-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OTNH6QX/JLle3e+0NUg+yybNT42bfQU/ny60jWA3KqFuL9yXgQLd3LNP8JsTDWXd Dxn9g353UzEH4xFyPD5M8w== 0001193125-08-231997.txt : 20081110 0001193125-08-231997.hdr.sgml : 20081110 20081110171918 ACCESSION NUMBER: 0001193125-08-231997 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20081031 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20081110 DATE AS OF CHANGE: 20081110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ON SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0001097864 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 363840979 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-30419 FILM NUMBER: 081176867 BUSINESS ADDRESS: STREET 1: 5005 EAST MCDOWELL ROAD CITY: PHOENIX STATE: AZ ZIP: 85008 BUSINESS PHONE: 6022446600 MAIL ADDRESS: STREET 1: 5005 EAST MCDOWELL ROAD CITY: PHOENIX STATE: AZ ZIP: 85008 FORMER COMPANY: FORMER CONFORMED NAME: SCG HOLDING CORP DATE OF NAME CHANGE: 19991027 8-K 1 d8k.htm FORM 8-K Form 8-K
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UNITED STATES

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): October 31, 2008

 

 

ON Semiconductor Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   000-30419   36-3840979

(State or other jurisdiction

of incorporation)

  

(Commission

File Number)

  

(IRS Employer

Identification No.)

 

ON Semiconductor Corporation

5005 E. McDowell Road

Phoenix, Arizona

   85008
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: 602-244-6600

Not applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Table of Contents

TABLE OF CONTENTS

 

Item 8.01 Other Events  
Item 9.01 Financial Statements and Exhibits  
SIGNATURE  
EXHIBIT INDEX  

Table of Contents
Item 8.01 Other Events.

Attached as Exhibit 100 to this report are the following financial statements from ON Semiconductor Corporation’s (the “Company”) Quarterly Report on Form 10-Q for the quarterly period ended September 26, 2008, filed with the Securities and Exchange Commission on October 31, 2008, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 26, 2008 and December 31, 2007; (ii) the Consolidated Statements of Operations and Comprehensive Income for the quarter and nine months ended September 26, 2008 and September 28, 2007; and (iii) the Consolidated Statements of Cash Flows for the quarter and nine months ended September 26, 2008 and September 28, 2007. Users of this data are advised pursuant to Rule 401 of Regulation S-T that the financial and other information contained in the XBRL documents is unaudited and that these are not the official publicly filed financial statements of the Company. The purpose of submitting these XBRL formatted documents is to test the related format and technology and, as a result, investors should continue to rely on the official filed version of the furnished documents and not rely on the information in this Current Report on Form 8-K, including Exhibit 100, in making investment decisions.

In accordance with Rule 402 of Regulation S-T, the information in this Current Report on Form 8-K, including Exhibit 100, shall not be deemed to be “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

100    The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 26, 2008, filed on October 31, 2008, formatted in XBRL: (i) the Consolidated Balance Sheets as of September 26, 2008 and December 31, 2007; (ii) the Consolidated Statements of Operations and Comprehensive Income; and (iii) the Consolidated Statements of Cash Flows for the quarter and nine months ended September 26, 2008 and September 28, 2007.

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SIGNATURES

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.

 

Date: November 10, 2008     ON SEMICONDUCTOR CORPORATION
    (Registrant)
      By:   /s/ DONALD COLVIN
       

Donald Colvin

Executive Vice President and Chief

Financial Officer

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EXHIBIT INDEX

 

Exhibit No.

   

Description

100    The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2008, filed on August 6, 2008, formatted in XBRL: (i) the Consolidated Balance Sheets as of June 27, 2008 the Consolidated Statements of Cash Flows for the quarter and six months ended June 27, 2008 and June 29, 2007 Consolidated Statements of Cash Flows for the quarter and six months ended June 27, 2008 and June 29, 2007.
 EX-100.INS 2 onnn-20080926.xml XBRL INSTANCE DOCUMENT 2909000000 0 4500000 -28800000 0 218700000 2390800000 6800000 179100000 1076400000 128600000 4000000 719000000 317200000 6800000 309400000 1807800000 2909000000 609400000 69400000 1151400000 16400000 65800000 43900000 47000000 752500000 279300000 -924800000 1084800000 356900000 417900000 0 96700000 1000000 0 -2500000 38000000 -1000000 0 1300000 8000000 4400000 -1000000 6700000 500000 3900000 -10200000 -12700000 -1200000 23500000 -5900000 -30200000 133800000 800000 1000000 0 0 0 30000000 19500000 5300000 300000 1100000 6800000 24000000 11400000 0 5000000 0.15 0.15 33800000 6800000 359900000 0 34200000 221600000 66100000 4500000 9700000 1700000 400000 61200000 -7500000 148000000 73600000 200000 0 -27600000 500000 67200000 0 2500000 581500000 37300000 404800000 398900000 161600000 143300000 3000000 12000000 -9600000 103600000 -3200000 0 5300000 -21200000 3000000 -15700000 6500000 400000 5400000 -47700000 -40400000 -14900000 23800000 -291300000 125200000 312600000 100000 1700000 1500000 0 0 74900000 63600000 15200000 38900000 2100000 19700000 349300000 26400000 928600000 10700000 0.34 0.34 98300000 15900000 1006300000 0 89900000 559800000 114500000 -11500000 28600000 5500000 -600000 126600000 -23300000 422000000 137800000 500000 -100000 -28700000 -200000 175000000 17700000 22500000 1566100000 101000000 372800000 368300000 321200000 1637600000 0 3400000 -500000 6900000 163500000 1419600000 3500000 101300000 745300000 120400000 6700000 172400000 57500000 1400000 220500000 1603200000 1637600000 420900000 30800000 1128600000 18500000 68300000 47500000 46800000 614900000 175200000 -1051400000 15900000 355200000 274600000 327100000 0 71300000 1000000 0 1100000 22800000 700000 300000 1300000 15300000 -1100000 1400000 5300000 -900000 3900000 -4000000 2400000 500000 20900000 5200000 -33000000 98400000 600000 0 1300000 0 1500000 33800000 0 1200000 1400000 11300000 2500000 3500000 4100000 0 600000 0.22 0.20 66500000 0 247300000 0 21600000 155600000 66900000 2400000 9600000 3100000 700000 63800000 -6300000 82400000 73200000 0 -400000 3100000 200000 34400000 0 2000000 402900000 24400000 317800000 290600000 0 58300000 3100000 100000 1900000 67600000 100000 -500000 7600000 -3700000 -1100000 -6800000 -7500000 -1100000 3700000 9700000 14700000 7300000 14800000 -58500000 -100200000 216900000 700000 55200000 4100000 400000 1500000 110400000 500000 3500000 10600000 40100000 10600000 32300000 10900000 0 5900000 0.62 0.57 180800000 0 720100000 -100000 60600000 438200000 187100000 4400000 28700000 8800000 1600000 181100000 -20300000 230800000 207400000 0 -1800000 1500000 -300000 97600000 0 2000000 1158300000 70600000 317600000 290300000 255800000 268800000 Note 1: Background and Basis of Presentation ON Semiconductor Corporation, together with its wholly and majority-owned subsidiaries (the "Company"), is a global supplier of power, analog, digital signal processing, mixed-signal, advanced logic, data management semiconductors and standard component devices and is engaged in designing, manufacturing and marketing integrated circuits worldwide. On August 4, 1999, the Company was recapitalized and certain related transactions were effected pursuant to an agreement among ON Semiconductor Corporation, its principal domestic operating subsidiary, Semiconductor Components Industries, LLC ("SCI LLC"), Motorola Inc. ("Motorola") and affiliates of Texas Pacific Group ("TPG"). Prior to its August 4, 1999 recapitalization (the "recapitalization"), the Company was a wholly-owned subsidiary of Motorola. Because TPG did not acquire substantially all of the Company's common stock, the basis of the Company's assets and liabilities for financial reporting purposes was not impacted by the recapitalization. During 2007, TPG sold all of its remaining shares of our common stock and ceased being our principal stockholder. On March 17, 2008, the Company completed the purchase of AMIS Holdings, Inc., a Delaware corporation ("AMIS"), whereby AMIS became a wholly-owned subsidiary of the Company (see Note 3: "Acquisition" for further discussion). The accompanying unaudited financial statements as of September 26, 2008, and for the three months and nine months ended September 26, 2008 and September 28, 2007, respectively, have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements. In the opinion of the Company's management, the interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The footnote disclosures related to the interim financial information included herein are also unaudited. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto as of December 31, 2007 and for the year then ended included in the Company's annual report on Form 10-K for the year ended December 31, 2007. Note 2: Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company, as well as its wholly-owned and majority-owned subsidiaries. Investments in companies that represent less than 20% of the related voting stock where the Company does not have the ability to exert significant influence are accounted for on the cost basis. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant estimates have been used by management in conjunction with the measurement of valuation allowances relating to trade and tax receivables, inventories and deferred tax assets; reserves for customer incentives, warranties, tax reserves and pension obligations; the fair values of intangible assets; the fair values of stock options and of financial instruments (including derivative financial instruments); and future cash flows associated with long-lived assets. Actual results could differ from these estimates. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are maintained with reputable major financial institutions. If, due to current economic conditions, one or more of the financial institutions with which the Company maintains deposits fails, the Company's cash and cash equivalents may be at risk. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. Allowance for Doubtful Accounts In the normal course of business, the Company provides unsecured credit terms to its customers. Accordingly, the Company maintains an allowance for doubtful accounts for possible losses on uncollectible accounts receivable. The Company routinely analyzes accounts receivable and considers history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and payment term changes when evaluating adequacy of the allowance for doubtful accounts. For uncollectible accounts receivable, the Company records a loss against the allowance for doubtful accounts only after exhaustive efforts have been made to collect and with management's approval. Generally, realized losses have been within the range of management's expectations. Inventories Inventories not related to an acquisition are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis), or market. The Company records provisions for slow moving inventories based upon a regular analysis of inventory on hand compared to historical and projected end user demand. These provisions can influence results from operations. For example, when demand for a given part falls, all or a portion of the related inventory is reserved, impacting cost of revenues and gross profit. If demand recovers and the parts previously reserved are sold, a higher than normal margin will generally be recognized. General market conditions, as well as the Company's design activities can cause certain of its products to become obsolete. Inventory obtained through the purchase of a business, such as the acquisition of AMIS, are initially recorded at expected sales value less costs of disposal. The Company uses management estimates to determine the fair value of the inventory as of the acquisition date. The methodology involves stepping up the value of acquired finished goods and work-in-process from cost to expected sales value less variable costs to dispose. At each respective acquisition date, the total increase in inventory value related to recording it at fair value for the AMIS acquisition and acquisition of the voltage regulation and thermal monitoring products for its computing and applications business ("PTC Business") from Analog Devices, Inc. and its subsidiaries ("ADI") were $72.8 million and $3.1 million, respectively. As this inventory is shipped to customers, it will significantly decrease the gross margin reported on those future sales until the inventory is completely sold. For the nine months ended September 26, 2008, approximately $63.4 million of the inventory step up has been expensed to the statement of operations, as cost of revenues, since the inventory was shipped to the customer. Property, Plant and Equipment Property, plant and equipment are recorded at cost and are depreciated over estimated useful lives of 30-50 years for buildings and 3-20 years for machinery and equipment using accelerated and straight-line methods. Expenditures for maintenance and repairs are charged to operations in the year in which the expense is incurred. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations in the period realized. The Company evaluates the recoverability of the carrying amount of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment charge is recognized when the undiscounted expected cash flows derived from an asset are less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of an impaired asset. The dynamic economic environment in which the Company operates and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests. The Company plans to sell approximately 51 acres of land and two buildings located at its corporate headquarters in Phoenix, Arizona. During the second quarter of 2007, the Company entered into an agreement to sell three parcels of land totaling approximately 22 acres for approximately $9.5 million, subject to various conditions and certain adjustments. If the sales are completed at the originally contracted price, the Company expects to record gains totaling approximately $8.2 million. The sale is expected to be completed by the end of the fourth quarter of 2008. The remaining unused property and buildings are currently being marketed for sale or lease. The remainder of the Phoenix site will continue as the Company's corporate headquarters as, well as a manufacturing and design center and research and development facility. Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the Company's April 2000 acquisition of Cherry Semiconductor Corporation ("Cherry"), the Company's September 2006 acquisition of an additional interest in its investment in Leshan-Phoenix Semiconductor Company ("Leshan"), the Company's December 2007 acquisition of ADI, and the Company's March 2008 acquisition of AMIS (see Note 3: "Acquisition" for further discussion). A reconciliation of the original cost of the goodwill from each of the above transactions to the carrying value as of September 26, 2008 and December 31, 2007 is as follows, in millions: September 26, 2008 Original Accumulated Purchase Price Foreign Currency Carrying Cost Amortization Adjustments Translation Adjustment Value Goodwill resulting from: Cherry acquisition $ 95.7 $ (18.4 ) $ - $ - $ 77.3 Leshan additional interest 3.8 - - - 3.8 ADI PTC business acquisition 91.3 - 0.7 - 92.0 AMIS acquisition 559.2 - (1.5 ) (11.8 ) 545.9 $ 750.0 $ (18.4 ) $ (0.8 ) $ (11.8 ) $ 719.0 December 31, 2007 Original Accumulated Purchase Price Foreign Currency Carrying Cost Amortization Adjustments Translation Adjustment Value Goodwill resulting from: Cherry acquisition $ 95.7 $ (18.4 ) $ - $ - $ 77.3 Leshan additional interest 3.8 - - - 3.8 ADI PTC business acquisition 91.3 - - - 91.3 $ 190.8 $ (18.4 ) $ - $ - $ 172.4 Under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") issued by the Financial Accounting Standards Board ("FASB"), goodwill is evaluated for potential impairment on an annual basis or whenever events or circumstances indicate that an impairment may have occurred. SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the estimated fair value of the reporting unit containing goodwill with the related carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, the reporting unit's goodwill is not considered to be impaired and the second step of the impairment test is unnecessary. If the reporting unit's carrying amount exceeds its estimated fair value, the second step of the test must be performed to measure the amount of the goodwill impairment loss, if any. The second step of the test compares the implied fair value of the reporting unit's goodwill, determined in the same manner as the amount of goodwill recognized in a business combination, with the carrying amount of such goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The Company performs its annual impairment analysis as of the first day of the fourth quarter of each year. Adverse changes in operating results and/or unfavorable changes in economic factors used to estimate fair values could result in a non-cash impairment charge in the future under SFAS No. 142. Intangible Assets Intangible assets consist of values assigned to intellectual property, assembled workforce, customer relationships, non-compete agreements, patents, developed technology and trademarks resulting from the May 2006 purchase of LSI Logic Corporation's ("LSI") Gresham, Oregon wafer fabrication facility, the December 2007 purchase of ADI's PTC Business and the March 2008 purchase of AMIS (see Note 3: "Acquisition" for further discussion). These are stated at cost less accumulated amortization and are amortized over their economic useful life ranging from 3 to 15 years using the straight-line method and are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable. Intangible assets, net were as follows as of September 26, 2008 and December 31, 2007 (in millions): September 26, 2008 Original Accumulated Foreign Currency Carrying Useful Life Cost Amortization Translation Adjustment Value (in Years) Intellectual property $ 13.9 $ (2.8 ) $ - $ 11.1 5-12 Assembled workforce 6.7 (3.1 ) - 3.6 5 Customer relationships 222.7 (9.7 ) (10.4 ) 202.6 5-15 Non-compete agreements 0.4 (0.1 ) - 0.3 3 Patents 16.7 (1.0 ) - 15.7 12 Developed technology 80.1 (4.6 ) - 75.5 12 Trademarks 8.7 (0.3 ) - 8.4 15 Total intangibles $ 349.2 $ (21.6 ) $ (10.4 ) $ 317.2 December 31, 2007 Original Accumulated Carrying Useful Life Cost Amortization Value (in Years) Intellectual property $ 13.9 $ (1.7 ) $ 12.2 5-12 Assembled workforce 6.7 (2.2 ) 4.5 5 Customer relationships 23.7 - 23.7 5 Non-compete agreements 0.4 - 0.4 3 Patents 16.7 - 16.7 12 Total intangibles $ 61.4 $ (3.9 ) $ 57.5 Amortization expense for intangible assets amounted to $7.4 million for the quarter ended September 26, 2008, of which $0.6 million was included in cost of revenues, and $17.7 million for the nine months ended September 26, 2008, of which $1.8 million was included in cost of revenues. For the quarter and nine months ended September 28, 2007, amortization expense for intangible assets amounted to $0.5 million and $1.7 million, respectively, all of which was included in cost of revenues. Amortization expense for intangible assets is expected to be as follows over the next five years, and thereafter (in millions): Customer Intellectual Assembled Relationships Non-compete Developed Property Workforce Assets Agreements Patents Technology Trademarks Total Remainder of 2008 $ 0.6 $ 0.4 $ 4.0 $ 0.1 $ 0.3 $ 2.1 $ 0.1 $ 7.6 2009 1.7 1.3 18.1 0.1 1.4 6.7 0.6 29.9 2010 1.7 1.3 18.0 0.1 1.4 6.7 0.6 29.8 2011 1.2 0.6 18.0 - 1.4 6.7 0.6 28.5 2012 0.7 - 18.0 - 1.4 6.7 0.6 27.4 Thereafter 5.2 - 126.5 - 9.8 46.6 5.9 194.0 Total estimated amortization expense $ 11.1 $ 3.6 $ 202.6 $ 0.3 $ 15.7 $ 75.5 $ 8.4 $ 317.2 Debt Issuance Costs Debt issuance costs are capitalized and amortized over the term of the underlying agreements using the effective interest method. Upon prepayment of debt, the related unamortized debt issuance costs are charged to expense. Amortization of debt issuance costs is included in interest expense while the unamortized balance is included in other assets. Capitalized debt issuance costs totaled $15.6 million and $18.9 million at September 26, 2008 and December 31, 2007, respectively. Revenue Recognition The Company generates revenue from sales of its semiconductor products to original equipment manufacturers, electronic manufacturing service providers and distributors. The Company also generates revenue, although to a much lesser extent, from manufacturing services provided to customers. The Company recognizes revenue on sales to original equipment manufacturers and electronic manufacturing service providers and sales of manufacturing services, net of provisions for related sales returns and allowances, when persuasive evidence of an arrangement exists, title and risk of loss pass to the customer (which is generally upon shipment), the price is fixed or determinable and collectability is reasonably assured. Title to products sold to distributors typically passes at the time of shipment by the Company so the Company records accounts receivable for the amount of the transaction, reduces its inventory for the products shipped and defers the related margin in its consolidated balance sheet. The Company recognizes the related revenue and cost of revenues when it is informed by the distributor that they have resold the products to the end user. As a result of the Company's inability to reliably estimate up front the effects of the returns and allowances with these distributors, the Company defers the related revenue and margin on sales to distributors. Although payment terms vary, most distributor agreements require payment within 30 days. Taxes assessed by government authorities on revenue-producing transactions, including value added and excise taxes, are presented on a net basis (excluded from revenues) in the statement of operations. Sales returns and allowances are estimated based on historical experience. The Company's original equipment manufacturer customers do not have the right to return products other than pursuant to the provisions of the Company's standard warranty. Sales to distributors, however, are typically made pursuant to agreements that provide return rights with respect to discontinued or slow-moving products. Under the Company's general agreements, distributors are allowed to return any product that has been removed from the price book. In addition, agreements with distributors typically contain standard stock rotation provisions permitting limited levels of product returns. However, since the Company defers recognition of revenue and gross profit on sales to distributors until the distributor resells the product, due to the inability to reliably estimate up front the effect of the returns and allowances with these distributors, sales returns and allowances have minimal impact on the results of operations. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenues are recognized, and are netted against revenues. Given that revenues consist of a high volume of relatively similar products, actual returns and allowances and warranty claims have not traditionally fluctuated significantly from period to period, and returns and allowances and warranty provisions have historically been reasonably accurate. The Company generally warrants that products sold to its customers will, at the time of shipment, be free from defects in workmanship and materials and conform to approved specifications. The Company's standard warranty extends for a period that is the greater of (i) three years from the date of shipment or (ii) the period of time specified in the customer's standard warranty (provided that the customer's standard warranty is stated in writing and extended to purchasers at no additional charge). At the time revenue is recognized, the Company establishes an accrual for estimated warranty expenses associated with its sales, recorded as a component of cost of revenues. In addition, the Company also offers cash discounts to customers for payments received within an agreed upon time, generally 10 days after shipment. The Company accrues reserves for cash discounts as a reduction to accounts receivable and a reduction to revenues, based on experience with each customer. Freight and handling costs are included in cost of revenues and are recognized as period expense during the period in which they are incurred. Research and Development Costs Research and development costs are expensed as incurred. Share-Based Payments Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee's requisite service period. As of September 26, 2008, the Company had no unvested awards with market conditions, although it did have outstanding awards with performance, time and service based vesting provisions. Income Taxes Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for those deferred tax assets for which the related benefits will likely not be realized. In determining the amount of the valuation allowance, estimated future taxable income, as well as feasible tax planning strategies in each taxing jurisdiction is considered. If all or a portion of the remaining deferred tax assets will not be realized, the valuation allowance will be increased with a charge to income tax expense. Conversely, if the Company will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense. The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. The Company recognizes potential liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. If payment of these liabilities ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. Additionally, the Company reviews the collectability of its tax receivables due from various jurisdictions and when recovery is uncertain, the Company reserves amounts deemed to be uncollectible. If the receipts of these amounts occur or are assured, the reversal of the reserves previously established would result in a tax benefit in the period. The Company adopted the provision of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes in an enterprise's financial statements in accordance with FASB Statement No. 109 "Accounting for Income Taxes." The company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2002. Foreign Currencies Most of the Company's significant foreign subsidiaries conduct business primarily in U.S. dollars and as a result, utilize the dollar as their functional currency. For the translation of financial statements of these subsidiaries, assets and liabilities denominated in foreign currencies that are receivable or payable in cash are translated at current exchange rates while inventories and other non-monetary assets denominated in foreign currencies are translated at historical rates. Gains and losses resulting from the translation of such financial statements are included in the operating results, as are gains and losses incurred on foreign currency transactions. The Company's remaining foreign subsidiaries utilize the local currency as their functional currency. The assets and liabilities of these subsidiaries are translated at current exchange rates while revenues and expenses are translated at the average rates in effect for the period. The related translation gains and losses are included in accumulated other comprehensive income within stockholders' equity. Defined Benefit Plans The Company maintains pension plans covering certain of its foreign employees. For financial reporting purposes, net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increases for plan employees. All of these assumptions are based upon management's judgment and actuarial analysis, considering all known trends and uncertainties. Asset Retirement Obligations The Company recognizes asset retirement obligations ("AROs") when incurred, with the initial measurement at fair value. These liabilities are accreted to full value over time through charges to income. In addition, asset retirement costs are capitalized as part of the related asset's carrying value and are depreciated over the asset's respective useful life. The weighted average discount rate used to determine the liability as of September 26, 2008 was 4.5%. The Company's AROs consist primarily of estimated decontamination costs associated with manufacturing equipment and buildings resulting from the Company's adoption of FIN 47, "Accounting for Conditional Asset Retirement Obligations-An Interpretation of FASB Statement No. 143" effective December 31, 2005. Contingencies The Company is involved in a variety of legal matters that arise in the normal course of business. Based on information available, management evaluates the relevant range and likelihood of potential outcomes. In accordance with SFAS No. 5, "Accounting for Contingencies," management records the appropriate liability when the amount is deemed probable and reasonably estimated. Fair Value Measurement In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements ("SFAS No. 157")." SFAS No. 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and is applied prospectively. In February 2008, the FASB issued FASB Staff Position No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"), which delays the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. FSP 157-2 is effective upon issuance. Therefore, as of January 1, 2008, the Company adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities only. SFAS No. 157 defines fair value under generally accepted accounting principles. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, as follows: * Level 1-Quoted prices in active markets for identical assets or liabilities. * Level 2-Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. * Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The adoption of SFAS No. 157, excluding those non-financial assets and non-financial liabilities exempted by FSP 157-2, had no material impact to the Company's consolidated balance sheet and statement of operations. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115 ("SFAS No. 159")." SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected to be reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and will be applied prospectively, although earlier adoption is permitted. As of January 1, 2008, the Company elected not to measure certain financial instruments and certain other items within the scope of SFAS No. 159 at fair value. Note 3: Acquisition Acquisition of AMIS Holdings, Inc. On March 17, 2008, the Company completed the purchase of AMIS, whereby AMIS became a wholly-owned subsidiary of the Company. At the effective time of the merger, each issued and outstanding share of common stock of AMIS was converted into 1.15 shares of the Company's common stock, which had an approximate value of $897.4 million, based on the price of the Company's common stock when the merger was announced on December 13, 2007. In accordance with Emerging Issues Task Force issue No. 98-3 "Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business," this transaction was determined to be a business combination, not an acquisition of assets. AMIS is primarily engaged in designing, manufacturing and marketing integrated circuits worldwide. AMIS's results of operations have been included in the consolidated financial statements since the date of the acquisition. The Company believes the combination will enhance shareholder value by (1) accelerating its transformation from a discrete supplier to a key supplier with scale, (2) strengthening its end-market presence, facilitating its entry into new markets and deepening customer relationships, (3) obtaining significant scale and cash flow generation, and (4) achieving cost savings by leveraging its operational expertise and accelerating the ramp of activity in its Gresham, Oregon wafer fabrication facility. The aggregate purchase price of approximately $939.7 million included the issuance of approximately 103.2 million shares of common stock valued at approximately $897.4 million and estimated direct transaction costs of approximately $11.1 million. The value of the approximately 103.2 million common shares that were issued to AMIS shareholders was determined based on approximately 89.7 million shares of AMIS common stock outstanding on March 17, 2008 and the exchange ratio of 1.15 shares of the Company's common stock for each AMIS share, at a value of $8.70 per share, the average closing price of the Company's shares of common stock for the two days prior to, and two days subsequent to the public announcement of the merger on December 13, 2007. AMIS stock options, restricted stock and warrants were exchanged for stock options, restricted stock and warrants of the Company and the exercise price per share was adjusted for the 1.15 exchange ratio. Vested stock options, restricted stock and warrants issued by the Company in exchange for options and restricted stock held by employees and directors of AMIS and warrants held by non-employees of AMIS are considered part of the purchase price. Accordingly, the purchase price includes an estimated fair value of stock options and restricted stock and warrants of approximately $38.5 million. The purchase price excludes the estimated fair value of unvested stock options and restricted stock, of approximately $7.3 million, which will be amortized to compensation expense over the remaining vesting period of each award, subsequent to March 17, 2008. The fair value of the Company's options that were issued in exchange for AMIS options were estimated by using the Black-Scholes option pricing model with market assumptions. Option pricing models require the use of highly subjective market assumptions, including expected stock price volatility, which if changed can materially affect fair value estimates. The more significant assumptions used in estimating the fair value include volatility of 49.9%, an expected life of 4.2 years based on the age of the original award, a dividend rate of zero and a risk-free interest rate of 3.15%. The warrants that were issued by the Company in exchange for AMIS warrants are to purchase approximately 5.3 million shares of the Company's common stock at an exercise price of $19.41 per share. The warrants expire on December 31, 2010 and are held by a subsidiary of Nippon Mining Holdings, Inc. Pursuant to the terms of the warrants, upon the completion of the merger the warrants were converted into warrants to purchase the number of shares of the Company's common stock that would have been deliverable to the holder had such warrants been exercised immediately prior to the merger, and continue to remain outstanding on terms substantially identical to those in effect immediately prior to the merger. The following table presents the allocation of the purchase price of AMIS, including professional fees and other related acquisition costs, to the assets acquired based on their estimated fair values (in millions): Cash and cash equivalents $ 172.7 Receivables, net 83.2 Inventory 149.9 Other current assets 27.8 Property, plant and equipment 111.9 Goodwill 559.2 Intangible assets 287.8 In-process research and development 17.7 Other assets 13.6 Total assets acquired 1,423.8 Amounts payable to banks and long-term debt due within one year (316.0 ) Other current liabilities (153.9 ) Long-term accrued liabilities (14.2 ) Total liabilities assumed (484.1 ) Net assets acquired $ 939.7 Of the $305.5 million of acquired intangible assets, $17.7 million was assigned to in-process research and development ("IPRD") assets that were written off at the date of the acquisition in accordance with FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The fair value of IPRD was determined using the income approach. The income approach recognizes that the current value of an asset or liability is premised on the expected receipt or payment of future economic benefits generated over its remaining life. A discount rate of 12% was used in the present value calculations, and was derived from a weighted-average cost of capital analysis, adjusted to reflect additional risks inherent in the acquired research and development operations. The remaining $287.8 million of acquired intangible assets have a weighted-average useful life of approximately 14 years. The intangible assets that make up that amount include: trademarks of $8.7 million (15-year weighted-average useful life), customer relationships of $199.0 million (15-year weighted-average useful life), and developed technology of $80.1 million (12-year weighted-average useful life). Of the total purchase price paid of $939.7 million, approximately $559.2 million has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets was the acquisition of an assembled workforce of experienced semiconductor engineers. The Company expects these experienced engineers to provide the capability of developing and integrating advanced technology into next generation products. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that management determines that the value of goodwill has become impaired, the Company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made. The $559.2 million of goodwill was assigned to the custom products and manufacturing services segment, none of which is expected to be deductible for tax purposes. The $316.0 million of amounts payable to banks and long-term debt due within one year includes $276.7 million outstanding on AMIS's senior secured term loan which required repayment upon merger or acquisition. The entire amount outstanding on the senior secured term loan as of the acquisition date was repaid by the Company prior to March 28, 2008. The initial allocation of the purchase price is based on management estimates and assumptions, and other information compiled by management, which utilized established valuation techniques appropriate for the high-technology industry, which were either the income approach, cost approach or market approach, depending upon which was the most appropriate based on the nature and reliability of the data available. The cost approach takes into account the cost to replace (or reproduce) the asset and the effect on the asset's value of physical, functional and/or economic obsolescence that has occurred with respect to the asset. The market approach is a technique used to estimate value from an analysis of actual transactions or offerings for economically comparable assets available as of the valuation date. The allocation of the purchase price includes $27.6 million of accrued liabilities for estimated costs to exit certain activities of AMIS, including $13.2 million of employee separation costs and $14.4 million of exit costs. The $13.2 million of employee separation costs includes $10.0 million to involuntarily terminate or relocate approximately 90 employees performing overlapping or duplicative functions throughout AMIS and also $3.2 million to involuntarily terminate approximately 140 manufacturing employees as a result of the planned shutdown of one of the fabrication facilities at AMIS's Pocatello, Idaho facility. The shutdown is scheduled to be completed by the end of the first quarter of 2010. The $14.4 million of exit costs includes $10.3 million for lease termination costs at duplicative facilities, $3.5 million of facility decommissioning costs resulting from the planned shutdown of the fabrication facility and also $0.6 million of costs to reorganize the structure of AMIS's subsidiaries. During the quarter and nine months ended September 26, 2008, the Company recorded adjustments of ($0.2) million and ($0.4) million, respectively, to reduce the employee separation costs accrual related to the involuntary termination or relocation of employees performing overlapping or duplicative functions throughout AMIS. Additionally, during the quarter and nine months ended September 26, 2008, the Company recorded accrued liabilities for $4.9 million and $6.0 million, respectively of adjustments to its estimated exit costs for exiting certain insurance contracts and software license agreements. As of September 26, 2008, management of the Company had not finalized all exit plans related to the AMIS acquisition and expects to finalize the plans within the first year after the acquisition date, which will result in adjustments to the allocation of the acquisition of the purchase price that may impact accrued liabilities and goodwill. The following is a rollforward of the accrued liabilities for estimated costs to exit certain activities of AMIS from the date of acquisition through September 26, 2008: Balance at Initial End of Balance Adjustments Usage Period Estimated employee separation costs: Acquisition date through September 26, 2008 $ 13.2 $ (0.4 ) $ (11.2 ) $ 1.6 Estimated costs to exit: Acquisition date through September 26, 2008 $ 14.4 $ 6.0 $ (0.7 ) $ 19.7 The following pro forma consolidated results of operations for the quarter and nine months ended September 26, 2008 and September 28, 2007 have been prepared as if the acquisition of AMIS had occurred at January 1, 2008 and January 1, 2007, respectively for each period (in millions, except per share data): Quarter Ended September 26, September 28, 2008 2007 (Actual) Net revenues $ 581.5 $ 557.5 Net income $ 61.2 $ 88.1 Net income per common share-Basic $ 0.15 $ 0.22 Net income per common share-Diluted $ 0.15 $ 0.21 Nine Months Ended September 26, September 28, 2008 2007 Net revenues $ 1,674.7 $ 1,620.3 Net income $ 135.8 $ 250.2 Net income per common share-Basic $ 0.37 $ 0.63 Net income per common share-Diluted $ 0.36 $ 0.59 The pro forma consolidated results of operations does not purport to be indicative of the results obtained if the above acquisition had actually occurred as of the dates indicated, or of those results that may be obtained in the future. The pro forma consolidated results of operations include adjustments to net income to give effect to: depreciation of property, plant and equipment acquired; amortization of intangible assets acquired; reduced interest expense as a result of the required repayment of AMIS's senior secured term loan upon acquisition; and stock compensation expense for stock options and restricted stock units of AMIS that were exchanged for stock options and restricted stock units of the Company. This pro forma consolidated results of operations was derived, in part, from the historical consolidated financial statements of AMIS and other available information and assumptions believed to be reasonable under the circumstances. See "Note 11: Subsequent Events" for a discussion of the Company's acquisition of Catalyst Semiconductor, Inc ("Catalyst"), a Delaware corporation, and the announced proposal to acquire the nonvolatile memory, radio frequency and automotive businesses of Atmel Corporation ("Atmel"), a Delaware Corporation. Note 4: Restructuring, Asset Impairment and Other, Net The activity related to the Company's restructuring, asset impairments and other, net for programs that were either initiated in 2008 or had not been completed as of December 31, 2007, are as follows (in millions): Restructuring Restructuring Activities Related to the 2008 Announced Shutdown of Piestany Manufacturing Facility In May 2008, the Company made plans to consolidate manufacturing efforts with the closure of manufacturing facilities in Piestany, Slovakia. The wafer manufacturing that takes place at this facility will be migrated from smaller low volume silicon wafers to larger more advanced production lines. At the end of the third quarter of 2008, the Company notified approximately 430 employees that they will be terminated and the Company expects to recognize $2.9 million ratably from the third quarter of 2008 through the expected termination date during the third quarter of 2009 through which they are required to render services to qualify for termination benefits. Cumulative charges of $8.7 million have been recognized through September 26, 2008, relating to the announced shutdown of the Piestany Manufacturing Facility of which $7.9 million had been recorded as asset impairments. See "Asset Impairments" below for further discussion. Balance at Balance at Beginning End of of Period Charges Usage Adjustments Period Cash employee separation charges: Nine months ended September 26, 2008 $ - $ 0.8 $ - $ - $ 0.8 Restructuring Activities Related to the 2008 Hong Kong Design Center Cumulative charges of $0.3 million have been recognized through September 26, 2008, relating to the Hong Kong Design Center. In June 2008, the Company announced plans to consolidate a portion of the design center operations in Hong Kong. A total of 6 employees were terminated as a result of this consolidation effort. Employee separation charges of $0.3 million have been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the nine months ended September 26, 2008. All terminations and associated severance payments related to these activities had been paid out by the end of the third quarter of 2008. Balance at Balance at Beginning End of of Period Charges Usage Adjustments Period Cash employee separation charges: Nine months ended September 26, 2008 $ - $ 0.3 $ (0.3 ) $ - $ - Restructuring Activities Related to the 2008 Acquisition of AMIS Balance at Balance at Beginning End of of Period Charges Usage Adjustments Period Cash employee separation charges: Nine months ended September 26, 2008 $ - $ 6.5 $ (4.8 ) $ - $ 1.7 Exit costs: Nine months ended September 26, 2008 $ - $ 2.6 $ (1.5 ) $ - $ 1.1 Cumulative charges of $9.1 million have been recognized through September 26, 2008, related to the restructuring activities around the acquisition of AMIS, of which $1.7 million has been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the quarter ended September 26, 2008. In March 2008, the Company acquired AMIS and announced plans to integrate the operations of the two companies for cost savings purposes (See Note 3: "Acquisition" for further discussion). As part of these plans, certain duplicative positions were eliminated and certain overlapping or duplicative contracts with external suppliers were renegotiated to reflect terms applicable to the combined company. During March 2008, the Company recorded employee separation charges of $1.7 million and exit costs of $1.8 million related to the acquisition of AMIS. The employee separation charges of $6.5 million include $1.2 million for severance benefits of 77 individuals who were employees of the Company prior to the acquisition and $5.0 million for severance benefits of 24 individuals who were employees of AMIS prior to the acquisition. All 24 employees were or are required to render services until their termination date to receive these severance benefits. The termination benefits for the 24 AMIS employees are being recognized ratably from the acquisition date to their termination date. The Company expects to record an additional $0.2 million of separation charges through the end of the fourth quarter of 2008. Additionally, during the nine months ended September 26, 2008, the Company recorded $0.3 million for severance benefits of 3 individuals who were employees of the Company prior to the acquisition. All terminations and associated severance payments related to these activities are expected to be completed by the end of the fourth quarter of 2008. The exit costs of $2.6 million were for charges incurred to terminate overlapping or duplicative software licenses under certain lease agreements with external suppliers in connection with the AMIS acquisition and for clean up associated with the shut down of a wafer fabrication facility. All payments related to these exit costs are expected to be completed by the end of the second quarter of 2009. 2007 Plan to Restructure Certain General and Administrative Positions in Asia Balance at Balance at Beginning End of of Period Charges Usage Adjustments Period Cash employee separation charges: Nine months ended September 26, 2008 $ 0.5 $ - $ (0.5 ) $ - $ - Cumulative charges of $1.0 million have been recognized through September 26, 2008, related to the 2007 plan to restructure certain general and administrative positions in Asia, all of which were recognized in periods prior to the quarter ended September 26, 2008. In October 2007, the Company announced plans to change its management structure at its Aizu, Japan manufacturing facility and to outsource its healthcare professional services provided at its Seremban, Malaysia manufacturing facility. This activity was completed by the end of the first quarter of 2008. Approximately 21 employees were terminated as a direct result of this plan. These measures were initiated for cost savings purposes. Employees impacted by these announcements began to exit during the fourth quarter of 2007. All payments related to these employee separation charges had been paid out by the end of the third quarter of 2008. 2007 Plan to Restructure Phoenix, Arizona Wafer Manufacturing Balance at Balance at Beginning End of of Period Charges Usage Adjustments Period Cash employee separation charges: Nine months ended September 26, 2008 $ - $ 1.0 $ (0.5 ) $ - $ 0.5 Cumulative charges of $3.0 million have been recognized through September 26, 2008, related to the 2007 plan to restructure Phoenix, Arizona wafer manufacturing, of which $1.0 million has been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the nine months ended September 26, 2008. In March 2007, the Company announced plans to consolidate manufacturing efforts with the closing of one of its manufacturing facilities at its Phoenix, Arizona location. The wafer manufacturing that takes place at this facility will be transferred to the Company's offshore lower-cost manufacturing facilities, expected to be completed by the end of the fourth quarter of 2008. It is anticipated that a total of approximately 85 manufacturing employees will be terminated as a direct result of this consolidation effort. Also in connection with this activity, during the third quarter of 2007, the Company announced reductions in factory support functions at its Phoenix, Arizona and Gresham, Oregon locations which resulted in the elimination or transfer of 67 positions. These measures were initiated for cost savings purposes. Employees impacted by these announcements began to exit during the third quarter of 2007 and will continue to exit through the fourth quarter of 2008. All terminations and associated severance payments related to these activities are expected to be completed by the end of the fourth quarter of 2008. Asset Impairments In June 2008, the Company recorded $9.8 million of asset impairments included in restructuring, asset impairments and other, net on the statement of operations. The $9.8 million of asset impairments include $7.9 million associated with the May 2008 announced shutdown of manufacturing facilities in Piestany, Slovakia. This announcement triggered an impairment analysis of the carrying value of the related asset group. The Company measured the amount of this asset impairment by comparing the carrying value of the respective assets to their related estimated fair values. The Company estimated future net cash flows for the period of continuing manufacturing activities and eventual disposition of the assets using price, volume, cost and salvage value assumptions that management considered reasonable in the circumstances. The impairment charge was recorded for the amount by which the carrying value of the respective assets exceeded their estimated fair value. The remaining $1.9 million of asset impairments was for excess machinery and equipment abandoned by the Company as a result of the acquisition of AMIS. In March 2008, the Company recorded $2.2 million of asset impairments included in restructuring, asset impairments and other, net on the statement of operations. Prior to March 2008, the Company had capitalized approximately $5.9 million of software development costs associated with modifications and enhancements to several business process and related systems. The $2.2 million of asset impairments resulted from the fact that the Company currently has no plans to use certain internally developed software, and management considers the cease of use of these assets as other than temporarily idled. The decision to cease development of these assets in the first quarter of 2008 was triggered by the acquisition of AMIS, which required a reallocation of corporate resources from these projects to projects associated with the integration of AMIS into the Company's computer systems (See Note 3: "Acquisition" for further discussion). The amount of the asset impairment charge taken in March 2008, of $2.2 million, was determined based on the costs that had previously been capitalized related to the projects that have been abandoned. Other As mentioned previously in the restructuring activities related to the recent acquisition of AMIS during the nine months ended September 26, 2008, the Company terminated certain overlapping or duplicative lease agreements with external suppliers for software licenses. These agreements had previously been recorded by the Company as capital lease obligations on the consolidated balance sheet. Included in restructuring, asset impairments and other, net on the statement of operations for the nine months ended September 26, 2008 is a gain of $0.7 million for the reversal of the capital lease obligation, partially offset by the write-off of the net book value of the software licenses that were included in property, plant and equipment. A reconciliation of the activity in the tables above to the "Restructuring, asset impairments and other, net" caption on the statement of operations for the quarter ended September 26, 2008, is as follows (in millions): Quarter Ended Nine Months Ended September 26, 2008 September 26, 2008 Restructuring 2008 Charges: Cash employee separation charges $ 1.9 $ 8.6 Exit costs 0.6 2.6 Asset impairments 2008 Charges - 12.0 Other 2008 gain on disposal of property, plant and equipment - (0.7 ) $ 2.5 $ 22.5 Note 5: Balance Sheet Information Balance sheet information is as follows (in millions): September 26, December 31, 2008 2007 Receivables, net: Accounts receivable $ 286.9 $ 178.7 Less: Allowance for doubtful accounts (7.6 ) (3.5 ) $ 279.3 $ 175.2 Inventories, net: Raw materials $ 31.9 $ 25.1 Work in process 155.0 110.2 Finished goods 122.5 85.2 $ 309.4 $ 220.5 Property, plant and equipment, net: Land $ 33.8 $ 28.3 Buildings 396.3 376.5 Machinery and equipment 1,376.9 1,216.2 Total property, plant and equipment 1,807.0 1,621.0 Less: Accumulated depreciation (1,054.5 ) (1,006.1 ) $ 752.5 $ 614.9 Accrued expenses: Accrued payroll $ 65.7 $ 37.5 Sales related reserves 39.0 39.9 Restructuring reserves 4.1 0.5 Acquisition related restructuring costs 21.3 - Accrued pension liability 0.2 0.2 Other 48.8 23.2 $ 179.1 $ 101.3 Accumulated other comprehensive income: Foreign currency translation adjustments $ (28.6 ) $ 0.1 Amortization of prior service cost of defined benefit pension plan - (0.5 ) Prior service cost from legal plan amendment (0.3 ) (0.3 ) Net unrealized gains and adjustments related to cash flow hedges 0.1 0.2 $ (28.8 ) $ (0.5 ) The activity related to the Company's warranty reserves for the nine months ended September 26, 2008 is as follows (in millions): Balance as of December 31, 2007 $ 2.2 Provision 2.0 Reserves acquired from AMIS 0.8 Usage (0.5 ) Reserved released - Balance as of September 26, 2008 $ 4.5 The activity related to the Company's warranty reserves for the nine months ended September 28, 2007 is as follows (in millions): Balance as of December 31, 2006 $ 2.4 Provision 1.0 Usage (1.2 ) Reserved released - Balance as of September 28, 2007 $ 2.2 The Company maintains defined benefit plans for some of its foreign subsidiaries. The Company recognizes the aggregate amount of all overfunded plans as an asset and the aggregate amount of all underfunded plans as a liability in its financial statements. As of September 26, 2008 and December 31, 2007, the total accrued pension liability for underfunded plans was $14.9 million and $13.4 million, respectively, of which the current portion of $0.2 million and $0.2 million, respectively, were classified as accrued expenses. As of September 26, 2008 and December 31, 2007, the total pension asset was $7.2 million and zero, respectively. The components of the Company's net periodic pension expense for the quarters and nine months ended September 26, 2008 and September 28, 2007 are as follows (in millions): Quarter Ended September 26, September 28, 2008 2007 Service cost $ 1.6 $ 0.3 Interest cost 0.8 0.3 Expected return on plan assets (0.9 ) (0.1 ) Amortization of prior service cost 0.1 - Total net periodic pension cost $ 1.6 $ 0.5 Nine Months Ended September 26, September 28, 2008 2007 Service cost $ 3.9 $ 0.8 Interest cost 2.0 0.9 Expected return on plan assets (2.0 ) (0.5 ) Amortization of prior service cost 0.3 0.2 Total net periodic pension cost $ 4.2 $ 1.4 Note 6: Long-Term Debt Long-term debt consists of the following (dollars in millions): September 26, December 31, 2008 2007 Senior Bank Facilities: Term Loan, interest payable monthly and quarterly at 5.4538% and 6.5800%, respectively $ 172.8 $ 173.7 Revolver - - 172.8 173.7 Zero Coupon Convertible Senior Subordinated Notes due 2024 (1) 260.0 260.0 1.875% Convertible Senior Subordinated Notes due 2025 (1) 95.0 95.0 2.625% Convertible Senior Subordinated Notes due 2026 (1) 484.0 484.0 2.25% Loan with Japanese bank due 2009 through 2010, interest payable semi-annually 6.7 9.6 Loan with Philippine banks due 2008 through 2012, interest payable quarterly at 3.7881% and 6.2475%, respectively 22.6 25.0 Loan with Chinese bank due 2009, interest payable quarterly at 4.4100% and 6.1100%, respectively 14.0 14.0 Loan with Chinese bank due 2009, interest payable quarterly at 4.4100% and 6.1100%, respectively 6.0 6.0 Loan with Chinese bank due 2008 through 2013, interest payable semi-annually at 4.4150% and 6.0488%, respectively. 7.3 8.2 Loan with Chinese bank due 2008 through 2009, interest payable semi-annually at 3.8869% and 6.3375%, respectively. 12.4 15.7 Loan with Chinese bank due 2009, interest payable semi-annually at 3.8338% and 6.3413%, respectively 5.0 5.0 Loan with Philippine bank due 2008 through 2013, interest payable quarterly at 3.5600% 12.5 - Loan with Philippine bank due 2008 through 2013, interest payable quarterly at 4.0688% 7.0 - Loan with Belgian bank, interest payable daily at 4.428% 15.8 - 5.0% Note payable to Oregon State due 2009 0.5 0.5 Short-term loan with Japanese bank due 2009, interest payable quarterly at 1.875% 4.7 - Capital lease obligations 94.5 62.7 1,220.8 1,159.4 Less: Current maturities (69.4 ) (30.8 ) $ 1,151.4 $ 1,128.6 (1) The Zero Coupon Convertible Senior Subordinated Notes due 2024, the 1.875% Convertible Senior Subordinated Notes due 2025 and the 2.625% Convertible Senior Subordinated Notes due 2026 may be purchased by the Company at the option of the holders of the notes on April 15, 2010, December 15, 2012 and December 15, 2013, respectively. Annual maturities relating to the Company's long-term debt as of September 26, 2008 are as follows (in millions): Actual Maturities Remainder of 2008 $ 10.5 2009 94.4 2010 294.8 2011 31.3 2012 129.4 Thereafter 660.4 Total $ 1,220.8 September 2008 Philippine Loan In September 2008, one of the Company's Philippine subsidiaries entered into a five-year loan agreement with a Philippine bank to finance capital expenditures and other general corporate purposes. The loan, which had a balance of $7.0 million as of September 26, 2008, bears interest payable quarterly based on 3-month LIBOR plus 1.25% per annum. Sixty percent of the total loan amount will be repaid in nineteen equal quarterly installments with the balance to be repaid at maturity. August 2008 Philippine Loan In August 2008, one of the Company's Philippine subsidiaries entered into a five-year promissory note with a Philippine bank to finance capital expenditures and for other general corporate purposes. The loan, which had a balance of $12.5 million as of September 26, 2008, bears interest payable quarterly based on 3-month LIBOR plus 0.75% per annum. Sixty percent of the total loan amount will be repaid in nineteen equal quarterly installments with the balance to be repaid at maturity. June 2008 Belgian Loan In June 2008, one of the Company's European subsidiaries entered into a loan with a Belgian Bank, secured by certain assets, to pay off the March 2008 Short-Term Bridge Loan. The loan, which had a balance of $15.8 million as of September 26, 2008 (based on the euro-to-dollar exchange rate in effect at that date), bears interest at the European Overnight Index Average ("EONIA") plus 0.4%, with interest payable daily. The loan amount is subject to an eligible borrowing calculation as defined in the loan agreement. The term of the agreement is six months, which automatically extends and can be cancelled thereafter by a 90 day written notification. April 2008 Japanese Loan In April 2008, one of the Company's Japanese subsidiaries entered into a one-year loan agreement with a Japanese bank to finance capital expenditures and other general corporate purposes. The loan, which had a balance of $4.7 million at September 26, 2008 (based on the yen-to-dollar exchange rate in effect at that date), bears interest at an annual rate of 1.875%, with interest payable quarterly. March 2008 Short-Term Bridge Loan As part of the AMIS acquisition in March 2008, the Company assumed the obligations under a short-term bridge loan entered into by the Company's Belgian subsidiary. The bridge loan was with a Belgian bank for 25.0 million Euros originally due May 31, 2008 and extended until July 31, 2008 with the proceeds to be used to finance capital expenditures and other general corporate purposes. The loan interest was paid weekly based on the one week EURO Interbank Offered Rate ("Euribor") plus 0.5%. In June 2008, the Short-Term Bridge Loan was repaid with the proceeds from the June 2008 Belgian loan. Capital Lease Obligations The Company has various capital lease obligations primarily for machinery and equipment. In March 2008, the Company sold assets with a net book value of $26.2 million for $33.7 million to a leasing agency under a sale-leaseback arrangement. We deferred a gain on the transaction in the amount of $7.5 million. Concurrently, the Company acquired the assets under a capital lease agreement with a net present value of minimum lease payments of $29.3 million, which will be depreciated over the lease term of four to five years. In June 2008, the Company acquired assets under capital leases agreement with a net present value of minimum lease payments of $14.1 million, which will be depreciated over the lease term of five years. Debt Guarantees The Company is the sole issuer of the zero coupon convertible senior subordinated notes due 2024, the 1.875% convertible senior subordinated notes due 2025 and the 2.625% convertible senior subordinated notes due 2026 (collectively, "the Notes"). The Company's domestic subsidiaries, with the exception of domestic subsidiaries acquired from AMIS, (collectively, the "Guarantor Subsidiaries") fully and unconditionally guarantee on a joint and several basis the Company's obligations under the Notes. The Guarantor Subsidiaries include SCI LLC, Semiconductor Components Industries of Rhode Island, Inc, as well as holding companies whose net assets consist primarily of investments in the joint venture in Leshan, China and equity interests in the Company's other foreign subsidiaries. The Company's other remaining subsidiaries (collectively, the "Non-Guarantor Subsidiaries") are not guarantors of the Notes. Condensed consolidated financial information for the issuer of the Notes, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries is as follows (in millions): Issuer Guarantor ON Semiconductor Other Non-Guarantor Corporation (1) SCI LLC Subsidiaries Subsidiaries Eliminations Total As of September 26, 2008 Cash and cash equivalents $ - $ 295.9 $ - $ 122.0 $ - $ 417.9 Receivables, net - 25.8 - 253.5 - 279.3 Inventories, net - 24.6 - 285.7 (0.9 ) 309.4 Other current assets - 7.5 - 58.3 - 65.8 Deferred income taxes - (1.8 ) - 5.8 - 4.0 Total current assets - 352.0 - 725.3 (0.9 ) 1,076.4 Property, plant and equipment, net - 167.0 3.1 585.5 (3.1 ) 752.5 Deferred income taxes - (0.1 ) - 0.1 - Goodwill and intangible assets, net - 47.3 73.0 915.9 - 1,036.2 Investments and other assets 1,720.0 1,633.4 38.2 2,387.2 (5,734.9 ) 43.9 Total assets $ 1,720.0 $ 2,199.6 $ 114.3 $ 4,614.0 $ (5,738.9 ) $ 2,909.0 Accounts payable $ - $ 25.9 $ 0.2 $ 192.6 $ - $ 218.7 Accrued expenses and other current liabilities 4.1 70.0 0.8 185.5 1.7 262.1 Deferred income on sales to distributors - 28.9 - 99.7 - 128.6 Total current liabilities 4.1 124.8 1.0 477.8 1.7 609.4 Long-term debt 839.0 238.1 - 74.3 - 1,151.4 Other long-term liabilities - 18.1 0.3 28.6 - 47.0 Deferred Income Taxes - - - - - Intercompany (207.9 ) (54.3 ) (14.1 ) 70.7 205.5 - Total liabilities 635.2 326.7 (12.8 ) 651.4 207.2 1,807.8 Minority interests in consolidated subsidiaries - - - - 16.4 16.4 Stockholders' equity (deficit) 1,084.8 1,872.9 127.1 3,962.6 (5,962.5 ) 1,084.8 Liabilities, minority interests and stockholders' equity (deficit) $ 1,720.0 $ 2,199.6 $ 114.3 $ 4,614.0 $ (5,738.9 ) $ 2,909.0 Issuer Guarantor ON Semiconductor Other Non-Guarantor Corporation (1) SCI LLC Subsidiaries Subsidiaries Eliminations Total As of December 31, 2007 Cash and cash equivalents $ - $ 192.1 $ - $ 82.5 $ - $ 274.6 Receivables, net - 26.4 - 148.8 - 175.2 Inventories, net - 33.9 - 185.0 1.6 220.5 Other current assets - 7.8 - 60.5 - 68.3 Deferred income taxes - (1.8 ) - 8.5 - 6.7 Total current assets - 258.4 - 485.3 1.6 745.3 Property, plant and equipment, net - 157.3 3.7 453.9 - 614.9 Goodwill and intangible assets, net - 48.3 73.0 108.6 - 229.9 Investments and other assets 647.7 570.9 43.2 25.1 (1,239.4 ) 47.5 Total assets $ 647.7 $ 1,034.9 $ 119.9 $ 1,072.9 $ (1,237.8 ) $ 1,637.6 Accounts payable $ - $ 27.7 $ 0.2 $ 135.6 $ - $ 163.5 Accrued expenses and other current liabilities 0.6 56.6 1.3 76.8 1.7 137.0 Deferred income on sales to distributors - 30.1 - 90.3 - 120.4 Total current liabilities 0.6 114.4 1.5 302.7 1.7 420.9 Long-term debt 839.0 213.6 - 76.0 - 1,128.6 Other long-term liabilities - 29.8 - 17.0 - 46.8 Deferred income taxes - (1.8 ) - 8.7 - 6.9 Intercompany (207.8 ) (112.1 ) (13.4 ) 127.8 205.5 - Total liabilities 631.8 243.9 (11.9 ) 532.2 207.2 1,603.2 Minority interests in consolidated subsidiaries - - - - 18.5 18.5 Stockholders' equity (deficit) 15.9 791.0 131.8 540.7 (1,463.5 ) 15.9 Liabilities, minority interests and stockholders' equity (deficit) $ 647.7 $ 1,034.9 $ 119.9 $ 1,072.9 $ (1,237.8 ) $ 1,637.6 Issuer Guarantor ON Semiconductor Other Non-Guarantor Corporation (1) SCI LLC Subsidiaries Subsidiaries Eliminations Total For the quarter ended September 26, 2008 Revenues $ - $ 109.5 $ 4.0 $ 776.3 $ (308.3 ) $ 581.5 Cost of revenues - 112.0 0.7 541.1 (293.9 ) 359.9 Gross profit - (2.5 ) 3.3 235.2 (14.4 ) 221.6 Research and development - 5.1 2.5 68.0 (8.4 ) 67.2 Selling and marketing - 13.0 0.4 25.9 (2.0 ) 37.3 General and administrative - (4.1 ) 0.2 37.1 1.0 34.2 Amortization of acquisition related intangible assets - 0.4 - 6.4 - 6.8 Restructuring, asset impairments and other, net - - - 2.5 - 2.5 Total operating expenses - 14.4 3.1 139.9 (9.4 ) 148.0 Operating income (loss) - (16.9 ) 0.2 95.3 (5.0 ) 73.6 Interest expense, net (4.6 ) (0.1 ) - (3.3 ) - (8.0 ) Other - (2.8 ) - 3.3 - 0.5 Equity in earnings 65.8 77.3 0.8 1.5 (145.4 ) - Income (loss) before income taxes, and minority interests 61.2 57.5 1.0 96.8 (150.4 ) 66.1 Income tax provision - (0.2 ) - (4.3 ) - (4.5 ) Minority interests - - - - (0.4 ) (0.4 ) Net income (loss) $ 61.2 $ 57.3 $ 1.0 $ 92.5 $ (150.8 ) $ 61.2 For the quarter ended September 28, 2007 Revenues $ - $ 132.2 $ 4.7 $ 510.7 $ (244.7 ) $ 402.9 Cost of revenues - 114.9 0.4 372.4 (240.4 ) 247.3 Gross profit - 17.3 4.3 138.3 (4.3 ) 155.6 Research and development - 7.1 3.1 24.2 - 34.4 Selling and marketing - 13.4 0.3 10.7 - 24.4 General and administrative - (2.2 ) - 23.8 - 21.6 Restructuring, asset impairments and other, net - 2.0 - - - 2.0 Total operating expenses - 20.3 3.4 58.7 - 82.4 Operating income (loss) - (3.0 ) 0.9 79.6 (4.3 ) 73.2 Interest expense, net (4.6 ) (0.9 ) - (1.0 ) - (6.5 ) Other - 1.2 - (1.0 ) - 0.2 Equity in earnings 68.4 68.5 1.7 - (138.6 ) - Income (loss) before income taxes, and minority interests 63.8 65.8 2.6 77.6 (142.9 ) 66.9 Income tax provision - 1.3 - (3.7 ) - (2.4 ) Minority interests - - - - (0.7 ) (0.7 ) Net income (loss) $ 63.8 $ 67.1 $ 2.6 $ 73.9 $ (143.6 ) $ 63.8 Issuer Guarantor ON Semiconductor Other Non-Guarantor Corporation (1) SCI LLC Subsidiaries Subsidiaries Eliminations Total For the nine months ended September 26, 2008 Revenues $ - $ 340.1 $ 11.0 $ 2,074.9 $ (859.9 ) $ 1,566.1 Cost of revenues - 326.1 1.4 1,510.5 (831.7 ) 1,006.3 Gross profit - 14.0 9.6 564.4 (28.2 ) 559.8 Research and development - 18.2 7.7 168.9 (19.8 ) 175.0 Selling and marketing - 38.0 1.2 66.4 (4.6 ) 101.0 General and administrative - (11.3 ) 0.6 98.7 1.9 89.9 In Process research and development - - - 17.7 - 17.7 Amortization of acquisition related intangible assets - 0.8 - 15.1 - 15.9 Restructuring, asset impairments and other, net - 6.8 - 15.7 - 22.5 Total operating expenses - 52.5 9.5 382.5 (22.5 ) 422.0 Operating income (loss) - (38.5 ) 0.1 181.9 (5.7 ) 137.8 Interest expense, net (13.7 ) (2.4 ) - (7.0 ) - (23.1 ) Other - 0.9 - (1.1 ) - (0.2 ) Loss on debt prepayment - - - - - - Equity in earnings 140.3 170.6 (1.7 ) 0.1 (309.3 ) - Income (loss) before income taxes, and minority interests 126.6 130.6 (1.6 ) 173.9 (315.0 ) 114.5 Income tax provision - 12.8 - (1.3 ) - 11.5 Minority interests - - - - 0.6 0.6 Net income (loss) $ 126.6 $ 143.4 $ (1.6 ) $ 172.6 $ (314.4 ) $ 126.6 Net cash provided by operating activities $ - $ 101.7 $ 0.2 $ 210.7 $ - $ 312.6 Cash flows from investing activities: Purchases of property, plant and equipment - (24.4 ) (0.2 ) (50.3 ) - (74.9 ) Deposits utilized for purchases of property, plant and equipment - - - (0.4 ) - (0.4 ) Purchases of intangible assets - - - - - - Proceeds from sales of available-for-sale securities - - - - - - Purchase of a business - (11.1 ) 172.7 - 161.6 Proceeds from sales of property, plant and equipment - 38.6 - 0.3 - 38.9 Net cash used in investing activities - 3.1 (0.2 ) 122.3 - 125.2 Cash flows from financing activities: Intercompany loans - (591.5 ) - 591.5 - - Intercompany loan repayments - 589.7 - (589.7 ) - - Proceeds from debt issuance - - - 63.6 - 63.6 Proceeds from issuance of common stock under the employee stock purchase plan - 2.1 - - - 2.1 Proceeds from exercise of stock options - 15.2 - - - 15.2 Repurchase of Treasury Stock - (1.7 ) - - - (1.7 ) Dividends to minority shareholder of consolidated subsidiary - 3.3 - (4.8 ) - (1.5 ) Equity injections from parent - - 3.3 - - 3.3 Subsidiary declared dividend - - (3.3 ) - - (3.3 ) Proceeds from issuance of common stock, net of issuance costs - - - - - - Payment of capital lease obligation - (17.3 ) - (2.4 ) - (19.7 ) Payment of debt issuance costs - - - - - - Repayment of long term debt - (0.8 ) - (348.5 ) - (349.3 ) Net cash provided by (used in) financing activities - (1.0 ) - (290.3 ) - (291.3 ) Effect of exchange rate changes on cash and cash equivalents - - - (3.2 ) - (3.2 ) Net increase (decrease) in cash and cash equivalents - 103.8 - 39.5 - 143.3 Cash and cash equivalents, beginning of period - 192.1 - 82.5 - 274.6 Cash and cash equivalents, end of period $ - $ 295.9 $ - $ 122.0 $ - $ 417.9 Issuer Guarantor ON Semiconductor Other Non-Guarantor Corporation (1) SCI LLC Subsidiaries Subsidiaries Eliminations Total For the nine months ended September 28, 2007 Revenues $ - $ 402.4 $ 11.7 $ 1,436.2 $ (692.0 ) $ 1,158.3 Cost of revenues - 345.2 1.3 1,064.4 (690.8 ) 720.1 Gross profit - 57.2 10.4 371.8 (1.2 ) 438.2 Research and development - 21.7 9.1 66.8 - 97.6 Selling and marketing - 37.5 0.9 32.2 - 70.6 General and administrative - 145.8 (150.0 ) 64.8 - 60.6 Restructuring, asset impairments and other, net - 2.0 - - - 2.0 Total operating expenses - 207.0 (140.0 ) 163.8 - 230.8 Operating income (loss) - (149.8 ) 150.4 208.0 (1.2 ) 207.4 Interest expense, net (13.7 ) (0.1 ) (2.1 ) (4.0 ) - (19.9 ) Other - (0.6 ) - 0.3 - (0.3 ) Loss on dept prepayment - (0.1 ) - - - (0.1 ) Equity in earnings 194.8 337.7 3.8 - (536.3 ) - Income (loss) before income taxes, and minority interests 181.1 187.1 152.1 204.3 (537.5 ) 187.1 Income tax provision - 4.0 - (8.4 ) - (4.4 ) Minority interests - - - - (1.6 ) (1.6 ) Net income (loss) $ 181.1 $ 191.1 $ 152.1 $ 195.9 $ (539.1 ) $ 181.1 Net cash provided by (used in) operating activities $ - $ (69.7 ) $ 179.6 $ 107.0 $ - $ 216.9 Cash flows from investing activities: Purchases of property, plant and equipment - (32.0 ) - (78.4 ) - (110.4 ) Deposits utilized for purchases of property, plant and equipment - - - 1.1 - 1.1 Investment in non-marketable securities - (1.5 ) - - (1.5 ) Proceeds from sales of available-for-sale securities - - - - - - Proceeds from sales of property, plant and equipment - 0.4 - 10.2 - 10.6 Net cash provided by (used in) investing activities - (33.1 ) - (67.1 ) - (100.2 ) Cash flows from financing activities: Intercompany loans - (479.7 ) - 479.7 - - Intercompany loan repayments - 688.1 (179.6 ) (508.5 ) - - Proceeds from debt issuance - 0.5 - - - 0.5 Proceeds from issuance of common stock under the employee stock purchase plan - 3.5 - - - 3.5 Proceeds from exercise of stock options and warrants - 40.1 - - - 40.1 Repurchase of treasury stock - (55.2 ) - - - (55.2 ) Dividends to minority shareholder of consolidated subsidiary - 8.4 - (12.5 ) - (4.1 ) Equity injections from parent - - 8.4 - - 8.4 Subsidiary declared dividend - - (8.4 ) - - (8.4 ) Proceeds from issuance of common stock, net of issuance costs - - - - - Payment of capital lease obligation - (9.6 ) - (1.0 ) - (10.6 ) Payment of debt issuance costs - (0.4 ) - - - (0.4 ) Repayment of long term debt - (24.9 ) - (7.4 ) - (32.3 ) Net cash provided by (used in) financing activities - 170.8 (179.6 ) (49.7 ) - (58.5 ) Effect of exchange rate changes on cash and cash equivalents - - - 0.1 - 0.1 Net increase (decrease) in cash and cash equivalents - 68.0 - (9.7 ) - 58.3 Cash and cash equivalents, beginning of period - 186.7 - 82.1 - 268.8 Cash and cash equivalents, end of period $ - $ 254.7 $ - $ 72.4 $ - $ 327.1 (1) The Company is a holding company and has no operations apart from those of its operating subsidiaries. Additionally, the Company does not maintain a bank account; rather SCI LLC, its primary operating subsidiary, processes all cash receipts and disbursements on its behalf. Note 7: Common Stock and Treasury Stock Income per share calculations for the quarters and nine months ended September 26, 2008 and September 28, 2007, is as follows (in millions, except per share data): Quarter Ended Nine Months Ended September 26, September 28, September 26, September 28, 2008 2007 2008 2007 Net income $ 61.2 $ 63.8 $ 126.6 $ 181.1 Diluted net income applicable to common stock $ 61.2 $ 63.8 $ 126.6 $ 181.1 Basic weighted average common shares outstanding 398.9 290.6 368.3 290.3 Add: Incremental shares for : Dilutive effect of equity based compensation 5.9 7.8 4.5 7.9 1.875% convertible senior subordinated notes - 6.0 - 6.0 2.625% convertible senior subordinated notes - 7.6 - 7.6 Convertible zero coupon senior subordinated notes - 5.8 - 5.8 Diluted weighted average common shares outstanding 404.8 317.8 372.8 317.6 Income per common share Basic: $ 0.15 $ 0.22 $ 0.34 $ 0.62 Diluted: $ 0.15 $ 0.20 $ 0.34 $ 0.57 Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. The number of incremental shares from the assumed exercise of stock options is calculated by applying the treasury stock method. Common shares relating to the employee stock options where the exercise price exceeded the average market price of the Company's common shares or the assumed exercise would have been anti-dilutive during these periods were also excluded from the diluted earnings per share calculation. The excluded option shares were 15.0 million and 6.9 million for the quarters ended September 26, 2008 and September 28, 2007, respectively and 18.4 million and 6.8 million for the nine months ended September 26, 2008, and September 28, 2007, respectively. Additionally, warrants held by non-employees to purchase 5.3 million shares of the Company's common stock, which were obtained from the AMIS acquisition, were outstanding as of September 26, 2008, but were not included in the computation of diluted net income per share as the effect would have been anti-dilutive under the treasury stock method. For the quarter and nine months ended September 26, 2008, the assumed conversion of the zero coupon convertible senior subordinated notes due 2024 was also excluded in determining diluted earnings per share as the impact would have been anti-dilutive. The zero coupon convertible senior subordinated notes are convertible into cash up to the par value of $260.0 million, based on a conversion price of $9.82 per share. The excess of fair value over par value is convertible into stock. As of September 26, 2008, the Company's common stock traded below $9.82 per share; thus, the effects of an assumed conversion would have been anti-dilutive and was therefore excluded. For the quarter and nine months ended September 26, 2008, the assumed conversion of the 2.625% convertible senior subordinated notes was also excluded in determining diluted earnings per share. The 2.625% convertible senior subordinated notes are convertible into cash up to the par value of $484.0 million, based on an initial conversion price of approximately $10.50 per share. The excess of fair value over par value is convertible into stock. As of September 26, 2008, the Company's common stock traded below $10.50 per share; thus, the effects of an assumed conversion would have been anti-dilutive and was therefore excluded. For the quarter and nine months ended September 26, 2008, the assumed conversion of the 1.875% convertible senior subordinated notes was also excluded in determining diluted earnings per share. The 1.875% convertible senior subordinated notes are convertible into cash up to the par value of $95.0 million, based on an initial conversion price of approximately $7.00 per share. The excess of fair value over par value is convertible into stock. As of September 26, 2008, the Company's common stock traded at $7.02 per share; however, the effects of an assumed conversion were immaterial and was therefore excluded. See Note 10: "Recent Accounting Pronouncements," for discussion of FASB Staff Position No. APB 14-1 ("FSP"), which when adopted in fiscal years after December 15, 2008 will impact the accounting for the Company's zero coupon convertible senior subordinated notes due 2024, the 2.625% convertible senior subordinated notes and the 1.875% convertible senior subordinated notes. Treasury Stock is recorded at cost and is presented as a reduction of stockholders' equity in the accompanying consolidated financial statements. None of these shares had been reissued or retired as of September 26, 2008, but may be reissued or retired by the Company at a later date. Note 8: Employee Stock Benefit Plans There was an aggregate of 25.9 million and 21.0 million shares of common stock available for grant under the Company's stock option plans at September 26, 2008 and December 31, 2007, respectively. During the quarter ended March 28, 2008, 5.0 million shares were added to the shares available for issuance under the Company's stock plans pursuant to the acquisition of AMIS. Stock Options The fair value of each option grant is estimated on the date of grant using a lattice-based option valuation model. The volatility input is developed using implied volatility. The expected term of options represents the period of time that the options are expected to be outstanding. The expected term disclosed below is computed using the lattice model's estimated fair value as an input to the Black-Scholes formula and solving for expected term. The risk-free rate is based on zero-coupon U.S. Treasury yields in effect at the date of grant with the same period as the expected term. The weighted-average estimated fair value of stock options granted during the quarters and nine months ended September 26, 2008 and September 28, 2007 was $4.57 and $4.88 per share, and $3.34 and $3.70 per share, respectively. The weighted-average assumptions associated with the stock options granted during the period are as follows: Quarter Ended Quarter Ended September 26, September 28, 2008 2007 Volatility 53.6% 46.1% Risk-free interest rate 2.9% 4.4% Expected term 5.2 years 4.2 years Nine Months Ended Nine Months Ended September 26, September 28, 2008 2007 Volatility 54.9% 41.1% Risk-free interest rate 2.8% 4.5% Expected term 5.2 years 4.2 years Pre-vesting forfeitures were estimated to be approximately 13% for both the quarter and the nine months ended September 26, 2008 and 12% for the quarter and nine months ended September 28, 2007, based on historical experience. A summary of stock option transactions for all stock option plans follows (in millions, except per share and term data): Nine Months Ended September 26, 2008 Weighted- Aggregate Weighted- Average Intrinsic Average Remaining Value Number of Exercise Contractual (In-The- Shares Price Term (in years) Money) Outstanding at December 31, 2007 21.5 $ 7.08 Granted 7.3 $ 6.64 Assumed in AMIS transaction 9.4 $ 9.14 Exercised (2.6 ) $ 5.86 Cancelled (2.5 ) $ 9.48 Outstanding at September 26, 2008 33.1 $ 7.67 6.5 $ 28.8 Exercisable at September 26, 2008 16.3 $ 7.92 4.7 $ 18.8 Additional information about stock options outstanding at September 26, 2008 with exercise prices less than or above $7.02 per share, the closing price at September 26, 2008, follows (number of shares in millions): Exercisable Unexercisable Total Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Exercise Prices Shares Price Shares Price Shares Price Less than $7.02 9.0 $ 4.92 9.6 $ 5.98 18.6 $ 5.47 Above $7.02 7.3 $ 11.60 7.2 $ 9.36 14.5 $ 10.49 Total outstanding 16.3 $ 7.92 16.8 $ 7.43 33.1 $ 7.67 Restricted Stock Units and Awards Restricted stock units that vest over two to four years with service-based requirements, as well as restricted stock units that vest based on performance-based requirements are payable in shares of the Company's stock upon vesting. The following table presents a summary of the status of the Company's restricted stock units granted to certain officers, directors, and employees of the Company as of September 26, 2008, and changes during the nine months ended September 26, 2008, follows (number of shares in millions): Nine Months Ended September 26, 2008 Weighted- Average Grant Number of Date Fair Shares Value Nonvested shares of restricted stock units at December 31, 2007 1.5 $ 10.55 Granted 2.2 $ 8.72 Assumed in AMIS transaction 1.1 $ 5.22 Released (0.7 ) $ 7.49 Forfeited (0.1 ) $ 5.84 Nonvested shares of restricted stock units at September 26, 2008 4.0 $ 8.85 During the nine months ending September 26, 2008, the Company granted 0.1 million in restricted stock awards with a weighted average grant date fair value of $6.03 per share to members of the Board of Directors. The awards vested and were issued immediately upon the effective date of the grant. Employee Stock Purchase Plans As of September 26, 2008, there were 1.8 million shares available for issuance under the Employee Stock Purchase Plan. The Company continues to use the Black-Scholes option-pricing model to calculate the fair value of shares issued under the 2000 Employee Stock Purchase Plan. The weighted-average fair value of shares issued under the Employee Stock Purchase Plan during the quarters and nine months ended September 26, 2008 and September 28, 2007 was $2.60 per share and $2.35 per share, and $2.36 per share and $2.08 per share, respectively. The weighted-average assumptions used in the pricing model are as follows: Quarter Ended Nine Months Ended September 26, September 28, September 26, September 28, Employee Stock Purchase Plan 2008 2007 2008 2007 Expected life (in years) 0.25 0.25 0.25 0.25 Risk-free interest rate 1.9 % 4.7 % 2.1 % 4.8 % Volatility 59.0 % 33.0 % 58.0 % 40.0 % Share-Based Compensation Expense Total share-based compensation expense, related to the Company's stock options, restricted stock units and employee stock purchase plan, recognized for the quarters and nine months ended September 26, 2008 and September 28, 2007 was comprised as follows (in millions, except per share data): Quarter Ended Nine Months Ended September 26, September 28, September 26, September 28, 2008 2007 2008 2007 Cost of revenues $ 3.6 $ 1.2 $ 7.3 $ 3.3 Research and development 2.0 0.8 4.2 2.0 Selling and marketing 2.0 0.7 4.2 1.9 General and administrative 3.8 1.4 10.7 3.7 Share-based compensation expense before income taxes 11.4 4.1 26.4 10.9 Related income tax benefits (1) - - - - Share-based compensation expense, net of taxes $ 11.4 $ 4.1 $ 26.4 $ 10.9 (1) Most of the Company's share-based compensation relates to its domestic subsidiaries which have historically experienced recurring net operating losses; therefore, no related income tax benefits are expected. At September 26, 2008, total unrecognized estimated compensation cost net of estimated forfeitures related to non-vested stock options and non-vested restricted stock units granted prior to that date was $30.9 million and $19.7 million, respectively. The total intrinsic value of stock options exercised during the quarter and nine months ended September 26, 2008 was $4.4 million and $8.6 million, respectively. The Company recorded cash received from the exercise of stock options of $5.2 million and $15.1 million and recorded no related tax benefits during the quarter and nine months ended September 26, 2008, respectively. Note 9: Commitments and Contingencies Leases The following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of September 26, 2008 (in millions): Remainder of 2008 (1) $ 6.1 2009 21.9 2010 16.4 2011 13.1 2012 10.4 Thereafter 20.1 Total $ 88.0 (1) Minimum payments have not been reduced by minimum sublease rentals of $0.6 million due in the future under subleases. Minimum payments include the interest portion of payments for capital lease obligations. Other Contingencies The Company's headquarters and manufacturing facility in Phoenix, Arizona is located on property that is a "Superfund" site, a property listed on the National Priorities List and subject to clean-up activities under the Comprehensive Environmental Response, Compensation, and Liability Act. Motorola is actively involved in the cleanup of on-site solvent contaminated soil and groundwater and off-site contaminated groundwater pursuant to consent decrees with the State of Arizona. As part of the recapitalization, Motorola has retained responsibility for this contamination, and has agreed to indemnify the Company with respect to remediation costs and other costs or liabilities related to this matter. Manufacturing facilities in Slovakia and in the Czech Republic have ongoing remediation projects to respond to releases of hazardous substances that occurred during the years that these facilities were operated by government-owned entities. In each case, these remediation projects consist primarily of monitoring groundwater wells located on-site and off-site with additional action plans developed to respond in the event activity levels are exceeded at each of the respective locations. The governments of the Czech Republic and Slovakia have agreed to indemnify the Company and the respective subsidiaries, subject to specified limitations, for remediation costs associated with this historical contamination. Based upon the information available, total future remediation costs to the Company are not expected to be material. The Company's design center in East Greenwich, Rhode Island has adjoining property that has localized soil contamination. In connection with the purchase of the facility, the Company entered into a Settlement Agreement and Covenant Not to Sue with the State of Rhode Island. This agreement requires that remedial actions be undertaken and a quarterly groundwater monitoring program be initiated by the former owners of the property. Based on the information available, any costs to the Company in connection with this matter are not expected to be material. As a result of the acquisition of AMIS, the Company is a "primary responsible party" to an environmental remediation and cleanup at AMIS's former corporate headquarters in Santa Clara, California. Costs incurred by AMIS include implementation of the clean-up plan, operations and maintenance of remediation systems, and other project management costs. However, AMIS's former parent company, a subsidiary of Nippon Mining contractually agreed to indemnify AMIS and the Company for any obligation relating to environmental remediation and cleanup at this location. In accordance with Statement of Position (SOP) No. 96-1, "Environmental Remediation Liabilities," the Company has not offset the receivable from Nippon Mining's subsidiary against the estimated liability on the consolidated balance sheets. Therefore, a receivable from Nippon Mining's subsidiary is recorded on the accompanying consolidated balance sheets as of September 26, 2008 related to this matter. The Company does not believe that the liability and receivable amounts are material to the Company's consolidated financial position, results of operations or cash flow. Indemnification Contingencies The Company is a party to a variety of agreements entered into in the ordinary course of business pursuant to which it may be obligated to indemnify the other parties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by the Company require it to indemnify the other party against losses due to intellectual property infringement, property damage including environmental contamination, personal injury, failure to comply with applicable laws, the Company's negligence or willful misconduct, or breach of representations and warranties and covenants related to such matters as title to sold assets. The Company is a party to various agreements with Motorola which were entered into in connection with the Company's separation from Motorola. Pursuant to these agreements, the Company has agreed to indemnify Motorola for losses due to, for example, breach of representations and warranties and covenants, damages arising from assumed liabilities or relating to allocated assets, and for specified environmental matters. The Company's obligations under these agreements may be limited in terms of time and/or amount and payment by the Company is conditioned on Motorola making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge Motorola's claims. The Company faces risk of exposure to warranty and product liability claims in the event that its products fail to perform as expected or such failure of its products results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of the Company's designed products are alleged to be defective, the Company may be required to participate in their recall. Depending on the significance of any particular customer and other relevant factors, the Company may agree to provide more favorable indemnity rights to such customers for valid warranty claims. In connection with the acquisition of the LSI's Gresham, Oregon wafer fabrication facility, and ADI's PTC Business, we entered into various agreements with LSI and ADI, respectively. Pursuant to certain of these agreements, we agreed to indemnify LSI and ADI, respectively, for certain things limited in most instances by time and/or monetary amounts. The Company and its subsidiaries provide for indemnification of directors, officers and other persons in accordance with limited liability agreements, certificates of incorporation, by-laws, articles of association or similar organizational documents, as the case may be. The Company maintains directors' and officers' insurance, which should enable it to recover a portion of any future amounts paid. In addition to the above, from time to time the Company provides standard representations and warranties to counterparties in contracts in connection with sales of its securities and the engagement of financial advisors and also provides indemnities that protect the counterparties to these contracts in the event they suffer damages as a result of a breach of such representations and warranties or in certain other circumstances relating to the sale of securities or their engagement by the Company. While the Company's future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature of the Company's obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under any of these indemnities have not had a material effect on the Company's business, financial condition, results of operations or cash flows. Additionally, the Company does not believe that any amounts that it may be required to pay under these indemnities in the future will be material to the Company's business, financial position, results of operations or cash flows. Legal Matters The Company currently is involved in a variety of legal matters that arise in the normal course of business. Based on information currently available, management does not believe that the ultimate resolution of these matters, including the matters described or referred to in the next paragraphs will have a material effect on the Company's financial condition, results of operations or cash flows. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company's business, consolidated financial position, results of operations or cash flows could be materially and adversely affected. Securities Class Action Litigation During the period July 5, 2001 through July 27, 2001, the Company was named as a defendant in three shareholder class action lawsuits that were filed in federal court in New York City against the Company and certain of the Company's former officers, current and former directors and the underwriters for the Company's initial public offering. The lawsuits allege violations of the federal securities laws and have been docketed in the U.S. District Court for the Southern District of New York as: Abrams v. ON Semiconductor Corp., et al., C.A. No 01-CV-6114; Breuer v. ON Semiconductor Corp., et al., C.A. No. 01-CV-6287; and Cohen v. ON Semiconductor Corp., et al., C.A. No. 01-CV-6942 ("District Court"). On April 19, 2002, the plaintiffs filed a single consolidated amended complaint that supersedes the individual complaints originally filed. The amended complaint alleges, among other things, that the underwriters of the Company's initial public offering improperly required their customers to pay the underwriters' excessive commissions and to agree to buy additional shares of the Company's common stock in the aftermarket as conditions of receiving shares in the Company's initial public offering. The amended complaint further alleges that these supposed practices of the underwriters should have been disclosed in the Company's initial public offering prospectus and registration statement. The amended complaint alleges violations of both the registration and antifraud provisions of the federal securities laws and seeks unspecified damages. The Company understands that various other plaintiffs have filed substantially similar class action cases against approximately 300 other publicly-traded companies and their public offering underwriters in New York City, which have all been transferred, along with the case against the Company, to a single federal district court judge for purposes of coordinated case management. The Company believes that the claims against it are without merit and have defended, and intend to continue to defend, the litigation vigorously. The litigation process is inherently uncertain, however, and the Company cannot guarantee that the outcome of these claims will be favorable for the Company. On July 15, 2002, together with the other issuer defendants, the Company filed a collective motion to dismiss the consolidated, amended complaints against the issuers on various legal grounds common to all or most of the issuer defendants. The underwriters also filed separate motions to dismiss the claims against them. In addition, the parties have stipulated to the voluntary dismissal without prejudice of the Company's individual former officers and current and former directors who were named as defendants in the Company's litigation, and they are no longer parties to the litigation. On February 19, 2003, the District Court issued its ruling on the motions to dismiss filed by the underwriter and issuer defendants. In that ruling the District Court granted in part and denied in part those motions. As to the claims brought against the Company under the antifraud provisions of the securities laws, the District Court dismissed all of these claims with prejudice, and refused to allow plaintiffs the opportunity to re-plead these claims. As to the claims brought under the registration provisions of the securities laws, which do not require that intent to defraud be pleaded, the District Court denied the motion to dismiss these claims as to the Company and as to substantially all of the other issuer defendants as well. The District Court also denied the underwriter defendants' motion to dismiss in all respects. In June 2003, upon the determination of a special independent committee of the Company's Board of Directors, the Company elected to participate in a proposed settlement with the plaintiffs in this litigation. Had it been approved by the District Court, this proposed settlement would have resulted in the dismissal, with prejudice, of all claims in the litigation against the Company and against any of the other issuer defendants who elected to participate in the proposed settlement, together with the current or former officers and directors of participating issuers who were named as individual defendants. This proposed settlement was conditioned on, among other things, a ruling by the District Court that the claims against the Company and against the other issuers who had agreed to the settlement would be certified for class action treatment for purposes of the proposed settlement, such that all investors included in the proposed classes in these cases would be bound by the terms of the settlement unless an investor opted to be excluded from the settlement in a timely and appropriate fashion. On December 5, 2006, the U.S. Court of Appeals for the Second Circuit ("Court of Appeals") issued a decision in In re Initial Public Offering Securities Litigation that six purported class action lawsuits containing allegations substantially similar to those asserted against the Company could not be certified as class actions due, in part, to the Court of Appeals' determination that individual issues of reliance and knowledge would predominate over issues common to the proposed classes. On January 8, 2007, the plaintiffs filed a petition seeking rehearing en banc of this ruling. On April 6, 2007, the Court of Appeals denied the plaintiffs' petition for rehearing of the Court of Appeals' December 5, 2006 ruling. The Court of Appeals, however, noted that the plaintiffs remained free to ask the District Court to certify classes different from the ones originally proposed which might meet the standards for class certification that the Court of Appeals articulated in its December 5, 2006 decision. The plaintiffs have since moved for certification of different classes in the District Court. In light of the Court of Appeals' December 5, 2006 decision regarding certification of the plaintiffs' claims, the District Court entered an order on June 25, 2007 terminating the proposed settlement between the plaintiffs and the issuers, including the Company. Because any possible future settlement with the plaintiffs, if a settlement were ever to be negotiated and ultimately agreed to, would involve the certification of a class action for settlement purposes, the impact of the Court of Appeals' rulings on the possible future settlement of the claims against the Company cannot now be predicted. On August 14, 2007, the plaintiffs filed amended complaints in the six focus cases. The issuer defendants and the underwriter defendants separately moved to dismiss the claims against them in the amended complaints in the six focus cases. On March 26, 2008, the District Court issued an order in which it denied in substantial part the motions to dismiss the amended complaints in the six focus cases. In addition, on October 1, 2007, the plaintiffs submitted their briefing in support of their motions to certify different classes in the six focus cases. The issuer defendants and the underwriter defendants filed separate oppositions to those motions on December 21, 2007. The plaintiffs have voluntarily withdrawn their motions for class certification in the six focus cases without prejudice. The Company intends to continue to defend the litigation vigorously. While the Company can make no assurances or guarantees as to the outcome of these proceedings, the Company believes that the final result of this action will have no material effect on the Company's consolidated financial position, results of operations or cash flows. Intellectual Property Matters The Company faces risk to exposure from claims of infringement of the intellectual property rights of others. In the ordinary course of business, the Company receives letters asserting that the Company's products or components breach another party's rights. These threats may seek that the Company make royalty payments, that the Company stop use of such rights, or other remedies. The Company was in binding arbitration on one such claim under an existing license agreement. The arbitration hearing occurred late last year and the panel issued an Interim Reasoned Award on March 20, 2008, containing a final decision and ruling that none of the Company's accused products infringed the asserted patent. Per the terms of the license agreement, this decision is binding and non-appealable. However, on April 10, 2008, the other party filed a motion with the panel to reconsider its decision on the merits, which the Company has opposed as being impermissible and procedurally improper. On May 1, 2008, the panel issued its decision and order denying the other party's motion to reconsider the Interim Reasoned Award. On May 19, 2008, the Company filed a motion to recover its costs, arbitrators' fees, and attorneys' fees. On July 11, 2008, the panel issued a decision in favor of the Company and ordered the other party to pay substantially all of the Company's costs and fees. On June 20, 2008, the other party filed petitions to vacate in part the panel's Interim Reasoned Award. One petition was filed in Arizona State Court and the other petition was filed in Arizona Federal District Court. On August 15, 2008, the Company filed a counter-petition in state court to confirm the panel's July 11, 2008 ruling. On August 29, 2008, the other party filed an amended petition in state court to stay all proceedings there pending the federal court's decision on jurisdiction, which petition was subsequently granted on October 16, 2008. The other party will have five days from the date the federal judge rules on this issue to either dismiss its amended petition in state court or notify the court that it should proceed with the case. If the federal court does not rule on the jurisdictional issue by December 17, 2008, the state court has scheduled a status conference on that date. The Company believes both petitions filed by the other party are without merit and intends to challenge them vigorously. While the Company can make no assurances or guarantees as to the outcome of these proceedings, the Company believes that the final result of this action will have no material effect on its consolidated financial position, results of operations or cash flows. On April 18, 2008, LSI Logic Corporation ("LSI") and Agere Systems Inc. ("Agere") (which was acquired by LSI in 2007) filed a new patent infringement action with the U.S. International Trade Commission naming 18 semiconductor companies including the Company. LSI and Agere also filed a parallel patent infringement lawsuit against the same companies in the Federal District Court in the Eastern District of Texas. LSI and Agere are seeking an injunction and damages in an unspecified amount relating to such alleged infringement. The patent relates to semiconductor wafer processing. The Company believes that it is already licensed to the asserted patent through pre-existing patent license agreements with LSI and Agere, and that these licenses cover all of the Company's relevant wafer operations. The Company is attempting to resolve the matter informally with LSI and Agere, but if that is not successful, the Company intends to defend the litigation vigorously. While the Company can make no assurances or guarantees as to the outcome of these proceedings, the Company believes that the final result of this action will have no material effect on the Company's consolidated financial position, results of operations or cash flows. Prior to the acquisition of AMIS by the Company on March 17, 2008, on July 19, 2007, AMIS was served with an amended complaint filed against its operating company, AMI Semiconductor, Inc., and its Belgian subsidiary, AMI Semiconductor Belgium B.V.B.A., by PowerDsine, Inc., and PowerDsine, Ltd., subsidiaries of MicroSemi Corporation, in the United States District Court for the Southern District of New York related to AMIS's recently announced power-over-Ethernet ("PoE") products. The complaint alleges that AMIS breached the terms of a nondisclosure agreement between PowerDsine and AMIS Belgian subsidiary by using PowerDsine's confidential information to develop AMIS's PoE products and that AMIS interfered with an employment contract they had with a former employee who left PowerDsine and came to work for AMIS. This second claim was later dismissed by PowerDsine on August 10, 2007. In the complaint, PowerDsine seeks injunctive relief and damages in excess of $150.0 million. AMIS has denied PowerDsine's claims and has filed counterclaims against PowerDsine and Microsemi. Discovery in the case is nearing completion. The Company believes that PowerDsine's asserted claims are without merit and that resolution of this matter will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. Prior to the acquisition of AMIS by the Company on March 17, 2008, in January 2003, Ricoh Company, Ltd. ("Ricoh") filed in the U.S. District Court for the District of Delaware a complaint against AMIS and other parties alleging infringement of a patent owned by Ricoh. The case has been transferred to the U.S. District Court for the Northern District of California. Ricoh is seeking an injunction and damages in an unspecified amount relating to such alleged infringement. The patents relate to certain methodologies for the automated design of custom semiconductors. The case was scheduled to go to trial in March 2007; however, in December 2006, the court issued an order staying the case pending a re-examination proceeding filed by Synopsys, Inc. ("Synopsys") before the U.S. Patent & Trademark Office ("PTO") challenging the validity of the patent claims at issue in this case. Since that time, Synopsis has filed a total of three re-examination petitions with the PTO challenging the validity of the claims at issue. The PTO granted all three petitions and consolidated all three re-examinations into one proceeding. The PTO issued a final rejection of all claims over prior art on September 24, 2008, and Ricoh has several months to respond. On April 17, 2008 the court lifted the stay order despite the ongoing reexamination proceedings by the PTO and held a scheduling conference in September 2008. The court is expected to complete a technology tutorial and hear summary judgment arguments in December 2008. The Company believes that the asserted claims are without merit, and even if meritorious, that the Company will be indemnified against damages by Synopsys, and that resolution of this matter will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. Note 10: Recent Accounting Pronouncements In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from current practice resulting from SFAS 141(R) include the expansion of the definitions of a "business" and a "business combination." For all business combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. SFAS 141(R) also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is not permitted. The Company is currently evaluating the potential impact the adoption of SFAS 141(R) will have on its consolidated financial statements. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that does not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating the impact the adoption of SFAS 160 will have on its consolidated financial statements. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of SFAS 161 are effective for any quarter ending after February 28, 2009. The Company's adoption of SFAS 161 is not expected to impact its consolidated financial statements. In May 2008, the FASB issued SFAS No. 162 "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. The provisions of SFAS 162 are effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles . The Company's adoption of SFAS 162 is not expected to impact its consolidated financial statements. In May 2008, the FASB issued FASB Staff Position No. APB 14-1 ("FSP"). The FSP specifies that issuers of convertible debt instruments that permit or require the issuer to pay cash upon conversion should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The Company will need to apply the guidance retrospectively to all past periods presented, even to instruments that have matured, converted, or otherwise been extinguished as of the effective date. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company has determined the impact of the adoption of APB 14-1 will have a material impact on the results of operations due to higher non-cash interest expense and initially improve the Company's reported financial position as equity will increase and debt will decrease on the Company's zero coupon convertible senior subordinated notes due 2024, the 1.875% convertible senior subordinated notes and the 2.625% convertible senior subordinated notes. In June 2008, the Emerging Issues Task Force ("EITF") issued Issue No. 07-05, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock" ("Issue 07-05"). Issue No. 07-05 addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity's own stock, if an instrument (or an embedded feature) that has the characteristics of a derivative instrument is indexed to an entity's own stock, it is still necessary to evaluate whether it is classified in stockholders' equity (or would be classified in stockholders' equity if it were a freestanding instrument). In addition, for some instruments that are potentially subject to the guidance in EITF Issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" but do not have all the characteristics of a derivative instrument under paragraphs 6 through 9, it is still necessary to evaluate whether it is classified in stockholders' equity. It is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact that Issue 07-05 will have on its consolidated financial statements. Note 11: Subsequent Events Catalyst Acquisition As previously announced on July 17, 2008, the Company and Catalyst entered into a merger agreement on July 16, 2008, under which Catalyst became a wholly-owned subsidiary of the Company. The merger occurred on October 10, 2008, at which time each issued and outstanding share of common stock of Catalyst was converted into the right to receive 0.706 shares of the Company's common stock. This merger consideration had an approximate value of $97.2 million, the average closing price of ON's common stock for the two days prior to, and two days subsequent to when the merger was announced on July 17, 2008. The Company issued approximately 10.9 million shares of its common stock upon closing the merger. Atmel Acquisition On October 1, 2008, the Company and Microchip Technology, Incorporated, ("Mircochip"), sent a proposal to the Board of Directors at Atmel, to acquire Atmel for $5.00 per share in cash. Under this proposal, the acquisition will be led by Microchip and financed in part by the sale of Atmel's nonvolatile memory, radio frequency and automotive businesses to the Company immediately prior to the merger closing. The Company intends to finance the potential purchase using a combination of existing cash resources, borrowings under its existing credit facility and additional financing, as appropriate. This transaction is in its early stages and the completion of it is subject to several contingent events, including but not limited to, the following: approval of transaction by the Atmel Board of Directors and shareholders; the Company's ability to obtain financing; the possibility that the Company and Microchip will be unable to reach agreement on terms of the sale of certain Atmel assets; and approval by certain government regulatory agencies. Note 12: Segment Information The Company is organized into five operating segments, which also represent five reporting segments: automotive and power regulation, computing, digital and consumer, standard products (which includes products that are sold in many different end-markets) and custom and foundry product group. Each of the Company's major product lines has been examined and each product line has been assigned to a segment, as illustrated in the table below, based on the Company's operating strategy. Because many products are sold into different end markets, the total revenue reported for a segment is not indicative of actual sales in the end market associated with that segment, but rather is the sum of the revenue from the product lines assigned to that segment. The Company's manufacturing services and custom products segment includes parts manufactured for other semiconductor companies, principally in the Gresham, Oregon facility as well as custom products from our acquisition of AMIS. These segments represent the Company's view of the business and as such are used to evaluate progress of major initiatives. Custom and Automotive & Digital & Consumer Foundry Power Regulation Computing Products Products Standard Products Product Group AC-DC Conversion Low & Medium Analog Switches Bipolar Power Manufacturing Services MOSFET Analog Automotive Power Switching Filters Thyristor Custom Products DC-DC Conversion Signal & Interface Low Voltage Small Signal Rectifier Zener Auto Power Protection LDO & Vregs High Frequency Standard Logic The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company does not specifically identify and allocate any assets by operating segment. The Company evaluates performance based on gross profit, as well as income or loss from operations before interest, nonrecurring gains and losses, foreign exchange gains and losses, income taxes and certain other unallocated expenses. The Company's wafer manufacturing facilities fabricate integrated circuits for all business units as necessary and their operating costs are reflected in the segments' cost of revenues on the basis of product costs. Because operating segments are generally defined by the products they design and sell, they do not make sales to each other. The Company does not discretely allocate assets to its operating segments, nor does management evaluate operating segments using discrete asset information. From time to time the Company reassesses the alignment of its product families and devices to its operating segments and may move product families or individual devices from one operating segment to another. In addition to the operating segments mentioned above, the Company also operates global operations, sales and marketing, information systems, finance and administration groups that are led by executive or senior vice presidents who report to the Chief Executive Officer. The expenses of these groups are allocated to the operating segments based on specific and general criteria and are included in the operating results reported below. The Company does not allocate income taxes or interest expense to its operating segments as the operating segments are principally evaluated on operating profit before interest and taxes. Additionally, restructuring, asset impairments and other, net and certain other manufacturing and operating expenses, are not allocated to any operating segment. Information about segments for the quarter and nine months ended September 26, 2008 and for the quarter and nine months ended September 28, 2007 is as follows (in millions): Automotive Digital & Custom and & Power Computing Consumer Standard Foundry Regulation Products Products Products Product Group Total Quarter ended September 26, 2008: Revenues from external customers $ 113.8 $ 119.5 $ 54.4 $ 128.1 $ 165.7 $ 581.5 Segment gross profit $ 40.6 $ 45.3 $ 27.8 $ 50.9 $ 65.7 $ 230.3 Segment operating income $ 16.8 $ 19.0 $ 16.0 $ 32.3 $ 11.7 $ 95.8 Quarter ended September 28, 2007: Revenues from external customers $ 113.1 $ 93.8 $ 46.2 $ 128.0 $ 21.8 $ 402.9 Segment gross profit $ 45.1 $ 32.4 $ 25.8 $ 55.6 $ 0.5 $ 159.4 Segment operating income $ 22.2 $ 14.2 $ 14.7 $ 37.0 $ 0.2 $ 88.3 Automotive Digital & Custom and & Power Computing Consumer Standard Foundry Regulation Products Products Products Product Group Total Nine Months ended September 26, 2008: Revenues from external customers $ 333.9 $ 334.9 $ 140.1 $ 375.2 $ 382.0 $ 1,566.1 Segment gross profit $ 126.7 $ 128.1 $ 75.3 $ 154.0 $ 108.6 $ 592.7 Segment operating income (loss) $ 57.6 $ 55.3 $ 39.7 $ 98.6 $ (9.9 ) $ 241.3 Nine months ended September 28, 2007: Revenues from external customers $ 323.0 $ 255.3 $ 131.3 $ 375.1 $ 73.6 $ 1,158.3 Segment gross profit $ 126.9 $ 93.2 $ 70.4 $ 163.4 $ (3.4 ) $ 450.5 Segment operating income (loss) $ 59.1 $ 41.2 $ 37.1 $ 109.2 $ (5.5 ) $ 241.1 Depreciation and amortization expense is included in segment operating income. Reconciliations of segment gross profit and segment operating income to the financial statements are as follows (in millions): Quarter Ended Nine Months Ended September 26, September 28, September 26, September 28, 2008 2007 2008 2007 Gross profit for reportable segments $ 230.3 $ 159.4 $ 592.7 $ 450.5 Unallocated amounts: Other unallocated manufacturing costs (8.7 ) (3.8 ) (32.9 ) (12.3 ) Gross profit $ 221.6 $ 155.6 $ 559.8 $ 438.2 Operating income for reportable segments $ 95.8 $ 88.3 $ 241.3 $ 241.1 Unallocated amounts: Restructuring, asset impairments and other, net (2.5 ) (2.0 ) (22.4 ) (2.0 ) Other unallocated manufacturing costs (8.7 ) (3.8 ) (32.9 ) (12.3 ) Other unallocated operating expenses (11.0 ) (9.3 ) (48.2 ) (19.4 ) Operating income $ 73.6 $ 73.2 $ 137.8 $ 207.4 The Company operates in various geographic locations. Sales to unaffiliated customers have little correlation with the location of manufacturers. The Company conducts a substantial portion of its operations outside of the United States and is subject to risks associated with non-U.S. operations, such as political risks, currency controls and fluctuations, tariffs, import controls and air transportation. Revenues by geographic location and product line, including local sales and exports made by operations within each area, based on shipments from the respective country are summarized as follows (in millions): Quarter Ended September 26, September 28, 2008 2007 United States $ 110.2 $ 90.3 The Other Americas 0.4 0.8 United Kingdom 59.0 57.4 Belgium 50.7 - China 242.4 179.6 Singapore 44.5 38.4 The Other Asia/Pacific 74.3 36.4 $ 581.5 $ 402.9 Nine Months Ended September 26, September 28, 2008 2007 United States $ 347.9 $ 284.3 The Other Americas 1.6 2.1 United Kingdom 172.9 172.1 Belgium 118.7 - China 612.0 474.5 Singapore 121.6 111.3 The Other Asia/Pacific 191.4 114.0 $ 1,566.1 $ 1,158.3 Property, plant and equipment by geographic location is summarized as follows (in millions): September 26, December 31, 2008 2007 China $ 121.6 $ 118.1 United States 191.6 161.0 Belgium 49.0 - Europe 109.9 117.6 Malaysia 109.8 97.5 Japan 66.5 66.4 The Other Asia/Pacific 100.4 52.2 The Other Americas 3.7 2.1 $ 752.5 $ 614.9 For the quarter and nine months ended September 26, 2008, the Company had one customer that accounted for 11% and 10% of the Company's total revenues, respectively. 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