8-K 1 0001.txt CURRENT REPORT ON FORM 8-K -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): June 30, 2000 CHIPPAC, INC. ____________ (Exact name of registrant as specified in its charter) California 333-91641 77-0463-48 ---------------------------- ------------------------- ------------------ (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 3151 Coronado Drive Santa Clara, California 95054 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 486-5900 Not Applicable ----------------------- (Former name or former address, if changed since last report) -------------------------------------------------------------------------------- ITEM 2. ACQUISITION OF INTERSIL TECHNOLOGY SDN. BHD. On June 30, 2000, ChipPAC, Inc. (the "Company") completed its acquisition of Intersil Technology Sdn. Bhd., a Malaysian corporation ("Intersil Technology") and wholly-owned subsidiary of Sapphire Worldwide Investments, Inc., a British Virgin Islands corporation ("Sapphire" or the "Seller") and wholly-owned subsidiary of Intersil Corporation, a Delaware corporation ("Intersil"), pursuant to that Stock Purchase Agreement (the "Purchase Agreement"), dated as of June 30, 2000, by and among ChipPAC Limited, a Virgin Islands corporation ("ChipPAC Limited" or the "Buyer") and wholly-owned subsidiary of the Company, the Company, Sapphire and Intersil. In the acquisition, ChipPAC Limited acquired all of the outstanding equity interests in Intersil Technology and related intellectual property. In consideration therefor, the Seller received $52.5 million in cash and 17,500 shares of the Class C Preferred Stock of the Company. In addition, pursuant to the terms of the Purchase Agreement, during the period from June 1, 2000 to June 30, 2003, Intersil shall be entitled to receive additional contingent incentive payments based upon the achievement of milestones relating to the transfer of business currently subcontracted by Intersil to third parties. In the event that Intersil were to achieve all the milestones, the Buyer would pay to Intersil an additional sum of approximately $17.9 million in the aggregate. The cash portion of the consideration paid in connection with the acquisition was financed by amending the Company's senior credit facilities with Credit Suisse First Boston to provide for a term C loan for $55.0 million. Pursuant to the acquisition, the Buyer acquired Intersil Technology's semiconductor packaging and test operations located in Kuala Lumpur, Malaysia. In connection with the acquisition, the Buyer entered into a five-year supply agreement with Intersil under which the Company will supply Intersil and each of its current and future affiliates with their semiconductor packaging and test services requirements. In addition, the Buyer entered into an intellectual property rights agreement pursuant to which Intersil assigned to the Company patents, copyrights and technical information used exclusively in or associated exclusively with the business of Intersil Technology. Furthermore, Intersil granted to the Company a worldwide, non-exclusive, royalty-free license under other Intersil patents, copyrights and technical information which are also used in or related to the operation of Intersil Technology. This license is perpetual and irrevocable. Any intellectual property rights in the bonding diagrams, test programs, maskworks and test boards uniquely related to Intersil products for which the Company expects to provide packaging and test services under the supply agreement is licensed to the Company only for use in providing those services. The summary of the provisions in the Purchase Agreement and related agreements set forth above is qualified in its entirety by reference to the Purchase Agreement and related agreements, which have been filed as exhibits to this Current Report on Form 8-K or incorporated herein by reference to the Company's Registration Statement on Form S-1, Registration No. 333-39428. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED 2 Page ---- Annual Financial Statements for Intersil Technology Sdn. Bhd. Independent Certified Public Accountants' Report F-1 Balance Sheet as of July 3, 1998 and July 2, 1999 F-2 Statement of Income for the Fiscal Years Ended, June 27, 1997, July 3, 1998 and July 2, 1999 F-3 Statement of Cash Flows for the Fiscal Years Ended June 27, 1997, July 3, 1998 and July 2, 1999 F-4 Notes to Financial Statements F-5 Interim Financial Statements (unaudited) for Intersil Technology Sdn. Bhd. Condensed Balance Sheets as of July 2, 1999 and March 31, 2000 F-9 Condensed Statements of Income for the Nine Months Ended April 2, 1999 and March 31, 2000 F-10 Condensed Statements of Cash Flows for the Nine Months Ended April 2, 1999 and March 31, 2000 F-11 Notes to Condensed Consolidated Financial Statements F-12 (b) PRO FORMA FINANCIAL INFORMATION Page ---- Unaudited Pro Forma Combined Condensed Financial Data Unaudited Pro Forma Combined Condensed Statement of Operations for the Year Ended December 31, 1999 F-14 Unaudited Pro Forma Combined Condensed Statement of Operations for the Three Months Ended March 31, 1999 F-15 Unaudited Pro Forma Combined Condensed Statement of Operations for the Three Months Ended March 31, 2000 F-16 3 Notes to Unaudited Pro Forma Combined Condensed Statement of Operations F-17 Unaudited Pro Forma Balance Sheet as of March 31, 2000 F-20 Notes to Unaudited Pro Forma Balance Sheet F-21 (c) EXHIBITS 2.1 Stock Purchase Agreement among ChipPAC Limited, the Company, Sapphire Worldwide Investments, Inc. and Intersil Corporation dated as of June 30, 2000. 10.1 Supply Agreement entered into as of June 30, 2000 by and between ChipPAC Limited and Intersil Corporation. (1) 10.2 Intellectual Property Rights Agreement entered into as of June 30, 2000 between Intersil Corporation and ChipPAC Limited. (2) 10.3 Amendment No. 1 to Amended and Restated Registration Agreement entered into as of June 30, 2000 by and among the Company, Sapphire Worldwide Investments, Inc. and certain listed parties thereto. (3) 10.4 Shareholders Agreement made as of June 30, 2000 by and among the Company, certain listed parties thereto, the SXI Group (as defined therein) and Sapphire Worldwide Investments, Inc. (4) 10.5 Credit Agreement, dated as of August 5, 1999, as amended and restated as of June 30, 2000, by and among ChipPAC International Company Limited, the Company, the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent. (5) 23.1 Consent of Ernst & Young LLP. ______________________________ (1) Incorporated by reference to Exhibit 10.33 to the Company's Registration Statement on Form S-1, Registration No. 333-39428 (the "Form S-1"). (2) Incorporated by reference to Exhibit 10.32 to the Form S-1. (3) Incorporated by reference to Exhibit 10.5.1 to the Form S-1. (4) Incorporated by reference to Exhibit 10.34 to the Form S-1. (5) Incorporated by reference to Exhibit 10.1 to the Form S-1. 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ChipPAC, Inc. Date: July 14, 2000 By: /s/ Robert Krakauer ------------------------------------ Robert Krakauer Senior Vice President and Chief Financial Officer 5 Independent Certified Public Accountants' Report Board of Directors Intersil Holding Corporation We have audited the accompanying balance sheets of Intersil Technology Sdn. Bhd. (the "Company"), which is wholly-owned by Intersil Holding Corporation ("Intersil"), as of July 2, 1999 and July 3, 1998 and the related statements of income and cash flows for each of the three fiscal years in the period ended July 2, 1999. These financial statements are the responsibility of Intersil's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial 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 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 the Company on a stand-alone basis. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at July 2, 1999 and July 3, 1998 and the results of its operations and its cash flows for each of the three fiscal years in the period ended July 2, 1999, on the basis described in Note A, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP May 16, 2000 Jacksonville, Florida F-1 Intersil Technology Sdn. Bhd. BALANCE SHEET (In thousands)
July 3, July 2, 1998 1999 -------- -------- ASSETS ------ Current assets: Cash....................................................... $ 131 $ 802 Short-term investments..................................... 651 2,952 Inventories................................................ 5,886 6,528 Prepaid expenses and other current assets.................. 656 847 Due from parent............................................ 125,139 45,502 Deferred income taxes...................................... 674 -- -------- -------- Total current assets..................................... 133,137 56,631 Plant and equipment, net..................................... 116,795 118,619 Deferred income taxes........................................ 732 275 -------- -------- Total assets............................................. $250,664 $175,525 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ Current liabilities: Trade accounts payable..................................... $ 7,691 $ 7,310 Accrued compensation....................................... 1,803 2,060 Other accrued items........................................ 3,611 765 Deferred income taxes...................................... -- 51 -------- -------- Total current liabilities................................ 13,105 10,186 Stockholder's Equity: Common stock............................................... 81,092 81,092 Additional paid-in capital................................. 5,923 5,923 Retained earnings.......................................... 150,544 78,324 -------- -------- 237,559 165,339 -------- -------- Total liabilities and stockholder's equity............... $250,664 $175,525 ======== ========
See notes to financial statements. F-2 Intersil Technology Sdn. Bhd. STATEMENT OF INCOME (In thousands)
Fiscal Year Ended -------------------------- June 27, July 3, July 2, 1997 1998 1999 ------- ------- -------- Revenue: Intercompany sales................................ $83,674 $80,376 $110,504 Costs and expenses: Cost of intercompany sales........................ 69,073 70,110 94,426 Interest income................................... (160) (139) (134) Other............................................. 95 57 69 ------- ------- -------- Income before income taxes.......................... 14,666 10,348 16,143 Pro forma income tax expense/(benefit).............. 3,060 (5,911) 1,182 ------- ------- -------- Net income.......................................... $11,606 $16,259 $ 14,961 ======= ======= ========
See notes to financial statements. F-3 Intersil Technology Sdn. Bhd. STATEMENT OF CASH FLOWS (In thousands)
June 27, July 3, July 2, 1997 1998 1999 -------- -------- -------- Operating Activities: Net income...................................... $ 11,606 $ 16,259 $ 14,961 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 12,308 14,823 18,289 Deferred income taxes......................... 2,300 (5,950) 1,182 Changes in assets and liabilities Inventories................................. 6,757 353 (642) Prepaid expenses and other current assets... 18 102 (191) Due from parent............................. 16,077 16,758 79,636 Due from affiliates......................... 3,672 -- -- Trade payables and accrued liabilities...... 3,391 1,392 (2,969) -------- -------- -------- Net cash provided by operating activities............................... 56,129 43,737 110,266 Investing Activities: Purchases of short-term investments, net........ (27) (624) (2,301) Purchases of plant and equipment................ (37,016) (38,798) (20,113) -------- -------- -------- Net cash used in investing activities..... (37,043) (39,422) (22,414) Financing Activities: Dividends paid to parent........................ (17,036) -- (91,877) Net cash transfers and billings from (to) parent......................................... (1,583) (6,146) 4,696 -------- -------- -------- Net cash used in financing activities..... (18,619) (6,146) (87,181) Net increase (decrease) in cash................. 467 (1,831) 671 Cash at beginning of period..................... 1,495 1,962 131 -------- -------- -------- Cash at end of period........................... $ 1,962 $ 131 $ 802 ======== ======== ========
See notes to financial statements. F-4 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS July 2, 1999 NOTE A--ORGANIZATION AND BASIS OF PRESENTATION Intersil Technology Sdn. Bhd. (the "Company"), a Malaysian corporation located in Kuala Lumpur, Malaysia, is a wholly-owned subsidiary of Intersil Corporation ("Intersil"), which is a wholly-owned subsidiary of Intersil Holding Corporation ("Intersil Holding"). The Company's principal activities include the assembly and testing of integrated circuits for Intersil. All revenue transactions are intercompany. Intersil Holding was formed on August 13, 1999 through a series of transactions, in which Intersil Holding acquired the Semiconductor Business of Harris Corporation ("Harris"), which included Harris Advanced Technology Sdn. Bhd., the predecessor of the Company. On May 5, 2000, Intersil Holding announced that it entered into a Letter of Intent to sell 100% of the issued and outstanding capital stock of the Company to ChipPAC, Inc. ("ChipPAC") and will enter into an outsourcing agreement with ChipPAC for its assembly and testing requirements. The Letter of Intent does not include finished goods inventory and all die and wafer inventory which will be retained by Intersil. Accordingly, the accompanying financial statements include the assets, liabilities and results of operations for the assembly and testing operations of the Company that are to be sold as part of the Letter of Intent. Interest expense of Intersil has not been allocated to the Company. 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. Short-Term Investments Short-term investments consist of certificates of deposit which are due in one year or less. Certificates of deposit are readily convertible to cash and are stated at cost. 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. Inventories represent raw materials and supplies (exclusive of die stock received from Intersil), labor and overhead held for or incurred in the course of performing contract manufacturing activities on behalf of Intersil. Plant and Equipment Plant and equipment are carried on the basis of cost. The estimated useful lives of buildings range between 8 and 45 years. The estimated useful lives of machinery and equipment range between 5 and 8 years. Leasehold improvements are amortized over the life of the lease. Depreciation of buildings and machinery and equipment is computed by straight-line and accelerated methods. Revenue Recognition All revenue transactions are with Intersil. The Company records revenue upon shipment to Intersil based upon cost plus a fixed mark-up, pursuant to an agreement with Intersil. Revenues and cost of intercompany sales exclude costs of die stock received from Intersil to be subject to the Company's processing activities. F-5 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS--(Continued) Income Taxes Income taxes have been provided on a pro forma basis related to the operations of the Company presented as described in footnote A "Organization and Basis of Presentation". The Company follows the liability method of accounting for income taxes. Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Financial Instruments The carrying values of short-term investments and accounts payable approximate their fair values. Asset Impairment The Company 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. Foreign Currency Translation The functional currency of the Company is the U.S. dollar. Remeasurement gains and losses, resulting from the process of remeasuring non-U.S. dollar transactions and assets and liabilities into U.S. dollars, are included in cost of intercompany sales. 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. The Company plans to adopt the new standard no later than the first quarter of fiscal 2001. However, the Company has not determined the anticipated impact of FAS No. 133. NOTE D--INVENTORIES Inventories are summarized below:
July 3, July 2, 1998 1999 ------- ------- (In thousands) Work in process.............................................. $1,382 $3,384 Raw materials and supplies................................... 4,504 3,144 ------ ------ $5,886 $6,528 ====== ======
F-6 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS--(Continued) At July 2, 1999, the Company was committed to purchase $12.9 million 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:
July 3, July 2, 1998 1999 -------- -------- (In thousands) Leasehold improvements................................... $ 784 $ 784 Buildings................................................ 36,544 38,614 Machinery and equipment.................................. 242,552 239,361 -------- -------- 279,880 278,759 Less allowances for depreciation......................... 163,085 160,140 -------- -------- $116,795 $118,619 ======== ========
NOTE F--STOCKHOLDER'S EQUITY Changes in the stockholder's equity are as follows:
Additional Common Paid-in Retained Stock Capital Earnings ------- ---------- -------- (In thousands) Balance at July 1, 1996... $81,092 $5,923 $147,444 Net income.............. -- -- 11,606 Dividends paid to parent................. -- -- (17,036) Net cash transfers and billings to Intersil... -- -- (1,583) ------- ------ -------- Balance at June 27, 1997.. 81,092 5,923 140,431 Net income.............. -- -- 16,259 Dividends paid to parent................. -- -- -- Net cash transfers and billings to Intersil... -- -- (6,146) ------- ------ -------- Balance at July 3, 1998... 81,092 5,923 150,544 Net income.............. -- -- 14,961 Dividends paid to parent................. -- -- (91,877) Net cash transfers and billings to Intersil... -- -- 4,696 ------- ------ -------- Balance at July 2, 1999... $81,092 $5,923 $ 78,324 ======= ====== ========
NOTE G--INCOME TAXES (PRO FORMA) The Company incurs and pays tax exclusively in Malaysia. Pro forma income tax expense/(benefit) is summarized below:
June 27, July 3, July 2, 1997 1998 1999 -------- ------- ------- (In thousands) Current............................................ $ 760 $ 39 $ -- Deferred........................................... 2,300 (5,950) 1,182 ------ ------- ------ $3,060 $(5,911) $1,182 ====== ======= ======
F-7 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS--(Continued) 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 the year 2000 based on year 2000 estimated taxable income. Currently, Malaysian corporate taxpayers submit tax payments following the year of assessment. In 1999, the Company made Malaysian taxing payments based on 1998's taxable income. As a result of the change in the Malaysian taxing system, the Company will not be required to make tax payments on its 1999 Malaysian taxable income and, therefore, has not provided a current tax provision for Malaysian taxes in 1999, which would have amounted to approximately $.9 million. The components of deferred income tax assets (liabilities) are as follows:
July 3, 1998 July 2, 1999 ------------------- ------------------- Current Non-Current Current Non-Current ------- ----------- ------- ----------- (In thousands) Depreciation....................... $-- $(6,373) $-- $(8,881) Reinvestment allowance carryforward...................... -- 7,105 -- 9,156 All other--net..................... 674 -- (51) -- ---- ------- ---- ------- $674 $ 732 $(51) $ 275 ==== ======= ==== =======
Income taxes paid were $8.3 million in 1997, $.1 million in 1998, and $0 in 1999. NOTE H--LEASE COMMITTMENTS The Company leases land for its assembly and test facilities under leases that expire from 2072 to 2081. Total rental expense for the leased land amounted to $.05 million in 1997, $.03 million in 1998 and $.03 million in 1999. Future minimum rental commitments under the land leases amounted to approximately $2.95 million at July 2, 1999. The commitments for the years following 1999 are: 2000--$.03 million, 2001--$.03 million, 2002--$.03 million, 2003--$.03 million, 2004--$.03 million and $2.80 million thereafter. F-8 Intersil Technology Sdn. Bhd. CONDENSED BALANCE SHEETS (In thousands)
Predecessor Successor July 2, March 31, 1999 2000 ----------- ----------- (Unaudited) ASSETS ------ Current assets: Cash, cash equivalents and restricted cash............ $ 802 $ 2,082 Short-term investments................................ 2,952 -- Inventories........................................... 6,528 5,612 Prepaids and other current assets..................... 847 373 Due from parent....................................... 45,502 -- -------- -------- Total current assets................................ 56,631 8,067 Property and equipment, net............................. 118,619 83,983 Deferred income taxes................................... 275 -- -------- -------- Total assets........................................ $175,525 $ 92,050 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Trade accounts payable................................ $ 7,310 $ 7,369 Accrued compensation.................................. 2,060 1,932 Other accrued items................................... 765 994 Due to parent......................................... -- 14,934 Deferred income taxes................................. 51 -- -------- -------- Total current liabilities........................... 10,186 25,229 Deferred income taxes................................... -- 4,622 -------- -------- Total liabilities..................................... 10,186 29,851 Stockholders' equity: Common stock.......................................... 81,092 81,092 Additional paid in capital............................ 5,923 5,923 Retained earnings..................................... 78,324 (24,816) -------- -------- Total stockholders' equity ........................... 165,339 62,199 -------- -------- Total liabilities and stockholders' equity ......... $175,525 $ 92,050 ======== ========
See accompanying notes to Intersil's condensed financial statements. F-9 Intersil Technology Sdn. Bhd. CONDENSED STATEMENTS OF INCOME (In thousands) (Unaudited)
Nine Months Ended --------------------- Successor Predecessor Combined April 2, March 31, 1999 2000 ----------- --------- Revenues Intercompany sales...................................... $77,837 $68,473 Costs and expenses Cost of intercompany sales.............................. 66,712 58,566 Interest income........................................... (106) (49) Other..................................................... 55 40 ------- ------- Income before income taxes................................ 11,176 9,916 Pro forma income tax expense/(benefit).................... (1,180) 6,528 ------- ------- Net income ............................................... $12,356 $ 3,388 ======= =======
See accompanying notes to Intersil's condensed financial statements. F-10 Intersil Technology Sdn. Bhd. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended --------------------- Successor Predecessor Combined April 2, March 31, 1999 2000 ----------- --------- Operating Activities: Net income ............................................. $12,356 $ 3,388 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization......................... 13,646 11,771 Deferred income taxes................................. (1,180) 4,846 Changes in assets and liabilities: Inventories......................................... (3,047) 916 Prepaid expenses and other assets................... (496) 475 Due from parent..................................... 8,787 60,437 Trade payables and accrued liabilities ............. (4,882) 159 ------- ------- Net cash provided by operating activities......... 25,184 81,992 Investing Activities: Sale of short-term investments, net..................... 651 2,952 Purchases of plant and equipment........................ (14,836) (3,896) ------- ------- Net cash used for investing activities............ (14,185) (944) Financing Activities: Dividends paid to parent................................ -- (85,411) Net cash transfer and billings from (to) parent......... (8,446) 5,643 ------- ------- Net cash used for financing activities............ (8,446) (79,768) Net increase in cash and cash equivalents............... 2,553 1,280 Cash and cash equivalents at beginning of period........ 131 802 ------- ------- Cash and cash equivalents at end of period.............. $ 2,684 $ 2,082 ======= =======
See accompanying notes to Intersil's condensed financial statements. F-11 Intersil Technology Sdn. Bhd. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2000 (Unaudited) Note A--Organization and Basis of Presentation Intersil Technology Sdn. Bhd. (the "Company or "Successor"), a Malaysian corporation located in Kuala Lumpur, Malaysia, is a wholly-owned subsidiary of Intersil Corporation ("Intersil"), which is a wholly-owned subsidiary of Intersil Holding Corporation ("Intersil Holding"). The Company's principal activities include the assembly and testing of integrated circuits for Intersil. All revenue transactions are intercompany. Intersil Holding was formed on August 13, 1999 through a series of transactions, in which Intersil Holding acquired the Semiconductor Business of Harris Corporation ("Harris"), which included Harris Advanced Technology Sdn. Bhd. (Predecessor), the predecessor of the Company. The unaudited condensed consolidated balance sheet as of July 2, 1999 and the unaudited condensed consolidated statements of operations and cash flows for the nine months ended March 31, 1999, include the accounts of the Predecessor company. The unaudited combined condensed consolidated statements of operations and cash flows for the nine months ended March 31, 1999, include the accounts of the Predecessor company from July 3, 1999 to August 13, 1999. On May 5, 2000, Intersil Holding announced that it entered into a Letter of Intent to sell 100% of the issued and outstanding capital stock of the Company to ChipPAC Inc. ("ChipPAC") and will enter into an outsourcing agreement with ChipPAC for its assembly and testing requirements. The Letter of Intent does not include finished goods inventory and all die and wafer inventory, which will be retained by Intersil. Accordingly, the accompanying unaudited condensed financial statements include the assets, liabilities and results of operations for the assembly and testing operations of the Company that are to be sold as part of the Letter of Intent. Interest expense of Intersil has not been allocated to the Company. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of the results for these interim periods and are not necessarily indicative of full year results. This financial information should be read in conjunction with the audited financial statements and notes thereto for the year ended July 2, 1999. Note B--Inventories
Successor Predecessor Combined July 2, March 31, 1999 2000 ----------- --------- (In thousands) Raw materials.......................................... $3,144 $2,055 Work-in-process........................................ 3,384 3,557 ------ ------ Total................................................ $6,528 $5,612 ====== ======
F-12 Intersil Technology Sdn. Bhd. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note C--Recent Accounting Pronouncements In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue Recognition Issues" which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. Adoption of SAB 101 is required by the second quarter of fiscal 2000. Management is currently evaluating SAB 101 and its effects on company revenue recognition policies and practices. At this time, management believes that there is no significant effect on the revenue recognition policies currently in place. 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. The Company plans to adopt the new standard no later than the first quarter of fiscal 2001. However, the Company has not determined the anticipated impact of FAS No. 133. F-13 Unaudited Pro Forma Combined Condensed Statement of Operations Year Ended December 31, 1999
ChipPAC, Inc. Recapitalization Malaysian Acquisition Pro Forma ChipPAC, Inc. ChipPAC, Inc. Pro Forma Business Pro Forma Before Offering Pro Forma Historical Adjustments Historical Adjustments Offering Adjustments As Adjusted ------------- ---------------- ---------- ----------- ------------- ----------- ------------- (in thousands, except per share data) Pro Forma Combined Condensed Statements of Operations: Revenues................ $375,530 $ -- $101,864 $ -- $477,394 $ -- $477,394 Costs of revenues....... 317,488 -- 85,952 1,687 (3) 405,127 -- 405,127 -------- ------- -------- ------- -------- -------- -------- Gross profit............ 58,042 -- 15,912 (1,687) 72,267 -- 72,267 Operating expenses: Selling, general and administrative........ 21,219 -- -- -- 21,219 -- 21,219 Research and development........... 12,362 -- -- -- 12,362 -- 12,362 Change of control expense............... 11,842 (11,842)(1) -- -- -- -- -- -------- ------- -------- ------- -------- -------- -------- Operating income........ 12,619 11,842 15,912 (1,687) 38,686 -- 38,686 Interest expense........ 21,241 12,976 (2) -- 5,844 (4) 40,061 (20,809)(6) 19,252 Interest income......... (2,751) -- (86) -- (2,837) -- (2,837) Foreign currency gain... (1,224) -- -- -- (1,224) -- (1,224) Other income............ (650) -- 102 -- (548) -- (548) -------- ------- -------- ------- -------- -------- -------- Income (loss) before provision for income taxes.................. (3,997) (1,134) 15,896 (7,531) 3,234 20,809 24,043 Provision (benefit) for income taxes........... 1,938 (227) 7,745 (8,809)(5) 647 4,162 (5) 4,809 -------- ------- -------- ------- -------- -------- -------- Net income (loss) from continuing operations............ $ (5,935) $ (907) $ 8,151 $ 1,278 $ 2,587 $ 16,647 $ 19,234 ======== ======= ======== ======= ======== ======== ======== Net income (loss) available to common stockholders(7)....... $(11,528) $(6,103) $ 8,151 $ 403 $ (7,704) $ 26,678 $ 18,974 ======== ======= ======== ======= ======== ======== ======== Earnings per common share: Basic................... $ 0.33 Diluted................. 0.33 Weighted average common shares outstanding: Basic .................. 57,590 Diluted(8) ............. 58,132 Other Data: Dividends accreted on Class B preferred stock(9)............... 3,554 5,196 -- -- 8,750 (8,750) -- Dividends accreted on Class A convertible preferred stock(10).... 406 -- -- -- 406 (406) -- Dividends accreted on Class C preferred stock(11).............. -- -- -- 875 875 (875) -- Accretion of recorded value of the Intel warrant................ 260 -- -- -- 260 -- 260
------------------- See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations. F-14 Unaudited Pro Forma Combined Condensed Statement of Operations Three Months Ended March 31, 1999
ChipPAC, Inc. Recapitalization Malaysian Acquisition Pro Forma ChipPAC, Inc. ChipPAC, Inc. Pro Forma Business Pro Forma Before Offering Pro Forma Historical Adjustments Historical Adjustments Offering Adjustments As Adjusted ------------- ---------------- ---------- ----------- ------------- ----------- ------------- (in thousands, except per share data) Pro Forma Combined Condensed Statements of Operations: Revenues................ $85,548 $ -- $23,647 $ -- $109,195 $ -- $109,195 Costs of revenues....... 72,131 -- 19,908 422 (3) 92,461 -- 92,461 ------- ------- ------- ------- -------- ------ -------- Gross profit............ 13,417 -- 3,739 (422) 16,734 -- 16,734 Operating expenses: Selling, general and administrative........ 4,511 -- -- -- 4,511 4,511 Research and development........... 3,003 -- -- -- 3,003 -- 3,003 ------- ------- ------- ------- -------- ------ -------- Operating income........ 5,903 -- 3,739 (422) 9,220 9,220 Interest expense........ 3,007 5,547 (2) -- 1,461 (4) 10,015 (5,202)(6) 4,813 Interest income......... (950) -- (20) -- (970) -- (970) Foreign currency gain... (946) -- -- -- (946) -- (946) Other income............ (127) -- 15 -- (112) -- (112) ------- ------- ------- ------- -------- ------ -------- Income (loss) before provision for income taxes.................. 4,919 (5,547) 3,744 (1,883) 1,233 5,202 6,435 Provision (benefit) for income taxes........... 3,115 (1,109)(5) -- (1,759)(5) 247 1,040 (5) 1,287 ------- ------- ------- ------- -------- ------ -------- Net income (loss)...... $ 1,804 $(4,438) $ 3,744 $ (124) $ 986 $4,162 $ 5,148 ======= ======= ======= ======= ======== ====== ======== Net income (loss) available to common stockholders(7)....... $ 1,804 $(6,626) $ 3,744 $ (343) $ (1,421) $6,569 $ 5,148 ======= ======= ======= ======= ======== ====== ======== Earnings per common shares: Basic................... $ 0.09 Diluted................. $ 0.09 Weighted average common shares outstanding: Basic................... 56,491 Diluted(8).............. 56,491 Other Data: Dividends accreted on Class B preferred stock(9)............... -- 2,188 -- -- 2,188 (2,188) -- Dividends accreted on Class A convertible preferred stock(10).... -- -- -- -- -- -- -- Dividends accreted on Class C preferred stock(11).............. -- -- -- 219 219 (219) --
------------------- See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations. F-15 Unaudited Pro Forma Combined Condensed Statement of Operations Three Months Ended March 31, 2000
ChipPAC, Inc. Malaysian Acquisition Pro Forma ChipPAC Pro ChipPAC, Inc. Business Pro Forma Before Offering Forma Historical Historical Adjustments Offering Adjustments As Adjusted ------------- ---------- ----------- ------------- ----------- ----------- (in thousands, except per share data) Pro Forma Combined Condensed Statements of Operations: Revenues................ $97,469 $22,923 $ -- $120,392 $ -- $120,392 Costs of revenues....... 77,044 20,185 422 (3) 97,651 -- 97,651 ------- ------- ------- -------- ------ -------- Gross profit............ 20,425 2,738 (422) 22,741 -- 22,741 Operating expenses: Selling, general and administrative........ 7,099 -- -- 7,099 -- 7,099 Research and development........... 2,631 -- -- 2,631 -- 2,631 ------- ------- ------- -------- ------ -------- Operating income........ 10,695 2,738 (422) 13,011 -- 13,011 Interest expense........ 8,764 -- 1,461 (4) 10,225 (5,523)(6) 4,702 Interest income......... (238) (10) -- (248) -- (248) Foreign currency gain... (399) -- -- (399) -- (399) Other income............ (134) 18 -- (116) -- (116) ------- ------- ------- -------- ------ -------- Income (loss) before provision for income taxes.................. 2,702 2,730 (1,883) 3,549 5,523 9,072 Provision (benefit) for income taxes........... 542 3,165 (2,997)(5) 710 1,105 (5) 1,815 ------- ------- ------- -------- ------ -------- Net income (loss)...... $ 2,160 $ (435) $ 1114 $ 2,839 $4,418 $ 7,257 ======= ======= ======= ======== ====== ======== Net income (loss) available to common stockholders(7)....... $ (555) $ (435) $ 896 $ (84) $7,185 $ 7,101 ======= ======= ======= ======== ====== ======== Earnings per common share: Basic................... $ 0.12 Diluted................. 0.11 Weighted average common shares outstanding: Basic................... 61,090 Diluted(8).............. 62,313 Other Data: Dividends accreted on Class B preferred stock(9)............... 2,299 -- -- 2,299 (2,299) -- Dividends accreted on Class A convertible preferred stock(10).... 250 -- -- 250 (250) -- Dividends accreted on Class C preferred stock(11).............. -- -- 218 218 (218) -- Accretion of recorded value of the Intel Warrant................ 156 -- -- 156 -- 156
------------------- See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations. F-16 Notes to Unaudited Pro Forma Combined Condensed Statement of Operations Year Ended December 31, 1999 and Three Months Ended March 31, 1999 and 2000 (1) As a result of our recapitalization, we were contractually required to make a one-time change of control payment to our unionized Korean employees of approximately $11.8 million, which resulted in a corresponding reduction to the recapitalization consideration paid to Hyundai. The payment was recorded as an operating expense during the three months ended September 30, 1999. This amount has been excluded from the pro forma operating results for the year ended December 31, 1999, as it represents a one-time charge directly related to our recapitalization. (2) The increase to pro forma interest expense as a result of our recapitalization is summarized as follows:
Three Months Year Ended Ended December 31, March 31, 1999 1999 ------------ ------------ (in millions) Interest on term loans--8.86%.................... $ 13.3 $ 3.3 Interest on senior subordinated notes due 2009-- 12.75%.......................................... 19.1 4.8 Amortization of debt issuance costs ($14.4 million over 8 years) .......................... 1.8 0.5 ------ ----- Interest expense from recapitalization debt requirements.................................... 34.2 8.6 Less: historical interest expense................ (21.2) (3.0) ------ ----- Net increase................................... $ 13.0 $ 5.5 ====== =====
An increase or decrease in the assumed weighted average interest rate on the senior credit facilities of 0.125% would change pro forma interest expense by $187,500 for the year ended December 31, 1999. (3) As part of cost of revenues, we expect to include amortization expense based on the fair value of acquired intangibles over a period of seven years. The pro forma expense for the year ended December 31, 1999 is $1.7 million and the pro forma expense for the three months ended March 31, 1999 and 2000 is $0.4 million. Acquired intangibles comprise the estimated fair value of intellectual property, primarily trade secrets and patents. (4) The increase to pro forma interest as a result of the acquisition of the Malaysian business is summarized as follows:
Three Months Three Months Year Ended Ended Ended December 31, 1999 March 31, 1999 March 31, 2000 ----------------- -------------- -------------- (in millions) Interest on term C loan-- 10.62625%................ $5.8 $1.5 $1.5 ==== ==== ====
(5) As a result of the recapitalization, we believe our effective tax rate will be 20% on an ongoing basis. We believe that the acquisition of the Malaysian business did not change our effective 20% tax rate. Accordingly, the pro forma adjustments reflect the income tax required to result in a pro forma income tax provision based on a 20% effective tax rate. F-17 Notes to Unaudited Pro Forma Combined Condensed Statement of Operations--(Continued) (6) A portion of the proceeds of the offering will be used to repay a portion of our senior subordinated notes and amounts outstanding under our senior credit facilities, resulting in lower debt after the offering and lower interest expense. The estimated pro forma reductions to interest expense for the pro forma year ended December 31, 1999 and the three months ended March 31, 1999 and 2000 are set forth below:
Three Months Three Months Year Ended Ended Ended December 31, 1999 March 31, 1999 March 31, 2000 ----------------- -------------- -------------- (in millions) Senior subordinated notes-- 12 3/4%.................. $ 6.6 $1.6 $1.6 Senior credit facilities: term A loan--9.3825% in 2000, 8.86% in 1999..... 6.2 1.5 1.6 term B loan--10.1325% in 2000, 8.86% in 1999..... 2.4 0.6 0.7 term C loan--10.1325%.... 5.6 1.4 1.4 revolving loans--11.25%.. -- -- 0.1 ----- ---- ---- $20.8 $5.2 $5.5 ===== ==== ====
(7) Net income (loss) available to common stockholders represents net income (loss) from continuing operations less dividends accreted on preferred stock, the accretion of the recorded value on the Intel warrant and, for the pro forma year ended December 31, 1999, the extraordinary loss on retirement of a portion of the debt in connection with recapitalization. The following table sets forth the computation of net income (loss) per share of common stock:
Pro Forma As Adjusted -------------------------------- Three Months Ended Year Ended December 31, Year Ended March 31, ---------------------------- December 31, ------------------- 1997 1998 1999 1999 1999 2000 --------- -------- -------- ------------ --------- --------- (in thousands, except per share data) Net income (loss)....... $ (46,118) $ 32,303 $ (5,935) $ 19,234 $ 5,148 $ 7,257 Extraordinary item(a).. -- -- (1,373) -- -- -- Mandatorily redeemable preferred stock dividends............. -- -- (3,960) -- -- -- Accretion of the recorded value of the Intel warrant......... -- -- (260) (260) -- (156) --------- -------- -------- -------- --------- --------- Net income (loss) available to common stockholders........... $(46,118) $ 32,303 $(11,528) $ 18,974 $ 5,148 $ 7,101 ========= ======== ======== ======== ========= ========= Weighted average shares outstanding used for basic and diluted income (loss) per share: Class A common stock.... 57,590 56,491 61,090 Class L common stock.... -- -- -- -------- --------- --------- Common Stock............ 57,590 56,491 61,090 -------- --------- --------- Basic earnings per share.................. $ 0.33 $ 0.09 $ 0.12 ======== ========= ========= Fully diluted shares outstanding............ 58,132 56,491 62,313 Diluted earnings per share.................. $ 0.33 $ 0.09 $ 0.11 ======== ========= =========
--------------------- (a) On early retirement of some of the debt upon recapitalization, we incurred termination penalties and recorded an extraordinary loss of $1.4 million, net of related tax benefit. F-18 Notes to Unaudited Pro Forma Combined Condensed Statement of Operations--(Continued) (8) The estimated fully-diluted number of shares expected to be outstanding after this offering and the concurrent private placement, including the shares of Class A common stock issuable upon the exercise of options outstanding or expected to be issued prior to the closing of this offering and the shares of Class B common stock issuable upon the exercise of a warrant held by Intel, is 68,604,714 shares. (9) Dividends on our Class B preferred stock accrete on a daily basis at a rate of 12.5% per annum. Until February 5, 2005, dividends will not be paid in cash, but will be capitalized as accumulated and unpaid dividends as part of mandatorily redeemable preferred stock. (10) Dividends on our Class A convertible preferred stock accrete on a daily basis at a rate of 10% per annum. Accumulated and unpaid dividends as of the balance sheet date are capitalized as part of mandatorily redeemable preferred stock. (11) Dividends on our Class C preferred stock accrete on a daily basis at a rate of 5% per annum. Accumulated and unpaid dividends as of the balance sheet date are capitalized as part of mandatorily redeemable preferred stock. The Class C preferred stock has been valued at $15.8 million and has a liquidation value of $17.5 million, with the difference being accreted over a three-year period to the redemption date. F-19 UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 2000 (In thousands)
Pro Forma Malaysian Acquisition Pro Forma as Adjusted ChipPAC, Inc. Business Pro Forma Before Offering for the Historical Historical Adjustments Offering Adjustments Offering ------------- ---------- ----------- --------- ----------- ----------- ASSETS ------ Current assets: Cash and cash equivalents........... $ 19,538 $ 2,082 $ -- $ 21,620 $ 25,000 (8) $ 46,620 Accounts receivable, less allowance for doubtful accounts..... 35,535 -- -- 35,535 -- 35,535 Inventories............ 14,941 5,612 -- 20,553 -- 20,553 Deferred taxes......... 716 -- -- 716 -- 716 Prepaid expenses and other current assets ...................... 7,799 373 1,800 (1) 9,972 -- 9,972 --------- -------- -------- --------- --------- --------- Total current assets.............. 78,529 8,067 1,800 88,396 25,000 113,396 Property, plant and equipment, net......... 229,430 83,983 (10,623)(2) 302,790 -- 302,790 Intangibles ............ -- -- 11,806 (3) 11,806 -- 11,806 Other assets............ 20,995 -- -- 20,995 -- 20,995 --------- -------- -------- --------- --------- --------- Total assets......... $ 328,954 $ 92,050 $ 2,983 $ 423,987 $ 25,000 $ 448,987 ========= ======== ======== ========= ========= ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND EQUITY ------------------------ Current liabilities: Revolving loans........ $ 7,500 $ -- $ -- $ 7,500 $ (7,500)(9) $ -- Accounts payable....... 35,723 7,369 -- 43,092 -- 43,092 Accrued expenses and other liabilities .... 18,725 2,926 7,500 (4) 29,151 -- 29,151 Current portion of long-term debt........ 7,300 -- -- 7,300 -- 7,300 Payable to parent ..... -- 14,934 (14,934) (5) -- -- -- --------- -------- -------- --------- --------- --------- Total current liabilities......... 69,248 25,229 (7,434) 87,043 (7,500) 79,543 --------- -------- -------- --------- --------- --------- Long-term debt, less current portion........ 292,700 -- 55,000 347,700 (205,400)(9) 142,300 Deferred taxes.......... -- 4,622 1,830 6,452 -- 6,452 Other long-term liabilities............ 4,514 -- -- 4,514 -- 4,514 --------- -------- -------- --------- --------- --------- Total liabilities.... 366,462 29,851 49,396 445,709 (212,900) 232,809 --------- -------- -------- --------- --------- --------- Commitments and contingencies Mandatorily redeemable preferred stock: 10.0% cumulative convertible preferred stock, class A held by Intel--par value $0.01 per share: 10,000 shares authorized, issued and outstanding at March 31, 2000, actual and pro forma; no shares issued and outstanding, pro forma as adjusted..... 9,832 -- -- 9,832 (9,832)(9) -- 12.5% cumulative preferred stock, class B held by Hyundai--par value $0.01 per share: 105,000 shares authorized and 70,000 shares issued and outstanding at March 31, 2000, actual and pro forma; no shares issued and outstanding, pro forma as adjusted..... 75,853 -- -- 75,853 (75,853)(9) -- 5% cumulative convertible preferred stock, class C held by Intersil--par value $0.01 per share; 17,500 shares authorized, no shares issued and outstanding at March 31, 2000, actual; 17,500 shares issued and outstanding, pro forma; no shares issued and outstanding, pro forma as adjusted .... -- -- 15,786 (6) 15,786 (15,786)(9) -- Stockholders' equity (deficit): Common stock, class A--par value $0.01 per share; 180,000,000 shares authorized, 96,254,000 shares issued and outstanding at March 31, 2000, actual and pro forma (250,000,000 shares authorized and 68,604,714 issued, pro forma as adjusted)............. 974 81,092 (81,092) (7) 974 (288)(9) 686 Common stock, class B--par value $0.01 per share; 180,000,000 shares authorized, no shares issued or outstanding at March 31, 2000, actual and pro forma (250,000,000 shares authorized and no shares issued pro forma as adjusted).... -- -- -- -- -- -- Common stock, class L--par value $0.01 per share; 20,000,000 shares authorized, 10,456,000 shares issued and outstanding at March 31, 2000, actual and pro forma (no shares authorized or issued, pro forma as adjusted).......... 104 -- -- 104 (104)(9) -- Warrants, class B Common Stock (the Intel Warrant)........ 1,250 -- -- 1,250 -- 1,250 Additional paid-in- capital............... 86,336 5,923 (5,923)(7) 86,336 348,392 (9) 434,728 Divisional equity, net of capital redemption............ (167,714) -- (167,714) -- (167,714) Receivable from shareholders.......... (1,478) -- -- (1,478) -- (1,478) Accumulated deficit ... (51,834) (24,816) (24,816) (7) (51,834) (8,629)(10) (60,463) Accumulated other comprehensive income (loss)................ 9,169 -- -- 9,169 -- 9,169 --------- -------- -------- --------- --------- --------- Total stockholders' equity (deficit).... (123,193) 62,199 (46,413) (123,193) 339,371 216,178 --------- -------- -------- --------- --------- --------- Total liabilities, mandatorily redeemable preferred stock and equity.... $ 328,954 $ 92,050 $ 2,983 $ 423,987 $ 25,000 $ 448,987 ========= ======== ======== ========= ========= =========
------------------- See Notes to Unaudited Pro Forma Balance Sheet. F-20 Notes to Unaudited Pro Forma Balance Sheet On June 30, 2000, we consummated the acquisition of Intersil's Malaysian business. The acquisition is being accounted for using purchase accounting. Under purchase accounting, the total purchase price of the Malaysian business is being allocated to the acquired assets and liabilities based on their relative fair values as of the closing date of the acquisition. We are undertaking a study which will be finalized to determine the allocation of the total purchase price to the various assets acquired and the liabilities assumed. Accordingly, the final allocations could be different from the amounts reflected below, and these differences may be significant. The purchase price of $70.0 million represents the total of the cash consideration and the stated value of the Class C preferred stock exchanged for the whole of the issued shares of the Malaysian business and certain intellectual property. The amount and components of the estimated purchase price along with the allocation of the estimated purchase price to assets purchased and liabilities assumed as though the Malaysian business acquisition had occurred on March 31, 2000 are as follows:
(in millions) Purchase Price: Cash consideration............................................... $52.5 Estimated fair value of Class C preferred stock.................. 15.8 Estimated expenses............................................... 3.5 Less: payment due from Intersil................................... (1.8) ----- $70.0 ===== Allocation of Purchase Price: Estimated fair value of Buildings....................................................... $16.9 Plant and equipment............................................. 56.5 Intellectual property........................................... 11.8 Restructuring accrual........................................... (7.5) Deferred taxes.................................................. (6.9) Net other assets and liabilities................................ (0.8) ----- $70.0 =====
There is no goodwill arising from the acquisition of the Malaysian business. The estimated fair value of total assets and liabilities exceeded the purchase price, resulting in negative goodwill of $57.7 million. The negative goodwill has been allocated in full to non-current assets as summarized below:
Estimated Negative Fair Goodwill Adjusted Non-current asset Value Allocated Fair Value ----------------- --------- --------- ---------- (in millions) Buildings..................................... $ 29.0 $(12.1) $16.9 Plant and equipment........................... 93.0 (36.5) 56.5 Intellectual property......................... 20.9 (9.1) 11.8 ------ ------ ----- $142.9 $(57.7) $85.2 ====== ====== =====
The terms of the acquisition of the Malaysian business require, for the period from the closing of the acquisition to June 30, 2003, the payment of additional contingent incentive payments to the seller based on the achievement of milestones with respect to the transfer of the seller's packaging business, currently subcontracted by the seller to a third party, to us. These contingent payments will be recorded as additional purchase price if and when earned and paid on a quarterly basis. (1) The terms of the transaction require Intersil to pay $1.8 million to us on October 1, 2000. This payment for expenses expected to be incurred by us after the acquisition is completed has been recorded as a receivable and a reduction in purchase price. F-21 Notes to Unaudited Pro Forma Balance Sheet--(Continued) (2) The acquisition pro forma adjustment to property, plant and equipment has been computed as set out below:
As of March 31, 2000 ---------------- (in millions) Malaysian business historical basis........................ $ 84.0 Fair value adjustments..................................... $ 38.0 Allocation of negative goodwill............................ (48.6) (10.6) ------- ------- Pro forma basis............................................ $ 73.4 =======
(3) Intangibles comprise the estimated fair value of intellectual property acquired, primarily consisting of trade secrets and patents. The pro forma adjustment is a result of the purchase price allocation. (4) An accrual of $7.5 million has been established for expected costs of restructuring the Malaysian business. These one time non-recurring costs are expected to be incurred in connection with factory reorganization, product discontinuance and employee related costs. (5) Reflects the elimination of the liability payable to the parent entity in accordance with the terms of the purchase agreement for the Malaysian business. (6) The Class C preferred stock has been independently valued at $15.8 million and has a liquidation value of $17.5 million. (7) Reflects the elimination of the Malaysian business' historical equity as a result of purchase accounting. (8) Reflects the net proceeds from the concurrent private placement. (9) The offering and the concurrent private placement contemplate using the estimated net proceeds of $320.5 million for the repayment of amounts owing under the revolving loans of $7.5 million, the senior subordinated notes of $52.5 million, exclusive of the redemption premium and accrued interest, and term loans of $152.9 million. The remaining $25.0 million of net proceeds has been added to cash balances. The offering also contemplates the conversion of Class A convertible preferred stock and Class C preferred stock into shares of our Class A common stock and the redemption of Class B preferred stock. (10) Pro forma adjustments to accumulated deficit arising from the offering are set forth below:
(in millions) Prepayment fee on redemption of senior subordinated notes.... $6.7 Accretion to liquidation value: Class A convertible preferred stock........................ 0.1 Class B preferred stock.................................... 0.1 Class C preferred stock.................................... 1.7 ---- $8.6 ====
F-22