will generally be effective for payments made after December
31, 2000, payment of dividends to a Non-United States Holder at an address
outside the United States may be subject to backup withholding unless such
Non-United States Holder satisfies applicable certification requirements. Backup
withholding, if applied, is not an additional tax. Rather, the tax liability of
the person subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
66
<PAGE>
Generally, we must report annually to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make such reports available to tax authorities in the
recipient's country of residence.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
its common stock unless: (i) the gain is effectively connected with a United
States trade or business of the Non-United States Holder (all or a portion of
which gain, in the case of a corporate Non-United States Holder, may be subject
to the branch profits tax at the rate of 30% (or lower treaty rate, if
applicable)), (ii) the Non-United States Holder is an individual who holds the
common stock as a capital asset (within the meaning of Section 1221 of the Code)
and who is present in the United States for a period or periods aggregating 183
days or more during the taxable year in which the sale or disposition occurs and
other conditions are met, or (iii) we are or have been a "United States real
property holding corporation" for United States federal income tax purposes at
any time within the shorter of the five-year period preceding the disposition or
the Non-United States Holder's holding period of its common stock. We have
determined that we are not, and do not believe that we are likely to become, a
"United States real property holding corporation" for United States federal
income tax purposes. However, no assurance can be provided that we will not
become a United States real property holding corporation. If we were to become a
United States real property holding corporation, gains realized by a Non-United
States Holder that did not directly or indirectly own more than 5% of our common
stock at any time during the shorter of the five-year period preceding the
disposition or the Holder's holding period generally would not be subject to
United States federal income tax as a result of the status of our company as a
United States real property holding corporation, provided that our common stock
was regularly traded on an established securities market.
The payment of the proceeds of a sale of common stock to or through the
United States office of a broker is currently subject to both information
reporting and backup withholding at the rate of 31% unless the Non-United States
Holder certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of proceeds of a
disposition by a Non-United States Holder of common stock outside the United
States to or through a foreign office of a broker will not be subject to backup
withholding. However, such payments will be subject to information reporting if
the broker is: (i) a United States person; (ii) a "controlled foreign
corporation" for United States tax purposes; (iii) a foreign person 50% or more
of whose gross income for a specified three-year period is effectively connected
with a United States trade or business or (iv) with respect to payments made
after December 31, 2000, a foreign partnership, if at any time during its
taxable year, one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interests in the
partnership or if, at any time during its taxable year, the foreign partnership
is engaged in a United States trade or business, unless the Non-United States
Holder establishes an exemption in accordance with United States Treasury
Regulations regarding withholding and information reporting, as applicable.
The final regulations regarding withholding and information reporting as to
payments made after December 31, 2000 unify current certification procedures and
forms and clarify reliance standards. Except as noted above with respect to
foreign brokers that are partnerships, the final regulations generally do not
significantly alter the substantive withholding and information reporting
requirements but do alter the procedures for claiming the benefits of an income
tax treaty and change the certification procedures relating to the receipt by
intermediaries of payments on behalf of the beneficial owner of shares of common
stock. Non-United States Holders should consult their own tax advisors regarding
the effect, if any, of the final regulations on their particular situations.
ESTATE TAX
Common stock owned or treated as owned at the time of death by an
individual who is not a citizen or resident of the United States for federal
estate tax purposes will be included in such individual's estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
applies other rules, and as a result may be subject to United States federal
estate tax.
67
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, FleetBoston
Robertson Stephens Inc. and SG Cowen Securities Corporation are acting as
representatives, the following respective numbers of shares of Class A Common
Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------------------------------------ ----------
<S> <C>
Credit Suisse First Boston Corporation....................................................
Salomon Smith Barney Inc..................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................................
FleetBoston Robertson Stephens Inc........................................................
SG Cowen Securities Corporation...........................................................
----------
Total................................................................................ 20,000,000
----------
----------
</TABLE>
Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. are
acting as joint book-running managers in this offering.
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of Class A Common Stock in the offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an underwriter
defaults the purchase commitments of non-defaulting underwriters may be
increased or the offering of Class A Common Stock may be terminated.
We and Harris have granted to the underwriters a 30-day option to purchase
on a pro rata basis up to 2,000,000 additional shares from us and up to
1,000,000 additional shares from Harris at the initial public offering price
less the underwriting discounts and commissions; provided, however that the
first 1,000,000 shares purchased by the underwriters will be purchased from and
sold by Harris. The option may be exercised only to cover any over-allotments of
Class A Common Stock.
The underwriters propose to offer the shares of Class A Common Stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
and Harris will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us.......................... $ $ $ $
Expenses payable by us............................ $ $ $ $
Underwriting discounts and commissions payable by
selling stockholders............................ $ -- $ $ -- $
</TABLE>
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge,
68
<PAGE>
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
except issuances pursuant to the exercise of employee stock options outstanding
on the date hereof and in acquisition transactions if the recipients of the
shares agree to be similarly bound until the end of the 180 day period.
Our officers, directors, Harris and existing stockholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock (other
than shares of Class A Common Stock that Harris may sell pursuant to the
underwriter's over-allotment option), enter into a transaction which would have
the same effect, or enter into any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic consequences of ownership of
our common stock, whether any such aforementioned transaction is to be settled
by delivery of our common stock or such other securities, in cash or otherwise,
or publicly disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 600,000 shares of the Class A Common Stock for employees, directors
and certain other persons associated with us who have expressed an interest in
purchasing Class A Common Stock in the offering. The number of shares available
for sale to the general public in the offering will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We and, to a limited extent, Harris, have agreed to indemnify the
underwriters against liabilities under the Securities Act, or contribute to
payments which the underwriters may be required to make in that respect.
We have applied to list the shares of Class A Common Stock on The Nasdaq
Stock Market's National Market under the symbol "ISIL".
Prior to this offering, there has been no public market for our Class A
Common Stock. The initial public offering price for the Class A Common Stock
will be determined by negotiation between us and the representatives, and does
not reflect the market price for the Class A Common Stock following the
offering. Among the principal factors considered in determining the initial
public offering price will be:
o the information set forth in this prospectus and otherwise available
to the representatives;
o market conditions for initial public offerings;
o the history of and prospects for the industry in which we are
competing;
o our past and present operations;
o our past and present earnings and current financial position;
o our prospects for future earnings;
o the present state of our development and our current financial
condition;
o the ability of our management;
o the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies;
o the general condition of the securities markets at the time of this
offering; and
o other relevant factors.
We cannot assure you that the initial public offering price will correspond
to the price at which the Class A Common Stock will trade in the public market
subsequent to the offering or that an active trading market for the Class A
Common Stock will develop and continue after the offering.
69
<PAGE>
Credit Suisse First Boston, New York branch, an affiliate of Credit Suisse
First Boston Corporation, is a lender and the Administrative Agent under our
senior credit facilities. An affiliate of Credit Suisse First Boston Corporation
owns an interest in Sterling Holding Company LLC, one of our principal
stockholders, and could have the right to exchange that interest for up to
1,089,997 shares of our common stock (including 83,285 shares issuable upon
exchange of our 12% Series A Cumulative Compounding Preferred Stock for our
common stock). Salomon Smith Barney Inc. is a lender and the Syndication Agent
under our senior credit facilities. Sterling Holding Company, LLC, one of our
principal stockholders, may be deemed to be an affiliate of Salomon Smith Barney
Inc. Certain funds associated with Merrill Lynch, Pierce, Fenner & Smith
Incorporated also are lenders under our senior credit facilities. BankBoston,
N.A., an affiliate of FleetBoston Robertson Stephens Inc., also is a lender
under our senior credit facilities. SG Cowen Securities Corporation owns
warrants to purchase 4,000 shares of our Class A Common Stock. None of the
underwriters has the right, directly or indirectly, to designate any member of
our board of directors.
We intend to use more than 10% of the net proceeds of the sale of our
Class A Common Stock to repay indebtedness under our existing credit facilities
owed by us to banking affiliates of certain of the underwriters and to repay the
13.5% Subordinated PIK Note Due 2010 held by an affiliate of Salomon Smith
Barney Inc. In addition, Salomon Smith Barney Inc. may be deemed to be our
affiliate. Accordingly, the offering is being made in compliance with the
requirements of Rules 2710(c)(8) and 2720 of the National Association of
Securities Dealers, Inc. Conduct Rules. Rules 2710(c)(8) and Rule 2720,
respectively, provide that if more than 10% of the net proceeds from the sale of
our Class A Common Stock, not including underwriting compensation, is paid to
the underwriters or their affiliates, or an underwriter is an affiliate of the
issuer, the initial public offering price of the stock may not be higher than
that recommended by a "qualified independent underwriter" meeting certain
standards. Accordingly, Credit Suisse First Boston Corporation is assuming the
responsibilities of acting as the qualified independent underwriter in pricing
the offering and conducting due diligence. Credit Suisse First Boston
Corporation is eligible to act as qualified independent underwriter because it
beneficially owns less than 5% of any class of our capital stock or our
subordinated debt and satisfies the other requirements applicable to qualified
independent underwriters under the rules set forth by the National Association
of Securities Dealers, Inc. The initial public offering price of the shares of
our Class A Common Stock will be no higher than the price recommended by Credit
Suisse First Boston Corporation.
The underwriters and their affiliates have provided and will in the future
continue to provide investment banking and other financial services, including
the provision of credit facilities, for us and certain of our respective
affiliates in the ordinary course of business for which they have received and
will receive customary compensation.
The representatives, may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act.
o Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
o Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
o Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
o Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
70
<PAGE>
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for us by Dechert Price & Rhoads, Philadelphia, Pennsylvania. The underwriters
have been represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the Intersil Holding
Corporation (Successor) consolidated balance sheet at August 14, 1999 and the
consolidated financial statements of the semiconductor business of Harris
(Predecessor) at July 3, 1998 and July 2, 1999, and for each of the three years
in the period ended July 2, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission. You may read and copy any reports or
other information filed by us at the Securities and Exchange Commission's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and Seven
World Trade Center, 13th Floor, New York, NY 10048. Copies of this material can
be obtained from the Public Reference Section of the SEC upon payment of fees
prescribed by the SEC. You may call the Securities and Exchange Commission at
1-800-SEC-0330 for further information contained in the public reference room.
Our filings with the Securities and Exchange Commission will also be available
to the public from commercial document retrieval services and at the Securities
and Exchange Commission's Web site at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933, covering the Class A Common Stock to be offered pursuant
to this prospectus. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is not necessarily complete. For further
information regarding our company and the Class A Common Stock offered by this
prospectus, please reference the registration statement, including its exhibits.
If we have filed any contract, agreement or other document as an exhibit to the
registration statement, you should read the exhibit for a more complete
understanding of the documents or matter involved.
Copies of the registration statement, including all related exhibits and
schedules, may be inspected without charge at the public reference facilities
maintained by the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at the address set forth above. In addition, you may request
a copy of any of these filings, at no cost, by writing or telephoning us at the
following address or phone number: Intersil Holding Corporation, 2401 Palm Bay
Road NE, Palm Bay, Florida 32905; the telephone number at that address is (321)
724-7000.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Certified Public Accountants' Report........................................................... F-2
Consolidated Statement of Operations and Comprehensive Income.............................................. F-3
Consolidated Balance Sheet................................................................................. F-4
Consolidated Statement of Cash Flows....................................................................... F-5
Consolidated Statement of Shareholders' Equity............................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors
Intersil Holding Corporation
We have audited the accompanying consolidated balance sheet of Intersil Holding
Corporation (successor) as of August 14, 1999 (successor period) and the
consolidated balance sheets of the Harris Semiconductor Business ("Semiconductor
Business") (Predecessor), which is wholly owned by Harris Corporation, as of
July 2, 1999 and July 3, 1998 and the related consolidated statements of
operations, comprehensive income and cash flows for each of the three fiscal
years in the period ended July 2, 1999 and the six weeks ended August 13, 1999
(Predecessor period). 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. 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 successor consolidated balance sheet referred to above
presents fairly, in all material respects, the financial position of Intersil
Holding Corporation as of August 14, 1999. Further, in our opinion, the
Predecessor consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Semiconductor
Business at July 2, 1999 and July 3, 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 2, 1999 and for the six weeks ended August 13, 1999, 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
November 3, 1999, except as to
Note L as to which the date
is February 23, 2000
F-2
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
--------------------------------------------- ---------------------------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED
--------------------------------------------- -------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, AUGUST 13, 1999
1999
------------- ------------ ------------ -------------- ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
REVENUE
Product sales................. $ 545,321 $576,836 $532,718 $246,625 $ 57,336
COSTS AND EXPENSES
Cost of product sales......... 346,073 369,332 349,776 165,619 39,681
Research and development...... 75,208 75,125 67,079 29,726 8,499
Selling, administrative and
general.................... 99,314 98,184 83,998 41,333 10,908
Harris corporate expense
allocation................. 9,960 9,962 9,303 4,314 1,164
Intangible amortization....... 2,291 2,292 2,414 1,146 326
In-process R&D charge......... -- -- -- -- --
--------- -------- -------- -------- ---------
Operating income (loss)......... 12,475 21,941 20,148 4,487 (3,242)
Interest, net................. (595) (914) (1,231) (410) (111)
--------- -------- -------- -------- ---------
Income (loss) before income
taxes...................... 13,070 22,855 21,379 4,897 (3,131)
Income taxes (benefit)........ 1,845 9,944 (6,027) (1,380) (102)
--------- -------- -------- -------- ---------
NET INCOME (LOSS)............. 11,225 12,911 27,406 6,277 (3,029)
Preferred dividends............. -- -- -- -- --
--------- -------- -------- -------- ---------
Net income (loss) to common
shareholders.................. $ 11,225 $ 12,911 $ 27,406 $ 6,277 $ (3,029)
--------- -------- -------- -------- ---------
--------- -------- -------- -------- ---------
LOSS PER SHARE:
Basic.........................
Diluted.......................
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic.........................
Diluted.......................
<CAPTION>
SUCCESSOR
-----------------
20 WEEKS ENDED
-----------------
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
REVENUE
Product sales................. $ 234,745
COSTS AND EXPENSES
Cost of product sales......... 142,494
Research and development...... 25,952
Selling, administrative and
general.................... 38,252
Harris corporate expense
allocation................. --
Intangible amortization....... 3,942
In-process R&D charge......... 20,239
---------
Operating income (loss)......... 3,866
Interest, net................. 24,314
---------
Income (loss) before income
taxes...................... (20,448)
Income taxes (benefit)........ 1,399
---------
NET INCOME (LOSS)............. (21,847)
Preferred dividends............. 3,851
---------
Net income (loss) to common
shareholders.................. $ (25,698)
---------
---------
LOSS PER SHARE:
Basic......................... $ (0.39)
---------
---------
Diluted....................... $ (0.39)
---------
---------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic......................... 66.7
---------
---------
Diluted....................... 66.7
---------
---------
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
--------------------------------------------- ---------------------------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED
--------------------------------------------- -------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, AUGUST 13, 1999
1999
------------- ------------ ------------ -------------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)............. $11,225 $ 12,911 $ 27,406 $ 6,277 $(3,029)
Other comprehensive income
(loss):
Currency translation
adjustments.............. (2,015) (1,851) (574) 1,714 2,475
------- -------- -------- -------- -------
Comprehensive income (loss)... $ 9,210 $ 11,060 $ 26,832 $ 7,991 $ (554)
------- -------- -------- -------- -------
------- -------- -------- -------- -------
<CAPTION>
SUCCESSOR
-----------------
20 WEEKS ENDED
-----------------
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
Net income (loss)............. $ (21,847)
Other comprehensive income
(loss):
Currency translation
adjustments.............. 280
---------
Comprehensive income (loss)... $ (21,567)
---------
---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ---------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999
------------ ------------ ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ -- $ -- $ 7,377
Trade receivables, less allowances for collection loss ($571
in 1998, $582 in 1999, $755 as of August 14, 1999 and $823
as of December 31, 1999)................................... 110,675 100,674 83,042
Inventories.................................................. 180,232 153,822 153,044
Prepaid expenses............................................. 4,658 3,725 3,051
Income tax receivable........................................ 643 1,527 573
Deferred income taxes........................................ -- 3,476 --
-------- -------- ---------
Total Current Assets..................................... 296,208 263,224 247,087
Other Assets
Property, plant and equipment, less allowance for
depreciation ($567,031 in 1998, $582,616 in 1999, -0- as of
August 14, 1999 and $22,402 as of December 31, 1999)....... 450,084 410,530 348,514
Intangibles, less accumulated amortization ($17,760 in 1998,
$19,929 in 1999, -0- as of August 14, 1999 and 3,942 as of
December 31, 1999)......................................... 44,219 45,368 90,715
Other........................................................ 19,759 42,057 21,463
-------- -------- ---------
Total Other Assets....................................... 514,062 497,955 460,692
-------- -------- ---------
Total Assets................................................... $810,270 $761,179 $ 707,779
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY/BUSINESS EQUITY
Current Liabilities
Trade account payables....................................... $ 33,305 $ 31,068 $ 29,365
Retirement plan accruals..................................... 15,448 13,640 2,445
Accrued compensation......................................... 29,022 19,283 15,842
Accrued interest and sundry taxes............................ 4,257 3,193 3,877
Other accrued items.......................................... 13,403 16,418 27,222
Distributor reserves......................................... 6,189 6,542 6,512
Unearned service income...................................... 248 567 567
Income taxes payable......................................... -- -- --
Deferred income taxes........................................ 126 -- --
Long-term debt--current portion.............................. 167 360 2,410
-------- -------- ---------
Total Current Liabilities................................ 102,165 91,071 88,240
Other Liabilities
Deferred income taxes........................................ 5,126 7,022 8,199
Long-term debt............................................... 3,902 4,207 541,525
Mandatorily Redeemable Preferred Stock--1,000,000 shares
designated 12% Series A Cumulative Compounding preferred
stock, $1,000 stated value; 2,000,000 shares authorized,
85,000 shares authorized, 83,434 shares issued and
outstanding at August 14, 1999 and December 31, 1999......... -- -- 84,009
Stockholders' Equity/Business Equity...........................
Class A Common Stock, $.01 par value, voting; 300,000,000
shares authorized, 15,764,794 shares issued and outstanding
at August 14, 1999 and December 31, 1999................... -- -- 158
Class B Common Stock, $.01 par value, non-voting; 300,000,000
shares authorized, 50,908,386 shares issued and outstanding
at August 14, 1999 and December 31, 1999................... -- -- 509
Additional paid-in Capital................................... -- -- 5,935
Business equity.............................................. 701,012 661,388 --
Retained deficit............................................. -- -- (20,796)
Unearned compensation........................................ -- -- --
Accumulated other comprehensive (loss) income................ (1,935) (2,509) --
-------- -------- ---------
Total Stockholders' Equity/Business Equity............... 699,077 658,879 (14,194)
-------- -------- ---------
Total Liabilities and Stockholders' Equity/Business
Equity................................................ $810,270 $761,179 $ 707,779
-------- -------- ---------
-------- -------- ---------
<CAPTION>
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets
Cash $ 40,122
Trade receivables, less allowances for collection loss ($571
in 1998, $582 in 1999, $755 as of August 14, 1999 and $823
as of December 31, 1999)................................... 91,748
Inventories.................................................. 154,016
Prepaid expenses............................................. 7,562
Income tax receivable........................................ --
Deferred income taxes........................................ --
---------
Total Current Assets..................................... 293,448
Other Assets
Property, plant and equipment, less allowance for
depreciation ($567,031 in 1998, $582,616 in 1999, -0- as of
August 14, 1999 and $22,402 as of December 31, 1999)....... 318,147
Intangibles, less accumulated amortization ($17,760 in 1998,
$19,929 in 1999, -0- as of August 14, 1999 and 3,942 as of
December 31, 1999)......................................... 84,652
Other........................................................ 20,784
---------
Total Other Assets....................................... 423,583
---------
Total Assets................................................... $ 717,031
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY/BUSINESS EQUITY
Current Liabilities
Trade account payables....................................... $ 35,338
Retirement plan accruals..................................... 7,563
Accrued compensation......................................... 24,279
Accrued interest and sundry taxes............................ 14,530
Other accrued items.......................................... 24,986
Distributor reserves......................................... 6,356
Unearned service income...................................... 129
Income taxes payable......................................... 555
Deferred income taxes........................................ --
Long-term debt--current portion.............................. 2,415
---------
Total Current Liabilities................................ 116,151
Other Liabilities
Deferred income taxes........................................ --
Long-term debt............................................... 531,836
Mandatorily Redeemable Preferred Stock--1,000,000 shares
designated 12% Series A Cumulative Compounding preferred
stock, $1,000 stated value; 2,000,000 shares authorized,
85,000 shares authorized, 83,434 shares issued and
outstanding at August 14, 1999 and December 31, 1999......... 87,860
Stockholders' Equity/Business Equity...........................
Class A Common Stock, $.01 par value, voting; 300,000,000
shares authorized, 15,764,794 shares issued and outstanding
at August 14, 1999 and December 31, 1999................... 158
Class B Common Stock, $.01 par value, non-voting; 300,000,000
shares authorized, 50,908,386 shares issued and outstanding
at August 14, 1999 and December 31, 1999................... 509
Additional paid-in Capital................................... 2,656
Business equity.............................................. --
Retained deficit............................................. (21,847)
Unearned compensation........................................ (572)
Accumulated other comprehensive (loss) income................ 280
---------
Total Stockholders' Equity/Business Equity............... (18,816)
---------
Total Liabilities and Stockholders' Equity/Business
Equity................................................ $ 717,031
---------
---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
--------------------------------------------- ---------------------------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED
--------------------------------------------- -------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, AUGUST 13, 1999
1999
------------- ------------ ------------ -------------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss)........... $ 11,225 $ 12,911 $ 27,406 $ 6,277 $ (3,029)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities
Depreciation.............. 50,218 65,036 78,217 38,068 8,747
Amortization.............. 2,295 2,295 2,414 1,146 326
Write-off of in-process
technology.............. -- -- -- -- --
Non-current deferred
income taxes............ (981) (461) 1,896 (815) (4,756)
Changes in assets and
liabilities:
Trade receivables......... 3,164 1,270 10,001 24,570 14,532
Inventories............... (7,720) (9,859) 26,410 15,324 (1,649)
Prepaid expenses.......... 1,746 506 933 724 674
Trade payables and accrued
liabilities............. 24 (14,399) (13,950) (28,228) (18,705)
Unearned service income... 94 (32) 319 (163) --
Income taxes.............. (84) (3,866) (4,486) (101) 4,430
Other..................... (5,405) (5,070) (17,911) (15,520) 2,812
--------- -------- -------- -------- ---------
Net cash provided by
operating
activities........... 54,576 48,331 111,249 41,282 3,382
INVESTING ACTIVITIES:
Cash paid for acquired
business.................... -- -- (1,335) -- --
Plant and equipment........... (173,304) (90,184) (38,563) (18,149) (1,887)
--------- -------- -------- -------- ---------
Net cash used in
investing
activities........... (173,304) (90,184) (39,898) (18,149) (1,887)
FINANCING ACTIVITIES:
Proceeds from borrowings.... 1,450 2,750 800 750 --
Payments of borrowings...... (48) (83) (302) (113) (32)
Net cash transfer and
billings from (to)
parent.................... 116,105 41,844 (67,030) (23,078) (1,198)
--------- -------- -------- -------- ---------
Net cash provided by
(used in) financing
activities........... 117,507 44,511 (66,532) (22,441) (1,230)
Effect of exchange rates on
cash and cash equivalents... 1,221 (2,658) (4,819) (692) 1,177
--------- -------- -------- -------- ---------
Net increase in cash.... -- -- -- -- 1,442
Cash at the beginning of
the period........... -- -- -- -- --
--------- -------- -------- -------- ---------
Cash at the end of the
period............... $ -- $ -- $ -- $ -- $ 1,442
--------- -------- -------- -------- ---------
--------- -------- -------- -------- ---------
<CAPTION>
SUCCESSOR
-----------------
20 WEEKS ENDED
-----------------
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
OPERATING ACTIVITIES:
Net Income (loss)........... $ (21,847)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities
Depreciation.............. 22,402
Amortization.............. 3,942
Write-off of in-process
technology.............. 20,239
Non-current deferred
income taxes............ --
Changes in assets and
liabilities:
Trade receivables......... (8,706)
Inventories............... (973)
Prepaid expenses.......... (4,511)
Trade payables and accrued
liabilities............. 33,245
Unearned service income... (438)
Income taxes.............. 1,127
Other..................... 17,388
---------
Net cash provided by
operating
activities........... 61,868
INVESTING ACTIVITIES:
Cash paid for acquired
business.................... --
Plant and equipment........... (12,634)
---------
Net cash used in
investing
activities........... (12,634)
FINANCING ACTIVITIES:
Proceeds from borrowings.... --
Payments of borrowings...... (15,144)
Net cash transfer and
billings from (to)
parent.................... --
---------
Net cash provided by
(used in) financing
activities........... (15,144)
Effect of exchange rates on
cash and cash equivalents... (1,345)
---------
Net increase in cash.... 32,745
Cash at the beginning of
the period........... 7,377
---------
Cash at the end of the
period............... $ 40,122
---------
---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
------------------ PAID-IN EARNINGS UNEARNED COMPREHENSIVE
CLASS A CLASS B CAPITAL (DEFICIT) COMPENSATION INCOME TOTAL
------- ------- ---------- -------- ------------ ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization at August 14,
1999................................ $ 158 $ 509 $5,935 $ -- $ -- $ -- $ 6,602
Net income (loss) (unaudited)......... -- -- -- (21,847) -- -- (21,847)
Common stock sold to certain
executives.......................... -- -- 572 -- (572) -- --
Accretion of undeclared dividends on
preferred stock (unaudited)......... -- -- (3,851) -- -- -- (3,851)
Foreign currency translation
(unaudited)......................... -- -- -- -- -- 280 280
----- ----- ------ -------- ------ ----- ---------
Balances at December 31, 1999
(unaudited)......................... $ 158 $ 509 $2,656 $(21,847) $ (572) $ 280 $ (18,816)
===== ===== ====== ======== ====== ===== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Intersil Holding Corporation (Intersil Holding) 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). Intersil Holding currently has no operations but holds
common stock related to its investment in Intersil and certain indebtedness
related to the Semiconductor Business acquisition (Harris acquisition). Intersil
and its wholly-owned domestic and foreign subsidiaries include the operations of
the Predecessor.
BASIS OF PRESENTATION
The Successor consolidated balance sheet as of August 14, 1999 reflects the
initial capitalization of Intersil Holding and the acquisition of the
Semiconductor Business. The consolidated balance sheets as of July 3, 1998 and
July 2, 1999 and the consolidated statements of operations, comprehensive income
and cash flows for the fiscal years ended June 27, 1997, July 3, 1998, July 2,
1999 and the 6 weeks ended August 13, 1999 include the accounts of 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 are based on a percentage of the
Semiconductor Business' net sales. Interest expense is 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 were not material.
The accompanying unaudited financial statements for the 26 weeks ended
January 1, 1999 and the 20 weeks ended December 31, 1999, reflect all
adjustments, all of which are of a normal recurring nature, necessary in the
opinion of management for a fair presentation of the results for these interim
periods and are not necessarily indicative of full-year results.
F-7
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
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 through borrowings from the senior credit facilities, the 13 1/4%
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
value. The fair value 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).
<TABLE>
<S> <C> <C> <C>
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
=======
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF
FAIR VALUE OF EXCESS FAIR ADJUSTED
ACQUIRED ASSETS VALUE FAIR VALUE
--------------- ------------- -------------
<S> <C> <C> <C>
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
=======
</TABLE>
The appraisal of the acquired 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 years 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 and will involuntarily terminate the employment
of 372 employees of the Semiconductor Business. At
F-8
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
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:
<TABLE>
<CAPTION>
LOCATION NO. OF EMPLOYEES AMOUNTS
- --------------------------------------------------------------- ---------------- -------------
(IN MILLIONS)
<S> <C> <C>
Europe......................................................... 17 $ 5.6
Malaysia....................................................... 262 1.9
North America.................................................. 93 3.5
---- -----
372 $11.0
==== =====
</TABLE>
For the twenty weeks ended December 31, 1999, approximately $5.0 million
of these restructuring costs had been paid out. As of December 31, 1999, the
restructuring liability was $6.0 million. Intersil Holding will complete the
restructing plan by the end of fiscal year 2000.
The following unaudited information presents pro forma financial
information, after giving effect to certain adjustments including amortization
of intangible assets acquired, as if the Acquisition of the Semiconductor
Business had occurred at July 3, 1998 for the 26 weeks ended January 1, 1999 and
July 2, 1999 for the 26 weeks ended December 31, 1999. These pro forma results
have been prepared for comparative purposes only and do not purport to represent
what Intersil Holding's results of operations would actually have been had the
transactions in fact occurred on the date specified, nor do they purport to
project the results of operations for any future period.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
COMBINED
26 WEEKS ENDED 26 WEEKS ENDED
JANUARY 1, 1999 DECEMBER 31, 1999
--------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Product sales........................................... $ 246.6 $ 292.0
Net loss................................................ $ (10.3) $ (28.5)
Net loss to common shareholders......................... $ (15.3) $ (33.5)
Loss per share:
Basic and diluted..................................... $ (0.17) $ (0.37)
</TABLE>
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The 1997 fiscal year includes the 52 weeks ended June 27,
1997; fiscal year 1998 includes the 53 weeks ended July 3, 1998; and fiscal year
1999 includes the 52 weeks ended July 2, 1999.
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.
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 distributor agreements which provide the distributors rights of
return and price protection on unsold merchandise held by the distributors.
Accordingly, sales are reduced for estimated returns from distributors and
estimated future price reductions of unsold merchandise
F-9
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
held by distributors. Product sales to two distributors for the fiscal years
ended June 27, 1997, July 3, 1998, July 2, 1999, twenty-six weeks ended January
1, 1999, six weeks ended August 13, 1999 and twenty weeks ended December 31,
1999 amounted to 20.5%, 19.0%, 16.6%, 18.2%, 29.3% and 13.3%, 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.
Retirement benefits also include an unfunded limited health-care 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 $17.4 million in 1997, $15.6 million in 1998,
$14.8 million in 1999, $6.2 million for the twenty-six weeks ended January 1,
1999, $1.4 million for the six weeks ended August 13, 1999 and $5.4 million for
the twenty weeks ended December 31, 1999.
INCOME TAXES--Intersil Holding follows the liability method of accounting
for income taxes and for the Predecessor financial statements was included with
its parent, Harris, in a consolidated federal income tax return. Harris required
each of its businesses to provide 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. 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 the Intersil Holding's international
subsidiaries are separately classified on the balance sheets.
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 5 to 40 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.
START-UP--In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities." The Company is required to adopt the provisions of this
Statement no later than its fiscal year 2000. This Statement provides guidance
on the financial reporting of start-up and organization costs and requires such
costs, as defined, to be expensed as
F-10
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
incurred, as start-up costs are currently expensed as incurred, adoption of this
Statement is not expected to have a material impact on the Company's results of
operations or financial condition.
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 agreements that do not qualify as hedges are recognized in
income based on changes in the fair market value of the currency exchange
agreement.
FOREIGN CURRENCY TRANSLATION--The functional currency for the Malaysian
subsidiary is 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 Shareholder's equity (Business Equity in the
Predecessor's financial statements). Cumulative translation gains (losses) were
$(1.9) million, $(0.6) million, $2.5 and $0.3 million at July 3, 1998, July 2,
1999, August 13, 1999 and December 31, 1999, 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
twenty weeks ended December 31, 1999 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
generally accepted accounting principles 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.
NOTE C--ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. Intersil Holding plans to adopt the new standard no later
than the first quarter of fiscal 2001. However, Intersil Holding has not
determined the anticipated impact of FAS No. 133.
F-11
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE D--INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
-------------------- --------------------------
JULY 3, JULY 2, AUGUST 14, DECEMBER 31,
1998 1999 1999 1999
-------- -------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Finished products.................................... $ 64,644 $ 58,041 $ 59,708 $ 61,221
Work in process...................................... 125,647 102,457 104,262 106,208
Raw materials and supplies........................... 14,423 11,441 9,137 8,769
-------- -------- -------- --------
204,714 171,939 173,107 176,198
Less inventory reserve............................... (24,482) (18,117) (20,063) (22,182)
-------- -------- -------- --------
$180,232 $153,822 $153,044 $154,016
======== ======== ======== ========
</TABLE>
At July 2, 1999, August 14, 1999 and December 31, 1999 Intersil Holding was
committed to purchase $22.5 million, $22.8 million and $19.7 million,
respectively of inventory from suppliers. Management believes the cost of this
inventory approximates current market value.
NOTE E--PLANT AND EQUIPMENT
Plant and equipment are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
---------------------- --------------------------
JULY 3, JULY 2, AUGUST 14, DECEMBER 31,
1998 1999 1999 1999
---------- -------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land............................................... $ 3,966 $ 3,966 $ 6,539 $ 4,138
Buildings.......................................... 262,490 266,364 100,511 81,103
Machinery and equipment............................ 750,659 722,816 241,464 255,308
---------- -------- -------- --------
1,017,115 993,146 348,514 340,549
Less allowances for depreciation................... 567,031 582,616 -- 22,402
---------- -------- -------- --------
$ 450,084 $410,530 $348,514 $318,147
========== ======== ======== ========
</TABLE>
NOTE F--INTANGIBLES
Intangibles are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------------ --------------------------
PERIOD OF JULY 3, JULY 2, AUGUST 14, DECEMBER 31,
AMORTIZATION 1998 1999 1999 1999
------------- ------- ------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Developed technology............................... 11 years $ -- $ -- $ 57,369 $ 56,141
Customer base...................................... 7 years -- -- 23,665 23,031
Assembled workforce................................ 5 years -- -- 9,681 9,422
Goodwill........................................... 40 years 61,979 65,297 -- --
------- ------- -------- --------
61,979 65,297 90,715 88,594
Less accumulated amortization...................... 17,760 19,929 -- 3,942
------- ------- -------- --------
$44,219 $45,368 $ 90,715 $ 84,652
======= ======= ======== ========
</TABLE>
F-12
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
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):
<TABLE>
<CAPTION>
(SUCCESSOR)
-----------------
<S> <C>
DECEMBER 31, 1999
---------
(UNAUDITED)
Numerator:
Net loss available to common shareholders (numerator for basic and
diluted earnings per share)........................................... $ (25,698)
=========
Denominator:
Denominator for basic earnings per share-weighted average common
shares................................................................ 66,673
Effect of dilutive securities:
Stock options......................................................... --
Warrants.............................................................. --
---------
Denominator for diluted earnings per share-adjusted weighted average
shares................................................................ 66,673
=========
Basic loss per share....................................................... $ (0.39)
=========
Diluted loss per share..................................................... $ (0.39)
=========
</TABLE>
The effect of dilutive securities is not included in the computation for
the twenty weeks ended December 31, 1999 because to do so would be antidilutive.
NOTE H--LONG-TERM DEBT
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------------------------ ------------------------------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999 DECEMBER 31, 1999
------------- ------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
13.25% Senior Subordinated Notes....... $ -- $ -- $ 199,700 $ 199,712
Tranche B Senior Term Facility......... -- -- 205,000 205,000
11.13% Seller Holding PIK Note......... -- -- 90,000 93,869
13.5% Subordinated Holding PIK Note.... -- -- 29,700 31,286
Revolving Credit Facility.............. -- -- 15,000 --
Other.................................. 4,069 4,567 4,535 4,384
------- ------- --------- ---------
4,069 4,567 543,935 534,251
Less: current portion.................. 167 360 2,410 2,415
------- ------- --------- ---------
$ 3,902 $ 4,207 $ 541,525 $ 531,836
======= ======= ========= =========
</TABLE>
F-13
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
Schedule future principal payments under Intersil Holding's and Intersil's
indebtedness are as follows:
<TABLE>
<S> <C>
2000.................................................................... $ 2,415
2001.................................................................... 2,454
2002.................................................................... 2,466
2003.................................................................... 2,479
2004.................................................................... 2,438
Thereafter.............................................................. 521,999
--------
$534,251
========
</TABLE>
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 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.
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 holding 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.
Senior Credit Facilities
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
credit (the "Revolving Credit Facility"). The Revolving Credit Facility has
maximum borrowings of up to $70.0 million, of which
F-14
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
$15.0 million was funded on August 13, 1999 in connection with the acquisition
of the Semiconductor Business. The total gross proceeds from the issuance of the
Tranche B Senior Term Facility and the Revolving Credit Facility were
$212.9 million, net of $6.2 million of deferred financing fees and $0.9 million
debt issuance costs. The $6.2 million deferred financing fees will be treated as
additional interest related to the senior credit facilities and amortized over
the life of the senior credit facilities on an effective yield method. The
$0.9 million debt issuance costs will be amortized over the life of the senior
credit facilities.
The Tranche B Senior Term Facility bears interest at LIBOR + 4%. The
Tranche B Senior Term Facility matures in 2005 and requires 1% of the original
principal amount to be repaid in each of the first five years in quarterly
installments. Beginning September 2004, 24% of the original principal amount
will be repaid each quarter, for four quarters. The senior credit facilities are
subject to an annual commitment fee of .50% of the undrawn portion of the
Revolving Credit Facility.
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 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.
Pay-In-Kind (PIK) Notes
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 which matures in 2010. The 11.13% Seller Holding PIK Note bears
interest at an annual rate equal to 11.13%. Intersil Holding may pay interest on
the 11.13% Seller Holding PIK Note by issuing additional 11.13% PIK notes.
Intersil Holding may redeem the 11.13% Seller Holding PIK Note at any time. In
addition, Intersil Holding will be required to redeem the 11.13% Seller Holding
PIK Note upon a change in control. The 11.13% Seller Holding PIK Note contains
various restrictive covenants and is subordinated to Intersil Holding's
guarantee of Intersil's 13.25% Senior Subordinated Notes and senior credit
facilities. Intersil and its subsidiaries are not a guarantor of the 11.13%
Seller Holding PIK Note.
Also, on August 13, 1999, Intersil Holding issued to Citicorp Mezzanine
Partners, L.P. a $30.0 million 13.5% Subordinated Holding PIK Note. The 13.5%
Subordinated Holding PIK Note matures on July 15, 2010 and bears interest at an
annual rate equal to 13.5%. To the extent Intersil Holding's senior debt
prohibits Intersil Holding from paying cash interest on the 13.5% Subordinated
Holding PIK Note, this interest shall be paid by adding the accrued interest to
the principal amount of the 13.5% Subordinated Holding PIK Note. Intersil
Holding may redeem the 13.5% Subordinated Holding PIK Note at any time in whole
or in part at 100% of the principal amount plus accrued and unpaid interest and
certain prepayment premiums. The 13.5% Subordinated Holding PIK Note contains
various restrictive covenants. The 13.5% Subordinated Holding PIK Note is
subordinated to Intersil Holding's guarantee of Intersil's Notes and senior
credit facilities. Intersil and its subsidiaries are not a guarantor of the
13.5% Subordinated Holding PIK Note.
F-15
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
The other debt consists of 5 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 $4.5 million at August 13, 1999 and $4.4 million at December
31, 1999. The weighted average interest rate for this debt was 3.0% at July 3,
1998, July 2, 1999, August 13, 1999 and December 31, 1999.
NOTE I--PREFERRED STOCK
Intersil Holding has 2.0 million shares of preferred stock authorized,
stated value of $1,000 per share, 1.0 million of which may be designated as 12%
Series A Cumulative Compounding Preferred Stock. On August 13, 1999, Intersil
Holding sold 83,434 shares of its 12% Series A Cumulative Compounding Preferred
Stock to certain buyers including, Sterling Intersil Holding Company LLC, Harris
and certain members of management. The $83.4 million proceeds were used as a
cash equity contribution from Intersil Holding to Intersil for the Acquisition
of the Semiconductor Business.
The Series A Preferred Stock is (i) non-voting, (ii) entitled to cumulative
dividends whether or not declared or earned, at a rate of 12%, compounding
annually, (iii) to have approval rights of new issuances of any other class or
series of stock entitled to a preference ahead of Intersil Holding preferred
stock, (iv) able to amend Intersil Holding's certificate of incorporation if the
amendment adversely affects the rights and preferences of the preferred stock
holders, (v) entitled to $1,000 per share, plus accrued and unpaid dividends in
the event of liquidation before any distribution to holders of Intersil Holding
common stock, (vi) optionally redeemable by Intersil Holding in whole or in part
at a price per share of $1,000 plus accrued and unpaid dividends, and (vii)
mandatorily redeemable on June 30, 2011, at a price per share equal to $1,000
plus accrued and unpaid dividends.
The total mandatory redemption value of the shares outstanding at August
13, 1999 and December 31, 1999, in the amounts of $83.4 million and $87.3
million ($3.9 million accretion of undeclared dividends), respectively, is
classified in Intersil Holding's balance sheet as Mandatorily Redeemable
Preferred Stock.
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. Intersil Holding granted 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.
NOTE J--LEASE COMMITMENTS
Total rental expense amounted to $6.7 million in 1997, $6.3 million in
1998, $6.3 million in 1999, $3.2 million for the twenty-six weeks ended January
1, 1999, $0.6 million for the 6 weeks ended August 13, 1999 and $2.1 million for
the twenty weeks ended December 31, 1999. Future minimum rental commitments
under leases, primarily used for land at Intersil's Malaysian facility and
office buildings at Intersil's International locations, amounted to
approximately $17.7 million at July 2, 1999. Intersil's Malaysian manufacturing
facility leases land under leases expiring from 2072 to 2081. The commitments
for the years following 1999 are: 2000--$4.0 million, 2001--$3.2 million,
2002--$1.4 million, 2003--$1.1 million, 2004--$0.9 million, and $7.1 million
thereafter.
F-16
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE K--BUSINESS EQUITY
Changes in the business equity of the Predecessor's financial statements
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR)
------------------------------------------- ---------------------------------
26 WEEKS ENDED
FISCAL YEAR ENDED 6 WEEKS ENDED
------------------------------------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999
------------- ------------ ------------ --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................. $ 520,858 $646,173 $699,077 $ 699,077 $ 658,879
Net income (loss)............................ 11,225 12,911 27,406 6,277 (3,029)
Foreign currency translation adjustments..... (2,015) (1,851) (574) 1,714 2,475
Net cash transfers and billings from (to)
Harris Corporation......................... 116,105 41,844 (67,030) 23,078 (1,198)
Purchase price elimination................... -- -- -- -- (657,127)
--------- -------- -------- --------- ---------
Balance at end of period..................... $ 646,173 $699,077 $658,879 $ 730,146 $ --
========= ======== ======== ========= =========
</TABLE>
NOTE L--COMMON STOCK
On January 21, 2000, Intersil Holding filed a registration statement with
the Securities and Exchange Commission for a public offering of shares of its
common stock. In connection with the planned public offering, Intersil Holding
effected a 1 for 1.5 reverse stock split of its Class A and Class B common
shares 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.
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 was 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 Note, Intersil Holding issued to Citicorp
Mezzanine Partners, L.P. warrants to purchase 3,703,707 shares of Intersil
Holding Class A Common at an exercise price of $.001 per share, subject to
certain anti-dilution adjustments. If Intersil Holding's prepays in full the
13.5% Subordinated Holding PIK Note within 24 months after issuance, the
warrants will be exercisable for 2,222,224 shares of Intersil Holding Class A
Common Stock. The warrants were valued at $0.3 million and will be treated as
additional interest related to the 13.5% Subordinated Holding PIK Note and
amortized over the life of the 13.5% Subordinated Holding PIK Note on an
effective yield method.
During the unaudited 20 weeks ended December 31, 1999, Intersil Holding
recorded $0.6 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. The compensation
F-17
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE L--COMMON STOCK--(CONTINUED)
expense is being recognized over the stock vesting period of five years. Upon an
initial public offering, the shares sold become fully vested.
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.
NOTE M--INCOME TAXES
The provisions for income taxes are summarized below (Pro Forma for
predecessor financial statements) (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- -------------------------------- -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED 20 WEEKS ENDED
------------------------------------------- -------------- --------------- -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, AUGUST 13, 1999 DECEMBER 31, 1999
1999
------------- ------------ ------------ -------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States (benefit)... $(2,595) $4,221 $ (6,626) $ (1,518) $(399) $ --
International............. 4,768 4,910 1,605 368 352 1,399
State and local
(benefit)............... (328) 813 (1,006) (230) (55) --
------- ------ -------- -------- ----- -------
$ 1,845 $9,944 $ (6,027) $ (1,380) $(102) $ 1,399
======= ====== ======== ======== ===== =======
</TABLE>
In the year 2000, the Malaysian taxing authority will convert its income
tax system to a self-assessment system. The new self-assessment system will
require Malaysian corporate taxpayers to begin making estimated tax payments in
year 2000 based on year 2000 estimated taxable income. Currently, Malaysian
corporate taxpayers submit 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 will not be 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 6 weeks ended August 13, 1999 and the 20 weeks
ended December 31, 1999.
The components of deferred income tax assets (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------------------------------- ---------------------------------------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999 DECEMBER 31, 1999
--------------------- --------------------- --------------------- ---------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- ----------- ------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables.............. $(663) $ -- $ -- $ -- $ -- $ -- $ -- $ --
Fixed Assets............. -- -- -- -- -- -- -- 4,599
NOL Carryforward......... -- -- -- -- -- -- -- 1,320
Credit Carryforward...... -- -- -- -- -- -- -- 4,700
Depreciation............. -- (5,126) -- (7,022) -- (12,953) -- (3,195)
All other--net........... 537 -- 3,476 -- -- 4,754 -- --
Valuation Allowance...... -- -- -- -- -- -- -- (7,424)
----- ------- ------- ------- ------- --------- ------- ---------
$(126) $(5,126) $3,476 $(7,022) $ -- $ (8,199) $ -- $ --
===== ======= ======= ======= ======= ========= ======= =========
</TABLE>
F-18
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE M--INCOME TAXES--(CONTINUED)
A reconciliation of the statutory United States income tax rate to the
effective income tax rate follows:
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- -------------------------------- -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED 20 WEEKS ENDED
------------------------------------------- -------------- --------------- -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, AUGUST 13, 1999 DECEMBER 31, 1999
1999
------------- ------------ ------------ -------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. income
tax rate............. 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
State taxes............ (1.6) 2.3 (3.1) (3.1) 1.1 0.6
International
income............... (21.4) 5.2 (61.9) (61.9) (29.7) (0.7)
Research credits....... (4.8) (2.9) (2.7) (2.7) 2.2 1.3
In-Process R&D......... -- -- -- -- -- (34.5)
Subpart F.............. -- -- -- -- -- (1.7)
Valuation Allowance.... -- -- -- -- -- (6.5)
Goodwill
amortization......... 6.1 3.5 4.0 4.0 (4.9) --
Other items............ .8 .4 0.5 0.5 (0.5) (0.3)
----- ------ ------ ------ ----- -----
Effective income tax
rate................. 14.1% 43.5% (28.2)% (28.2)% 3.2% (6.8)%
===== ====== ====== ====== ===== =====
</TABLE>
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 $21.1 million in
1997, $10.2 million in 1998, $41.9 million in 1999, $0.7 million for the 26
weeks ended January 1, 1999, $(1.6) million for the 6 weeks ended August 13,
1999 and $16.2 million for the 20 weeks ended December 31, 1999.
Income taxes paid (received) were $2.4 million in 1997, $14.8 million in
1998, $3.4 million in 1999, $(0.5) million for the 26 weeks ended January 1,
1999, $0.2 million for the 6 weeks ended August 13, 1999 and $0.3 million for
the 20 weeks ended December 31, 1999.
The change in the balance for deferred taxes is a result of purchase price
adjustments. These adjustments generated a net deferred tax asset in our
Malaysian subsidiary. A full valuation allowance was placed on this asset.
F-19
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
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):
<TABLE>
<CAPTION>
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
------------------------------------------- ---------------------------------- -----------------
FISCAL YEAR ENDED 26 WEEKS ENDED 6 WEEKS ENDED 20 WEEKS ENDED
------------------------------------------- ---------------- --------------- -----------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 JANUARY 1, 1999 AUGUST 13, 1999 DECEMBER 31, 1999
------------- ------------ ------------ ---------------- --------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States operations
Net sales.............. $ 531,246 $563,180 $519,555 $242,507 $ 54,664 $ 227,976
Long-lived assets...... 380,143 386,333 371,448 351,836 366,386 333,513
International
Net sales.............. 14,075 13,656 13,163 4,118 2,672 6,769
Long-lived assets...... 102,683 122,397 121,330 153,093 118,277 97,672
</TABLE>
Export sales included in U.S. Operations were, $234.6 million in 1997,
$258.4 million in 1998, $254.8 million in 1999, $113.7 million for the 26 weeks
ended January 1, 1999, $30.4 million for the 6 weeks ended August 13, 1999 and
$149.0 million for the 20 weeks ended December 31, 1999.
NOTE O--FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, notes receivable, accounts
payable, short-term debt and long-term debt approximates fair value.
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.
Intersil Holding uses 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. Management believes the use of foreign currency financial
instruments should reduce the risks that arise from doing business in
international markets. Contracts are generally one year or less. At July 2,
1999, August 13, 1999 and December 31, 1999, open foreign exchange contracts
were $22.0 million, $6.1 million and $27.6 million, respectively (as described
below), 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 Sheet as other assets and are recorded in income as part of the
underlying transaction when it is recognized. At July 2, 1999, Intersil Holding
had deferred foreign exchange contract losses on future commitments of
approximately $28.6 million. There were no deferred foreign exchange contract
losses at August 14, 1999.
F-20
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
Total open foreign exchange contracts at July 2, 1999, August 14, 1999 and
December 31, 1999, are described in the table below:
JULY 2, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. DEFERRED GAINS (IN MONTHS)
- ------------------------------------------------------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Malaysian Ringgit...................................... 80,589 $19,000 $2,208 1-2
</TABLE>
COMMITMENTS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- MATURITIES
CURRENCY FOREIGN CURRENCY U.S. DEFERRED GAINS (IN MONTHS)
- ------------------------------------------------------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
French Franc........................................... 10,900 $ 1,857 $138 1-2
British Pound.......................................... 691 1,094 2 1
</TABLE>
AUGUST 14, 1999
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------------------------------------------------------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Euro.................................................... 808 $ 865 $ (5) 1
French Franc............................................ 5,300 865 (6) 1
British Pound........................................... 202 327 (2) 1
Malaysian Ringgit....................................... 8,504 2,000 238 1
</TABLE>
COMMITMENTS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------------------------------------------------------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Euro.................................................... 808 $ 865 $ (5) 1
French Franc............................................ 5,300 860 -- 1
British Pound........................................... 202 321 (4) 1
</TABLE>
DECEMBER 31, 1999 (UNAUDITED)
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------------------------------------------------------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Malaysian Ringgit....................................... 26,440 $ 7,000 $(42) 1-2
</TABLE>
F-21
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
COMMITMENTS TO SELL FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
--------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (LOSSES) (IN MONTHS)
- -------------------------------------------------------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Euro.................................................... 8,804 $ 9,191 $324 1-5
French Franc............................................ 14,646 2,335 87 3-5
Deutsche Mark........................................... 4,000 2,163 103 3-4
British Pound........................................... 2,846 4,654 69 1-5
Japanese Yen............................................ 231,134 2,240 (32) 1-4
</TABLE>
NOTE P--EQUITY COMPENSATION PLAN (UNAUDITED)
On November 5, 1999, to be effective August 14, 1999, Intersil Holding
adopted the 1999 Equity Compensation Plan (the "Plan") for salaried officers and
key employees. The Plan authorizes the grant of options for up to 3.0 million
shares of Intersil Holding Class A Common Stock and can include (i) options
intended to constitute incentive stock options ("ISOs") 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 as 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 20 weeks ended December 31, 1999,
Intersil Holding granted 1,549,333 options to acquire Intersil Holding Class A
Common Stock at a price of $2.25 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 twenty weeks ended
December 31, 1999, 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
$21.9 million for the twenty weeks ended December 31, 1999.
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.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Expected volatility........................................................ --
Dividend yield............................................................. --
Risk-free interest rate.................................................... 8.17%
Expected life, in years.................................................... 7
</TABLE>
F-22
<PAGE>
INTERSIL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 27, 1997, JULY 3, 1998, JULY 2, 1999, 6 WEEKS ENDED AUGUST 13,
1999,
UNAUDITED 26 WEEKS ENDED JANUARY 1, 1999 AND THE UNAUDITED 20 WEEKS ENDED
DECEMBER 31, 1999
NOTE P--EQUITY COMPENSATION PLAN (UNAUDITED)--(CONTINUED)
A summary of the status of the Company's stock option plan as of
December 31, 1999, and changes during the twenty weeks then ended are presented
in the table below.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at beginning of period......................................... -- $ --
Granted.................................................................... 1,549 2.25
Exercised.................................................................. -- --
Canceled................................................................... -- --
------ ------
Outstanding at end of period............................................... 1,549 $ 2.25
====== ======
Exercisable at end of period............................................... -- --
Weighted average fair value of options granted............................. $ 0.98
</TABLE>
Information with respect to stock options outstanding and stock options
exercisable at December 31, 1999, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------------------------------------- ----------- ----------- --------- ----------- ---------
(IN (IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C>
$2.25.............................................. 1,549 9.69 $2.25 0 $ 2.25
===== =====
</TABLE>
NOTE Q-- 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 Harris acquisition,
Intersil issued the Notes and Senior Credit Facilities (Note F), 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 sheets as of July 3, 1998 and July 2, 1999
and the predecessor consolidated statements of income and cash flows for the
fiscal years ended June 27, 1997, July 3, 1998, July 2, 1999, the 26 weeks ended
January 1, 1999 and the 6 weeks ended August 13, 1999 for the Predecessor
Guarantor and Non-Guarantor Subsidiaries. The condensed consolidated balance
sheets as of August 14, 1999 and December 31, 1999 and the condensed
consolidated statements of income and cash flows for the 20 weeks ended
December 31, 1999 reflect the Parent, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries.
F-23
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JUNE 27, 1997
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales.......................................... $555,110 $ 398,745 $(408,534) $545,321
COSTS AND EXPENSES
Cost of product sales.................................. 400,997 338,666 (393,590) 346,073
Research and development............................... 74,636 572 -- 75,208
Selling, administrative and general.................... 79,065 20,249 -- 99,314
Harris corporate expense allocations................... 10,854 (894) -- 9,960
Goodwill amortization.................................. 2,291 -- -- 2,291
-------- --------- --------- --------
Operating income (loss).................................. (12,733) 40,152 (14,944) 12,475
Interest, net.......................................... 26,693 (5,174) (22,114) (595)
-------- --------- --------- --------
Income (loss) before income taxes...................... (39,426) 45,326 7,170 13,070
Income taxes (benefit)................................. (11,658) 6,298 7,205 1,845
-------- --------- --------- --------
NET INCOME (LOSS)...................................... $(27,768) $ 39,028 $ (35) $ 11,225
======== ========= ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 3, 1998
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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, administrative and general.................... 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
======== ========= ========= ========
</TABLE>
F-24
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED JULY 2, 1999
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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, administrative and general.................... 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
======== ========= ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JANUARY 1, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales.......................................... $240,586 $ 205,188 $(199,149) $246,625
COSTS AND EXPENSES
Cost of product sales.................................. 212,307 209,083 (255,771) 165,619
Research and development............................... 33,811 (53) (4,032) 29,726
Selling, administrative and general.................... 34,323 8,519 (1,509) 41,333
Harris corporate expense allocations................... 4,314 -- -- 4,314
Goodwill amortization.................................. 1,146 -- -- 1,146
-------- --------- --------- --------
Operating income (loss).................................. (45,315) (12,361) 62,163 4,487
Interest, net.......................................... (423) (446) 459 (410)
-------- --------- --------- --------
Income (loss) before income taxes...................... (44,892) (11,915) 61,704 4,897
Income taxes (benefit)................................. (22,725) 1,650 19,695 (1,380)
-------- --------- --------- --------
NET INCOME (LOSS)...................................... $(22,167) $ (13,565) $ 42,009 $ 6,277
======== ========= ========= ========
</TABLE>
F-25
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX WEEKS ENDED AUGUST 13, 1999
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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, administrative and general.................... 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)
======== ========= ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TWENTY WEEKS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUE
Product sales.............................. $ -- $232,133 $ 212,234 $(209,622) $234,745
COSTS AND EXPENSES
Cost of product sales...................... -- 163,851 186,792 (208,149) 142,494
Research and development................... -- 25,952 -- -- 25,952
Selling, administrative and general........ -- 27,945 10,307 -- 38,252
Harris corporate expense allocations....... -- -- -- -- --
Intangible amortization.................... -- 3,942 -- -- 3,942
In-process R&D charge...................... -- 20,239 -- -- 20,239
-------- -------- --------- --------- --------
Operating income (loss)...................... -- (9,796) 15,135 (1,473) 3,866
Interest, net.............................. 5,455 18,859 -- -- 24,314
Equity in subsidiary (income) loss)........ 13,520 -- -- (13,520) --
-------- -------- --------- --------- --------
Income (loss) before income taxes.......... (18,975) (28,655) 15,135 12,047 (20,448)
Income taxes (benefit)..................... -- -- 1,399 -- 1,399
-------- -------- --------- --------- --------
Net income (loss).......................... (18,975) (28,655) 13,736 12,047 (21,847)
Preferred dividends........................ 3,851 3,851 -- (3,851) 3,851
-------- -------- --------- --------- --------
Net income (loss) to common shareholders... $(22,826) $(32,506) $ 13,736 $ 15,898 $(25,698)
======== ======== ========= ========= ========
</TABLE>
F-26
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 3, 1998
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Trade receivables, net................................. $108,895 $ 1,780 -- $110,675
Intercompany balances.................................. 51,685 (26,498) $ (25,187) --
Inventories............................................ 60,370 158,702 (38,840) 180,232
Other current assets................................... 4,630 671 -- 5,301
Property, plant and equipment, net..................... 327,098 122,986 -- 450,084
Intangibles, net....................................... 44,219 -- -- 44,219
Investment in subsidiaries............................. 21,383 65,881 (87,264) --
Other non-current assets............................... 10,350 9,409 -- 19,759
-------- --------- --------- --------
Total Assets........................................ $628,630 $ 332,931 $(151,291) $810,270
======== ========= ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable....................................... $ 21,362 $ 11,943 -- $ 33,305
Compensation and benefits.............................. 39,599 4,871 -- 44,470
Other current liabilities.............................. 35,701 2,310 $ (13,621) 24,390
Other non-current liabilities.......................... 9,028 -- -- 9,028
Business Equity........................................ 522,940 313,807 (137,670) 699,077
-------- --------- --------- --------
Total Liabilities and Business Equity............... $628,630 $ 332,931 $(151,291) $810,270
======== ========= ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JULY 2, 1999
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
Accounts payable....................................... $ 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
======== ========= ========= ========
</TABLE>
F-27
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AUGUST 14, 1999
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash....................................... $ -- $ 5,932 $ 1,445 $ -- $ 7,377
Trade receivables, net..................... -- 79,242 3,800 -- 83,042
Intercompany balances...................... -- (155,306) (29,102) 184,408 --
Inventories................................ -- 147,441 5,643 (40) 153,044
Other current assets....................... -- 9,898 (903) (5,371) 3,624
Property, plant and equipment, net......... -- 252,796 95,718 -- 348,514
Intangibles, net........................... -- 90,715 -- -- 90,715
Investment in subsidiaries................. 210,011 23,240 68 (233,319) --
Other non-current assets................... -- 20,086 752 625 21,463
-------- -------- --------- --------- --------
Total Assets............................. $210,011 $474,044 $ 77,421 $ (53,697) $707,779
======== ======== ========= ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable........................... $ -- $ 16,532 $ 11,390 $ 1,443 $ 29,365
Compensation and benefits.................. -- 13,164 5,186 (63) 18,287
Other current liabilities.................. -- 41,774 (1,593) 407 40,588
Long-term debt............................. 119,700 421,825 -- -- 541,525
Other non-current liabilities.............. -- (7,370) 5,933 9,636 8,199
Preferred stock............................ 84,009 -- -- -- 84,009
Common Stock............................... 667 -- -- -- 667
Additional paid in capital................. 5,635 300 -- -- 5,935
Retained deficit........................... -- (12,181) 56,505 (65,120) (20,796)
-------- -------- --------- --------- --------
Total Liabilities and Stockholders'
Equity................................ $210,011 $474,044 $ 77,421 $ (53,697) $707,779
======== ======== ========= ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash....................................... $ -- $ 34,083 $ 6,039 $ -- $ 40,122
Trade receivables, net..................... -- 87,325 4,423 -- 91,748
Intercompany balances...................... -- 17,078 (16,079) (999) --
Inventories................................ -- 130,546 33,260 (9,790) 154,016
Other current assets....................... -- 7,237 325 -- 7,562
Property, plant and equipment, net......... -- 230,986 87,161 -- 318,147
Intangibles, net........................... -- 84,343 309 -- 84,652
Investment in subsidiaries................. 215,466 306,502 95,613 (617,581) --
Other non-current assets................... -- 18,184 2,600 -- 20,784
-------- -------- --------- --------- --------
Total Assets............................. $215,466 $916,284 $ 213,651 $(628,370) $717,031
======== ======== ========= ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable........................... $ -- $ 20,449 $ 14,889 $ -- $ 35,338
Compensation and benefits.................. -- 26,460 5,382 -- 31,842
Other current liabilities.................. -- 48,434 537 -- 48,971
Long-term debt............................. 125,155 406,681 -- -- 531,836
Preferred stock............................ 87,860 -- -- -- 87,860
Common stock............................... 667 -- -- -- 667
Additional paid in capital................. 2,356 300 -- -- 2,656
Retained deficit........................... -- 413,960 192,843 (628,370) (21,567)
Unearned compensation...................... (572) -- -- -- (572)
-------- -------- --------- --------- --------
Total Liabilities and Stockholders'
Equity................................ $215,466 $916,284 $ 213,651 $(628,370) $717,031
======== ======== ========= ========= ========
</TABLE>
F-28
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 27, 1997
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $(27,768) $ 39,028 $ (35) $ 11,225
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization.......................... 36,857 15,656 -- 52,513
Changes in working capital............................. 31,934 16,339 (57,435) (9,162)
-------- --------- ------- --------
Net cash provided by (used in) operating
activities......................................... 41,023 71,023 (57,470) 54,576
INVESTING ACTIVITIES:
Plant and equipment...................................... (134,875) (38,429) -- (173,304)
-------- --------- ------- --------
Net cash used in investing activities................ (134,875) (38,429) -- (173,304)
FINANCING ACTIVITIES:
Proceeds from borrowings............................... 1,450 -- -- 1,450
Payments of borrowings................................. (48) -- -- (48)
Net cash transfer and billings from (to) parent........ 92,450 (33,815) 57,470 116,105
-------- --------- ------- --------
Net cash provided by financing activities............ 93,852 (33,815) 57,470 117,507
Effect of exchange rates on cash and cash equivalents.... -- 1,221 -- 1,221
-------- --------- ------- --------
Net increase in cash................................. -- -- -- --
Cash at the beginning of the period.................. -- -- -- --
-------- --------- ------- --------
Cash at the end of the period........................ $ -- $ -- $ -- $ --
======== ========= ======= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 3, 1998
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................................... $ (908) $18,418 $ (4,599) $ 12,911
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization.......................... 51,295 16,036 -- 67,331
Changes in working capital............................. (154,815) 12,669 110,235 (31,911)
-------- ------- --------- --------
Net cash provided by (used in) operating
activities......................................... (104,428) 47,123 105,636 48,331
INVESTING ACTIVITIES:
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 financing activities............ 154,190 (4,043) (105,636) 44,511
Effect of exchange rates on cash and cash equivalents.... -- (2,658) -- (2,658)
-------- ------- --------- --------
Net increase in cash................................. -- -- -- --
Cash at the beginning of the period.................. -- -- -- --
-------- ------- --------- --------
Cash at the end of the period........................ $ -- $ -- $ -- $ --
======== ======= ========= ========
</TABLE>
F-29
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED JULY 2, 1999
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................................... $ 4,431 $ 121,273 $ (98,298) $ 27,406
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization.......................... 59,615 21,016 -- 80,631
Changes in working capital............................. 147,981 19,084 (163,853) 3,212
---------- --------- --------- --------
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)
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 financing activities............ (189,044) (139,639) 262,151 (66,532)
Effect of exchange rates on cash and cash equivalents.... -- (4,819) -- (4,819)
---------- --------- --------- --------
Net increase in cash................................. -- -- -- --
Cash at the beginning of the period.................. -- -- -- --
---------- --------- --------- --------
Cash at the end of the period........................ $ -- $ -- $ -- $ --
========== ========= ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JANUARY 1, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................................... $(22,167) $ (13,565) $ 42,009 $ 6,277
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization.......................... 29,534 9,680 -- 39,214
Non-current deferred income taxes...................... (59,182) -- 58,367 (815)
Changes in working capital............................. (137,676) (57,417) 191,699 (3,394)
-------- --------- --------- --------
Net cash provided by (used in) operating
activities......................................... (189,491) (61,302) 292,075 41,282
INVESTING ACTIVITIES:
Plant and equipment...................................... (10,602) (7,547) -- (18,149)
-------- --------- --------- --------
Net cash used in investing activities................ (10,602) (7,547) -- (18,149)
FINANCING ACTIVITIES:
Proceeds from borrowings............................... 750 -- -- 750
Payments of borrowings................................. (4,818) -- 4,705 (113)
Net cash transfer and billings from (to) parent........ 204,161 69,541 (296,780) (23,078)
-------- --------- --------- --------
Net cash provided by (used in) financing
activities......................................... 200,093 69,541 (292,075) (22,441)
Effect of exchange rates on cash and cash
equivalents............................................ -- (692) -- (692)
-------- --------- --------- --------
Net increase in cash..................................... -- -- -- --
Cash at the beginning of the period...................... -- -- -- --
-------- --------- --------- --------
Cash at the end of the period............................ $ -- $ -- $ -- $ --
======== ========= ========= ========
</TABLE>
F-30
<PAGE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX WEEKS ENDED AUGUST 13, 1999
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................................... $ (11,462) $ (12,126) $ 20,559 $ (3,029)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization.......................... 2,380 6,693 -- 9,073
Non-current deferred income taxes...................... -- 4,815 (9,571) (4,756)
Changes in working capital............................. 210,864 128,451 (337,221) 2,094
---------- --------- --------- --------
Net cash provided by (used in) operating activities.. 201,782 127,833 (326,233) 3,382
INVESTING ACTIVITIES:
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 and cash
equivalents............................................ 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
========== ========= ========= ========
</TABLE>
INTERSIL HOLDING CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TWENTY WEEKS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
PARENT SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................... $ (5,455) $(28,655) $13,736 $ (1,473) $(21,847)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization.............. -- 20,665 5,679 -- 26,344
Changes in working capital................. 5,455 58,599 (8,156) 1,473 57,371
-------- -------- ------- --------- --------
Net cash provided by (used in) operating
activities............................ -- 50,609 11,259 -- 61,868
INVESTING ACTIVITIES:
Plant and equipment.......................... -- (7,314) (5,320) -- (12,634)
-------- -------- ------- --------- --------
Net cash used in investing activities.... -- (7,314) (5,320) -- (12,634)
FINANCING ACTIVITIES:
Payments of borrowings..................... -- (15,144) -- -- (15,144)
Net cash transfer and billings from (to)
parent................................... -- -- -- -- --
-------- -------- ------- --------- --------
Net cash used in financing activities.... -- (15,144) -- -- (15,144)
Effect of exchange rates on cash and cash
equivalents................................ -- -- (1,345) -- (1,345)
-------- -------- ------- --------- --------
Net increase in cash......................... -- 28,151 4,594 -- 32,745
Cash at the beginning of the period.......... -- 5,932 1,445 -- 7,377
-------- -------- ------- --------- --------
Cash at the end of the period................ $ -- $ 34,083 $ 6,039 $ -- $ 40,122
======== ======== ======= ========= ========
</TABLE>
F-31
<PAGE>
[INTERSIL LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses (other than the SEC filing fee, the NASD filing fee
and the Nasdaq National Market listing fee) are estimated:
<TABLE>
<S> <C>
SEC Registration Fee................................................................................ $ 121,140
NASD Filing Fee..................................................................................... $ 30,500
Nasdaq National Market Listing Fee.................................................................. $ 95,000
Accounting Fees..................................................................................... $ 400,000
Printing and Engraving Expenses..................................................................... $ 250,000
Legal Fees and Expenses (other than blue sky)....................................................... $ 1,000,000
Blue Sky Fees and Expenses.......................................................................... $ 1,000
Transfer Agent and Registrar Fees................................................................... $ 25,000
Director and Officer Liability Insurance............................................................ $ 200,000
Miscellaneous Expense............................................................................... $ 77,360
-----------
Total.......................................................................................... $ 2,200,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation of the Issuer provides that directors of the Issuer
shall not be personally liable to the Issuer or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Issuer or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the By-laws of the Issuer provide for indemnification of the Issuer's
officers and directors to the fullest extent permitted under Delaware law.
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify any persons, including officers and directors, who were or are, or
are threatened to be made, parties to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as
an officer, director, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses that such officer or director actually and reasonably
incurred. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling an
Issuer pursuant to the foregoing provisions, the Issuer has been informed that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
The directors and officers of the Issuer are insured against certain
liabilities under the Issuer's directors' and officers' liability insurance.
II-1
<PAGE>
The Underwriting Agreement filed as Exhibit 1.01 to this Registration
Statement provides for indemnification by the underwriters of the Issuer and its
officers and directors for some liabilities that arise under the Securities Act
or otherwise.
The foregoing summary of the Delaware General Corporation Law and of the
Certificate of Incorporation and By-laws of the Issuer is qualified in its
entirety by reference to the relevant provisions of the Delaware General
Corporation Law and of the Issuer's Certificate of Incorporation and By-laws,
which are filed as exhibits to this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On August 13, 1999, pursuant to an Amended and Restated Master Transaction
Agreement, Intersil and Intersil Holding acquired selected portions of the
semiconductor business of Harris (the "Acquisition"). In connection with the
Acquisition, (i) Intersil Holding 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 Intersil Holding 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) Intersil Holding
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 Intersil Holding in exchange for a
13.5% subordinated promissory note and warrants to purchase about 3,703,707
shares of Class A Common Stock of Intersil Holding. In addition, Intersil
Holding 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. Intersil Holding has 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.
Also in connection with the Acquisition, Intersil 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 Intersil with a
principal amount of $1,000 and one warrant to purchase 18.5185 shares of
Intersil Holding's Class A Common Stock. An exchange offer registration
statement filed by Intersil 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 Intersil
Holding on November 10, 1999 to register the warrants and the shares of Common
Stock issuable upon exercise of the warrants.
Pursuant to the 1999 Equity Compensation Plan, Intersil Holding 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, with 20% becoming immediately vested
upon this offering. Intersil Holding has determined that the issuance of the
options to purchase Intersil Holding Common Stock were exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Incorporated by reference to the Exhibit Index following page II-4 hereto.
(b) Financial Statement Schedules:
Schedule I Condensed Financial Information of Registrant
The information required by Schedule I is included in the notes to the
Financial Statements.
II-2
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS $)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED ADDITIONS BALANCE
BALANCE AT TO COSTS CHARGED DEDUCTION AT
BEGINNING AND TO OTHER FROM END OF
OF PERIOD EXPENSES ACCOUNTS RESERVES PERIOD
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Valuation and qualifying accounts deducted from the
assets to which they apply:
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
1999................................................... $ 571 $ 487 $ -- $ 476 $ 582
1998................................................... $ 1,336 $ 324 $ -- $ 1,089 $ 571
1997................................................... $ 757 $ 336 $ 300 $ 57 $ 1,336
INVENTORY RESERVE
1999................................................... $ 24,482 $ 8,373 $ 257 $14,995 $18,117
1998................................................... $ 31,736 $ 9,846 $ 120 $17,220 $24,482
1997................................................... $ 25,385 $10,007 $ 46 $ 3,702 $31,736
DISTRIBUTOR RESERVES
1999................................................... $ 6,189 $52,965 $ -- $52,612 $ 6,542
1998................................................... $ 11,278 $66,062 $ -- $71,151 $ 6,189
1997................................................... $ 7,520 $65,374 $ -- $61,616 $11,278
</TABLE>
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.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that:
(1) for the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective; and
(2) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Bay, State of Florida, on the 23rd day of
February, 2000.
INTERSIL HOLDING CORPORATION
By: GREGORY L. WILLIAMS
------------------------------------
Gregory L. Williams
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on February 23, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
GREGORY L. WILLIAMS Chief Executive Officer and Director
- ------------------------------------------------------ (principal executive officer)
Gregory L. Williams
* Assistant Secretary, Chief Financial Officer and
- ------------------------------------------------------ Vice President
Daniel J. Heneghan (principal financial and accounting officer)
* Director
- ------------------------------------------------------
James A. Urry
* Director
- ------------------------------------------------------
Gary E. Gist
By: GREGORY L. WILLIAMS
- ------------------------------------------------------
Gregory L. Williams
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.01 Form of Underwriting Agreement.
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 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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C>
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 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).
2.21 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).
2.22 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).
3.01* Form of Restated Certificate of Incorporation of Holding.
3.02 Bylaws of Holding (incorporated by reference to Exhibit 3.02 to the Registration Statement on Form S-1).
4.01 Specimen Certificate for Holding's Class A Common Stock.
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).
5.01 Opinion of Dechert Price & Rhoads.
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C>
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, as Syndication Agent, and Morgan Guaranty Trust Company of New York, as
Documentation Agent.
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C>
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C>
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).
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).
21.01 Subsidiaries of Holding (incorporated by reference to Exhibit 21.01 to the Registration Statement on
Form S-1).
23.01 Consent of Dechert Price & Rhoads (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP.
24.01* Power of Attorney.
27.01* Financial Data Schedule.
</TABLE>
- ------------------
* Previously Filed.
<PAGE>
NUMBER [INTERSIL LOGO] SHARES
CA
INTERSIL HOLDING CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN THE CITY OF CUSIP 46069S 10 9
BOSTON, MA, OR THE CITY OF NEW YORK, NY. SEE REVERSE FOR CERTAIN
DEFINITIONS
THIS CERTIFIES THAT:
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE OF
INTERSIL HOLDING CORPORATION
transferable only on the books of the Corporation by the holder hereof in
person or by a duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and Registrar.
WITNESS the facsimile signatures of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
/s/ Stephen M. Moran /s/ Gregory Williams
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
Equiserve Trust Company, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
INTERSIL HOLDING CORPORATION
A summary of the designations, relative, participating, optional or other
special rights of each class of stock of the Corporation, or series thereof
and the qualifications, limitations or restrictions of such preferences and/or
rights, will be furnished by the Corporation to any stockholder on request and
without charge. Such request shall be made to the Corporation's Secretary at the
principal office of the Corporation or to the Transfer Agent and Registrar named
on the face of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ________ Custodian ________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________hereby sell(s), assign(s) and transfer(s)
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________
| |
| |
|_____________________________________|
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE(S)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
of the Shares of capital stock represented by the within Certificate and do(es)
hereby irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________ _____________________________________________
NOTE: The signature to this assignment must
correspond with the name as written upon the
face of this certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature must be guaranteed.
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad.15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
Exhibit 5.01
[LETTERHEAD OF DECHERT PRICE & RHOADS]
February 23, 2000
Intersil Holding Corporation
2401 Palm Bay Road NE
Palm Bay, Florida 32905
Re: Form S-1 Registration Statement
Registration No. 333-95199
-------------------------------
Gentlemen and Ladies:
We have acted as counsel to Intersil Holding Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing of the Registration Statement on Form S-1 (Registration No. 333-95199)
originally filed on January 21, 2000 with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), and as
subsequently amended by an amendment thereto filed on February 4, 2000 and an
amendment to be filed today (the "Registration Statement"), relating to the
proposed issuance of up to 22,000,000 shares (the "Shares") of Class A Common
Stock, par value $.01 per share, of the Company (the "Class A Common Stock"),
which will be sold to the Underwriters named in the Registration Statement
pursuant to the Underwriting Agreement filed as Exhibit 1.01 to the Registration
Statement (the "Underwriting Agreement"). Harris Corporation has granted the
underwriters an option to purchase 1,000,000 shares of your Class A Common
Stock, solely to cover over-allotments, if any.
We have participated in the preparation of the Registration
Statement and have made such legal and factual examination and inquiry as we
have deemed advisable for the rendering of this opinion. In making our
examination we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity to all
authentic original documents of all documents submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion
that when (i) the Registration Statement becomes effective, (ii) the Pricing
Committee of the Company's Board of Directors approves the price at which the
shares are to be sold to the Underwriters set forth in the Underwriting
Agreement and approves other matters relating to the issuance and sale of the
<PAGE>
Intersil Holding Corporation
February 23, 2000
Page 2
Shares, (iii) the Underwriting Agreement has been duly executed and delivered by
the parties thereto and (iv) certificates representing the Shares in the form of
the specimen certificate examined by us have been manually signed by an
authorized officer of the transfer agent and registrar for the Class A Common
Stock and registered by such transfer agent and registrar, and have been
delivered to and paid for by the Underwriters, at a price per share not less
than the per share par value of the Class A Common Stock as contemplated by the
Underwriting Agreement, the issuance and sale of the Shares will have been duly
authorized, and the Shares will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name in the Prospectus
contained therein, under the caption "Legal Matters." In giving such consent we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act.
Very truly yours,
/s/ Dechert Price & Rhoads
<PAGE>
CONFORMED COPY
AMENDMENT NO. 1 AND WAIVER dated as of
January 28, 2000 (this "Amendment"), to the CREDIT
AGREEMENT dated as of August 13, 1999 (the "Credit
Agreement"), among INTERSIL CORPORATION, a Delaware
corporation (the "Borrower"), INTERSIL HOLDING
CORPORATION, a Delaware corporation ("Holdings"), the
Lenders (as defined in Article I of the Credit
Agreement), CREDIT SUISSE FIRST BOSTON, a bank
organized under the laws of Switzerland, acting
through its New York branch, as swingline lender (in
such capacity, the "Swingline Lender"), as an Issuing
Bank (as defined in Article I of the Credit
Agreement), as administrative agent (in such
capacity, the "Administrative Agent") and as
collateral agent (in such capacity, the "Collateral
Agent") for the Lenders, SALOMON SMITH BARNEY INC.,
as syndication agent (in such capacity, the
"Syndication Agent"), and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as documentation agent (in such
capacity, the "Documentation Agent").
A. Pursuant to the Credit Agreement, the Lenders and the Issuing Bank
have extended, and have agreed to extend, credit to the Borrower.
B. Holdings and the Borrower have requested that the Required Lenders
(i) grant a limited waiver of Section 6.12(ii) of the Credit Agreement to allow
Holdings, among other things, to prepay the Holdings Subordinated Notes and the
Seller Subordinated Notes with part of the Net Cash Proceeds (the "IPO
Proceeds") from the initial Public Equity Offering by Holdings of its common
stock (the "IPO"), (ii) grant a limited waiver of Section 6.12(iii) of the
Credit Agreement to allow Holdings to repurchase up to $70,000,000 aggregate
principal amount of its Senior Subordinated Notes with part of the IPO Proceeds
and (iii) agree to amend the Credit Agreement to allow, among other things, the
Borrower to request from time to time that the Total Revolving Credit Commitment
be increased to $150,000,000.
C. The Required Lenders are willing to grant such limited waivers and
to amend the Credit Agreement pursuant to the terms and subject to the
conditions set forth herein.
D. Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Limited Waiver of Section 6.12. The Required Lenders hereby
waive compliance by Holdings with the provisions of clauses (ii) and (iii)
Section 6.12 of the Credit Agreement to the extent (but only to the extent)
necessary to allow Holdings, so long as no Default or Event of Default shall
have occurred and be continuing at the time thereof or after giving effect
thereto, to repurchase, redeem or otherwise prepay with a portion of the IPO
Proceeds, (a) all of its outstanding Holdings Subordinated Notes and Seller
Subordinated Notes in an aggregate original principal amount of $120,000,000,
plus accrued interest, if any, to the date of such repurchase, redemption or
prepayment,
<PAGE>
2
and (b) up to $70,000,000 aggregate principal amount of its Senior
Subordinated Notes, plus prepayment premiums; provided that the balance of the
IPO Proceeds shall be used to prepay Term Loans pursuant to Section 2.13(c) of
the Credit Agreement.
SECTION 2. Addition of Section 2.24. The following Section 2.24 is
hereby inserted following Section 2.23 of the Credit Agreement:
"SECTION 2.24. Increase in Revolving Credit Commitments. (a)
The Borrower may, by written notice to the Administrative Agent from
time to time, request that the Total Revolving Credit Commitment be
increased to an amount not to exceed $150,000,000 minus any amount by
which Revolving Credit Commitments shall have been reduced pursuant to
Section 2.09(b) (the aggregate amount of such increase being referred
to herein as the "Incremental Revolving Facility Amount"). Upon the
approval of such request by the Administrative Agent, the
Administrative Agent shall deliver a copy thereof to each Revolving
Credit Lender. Such notice shall set forth the amount of the requested
increase in the Total Revolving Credit Commitment (which shall be in
minimum increments of $5,000,000 and a minimum amount of $20,000,000 or
equal to the remaining Incremental Revolving Facility Amount) and the
date on which such increase is requested to become effective (which
shall be not less than 10 Business Days nor more than 60 days after the
date of such notice), and shall offer each Revolving Credit Lender the
opportunity to increase its Revolving Credit Commitment by its Pro Rata
Percentage of the proposed increased amount. Each Revolving Credit
Lender shall, by notice to the Borrower and the Administrative Agent
given not more than 10 days after the date of the Administrative
Agent's notice, either agree to increase its Revolving Credit
Commitment by all or a portion of the offered amount (each Revolving
Credit Lender so agreeing being an "Increasing Revolving Lender") or
decline to increase its Revolving Credit Commitment (and any Revolving
Credit Lender that does not deliver such a notice within such period of
10 days shall be deemed to have declined to increase its Revolving
Credit Commitment) (each Revolving Credit Lender so declining or being
deemed to have declined being a "Non-Increasing Revolving Lender"). In
the event that, on the 10th day after the Administrative Agent shall
have delivered a notice pursuant to the second sentence of this
paragraph, the Increasing Revolving Credit Lenders shall have agreed
pursuant to the preceding sentence to increase their Revolving Credit
Commitments by an aggregate amount less than the increase in the Total
Revolving Credit Commitment requested by the Borrower, the Borrower may
arrange for one or more banks or other financial institutions (any such
bank or other financial institution referred to in this clause (a)
being called an "Augmenting Revolving Lender"), which may include any
Revolving Credit Lender, to extend Revolving Credit Commitments or
increase their existing Revolving Credit Commitments in an aggregate
amount equal to the unsubscribed amount; provided that each Augmenting
Revolving Lender, if not already a Revolving Credit Lender hereunder,
shall be subject to the approval of the Administrative Agent and the
Issuing Bank (which approvals shall not be unreasonably withheld) and
the Borrower and each Augmenting Revolving Lender shall execute all
such documentation as the Administrative Agent shall reasonably specify
to evidence its Revolving Credit Commitment and/or its status as a
Revolving Credit Lender hereunder. Any increase in the Total Revolving
Credit Commitment may be made in an amount which is less than the
increase requested by the Borrower if the Borrower is unable to arrange
for, or chooses not to arrange for, Augmenting Revolving Lenders.
<PAGE>
3
(b) On the effective date (the "Increase Effective Date") of
any increase in the Total Revolving Credit Commitment pursuant to this
Section 2.24 (the "Commitment Increase"), (i) the aggregate principal
amount of the Revolving Loans outstanding (the "Initial Loans")
immediately prior to giving effect to the Commitment Increase on the
Increase Effective Date shall be deemed to be paid, (ii) the Borrower
shall pay each Increasing Revolving Lender and each Non- Increasing
Revolving Lender any and all accrued but unpaid interest on the Initial
Loans, (iii) each Increasing Revolving Lender and each Augmenting
Revolving Lender that shall have been a Revolving Credit Lender prior
to the Commitment Increase shall pay to the Administrative Agent in
same day funds an amount equal to the difference between (A) the
product of (1) such Revolving Credit Lender's Pro Rata Percentage
(calculated after giving effect to the Commitment Increase) multiplied
by (2) the amount of the Subsequent Revolving Borrowings (as
hereinafter defined) and (B) the product of (1) such Revolving Credit
Lender's Pro Rata Percentage (calculated without giving effect to the
Commitment Increase) multiplied by (2) the amount of the Initial Loans,
(iv) each Augmenting Revolving Lender that shall not have been a
Revolving Credit Lender prior to the Commitment Increase shall pay to
Administrative Agent in same day funds an amount equal to the product
of (1) such Augmenting Revolving Lender's Pro Rata Percentage
(calculated after giving effect to the Commitment Increase) multiplied
by (2) the amount of the Subsequent Revolving Borrowings, (v) after the
Administrative Agent receives the funds specified in clauses (ii) and
(iii) above, the Administrative Agent shall pay to each Non-Increasing
Revolving Lender the portion of such funds that is equal to the
difference between (A) the product of (1) such Non-Increasing Revolving
Lender's Pro Rata Percentage (calculated without giving effect to the
Commitment Increase) multiplied by (2) the amount of the Initial Loans,
and (B) the product of (1) such Non-Increasing Revolving Lender's Pro
Rata Percentage (calculated after giving effect to the Commitment
Increase) multiplied by (2) the amount of the Subsequent Revolving
Borrowings, (vi) after the effectiveness of the Commitment Increase,
the Borrower shall be deemed to have made new Revolving Credit
Borrowings (the "Subsequent Revolving Borrowings") in an aggregate
principal amount equal to the aggregate principal amount of the Initial
Loans and of the Types and for the Interest Periods specified in a
Borrowing Request delivered to the Administrative Agent in accordance
with Section 2.03 and (vii) each Non-Increasing Revolving Lender, each
Increasing Revolving Lender and each Augmenting Revolving Lender shall
be deemed to hold its Pro Rata Percentage of each Subsequent Revolving
Borrowing (each calculated after giving effect to the Commitment
Increase). The deemed payments made pursuant to clause (i) above in
respect of each Eurodollar Loan shall be subject to indemnification by
the Borrower pursuant to the provisions of Section 2.16 if the Increase
Effective Date occurs other than on the last day of the Interest Period
relating thereto.
(c) Notwithstanding the foregoing, no increase in the Total
Revolving Credit Commitment (or in the Revolving Credit Commitment of
any Revolving Credit Lender) or addition of a new Revolving Credit
Lender shall become effective under this Section 2.24 unless, (i) on
the date of such increase, the conditions set forth in paragraphs (b)
and (c) of Section 4.01 shall be satisfied and the Administrative Agent
shall have received a certificate to that effect dated such
date and executed by a Financial Officer of the Borrower, and (ii) the
Administrative Agent shall have received (with sufficient copies for
each of the Revolving Credit Lenders) documents consistent with those
delivered on the
<PAGE>
4
Effective Date under clauses (a) and (c) of Section 4.02 as to the
corporate power and authority of the Borrower to borrow hereunder after
giving effect to such increase."
SECTION 3. Amendment to Section 1.01. The definition of "Permitted
Acquisition" in Section 1.01 of the Credit Agreement is hereby amended by
deleting the amount "$25,000,000" in clause (b)(iii) of the proviso and
substituting therefor the amount "$50,000,000".
SECTION 4. Amendment to Section 2.13(c). Section 2.13(c) of the Credit
Agreement is hereby amended by deleting the words "Senior Subordinated Notes" in
the second proviso thereof and substituting therefor the words "Holdings
Subordinated Notes".
SECTION 5. Amendment to Section 5.04. (a) Section 5.04(c) of the Credit
Agreement is hereby amended by deleting sub-paragraph (c) in it entirety and
substituting therefor the phrase "[Intentionally omitted.]".
(b) Section 5.04(d)(i) of the Credit Agreement is hereby amended by
deleting the phrase "(a), (b) or (c)" and substituting therefor the phrase "(a)
or (b)".
SECTION 6. Amendment to Section 6.12(ii). Section 6.12(ii) of the
Credit Agreement is hereby amended by deleting the words "Senior Subordinated
Notes" in the parenthetical phrase therein and substituting therefor the words
"Holdings Subordinated Notes".
SECTION 7. Amendment to Section 6.12(iii). Section 6.12(iii) of the
Credit Agreement is hereby amended by adding at the end thereof, immediately
prior to the comma, the following clause:
"; provided, however, that Holdings may make any such payment
or prepayment on or redemption of such Senior Subordinated
Notes in an aggregate principal amount not to exceed
$25,000,000 if (A) after giving effect to such payment,
prepayment or redemption, there is at least $15,000,000 of
unused and available Revolving Credit Commitments and (B)
Holdings shall be in Pro Forma Compliance"
SECTION 8. Representations and Warranties. To induce the other parties
hereto to enter into this Amendment, the Borrower and Holdings represent and
warrant to each of the Lenders, the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Documentation Agent that, after giving effect to this
Amendment, (a) the representations and warranties set forth in Article III of
the Credit Agreement are true and correct in all material respects on and as of
the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date, and (b) no Default or Event of Default has
occurred and is continuing.
SECTION 9. Effectiveness. This Amendment shall become effective as of
the date first written above on the date on which the IPO is consummated, which
shall be evidenced by a certificate of an officer of Holdings, if prior to such
time the Administrative Agent shall have received counterparts of this Amendment
that, when taken together, bear the signatures of the Borrower, the Guarantors
and the Required Lenders.
<PAGE>
5
SECTION 10. Effect of Amendment. Except as expressly set forth herein,
this Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of the Lenders, the
Issuing Bank, the Collateral Agent, the Administrative Agent or the
Documentation Agent under the Credit Agreement or any other Loan Document, and
shall not alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. Nothing herein shall
be deemed to entitle any Loan Party to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document in similar or different circumstances. This Amendment shall apply and
be effective only with respect to the provisions of the Credit Agreement
specifically referred to herein. After the date hereof, any reference to the
Credit Agreement shall mean the Credit Agreement, as modified hereby. This
Amendment shall constitute a "Loan Document" for all purposes of the Credit
Agreement and the other Loan Documents.
SECTION 11. Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same contract.
Delivery of an executed counterpart of a signature page of this Amendment by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.
SECTION 12. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 13. Headings. The headings of this Amendment are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 14. Expenses. The Borrower agrees to reimburse the
Administrative Agent for all out-of-pocket expenses in connection with this
Amendment, including the reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Administrative Agent.
SECTION 15. Acknowledgment of Guarantors. Each of the Guarantors hereto
hereby acknowledges receipt and notice of, and consents to the terms of, this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers, all as of the
date and year first above written.
INTERSIL CORPORATION,
by /s/ David A. Zinsner
--------------------------------
Name: David A. Zinsner
Title: Treasurer
<PAGE>
6
INTERSIL HOLDING CORPORATION,
by /s/ David A. Zinsner
------------------------------------
Name: David A. Zinsner
Title: Treasurer
INTERSIL (OH), LLC,
by /s/ David A. Zinsner
------------------------------------
Name: David A. Zinsner
Title: Treasurer
INTERSIL (PA), LLC,
by /s/ David A. Zinsner
------------------------------------
Name: David A. Zinsner
Title: Treasurer
INTERSIL (FL), LLC,
by /s/ David A. Zinsner
------------------------------------
Name: David A. Zinsner
Title: Treasurer
CHOICE-INTERSIL MICROSYSTEMS, INC.,
by /s/ David A. Zinsner
------------------------------------
Name: David A. Zinsner
Title: Treasurer
CREDIT SUISSE FIRST BOSTON,
individually, and as Administrative
Agent, Collateral Agent, Swingline
Lender and an Issuing Bank,
by /s/ Chris T. Horgan
------------------------------------
Name: Chris T. Horgan
Title: Vice President
by /s/ Robert Hetu
------------------------------------
Name: Robert Hetu
Title: Vice President
<PAGE>
7
SALOMON SMITH BARNEY INC.,
individually, and as Syndication
Agent,
by
------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, individually, and as
Documentation Agent,
by
------------------------------------
Name:
Title:
BANKBOSTON N.A.,
by /s/ Lynn R. Schade
------------------------------------
Name: Lynn R. Schade
Title: Vice President
SCOTIABANC INC.,
by /s/ W.J. Brown
------------------------------------
Name: W.J. Brown
Title: Managing Director
CYPRESSTREE SENIOR FLOATING RATE
FUND
By: CypressTree Investment
Management Company, Inc.,
as Portfolio Manager,
by /s/ Jonathan D. Sharkey
------------------------------------
Name: Jonathan D. Sharkey
Title: Principal
CYPRESSTREE INVESTMENT PARTNERS I,
LTD.
By: CypressTree Investment
Management Company, Inc., as
Portfolio Manager,
<PAGE>
8
by /s/ Jonathan D. Sharkey
------------------------------------
Name: Jonathan D. Sharkey
Title: Principal
EATON VANCE INSTITUTIONAL SENIOR
LOAN FUND
By: Eaton Vance Management, as
Investment Advisor,
by /s/ Scott H. Page
------------------------------------
Name: Scott H. Page
Title: Vice President
GALAXY CLO 1999-1, LTD.
By: SAI Investment Adviser, Inc.,
its Collateral Manager,
by /s/ Lynn A. Hopton
------------------------------------
Name: Lynn A. Hopton
Title: Authorized Signatory
IBM CREDIT CORPORATION,
by /s/ Thomas S. Curcio
------------------------------------
Name: Thomas S. Curcio
Title: Manager of Credit
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor,
by /s/ Joseph Moroney
------------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE
FUND II, INC.,
by /s/ Joseph Moroney
------------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
<PAGE>
9
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
by /s/ Joseph Moroney
------------------------------------
Name: Joseph Moroney
Title: Authorized Signatory
NORTH AMERICAN SENIOR FLOATING
RATE FUND,
By: CypressTree Investment
Management Company, Inc., as
Portfolio Manager,
by /s/ Jonathan D. Sharkey
------------------------------------
Name: Jonathan D. Sharkey
Title: Principal
PPM SPYGLASS FUNDING TRUST,
by /s/ Kelly C. Walker
------------------------------------
Name: Kelly C. Walker
Title: Authorized Agent
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor,
by /s/ Scott H. Page
------------------------------------
Name: Scott H. Page
Title: Vice President
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management, as
Investment Advisor,
by /s/ Scott H. Page
------------------------------------
Name: Scott H. Page
Title: Vice President
SRF TRADING, INC.,
by /s/ Kelly C. Walker
------------------------------------
Name: Kelly C. Walker
Title: Vice President
<PAGE>
10
STANFIELD CLO LTD.
By: Stanfield Capital Partners
LLC, as Investment
Manager to Various Funds,
by /s/ Gregory L. Smith
------------------------------------
Name: Gregory L. Smith
Title: Partner
STEIN ROE & FARNHAM CLO 1 LTD.
By: Stein Roe & Farnham
Incorporated, as Portfolio
Manager,
by /s/ Brian W. Good
------------------------------------
Name: Brian W. Good
Title: Vice President & Portfolio
Manager
STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY,
by /s/ Brian W. Good
------------------------------------
Name: Brian W. Good
Title: Vice President, Stein Roe &
Farnham Incorporated, as
Advisor to the Stein Roe
Floating Rate Limited
Liability Company
SUNTRUST BANK,
by /s/ W. David Wisdom
------------------------------------
Name: W. David Wisdom
Title: Vice President
TRANSAMERICA COMMERCIAL FINANCE
CORP.,
by /s/ Andrew E. Kelpsa
------------------------------------
Name: Andrew E. Kelpsa
Title: Vice President
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 3, 1999, (except Note L, as to which the
date is February 23, 2000) included in Amendment No. 2 to the Registration
Statement (Form S-1 No. 333-95199) and related Prospectus of Intersil Holding
Corporation dated February 23, 2000.
Jacksonville, Florida
February 23, 2000
