AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 2000.
REGISTRATION NO. 333-90857
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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 a Copy to:
CHRISTOPHER G. KARRAS, ESQ.
DECHERT PRICE & RHOADS
4000 BELL ATLANTIC TOWER
1717 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 994-4000
------------------------
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. /x/
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 filed to register additional securities for an offering
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>
<S> <C> <C> <C> <C>
===================================================================================================================================
TITLE OF EACH CLASS OF | AMOUNT TO BE| PROPOSED MAXIMUM | PROPOSED MAXIMUM | AMOUNT OF
SECURITIES TO BE REGISTERED | REGISTERED | OFFERING PRICE PER UNIT(1) | AGGREGATE OFFERING PRICE(1) | REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants to purchase shares of Class A | | | |
Common Stock........................ | 200,000 | $0.05 | $10,000 | $3.00(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock, par value $.01 | | | |
per share(2)........................ | 5,555,560 | $0.001 | $5,555.56 | $2.00(3)
===================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(i) of the Securities Act, based on the book value
of the warrants registered hereunder and the amount payable on exercise of
the warrants.
(2) The shares of Class A Common Stock are issuable upon exercise of the
warrants registered hereunder. This Registration Statement also covers any
shares that may be issuable pursuant to anti-dilution adjustments.
(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 JANUARY 7, 2000
PROSPECTUS
[LOGO]
200,000 WARRANTS
5,555,560 UNDERLYING SHARES OF CLASS A COMMON STOCK
OF
INTERSIL HOLDING CORPORATION
------------------------
We are registering the resale of the warrants and the issuance of shares of
Class A Common Stock of Intersil Holding Corporation upon exercise of the
warrants by their holders. The exercise price for the warrants is $0.001 per
share of Class A Common Stock.
The exercise price and number of shares of Class A Common Stock issuable
upon exercise of the warrants are both subject to adjustment. The warrants are
exercisable on or after August 14, 2000, and will expire on August 15, 2009.
Prior to an underwritten public offering, Intersil Holding Corporation does
not intend to apply for listing or quotation of the warrants or the Class A
Common Stock underlying the warrants on any national securities exchange or the
Nasdaq Stock Market.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS OF THE WARRANTS AND THE CLASS A COMMON STOCK
ISSUABLE UPON EXERCISE OF THE WARRANTS.
------------------------
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these Securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2000.
<PAGE>
------------------
TABLE OF CONTENTS
Page
----
INDUSTRY DATA......................... i
SUMMARY............................... 1
RISK FACTORS.......................... 7
FORWARD-LOOKING STATEMENTS............ 15
USE OF PROCEEDS....................... 15
CAPITALIZATION........................ 16
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS................ 17
SELECTED HISTORICAL FINANCIAL DATA AND
OTHER DATA.......................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
INDUSTRY OVERVIEW..................... 32
BUSINESS.............................. 34
THE TRANSACTIONS...................... 43
Page
----
MANAGEMENT............................ 46
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 50
OWNERSHIP OF CAPITAL STOCK............ 51
DESCRIPTION OF CAPITAL STOCK.......... 53
DESCRIPTION OF CERTAIN INDEBTEDNESS... 56
DESCRIPTION OF THE WARRANTS........... 60
UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS........... 64
PLAN OF DISTRIBUTION.................. 68
SELLING SECURITY HOLDERS.............. 69
LEGAL MATTERS......................... 69
EXPERTS............................... 69
WHERE YOU CAN FIND MORE
INFORMATION......................... 69
INDEX TO FINANCIAL STATEMENTS......... F-1
-----------------------
You should rely only on the information contained in this document or to
which we have referred you in this prospectus. 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 document.
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>
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.
THE OFFERING
On August 13, 1999, we issued and sold 200,000 units, each unit consisting
of $1,000 principal amount of 13 1/4% Senior Subordinated Notes of Intersil and
a warrant to purchase 27.7778 shares of Class A Common Stock of Intersil
Holding. In connection with that sale, we entered into a Warrant Agreement with
the United States Trust Company of New York, as Warrant Agent. Pursuant to the
Warrant Agreement, we agreed, among other things, to register the resale of the
warrants under the Securities Act and the issuance of the Class A Common Stock
upon exercise of the warrants.
WHO WE ARE
We are a leading systems oriented designer and manufacturer of analog
integrated circuits, which we refer to as integrated circuits or semiconductors,
and discrete semiconductors for the communications and power management end-user
markets. Based upon data published by Dataquest and Venture Development
Corporation, we have determined that we rank among the major suppliers in the
world in analog, integrated circuits and discrete semiconductors for the
communications and power management end-user markets. Additionally, we are the
industry leader in providing wireless local area networking semiconductor sets,
which we refer to as our PRISM(Registered) chip set, based upon data published
by Dataquest and International Development Corporation. 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 space and defense products which are used in
military applications and commercial satellites. Our discrete semiconductors
perform single power management functions such as switching electricity on or
off and are used in computing, industrial and automotive markets. The fastest
growing product that we sell is our wireless local area network
PRISM(Registered) chip sets, which have applications in wireless computer
networking for the business or home and in transmitting data from home data
gateways to multiple end-user applications.
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 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 one of the leading analog and discrete power
semiconductor suppliers 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.
Based upon data published by Venture Development Corporation, these
semiconductor distributors recognized us as one of the top ten worldwide vendors
of power supply and power integrated circuits in 1998. 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 wafer fab in Mountaintop, Pennsylvania. We also have assembly and test
facilities in Malaysia and Florida. For fiscal year 1999, our revenue was $532.7
million, net income was $27.4 million and adjusted EBITDA was $129.3 million.
For the quarter ended combined October 1, 1999, our revenue was $133.9 million,
net loss was $29.6 million and adjusted EBITDA was $26.5 million. In addition,
our sales backlog was $180.8 million at October 1, 1999.
Worldwide Semiconductor Trade Statistics, or WSTS, has forecasted 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 forecasted
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
forecasted by WSTS to grow at 20.2% in calendar year 2000 from calendar year
1999 and the wireless LAN market which is forecasted by Intex Management
Services to grow 39.0% in calendar year 2000 from calendar year 1999. We believe
that future demand for our semiconductors will be driven by the increasing
demand for Internet use and for greater portability of electronics, including
consumer electronics, computers and cellular telephones and the growth of the
emerging wireless data communications markets.
<PAGE>
INTERSIL CORPORATION
Intersil is our wholly-owned subsidiary. Our assets are Intersil's stock
and certain intangible assets.
THE TRANSACTIONS
Pursuant to the Master Transaction Agreement dated June 2, 1999, among
Intersil, us and Harris Corporation, we acquired the semiconductor business of
Harris on August 13, 1999. See "The Transactions."
THE OFFERING
<TABLE>
<S> <C>
WARRANTS:
Issuer............................ Intersil Holding Corporation.
Warrants Offered.................. 200,000 warrants which, when exercised, will entitle the
holders to acquire an aggregate of 5,555,560 shares of
Class A Common Stock.
Exercise Price.................... $0.001 per share of Class A Common Stock.
Exercise.......................... The warrants are exercisable beginning on August 14,
2000 and ending on August 15, 2009.
Expiration........................ August 15, 2009.
Voting Rights..................... Warrant holders have no voting rights.
Anti-Dilution..................... The exercise price and number of shares of Class A
Common Stock issued upon exercise of the warrants are
both subject to adjustment in certain cases. See
"Description of the Warrants--Adjustments."
Warrant Shares.................... The warrants entitle the holders to acquire shares of
Class A Common Stock of Intersil Holding. The shares of
Class A Common Stock for which the warrants are
exercisable or which are issued upon exercise of the
warrants are collectively referred to as "Warrant
Shares."
</TABLE>
RISK FACTORS
Investing in the warrants or Warrant Shares involves substantial risks. See
the "Risk Factors" section of this prospectus for a description of certain of
the risks you should carefully consider before investing in the warrants or
Warrant Shares.
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 October 1, 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),
quarter ended October 2, 1998 (predecessor) and combined quarter ended October
1, 1999 (6 weeks ended August 13, 1999 (predecessor) and 7 weeks ended October
1, 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 and Adjusted EBITDA," "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 (1)
--------------------------------
HISTORICAL QUARTER ENDED
------------------------- -----------------------
COMBINED
FISCAL FISCAL FISCAL FISCAL OCTOBER 2, OCTOBER 1,
1997 1998 1999 1999 1998 1999
------- ------ ------ ------ ---------- ----------
(PREDECESSOR) (PREDECESSOR)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signa.................. $ 384.4 $390.4 $352.8 $352.8 $ 79.8 $ 82.8
Discrete Power........................ 154.5 176.4 161.6 161.6 38.5 44.9
Wireless.............................. 6.4 10.0 18.3 18.3 4.2 6.2
------- ------ ------ ------ ------ ------
Total revenue........................... $ 545.3 $576.8 $532.7 $532.7 $122.5 $133.9
======= ====== ====== ====== ====== ======
Gross profit(2)......................... $ 199.3 $207.5 $182.9 $192.9 $ 44.5 $ 48.9
Research and development................ 75.2 75.1 67.0 67.0 14.8 16.9
Selling, general and administrative..... 99.3 98.2 84.0 87.0 22.0 21.8
Harris corporate expense allocation..... 10.0 10.0 9.3 -- -- --
Intangible amortization................. 2.3 2.3 2.4 12.9 3.2 2.9
In-process research and development..... -- -- -- -- -- 20.8
------- ------ ------ ------ ------ ------
Operating income (loss)................. 12.5 21.9 20.2 26.0 4.5 (13.5)
Interest, net........................... (0.6) (0.9) (1.2) 61.4 15.4 15.8
------- ------ ------ ------ ------ ------
Income (loss) before income taxes....... 13.1 22.8 21.4 (35.4) (10.9) (29.3)
Income taxes (benefit).................. 1.9 9.9 (6.0) (28.2) (6.7) (2.3)
------- ------ ------ ------ ------ ------
Net income (loss)....................... 11.2 12.9 27.4 (7.2) (4.2) (27.0)
Preferred dividends..................... -- -- -- (10.2) (2.6) (2.6)
------- ------ ------ ------ ------ ------
Net income (loss) to common
shareholders.......................... $ 11.2 $ 12.9 $ 27.4 $(17.4) $ (6.8) $(29.6)
======= ====== ====== ====== ====== ======
LOSS PER COMMON SHARE:
Basic and diluted................................................. $(0.17) $(0.07) $(0.30)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic and diluted................................................. 100.0 100.0 100.0
SUPPLEMENTAL DATA:
Depreciation............................ $ 50.2 $ 65.0 $ 78.2 $ 68.2 $ 16.5 $ 16.3
Capital expenditures.................... $ 173.3 $ 90.2 $ 38.6 $ 38.6 $ 13.1 $ 4.3
Total cash interest expense(4)...................................... $ 47.0 $ 11.7 $ 12.0
Adjusted EBITDA(3).................................................. $129.8 $ 29.6 $ 26.5
Cash flows provided from (used in)
Operating activities.................. $ 54.6 $ 48.3 $111.2
Investing activities.................. $(173.3) $(90.2) $(39.9)
Financing activities.................. $ 1.4 $ 2.7 $ 0.5
Ratio of Adjusted EBITDA to total cash interest expense............. 2.8x 2.5x 2.2x
Ratio of total debt to Adjusted EBITDA(5)........................... 4.3x 4.6x 5.3x
Ratio of earnings to fixed charges(6)... 7.0x 11.9x 10.7x -- -- --
Ratio of earnings to fixed charges and
preferred stock dividends(7).......... 7.0x 11.9x 10.7x -- -- --
</TABLE>
4
<PAGE>
AS OF
OCTOBER 1, 1999
---------------
(IN MILLIONS)
BALANCE SHEET DATA:
Cash........................................................ $ 33.8
Total assets................................................ 736.7
Long-term debt, including current portion................... 545.8
Mandatorily redeemable preferred stock...................... 86.4
Total shareholders' equity (deficit)........................ (15.4)
- ------------------
(1) The pro forma information presented is a summary only and should be read in
conjunction with "Unaudited Pro Forma Combined Condensed Financial
Statements and Unaudited Supplemental Data" included elsewhere in the
prospectus.
(2) Gross profit includes foreign exchange losses with respect to the Malaysian
Ringgit as detailed in footnote (3) below.
(3) Adjusted EBITDA, for the pro forma periods presented, represents income
(loss) before income taxes, depreciation, amortization, interest expense and
the following adjustments in the chart below. While Adjusted EBITDA should
not be construed as a substitute for operating income or a better indicator
of liquidity than cash flow from operating activities, which are determined
in accordance with generally accepted accounting principles, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements which the Company believes certain investors find to be
useful.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
QUARTER ENDED
-----------------------
COMBINED
FISCAL OCTOBER 2 OCTOBER 1,
1999 1998 1999
------ ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
In-process research and development.............. $ -- $ -- $20.8
Foreign exchange losses.......................... 11.4 2.6 --
Cost savings..................................... 11.3 2.8 --
----- ----- -----
$22.7 $ 5.4 $20.8
===== ===== =====
</TABLE>
Foreign exchange losses--foreign exchange losses with respect to the
Malaysian Ringgit represent losses under contracts entered into by Harris and
subsequently terminated. See "Market Risk Management" on page 31 of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Cost savings--reflects management's estimate of the effect for a full year of
the cost savings related to the closure in January 1999 of one of our
facilities ($3.3 million) and additional cost savings which management
believes can be achieved as a result of initiatives that were begun during
the first quarter of fiscal year 2000 ($8.0 million). These estimated
additional cost savings are expected to result from (i) the decrease in
royalty payments as we accelerate the use of a new fabrication process that
does not rely on third party patents, (ii) the outsourcing of information
technology support services currently provided by Harris, (iii) the
outsourcing of specialized semiconductor packaging in Malaysia and the
related reduction in our workforce and (iv) the downsizing of our European
administrative headquarters. While we consider the numerical specificity of
the foregoing preliminary estimates and the anticipated cost savings to be
reasonable, these estimates and savings are based upon a number of
assumptions and estimates that are subject to inherent uncertainty. The
actual cost savings could vary from these estimates.
(4) Total cash interest expense represents the pro forma interest expense less
interest on the 11.13% Seller Holding PIK Note, the 13.5% Subordinated
Holding PIK Note and amortization of deferred debt issuance
(Footnotes continued on next page)
5
<PAGE>
(Footnotes continued from previous page)
costs and accretion of original issue discount as a result of a required
allocation of value to the warrants under generally accepted accounting
principles.
(5) The ratio of total debt to adjusted EBITDA for the pro forma quarters ended
October 2, 1998 and October 1, 1999 is calculated by annualizing adjusted
EBITDA for the respective period.
(6) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense on debt and amortization of defined debt
issuance costs and the portion (about one-third) of rental expense that we
believe is representative of the interest component of rental expense. Pro
forma fixed charges exceeded pro forma earnings by $35.4 million, $10.9
million and $29.3 million for the pro forma periods fiscal 1999, quarter
ended October 2, 1998 and quarter ended combined October 1, 1999,
respectively.
(7) Earnings as defined above, fixed charges as defined above plus preferred
stock dividends, whether paid or accreted. Pro forma fixed charges and
preferred stock dividends exceeded pro forma earnings by $45.6 million,
$13.5 million and $31.9 million for the pro forma periods fiscal 1999,
quarter ended October 2, 1998 and quarter ended combined October 1, 1999,
respectively.
6
<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.
ABSENCE OF PUBLIC MARKET FOR THE WARRANTS AND THE WARRANT SHARES--NO ASSURANCE
CAN BE GIVEN AS TO THE LIQUIDITY OF ANY TRADING MARKET FOR THE WARRANTS OR
WARRANT SHARES.
The warrants are eligible for trading in the PORTAL Market, a screen-based
market operated by the National Association of Securities Dealers. The PORTAL
market is limited to qualified institutional investors as defined by Rule 144A
of the Securities Act of 1933. Prior to an underwritten public offering,
Intersil Holding does not intend to apply for listing or quotation of the
warrants or the common stock underlying the warrants on any securities exchange
or stock market. There can be no assurance regarding the future development of a
market for the warrants or Warrant Shares, the ability of the holders of the
warrants or Warrant Shares to sell these securities, or the price at which these
holders may be able to sell these securities. If such a market were to develop,
the warrants and Warrant Shares could trade at prices that may be higher or
lower than the price paid by selling holders. Future trading prices of the
warrants and the Warrant Shares will depend on many factors, including, among
other things, prevailing interest rates, our operating results and the market
for similar securities. The initial purchasers have advised Intersil Holding
that they intend to make a market in the warrants, subject to the limits imposed
by the Securities Act and the Exchange Act and subject to any limits imposed
during the pendency of any registration statement or shelf registration
statement filed under the Securities Act; however, the initial purchasers are
not obligated to do so, and may discontinue these market-marking at any time
without notice. Therefore, no assurance can be given as to the liquidity of any
trading market for the warrants and the Warrant Shares or that an active market
for the warrants and the Warrant Shares will develop.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS MAY LIMIT CASH FLOW AVAILABLE
TO INVEST IN THE ONGOING NEEDS OF OUR BUSINESS RATHER THAN SERVICE DEBT WHICH
COULD REDUCE THE VALUE OF THE WARRANTS AND CLASS A COMMON STOCK.
We have a significant amount of indebtedness. The following chart sets
forth certain important credit information as of the date, or at the beginning
of the periods, specified below:
<TABLE>
<CAPTION>
INTERSIL HOLDING
AT OCTOBER 1,
1999
----------------
(IN MILLIONS
EXCEPT RATIO)
<S> <C>
Total indebtedness.......................................... $545.8
Shareholders' deficit....................................... (15.4)
Debt to equity (deficit) ratio.............................. (35.4)x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
COMBINED
FISCAL YEAR 13 WEEKS ENDED
1999 OCTOBER 1, 1999
----------- ---------------
(IN MILLIONS)
<S> <C> <C>
Deficiency of earnings available to cover fixed charges.... $35.4 $29.3
</TABLE>
Pro forma interest expense for the year ended July 2, 1999 and the combined 13
weeks ended October 1, 1999, would have been $62.7 million and $15.9 million,
respectively.
Our substantial indebtedness could have important consequences to you. For
example, 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;
7
<PAGE>
o increase the amount of interest expense which we have to pay, because
certain of our borrowings are at variable rates of interest, which, if
interest rates increase, could result in higher interest expense;
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 notes
tendered to us upon the occurrence of certain changes of control in our
ownership, which would constitute a default under the indenture governing
our Notes and;
o place us at a competitive disadvantage compared to our competitors that
have less debt.
See "Description of Certain Indebtedness--Notes," "Capitalization,"
"Unaudited Pro Forma Consolidated Condensed Financial Statements and Unaudited
Other Data" and "Description of Certain Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENTLY EXPECTED LEVELS OF
INDEBTEDNESS, WE AND OUR SUBSIDIARIES WILL BE ABLE TO INCUR SUBSTANTIALLY MORE
DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the indenture governing the notes 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 October 1, 1999, Intersil's senior credit facilities provide
for additional borrowing of up to about $55.0 million. To the extent new debt is
added to our and our subsidiaries' currently anticipated debt levels, the
substantial leverage risks described above would increase.
See "Pro Forma Capitalization," "Selected Historical Consolidated Financial
Data," "Description of Certain Indebtedness--Notes" and "Description of Certain
Indebtedness."
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. WE MAY NOT BE ABLE TO GENERATE CASH. IF WE CANNOT
OBTAIN THE REQUIRED CASH, THE VALUE OF THE WARRANTS AND THE CLASS A COMMON STOCK
MAY DECLINE.
Our ability to make payments on our indebtedness, and to fund planned
capital expenditures and research and development efforts will depend on our
ability to generate cash in the future. This, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
Our historical financial results have been, and our future financial
results are anticipated to be, subject to substantial fluctuations. We cannot
assure you that our business will generate sufficient cash flow from operations,
that currently anticipated cost savings and operating improvements will be
realized on schedule or that future borrowings will be available to us in an
amount sufficient to enable us to pay our indebtedness, or to fund our other
liquidity needs. If we are unable to pay our debts, we will be required to
pursue one or more alternative strategies, such as selling assets, refinancing
or restructuring our indebtedness or selling equity capital. However, we cannot
assure you that any alternative strategies will be feasible at the time or prove
adequate. Also, certain alternative strategies will require the consent of our
senior secured lenders before we engage in any of these strategies.
See "--Cyclical Industry" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
8
<PAGE>
RESTRICTIONS AND COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR
SENIOR CREDIT FACILITIES AND THE INDENTURE GOVERNING THE NOTES LIMIT INTERSIL'S
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 notes, 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.
Intersil's senior credit facilities require it to maintain certain
financial ratios which become more restrictive over time. Intersil's ability to
comply with these ratios may be affected by events beyond our control. A breach
of any of these covenants or Intersil's inability to comply with the required
financial ratios could result in a default under Intersil's senior credit
facilities. In the event of any of these defaults, the lenders under Intersil's
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 Intersil's available cash to repay these borrowings or to
prevent Intersil from making debt service payments on the notes, 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 DEFAULT ON OUR INDEBTEDNESS OR BE FORCED TO REFINANCE
OUR INDEBTEDNESS UPON TERMS THAT ARE NOT FAVORABLE TO US.
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 the performance of our obligations with
respect to the PIK Notes and certain other administrative obligations), and
depend on distributions from Intersil to meet our obligations. Because of our
and Intersil's substantial leverage and our dependence upon the operating
performance of Intersil to generate distributions to us, there can be no
assurance that any these distributions will be adequate to fund our obligations
when due. In addition, the senior credit facilities, the PIK Notes, the notes
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 notes),
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 warrants and Warrant Shares.
9
<PAGE>
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 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.
RISKS RELATED TO USE OF ESTIMATES IN PRO FORMA FINANCIAL INFORMATION AND
ADJUSTED EBITDA--IF ACTUAL RESULTS DIFFER FROM THE ESTIMATES UNDERLYING SOME OF
THE PRO FORMA FINANCIAL INFORMATION AND ADJUSTED EBITDA, 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 "The
Transactions--Transition Services Agreement." If our actual expenses exceed the
estimates, our operating results will be less favorable than those set forth in
the pro forma financial statements.
Adjusted EBITDA represents income (loss) before income taxes, depreciation,
amortization, interest expense and adjustments for in-process research and
development, foreign exchange loss and cost savings. It reflects management's
estimate of our normalized earnings flow and is an indicator of our anticipated
performance. Adjusted EBITDA in this prospectus is based on anticipated cost
savings that our management believes are reasonable, including cost savings
resulting from a plant closure in January 1999 and other cost savings
anticipated in connection with other initiatives. We cannot assure you that the
anticipated cost savings will be achieved. If our actual savings are less than
our estimates or adversely affect our revenues or operations, our results and
Adjusted EBITDA will be less than we anticipate and less than the amounts set
forth in this prospectus. See "Summary Historical, Pro Forma and Other Data."
10
<PAGE>
FLUCTUATION OF OPERATING RESULTS--OUR OPERATING RESULTS MAY DECREASE DUE TO THE
DECLINE OF AVERAGE SELLING PRICES IN THE SEMICONDUCTOR INDUSTRY.
Intense competition and a general slowdown in the semiconductor industry
worldwide have resulted in decreases in the average selling prices of many of
our products. We expect that average selling prices for our products will
continue to decline in the future. A decline in average selling prices for our
products, if not offset by reductions in the costs of providing these products,
would decrease our gross profits and could have a material adverse effect on our
business, financial condition and results of operation.
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 are denominated in other currencies, such as 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.
11
<PAGE>
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.
CONTROLLING SHAREHOLDERS--A LIMITED NUMBER OF PERSONS INDIRECTLY CONTROL OUR
COMPANY AND MAY EXERCISE THEIR CONTROL IN A MANNER ADVERSE TO YOUR INTERESTS.
Sterling and certain key employees of our company own about 90% of our
outstanding voting stock. 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. See "Business--Competition." 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 "Ownership of Capital Stock."
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 a cross-license agreement that expires 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.
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<PAGE>
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 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. For example, 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. 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 identify 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 Notes. The
13
<PAGE>
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.
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."
YEAR 2000 COMPLIANCE--WE COULD BE ADVERSELY AFFECTED IF YEAR 2000 PROBLEMS
DISRUPT OUR OPERATIONS.
Our inability to remedy our own Year 2000 problems or the failure of third
parties to do so may cause business interruptions or shutdown, financial loss,
regulatory actions, reputational harm and legal liability. We cannot assure you
that our Year 2000 program or the programs of third parties who do business with
us will be effective, that our estimate about the timing and cost of completing
our program will be accurate or that all remediation will be complete by the
year 2000.
We are dependent on business systems (which include our information
technology systems and non-information technology devices with embedded
microprocessors) in operating our business. We also depend on the proper
functioning of business systems of third parties, such as our vendors and
customers. We are currently identifying, testing and correcting Year 2000
problems in systems throughout our operations, including those systems embedded
in our machinery and equipment. We are also reviewing the Year 2000 readiness
and compliance of our principal customers and suppliers of products and
services, in order to identify and assess any negative impacts that
non-compliance could have on us. The failure of our business systems or the
business systems of third parties to interpret properly the upcoming calendar
year 2000 could have a material adverse effect on our financial condition,
results of operations, cash flow and business.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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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 "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; the availability, terms and deployment of
capital; and our ability to accurately estimate the cost of systems preparation
and successfully implement for Year 2000 compliance. 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.
USE OF PROCEEDS
Intersil used the gross proceeds from the sale of the 200,000 units, each
consisting of $1,000 principal amount of 13 1/4% Senior Subordinated Notes of
Intersil and one warrant, together with the $220.0 million from borrowing by
Intersil under the senior credit facilities, and a $120.0 million cash equity
contribution by us to Intersil as follows: (i) approximately $520.0 million to
pay for the purchase price of the semiconductor business and (ii) $20.0 million
to pay fees and expenses relating to the acquisition, the financing in
connection with the acquisition and the application of the proceeds of the
financing. See "The Transactions"
Upon any exercise of the warrants, we will receive the exercise price of
$.001 per warrant share.
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CAPITALIZATION
The following table sets forth the capitalization of Intersil and Intersil
Holding (on a consolidated basis) as of October 1, 1999. 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>
OCTOBER 1, 1999 OCTOBER 1, 1999
--------------- ----------------
INTERSIL INTERSIL HOLDING
CORPORATION CONSOLIDATED
----------- ----------------
(IN MILLIONS)
<S> <C> <C>
Long-term Debt, including Current Portion:
Senior Credit Facilities:
Revolving Credit Facility(1)..................... $ 15.0 $ 15.0
Tranche B Senior Term Facility(2)................ 205.0 205.0
13 1/4% Senior Subordinated Notes(3)............... 199.7 199.7
13.5% Subordinated Holding PIK Note(4)............. -- 30.2
11.13% Seller Holding PIK Note(5)................. -- 91.4
Other............................................ 4.5 4.5
------ ------
Total long-term debt........................ 424.2 545.8
------ ------
Mandatorily Redeemable Preferred Stock(6)............ -- 86.4
Shareholders' Equity(6):
Common stock....................................... -- 1.0
Additional paid-in capital(3)(7)................... 212.2 3.2
Retained deficit................................... (20.1) (20.1)
Accumulated other comprehensive income............. .4 .4
------ ------
Total shareholders' equity.................. 192.5 (15.5)
------ ------
Total capitalization................... $616.7 $616.7
------ ------
------ ------
</TABLE>
- ------------------
(1) Represents the drawn portion of $70.0 million available under the Revolving
Credit Facility.
(2) 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.
(3) The notes were issued as part of the units, which consist of $200.0 million
principal amount of 13 1/4% Senior Subordinated Notes due 2009 and warrants
to purchase 5,555,560 shares of Class A Common Stock of Intersil Holding.
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 of Intersil. The value ascribed to the warrants does not reflect
their market value.
(4) Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to
Intersil Holding in exchange for the 13.5% Subordinated Holding PIK Note due
2010 and warrants to purchase 5,555,560 shares of Class A Common Stock of
Intersil Holding. 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 of
Intersil Holding. The 13.5% Subordinated Holding PIK Note due 2010 is an
obligation of Intersil Holding only and is not reflected on the historical
or the pro forma financial statements of Intersil.
(5) The 11.13% Seller Holding PIK Note issued to Harris will mature in 2010 and
does not require payment of cash interest until then. The 11.13% Seller
Holding PIK Note is an obligation of Intersil Holding only and is not
reflected in the historical or pro forma financial statements of Intersil,
and the proceeds have been contributed to Intersil's capital.
(6) Sterling Holding Company, LLC and senior management, other key employees and
certain other investors purchased shares of 12% Series A Cumulative
Compounding Preferred Stock and common stock of Intersil Holding, for a
total of about $76.5 million in cash and Harris purchased shares of 12%
Series A Cumulative Compounding Preferred Stock and common stock of Intersil
Holding for about $8.5 million in cash. The total cash preferred stock
investment was $85.0 million, and the total cash common stock investment was
$5.0 million. See "Ownership of Capital Stock." Intersil has 1,000 shares
authorized and 1,000 shares issued and outstanding of its $.01 par value
common stock.
(7) Intersil Holding Consolidated Shareholder's Equity is adjusted to eliminate
the investment in Intersil of $210.0 million.
16
<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. The pro forma adjustments are based
upon preliminary estimates that our management believes are reasonable in the
circumstances. In the opinion of our management, all adjustments that are
necessary to present fairly the pro forma data have been made. After definitive
valuations have been made, the final allocation of the purchase price could
differ from the preliminary estimates used herein which would result in changes
to the pro forma financial statements; however, any changes are not expected to
be material. The purchase price of the acquisition of the semiconductor business
is subject to a post-closing adjustment, which has not been finalized.
The Pro Forma Combined Condensed Financial Statements should be read in
conjunction with our Consolidated Financial Statements and notes thereto as of
October 1, 1999 and July 2, 1999 and for the fiscal year ended July 2, 1999 the
6 weeks ended August 13, 1999, and the unaudited 13 weeks ended October 2, 1998
and the unaudited 7 weeks ended October 1, 1999, included elsewhere in this
registration statement, "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 Information and Adjusted
EBITDA."
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 2, 1999
--------------------------------------------------------------------
INTERSIL CORPORATION INTERSIL HOLDING
--------------------------------------- --------------------------
HISTORICAL CONSOLIDATED
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- --------- ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales:
Product sales..................... $532.7 $ -- $532.7 $ -- $532.7
Costs and Expenses:
Cost of product sales............. 349.8 (10.0)(a) 339.8 339.8
Research and development.......... 67.0 67.0 67.0
Marketing......................... 66.9 66.9 66.9
Administrative and general........ 17.1 3.0 (b) 20.1 20.1
Harris corporate expense
allocation..................... 9.3 (9.3)(b)
Intangible amortization........... 2.4 10.5 (d) 12.9 12.9
------ ------ ------ ------ ------
Operating income...................... 20.2 5.8 26.0 -- 26.0
Interest, net..................... (1.2) 48.5 (c) 47.3 14.1 (f) 61.4
------ ------ ------ ------ ------
Income (loss) before income taxes..... 21.4 (42.7) (21.3) (14.1) (35.4)
Income taxes (benefit)................ (6.0) (16.7)(e) (22.7) (5.5)(e) (28.2)
------ ------ ------ ------ ------
Net income (loss)..................... 27.4 (26.0) 1.4 (8.6) (7.2)
Preferred dividends................... -- -- -- (10.2)(g) (10.2)
------ ------ ------ ------ ------
Net income (loss) to common
shareholders........................ $ 27.4 $(26.0) $ 1.4 $(18.8) $(17.4)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
13 WEEKS ENDED OCTOBER 2, 1998
--------------------------------------------------------------------
INTERSIL CORPORATION INTERSIL HOLDING
--------------------------------------- --------------------------
HISTORICAL CONSOLIDATED
(PREDECESSOR) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------- ----------- --------- ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales:
Product sales..................... $122.5 $122.5 $122.5
Costs and Expenses:
Cost of product sales............. 80.5 (2.5)(a) 78.0 78.0
Research and development.......... 14.8 14.8 14.8
Marketing......................... 16.0 16.0 16.0
Administrative and general........ 5.2 0.8 (b) 6.0 6.0
Harris corporate expense
allocation..................... 2.1 (2.1)(b)
Intangible amortization........... 0.6 2.6 (d) 3.2 3.2
------ ------ ------ ------
Operating income...................... 3.3 1.2 4.5 4.5
Interest, net..................... (0.2) 12.1 (c) 11.9 3.5 (f) 15.4
------ ------ ------ ------ ------
Income (loss) before income taxes..... 3.5 (10.9) (7.4) (3.5) (10.9)
Income taxes (benefit)................ (1.0) (4.3)(e) (5.3) (1.4)(e) (6.7)
------ ------ ------ ------ ------
Net income (loss)..................... 4.5 (6.6) (2.1) (2.1) (4.2)
Preferred dividends................... -- -- -- (2.6)(g) (2.6)
------ ------ ------ ------ ------
Net income (loss) to common
shareholders........................ $ 4.5 $ (6.6) $ (2.1) $ (4.7) $ (6.8)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
13 WEEKS ENDED OCTOBER 1, 1999
-----------------------------------------------------------------------------------------------
6 WEEKS ENDED AUGUST 13, 1999
----------------------------------------------------- 7 WEEKS ENDED
PRO FORMA OCTOBER 1, 1999
INTERSIL ADJUSTMENTS ------------------------ 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 $ 76.6 $ -- $133.9
Costs and Expenses:
Cost of product
sales............... 39.6 (1.2)(a) 38.4 46.6 -- 85.0
Research and
development......... 8.5 8.5 8.4 -- 16.9
Marketing.............. 8.2 8.2 8.4 -- 16.6
Administrative and
general............. 2.7 0.3 (b) 3.0 2.2 -- 5.2
Harris corporate
expense
allocation.......... 1.2 (1.2)(b) -- -- -- --
Intangible
amortization........ 0.3 1.2 (d) 1.5 1.4 -- 2.9
In-process R&D charge.. -- -- 20.8 -- 20.8
----- ----- ----- ----- ------ ----- ------
Operating income (loss).... (3.2) 0.9 -- (2.3) (11.2) -- (13.5)
Interest, net.......... (0.1) 5.6 (c) 1.6 (f) 7.1 6.8 1.9 15.8
----- ----- ----- ----- ------ ----- ------
Income (loss) before income
taxes.................... (3.1) (4.7) (1.6) (9.4) (18.0) (1.9) (29.3)
Income taxes (benefit)..... (0.1) (1.8)(e) (0.6)(e) (2.5) 0.2 -- (2.3)
----- ----- ----- ----- ------ ----- ------
Net income (loss).......... (3.0) (2.9) (1.0) (6.9) (18.2) (1.9) (27.0)
Preferred dividends........ -- -- (1.2)(g) (1.2) -- (1.4) (2.6)
----- ----- ----- ----- ------ ----- ------
Net income (loss) to common
shareholders............. $(3.0) $(2.9) $(2.2) $(8.1) $(18.2) $(3.3) $(29.6)
----- ----- ----- ----- ------ ----- ------
----- ----- ----- ----- ------ ----- ------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations.
18
<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 $630.0 million was allocated to the assets and
liabilities of the semiconductor business based upon their approximate fair
value. The preliminary 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
--------------- ---------- ----------
<S> <C> <C> <C>
Net current assets............................. $160.9 -- $160.9
Other amounts.................................. 9.0 -- 9.0
Property & equipment........................... 486.0 $(137.5) 348.5
Developed technology........................... 80.0 (22.6) 57.4
Customer base.................................. 33.0 (9.3) 23.7
In-process research and development............ 29.0 (8.2) 20.8
Assembled workforce............................ 13.5 (3.8) 9.7
------ ------- ------
811.4 $ 181.4 $630.0
------- ------
------- ------
Purchase price................................. 630.0
------
Excess fair value.............................. $181.4
------
------
</TABLE>
As a result of the allocation of negative goodwill to property, plant and
equipment, the net book carrying value at August 13, of $403.7 million was
reduced by $55.2 million to the fair value of $348.5 million. Therefore, for
pro forma purposes, depreciation expense was reduced by $10.0 million, $2.5
million and $1.2 million for the fiscal year ended July 2, 1999, the 13
weeks ended October 2, 1998 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>
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Harris corporate expenses $ 9.3 $ 2.1 $ 1.2
allocation.........................
----- ----- -----
Company's anticipated expenses:
Finance, legal and professional.... 2.0 0.5 0.20
Human resources/benefits........... 0.5 0.2 0.05
Other.............................. 0.5 0.1 0.05
----- ----- -----
Total anticipated expenses.... 3.0 0.8 0.3
----- ----- -----
Net reduction......................... $ 6.3 $ 1.3 $ 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>
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Interest on Notes (13.25% on $200.0 million).... $26.5 $ 6.6 $ 3.1
Estimated interest on Senior Term Facility
(9.30% on $205.0 million)..................... 19.1 4.8 2.2
Estimated interest on Revolving Credit Facility
(8.55% on $15.0 million)..................... 1.3 0.3 0.1
----- ----- -----
Total cash interest expense............. 46.9 11.7 5.4
Deferred financing fees......................... 1.6 0.4 0.2
----- ----- -----
Total interest expense.................. $48.5 $12.1 $ 5.6
----- ----- -----
----- ----- -----
</TABLE>
19
<PAGE>
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, 1999, $0.07
million for the thirteen weeks ended October 2, 1998 and $0.03 million for
the six weeks ended August 13, 1999.
Financing fees are composed of $6.0 million on the 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 preliminary appraisal of the acquired
business, after adjustment for negative goodwill, included $111.6 million
of identified intangible assets including, $57.4 million of developed
technology, $23.7 million to customer base, $9.7 million to assembled
workforce and $20.8 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 unaudited pro forma combined statement of
operations for the fiscal year ended July 2, 1999. The remaining identified
intangibles are being amortized over the following lives:
<TABLE>
<CAPTION>
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
IDENTIFIED INTANGIBLE AMOUNT LIFE JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
- --------------------- ------ -------- ----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Developed $57.4 11 years $ 5.2 $ 1.3 $0.6
technology.........
Customer base........ 23.7 7 years 3.4 0.8 0.4
Assembled
workforce.......... 9.7 5 years 1.9 0.5 0.2
----- ----- ----
$10.5 $ 2.6 $1.2
===== ===== ====
</TABLE>
The purchase price is subject to a post closing adjustment based on the
level of working capital on the closing date.
(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 an effective tax rate of 39% for domestic
adjustments.
(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>
13 WEEKS
FISCAL YEAR ENDED ENDED 6 WEEKS ENDED
JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999
----------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Interest on Subordinated Holding PIK
Note
(13.50% on $30.0 million).......... $ 4.1 $ 1.0 $0.5
Interest on Seller Holding PIK Note
(11.13% on $90.0 million).......... 10.0 2.5 1.1
----- ----- ----
$14.1 $ 3.5 $1.6
===== ===== ====
</TABLE>
(g) Represents the adjustment for the accretion of the 12% cumulative dividends
on the 85,000 shares of the mandatorily redeemable 12% Series A Cumulative
Compounding Preferred Stock, with a stated value of $1,000 per share.
20
<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 13 weeks ended October
2, 1998 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 7 weeks ended October 1, 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>
PREDECESSOR PREDECESSOR
------------------------------------------ ---------------------------------
FISCAL YEARS 13 WEEKS ENDED 6 WEEKS ENDED
------------------------------------------ --------------- ---------------
1995 1996 1997 1998 1999 OCTOBER 2, 1998 AUGUST 13, 1999
------ ------ ------ ------ ------ --------------- ---------------
(DOLLARS 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 $ 79.8 $ 36.3
Discrete Power.......................... 128.2 176.6 154.5 176.4 161.6 38.5 18.0
Wireless................................ 0.0 0.0 6.4 10.0 18.3 4.2 3.0
------ ------ ------ ------ ------ ------ ------
Total revenue............................... $507.4 $570.2 $545.3 $576.8 $532.7 $122.5 $ 57.3
====== ====== ====== ====== ====== ====== ======
Gross profit................................ $178.5 $227.1 $199.3 $207.5 $182.9 $ 42.0 $ 17.7
Research and development.................... 50.6 69.4 75.2 75.1 67.0 14.8 8.5
Selling, general and administrative......... 94.6 103.6 99.3 98.2 84.0 21.2 10.9
Harris corporate expense allocation......... 9.1 10.3 10.0 10.0 9.3 2.1 1.2
Intangible amortization..................... 2.3 2.3 2.3 2.3 2.4 0.6 0.3
In-process R&D charge....................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income (loss)..................... 21.9 41.5 12.5 21.9 20.2 3.3 (3.2)
Interest, net............................... 0.6 (1.0) (0.6) (0.9) (1.2) (0.2) (0.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes........... 21.3 42.5 13.1 22.8 21.4 3.5 (3.1)
Income taxes (benefit)...................... (4.3) 2.6 1.9 9.9 (6.0) (1.0) (0.1)
------ ------ ------ ------ ------ ------ ------
Net income (loss)........................... 25.6 39.9 11.2 12.9 27.4 4.5 (3.0)
Preferred dividends......................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss) to common shareholders.... $ 25.6 $ 39.9 $ 11.2 $ 12.9 $ 27.4 $ 4.5 $ (3.0)
====== ====== ====== ====== ====== ====== ======
LOSS PER SHARE:
Basic and diluted...........................
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(IN MILLIONS):
Basic and diluted...........................
SUPPLEMENTAL DATA:
Depreciation................................ $ 44.5 $ 47.6 $ 50.2 $ 65.0 $ 78.2 $ 19.0 $ 8.7
Capital expenditures........................ $ 80.4 $141.8 $173.3 $ 90.2 $ 38.6 $ 13.1 $ 1.9
Total interest expense...................... $ -- $ -- $ -- $ -- $ 0.1 $ -- $ --
Ratio of earnings to fixed
charges(1)................................ 9.5x 21.2x 7.0x 11.9x 10.7x 8.0x (3)
Ratio of earnings to fixed charges and
preferred stock dividends(2).............. 9.5x 21.2x 7.0x 11.9x 10.7x 8.0x (4)
BALANCE SHEET DATA (END OF PERIOD):
Cash........................................ $ -- $ -- $ -- $ -- $ -- $ -- $ 1.4
Total assets................................ 546.2 647.0 773.3 810.3 761.2 801.0 736.1
Long-term debt, including current portion... -- -- 1.4 4.1 4.6 4.0 4.5
Mandatorily redeemable preferred stock...... -- -- -- -- -- -- --
Total shareholders' equity (deficit)........ 456.2 520.9 646.2 699.1 658.9 705.7 657.3
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
---------------
7 WEEKS ENDED
---------------
OCTOBER 1, 1999
---------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Analog & Mixed-Signal................... $ 46.5
Discrete Power.......................... 26.9
Wireless................................ 3.2
------
Total revenue............................... $ 76.6
======
Gross profit................................ $ 30.0
Research and development.................... 8.4
Selling, general and administrative......... 10.6
Harris corporate expense allocation......... --
Intangible amortization..................... 1.4
In-process R&D charge....................... 20.8
------
Operating income (loss)..................... (11.2)
Interest, net............................... 8.7
------
Income (loss) before income taxes........... (19.9)
Income taxes (benefit)...................... 0.2
------
Net income (loss)........................... (20.1)
Preferred dividends......................... (1.4)
------
Net income (loss) to common shareholders.... $(21.5)
======
LOSS PER SHARE:
Basic and diluted........................... $(0.22)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(IN MILLIONS):
Basic and diluted........................... 100.0
SUPPLEMENTAL DATA:
Depreciation................................ $ 8.7
Capital expenditures........................ $ 3.4
Total interest expense...................... $ 8.7
Ratio of earnings to fixed
charges(1)................................ (3)
Ratio of earnings to fixed charges and
preferred stock dividends(2).............. (4)
BALANCE SHEET DATA (END OF PERIOD):
Cash........................................ $ 33.8
Total assets................................ 736.7
Long-term debt, including current portion... 545.8
Mandatorily redeemable preferred stock...... 86.4
Total shareholders' equity (deficit)........ (15.4)
</TABLE>
- ------------------
(1) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense on debt and amortization of deferred
debt issuance costs and the portion (about one-third) of rental expense that
we believe is representative of the interest component of rental expense.
(2) Earnings as defined above, fixed charges as defined above plus preferred
stock dividends, whether paid or accreted.
(3) The deficiency of earnings available to cover fixed charges for the six
weeks ended August 13, 1999 and for the seven weeks ended October 1, 1999 is
$3.1 million and $19.9 million, respectively.
(4) The deficiency of earnings available to cover fixed charges and preferred
stock dividends for the six weeks ended August 13, 1999 and for the seven
weeks ended October 1, 1999 is $3.1 million and $21.3 million, respectively.
21
<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. Intersil Holding is
a holding company whose sole assets are its investment in Intersil's capital
stock and certain intangible assets. Intersil Holding is dependent on the
receipt of dividends or distributions from Intersil to fund its obligations.
OVERVIEW
We are a leading 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
Intersil Holding was formed on August 13, 1999 through a series of
transactions, in which Intersil Holding and its wholly-owned subsidiary,
Intersil, acquired the Semiconductor Business of 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. Intersil and its wholly-owned domestic and foreign subsidiaries
include the operations of the Predecessor. Our first quarter of fiscal year 2000
began on July 3, 1999 and ended October 1, 1999.
The total purchase price of the Semiconductor Business acquisition was $630
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 $520.0 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 PIK Note and the issuance of a $90.0
million "Pay-In-Kind" (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 approximately $181 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 quarter of 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
October 1, 1999.
22
<PAGE>
QUARTERLY RESULTS
The following table sets forth the unaudited historical quarterly net sales
and gross profits of our product groups:
<TABLE>
<CAPTION>
COMBINED
FISCAL
FISCAL YEAR 1998 FISCAL YEAR 1999 YEAR 2000
--------------------------------- --------------------------------- ---------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
------ ------ ------ ------ ------ ------ ------ ------ ---------
(IN MILLIONS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales
Analog & Mixed-Signal..... $ 96.3 $ 93.9 $ 95.2 $105.0 $ 79.8 $ 86.2 $ 88.5 $ 98.3 $ 82.8
Discrete Power............ 44.7 45.2 45.7 40.8 38.5 34.8 42.3 46.0 44.9
Wireless.................. 2.9 2.2 2.6 2.3 4.2 3.1 4.6 6.4 6.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $143.9 $141.3 $143.5 $148.1 $122.5 $124.1 $135.4 $150.7 $133.9
====== ====== ====== ====== ====== ====== ====== ====== ======
Gross Profit
Analog & Mixed-Signal..... $ 34.2 $ 39.4 $ 39.9 $ 46.5 $ 33.0 $ 33.2 $ 38.3 $ 42.1 $ 34.7
Discrete Power............ 10.8 12.4 10.6 10.3 8.1 5.0 7.2 9.5 10.8
Wireless.................. 0.9 0.1 1.1 1.3 0.9 0.8 1.6 3.2 2.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $ 45.9 $ 51.9 $ 51.6 $ 58.1 $ 42.0 $ 39.0 $ 47.1 $ 54.8 $ 47.7
====== ====== ====== ====== ====== ====== ====== ====== ======
Gross Profit Percentage
Analog & Mixed-Signal..... 36% 42% 42% 44% 41% 39% 43% 43% 42%
Discrete Power............ 24 27 23 25 21 14 17 21 24
Wireless.................. 31 5 42 57 21 26 35 50 35
Total................. 32 37 36 39 34 31 35 36 36
</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.
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.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth income statement data for the periods
indicated as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR 13 WEEKS ENDED
----------------------------- --------------------------
COMBINED
OCTOBER 2, OCTOBER 1,
1997 1998 1999 1998 1999
----- ----- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue:
Analog & Mixed-Signal............ 70.5% 67.7% 66.2% 65.2% 61.9%
Discrete Power................... 28.3 30.6 30.4 31.4 33.5
Wireless......................... 1.2 1.7 3.4 3.4 4.6
----- ----- ----- ------ ------
Total......................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ------
Cost and Expenses
Cost of goods sold............... 63.5 64.0 65.6 65.7 64.4
Research and development......... 13.8 13.0 12.6 12.1 12.6
Selling, general and
administrative................ 20.0 18.8 17.5 19.0 17.0
Intangible amortization.......... 0.4 0.4 0.5 0.5 1.3
In-process research and
development................... -- -- -- -- 15.5
----- ----- ----- ------ ------
Operating income.............. 2.3 3.8 3.8 2.7 (10.8)
Interest, net.................... (0.1) (0.2) (0.2) (0.2) 6.4
----- ----- ----- ------ ------
Income (loss) before income
taxes............................ 2.4 4.0 4.0 2.9 (17.2)
Income taxes (benefit)............. 0.3 1.8 (1.1) (0.8) 0.1
----- ----- ----- ------ ------
Net income (loss).................. 2.1% 2.2% 5.1% 3.7% (17.3)%
===== ===== ===== ====== ======
</TABLE>
Q1 FISCAL 2000 COMPARED WITH Q1 FISCAL 1999
Net Sales
Net sales for the first quarter of fiscal year 2000 increased 9.3% to
$133.9 million from $122.5 million in the first quarter of fiscal year 1999. The
quarter over quarter growth is the result of improved demand across all business
units, primarily as a result of improved market conditions. Wireless sales
growth of 48% was driven by increased market acceptance of our PRISM(Registered)
products.
Geographically, 48.7%, 22.8% and 28.5% of product sales were derived in
North America, Europe and Asia, respectively, during the first quarter of fiscal
year 2000, compared to 55.6%, 25.1%, and 19.3% in the first quarter of fiscal
year 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 13.6% to $47.7 million in the
first quarter of fiscal year 2000 from $42.0 million in the first quarter of
fiscal year 1999. As a percent of sales, gross margin was 35.6% in the first
quarter of fiscal year 2000 and 34.3% in the first quarter of fiscal year 1999.
This increase was substantially due to greater capacity utilization, from 60% in
Q1 Fiscal 1999 to 76% in Q1 Fiscal 2000, and increased manufacturing
efficiencies resulting from cost reductions related to head count reductions, as
well as a decrease in depreciation expense resulting from a revaluation of our
property, plant and equipment due to purchase accounting.
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
24
<PAGE>
14.2% to $16.9 million in the first quarter of fiscal year 2000 from $14.8
million in the first quarter of fiscal year 1999. As a percent of sales, R&D
expenses remained relatively flat at 12.6% in the first quarter of fiscal year
2000 from 12.1% in the first quarter of fiscal year 1999. R&D expense included
continued investment in the PRISM(Registered) chip set and in the Discrete Power
integrated circuits area, focusing in the categories of communications and
computing, which led our growth of new product revenue during fiscal year 1999.
In connection with the acquisition, we allocated $20.8 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 first quarter of fiscal year 2000.
In making the purchase price allocation, we relied on present value
calculations of income, an analysis of project accomplishments and completion
costs and an assessment of overall contribution and project risk. The amounts
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established.
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 to each of the significant projects and
the stage of completion are reported below.
<TABLE>
<CAPTION>
FAIR VALUE
(IN STAGE OF
PRODUCT 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.
25
<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.
26
<PAGE>
SG&A costs, which include marketing, selling, administrative and general
expenses, and Harris corporate expense allocation, decreased 3.0% to $22.7
million in the first quarter of fiscal year 2000 from $23.4 million in the first
quarter of fiscal year 1999. 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 in fiscal year 1999 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 $1.2 million for the six weeks of the first quarter
of fiscal year 2000 and $2.1 million for all of the first quarter of fiscal year
1999. Certain intangible assets were recorded on the opening balance sheet of
Intersil as part of purchase accounting. These assets will be 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 first
quarter of fiscal year 2000 was $8.6 million, excluding interest income of $0.1
million.
Tax Expense
The tax benefit for the combined first quarter of fical year 2000 is not
comparable to the first quarter of fiscal year 1999, due to the different tax
structures of the semiconductor business and Intersil Holding.
Backlog
We had backlog at October 1, 1999 of $180.8 compared to $174.0 million at
July 2, 1999.
FISCAL 1999 COMPARED WITH 1998
Net Sales
Net sales 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.
27
<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(Registered) 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
Net Sales
Net sales 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.
28
<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 October 1, 1999, $15.0 million of the Revolving Credit
Facility was outstanding.
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. As of October 1, 1999, our total debt, preferred
stock and shareholder's deficit was $545.8 million, $86.4 million and $15.4
million, respectively. We also have additional borrowing availability of $55.0
million for working capital and capital expenditure requirements under the
Revolving Credit Facility.
The senior credit facilities, along with the PIK Notes and the notes,
restrict the payment of dividends and the making of loans by Intersil to
Intersil Holding. Under the senior credit facilities and the subordinated credit
facility and indentures governing the PIK Notes and the notes, Intersil
generally may not pay dividends or advance funds to Intersil Holding except up
to $5,000,000 in any fiscal year to repurchase stock of employees, officers and
directors, up to $500,000 in any fiscal year to pay operating and other overhead
expenses, any payment under a tax sharing agreement with its affiliates and
management fees not to exceed the amount of employee compensation. As Intersil
Holding is a holding company, the exceptions to the general prohibition on
dividends and distributions are expected to be sufficient to fund Intersil
Holding's obligations.
Receivables and Inventories
Trade accounts and the current portion of notes receivable less the
allowance for collection losses totaled $84.8 million at October 1, 1999
compared to $100.7 million at July 2, 1999. This decrease was due to continued
emphasis on improving the receivable collection cycle and higher sales in the
fourth quarter of fiscal year 1999. Inventories remained relatively flat during
the first quarter of fiscal year 2000, with a slight increase due to the
increased sales demand, from $153.8 million at July 2, 1999 to $156.4 million at
October 1, 1999. The inventory decrease from the end of fiscal year 1998 of
$23.8 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.
29
<PAGE>
Capital Expenditures
Capital expenditures for the first quarter of fiscal year 2000 were $4.3
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 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 $38.0 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.
IMPACT OF YEAR 2000
We recognize the need to ensure that operations will not be adversely
impacted by Year 2000 computer hardware and software failures and embedded chip
or processor failures (non-information technology systems). Issues relating to
the Year 2000 are the result of computer programs and certain embedded-chip
systems being written or developed using two digits rather than four to define
the applicable year. Any computer programs or embedded-chip systems that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, obtain materials, provide packaging and test
services, generate invoices or engage in similar normal business activities.
As of October 1, 1999, we had completed a formal review of all computer
hardware, software systems, communications equipment and equipment used in the
manufacturing process. Our review included analysis of all potentially affected
business and process systems. Code which was non-compliant was replaced or
corrected, and when this was not possible, the systems were replaced.
Additionally, the systems have been tested for compliance. We believe that all
of our systems and equipment necessary for our key business processes are Year
2000 compliant in all material respects.
Currently, we have been in contact with many of our largest customers
concerning their Year 2000 compliance status. No significant risks have been
identified by these customers. However, if any significant customers do not
successfully and in a timely manner achieve Year 2000 compliance, our business
or operations could be materially adversely affected through reduced sales.
There can be no assurance that another company's failure to ensure Year 2000
capability would not have a material adverse effect on us.
Approximately $9.1 million has been spent on Year 2000 compliance issues
through October 1, 1999. While failure of any critical technology components to
operate properly in the Year 2000 could affect our operations, we believe that
resolution of the Year 2000 issue will not require additional material costs and
will not have a material adverse effect on our results of operations.
Year 2000 contingency plans for information technology operations include
manual procedures for routing accounting, financial and product information to
support on-time delivery and processing of our customers' products. If we
experience interruptions in operations, we are prepared to correct the problems
while sustaining our operations manually.
While we currently expect no material adverse affect on our business,
financial condition or results of operations due to Year 2000 issues, we cannot
be certain that our beliefs and expectations are accurate.
30
<PAGE>
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 October 1, 1999, we had open foreign exchange contracts with a
notional amount of $14.0 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 July 2, 1999, would have an impact of
approximately $6.8 million on the fair value of these instruments. This
qualification of exposure to the market risk associated with foreign exchange
financial instruments does not take into account the offsetting impact of
changes in the fair value of our foreign denominated assets, liabilities, and
firm commitments.
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 October 1,
1999, of $205.0 million under our Tranche B Senior Term Facility and $15.0
million borrowed under the Revolving Credit Facility. We also have fixed rate
debt of approximately $325.8 million comprised primarily of the 13.25% Senior
Subordinated Notes and PIK Notes. 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.
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<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.
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. 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.
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<PAGE>
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.
33
<PAGE>
BUSINESS
GENERAL
We design, manufacture and market analog and wireless integrated circuits
and discrete power semiconductors for rapidly growing communications products
and other applications. 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 range from components performing highly
complex functions, such as our PRISM(Registered) chip sets for wireless data
communications, to components serving as simple building blocks for electronic
circuits, such as our IGBTs, for power management applications.
OUR BUSINESS STRATEGY
Our business strategy emphasizes the following key elements:
o Focus on High Growth, Higher Margin End-User 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 legacy
products such as certain automotive integrated circuits, defense products
and microcontrollers, we do not intend to invest 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.
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.
34
<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 converters for flat-panel LCD monitors. 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 and multimedia application-specific products.
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 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(Trademark),
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
service wireless infrastructure applications.
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 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
35
<PAGE>
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 broad portfolio are operational amplifiers, which are
referred to as op amps, interface integrated circuits and multimedia and
professional 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 server networks supporting 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 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(Trademark) 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.
Our power management integrated circuits are also used in industrial
control and automotive engine management systems.
Defense. We are a leading supplier of radiation hardened and
high-reliability semiconductor solutions for today's defense market. We have a
history of success in custom products for many defense programs, and continue to
supply programs such as Minuteman III, GPS, SINCGARS, SADARM, Sparrow, AMRAAM
and Aegis. 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. We also have a set of legacy digital product lines
which serve both defense and commercial systems, with microprocessor,
microcontroller, memory and data communications products.
DISCRETE POWER
Our power portfolio represented 30.3% of our revenue for fiscal year 1999.
We have designed a portfolio of high value products for power system
architectures. We combine systems-level expertise with proprietary technologies
that increase the likelihood that our products will be designed directly into
our customers' products and achieve rapid and lasting market acceptance.
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<PAGE>
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 satellites.
Our computing discrete power products portfolio includes low voltage
MOSFETs. These MOSFETs are designed to specifically enhance the performance of
the power supply when used in conjunction with our power integrated circuits.
Our industrial and automotive power discrete product portfolio includes IGBTs,
MOSFETs, and high-speed rectifiers for motor drive and motor control, power
supply, automotive, instrumentation, robotic, welding, and other
high-reliability industrial applications. Our power management integrated
circuits and discretes allow us to provide a complete power management solution
for our customers. We supply our discrete power products to Asustek, Bosch,
Compaq and Emerson 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(Registered) family of chip sets
address the growing demand for wireless networking for use in both the home and
business. We believe we are the only supplier of an integrated wireless
networking product solution, including reference designs and software.
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(Registered) 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(Registered) chip set. Since the introduction of the
PRISM II chip set, we are developing relationships with original equipment
manufacturers, including among others, 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.
CUSTOMERS AND APPLICATIONS
We seek to capitalize on our core competencies by focusing on three
targeted end markets: Communications, Power Management and Wireless.
Our Communications end market includes signal processing and data
communications, industrial and satellite products. Applications in this area are
video including cable television systems and digital video, telephony including
central office switching solutions, digital cellular telephones, ISDN
controllers, modems and PBX systems, networking applications and space
applications including commercial and military satellites and avionics. We sell
to, among others, Cisco, Lucent, Alcatel, Dell and IBM.
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<PAGE>
Our Power Management end market includes computing, automotive and
industrial products. Applications in this area are computing applications
including file servers, monitors, PC motherboards, printers and workstations,
automotive applications including entertainment systems, electronic power
steering and engine management systems and industrial automation and control. We
sell to, among others, Asustek, Bosch, Dell, Emerson, IBM, Intel and Siemens.
Our Wireless end market and its related applications comprises wireless
local area networks. We sell to, among others, 3Com, Compaq, Nokia, Northern
Telecom, Samsung, Siemens and Sony.
Outside of our targeted end markets, our remaining category includes
automotive integrated circuits and defense products. Applications in this
category include automotive applications including fuel injection and ignition
circuits and defense applications including smart munitions and tactical and
strategic missiles. We sell to, among others, DaimlerChrysler, Siemens, Boeing,
Lockheed Martin and Raytheon.
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.
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.
38
<PAGE>
MANUFACTURING
We fabricate wafers at three locations in the United States--Mountaintop,
Pennsylvania, Palm Bay, Florida, and Findlay, Ohio. Each of the plants has two
wafer manufacturing clean rooms. 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(Registered)
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(Registered), 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, Rad Hard 6", 8" 420,000
Pennsylvania Discretes
Findlay, Ohio Standard Linear/Interface 5" 120,000
integrated circuits,
Power integrated circuits
Palm Bay, Florida Analog, Power integrated circuits, 4", 6" 175,000
Telecom SLICs, Rad Hard integrated
circuits
ASSEMBLY AND TEST
FACILITIES:
Kuala Lumpur, Assembly and testing of most of our
Malaysia products
Palm Bay, Florida Assembly and testing of some of our
products used in military applications
</TABLE>
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.
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<PAGE>
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 $180.8
million at October 1, 1999. We expect to ship the backlog at October 1, 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:
BUSINESS UNIT PRINCIPAL COMPETITORS
------------- ---------------------
Analog & Mixed-Signal Analog Devices, Burr Brown, Linear
Technology, Maxim, Semtech,
Discrete Power International Rectifier, ON
Semiconductor, Siliconix,
STMicroelectronics
Wireless Lucent, Philips, Proxim
40
<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(Registered),
ULTRAFET(Registered) 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 5,778 employees (full- and part-time)
as of October 1, 1999 of whom 793 were represented by collective bargaining
arrangements. Of our employees, 4,743 were engaged in manufacturing, 511 were
engaged in engineering, 323 were engaged in marketing and sales, 100 were
engaged in administration and 101 were engaged in management information
systems. Of our employees, 3,519 were employed in the Analog & Mixed-Signal
area; 1,897 were employed in the Discrete Power area; and 362 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 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
41
<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.
42
<PAGE>
THE TRANSACTIONS
The following contains summaries of the material agreements which we
entered into in connection with the acquisition of the semiconductor business.
The acquisition of the semiconductor business was funded in part by the proceeds
of the sale of units, consisting of the Senior Subordinated Notes of Intersil
and the warrants of Intersil Holding which are being registered under this
prospectus. 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) $520.0 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;
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
5,555,560 shares of Class A Common Stock;
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
27.7778 shares of Class A Common Stock of Intersil Holding.
Under the terms of the Master Transaction Agreement, Intersil Holding and
Intersil purchased from Harris portions of the semiconductor business for a
purchase price that is further subject to a post-closing adjustment. The assets
purchased by us 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 12
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
43
<PAGE>
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, the Shareholders' Agreement, the Registration
Rights Agreement and the Royalty Agreement. See "Ownership of Capital
Stock--Shareholders' Agreement" and "--Registration Rights Agreement."
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 secret, 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 the Closing Date, 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
44
<PAGE>
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.
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(REGISTERED) REVENUES
Under an agreement covering PRISM(Registered) revenues, we agreed to pay
Harris 2% of the revenue generated by the sales of the PRISM(Registered) 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.
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.
OPTION AGREEMENT
Under an Option Agreement, we granted to Intersil Prism, LLC an option to
purchase assets to be used in the manufacture and sale of semiconductor
solutions for the high-speed wireless local area networking market for a fixed
purchase price equal to the purchase price paid by us for the assets plus
associated capital expenses, research and development expenses and interest at
ten percent (10%) per annum. The option itself was granted for a purchase price
of $1,000,000 and is exercisable for eighteen months from August 13, 1999,
subject to extension for an additional eighteen month period upon payment of a
$2,000,000 fee or for the period necessary to obtain any required approvals
without any fee. However, because the exercise of the option would be prohibited
by the terms of the indenture governing the notes, the option may not be
exercised while the notes are outstanding unless we obtain a consent from the
noteholders. If the holder of the option exercises it, holders of the warrants
and the warrants issued to Citicorp Mezzanine Partners, L.P. (or the holders of
the Class A Common Stock issued upon exercise of the warrants) may participate
in the purchase of these assets upon payment of their pro rata share of the
option purchase price and the option exercise price.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the persons
who are members of our Board of Directors, key employees or executive officers.
Each of our directors has served as director since our formation on June 2, 1999
will continue to hold office until the relevant company's 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 relevant company's 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 Business Unit
Daniel J. Heneghan........................ 44 Vice President, Chief Financial Officer and
Secretary
Ray D. Odom............................... 46 Vice President, General Manager, Space & Defense
Products
Larry W. Sims............................. 42 Vice President, Marketing and Sales
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 Business Unit. 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, Secretary and Chief Financial
Officer. Mr. Heneghan is our Vice President, 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.
Ray D. Odom, Vice President, General Manager, Space and Defense
Products. Mr. Odom is our Vice President and General Manager, Space and Defense
Products. From July, 1998 to August, 1999, Mr. Odom was Vice President and
General Manager, Space and Defense Products of the semiconductor business at
Harris. From July, 1997 to June, 1998 Mr. Odom was Director, Space and Defense
Products of the semiconductor business at Harris. From July 1994 to June 1997,
Mr. Odom was Director of Palm Bay
46
<PAGE>
Manufacturing of the semiconductor business at Harris. From February 1991 to
June 1994, Mr. Odom was Director of Manufacturing of the Military and Aerospace
Division of the semiconductor business at Harris.
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.
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.,
AmeriSource Health Corporation, CORT Business Services, Brunner Mond Holdings
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 will 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 Shareholders' Agreement
each of our stockholders (representing 100% of the ownership of the Class A
Common Stock) agree 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 Securities
Purchase and Holders Agreement.
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<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 PAYOUTS
---------- ----------
ANNUAL COMPENSATION SECURITIES
-------------------------------------------- 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 Business Unit
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. Heneghan--$19,659; Mr. Gidzinski--$14,984; Mr.
Sims--$1,293; and Mr. Morcom--$17,703.
(B) Contributions to Harris' Supplemental Executive Retirement Plan for
fiscal 1999: Mr. Williams--$5,943; Mr. Heneghan--$3,700; Mr.
Gidzinski--$0; Mr. Sims--$0; and Mr. Morcom--$38,677.
(C) The taxable portion of premiums on life insurance provided by Harris for
fiscal 1999: Mr. Williams--$2,305; Mr. Heneghan--$415; Mr.
Gidzinski--$144; Mr. Sims--$596; and Mr. Morcom--$734.
48
<PAGE>
The following table provides information with respect to individual grants
made by Harris of options for shares of Harris common stock to the named
executive officers during fiscal year 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT
PERCENT OF ASSUMED ANNUAL
TOTAL RATE OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED EXERCISE FOR OPTION
UNDERLYING TO EMPLOYEES OR TERM (4)
OPTIONS IN FISCAL BASE PRICE EXPIRATION --------------------
NAME GRANTED (#) (1) YEAR (%) (2) ($/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.
EMPLOYMENT AGREEMENTS
In connection with the Transactions, we and Intersil entered into an
employment agreement with Mr. Williams for him to serve as our Chief Executive
Officer and a member of our Board of Directors. His employment agreement
provides for an annual base salary of $425,000, subject to increases and annual
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<PAGE>
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Citicorp Mezzanine Partners, L.P. contributed $30.0 million in cash to
Intersil Holding in exchange for the 13.5% Subordinated PIK Note and a warrant
to purchase about 5.6 million shares of Intersil Holding's Class A Common Stock.
Intersil Holding contributed the $30.0 million from Citicorp Mezzanine Partners,
L.P. to Intersil as a capital contribution. The general partner of Citicorp
Mezzanine Partners, L.P. is an affiliate of Citicorp Venture Capital Ltd.
Citicorp Venture Capital Ltd. owns an interest in Sterling, a stockholder of
Intersil Holding.
Under to the Master Transaction Agreement, the shareholders of Intersil
Holding entered into a Shareholders' Agreement containing certain agreements
among the shareholders regarding the capital stock and corporate governance of
Intersil and Intersil Holding. See "Description of Capital Stock-Shareholder's
Agreement."
Intersil Holding, along with Intersil, purchased from Harris selected
portions of the semiconductor business. Harris entered into with us various
agreements, including the Intellectual Property Agreement, the Patent
Assignment, the Secondary Trademark Assignment and License Agreement, the
Transition Services Agreement, the Registration Rights Agreement and the Royalty
Agreement. See "The Transactions."
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 Intersil
Holding than those that could be obtained from non-affiliated parties.
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OWNERSHIP OF CAPITAL STOCK
The following table sets forth information regarding the beneficial
ownership of the Intersil Holding preferred stock and Intersil Holding common
stock. This table does not include (a) shares of Intersil Holding Class A Common
Stock issuable upon conversion of Intersil Holding Class B Common Stock or (b)
shares of Intersil Holding Class B Common Stock issuable upon conversion of
Intersil Holding Class A Common Stock. A number of Intersil employees are
expected to participate in an Employee Stock Option Plan under which they will
be offered the opportunity to acquire Intersil Holding Class A Common Stock
which would equal in the aggregate up to an additional 3% of the Intersil
Holding common stock outstanding. See "--Employee Stock Option Plan." In
addition, we granted to certain senior managers a sign-on bonus in the aggregate
amount of about $574,000, in the form of options to purchase preferred stock of
Intersil Holding. The option price is about $250 per share. The table includes
shares or options that may be acquired by our employees under the Employee Stock
Option Plan and the shares of preferred stock that may be acquired by certain
senior managers upon exercise of the preferred stock options granted to these
senior managers. The table does not include shares of Intersil Holding Class A
Common Stock issuable upon conversion of the warrants and the warrants issued in
connection with the 13.5% Subordinated Holding PIK Note.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES OF INTERSIL HOLDING
--------------------------------------------------------------------
PREFERRED STOCK CLASS A STOCK CLASS B STOCK
---------------- -------------------- --------------------
NAME OF BENEFICIARY NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ------------------- ------ ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Sterling Holding Company, LLC 73,650 87.31% 11,088,837 41.69% 69,615,203 91.10%
(1)(3) ...............................
c/o Intersil Corporation
2401 Palm Bay Road NE
Palm Bay, FL 32905
Harris Corporation ................... 8,456 10.02% 2,263,028 8.51% 6,797,375 8.90%
1025 W. NASA Boulevard
Melbourne, Florida 32919
Gregory L. Williams .................. 407 .48% 3,347,315 12.59% -- --
W. Russell Morcom .................... 515 .61% 1,025,247 3.85% -- --
George L. Gidzinski .................. 104 .12% 684,564 2.57% -- --
Daniel J. Heneghan ................... 121 .14% 582,634 2.19% -- --
Larry W. Sims ........................ 245 .29% 835,916 3.14% -- --
James A. Urry (2) .................... 705 .84% 1,785 .01% 753,249 .99%
Gary E. Gist ......................... -- -- -- -- -- --
All directors, officers and other 2,958 3.51% 10,247,112 38.53% -- --
management investors as a group (17
persons) (3) .........................
</TABLE>
- ------------------
(1) An affiliate of Credit Suisse First Boston Corporation owns an interest in
Sterling and could have the right to acquire up to 1,510,068 shares of Class
A Common Stock and 1,410 shares of Intersil Holding preferred stock from
Sterling in exchange for its interest in Sterling.
(2) James A. Urry, who is one of our directors, is affiliated with Sterling in
the capacities described under "Management--Directors and Executive
Officers" and footnote (3) below. All shares reported for Mr. Urry are held
by Sterling, but do not include all shares held by Sterling, which Mr. Urry
may be deemed to beneficially own as a result of his affiliation with
Sterling. Mr. Urry disclaims beneficial ownership of all shares held by
Sterling, except for those shares reported for Mr. Urry, which Mr. Urry has
the right to acquire in exchange for an ownership interest in Sterling.
51
<PAGE>
(Footnotes continued from previous page)
(3) Citicorp Venture Capital Ltd. owns an interest in Sterling and could have
the right to acquire up to 62,184,690 shares of Intersil Holding common
stock, consisting of 49% of the outstanding Class A Common Stock and the
remainder of which would be shares of Class B Common Stock, and 55,472
shares of the preferred stock from Sterling in exchange for its interest in
Sterling. 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 5,555,560 shares of our Class A Common Stock.
We contributed the $30.0 million to Intersil as a capital contribution.
------------------
Sterling owns 88.3% of preferred stock, 47.0% of Class A Common Stock and
91.1% of Class B Common Stock of Intersil Holding and also owns 30.9% of Class A
Common Stock and 95.8% of Class B Common Stock of Fairchild Semiconductor
International, Inc. Fairchild Semiconductor Corporation is a wholly owned
subsidiary of Fairchild Semiconductor International, Inc. See
"Business--Competition."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
INTERSIL HOLDING PREFERRED STOCK
Intersil Holding's Certificate of Incorporation provides that Intersil
Holding may issue 2,000,000 shares of preferred stock, 1,000,000 of which is
designated as 12% Series A Cumulative Compounding Preferred Stock. Intersil
Holding 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, and accrue at a rate of 12%, compounding
annually. As of the date of this prospectus, 83,432 shares of Intersil Holding
preferred stock were outstanding. The vote of a majority of the outstanding
shares of the Intersil Holding preferred stock, voting as a separate class, is
required to (1) create, authorize or issue any other class or series of stock
entitled to a preference ahead of the Intersil Holding preferred stock regarding
any dividend or upon distribution or any liquidation, distribution of assets,
dissolution or winding up of Intersil Holding, or increase the authorized amount
of any other class or series, or (2) amend Intersil Holding's Certificate of
Incorporation if the amendment would adversely affect the relative rights and
preferences of the holders of the Intersil Holding Preferred Stock. Except as
described in the immediately preceding sentence or as otherwise required by law,
the Intersil Holding Preferred Stock is not entitled to vote. Intersil Holding
may not pay any dividend upon (except for a dividend payable in Junior Stock, as
defined below), or redeem or otherwise acquire shares of, capital stock junior
to the Intersil Holding Preferred Stock (including the Intersil Holding common
stock) ("Junior Stock") unless all cumulative dividends on the Intersil Holding
preferred stock have been paid in full. Upon liquidation, dissolution or winding
up of Intersil Holding, holders of Intersil Holding preferred stock are entitled
to receive out of the legally available assets of Intersil Holding, before any
amount shall be paid to holders of Junior Stock, an amount equal to $1,000 per
share of Intersil Holding preferred stock, plus all accrued and unpaid dividends
to the date of final distribution. If the available assets are insufficient to
pay the holders of the outstanding shares of Intersil Holding preferred stock in
full the assets, or the proceeds from the sale of the assets, will be
distributed ratably among the holders. The Intersil Holding preferred stock is
not mandatorily redeemable prior to June 30, 2011. Intersil Holding may
optionally redeem, in whole or in part, the Intersil Holding preferred stock at
any time at a price per share of $1,000, plus accrued and unpaid dividends to
the date of redemption. At the option of Intersil Holding, the Intersil Holding
preferred stock may be exchanged for junior subordinated debentures of Intersil
Holding.
INTERSIL HOLDING COMMON STOCK
The Certificate of Incorporation of Intersil Holding provides that Intersil
Holding may issue 250,000,000 shares of Intersil Holding common stock, divided
into two classes consisting of 125,000,000 shares of Intersil Holding Class A
Common Stock and 125,000,000 shares of Intersil Holding Class B Stock. As of the
date of this prospectus 100,009,770 shares of Intersil Holding common stock were
outstanding. The holders of Intersil Holding Class A Common Stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
the shareholders. Except as required by law, the holders of Intersil Holding
Class B Common Stock have no voting rights. Under the Certificate of
Incorporation of Intersil Holding, either class of Intersil Holding common stock
is convertible into an equal number of shares of the other class of Intersil
Holding common stock. In the case of a conversion from Intersil Holding Class B
Common Stock, which is nonvoting, into Intersil Holding Class A Common Stock,
which is voting, the holder of shares to be converted must be permitted under
applicable law to hold the total number of shares of voting stock which would be
held upon conversion.
WARRANTS RELATING TO THE 13.5% SUBORDINATED HOLDING PIK NOTE
Intersil Holding issued to Citicorp Mezzanine Partners, L.P. warrants to
purchase Intersil Holding Class A Common Stock. These warrants are not the
warrants covered by this prospectus. These warrants entitle the holder to
purchase up to 5,555,560 shares of Class A Common Stock of Intersil Holding upon
exercise of the warrants beginning on August 13, 2001 and ending on August 15,
2009 at an exercise price of $0.001 per share, subject to anti-dilution
adjustments. If Intersil Holding prepays in full the 13.5% Subordinated Holding
PIK Note due 2010 within 24 months after issuance these warrants will be
exercisable for 3,333,336 shares of the Intersil Holding Class A Common Stock.
See "Description of Certain Indebtedness--13.5% Subordinated Holding PIK Note
due 2010."
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<PAGE>
SHAREHOLDERS' AGREEMENT
The shareholders of Intersil Holding entered into a Securities Purchase and
Holders Agreement (the "Shareholders' Agreement") containing certain agreements
among the shareholders regarding the capital stock and corporate governance of
us and Intersil.
According to the Shareholders' Agreement, our board of directors and the
board of directors of Intersil must be composed of up to five directors 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 by Sterling in its sole discretion), subject to the
right of the majority of holders of the outstanding shares of Intersil Holding
Class A Common Stock to veto the election of any independent director, provided
that in the event that Sterling concludes that it is unable to designate, or
elects not to designate for any reason, one or more of such independent
directors or the election of any such independent director is not approved by
the holders of a majority of the outstanding shares of Intersil Holding Class A
Common Stock, these directorship(s) shall not be filled by the remaining members
of the Board of Directors but shall remain vacant until the election of a
director designated by Sterling to fill such vacancy in accordance with the
Shareholders' Agreement. When our Board of Directors includes two independent
directors, Sterling shall have the right to designate one additional individual.
However, if Sterling at any time owns of record in excess of 50% of the Intersil
Holding Class A Common Stock then outstanding, then our Board of Directors shall
consist of our chief executive officer and up to four individuals designated by
Sterling in its sole discretion.
The Shareholders' Agreement contains certain provisions which, with some
exceptions, restrict the ability of the shareholders to transfer any Intersil
Holding common stock or Intersil Holding preferred stock. If holders of more
than 50% of the Intersil Holding common stock approve the sale of Intersil or
Intersil Holding, each shareholder has agreed to consent to the sale and, if the
sale includes the sale of stock, each shareholder has agreed to sell all of the
shareholder's Intersil Holding common stock and Intersil Holding preferred stock
on the terms and conditions approved by holders of a majority of the Intersil
Holding common stock then outstanding. In the event Intersil Holding proposes to
issue and sell (other than in a public offering under a registration statement
declared effective by the Securities and Exchange Commission) any shares of
Intersil Holding common stock or any securities containing options or rights to
acquire any shares of Intersil Holding common stock or any securities
convertible into Intersil Holding common stock to Citicorp Venture Capital Ltd.,
Sterling or any of their respective affiliates, Intersil Holding must first
offer to each of the other shareholders a pro rata portion of these shares.
These preemptive rights are not applicable to the issuance of shares of Intersil
Holding common stock upon the conversion of shares of one class of Intersil
Holding common stock into shares of the other class. Subject to certain
limitations, neither Sterling, nor any of its respective affiliates, may sell
any of its shares of Intersil Holding preferred stock or Intersil Holding common
stock without offering the other shareholders a pro rata opportunity to
participate in the sale.
The Shareholders' Agreement also provides for additional restrictions on
transfer of shares by our executive officers and other employees, which we refer
to as our management investors, including the right of Intersil Holding to
repurchase some of the management investors' shares of Intersil Holding common
stock upon termination of the shareholder's employment prior to August 2004, at
a formula price, and the grant of a right of first refusal in favor of Intersil
Holding in the event a management investor elects to transfer its shares of
Intersil Holding common stock or Intersil Holding preferred stock. Our directors
are not bound by the additional restrictions on management investors except to
the extent that they are also officers of Intersil Holding.
1999 EQUITY COMPENSATION PLAN
Intersil Holding adopted the 1999 Equity Compensation Plan, effective
August 13, 1999 (the "Plan"). Under the Plan, Intersil Holding will be able to
grant to our salaried officers and key employees options for up to 3,000,000
shares of Intersil Holding Class A Common Stock. The Plan will authorize
Intersil Holding 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 of Intersil Holding 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
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<PAGE>
of grant for non-qualified stock options. Options granted will be exercisable at
the determination of the Board of Directors of Intersil Holding, 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 1,000,000 shares of Intersil
Holding Class A Common Stock. Options to acquire 2,350,000 shares of Intersil
Holding Class A Common Stock were granted, effective as of August 14, 1999.
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 Intersil Holding 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 Intersil Holding Class A Common Stock of an amount equal to the
excess of the fair market value of Intersil Holding 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 Intersil Holding 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 Intersil Holding Class A Common Stock of an amount equal to the
appreciation in the value of the underlying Intersil Holding Class A Common
Stock over the period from the grant of the phantom share award to the date of
settlement specified in the award.
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 Intersil Holding 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 3,000,000 share overall limit under
the Plan and against the 1,000,000 individual annual limit.
REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Shareholders' Agreement, Intersil
Holding, Sterling, the management investors, Harris and the other shareholders
of Intersil Holding 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 Intersil
Holding's option to defer action for 180 days, Intersil Holding 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 its best efforts to cause such registration statement to become effective.
If at any time Intersil Holding files a registration statement for the Intersil
Holding common stock because of a request by Sterling or otherwise, Intersil
Holding will use its best efforts to allow the other parties to the Registration
Rights Agreement to have their shares of Intersil Holding common stock (or a
portion of their shares under circumstances set forth in the Registration Rights
Agreement) included in the registered offering of Intersil Holding common stock.
Intersil Holding is not bound by this requirement if it is 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 Intersil Holding's employees or existing
shareholders, or a registration statement registering a unit offering consisting
of a public offering of debt and equity securities of Intersil Holding 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, Intersil Holding does 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 Intersil
Holding. Intersil Holding 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.
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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.
NOTES
On August 13, 1999, Intersil and Intersil Holding issued 200,000 units,
each unit consisting of $1,000 principal amount of Senior Subordinated Notes of
Intersil and one warrant to purchase 27.7778 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 ("USTC"). The warrants were issued under the
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, issue the 11.13% Seller Holding PIK
Note by Intersil Holding to Harris and pay related fees and expenses. See "The
Transactions."
The notes are 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
Guaranty (as defined in the Indenture). The Guaranties are senior subordinated
obligations of Intersil Holding and the relevant Subsidiary Guaranty.
The notes are not redeemable at the option of Intersil prior to August 15,
2004, except that prior to August 15, 2002, Intersil may redeem, at its option,
notes (including additional notes, if any) in an aggregate principal amount not
to exceed 35% of the aggregate principal amount of the notes (including
additional notes, if any) originally issued at a redemption price of 113 1/4% of
the principal amount plus accrued and unpaid interest, with the net proceeds of
one or more Equity Offerings (as defined in the Indenture) if: (1) at least 65%
of the aggregate amount of the notes (including additional notes, if any)
remains outstanding immediately after any redemption; and (2) each redemption
occurs within 90 days after the date of the related Equity Offering. 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:
YEAR PERCENTAGE
- ---- ----------
2004........................................................ 106.625%
2005........................................................ 104.969
2006........................................................ 103.313
2007........................................................ 101.656
2008 and thereafter......................................... 100.000
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
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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.
Under a registration rights agreement dated August 13, 1999 (the
"Registration Rights Agreement") among Intersil Holding, Intersil and the
initial purchasers, Intersil agreed to (a) file with the SEC, within 90 days
after the issue date of the units, a registration statement (the "Exchange Offer
Registration Statement") covering an offer to exchange the notes for new notes
of Intersil with terms substantially identical to the notes, except that the new
notes generally will not contain terms restricting the resale or transfer of the
notes, and (b) use its best efforts to cause the Exchange Offer Registration
Statement to become effective under the Securities Act within 150 days after the
issuance of the units. Upon the effectiveness of the Exchange Offer Registration
Statement, Intersil will offer the new notes in exchange for surrender of the
notes. Intersil may be required under the Registration Rights Agreement to file
a shelf registration statement to cover resales of the notes or the new notes,
as the case may be. The notes and warrants will not trade separately until the
commencement of the exchange offer or the effectiveness of the shelf
registration statement, or an earlier date after October 12, 1999, as the
initial purchasers may determine. Upon the failure by Intersil to comply with
certain of its obligations under the Registration Rights Agreement, additional
interest will be payable on the notes.
SENIOR CREDIT FACILITIES
General. In connection with the transactions, Intersil entered into the
senior credit facilities with a syndicate of certain financial institutions, as
lenders, Credit Suisse First Boston, as the Administrative Agent, Salomon Smith
Barney Inc., 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
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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 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 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 you.
SUBSIDIARY CREDIT FACILITIES
Certain of our subsidiaries may incur certain indebtedness. It is expected
that the debt instruments evidencing the indebtedness will contain customary
terms and conditions, covenants and events of default.
13.5% SUBORDINATED HOLDING PIK NOTE DUE 2010
In connection with the Transactions, Intersil Holding 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 13.5% Subordinated Holding PIK
Note due 2010 matures on July 15, 2010 and bears interest at an annual rate
equal to 13.5%. To the extent any Intersil Holding Senior Debt prohibits
Intersil Holding from paying interest due on the 13.5% Subordinated Holding PIK
Note due 2010 in cash, the interest shall be paid by adding the interest to the
then outstanding principal amount of the 13.5% Subordinated Holding PIK Note due
2010. This amount shall accrue interest as a portion of the principal amount of
the 13.5% Subordinated Holding PIK Note due 2010 from the applicable interest
payment date. Under the terms of the 13.5% Subordinated Holding PIK Note due
2010, interest on the 13.5% Subordinated Holding PIK Note due 2010 may not be
deductible until paid. The 13.5% Subordinated Holding PIK Note due 2010 is
subordinated to Intersil Holding obligations (including guarantees, if any, from
time to time) under the senior credit facilities, the notes and certain other
indebtedness of Intersil Holding, other than indebtedness which by its terms is
junior in right of payment to the 13.5% Subordinated Holding PIK Note due 2010.
The 13.5% Subordinated Holding PIK Note is senior to the 11.13% Seller Holding
PIK Note. Intersil Holding may prepay the 13.5% Subordinated Holding PIK Note
due 2010 at any time in whole or in part at 100% of the principal amount plus
(a) accrued and unpaid interest to the date of prepayment and (b) certain
prepayment premiums set forth in the 13.5% Subordinated Holding PIK Note due
2010. See "Ownership of Capital Stock--Warrant."
11.13% SELLER HOLDING PIK NOTE DUE 2010
In connection with the Transactions, Intersil Holding issued to Harris the
Seller Holding PIK Note due 2010 in the original principal amount of $90.0
million. The Seller Holding PIK Note matures in 2010 and bears interest at an
annual rate equal to 11.13%. Intersil Holding may pay interest on the 11.13%
Seller
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Holding PIK Note by issuing additional 11.13% Seller Holding PIK Notes. Intersil
Holding may redeem the 11.13% Seller Holding PIK Note at any time in whole or in
part at 100% of the principal amount plus accrued and unpaid interest to the
date of redemption. In addition, upon a "change in control" Intersil Holding is
required to redeem the 11.13% Seller Holding PIK Note at face value subject to
some conditions. The 11.13% Seller Holding PIK Note contains some covenants in
favor of the holder, including but not limited to: (1) restrictions on the
payment by Intersil Holding and its subsidiaries of dividends and the purchase,
redemption or prepayment by Intersil Holding and its subsidiaries of its capital
stock or indebtedness which, by its terms or by operation of law, ranks junior
in right of payment to the 11.13% Seller Holding PIK Note and (2) restrictions
on subsidiaries entering into agreements (other than with respect to the 11.13%
Seller Holding PIK Note) restricting their ability to pay dividends or make
certain other distributions to Intersil Holding or any subsidiary of Intersil
Holding. The 11.13% Seller Holding PIK Note is subordinated to Intersil
Holding's obligations (including guaranties, if any, from time to time) under
Intersil's senior credit facilities and the notes and is subordinated to certain
other indebtedness of Intersil Holding, other than indebtedness which by its
terms is pari passu or junior in right of payment to the 11.13% Seller Holding
PIK Note (the "Intersil Holding Senior Debt"). Until the Intersil Holding Senior
Debt is paid in full, Intersil Holding may not make any payment of principal or
interest to the 11.13% Seller Holding PIK Note Holder: (1) following the
maturity of any Intersil Holding Senior Debt (either by lapse, acceleration or
otherwise) that has not been paid in full; (2) following a payment default on
Intersil Holding Senior Debt or (3) following a nonpayment default on Intersil
Holding Senior Debt (until (a) the non-payment default shall have been cured or
waived, (b) certain events of default relating to bankruptcy under the 11.13%
Seller Holding PIK Note shall have occurred, (c) the senior credit facilities or
notes shall have become due and payable upon acceleration or (d) 180 days shall
have elapsed after notice of the non-payment default has been received by
Intersil Holding). Except for certain events of bankruptcy, the consent of
11.13% Seller Holding PIK Note holders holding 25% or more of the principal
amount of the 11.13% Seller Holding PIK Note is required to accelerate the
payment of principal upon an event of default. If any Intersil Holding Senior
Debt is outstanding at the time of an acceleration of the 11.13% Seller Holding
PIK Note, the 11.13% Seller Holding PIK Note becomes due and payable upon the
earlier of acceleration of the Intersil Holding Senior Debt or thirty days
following notice of acceleration of the 11.13% Seller Holding PIK Note being
given to the agent for Intersil Holding Senior Debt holders. An event of default
under the 11.13% Seller Holding PIK Note includes, among other things, failure
to pay principal or interest when due, failure to comply with the material terms
of the 11.13% Seller Holding PIK Note following notice, failure to pay certain
material indebtedness of Intersil Holding and certain events of bankruptcy or
insolvency.
12% JUNIOR SUBORDINATED DEBENTURES DUE 2011
At Intersil Holding's option, Intersil Holding may issue 12% Junior
Subordinated Debentures due 2011 to holders of Intersil Holding preferred stock
in exchange for shares of Intersil Holding preferred stock in the original
principal amount of $1,000 per share of Intersil Holding preferred stock plus an
amount per share equal to the full accrued and unpaid cumulative dividends. The
12% Junior Subordinated Debentures due 2011 will mature on June 30, 2011 and
will bear interest at an annual rate equal to 12%. To the extent any Intersil
Holding Senior Debt prohibits Intersil Holding from paying interest due on the
12% Junior Subordinated Debentures due 2011 in cash, the interest shall be paid
by adding the interest to the then outstanding principal amount of the 12%
Junior Subordinated Debentures due 2011. The amount shall accrue interest as a
portion of the principal amount of the 12% Junior Subordinated Debentures due
2011 from the applicable interest payment date. The 12% Junior Subordinated
Debentures due 2011 will be subordinated to Intersil Holding's obligations
(including guaranties, if any, from time to time) under the senior credit
facilities, the notes, the 11.13% Seller Holding PIK Note and certain other
indebtedness, other than indebtedness which by its terms is pari passu or junior
in right of payment to the 12% Junior Subordinated Debentures due 2011. The 12%
Junior Subordinated Debentures due 2011 contain certain covenants in favor of
the holder that are no more burdensome, in any material respect, to us than the
covenants under the notes. Intersil Holding may prepay the 12% Junior
Subordinated Debentures due 2011 at any time in whole or in part at 100% of the
principal amount plus accrued and unpaid interest to the date of prepayment.
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DESCRIPTION OF THE WARRANTS
GENERAL
The warrants were issued in connection with a Warrant Agreement dated
August 13, 1999 (the "Warrant Agreement"), between us and United States Trust
Company of New York, as warrant agent, and are being registered for resale by
this prospectus.
The following description is only a summary of the material provisions of
the Warrant Agreement. We urge you to read the Warrant Agreement because it, and
not this description, defines your rights as holders of these warrants. You may
request copies of the Warrant Agreement at our address set forth under "Where
You Can Find More Information."
BRIEF DESCRIPTION OF THE WARRANTS
Each warrant:
o when exercised, will entitle the holder to purchase 27.7778 shares
of Class A Common Stock from us;
o may be exercised at a price of $0.001 per share of Class A Common
Stock; and
o may be exercised beginning on August 14, 2000 and ending on August
15, 2009, which we refer to as the expiration date.
The exercise price and the number of shares of Class A Common Stock issuable
upon exercise of a warrant are both subject to adjustment in some cases. See
"--Adjustments" below. The warrants will initially entitle the holders to
acquire, in the aggregate, 5,555,560 shares of Class A Common Stock.
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. Even if we fail to give this notice, the warrants will still expire
and become void on the expiration date. The warrants will not trade separately
from the notes sold in connection with the warrants in the unit offering until
the date of the commencement of an exchange offer or the effectiveness of a
shelf registration statement for the notes sold in conjunction with the warrants
in the unit offering or an earlier date as the initial purchasers may determine.
At our option, fractional shares of Class A Common Stock may not be issued
upon exercise of the warrants. If any fraction of a share of Class A Common
Stock would otherwise be issuable upon the exercise of any of the warrants (or
any specified portion of them), we will pay an amount in cash equal to the
Current Market Value per share of Class A Common Stock, as determined on the day
immediately preceding the date the warrant is presented for exercise, multiplied
by that fraction, computed to the nearest whole cent.
The "Current Market Value" per share of Class A Common Stock or any other
security at any date means (i) if the security is not registered under the
Exchange Act, (a) the value of the security, determined in good faith by the
Board of Directors of Intersil Holding and certified in a board resolution,
based on the most recently completed arm's-length transaction between Intersil
Holding and a Person other than an Affiliate of Intersil Holding, the closing of
which shall have occurred on that date or within the six-month period preceding
that date, or (b) if no transaction shall have occurred on that date or within a
six-month period of that date, the value of the security as determined by an
independent financial expert or (ii) if the security is registered under the
Exchange Act, the average of the daily closing bid prices (or the equivalent in
an over-the-counter market) for each business day during the period commencing
15 business days before that date and ending on the date one day prior to that
date, or if the security has been registered under the Exchange Act for less
than 15 consecutive business days before that date, then the average of the
daily closing bid prices (or the equivalent) for all of the business days before
that date for which daily closing bid prices are available; provided, however,
that if the closing bid price is not determinable for at least ten business days
in that period, the "Current Market Value" of the security shall be determined
as if the security were not registered under the Exchange Act.
Certificates for warrants will be issued in fully registered form only. We
refer to the registered certificates (including the warrants offered and sold to
qualified institutional buyers in reliance on Rule 144A of the Securities Act)
issued by us under the Warrant Agreement representing the warrants as warrant
certificates. No service charge will be made for registration of transfer or
exchange upon surrender of any warrant certificate at the office of the warrant
agent maintained for that purpose. We may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of warrant certificates.
In the event a bankruptcy, reorganization or similar proceeding is
commenced by or against us, a bankruptcy court may hold that unexercised
warrants are executory contracts which may be subject to rejection by us with
approval of the bankruptcy court. As a result, holders of the warrants may, even
if sufficient funds are available, not be entitled to receive any consideration
or may receive an amount less than they would be entitled to if they had
exercised their warrants prior to the commencement of any bankruptcy,
reorganization or similar proceeding.
GENERAL TERMS
Exercise
In order to exercise all or any of the warrants, the holder is required to
surrender to the warrant agent the related warrant certificate and pay in full
the exercise price for each share of Class A Common Stock or other securities
issuable upon exercise of the warrants. The exercise price may be paid (i) in
cash or by certified or official bank check or by wire transfer to an account
designated by us for that purpose or (ii) without the payment of cash (the
"Cashless Exercise").
In the event that a holder chooses to exercise all or any of the warrants
in a Cashless Exercise:
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(1) we will reduce the number of shares of Class A Common Stock that
would be obtainable upon the exercise of a warrant and payment of the
exercise price in cash; and
(2) the holder will receive a number of shares of Class A Common Stock
equal to the product of (a) the number of shares of Class A Common Stock
for which the warrant is exercisable as of the date of exercise (if the
exercise price were being paid in cash) and (b) the Cashless Exercise Ratio
(the "Cashless Exercise").
The "Cashless Exercise Ratio" equals a fraction, the numerator of which is the
excess of the Current Market Value per share of Class A Common Stock on the day
on which a warrant is exercised, or the exercise date, over the exercise price
per share as of the exercise date and the denominator of which is the Current
Market Value per share of the Class A Common Stock on the exercise date. Upon
surrender of a warrant certificate representing more than one warrant in
connection with the holder's option to elect a Cashless Exercise, the number of
shares of Class A Common Stock deliverable upon a Cashless Exercise equals the
number of shares of Class A Common Stock issuable upon the exercise of warrants
that the holder specifies are to be exercised in a Cashless Exercise multiplied
by the Cashless Exercise Ratio. All provisions of the Warrant Agreement are
applicable to a surrender of a warrant certificate in connection with a Cashless
Exercise for less than the full number of warrants represented.
No Rights as Stockholders
The holders of unexercised warrants are not entitled, by virtue of being
holders, to receive dividends, to vote, to consent, to exercise any preemptive
rights or to receive notice as our stockholders in respect of any stockholders
meeting for the election of our directors or any other purpose, or to the
exercise of any other rights whatsoever as our stockholders.
Mergers, Consolidations, etc.
In the event that we consolidate with, merge with or into, or sell all or
substantially all of our assets to, any other individual, corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision of them or any other entity, which we refer to
collectively as a Person, each warrant thereafter entitles the holder to receive
upon exercise of the warrant, per share of Class A Common Stock for which the
warrant is exercisable, the number of shares of common stock or other securities
or property which the holder of a share of Class A Common Stock is entitled to
receive upon completion of the consolidation, merger or sale of assets. However,
if
(1) we consolidate with, merge with or into, or sell all or
substantially all of our assets to, another Person and, in connection
therewith, the consideration payable to the holders of Class A Common Stock
in exchange for their shares is payable solely in cash; or
(2) there is a dissolution, liquidation or winding-up of us;
then the holders of the warrants will be entitled to receive distributions on an
equal basis with the holders of Class A Common Stock or other securities
issuable upon exercise of the warrants, as if the warrants had been exercised
immediately prior to the event, less the exercise price. Upon receipt of the
payment, if any, the warrants will expire and the rights of the holders will
cease.
In the case of any merger, consolidation or sale of assets, the surviving
or acquiring person and, in the event of any dissolution, liquidation or
winding-up of us, we must deposit promptly with the warrant agent the funds, if
any, required to pay the holders of the warrants. After the funds and the
surrendered warrant certificates are received, the warrant agent is required to
deliver a check in the amount as is appropriate (or, in the case of
consideration other than cash, other consideration as is appropriate) to any
Persons as it may be directed in writing by the holders surrendering these
warrants.
ADJUSTMENTS
The number of shares of Class A Common Stock issuable upon the exercise of
the warrants and the exercise price will be subject to adjustment in the
following events:
(1) the payment by us of certain dividends (or other distributions) on
our common stock or including dividends or distributions payable in shares
of this common stock or other shares of our capital stock;
(2) subdivisions, combinations and certain reclassifications of the
common stock;
(3) the issuance to all holders of common stock of rights, options or
warrants to subscribe for shares of common stock, or of securities
convertible into or exchangeable or exercisable for shares of
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common stock, for a consideration per share which is less than the Current
Market Value per share of the common stock;
(4) the issuance of shares of common stock for a consideration per
share which is less than the Current Market Value per share of the Class A
Common Stock other than upon the conversion, exchange or exercise of
convertible, exchangeable or exercisable securities of ours outstanding as
of August 13, 1999 (to the extent in accordance with the terms of those
securities as in effect on that date), and
(5) the distribution to all holders of the common stock of any of our
assets, debt securities or any rights or warrants to purchase securities
(excluding those rights and warrants referred to in clause (3) above and
cash dividends and other cash distributions from current or retained
earnings other than the portion, if any, of the aggregate amount of all
dividends paid by Intersil Holding on the common stock in any fiscal year
that exceeds $10 million).
No adjustment to the number of shares of Class A Common Stock issuable upon the
exercise of the warrants and the exercise price will be required in the
following events:
(1) the issuance of shares of common stock in bona fide public
offerings that are underwritten or in which a placement agent is retained
by us;
(2) the issuance of options or shares of common stock to officers,
directors or employees of Intersil or us;
(3) the issuance of Class A Common Stock upon conversion of Class B
Common Stock and the issuance of Class B Common Stock upon conversion of
Class A Common Stock, in each case as provided in our Certificate of
Incorporation as in effect on August 13, 1999; and
(4) the issuance of shares of common stock in connection with
acquisitions of products and businesses other than to our affiliates.
In the event of a distribution to holders of common stock which results in
an adjustment to the number of shares of Class A Common Stock or other
consideration for which a warrant may be exercised, the holders of the warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States Federal income tax as a dividend. See "U.S. Federal Income Tax
Considerations."
No adjustment in the exercise price will be required unless the adjustment
would require an increase or decrease of at least one percent in the exercise
price; provided, however, that any adjustment which is not made as a result of
this paragraph will be carried forward and taken into account in any subsequent
adjustment.
AMENDMENT
From time to time we and the warrant agent, without the consent of the
holders of the warrants, may amend or supplement the Warrant Agreement, in order
to cure defects or inconsistencies or make any change that does not adversely
affect the rights of any holder. Any amendment or supplement to the warrant
agreement that has an adverse effect on the interests of the holders of the
warrants requires the written consent of the holders of a majority of the then
outstanding warrants. The consent of each holder of the warrants affected is
required for any amendment by which the exercise price would be increased or the
number of shares of Class A Common Stock issuable upon exercise of warrants
would be decreased (other than in connection with adjustments provided in the
Warrant Agreement).
REGISTRATION RIGHTS
Registration of Warrants
The Warrant Agreement required us to file this registration statement
covering the resale of the warrants by the warrant holders by November 10, 1999,
and to use our best efforts to cause this registration statement to be declared
effective under the Securities Act by January 10, 2000 and to remain effective
until the earliest of:
(1) the time by which all of the warrants have been sold under this
registration statement,
(2) two years after its effective date, and
(3) the time by which the warrants can be sold without restriction
under the Securities Act.
Each holder of warrants that sells these warrants in connection with this
registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in
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connection with these sales and will be bound by certain provisions of the
Warrant Agreement which are applicable to the holder (including certain
indemnification obligations). In addition, each holder of warrants will be
required to deliver information to be used in connection with this registration
statement in order to have its warrants included in this registration statement.
Registration of Underlying Class A Common Stock
The Warrant Agreement also required us to file this registration statement
covering the issuance of shares of Class A Common Stock to the holders of the
warrants upon exercise of the warrants by the warrant holders and to use our
best efforts to cause this registration statement to be declared effective on or
before August 14, 2000 and to remain effective until the earlier of:
(1) the time by which all warrants have been exercised; and
(2) the expiration date.
During any consecutive 365-day period, we are entitled to suspend the
availability of this registration statement for up to two 45 consecutive-day
periods (except for the 45 consecutive-day period immediately prior to the
expiration date) if our Board of Directors determines in the exercise of its
reasonable judgment that there is a valid business purpose for the suspension
and provides notice that this determination was made to the holders of the
warrants; provided, however, that in no event are we required to disclose the
business purpose for the suspension if we determine in good faith that the
business purpose must remain confidential. There can be no assurance that we
will be able to file, cause to be declared effective, or keep a registration
statement continuously effective until all of the warrants have been exercised
or have expired.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion sets forth the opinion of Dechert Price & Rhoads
("Tax Counsel") regarding the material U.S. Federal income and estate tax
aspects of the purchase, ownership and disposition of the warrants and Class A
Common Stock obtained upon exercise of the warrants. As noted below, some
matters regarding the treatment of the warrants are unclear and Tax Counsel does
not render an opinion on these matters. This discussion contains general
information only and is limited in the following ways:
o The discussion only covers initial holders of the warrants and the Class
A Common Stock obtained upon exercise of the warrants.
o The discussion only covers holders of warrants and Class A Common Stock
obtained upon exercise of the warrants that hold the warrants and Class A
Common Stock as capital assets (that is, for investment purposes), and
that do not have a special tax status.
o The discussion covers only the general tax consequences to holders of the
warrants and Class A Common Stock obtained upon exercise of the warrants.
It does not cover tax consequences that depend upon a holder's individual
tax circumstances.
o The discussion is based on current law. Changes in the law may change the
tax treatment of the warrants and Class A Common Stock obtained upon
exercise of the warrants on a prospective or retroactive basis.
o The discussion does not cover state, local or foreign law.
o Whenever Class A Common Stock is discussed in this discussion, we are
referring only to Class A Common Stock obtained upon the exercise of
warrants.
The tax consequences depend upon whether you are a U.S. holder or a
non-U.S. holder. A U.S. holder is:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation created or
organized under U.S. law (Federal or state);
o an estate the income of which is subject to U.S. Federal income taxation
regardless of its sources;
o a trust if a U.S. court is able to exercise primary jurisdiction over
administration of the trust and one or more U.S. persons have authority
to control all substantial decisions of the trust; or
o any other person whose worldwide income and gain is otherwise subject to
U.S. Federal income taxation on a net basis.
A non-U.S. holder is a holder that is not a U.S. holder.
TAX CONSEQUENCES TO U.S. HOLDERS
Characterization
o For the reasons described below, it is unclear whether the warrants will
be treated for federal income tax purposes as warrants or as Class A
Common Stock. Tax Counsel is unable to opine as to the tax treatment of
the Warrants as warrants or common stock due to the inherently factual
nature of the issue and the lack of clear legal authority.
o Because of the nominal exercise price and the lack of any meaningful
contingency, it is possible that the Warrants will be characterized as
Class A Common Stock for U.S. federal income tax purposes from the date
of issuance. Tax Counsel does not believe that a characterization of the
Warrants as Class A Common Stock would materially adversely affect the
holders.
o Unless otherwise noted, this summary assumes that the warrants will be
respected as warrants for U.S. Federal income tax purposes, and
describes, as appropriate, differing U. S. Federal income tax treatment
that would result if the warrants are treated as stock.
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Exercise
o You will not recognize gain or loss upon exercise of a warrant (except
with respect to the receipt of cash in lieu of fractional shares).
o Your tax basis in the Class A Common Stock received in connection with
the exercise of a warrant will equal your basis in the warrant
immediately prior to the exercise plus the amount of cash paid upon
exercise, or $1.39.
o Your holding period in the Class A Common Stock received in connection
with the exercise of a warrant will commence on the day after you
exercise the warrant.
o If the warrants are treated as Class A Common Stock from the date of
issuance:
-- you will not recognize any gain or loss in connection with the
exercise of the warrant, and
-- your holding period in the Class A Common Stock received in
connection with the exercise of a warrant will include the entire
period during which you held the warrant.
-- your tax basis for the Class A Common Stock will equal your basis
in the Warrant, or $1.36, and when you exercise the Warrant, will
equal your basis in the Warrant plus the amount of cash paid upon
exercise, or $1.39.
Adjustments
o The exercise price of the warrants may be adjusted pursuant to the
antidilution provisions of the warrants under circumstances which are
described in "Description of Warrants--Adjustments."
o An adjustment in the exercise price of the warrants may result in
constructive distributions that could be taxable as dividends. The
consequences of this type of adjustment should be the same whether or not
the warrants are treated as warrants or stock, as of the date of
issuance.
o If holders of warrants are treated as receiving a constructive
distribution taxable as a dividend, the distribution:
-- will be taxable as a dividend (i.e., ordinary income) to the extent
of Intersil Holding's current and/or accumulated earnings and
profits, as calculated for U.S. Federal income tax purposes,
-- any excess will be treated as a return of capital (on a
dollar-for-dollar basis) to the extent of your tax basis in the
warrant, and
-- any remaining balance will be treated as capital gain.
o Only corporate holders generally will be eligible to take the
dividends-received deduction
o Your tax basis in the warrant generally will increase by the amount of
the distribution taxable as a dividend.
Disposition
On a sale, exchange or other disposition of a warrant (whether or not the
warrant is treated as a warrant or stock, as of the date of issuance) or Class A
Common Stock acquired upon exercise of a warrant:
o you will have taxable gain or loss equal to the difference between:
-- the amount received on the sale, exchange or other disposition, and
-- your tax basis in the warrant or Class A Common Stock.
o any gain or loss will generally be capital gain or loss.
o any capital gain or loss will be long-term capital gain or loss if your
holding period in the warrant or Class A Common Stock is more than one
(1) year at the time of sale, exchange or other disposition.
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Lapse
Upon a lapse of a warrant, you will recognize a capital loss equal to your
tax basis in the warrant. The result generally will be the same even if the
warrant is treated as stock, as of the date of issuance.
Information Reporting and Backup Withholding
Under the tax rules concerning information reporting to the Internal
Revenue Service:
o Unless an exemption applies, you are required to provide us with a
correct taxpayer identification number for our use in reporting
information to the Internal Revenue Service. If you are an individual,
this is your social security number. You are also required to comply with
other Internal Revenue Service requirements concerning information
reporting.
o If you are subject to these requirements but do not comply, we are
required to withhold 31% of all amounts payable to you. If we do withhold
part of a payment, you may use the withheld amount as a credit against
your Federal income tax liability.
o All U.S. holders that are individuals are subject to these requirements.
Certain U.S. holders, including all corporations, tax-exempt
organizations and individual retirement accounts, are exempt from these
requirements.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
Warrants and Class A Common Stock
o As discussed above, except as otherwise noted, this summary assumes that
the warrants will be respected as warrants for U.S. Federal income tax
purposes.
o Your tax basis in a warrant and tax basis and holding period for Class A
Common Stock obtained upon the exercise of a warrant will be determined
in accordance with the rules for U.S. holders, as described above.
o Although we do not expect Intersil Holding to make any distributions with
respect to the warrants or Class A Common Stock for the foreseeable
future, if you are a non-U.S. holder, distributions (including
constructive distributions) made with respect to the warrants or Class A
Common Stock which are taxable as dividends generally will be subject to
withholding tax at a rate of 30%, unless an applicable income tax treaty
provides for a lesser rate and you comply with certain reporting rules so
as to obtain a lesser rate.
If, however, the dividend is effectively connected with the conduct of a
trade or business in the United States by a non-U.S. holder, or, if a tax treaty
applies, is attributable to a permanent establishment of the non-U.S. holder,
the dividend will be subject to U.S. Federal income tax on a net income basis
that applies to U.S. holders generally (and, to corporate holders under certain
circumstances, the branch profits tax).
Sale, Exchange or Redemption of Warrants and Class A Common Stock
If you sell or otherwise dispose of a warrant or Class A Common Stock
obtained upon exercise of the warrants, you generally will not be subject to
U.S. Federal income tax on any gain unless:
o The gain is effectively connected with a trade or business that you
conduct in the U.S. or, if a tax treaty applies, is attributable to a
U.S. permanent establishment of the non-U.S. holder.
o You are an individual and are present in the U.S. for at least 183 days
during the calendar year in which you dispose of the warrant or Class A
Common Stock, and certain other conditions are satisfied.
o You are required to pay tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates.
o In the case of the disposition of Class A Common Stock (or warrants
treated as stock) where Intersil Holding is or has been a "U.S. real
property holding corporation" at any time within the shorter of the (i)
5-year period preceding such disposition, or (ii) non-U.S. holder's
holding period in the Class A Common Stock. We believe that Intersil
Holding is not, and will conduct its affairs in a manner so that it will
not become, a U.S. real property holding corporation.
66
<PAGE>
U.S. Trade or Business
If you are a corporation and hold a warrant or Class A Common Stock in
connection with a trade or business that you are conducting in the U.S. or, if a
tax treaty applies, the holding is attributable to a U.S. permanent
establishment of yours, you may be subject to a branch profits tax on your
earnings (with some adjustments) that are connected with your U.S. trade or
business. This tax is imposed at a 30% rate, but may be reduced or eliminated by
an applicable income tax treaty (subject to compliance with certain reporting
rules).
Estate Taxes
o Warrants and Class A Common Stock held by an individual non-U.S. holder
at the time of death will be included in the holder's gross estate for
U.S. Federal estate tax purposes, unless an applicable estate tax or
other tax treaty provides otherwise.
Information Reporting and Backup Withholding
Under applicable Treasury Regulations, if Intersil Holding pays a dividend
on its Class A Common Stock, Intersil Holding generally must report annually to
the Internal Revenue Service:
o the amount of the dividend,
o the name and address of the recipient of the dividend,
o the amount of tax withheld, if any, regarding the dividend.
Intersil Holding generally must send a similar report to the recipient of the
dividend.
The Internal Revenue Service may make its reports available to tax
authorities in the country in which the non-U.S. holder is a resident under the
provisions of an applicable tax treaty or agreement.
Dividends paid to a non-U.S. holder at an address within the U.S. may be
subject to backup withholding at a rate of 31% if the non-U.S. holder fails to
establish that it is entitled to an exemption or provide a correct taxpayer
identification number and other information to the payor. Backup withholding
will generally not apply to dividends paid to non-U.S. holders at an address
outside the U.S. on or prior to December 31, 2000, unless the payor knows that
the payee is a U.S. person. Under recently finalized Treasury Regulations,
payments of dividends to non-U.S. holders at an address outside the U.S. on or
after January 1, 2001 may be subject to backup withholding at a rate of 31%
unless such non-U.S. holder satisfies various certification requirements.
Similarly, if you dispose of a warrant or Class A Common Stock through a
broker:
o You must provide the broker appropriate certification of your non-U.S.
status to avoid information reporting and backup withholding.
o If you do not provide certification, and you use the U.S. office of a
broker, you may be subject to information reporting and backup
withholding.
o If you do not provide certification, and you use the non-U.S. office of a
broker, you will not be subject to backup withholding. However, you may
be subject to information reporting depending on whether the broker has
certain connections to the U.S.
Backup withholding is not an additional tax. The tax liability of persons
subject to backup withholding will be reduced by the amount of the tax withheld.
If withholding results in an overpayment of taxes, a refund may be obtained,
provided that the required information is furnished to the Internal Revenue
Service.
You should consult your tax advisor about the tax rules concerning information
reporting requirements and backup withholding, including the effect, if any, of
those recently finalized Treasury Regulations referred to above.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH HOLDER OF
WARRANTS OR CLASS A COMMON STOCK SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES (INCLUDING APPLICABLE STATE, LOCAL AND FOREIGN TAX
LAWS) TO THE HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE WARRANTS
AND CLASS A COMMON STOCK.
67
<PAGE>
PLAN OF DISTRIBUTION
The warrants and the Warrant Shares may be sold from time to time to
purchasers directly by the selling holders. Alternatively, the selling holders
may from time to time offer the warrants or the Warrant Shares to or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the selling holders
or the purchasers of the securities for whom they may act as agents. The selling
holders and any underwriters, broker-dealers or agents that participate in the
distribution of warrants or the Warrant Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of the securities and any discounts, commissions, concessions or other
compensation received by any underwriter, broker-dealer or agent may be deemed
to be underwriting discounts and commissions under the Securities Act.
The warrants and the Warrant Shares may be sold from time to time in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The sale of the warrants and the Warrant Shares may be effected in transactions
(which may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which the securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on these exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the
warrants or the Warrant Shares is made, a supplement to this prospectus (a
"prospectus supplement"), if required, will be distributed which will set forth
the aggregate amount of warrants or Warrant Shares being offered and the terms
of the offering, including the name or names of any underwriters, broker-dealers
or agents, any discounts, commissions and other terms constituting compensation
from the selling holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker-dealers. Each broker-dealer that receives the
warrants or Warrant Shares for its own account pursuant to this prospectus must
acknowledge that it will deliver the prospectus and any prospectus supplement in
connection with any sale of the warrants or Warrant Shares.
To comply with the securities laws of certain jurisdictions, if applicable,
the warrants and Warrant Shares will be offered or sold in these jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the warrants and Warrant Shares may not be offered or sold unless
they have been registered or qualified for sale in these jurisdictions or an
exemption from registration or qualification is available and is complied with.
The selling holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the warrants or Warrant Shares
by the selling holders. The foregoing may affect the marketability of these
securities.
Under the terms of the Warrant Agreement, certain expenses of the
registration of the warrants and the Warrant Shares hereunder will be paid by
Intersil Holding, including, without limitation, filing fees of the Commission
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that the selling holders will pay all underwriting discounts, selling
commissions and transfer taxes, if any, applicable to any sales pursuant to the
registration statement. Intersil Holding has agreed to indemnify the selling
holders against certain civil liabilities, including certain liabilities under
the Securities Act, and the selling holders will be entitled to contribution in
connection with any registration and any sales pursuant thereto. Intersil
Holding will be indemnified by the selling holders severally against certain
civil liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection with any registration and any
sales pursuant to the registration statement.
68
<PAGE>
SELLING SECURITY HOLDERS
The selling security holders currently beneficially own a total of 200,000
warrants, which entitle them to purchase 5,555,560 shares of Class A Common
Stock. See "Description of the Warrants." All 200,000 warrants are being
registered by this prospectus and may be offered from time to time by the
selling security holders. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to the securities.
The following table sets forth the number of shares of Class A Common Stock
beneficially owned by each of the selling security holders, as of December 31,
1999. None of the selling security holders has had a material relationship with
Intersil Holding within the past three years other than as a result of the
ownership of our shares, warrants or other securities[, except as provided]. No
estimate can be given as to the number of shares or warrants that will be held
by the selling security holders after completion of this offering because the
selling security holders may offer all or some of the shares or warrants.
Intersil Holding will not receive any of the proceeds from the sale of the
warrants.
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C>
# of Warrants Offered for
Name of Selling Security # of Warrants Beneficially Account of Beneficial Owner
Holders Owned Prior to _________ of Common Stocks
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
LEGAL MATTERS
Certain legal matters regarding the warrants and Warrant Shares offered
hereby will be passed upon for us by Dechert Price & Rhoads, Philadelphia,
Pennsylvania.
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
As a result of the exchange offer, we will become subject to the
informational requirements of the Exchange Act. 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."
Our duty to file supplementary and periodic information, documents and
reports under the Exchange Act shall be automatically suspended as to our fiscal
year beginning July 2, 1999. Accordingly, we will cease to file supplementary
and periodic information, documents and reports for our fiscal year beginning
July 2, 1999.
69
<PAGE>
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933, covering the warrants to purchase 5,555,560 shares of
Class A Common Stock of Intersil Holding Corporation (Registration No.
333-90857). 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 warrants to purchase 5,555,560 shares of Class A
Common Stock of Intersil Holding Corporation, 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.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INTERSIL HOLDING CORPORATION
PAGE
----
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
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 generally accepted auditing
standards. 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 generally accepted accounting principles. 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
F-2
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | ---------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED | 7 WEEKS ENDED
------------------------------------------- --------------- --------------- | ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 | OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- | ---------------
|
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) |
REVENUE |
Product sales............. $545,321 $576,836 $532,718 $122,549 $ 57,336 | $ 76,548
COSTS AND EXPENSES |
Cost of product sales..... 346,073 369,332 349,776 80,511 39,681 | 46,554
Research and |
development............ 75,208 75,125 67,079 14,779 8,499 | 8,398
Marketing................. 81,390 79,787 66,873 16,074 8,208 | 8,421
Administrative and |
general................ 17,924 18,397 17,125 5,194 2,700 | 2,186
Harris corporate expense |
allocation............. 9,960 9,962 9,303 2,133 1,164 | --
Intangible amortization... 2,291 2,292 2,414 573 326 | 1,418
In-process R&D charge..... -- -- -- -- -- | 20,796
-------- -------- -------- -------- -------- | --------
Operating income (loss)..... 12,475 21,941 20,148 3,285 (3,242) | (11,225)
Interest, net............. (595) (914) (1,231) (217) (111) | 8,665
-------- -------- -------- -------- -------- | --------
Income (loss) before |
income taxes........... 13,070 22,855 21,379 3,502 (3,131) | (19,890)
Income taxes (benefit).... 1,845 9,944 (6,027) (987) (102) | 222
-------- -------- -------- -------- -------- | --------
NET INCOME (LOSS)......... 11,225 12,911 27,406 4,489 (3,029) | (20,112)
Preferred dividends......... -- -- -- -- -- | (1,369)
-------- -------- -------- -------- -------- | --------
Net income (loss) to common |
shareholders.............. $ 11,225 $ 12,911 $ 27,406 $ 4,489 $ (3,029) | $(21,481)
-------- -------- -------- -------- -------- | --------
-------- -------- -------- -------- -------- | --------
LOSS PER SHARE: |
Basic..................... | $ (0.22)
| --------
| --------
Diluted................... | $ (0.22)
| --------
| --------
WEIGHTED AVERAGE COMMON |
SHARES OUTSTANDING (IN |
MILLIONS): |
Basic..................... | 100.0
| --------
| --------
Diluted................... | 100.0
| --------
| --------
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | ---------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED | 7 WEEKS ENDED
------------------------------------------- --------------- --------------- | ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 | OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- | ---------------
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS) |
Net income (loss)......... $11,225 $12,911 $27,406 $ 4,489 $(3,029) | $(20,112)
Other comprehensive income |
(loss): |
Currency translation |
adjustments.......... (2,015) (1,851) (574) 1,681 2,475 | 426
------- ------- ------- ------- ------- | --------
Comprehensive income |
(loss).................. $ 9,210 $11,060 $26,832 $ 6,170 $ (554) | $(19,686)
------- ------- ------- ------- ------- | --------
------- ------- ------- ------- ------- | --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<S> <C> <C> <C> <C>
PREDECESSOR | SUCCESSOR
--------------------------- | ---------------------------------
JULY 3, 1998 JULY 2, 1999 | AUGUST 14, 1999 OCTOBER 1, 1999
------------ ------------ | --------------- ---------------
| (UNAUDITED)
(IN THOUSANDS)
ASSETS |
Current Assets |
Cash $ -- $ -- | $ 7,377 $ 33,820
Trade receivables, less allowances for collection loss |
($571 in 1998, $582 in 1999, $755 as of August 14, |
1999 and $780 as of October 1, 1999).................. 110,675 100,674 | 83,042 84,777
Inventories............................................. 180,232 153,822 | 153,044 156,384
Prepaid expenses........................................ 4,658 3,725 | 3,051 7,265
Income tax receivable................................... 643 1,527 | 573 621
Deferred income taxes................................... -- 3,476 | -- --
-------- -------- | -------- --------
Total Current Assets................................ 296,208 263,224 | 247,087 282,867
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 $8,740 as of October 1, |
1999)................................................. 450,084 410,530 | 348,514 342,198
Intangibles, less accumulated amortization ($17,760 in |
1998, $19,929 in 1999, -0- as of August 14, 1999 and |
$1,418 as of October 1, 1999)......................... 44,219 45,368 | 90,715 89,297
Other................................................... 19,759 42,057 | 21,463 22,358
-------- -------- | -------- --------
Total Other Assets.................................. 514,062 497,955 | 460,692 453,853
-------- -------- | -------- --------
Total Assets.............................................. $810,270 $761,179 | $707,779 $736,720
-------- -------- | -------- --------
-------- -------- | -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY/BUSINESS EQUITY |
Current Liabilities |
Trade account payables.................................. $ 33,305 $ 31,068 | $ 29,365 $ 32,619
Retirement plan accruals................................ 15,448 13,640 | 2,445 5,865
Accrued compensation.................................... 29,022 19,283 | 15,842 23,571
Accrued interest and sundry taxes....................... 4,257 3,193 | 3,877 8,733
Other accrued items..................................... 13,403 16,418 | 27,222 33,440
Distributor reserves.................................... 6,189 6,542 | 6,512 7,073
Unearned service income................................. 248 567 | 567 536
Deferred income taxes................................... 126 -- | -- --
Long-term debt--current portion......................... 167 360 | 2,410 2,410
-------- -------- | -------- --------
Total Current Liabilities........................... 102,165 91,071 | 88,240 114,247
Other Liabilities |
Deferred income taxes................................... 5,126 7,022 | 8,199 8,199
Long-term debt.......................................... 3,902 4,207 | 541,525 543,349
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 issued and outstanding at August 14, 1999 |
and October 1, 1999..................................... -- -- | 85,000 86,369
Stockholders' Equity/Business Equity...................... |
Class A Common Stock, $.01 par value, voting; |
125,000,000 shares authorized, 23,800,000 shares |
issued and outstanding at August 14, 1999 and October |
1, 1999............................................... -- -- | 238 238
Class B Common Stock, $.01 par value, non-voting; |
125,000,000 shares authorized, 76,200,000 shares |
issued and outstanding at August 14, 1999 and October |
1, 1999............................................... -- -- | 762 762
Additional paid-in Capital.............................. -- -- | 4,611 3,242
Business equity......................................... 701,012 661,388 | -- --
Retained deficit........................................ -- -- | (20,796) (20,112)
Accumulated other comprehensive (loss) income........... (1,935) (2,509) | -- 426
-------- -------- | -------- --------
Total Stockholders' Equity/Business Equity.......... 699,077 658,879 | (15,185) (15,444)
-------- -------- | -------- --------
Total Liabilities and Stockholders' Equity/Business |
Equity........................................... $810,270 $761,179 | $707,779 $736,720
-------- -------- | -------- --------
-------- -------- | -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INTERSIL HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR PREDECESSOR | SUCCESSOR
------------------------------------------- -------------------------------- | ---------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED | 7 WEEKS ENDED
------------------------------------------- --------------- --------------- | ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 | OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- | ---------------
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS) |
OPERATING ACTIVITIES: |
Net Income (loss).......... $ 11,225 $12,911 $ 27,406 $ 4,489 $ (3,029) | $(20,112)
Adjustments to reconcile net |
income (loss) to net cash |
provided by operating |
activities |
Depreciation............. 50,218 65,036 78,217 19,014 8,747 | 8,740
Amortization............. 2,295 2,295 2,414 573 326 | 1,418
Write-off of in-process |
technology............. -- -- -- -- -- | 20,796
Non-current deferred |
income taxes........... (981) (461) 1,896 1,415 (4,756) | --
Changes in assets and |
liabilities: |
Trade receivables........ 3,164 1,270 10,001 13,187 14,532 | (1,735)
Inventories.............. (7,720) (9,859) 26,410 5,708 (1,649) | (3,340)
Prepaid expenses......... 1,746 506 933 172 674 | (4,214)
Trade payables and |
accrued liabilities.... 24 (14,399) (13,950) (16,333) (18,705) | 27,927
Unearned service |
income................. 94 (32) 319 (163) -- | (31)
Income taxes............. (84) (3,866) (4,486) (264) 4,430 | (48)
Other.................... (5,405) (5,070) (17,911) (15,059) 2,812 | (1,686)
-------- ------- -------- -------- -------- | --------
Net cash provided by |
operating |
activities.......... 54,576 48,331 111,249 12,739 3,382 | 27,715
INVESTING ACTIVITIES: |
Cash paid for acquired |
business................... -- -- (1,335) -- -- | --
Plant and equipment.......... (173,304) (90,184) (38,563) (13,101) (1,887) | (2,424)
-------- ------- -------- -------- -------- | --------
Net cash used in |
investing |
activities.......... (173,304) (90,184) (39,898) (13,101) (1,887) | (2,424)
FINANCING ACTIVITIES: |
Proceeds from borrowings... 1,450 2,750 800 -- -- | --
Payments of borrowings..... (48) (83) (302) (41) (32) | (65)
Net cash transfer and |
billings from (to) |
parent................... 116,105 41,844 (67,030) 443 (1,198) | --
-------- ------- -------- -------- -------- | --------
Net cash provided by |
(used in) financing |
activities.......... 117,507 44,511 (66,532) 402 (1,230) | (65)
Effect of exchange rates on |
cash and cash equivalents.. 1,221 (2,658) (4,819) (40) 1,177 | 1,217
-------- ------- -------- -------- -------- | --------
Net increase in cash... -- -- -- -- 1,442 | 26,443
Cash at the beginning |
of the period....... -- -- -- -- -- | 7,377
-------- ------- -------- -------- -------- | --------
Cash at the end of the |
period.............. $ -- $ -- $ -- $ -- $ 1,442 | $ 33,820
-------- ------- -------- -------- -------- | --------
-------- ------- -------- -------- -------- | --------
</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 COMPREHENSIVE BUSINESS
CLASS A CLASS B CAPITAL (DEFICIT) INCOME EQUITY TOTAL
------- ------- ---------- --------- ------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization at August
14, 1999...................... $238 $762 $4,611 $ -- $ -- $ -- $ 5,611
Net income (loss) (unaudited)... -- -- -- (20,112) -- -- (20,112)
Accretion of undeclared
dividends on preferred stock
(unaudited)................... -- -- (1,369) -- -- -- (1,369)
Foreign currency translation
(unaudited)................... -- -- -- -- 426 -- 426
---- ---- ------ -------- ---- --------- ---------
Balances at October 1, 1999
(unaudited)................... $238 $762 $3,242 $(20,112) $426 $ -- $ (15,444)
==== ==== ====== ======== ==== ========= =========
</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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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 activety 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 13 weeks ended
October 2, 1998 and the 7 weeks ended October 1, 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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
ACQUISITION OF HARRIS' SEMICONDUCTOR BUSINESS
The total purchase price of the Semiconductor Business acquisition was $630
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 $520.0 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 PIK Note and the issuance of a
$90.0 million "Pay-In-Kind" (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. This negative goodwill was allocated to the
identified intangibles and property and equipment based on their relative fair
values as follows (in millions).
Purchase price:
Cash paid to Harris.................. $520.0
13.5% Subordinated PIK Note.......... 90.0
Transaction costs and fees........... 20.0
------
Total purchase price................... $630.0
======
<TABLE>
<CAPTION>
ALLOCATION OF
FAIR VALUE OF EXCESS FAIR ADJUSTED
ACQUIRED ASSETS VALUE FAIR VALUE
--------------- ------------- -------------
<S> <C> <C> <C>
Net current assets..................... $160.9 -- $160.9
Other.................................. 9.0 -- 9.0
Property and equipment................. 486.0 $(137.5) 348.5
Developed Technology................... 80.0 (22.6) 57.4
Customer base.......................... 33.0 (9.3) 23.7
In-process research and development.... 29.0 (8.2) 20.8
Assembled workforce.................... 13.5 (3.8) 9.7
------ ------- ------
$811.4 $(181.4) $630.0
====== ======= ======
Excess fair value of net assets
acquired over purchase price......... $181.4
======
</TABLE>
The preliminary appraisal of the acquired business included $20.8 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.
The allocation of the purchase price is based on a preliminary valuation,
which is subject to change, although management does not believe the final
valuation will be materially different.
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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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>
As of October 1, 1999, the restructuring liability was $8.8 million. For
the seven weeks ended October 1, 1999, approximately $2.2 million of these
restructuring costs had been paid out. 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 13 weeks ended October 2, 1998 and
July 2, 1999 for the 13 weeks ended October 1, 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
----------------------------------------
13 WEEKS 13 WEEKS
ENDED ENDED
OCTOBER 2, 1998 OCTOBER 1, 1999
----------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Product sales.................................. $122.5 $133.9
Net loss....................................... $ (4.2) $(27.0)
Net loss to common shareholders................ $ (6.8) $(29.6)
Loss per share:
Basic and diluted............................ $(0.07) $(0.30)
</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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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, thirteen weeks ended October 2,
1998, six weeks ended August 13, 1999 and seven weeks ended October 1, 1999
amounted to 20.5%, 19.0%, 16.6%, 19.1%, 29.3% and 7.8%, 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, $4.1 million for the thirteen weeks ended October 2,
1998, $1.4 million for the six weeks ended August 13, 1999 and $2.5 million for
the seven weeks ended October 1, 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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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, $(2.5) million, $0 and $0.4 million at July 3, 1998, $2.5
million at July 2, 1999, August 13, 1999 and October 1, 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
seven weeks ended October 1, 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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE D--INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------------- -------------------------
JULY 3, JULY 2, AUGUST 14, OCTOBER 1,
1998 1999 1999 1999
-------- -------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Finished products.......................... $ 64,644 $ 58,041 $ 59,708 $ 57,137
Work in process............................ 125,647 102,457 104,262 109,903
Raw materials and supplies................. 14,423 11,441 9,137 8,735
-------- -------- -------- --------
204,714 171,939 173,107 175,775
Less inventory reserve..................... (24,482) (18,117) (20,063) (19,391)
-------- -------- -------- --------
$180,232 $153,822 $153,044 $156,384
======== ======== ======== ========
</TABLE>
At July 2, 1999, August 14, 1999 and October 1, 1999 Intersil Holding was
committed to purchase $22.5 million, $22.8 million and $22.8 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, OCTOBER 1,
1998 1999 1999 1999
---------- -------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land..................................... $ 3,966 $ 3,966 $ 6,539 $ 6,034
Buildings................................ 262,490 266,364 100,511 100,337
Machinery and equipment.................. 750,659 722,816 241,464 244,567
---------- -------- -------- --------
1,017,115 993,146 348,514 350,938
Less allowances for depreciation......... 567,031 582,616 -- 8,740
---------- -------- -------- --------
$ 450,084 $410,530 $348,514 $342,198
========== ======== ======== ========
</TABLE>
NOTE F--INTANGIBLES
Intangibles are summarized below (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
----------------- ------------------------
PERIOD OF JULY 3, JULY 2, AUGUST 14, OCTOBER 1,
AMORTIZATION 1998 1999 1999 1999
------------- ------- ------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Developed technology...................... 11 years $ -- $ -- $ 57,369 $57,369
Customer base............................. 7 years -- -- 23,665 23,665
Assembled workforce....................... 5 years -- -- 9,681 9,681
Goodwill.................................. 40 years 61,979 65,297 -- --
------- ------- -------- -------
61,979 65,297 90,715 90,715
Less accumulated amortization............. 17,760 19,929 -- 1,418
------- ------- -------- -------
$44,219 $45,368 $ 90,715 $89,297
======= ======= ======== =======
</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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE G--LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share:
(SUCCESSOR)
---------------
OCTOBER 1, 1999
--------
(UNAUDITED)
Numerator
Net loss (numerator for basic and diluted earnings per
share)................................................. $(21,481)
========
Denominator:
Denominator for basic earnings per share-weighted average
common shares.......................................... 100,000
Effect of dilutive securities:
Warrants............................................... --
--------
Denominator for diluted earnings per share-adjusted
weighted average shares................................ 100,000
========
Basic loss per share........................................ $ (0.22)
========
Diluted loss per share...................................... $ (0.22)
========
The effect of dilutive securities is not included in the computation for
the seven weeks ended October 1, 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 OCTOBER 1, 1999
------------- ------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
13.25% Senior Subordinated $ -- $ -- $199,700 $199,700
Notes..........................
Tranche B Senior Term Facility... -- -- 205,000 205,000
11.13% Seller Holding PIK Note... -- -- 90,000 91,345
13.5% Subordinated Holding PIK
Note........................... -- -- 29,700 30,244
Revolving Credit Facility........ -- -- 15,000 15,000
Other............................ 4,069 4,567 4,535 4,470
------ ------ -------- --------
4,069 4,567 543,935 545,759
Less: current portion............ 167 360 2,410 2,410
------ ------ -------- --------
$3,902 $4,207 $541,525 $543,349
====== ====== ======== ========
</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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE H--LONG-TERM DEBT--(CONTINUED)
Schedule future principal payments under Intersil Holding's and Intersil's
indebtedness are as follows:
2000...................................................... $ 2,410
2001...................................................... 2,454
2002...................................................... 2,466
2003...................................................... 2,479
2004...................................................... 2,438
Thereafter................................................ 533,512
--------
$545,759
========
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 5,555,560 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 27.7778 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, make investments, engage in
transactions with affiliates, consolidate, merge or transfer 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 27.7778 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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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 $212.90
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, make certain investments and acquisitions, dispose 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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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 Montaintop, Pennsylvania, which has a net
carrying value of $4.5 million at August 13, 1999 and October 1, 1999. The
weighted average interest rate for this debt was 3.0% at July 3, 1998, July 2,
1999, August 13, 1999 and October 1, 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 85,000 shares of its 12% Series A Cumulative Compounding Preferred
Stock to certain buyers including, Sterling Intersil Holding Company LLC (75,088
shares), Harris (8,500 shares) and certain members of management (1,412 shares).
The $85.0 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 October 1, 1999, in the amounts of $85.0 million and $86.4 million
($1.4 million accretion of undeclared dividends), respectively, is classified in
Intersil Holding's balance sheet as Mandatorily Redeemable Preferred Stock.
NOTE J--LEASE COMMITMENTS
Total rental expense amounted to $6.7 million in 1997, $6.3 million in
1998, $6.3 million in 1999, $1.6 million for the thirteen weeks ended October 2,
1998, $0.6 million for the 6 weeks ended August 13, 1999 and $0.7 million for
the seven weeks ended October 1, 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 $18.7
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--$2.6 million, 2002--$1.6 million, 2003--$1.3
million, 2004--$1.3 million, and $7.9 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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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)
------------------------------------------- ---------------------------------
FISCAL YEAR ENDED 13 WEEKS ENDED 6 WEEKS ENDED
------------------------------------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 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 4,489 (3,029)
Foreign currency translation
adjustments....................... (2,015) (1,851) (574) 1,681 2,475
Net cash transfers and billings from
(to) Harris Corporation........... 116,105 41,844 (67,030) 443 (1,198)
Purchase price elimination.......... -- -- -- -- (657,127)
-------- -------- -------- -------- --------
Balance at end of period............ $646,173 $699,077 $658,879 $705,690 $ --
======== ======== ======== ======== ========
</TABLE>
NOTE L--COMMON STOCK
Intersil Holding is authorized to issue 250.0 million shares of Intersil
Holding common stock, par value $0.01 per share, divided into two classes
consisting of 125.0 million shares of Intersil Holding Class A Common Stock and
125.0 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 23.8 million shares of Class A
Common Stock and 76.2 million shares of Class B Common Stock for approximately
$5.0 million. The $5.0 million proceeds, along with the $85.0 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 5,555,560 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 3,333,336 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.
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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
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 13 WEEKS ENDED 6 WEEKS ENDED 7 WEEKS ENDED
------------------------------------------- --------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States
(benefit)............ $(2,595) $4,221 $(6,626) $(1,085) $(399) $ --
International.......... 4,768 4,910 1,605 263 352 222
State and local
(benefit)............ (328) 813 (1,006) (165) (55) --
------- ------ ------- ------- ----- ----
$ 1,845 $9,944 $(6,027) $ (987) $(102) $222
======= ====== ======= ======= ===== ====
</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 7 weeks ended October
1, 1999.
The components of International deferred income tax assets (liabilities)
are as follows (in thousands):
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------------------------------- ---------------------------------------------
JULY 3, 1998 JULY 2, 1999 AUGUST 14, 1999 OCTOBER 1, 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......... -- -- -- -- -- -- -- 13,296
NOL Carryforward..... -- -- -- -- -- -- -- 3,217
Credit Carryforward.. -- -- -- -- -- -- -- 4,700
Depreciation......... -- (5,126) -- (7,022) -- (12,953) -- (12,899)
All other--net....... 537 -- 3,476 -- -- 4,754 -- --
Valuation Allowance.. -- -- -- -- -- -- -- (16,513)
----- ------- ------ ------- ------ -------- ------ --------
$(126) $(5,126) $3,476 $(7,022) $ -- $ (8,199) $ -- $ (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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 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 13 WEEKS ENDED 6 WEEKS ENDED 7 WEEKS ENDED
------------------------------------------- --------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 OCTOBER 1, 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 1.5
International
income............. (21.4) 5.2 (61.9) (61.9) (29.7) 5.0
Research credits..... (4.8) (2.9) (2.7) (2.7) 2.2 1.8
In-Process R&D....... -- -- -- -- -- (25.4)
Subpart F............ -- -- -- -- -- (2.4)
Valuation Allowance.. -- -- -- -- -- (16.2)
Goodwill
amortization....... 6.1 3.5 4.0 4.0 (4.9) --
Other items.......... .8 .4 0.5 0.5 (0.5) (0.4)
----- ----- ----- ----- ----- -----
Effective income tax
rate............... 14.1% 43.5% (28.2)% (28.2)% 3.2% (1.1)%
===== ===== ===== ===== ===== =====
</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, $.6 million for the 13 weeks
ended October 2, 1998, $(1.6) million for the 6 weeks ended August 13, 1999 and
$1.1 million for the 7 weeks ended October 1, 1999.
Income taxes paid (received) were $2.4 million in 1997, $14.8 million in
1998, $3.4 million in 1999, $2.0 million for the 13 weeks ended October 2, 1998,
$.2 million for the 6 weeks ended August 13, 1999 and $.2 million for the 7
weeks ended October 1, 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 13 WEEKS ENDED 6 WEEKS ENDED 7 WEEKS ENDED
------------------------------------------- --------------- --------------- ---------------
JUNE 27, 1997 JULY 3, 1998 JULY 2, 1999 OCTOBER 2, 1998 AUGUST 13, 1999 OCTOBER 1, 1999
------------- ------------ ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States
operations
Net sales............ $531,246 $563,180 $519,555 $121,966 $ 54,664 $ 74,094
Long-lived assets.... 380,143 386,333 371,448 369,985 366,386 331,406
International
Net sales............ 14,075 13,656 13,163 583 2,672 2,454
Long-lived assets.... 102,683 122,397 121,330 148,863 118,277 123,388
</TABLE>
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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE N--GEOGRAPHIC INFORMATION--(CONTINUED)
Export sales included in U.S. Operations were, $234.6 million in 1997,
$258.4 million in 1998, $254.8 million in 1999, $72.1 million for the 13 weeks
ended October 2, 1998, $33.5 million for the 6 weeks ended August 13, 1999 and
$48.7 million for the 7 weeks ended October 1, 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 October 1, 1999, open foreign exchange contracts were
$22.0 million, $6.1 million and $14.0 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.
Total open foreign exchange contracts at July 2, 1999, August 14, 1999 and
October 1, 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>
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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE O--FINANCIAL INSTRUMENTS--(CONTINUED)
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>
OCTOBER 1, 1999 (UNAUDITED)
COMMITMENTS TO BUY FOREIGN CURRENCIES
<TABLE>
<CAPTION>
CONTRACT AMOUNT
-------------------------- DEFERRED MATURITIES
CURRENCY FOREIGN CURRENCY U.S. GAINS (IN MONTHS)
- -------- ---------------- ------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Malaysian Ringgit............................ 16,906 $ 4,000 $449 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>
French Franc................................. 20,000 $ 3,212 $22 3-6
Deutsche Mark................................ 8,000 4,306 27 3-6
British Pound................................ 1,520 2,491 (12) 3-5
</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 13 WEEKS ENDED OCTOBER 2, 1998 AND THE UNAUDITED
7 WEEKS ENDED OCTOBER 1, 1999
NOTE P--SUBSEQUENT EVENT--EQUITY COMPENSATION PLAN
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
1,000,000 shares of common stock. On November 5, 1999, Intersil Holding granted
approximately 2.3 million options to acquire Intersil Holding Class A Common
Stock at a price of $1.50 per share. The Company plans to account for its Equity
Compensation Plan in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
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 13 weeks ended
October 2, 1998 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 October 1, 1999 and the condensed consolidated
statements of income and cash flows for the 7 weeks ended October 1, 1999
reflect the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
F-22
<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
Marketing................................... 62,138 19,252 -- 81,390
Administrative and general.................. 16,927 997 -- 17,924
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
Marketing................................... 61,525 18,262 -- 79,787
Administrative and general.................. 18,022 375 -- 18,397
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-23
<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
Marketing................................... 47,429 19,444 -- 66,873
Administrative and general.................. 18,437 (1,312) -- 17,125
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
THIRTEEN WEEKS ENDED OCTOBER 2, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------------
FOREIGN
GUARANTOR NON-GUARANTOR ELIMINATING
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Product sales............................... $124,194 $94,542 $(96,187) $122,549
COSTS AND EXPENSES
Cost of product sales....................... 100,986 90,330 (110,805) 80,511
Research and development.................... 18,585 34 (3,840) 14,779
Marketing................................... 12,362 4,354 (642) 16,074
Administrative and general.................. 3,644 (344) 1,894 5,194
Harris corporate expense allocations........ 2,915 (197) (585) 2,133
Goodwill amortization....................... 573 -- -- 573
-------- ------- -------- --------
Operating income (loss)....................... (14,871) 365 17,791 3,285
Interest, net............................... (211) (242) 236 (217)
-------- ------- -------- --------
Income (loss) before income taxes........... (14,660) 607 17,555 3,502
Income taxes (benefit)...................... (8,133) 1,153 5,993 (987)
-------- ------- -------- --------
NET INCOME (LOSS)........................... $ (6,527) $ (546) $ 11,562 $ 4,489
======== ======= ======== ========
</TABLE>
F-24
<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
Marketing................................... 6,288 1,920 8,208
Administrative and general.................. 2,698 (142) 144 2,700
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
SEVEN WEEKS ENDED OCTOBER 1, 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...................... $ -- $ 82,848 $68,979 $(75,279) $ 76,548
COSTS AND EXPENSES
Cost of product sales.............. -- 51,197 63,903 (68,546) 46,554
Research and development........... -- 8,398 -- -- 8,398
Marketing.......................... -- 4,277 4,144 -- 8,421
Administrative and general......... -- 2,186 -- -- 2,186
Harris corporate expense
allocations..................... -- -- -- -- --
Intangible amortization............ -- 7,322 (15,996) 10,092 1,418
In-process R&D charge.............. -- 20,796 -- -- 20,796
------- -------- ------- -------- --------
Operating income (loss).............. -- (11,328) 16,928 (16,825) (11,225)
Interest, net...................... 1,889 8,605 2,267 (4,096) 8,665
Equity in subsidiary (income)
loss)........................... 5,272 -- -- (5,272) --
------- -------- ------- -------- --------
Income (loss) before income
taxes........................... (7,161) (19,933) 14,661 (7,457) (19,890)
Income taxes (benefit)............. -- 268 1,801 (1,847) 222
------- -------- ------- -------- --------
NET INCOME (LOSS).................. (7,161) (20,201) 12,860 (5,610) (20,112)
------- -------- ------- -------- --------
Preferred dividends................ 1,369 1,369 -- (1,369) 1,369
------- -------- ------- -------- --------
Net income (loss) to common
shareholders.................... $(8,530) $(21,570) $12,860 $ (4,241) $(21,481)
======= ======== ======= ======== ========
</TABLE>
F-25
<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-26
<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..................... 85,000 -- -- -- 85,000
Common Stock........................ 1,000 -- -- -- 1,000
Additional paid in capital.......... 4,311 300 -- -- 4,611
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
OCTOBER 1, 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................................ $ -- $ 26,734 7,086 $ -- $ 33,820
Trade receivables, net.............. -- 82,211 2,566 -- 84,777
Intercompany balances............... -- 29,655 (22,162) (7,493) --
Inventories......................... -- 133,535 33,330 (10,481) 156,384
Other current assets................ -- 14,309 (2,757) (3,666) 7,886
Property, plant and equipment,
net............................... -- 243,719 98,479 -- 342,198
Intangibles, net.................... -- 89,297 -- -- 89,297
Investment in subsidiaries.......... 211,900 306,502 95,613 (614,015) --
Other non-current assets............ -- 20,153 1,475 730 22,358
-------- -------- -------- --------- --------
Total Assets...................... $211,900 $946,115 $213,630 $(634,925) $736,720
======== ======== ======== ========= ========
LIABILITIES AND BUSINESS EQUITY
Accounts payable.................... $ -- $ 21,856 $ 10,763 $ -- $ 32,619
Compensation and benefits........... -- 22,882 6,554 -- 29,436
Other current liabilities........... -- 52,930 (738) -- 52,192
Long-term debt...................... 121,589 421,760 -- -- 543,349
Other non-current liabilities....... -- 8,199 -- -- 8,199
Preferred stock..................... 86,369 -- -- -- 86,369
Common stock........................ 1,000 -- -- -- 1,000
Additional paid in capital.......... 2,942 300 -- -- 3,242
Retained deficit.................... -- 418,188 197,051 (634,925) (19,686)
-------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity........... $211,900 $946,115 $213,630 $(634,925) $736,720
======== ======== ======== ========= ========
</TABLE>
F-27
<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......... 154,590 (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-28
<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
THIRTEEN WEEKS ENDED OCTOBER 2, 1998
(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)................................... $ (6,528) $ (545) $ 11,562 $ 4,489
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization....................... 14,832 4,755 -- 19,587
Non-current deferred income taxes................... (56,952) -- 58,367 1,415
Changes in working capital.......................... (154,375) (41,274) 182,897 (12,752)
-------- ------- --------- --------
Net cash provided by (used in) operating
activities...................................... (203,023) (37,064) 252,826 12,739
INVESTING ACTIVITIES:
Plant and equipment................................... (9,469) (3,632) -- (13,101)
-------- ------- --------- --------
Net cash used in investing activities............. (9,469) (3,632) -- (13,101)
FINANCING ACTIVITIES:
Proceeds from borrowings............................ -- -- -- --
Payments of borrowings.............................. (4,069) -- 4,028 (41)
Net cash transfer and billings from (to) parent..... 216,561 40,736 (256,854) 443
-------- ------- --------- --------
Net cash provided by (used in) financing
activities...................................... (212,492) 40,736 (252,826) 402
Effect of exchange rates on cash and cash
equivalents......................................... -- (40) -- (40)
-------- ------- --------- --------
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
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
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
SEVEN WEEKS ENDED OCTOBER 1, 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)................... $ (1,889) $(20,201) $12,860 $ (10,882) $(20,112)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization....... -- 7,628 2,530 -- 10,158
Changes in working capital.......... 1,889 30,573 (5,675) 10,882 37,669
-------- -------- ------- --------- --------
Net cash provided by (used in)
operating activities........... -- 18,000 9,715 -- 27,715
INVESTING ACTIVITIES:
Plant and equipment................... -- 2,867 (5,291) -- (2,424)
-------- -------- ------- --------- --------
Net cash used in investing
activities..................... -- 2,867 (5,291) -- (2,424)
FINANCING ACTIVITIES:
Payments of borrowings.............. -- (65) -- -- (65)
Net cash transfer and billings from
(to) parent....................... -- -- -- -- --
-------- -------- ------- --------- --------
Net cash provided by financing
activities..................... -- (65) -- -- (65)
Effect of exchange rates on cash and
cash equivalents.................... -- -- 1,217 -- 1,217
-------- -------- ------- --------- --------
Net increase in cash.................. -- 20,802 5,641 -- 26,443
Cash at the beginning of the period... -- 5,932 1,445 -- 7,377
-------- -------- ------- --------- --------
Cash at the end of the period......... $ -- $ 26,734 $ 7,086 $ -- $ 33,820
======== ======== ======= ========= ========
</TABLE>
F-30
<PAGE>
[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) are estimated:
SEC Registration Fee........................................ $ 5
Accounting Fees............................................. $ 1,259,294
Printing and Engraving Expenses............................. $ 249,261
Legal Fees and Expenses (other than blue sky)............... $ 3,376,065
Blue Sky Fees and Expenses.................................. $ --
Transfer Agent and Registrar Fees........................... $ 893,375
Miscellaneous Expense....................................... $14,222,005
-----------
Total.................................................. $20,000,000
===========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, the 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 Registrant are insured against certain
liabilities under the Registrant's directors' and officers' liability insurance.
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.
II-1
<PAGE>
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 5.6 million
shares of Class A Common Stock of Intersil Holding. In addition, Intersil
Holding granted to certain 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 and 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 commenced an offering of
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 (a "Warrant") to purchase 27.7778
shares of Intersil Holding's Class A Common Stock. An exchange offer
registration statement was filed by Intersil on November 10, 1999 with respect
to a proposed exchange of the old notes for registered notes having
substantially identical terms, the new notes. This Registration Statement is
filed to register the Warrants and the shares of Common Stock issuable upon
exercise of the Warrants.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Incorporated by reference to the Exhibit Index following page II-5 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 AT TO COSTS CHARGED DEDUCTION BALANCE
BEGINNING AND TO OTHER FROM AT 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:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
II-3
<PAGE>
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 3 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 7th day of
January, 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities indicated on January 7, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
GREGORY L. WILLIAMS Chief Executive Officer and Director
- ----------------------------------------------------- (principal executive officer)
Gregory L. Williams
* 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-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.01* Amended and Restated Master Transaction Agreement dated as
of June 2, 1999, by and among Intersil Holding Corporation
("Holding"), Intersil Corporation ("Intersil") and Harris
Corporation ("Harris").
2.02* Agreement Concerning Deferred Closings dated as of August
13, 1999, by and among Harris and Intersil.
2.03* Transition Services Agreement dated as of August 13, 1999,
by and among Intersil and Harris.
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.
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.
2.06* Asset Purchase Agreement dated as of August 20, 1999,
between Harris Semiconductor Design & Sales Pte. Ltd. and
Intersil Pte. Ltd.
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.
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.
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.
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.
2.11* Agreement Re: China Subsidiaries, dated as of August 13,
1999, between Harris and Intersil.
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.
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.
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.
2.15* Intellectual Property Agreement, dated as of August 13,
1999, among Harris, Harris Semiconductor Patents, Inc. and
Holding.
2.16* Patent Assignment and Services Agreement, dated as of August
13, 1999, among Harris, Harris Semiconductor Patents, Inc.
and Holding.
2.17* License Assignment Agreement, dated as of August 13, 1999,
among Harris, Harris Semiconductor Patents, Inc. and
Holding.
2.18* Harris Trademark License Agreement, dated as of August 13,
1999, among Harris, HAL Technologies, Inc. and Holding.
2.19* Secondary Trademark Assignment and License Agreement, dated
as of August 13, 1999, between Harris and Holding.
2.20* PRISM(Registered) Intellectual Property Assignment, dated
August 13, 1999, between Holding and Intersil.
2.21* Tax Sharing Agreement, dated as of August 13, 1999, among
Holding, Intersil and Choice Microsystems, Inc.
2.22* Royalty Agreement, dated as of August 13, 1999, among Harris
and Intersil.
2.23* Option Agreement, dated as of August 13, 1999, among
Intersil and Intersil PRISM, LLC.
3.01* Certificate of Incorporation of Holding, as amended.
3.02* Bylaws of Holding.
4.01* Warrant Agreement, dated as of August 13, 1999, between
Holding and United States Trust Company of New York.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.02* 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.
4.03* 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.
5.01** Opinion of Dechert Price & Rhoads.
8.01** Opinion of Dechert Price & Rhoads.
10.01* 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.
10.02* Form of 13 1/4% Senior Subordinated Notes due 2009 (included
in Exhibit 10.01).
10.03* 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.
10.04* 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.
10.05* Form of 13 1/2% Subordinated Pay-In-Kind Note due 2010
(included in Exhibit 10.04).
10.06* 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.
10.07* Form of 11.13% Subordinated Pay-In-Kind Note due 2010
(included in Exhibit 10.06).
10.08* Registration Rights Agreement, dated August 13, 1999, among
Holding, Sterling Holding Company, LLC, Manatee Investment
Corporation, Citicorp Mezzanine Partners, L.P. and the
management investors named therein.
10.09* 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.
10.10* Option Award Agreement, dated as of August 13, 1999.
10.11* Employment Agreement, dated as of August 9, between Intersil
and Gregory L. Williams.
10.12* Agreement between Harris and Local Union No. 1907
International Brotherhood of Electrical Workers, AFL-CIO
(Findlay, OH Facility), effective as of July 1, 1996.
10.13* 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.
10.14* Machinery and Equipment Loan Agreement, dated September 9,
1996, between Commonwealth of Pennsylvania, Department of
Community and Economic Development and Harris.
10.15* Machinery and Equipment Loan Agreement, dated as of November
3, 1998, between Commonwealth of Pennsylvania, Department of
Community and Economic Development and Harris.
10.16* Master Agreement, dated as of December 2, 1997, between
Harris Semiconductor and Optum Software.
10.17* Purchase Agreement, dated as of March 14, 1997, between
Harris Semiconductor and Praxair, Inc.
10.18* Asset Purchase Agreement, dated as of July 2, 1999, by and
among Align-Rite International, Inc., Align-Rite, Inc. and
Harris.
10.19* Bill of Sale and Assignment, dated as of July 2, 1999, by
Harris in favor of Align-Rite International, Inc. and
Align-Rite, Inc.
10.20* Lease Agreement, dated as of July 2, 1999, by and among
Harris Corporation Semiconductor Business Unit and
Align-Rite, Inc.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.21* Photomask Supply and Strategic Alliance Agreement, dated as
of July 2, 1999, by and among Harris, Align-Rite
International, Inc. and Align-Rite, Inc.
10.22* Site Services Agreement, dated as of July 2, 1999, by and
among Harris Corporation Semiconductor Business Unit and
Align-Rite, Inc.
10.23* Software License Agreement, dated as of July 31, 1984,
between Harris and Consilium Associates, Inc.
10.24* Addendum Software License and Maintenance Agreement, dated
as of October 27, 1995, between Harris and Consilium, Inc.
10.25* Specialty Gas Supply Agreement, dated as of October 15,
1996, between Air Products and Chemicals, Inc. and Harris.
10.26* Silicon Wafer Purchase Agreement, dated as of January 1,
1997, between Mitsubishi Silicon America Corporation and
Harris.
10.27* Nitrogen Supply Agreement, dated as of September 22, 1992,
between Harris Corporation Semiconductor Sector and Liquid
Air Corporation Merchant Gases Division.
10.28* Nitrogen Supply System Agreement, Amendment Number 1, dated
as of September 15, 1996, between Air Liquide America
Corporation and Harris Corporation Semiconductor Sector.
10.29* Site Subscription Agreement, dated as of July 1, 1993,
between Harris Semiconductor Sector of Harris and Cadence
Design Systems, Inc.
10.30* Site Subscription Addendum, dated December 19, 1997, between
Harris Semiconductor Sector of Harris and Cadence Design
Systems, Inc.
10.31* HMCD--HSS Memorandum of Agreement, dated March 26, 1999,
between Harris Microwave Communication Division and Harris
Semiconductor Sector.
10.32* Investment Agency Appointment and Participation
Authorization, dated September 3, 1999, between Intersil,
Intersil Corporation Master Trust and T. Rowe Price Trust
Company.
10.33* Investment Agency Appointment and Participation Authority,
dated September 3, 1999, between Intersil Corporation Master
Trust and T. Rowe Price Trust Company.
10.34* Investment Advisory Agreement (Equity Growth Fund), dated
September 3, 1999, between T. Rowe Price Associates, Inc.
and Intersil Corporation Retirement Committee.
10.35* Investment Advisory Agreement (Equity Income Fund), dated
September 3, 1999, between T. Rowe Price Associates, Inc.
and Intersil Corporation Retirement Committee.
10.36* Intersil Corporation Retirement Plan (Non-Union), dated
September 3, 1999.
10.37* Intersil Corporation Retirement Plan (Union), dated
September 3, 1999.
10.38* Commercial Supply Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris.
10.39* Military Supply Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris.
10.40* 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.
10.41* Asset Transfer Agreement, dated December 3, 1998, by and
between Texas Instruments Incorporated and Harris Advanced
Technology (Malaysia) Sdn. Bhd.
10.42* 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.
10.43* 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.
10.44* Certificate of Leasehold Property for Land Office No. 7668
by Harris Advanced Technology (M) Sdn. Bhd.
10.45* State Lease for Lot No. 7716 by Harris Advanced Technology
(Malaysia) Sdn. Bhd.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.46* Certificate of Leasehold Property for Land Office No. 7666
by Harris Advanced Technology (M) Sdn. Bhd.
12.01* Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.01* Subsidiaries of Holding.
23.01* Consent of Dechert Price & Rhoads (included in Exhibit
5.01).
23.02 Consent of Ernst & Young LLP.
27.01* Financial Data Schedule.
- ------------------
* Previously filed
** To be supplied by amendment.
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, included in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-90857) and related Prospectus of
Intersil Holding Corporation for the registration of 5,555,560 shares of Class A
Common Stock, par value $.01 per share and 200,000 Warrants to purchase Shares
of Class A Common Stock.
/s/ Ernst & Young LLP
Jacksonville, FL
January 5, 2000
