10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended July 2, 2010

Or

 

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

For the transition period from                     to                     

(Commission File Number) 000-30419

 

 

ON SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   36-3840979

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

5005 E. McDowell Road

Phoenix, AZ 85008

(602) 244-6600

(Address and telephone number, including area code, of principal executive offices)

 

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  x    Accelerated filer  ¨
Non-accelerated filer  ¨    Smaller reporting company  ¨
(Do not check if a smaller reporting company)   

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

The number of shares outstanding of the issuer’s class of common stock as of the close of business on July 30, 2010:

 

Title of Each Class

 

Number of Shares

Common Stock, par value $0.01 per share   431,124,817

 

 

 


Table of Contents

INDEX

 

Part I: Financial Information

  

Item 1. Financial Statements

   1

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

   43

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   69

Item 4. Controls and Procedures

   70

Part II: Other Information

  

Item 1. Legal Proceedings

   71

Item 1A. Risk Factors

   74

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

   77

Item 3. Defaults Upon Senior Securities

   77

Item 4. (Removed and Reserved)

   78

Item 5. Other Information

   78

Item 6. Exhibits

   78

Signatures

   79

Exhibit Index

  


Table of Contents

PART I: FINANCIAL INFORMATION

 

Item 1. Financial Statements

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions, except share and per share data)

(unaudited)

 

     July 2,
2010
    December 31,
2009
 

Assets

    

Cash and cash equivalents

   $ 467.1      $ 525.7   

Short-term investments

     —          45.5   

Receivables, net

     317.2        260.9   

Inventories, net

     321.5        269.9   

Other current assets

     50.9        51.5   

Deferred income taxes, net of allowances

     14.6        15.1   
                

Total current assets

     1,171.3        1,168.6   

Restricted cash

     —          5.9   

Property, plant and equipment, net

     784.9        705.5   

Goodwill

     197.3        175.4   

Intangible assets, net

     327.3        298.7   

Other assets

     60.2        60.2   
                

Total assets

   $ 2,541.0      $ 2,414.3   
                

Liabilities, Stockholders' Equity and Minority Interests

    

Accounts payable

   $ 240.1      $ 172.9   

Accrued expenses

     156.9        135.5   

Income taxes payable

     1.8        5.0   

Accrued interest

     0.8        0.9   

Deferred income on sales to distributors

     127.8        98.8   

Current portion of long-term debt

     120.5        205.9   
                

Total current liabilities

     647.9        619.0   

Long-term debt

     632.9        727.6   

Other long-term liabilities

     44.6        49.3   

Deferred income taxes, net of allowances

     16.3        13.8   
                

Total liabilities

     1,341.7        1,409.7   
                

Commitments and contingencies (See Note 10)

    

ON Semiconductor Corporation stockholders’ equity:

    

Common stock ($0.01 par value, 750,000,000 shares authorized, 479,112,259 and 474,427,706 shares issued, 431,046,132 and 427,254,100 shares outstanding, respectively)

     4.8        4.7   

Additional paid-in capital

     2,973.1        2,916.6   

Accumulated other comprehensive loss

     (63.1     (64.9

Accumulated deficit

     (1,362.7     (1,504.4

Less: treasury stock, at cost; 48,066,127 and 47,173,606 shares, respectively

     (374.0     (367.0
                

Total ON Semiconductor Corporation stockholders’ equity

     1,178.1        985.0   

Minority interests in consolidated subsidiaries

     21.2        19.6   
                

Total equity

     1,199.3        1,004.6   
                

Total liabilities and equity

   $ 2,541.0      $ 2,414.3   
                

See accompanying notes to consolidated financial statements

 

1


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)

 

     Quarter Ended     Six Months Ended  
     July 2,
2010
    July 3,
2009
    July 2,
2010
    July 3,
2009
 

Revenues

   $ 583.3      $ 419.8      $ 1,133.5      $ 798.9   

Cost of revenues

     339.5        281.6        661.6        548.6   
                                

Gross profit

     243.8        138.2        471.9        250.3   

Operating expenses:

        

Research and development

     60.1        50.7        125.3        94.3   

Selling and marketing

     36.5        28.4        72.1        57.4   

General and administrative

     35.3        30.0        66.8        57.3   

Amortization of acquisition-related intangible assets

     8.1        7.3        15.9        14.5   

Restructuring, asset impairments and other, net

     2.3        8.1        6.1        17.7   
                                

Total operating expenses

     142.3        124.5        286.2        241.2   
                                

Operating income

     101.5        13.7        185.7        9.1   
                                

Other income (expenses), net:

        

Interest expense

     (14.5     (15.7     (30.9     (33.4

Interest income

     0.1        0.2        0.2        0.6   

Other

     (3.4     (0.5     (6.2     (2.7

Loss on debt repurchase

     (0.7     (0.9     (0.7     (3.1
                                

Other income (expenses), net

     (18.5     (16.9     (37.6     (38.6
                                

Income (loss) before income taxes

     83.0        (3.2     148.1        (29.5

Income tax (provision) benefit

     (3.4     1.0        (4.8     (6.2
                                

Net income (loss)

     79.6        (2.2     143.3        (35.7

Net (income) loss attributable to minority interests

     (0.9     (0.8     (1.6     (1.2
                                

Net income (loss) attributable to ON Semiconductor Corporation

   $ 78.7      $ (3.0   $ 141.7      $ (36.9
                                

Comprehensive income (loss):

        

Net (loss) income

   $ 79.6      $ (2.2   $ 143.3      $ (35.7

Foreign currency translation adjustments

     2.0        0.9        1.8        (14.2

Amortization of prior service costs of defined benefit plan

     —          0.1        —          0.1   

Effects of cash flow hedge

     —          —          —          0.1   
                                

Comprehensive (loss) income

     81.6        (1.2     145.1        (49.7

Comprehensive (income) loss attributable to minority interest

     (0.9     (0.8     (1.6     (1.2
                                

Comprehensive income (loss) attributable to ON Semiconductor Corporation

   $ 80.7      $ (2.0   $ 143.5      $ (50.9
                                

Net income (loss) per common share attributable to ON Semiconductor Corporation:

        

Basic

   $ 0.18      $ (0.01   $ 0.33      $ (0.09
                                

Diluted

   $ 0.18      $ (0.01   $ 0.32      $ (0.09
                                

Weighted average common shares outstanding:

        

Basic

     430.3        420.7        429.2        417.1   
                                

Diluted

     439.6        420.7        439.4        417.1   
                                

See accompanying notes to consolidated financial statements

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(unaudited)

 

     Six Months Ended  
     July 2,
2010
    July 3,
2009
 

Cash flows from operating activities:

    

Net income (loss)

   $ 143.3      $ (35.7

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     80.0        78.7   

(Gain) loss on sale and disposal of fixed assets

     (3.7     (0.4

Non-cash portion of loss on debt repurchase

     0.7        0.7   

Amortization of debt issuance costs and debt discount

     1.4        1.7   

Provision for excess inventories

     0.1        11.6   

Non-cash impairment charges

     —          0.2   

Non-cash stock compensation expense

     29.1        28.8   

Non-cash interest

     17.0        18.3   

Deferred income taxes

     3.4        0.2   

Other

     (0.8     (1.2

Changes in assets and liabilities (exclusive of the impact of acquisitions):

    

Receivables

     (47.0     (64.3

Inventories

     (34.9     54.3   

Other assets

     7.0        12.0   

Accounts payable

     30.6        (5.0

Accrued expenses

     18.1        (1.6

Income taxes payable

     (3.2     2.5   

Accrued interest

     (0.1     (0.2

Deferred income on sales to distributors

     29.0        (11.4

Other long-term liabilities

     (1.6     (2.2
                

Net cash provided by operating activities

     268.4        87.0   
                

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (93.5     (37.0

Deposits utilized (funds deposited) for purchases of property, plant and equipment

     (0.9     0.1   

Purchases of businesses, net of cash acquired

     (90.2     —     

Proceeds from sale of held-to-maturity securities

     45.5        —     
                

Net cash used in investing activities

     (139.1     (36.9
                

Cash flows from financing activities:

    

Proceeds from issuance of common stock under the employee stock purchase plan

     3.3        2.2   

Proceeds from debt issuance

     23.2        7.0   

Proceeds from exercise of stock options

     7.3        4.0   

Payment of capital lease obligation

     (15.3     (15.6

Purchase of treasury stock

     (7.0     (0.9

Repayment of long-term debt

     (199.5     (101.8
                

Net cash used in financing activities

     (188.0     (105.1
                

Effect of exchange rate changes on cash and cash equivalents

     0.1        (0.3
                

Net decreases in cash and cash equivalents

     (58.6     (55.3

Cash and cash equivalents, beginning of period

     525.7        458.7   
                

Cash and cash equivalents, end of period

   $ 467.1      $ 403.4   
                

Supplementary disclosure of non-cash investing and financing activities

    

Common stock issuance for debt repurchase

   $ —        $ 28.5   

See accompanying notes to consolidated financial statements

 

3


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1: Background and Basis of Presentation

ON Semiconductor Corporation, together with its wholly and majority-owned subsidiaries (the “Company”), is a premier supplier of high performance, energy efficient, silicon solutions for green electronics. The Company’s broad portfolio of power and signal management, logic, discrete and custom devices helps customers efficiently solve their design challenges in automotive, communications, computing, consumer, industrial, LED lighting, medical, military/aerospace and power applications.

On January 27, 2010, the Company completed the purchase of California Micro Devices Corporation, a Delaware corporation (“CMD”), whereby CMD became a wholly-owned subsidiary of the Company (See Note 4: “Acquisitions” for further discussion). The Company is separately maintaining CMD’s systems and much of its control environment until the Company is able to integrate CMD’s processes into the Company’s own systems and control environment. The Company currently expects to complete this integration of CMD’s operations into the Company’s systems and control environment by the end of fiscal 2010.

On June 9, 2010, the Company completed the purchase of Sound Design Technologies, Ltd. (“SDT”), whereby SDT became a wholly-owned subsidiary of the Company (see Note 4: “Acquisitions” for further discussion). The Company is separately maintaining SDT’s systems and much of its control environment until the Company is able to integrate SDT’s processes into the Company’s own systems and control environment. The Company currently expects to complete this integration of SDT’s operations into the Company’s systems and control environment by the end of fiscal 2011.

The accompanying unaudited financial statements as of July 2, 2010, and for the three months and six months ended July 2, 2010 and July 3, 2009, 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 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 for the year ended December 31, 2009, included in the Company’s Annual Report on Form 10-K. The results for the interim periods are not necessarily indicative of the results of operations that may be expected for the full year.

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; estimates of future payouts for customer incentives, warranties, and restructuring activities, assumptions surrounding future pension obligations and related trust returns; the fair value of stock options and of financial instruments (including derivative financial instruments); and future cash flows associated with long-lived assets and goodwill impairment charges. Actual results could differ from these estimates.

Note 2: Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the Company’s acquisitions (see Note 4: “Acquisitions” for further discussion).

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Goodwill is evaluated for potential impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred 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.

The Company has determined that its product families, which are components of its operating segments, constitute reporting units for purposes of allocating and testing goodwill, because they are one level below the operating segments, they constitute individual businesses and the Company’s segment management controllers regularly review the operating results of each product family. As of each acquisition date, all goodwill was assigned to the product families that were expected to benefit from the synergies of the respective acquisition. The amount of goodwill assigned to each reporting unit was the difference between the fair value of the reporting unit and the fair value of identifiable assets and liabilities allocated to the reporting unit as of the acquisition date. The Company determined the fair value of a reporting unit using the income approach, which is based on the present value of estimated future cash flows using management’s assumptions and forecasts as of the acquisition date.

 

5


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

A reconciliation of the cost of the goodwill from each of the below acquisition transactions to the carrying value as of July 2, 2010 and December 31, 2009 for each reporting unit that contains goodwill, is as follows, in millions:

 

            Balance as of December 31, 2009   For the Six Months Ended July 2, 2010   Balance as of July 2, 2010

Acquisition

 

Operating

Segment

  Reporting Unit   Goodwill   Accumulated
Amortization
    Accumulated
Impairment
Losses
    Carrying
Value
  Goodwill
Acquired
  Purchase
Price
Adjustments
    Impairment
Losses
  Goodwill   Accumulated
Amortization
    Accumulated
Impairment
Losses
    Carrying
Value
                         
                         

Cherry acquisition:

                     
  Automotive & Power Group:                      
    Analog Automotive   $ 21.8   $ (4.2   $ —        $ 17.6   $ —     $ —        $ —     $ 21.8   $ (4.2   $ —        $ 17.6
  Computing & Consumer Products:                      
    Signal & Interface     29.1     (5.6     —          23.5     —       —          —       29.1     (5.6     —          23.5

Leshan additional interest:

                   
 

Standard Products:

                     
    Small Signal     3.8     —          —          3.8     —       —          —       3.8     —          —          3.8

AMIS acquisition:

                   
 

Digital & Mixed-Signal Product Group:

                     
    Industrial     238.7     —          (214.7     24.0     —       —          —       238.7     —          (214.7     24.0
    Foundry     146.2     —          (131.4     14.8     —       —          —       146.2     —          (131.4     14.8
    Medical     79.7     —          (59.9     19.8     —       —          —       79.7     —          (59.9     19.8
    Military/Aerospace     44.8     —          —          44.8     —       —          —       44.8     —          —          44.8

Catalyst acquisition:

                   
 

Standard Products:

                     
    Memory Products     14.1     —          —          14.1     —       —          —       14.1     —          —          14.1

PulseCore acquisition:

                   
 

Digital & Mixed-Signal Product Group:

                     
    Protection Products     13.0     —          —          13.0     —       (4.1     —       8.9     —          —          8.9

CMD acquisition:

                   
 

Standard Products:

                     
    Filter Products     —       —          —          —       20.3     (0.2     —       20.1     —          —          20.1

SDT acquisition

                   
 

Digital & Mixed-Signal Product Group:

                     
    Medical     —       —          —          —       5.9     —          —       5.9     —          —          5.9
                                                                               
      $ 591.2   $ (9.8   $ (406.0   $ 175.4   $ 26.2   $ (4.3   $ —     $ 613.1   $ (9.8   $ (406.0   $ 197.3
                                                                               

Certain adjustments to goodwill were recorded during the quarter and six months ended July 2, 2010 for the finalization of contingent tax liabilities and receipt of claims on escrow from certain acquisitions.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Intangible Assets

The Company’s acquisitions resulted in intangible assets consisting of values assigned to intellectual property, assembled workforce, customer relationships, non-compete agreements, patents, developed technology, trademarks, acquired software and in-process research and development. These are stated at cost less accumulated amortization and are amortized over their economic useful life ranging from 2 to 18 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 July 2, 2010 and December 31, 2009 (in millions):

 

     July 2, 2010
     Original
Cost
   Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Carrying
Value
   Useful Life
(in Years)

Intellectual property

   $ 13.9    $ (6.2   $ —        $ 7.7    5-12

Assembled workforce

     6.7      (5.4     —          1.3    5

Customer relationships

     250.6      (42.0     (27.2     181.4    5-18

Non-compete agreements

     0.5      (0.4     —          0.1    1-3

Patents

     16.7      (3.5     —          13.2    12

Developed technology

     107.9      (17.5     —          90.4    5-12

Trademarks

     11.0      (1.4     —          9.6    15

In-process research and development

     23.4      —          —          23.4    8

Acquired software

     1.0      (0.8     —          0.2    2
                                

Total intangibles

   $ 431.7    $ (77.2   $ (27.2   $ 327.3   
                                

 

     December 31, 2009
     Original
Cost
   Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Carrying
Value
   Useful Life
(in Years)

Intellectual property

   $ 13.9    $ (5.3   $ —        $ 8.6    5-12

Assembled workforce

     6.7      (4.7     —          2.0    5

Customer relationships

     244.8      (33.2     (27.2     184.4    5-18

Non-compete agreements

     0.5      (0.3     —          0.2    1-3

Patents

     16.7      (2.9     —          13.8    12

Developed technology

     89.4      (12.2     —          77.2    5-12

Trademarks

     11.0      (0.9     —          10.1    15

In-process research and development

     2.0      —          —          2.0    8

Acquired software

     1.0      (0.6     —          0.4    2
                                

Total intangibles

   $ 386.0    $ (60.1   $ (27.2   $ 298.7   
                                

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Amortization expense for intangible assets amounted to $8.7 million and $17.1 million for the quarter and six months ended July 2, 2010, of which $0.6 million and $1.2 million was included in cost of revenues; and $7.8 million and $15.6 million for the quarter and six months ended July 3, 2009, of which $0.5 million and $1.1 million was included in cost of revenues. Amortization expense for intangible assets, with the exception of $23.4 million of in-process research and development assets that will be amortized once the corresponding projects have been completed, is expected to be as follows over the next five years, and thereafter (in millions):

 

    Intellectual
Property
  Assembled
Workforce
  Customer
Relationships
Assets
  Non-compete
Agreements
  Patents   Developed
Technology
  Trademarks   Software   Total

Remainder of 2010

  $ 0.9   $ 0.6   $ 9.0   $ 0.1   $ 0.7   $ 5.4   $ 0.3   $ 0.2   $ 17.2

2011

    1.1     0.7     17.9     —       1.3     10.6     0.8     —       32.4

2012

    0.7     —       17.9     —       1.3     10.6     0.8     —       31.3

2013

    0.7     —       13.2     —       1.3     10.6     0.8     —       26.6

2014

    0.6     —       13.2     —       1.3     10.4     0.8     —       26.3

Thereafter

    3.7     —       110.2     —       7.3     42.8     6.1     —       170.1
                                                     

Total estimated amortization expense

  $ 7.7   $ 1.3   $ 181.4   $ 0.1   $ 13.2   $ 90.4   $ 9.6   $ 0.2   $ 303.9
                                                     

Note 3: New Accounting Pronouncements Adopted

Adoption of Accounting Standards Update No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which amends the disclosure guidance with respect to fair value measurements. Specifically, the new guidance requires disclosure of amounts transferred in and out of Levels 1 and 2 fair value measurements, a reconciliation presented on a gross basis rather than a net basis of activity in Level 3 fair value measurements, greater disaggregation of the assets and liabilities for which fair value measurements are presented and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and 3 fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of the new guidance around the Level 3 activity reconciliations, which is effective for fiscal years beginning after December 15, 2010. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

Note 4: Acquisitions

Acquisition of Sound Design Technologies LTD

On June 9, 2010, the Company completed the purchase of SDT, whereby SDT became a wholly-owned subsidiary of the Company. The Company paid approximately $22.0 million in cash for all outstanding stock, and has recorded a contingent liability of $1.8 million representing the estimated fair value pursuant to its obligations under an earnout agreement if SDT is able to meet certain revenue objectives in 2010 through 2012. The range of potential earn-out payments during the period from 2010 to 2012 is from zero to $10.0 million. SDT is a leading designer and manufacturer of ultra-low-power semiconductor solutions for hearing aids and portable, battery-powered DSP applications, and a leading provider of advanced high density interconnected technologies used in custom minimizing packages. SDT’s advanced manufacturing expertise in chip-scale capacitors and high density packaging will expand the Company’s capabilities in delivering advanced, highly miniaturized packaging technology. SDT’s results of operations have been included in the consolidated financial statements since the date of the acquisition.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

The following table presents the allocation of the purchase price of SDT, to the assets acquired based on their estimated fair values (in millions):

 

Receivables, net

   $ 3.3   

Inventory

     7.8   

Other current assets

     1.0   

Property, plant and equipment

     2.7   

Goodwill

     5.9   

Intangible assets

     2.4   

In-process research and development

     2.8   

Other non-current assets

     2.0   
        

Total assets acquired

     27.9   
        

Accounts payable

   $ (2.2

Other current liabilities

     (1.9
        

Total liabilities assumed

     (4.1
        

Net assets acquired

   $ 23.8   
        

Of the $5.2 million of acquired intangible assets, $2.8 million was assigned to in-process research and development (“IPRD”) assets that will be amortized over the useful life upon successful completion of the projects. 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 9.0% was used in the present value calculations, and was derived from a weighted-average cost of capital analysis, adjusted to reflect the risks inherent in the acquired research and development operations.

The remaining $2.4 million of acquired intangible assets have a weighted-average useful life of approximately 10 years. The intangible assets that make up the amount include: customer relationships of $1.7 million (15.5-year weighted average useful life) and developed technology of $0.7 million (5-year weighted average useful life).

Of the total purchase price of approximately $23.8 million, approximately $5.9 million was 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 were the potential synergies expected to be derived from combining SDT’s design and manufacturing business with the Company’s medical business. The Company expects these relationships to provide the capability of selling advanced technology of next generation products to the market place. Goodwill will not be amortized but instead tested for impairment at least annually (more frequently if certain indicators are present). The $5.9 million of goodwill was assigned to the digital and mixed signal product group, none of which is expected to be deductible for tax purposes.

The initial allocation of 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 the income approach, cost approach or market approach, depending upon which

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

was the most appropriate based on the nature and reliability of the data available. The income approach is predicated upon the value of future cash flows that an asset is expected to generate. The cost approach takes into account the cost to replace (or reproduce) the asset and the effects 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. As of July 2, 2010, management of the Company had not received all information necessary to finalize the allocation of the purchase price. Management expects to complete this during the 2010 fiscal year. Such adjustments are not expected to be material.

The Company has determined that pro forma results of operations for SDT are not significant for inclusion.

Acquisition of California Micro Devices Corporation

On January 27, 2010, the Company completed the purchase of CMD, whereby CMD became a wholly-owned subsidiary of the Company. At the effective time of the merger, the Company purchased all of CMD’s issued and outstanding shares of common stock at a purchase price of $4.70 per share, for a total cash payment of approximately $109.5 million and $3.7 million of estimated fair value of stock options and restricted stock for total consideration of $113.2 million. Total acquisition-related costs were approximately $2.0 million. CMD is primarily engaged in application specific integrated passive (ASIP) devices in the wireless, computing and consumer electronics end-markets. In addition, CMD’s expertise in protection solutions for the high brightness LED (HBLED) market, and its strengths in inductor capacitor-based EMI (electromagnetic interface) filtering and low capacitance ESD (electrostatic discharge) protection, complement the Company’s existing portfolio of protection and lighting solutions.

The following table presents the allocation of the purchase price of CMD, to the assets acquired based on their estimated fair values (in millions):

 

Cash and cash equivalents

   $ 42.8   

Receivables, net

     5.0   

Inventory

     9.0   

Other current assets

     2.0   

Property, plant and equipment

     1.7   

Goodwill

     20.3   

Intangible assets

     21.7   

In-process research and development

     18.6   

Other non-current assets

     0.1   
        

Total assets acquired

     121.2   
        

Accounts payable

     (6.2

Other current liabilities

     (1.6

Long-term accrued liabilities

     (0.2
        

Total liabilities assumed

     (8.0
        

Net assets acquired

   $ 113.2   
        

Of the $40.3 million of acquired intangible assets, $18.6 million was assigned to IPRD assets that will be amortized over the useful life upon successful completion of the projects. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan,

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

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 13.2% 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. Total IPRD is composed of four primary projects, with approximately $1.0 million of costs expected to be incurred until completion. The expected completion date is 2011.

The remaining $21.7 million of acquired intangible assets have a makeup of: (i) developed technology of $17.7 million (8-year weighted-average useful life) and (ii) customer relationships of $4.0 million (10-year weighted average useful life).

Of the total purchase price paid of $113.2 million, approximately $20.3 million in cash was 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. Goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). The $20.3 million of goodwill was assigned to the standard products group, none of which is expected to be deductible for tax purposes.

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 income approach is predicated upon the value of the future cash flows that an asset will generate over its economic life. 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. As of July 2, 2010, management of the Company had not received all information necessary to finalize the allocation of the purchase price. Management expects to complete this during the 2010 fiscal year. Such adjustments are not expected to be material.

The Company has determined that pro forma results of operations for CMD are not significant for inclusion.

Acquisition of AMIS Holdings, Inc. (“AMIS”)

On March 17, 2008, the Company completed the purchase of AMIS, whereby AMIS became a wholly-owned subsidiary of the Company.

The Company had $12.4 million of accrued liabilities for estimated costs to exit certain activities of AMIS, of which $0.7 million were for employee separation costs and $11.7 million were for exit costs outstanding as of December 31, 2009. During the six months ended July 2, 2010, the Company paid employee separation costs related to the involuntary termination or relocation of employees performing overlapping or duplicative functions throughout AMIS by $0.5 million. Additionally, the Company paid exit costs associated with the decommissioning costs resulting from the shutdown of the fabrication facility of $1.1 million.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

The following is a rollforward of the accrued liabilities for estimated costs to exit certain activities of AMIS from December 31, 2009 through July 2, 2010:

 

     December 31,
2009
   Adjustments    Usage     July  2,
2010
          

Estimated employee separation costs:

          

December 31, 2009 through July 2, 2010

   $ 0.7    $ —      $ (0.5   $ 0.2
                            

Estimated costs to exit:

          

December 31, 2009 through July 2, 2010

   $ 11.7    $ —      $ (1.1   $ 10.6
                            

See Note 14: “Subsequent Events” for discussion of the recently announced pending acquisition of SANYO Semiconductor Co., Ltd.

Note 5: Restructuring, Asset Impairments and Other, Net

The activity related to the Company’s restructuring, asset impairments and other, net for programs that were either initiated in 2010 or had not been completed as of December 31, 2009, are as follows (in millions):

Restructuring

Restructuring Activities Related to the 2010 Acquisition of SDT

In June 2010, the Company acquired SDT and announced plans to integrate and restructure the overlapping operations of SDT and the Company, in part for cost savings purposes (see Note 4: “Acquisitions” for further discussion). As part of these plans, certain duplicative positions were or are expected to be eliminated. During the second quarter of 2010, a total of 36 employees, including 3 former executive officers of SDT, were notified that their positions were being eliminated or consolidated. As of July 2, 2010, 35 of these individuals had been terminated. It is anticipated that the remaining terminations will be completed by the end of the third quarter of fiscal 2010.

During the quarter ended July 2, 2010, the Company recorded employee separation charges of approximately $2.0 million related to these terminations. These charges have been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the quarter and six months ended July 2, 2010. All terminations associated with this plan are expected to be completed by the end of the third quarter of fiscal 2010, with the related termination benefits paid out by the end of the third quarter of fiscal 2010.

 

     Balance  at
Beginning
of Period
   Charges    Usage     Adjustments    Balance at
End of
Period
             
             

Cash employee separation charges:

             

Six Months Ended July 2, 2010

   $ —      $ 2.0    $ (0.3   $ —      $ 1.7
                                   

Restructuring Activities Related to the 2010 Acquisition of CMD

Cumulative charges of $2.9 million, net of adjustments have been recognized through July 2, 2010, related to the January 2010 announced plans to integrate and restructure the overlapping operations of CMD and the Company, in part for cost savings purposes (see Note 4: “Acquisitions” for further discussion).

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Cumulative employee separation charges of $2.8 million, net of adjustments have been recognized through July 2, 2010. A total of 14 employees, including five former executive officers of CMD, were notified during the first and second quarters of 2010 that their positions were being eliminated or consolidated, of which 13 of these individuals have been terminated. During the quarter and six months ended July 2, 2010, the Company recorded employee separation charges of approximately $0.2 million and $2.8 million, respectively, related to these terminations. These charges have been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the quarter and six months ended July 2, 2010. All terminations associated with this plan are expected to be completed by the end of the fourth quarter of fiscal 2010, with the related termination benefits paid out by the end of the first quarter of fiscal 2012.

Cumulative exit costs of $0.1 million have been recognized through July 2, 2010, related to charges incurred to terminate certain lease agreements. During the quarter and six months ended July 2, 2010, the Company recognized $0.1 million in charges on the statement of operations related to this activity. All payments related to these exit activities are expected to be completed by the end of the third quarter of fiscal 2011.

 

     Balance  at
Beginning
of Period
   Charges    Usage     Adjustments    Balance at
End of
Period
             
             

Cash employee separation charges:

             

Six Months Ended July 2, 2010

   $ —      $ 2.8    $ (1.1   $ —      $ 1.7
                                   

Exit Costs:

             

Six Months Ended July 2, 2010

   $ —      $ 0.1    $ —        $ —      $ 0.1
                                   

Restructuring Activities Related to the 2009 Design Centers Closures

Cumulative charges of $1.5 million, net of adjustments, have been recognized through July 2, 2010, related to the 2009 Design Center closures. During the third quarter of 2009, the Company announced plans to consolidate into fewer product development centers for cost savings purposes by closing several design centers. A total of 47 employees were notified during the third quarter of 2009 that their positions with the Company were being terminated. Additionally, during the quarter and six months ended July 2, 2010, 16 employees were notified that their positions with the Company were being eliminated or consolidated, of which six have been terminated. During the quarter and six months ended July 2, 2010, the Company recorded employee separation charges of $0.2 million and $0.1 million in exit costs related to this activity. These charges have been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the quarter and six months ended July 2, 2010. All terminations and related payments associated with these plans were completed during the second quarter of fiscal 2010.

 

     Balance  at
Beginning
of Period
   Charges    Usage     Adjustments    Balance at
End of
Period
             
             

Cash employee separation charges:

             

Six Months Ended July 2, 2010

   $ 0.3    $ 0.2    $ (0.5   $ —      $ —  
                                   

Exit Costs:

             

Six Months Ended July 2, 2010

   $ 0.1    $ 0.1    $ (0.2   $ —      $ —  
                                   

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Restructuring Activities Related to the 2009 Global Workforce Reduction

Cumulative employee separation charges of $13.0 million, net of adjustments, have been recognized through July 2, 2010, related to the first quarter of 2009 announced plans to reduce worldwide personnel for cost savings purposes. A total of 570 employees were notified during 2009, of which 569 of these individuals have been terminated. These charges have been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the six months ended July 2, 2010. All terminations associated with this plan are expected to be completed by the end of the fourth quarter of 2010, with substantially all related termination benefits paid out by the end of the fourth quarter of fiscal 2010.

 

     Balance  at
Beginning
of Period
   Charges    Usage     Adjustments    Balance at
End of
Period
             
             

Cash employee separation charges:

             

Six Months Ended July 2, 2010

   $ 0.7    $ —      $ (0.6   $ 0.1    $ 0.2
                                   

Other

The Company made a $0.8 million cash payment in settlement of various litigation matters with the former minority interest shareholders of a Czech subsidiary acquired by the Company. These settlement charges have been included in restructuring, asset impairment and other, net in the consolidated statement of operations for the six months ended July 2, 2010.

A reconciliation of the activity in the tables above to the “Restructuring, asset impairments and other, net” caption on the consolidated statement of operations for the quarter and six months ended July 2, 2010, is as follows (in millions):

 

     Quarter Ended
July 2, 2010
   Six Months  Ended
July 2, 2010
     
     

Restructuring

     

Charges:

     

Cash employee separation charges

   $ 2.1    $ 4.9

Exit costs

     0.2      0.3

Less: net adjustments to reserves

     —        0.1

Other

     

Charges

     —        0.8
             
   $ 2.3    $ 6.1
             

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Note 6: Balance Sheet Information

 

     July 2,
2010
    December 31,
2009
 

Receivables, net:

    

Accounts receivable

   $ 325.6      $ 270.2   

Less: Allowance for doubtful accounts

     (8.4     (9.3
                
   $ 317.2      $ 260.9   
                

Inventories, net:

    

Raw materials

   $ 38.1      $ 35.4   

Work in process

     194.6        151.6   

Finished goods

     88.8        82.9   
                
   $ 321.5      $ 269.9   
                

Property, plant and equipment, net:

    

Land

   $ 44.4      $ 42.0   

Buildings

     444.4        429.7   

Machinery and equipment

     1,538.7        1,420.2   
                

Total property, plant and equipment

     2,027.5        1,891.9   

Less: Accumulated depreciation

     (1,242.6     (1,186.4
                
   $ 784.9      $ 705.5   
                

Accrued expenses:

    

Accrued payroll

   $ 74.3      $ 55.9   

Sales related reserves

     35.2        32.7   

Restructuring reserves

     14.5        13.6   

Accrued pension liability

     0.1        0.2   

Other

     32.8        33.1   
                
   $ 156.9      $ 135.5   
                

Accumulated other comprehensive loss:

    

Foreign currency translation adjustments

   $ (62.8   $ (64.6

Unrealized prior service cost of defined benefit pension plan

     (0.1     (0.1

Prior service cost from pension legal plan amendment

     (0.2     (0.2
                
   $ (63.1   $ (64.9
                

The activity related to the Company’s warranty reserves for the six months ended July 2, 2010 and July 3, 2009, respectively is as follows (in millions):

 

     Six Months Ended  
     July 2, 2010     July 3, 2009  

Beginning Balance

   $ 3.2      $ 3.9   

Provision

     0.4        0.2   

Usage

     (0.1     (0.5
                

Ending Balance

   $ 3.5      $ 3.6   
                

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

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 July 2, 2010 and December 31, 2009, the total accrued pension liability for underfunded plans was $19.4 million and $19.0 million, respectively, of which the current portion of $0.4 million and $0.3 million, respectively, was classified as accrued expenses. As of July 2, 2010 and December 31, 2009, the total pension asset for overfunded plans was $15.3 million and $16.2 million, respectively. The components of the Company’s net periodic pension expense for the quarters and six months ended July 2, 2010 and July 3, 2009, respectively, are as follows (in millions):

 

     Quarter Ended     Six Months Ended  
     July 2, 2010     July 3, 2009     July 2, 2010     July 3, 2009  

Service Cost

   $ 1.0      $ 1.1      $ 2.0      $ 1.6   

Interest cost

     0.8        0.5        1.6        1.0   

Expected return on plan assets

     (0.8     (0.3     (1.6     (0.6

Amortization of prior service cost

     0.1        0.1        0.2        0.2   

Other (Gains)/Losses

     —          0.6        —          0.6   
                                

Total net periodic pension cost

   $ 1.1      $ 2.0      $ 2.2      $ 2.8   
                                

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Note 7: Long-Term Debt

Long-term debt consists of the following (in millions):

 

     July  2,
2010
    December 31,
2009
 
    

Senior Bank Facilities:

    

Term Loan, interest payable monthly at 2.00063%

   $ —        $ 170.2   

Zero Coupon Convertible Senior Subordinated Notes due 2024 (1)

     84.3        96.9   

1.875% Convertible Senior Subordinated Notes due 2025 (2)

     79.3        76.5   

2.625% Convertible Senior Subordinated Notes due 2026 (3)

     399.3        389.0   

2.25% Loan with Japanese bank due 2010, interest payable semi-annually

     1.6        3.6   

Loan with Philippine banks due 2010 through 2012, interest payable quarterly at 1.29781% and 1.28438%, respectively

     17.1        18.7   

Loan with Philippine bank due 2010 through 2013, interest payable quarterly at 1.28625% and 1.00563%, respectively

     9.7        10.5   

Loan with Philippine bank due 2010 through 2013, interest payable quarterly at 1.78706% and 1.50375%, respectively

     5.5        5.9   

Loan with Philippine banks due 2010 through 2014, interest payable quarterly at 6.03063% prepaid in Q2 2010

     —          10.3   

Short-term loan with Chinese bank due 2010, interest payable quarterly at 3.44506% and 3.2725%, respectively

     7.0        7.0   

Short-term loan with Chinese bank due 2010, interest payable quarterly at 2.794% and 2.7825%, respectively

     7.0        7.0   

Short-term loan with Chinese bank due 2010, interest payable quarterly at 2.794% and 2.7825%, respectively

     6.0        6.0   

Short-term loan with Chinese bank due 2010, interest payable quarterly at 5.25063%

     —          7.0   

Short-term loan with Chinese bank due 2010, interest payable quarterly at 4.32375% and 4.28063%, respectively

     7.0        7.0   

Short-term loan with Chinese bank due 2010, interest payable quarterly at 2.55481% and 2.2525%, respectively

     12.0        12.0   

Loan with British finance company, interest payable monthly at 1.76% and 1.75%, respectively

     19.6        23.1   

Loan with Hong Kong bank, interest payable weekly at 2.18063%

     23.0        —     

1.875% Loan with Japanese bank due 2010 through 2013, interest payable semi-annually

     2.4        2.6   

Short-term loan with Japanese bank due 2010, interest payable monthly at .98% and 1.06%, respectively

     1.7        1.6   

Capital lease obligations

     70.9        78.6   
                
     753.4        933.5   

Less: Current maturities

     (120.5     (205.9
                
     632.9        727.6   
                

 

(1) The Zero Coupon Convertible Senior Subordinated Notes due 2024 may be put back to the Company at the option of the holders of the notes on April 15, 2012, 2014 and 2019 or called at the option of the Company on or after April 15, 2012.
(2) The 1.875% Convertible Senior Subordinated Notes due 2025 may be put back to the Company at the option of the holders of the notes on December 15 of 2012, 2015 and 2020 or called at the option of the Company on or after December 15, 2012.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

(3) The 2.625% Convertible Senior Subordinated Notes due 2026 may be put back to the Company at the option of the holders of the notes on December 15 of 2013, 2016 and 2021 or called at the option of the Company on or after December 15, 2013.

Annual maturities relating to the Company’s long-term debt as of July 2, 2010 are as follows (in millions):

 

             Maturities

Remainder 2010

     $ 78.6

2011

       58.2

2012

       199.9

2013

       412.2

2014

       0.9
 

    Thereafter

       3.6
          
 

Total

     $ 753.4
          

Loss on Debt Repurchase

During the quarter ended July 2, 2010, the Company incurred a loss on debt repurchase of $0.8 million as the result of the write-off of unamortized capitalized closing costs, related to the $169.8 million prepayment of the senior bank facilities and a $0.1 million gain as a result of a modification of the Zero Coupon Convertible Senior Subordinated Notes due 2024.

June 2010 Hong Kong Loan

In June 2010, one of the Company’s Asian subsidiaries entered into a loan with a Hong Kong bank, pursuant to which the bank purchased accounts receivables, with recourse. In accordance with Generally Accepted Accounting Principles in the United States the purchased assets remained on the Company’s balance sheet as of July 2, 2010. The loan, which had a balance of $23.0 million as of July 2, 2010, bears interest payable weekly at 2-month LIBOR plus 1.75%. The loan amount is subject to an eligible borrowing calculation as defined in the loan agreement.

Modification of the Zero Coupon Convertible Senior Subordinated Notes due 2024

In April 2010, the Company amended the Indenture for its Zero Coupon Convertible Senior Subordinated Notes due 2024.

The amendments include:

 

   

One additional opportunity to require the Company to purchase the notes on April 15, 2012. The terms of this put option are otherwise identical to pre-existing terms of the notes whereby holders of the notes had the option to require the Company to purchase the notes on April 15, 2010; and

 

   

Eliminating the Company’s ability to redeem the notes at its option from April 15, 2010 until April 15, 2012.

In accordance with the right of the holders of the notes to require the Company to purchase the notes on April 15, 2010, approximately $3.2 million of the $99.4 million par value of notes then outstanding were purchased by the Company. In accordance with ASC 470 – Debt, the amendment was considered a substantial

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

modification for accounting purposes therefore; the $96.2 million original remaining debt was deemed to be extinguished, resulting in a $0.1 million gain, and new convertible debt with fair value of $98.5 million was deemed to be issued.

ASC 470, requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the instrument. Thus, the liability component of the new convertible debt was recognized at the present value of its cash flows discounted using a discount rate equivalent to the borrowing rate at the date of the modification of the Convertible Notes for similar debt instruments without conversion feature. The equity component of the new convertible debt was recorded as additional paid in capital and represents the difference between the fair value of the modified Convertible Notes and the liability component. It also requires an accretion of the debt discount resulting from the allocation of a portion of the modified fair value to equity over the life of the Convertible Notes, which is expected to be the next put date.

As a result, the Company recognized $13.3 million of debt discount, which will be amortized through April 2012.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

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, except those domestic subsidiaries acquired through the acquisitions of AMIS, Catalyst Semiconductor, Inc. (“Catalyst”), PulseCore Holdings (Cayman) Inc. (“PulseCore”), and CMD (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
Corporation (1)
  SCI
LLC
    Other
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total

As of July 2, 2010

           

Cash and cash equivalents

  $ —     $ 123.6      $ —        $ 343.5      $ —        $ 467.1

Receivables, net

    —       53.5        —          263.7        —          317.2

Inventories, net

    —       40.8        —          275.4        5.3        321.5

Other current assets

    —       9.3        —          41.6        —          50.9

Deferred income taxes

    —       5.5        —          9.1        —          14.6
                                           

Total current assets

    —       232.7        —          933.3        5.3        1,171.3

Property, plant and equipment, net

    —       170.9        2.5        615.2        (3.7     784.9

Deferred income taxes

    —       —          —          —          —          —  

Goodwill and other intangible assets

    —       191.1        37.2        332.6        (36.3     524.6

Investments and other assets

    1,742     1,471.0        49.6        25.5        (3,227.9     60.2
                                           

Total assets

  $ 1,743.4   $ 2,065.7      $ 89.3      $ 1,906.6      $ (3,262.6   $ 2,541.0
                                           

Accounts payable

  $ —     $ 43.3      $ 0.1      $ 196.7      $ —        $ 240.1

Accrued expenses and other current liabilities

    —       85.5        0.8        191.3        1.7        280.0

Deferred income on sales to distributors

    —       36.3        —          91.5        —          127.8
                                           

Total current liabilities

    —       165.1        0.9        479.5        1.7        647.9

Long-term debt

    562.9     34.3        —          35.7        —          632.9

Other long-term liabilities

    —       18.6        0.4        25.6        —          44.6

Deferred Income Taxes

    —       6.3        —          10.0          16.3

Intercompany

    0.3     (48.9     (45.8     (111.1     205.5        —  
                                           

Total liabilities

    563.9     175.4        (44.5     439.7        207.2        1,341.7

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,178.1     1,890.3        133.8        1,466.9        (3,491.0     1,178.1

Minority interests in consolidated subsidiaries

    —       —          —          —          21.2        21.2
                                           

Total stockholders’ equity

    1,178.1     1,890.3        133.8        1,466.9        (3,469.8     1,199.3
                                           

Total liabilities and stockholders’ equity

  $ 1,742.0   $ 2,065.7      $ 89.3      $ 1,906.6      $ (3,262.6   $ 2,541.0
                                           

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

    Issuer   Guarantor                  
    ON Semiconductor
Corporation (1)
  SCI
LLC
    Other
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total

As of December 31, 2009

           

Cash and cash equivalents

  $ —     $ 286.0      $ —        $ 239.7      $ —        $ 525.7

Short-term investments

    —       —          —          45.5        —          45.5

Receivables, net

    —       47.9        —          213.0        —          260.9

Inventories, net

    —       34.2        —          230.5        5.2        269.9

Other current assets

    —       7.1        —          44.4        —          51.5

Deferred income taxes

    —       5.5        —          9.6        —          15.1
                                           

Total current assets

    —       380.7        —          782.7        5.2        1,168.6

Restricted cash

    —       —          —          5.9        —          5.9

Property, plant and equipment, net

    —       149.7        2.8        557.0        (4.0     705.5

Goodwill and intangible assets, net

    —       197.1        37.3        278.1        (38.4     474.1

Investments and other assets

    1,548.3     1,210.7        45.8        29.0        (2,773.6     60.2
                                           

Total assets

  $ 1,548.3   $ 1,938.2      $ 85.9      $ 1,652.7      $ (2,810.8   $ 2,414.3
                                           

Accounts payable

  $ —     $ 25.0      $ 0.1      $ 147.8      $ —        $ 172.9

Accrued expenses and other current liabilities

    97.6     74.3        0.8        172.9        1.7        347.3

Deferred income on sales to distributors

    —       26.9        —          71.9        —          98.8
                                           

Total current liabilities

    97.6     126.2        0.9        392.6        1.7        619.0

Long-term debt

    465.4     213.0        —          49.2        —          727.6

Other long-term liabilities

    —       20.0        0.4        28.9        —          49.3

Deferred Income Taxes

    —       7.6        —          6.2        —          13.8

Intercompany

    0.3     (127.5     (52.4     (25.9     205.5        —  
                                           

Total liabilities

    563.3     239.3        (51.1     451.0        207.2        1,409.7

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    985.0     1,698.9        137.0        1,201.7        (3,037.6     985.0

Minority interests in consolidated subsidiaries

    —       —          —          —          19.6        19.6
                                           

Total stockholders’ equity

    985.0     1,698.9        137.0        1,201.7        (3,018.0     1,004.6
                                           

Total liabilities and stockholders’ equity

  $ 1,548.3   $ 1,938.2      $ 85.9      $ 1,652.7      $ (2,810.8   $ 2,414.3
                                           

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

    Issuers     Guarantor
Subsidiaries
                   
    ON Semiconductor
Corporation (1)
    SCI
LLC
    Other
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

For the Quarter ended July 2, 2010

           

Revenues

  $ —        $ 167.6      $ —        $ 729.8      $ (314.1   $ 583.3   

Cost of revenues

    —          119.1        0.6        538.2        (318.4     339.5   
                                               

Gross profit

    —          48.5        (0.6     191.6        4.3        243.8   
                                               

Research and development

    —          10.4        2.2        47.5        —          60.1   

Selling and marketing

    —          15.0        0.2        21.3        —          36.5   

General and administrative

    —          5.7        0.2        29.4        —          35.3   

Amortization of acquisition related intangible assets

    —          4.2        —          4.9        (1.0     8.1   

Restructuring, asset impairments and other, net

    —          —          —          2.3        —          2.3   
                                               

Total operating expenses

    —          35.3        2.6        105.4        (1.0     142.3   
                                               

Operating income (loss)

    —          13.2        (3.2     86.2        5.3        101.5   

Interest expense, net

    (12.5     (1.7     —          (0.2     —          (14.4

Loss on debt repurchase

    —          (0.7     —          —          —          (0.7

Other

    0.1        (0.8     —          (2.7     —          (3.4

Equity in earnings

    91.1        76.8        2.3        —          (170.2     —     
                                               

Income (loss) before income taxes and minority interests

    78.7        86.8        (0.9     83.3        (164.9     83.0   

Income tax provision

    —          2.0        —          (5.4     —          (3.4
                                               

Net income (loss)

    78.7        88.8        (0.9     77.9        (164.9     79.6   

Net income (loss) attributable to minority interest

    —          —          —          0.1        (1.0     (0.9
                                               

Net income (loss) attributable to ON Semiconductor Corporation

  $ 78.7      $ 88.8      $ (0.9   $ 78.0      $ (165.9   $ 78.7   
                                               

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

    Issuers     Guarantor
Subsidiaries
                 
    ON Semiconductor
Corporation (1)
    SCI
LLC
    Other
Subsidiaries
  Non-Guarantor
Subsidiaries
    Eliminations     Total  

For the quarter ended July 3, 2009

           

Revenues

  $ —        $ 114.8      $ 5.4   $ 547.3      $ (247.7   $ 419.8   

Cost of revenues

    —          98.2        0.4     468.4        (285.4     281.6   
                                             

Gross profit

    —          16.6        5.0     78.9        37.7        138.2   
                                             

Research and development

    —          9.9        1.9     38.9        —          50.7   

Selling and marketing

    —          11.4        0.2     16.8        —          28.4   

General and administrative

    —          1.2        0.2     28.6        —          30.0   

Amortization of acquisition related intangible assets

    —          3.4        —       4.9        (1.0     7.3   

Restructuring, asset impairments and other, net

    —          1.1        0.1     6.9        —          8.1   
                                             

Total operating expenses

    —          27.0        2.4     96.1        (1.0     124.5   
                                             

Operating income (loss)

    —          (10.4     2.6     (17.2     38.7        13.7   

Interest expense, net

    (12.7     (1.3     —       (1.5     —          (15.5

Loss on debt prepayment

    (0.9     —          —       —          —          (0.9

Other

    —          0.2        —       (0.7     —          (0.5

Equity in earnings

    10.6        16.3        2.0     0.2        (29.1     —     
                                             

Income (loss) before income taxes and minority interests

    (3.0     4.8        4.6     (19.2     9.6        (3.2

Income tax provision

    —          3.8        —       (2.8     —          1.0   

Minority interests

    —          —          —       —          (0.8     (0.8
                                             

Net income (loss)

  $ (3.0   $ 8.6      $ 4.6   $ (22.0   $ 8.8      $ (3.0
                                             

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

    Issuers     Guarantor
Subsidiaries
                   
    ON Semiconductor
Corporation (1)
    SCI
LLC
    Other
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

For the six months ended July 2, 2010

           

Revenues

  $ —        $ 339.7      $ —        $ 1,421.1      $ (627.3   $ 1,133.5   

Cost of revenues

    —          231.1        1.3        1,056.9        (627.7     661.6   
                                               

Gross profit

    —          108.6        (1.3     364.2        0.4        471.9   
                                               

Research and development

    —          23.6        4.7        97.0        —          125.3   

Selling and marketing

    —          29.6        0.4        42.1        —          72.1   

General and administrative

    —          8.0        0.4        58.4        —          66.8   

Amortization of acquisition related intangible assets

    —          8.2          9.7        (2.0     15.9   

Restructuring, asset impairments and other, net

    —          —          —          6.1        —          6.1   
                                               

Total operating expenses

    —          69.4        5.5        213.3        (2.0     286.2   
                                               

Operating income (loss)

    —          39.2        (6.8     150.9        2.4        185.7   

Interest expense, net

    (25.6     (4.5     —          (0.6     —          (30.7

Gain (loss) on debt prepayment

    —          (0.7           (0.7

Other

    0.1          —          (6.3     —          (6.2

Equity in earnings

    167.2        120.1        3.8        —          (291.1     —     
                                               

Income (loss) before income taxes and minority interests

    141.7        154.1        (3.0     144.0        (288.7     148.1   

Income tax provision

    —          7.3        —          (12.1     —          (4.8
                                               

Net income (loss)

    141.7        161.4        (3.0     131.9        (288.7     143.3   

Net income (loss) attributable to minority interest

    —          —          —          0.1        (1.7     (1.6
                                               

Net income (loss) attributable to ON Semiconductor Corporation

  $ 141.7      $ 161.4      $ (3.0   $ 132.0      $ (290.4   $ 141.7   
                                               

Net cash provided by operating activities

  $ —        $ 123.9      $ —        $ 144.5      $ —        $ 268.4   
                                               

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —          (28.3     —          (65.2     —          (93.5

Funds deposited for purchases of property, plant and equipment

    —          —          —          (0.9     —          (0.9

Proceeds from sales of held-to-maturity securities

    —          —          —          45.5        —          45.5   

Purchase of a business, net of cash acquired

    —          —          —          (90.2     —          (90.2

Proceeds from sales of property, plant and equipment

    —          —          —          —          —          —     
                                               

Net cash used in investing activities

    —          (28.3     —          (110.8     —          (139.1
                                               

Cash flows from financing activities:

           

Intercompany loans

    —          (358.1     —          358.1        —          —     

Intercompany loan repayments

    —          282.9        —          (282.9     —          —     

Proceeds from debt issuance

    —          —          —          23.2          23.2   

Proceeds from issuance of common stock under the employee stock purchase plan

    —          3.3        —          —          —          3.3   

Proceeds from exercise of stock options

      7.3        —          —          —          7.3   

Repurchase of Treasury Stock

    —          (7.0     —          —          —          (7.0

Payment of capital lease obligation

    —          (13.0     —          (2.3     —          (15.3

Repayment of long term debt

    —          (173.4     —          (26.1     —          (199.5
                                               

Net cash used in financing activities

    —          (258.0     —          70        —          (188.0
                                               

Effect of exchange rate changes on cash and cash equivalents

    —          —          —          0.1        —          0.1   
                                               

Net increase (decrease) in cash and cash equivalents

    —          (162.4     —          103.8        —          (58.6

Cash and cash equivalents, beginning of period

    —          286.0        —          239.7        —          525.7   
                                               

Cash and cash equivalents, end of period

  $ —        $ 123.6      $ —        $ 343.5      $ —        $ 467.1   
                                               

 

24


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

    Issuer     Guarantor                    
    ON Semiconductor
Corporation (1)
    SCI
LLC
    Other
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

For the six months ended July 3, 2009

           

Revenues

  $ —        $ 208.4      $ 5.4      $ 1,033.5      $ (448.4   $ 798.9   

Cost of revenues

    —          185.1        0.7        825.3        (462.5     548.6   
                                               

Gross profit

    —          23.3        4.7        208.2        14.1        250.3   
                                               

Research and development

    —          29.6        4.3        60.5        (0.1     94.3   

Selling and marketing

    —          21.8        0.6        35.0        —          57.4   

General and administrative

    —          (31.6     0.3        46.2        42.4        57.3   

Amortization of acquisition related intangible assets

    —          4.8        —          10.6        (0.9     14.5   

Restructuring, asset impairments and other, net

    —          2.5        —          15.2        —          17.7   
                                               

Total operating expenses

    —          27.1        5.2        167.5        41.4        241.2   
                                               

Operating income (loss)

    —          (3.8     (0.5     40.7        (27.3     9.1   

Interest expense, net

    (27.1     (2.4     —          (3.4     0.1        (32.8

Other

    —          (0.8     —          (1.9     —          (2.7

Loss on dept prepayment

    (3.1     —          —          —          —          (3.1

Equity in earnings

    (6.7     (4.8     2.8        119.4        (110.7     —     
                                               

Income (loss) before income taxes, and minority interests

    (36.9     (11.8     2.3        154.8        (137.9     (29.5

Income tax provision

    —          2.3        —          (8.5     —          (6.2

Minority interests

    —          —          —          —          (1.2     (1.2
                                               

Net income (loss)

  $ (36.9   $ (9.5   $ 2.3      $ 146.3      $ (139.1   $ (36.9
                                               

Net cash provided by (used in) operating activities

  $ —        $ (231.0   $ —        $ 318.0      $ —        $ 87.0   
                                               

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —          (7.2     —          (29.8     —          (37.0

Deposits utilized for purchases of property, plant and equipment

    —          —          —          0.1        —          0.1   
                                               

Net cash provided by (used in) investing activities

    —          (7.2     —          (29.7     —          (36.9
                                               

Cash flows from financing activities:

           

Intercompany loans

    —          156.6        —          (156.6     —          —     

Intercompany loan repayments

    —          41.5        —          (41.5     —          —     

Proceeds from debt issuance

    —          —          —          7.0        —          7.0   

Proceeds from issuance of common stock under the employee stock purchase plan

    —          2.2        —          —          —          2.2   

Proceeds from exercise of stock options and warrants

    —          4.0        —          —          —          4.0   

Repurchase of treasury stock

    —          (0.9     —          —          —          (0.9

Payment of capital lease obligation

    —          (11.6     —          (4.0     —          (15.6

Payment of debt issuance costs

    —          —          —          —          —          —     

Repayment of long term debt

    —          (66.3     —          (35.5     —          (101.8
                                               

Net cash provided by (used in) financing activities

    —          125.5        —          (230.6     —          (105.1
                                               

Effect of exchange rate changes on cash and cash equivalents

    —          —          —          (0.3     —          (0.3
                                               

Net increase (decrease) in cash and cash equivalents

    —          (112.7     —          57.4        —          (55.3

Cash and cash equivalents, beginning of period

    —          213.4        —          245.3        —          458.7   
                                               

Cash and cash equivalents, end of period

  $ —        $ 100.7      $ —        $ 302.7      $ —        $ 403.4   
                                               

 

(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 domestic operating subsidiary, processes all of its cash receipts and disbursements on its behalf.

 

25


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

See also Note 10: “Commitments and Contingencies—Other Contingencies” for further discussion of the Company’s guarantees.

Note 8: Equity

Income per share calculations for the quarter and six months ended July 2, 2010 and July 3, 2009, respectively, are as follows (in millions, except per share data):

 

     Quarter Ended     Six Months Ended  
     July 2,
2010
   July 3,
2009
    July 2,
2010
   July 3,
2009
 

Net income (loss) applicable to ON Semiconductor Corporation

   $ 78.7    $ (3.0   $ 141.7    $ (36.9
                              

Diluted net income (loss) applicable to ON Semiconductor Corporation

   $ 78.7    $ (3.0   $ 141.7    $ (36.9
                              

Basic weighted average common shares outstanding

     430.3      420.7        429.2      417.1   

Add: Incremental shares for:

          

Dilutive effect of stock options

     9.3      —          10.2      —     
                              

Diluted weighted average common shares outstanding

     439.6      420.7        439.4      417.1   
                              

Income (loss) per common share attributable to ON Semiconductor Corporation

          

Basic:

   $ 0.18    $ (0.01   $ 0.33    $ (0.09
                              

Diluted:

   $ 0.18    $ (0.01   $ 0.32    $ (0.09
                              

Basic income (loss) 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. For the quarter and six months ended July 3, 2009, the effects of stock option shares and restricted stock units were not included because the related impact would have been anti-dilutive, as the Company generated a net loss. Common shares relating to 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 were also excluded from the diluted earnings per share calculation. The excluded option shares were 14.4 million and 27.0 million for the quarters ended July 2, 2010 and July 3, 2009, respectively, and 14.0 million and 32.5 million for the six months ended July 2, 2010 and July 3, 2009, respectively.

For the quarter and six months ended July 2, 2010, the assumed conversion of the 1.875% convertible senior subordinated notes was also excluded in determining diluted net income per share. The 1.875% convertible senior subordinated notes are convertible into cash up to the par value of $95.0 million, based on a conversion price of $7.00 per share. The excess of fair value over par value is convertible into stock. As of July 2, 2010, the Company’s common stock traded below $7.00; thus, the effects of an assumed conversion would have been anti-dilutive and therefore were excluded.

For the quarter and six months ended July 2, 2010 and July 3, 2009, the assumed conversion of the zero coupon convertible senior subordinated notes was also excluded in determining diluted net income per share. The zero coupon convertible senior subordinated notes are convertible into cash up to the par value of $96.2 million and $99.4 million, based on a conversion price of $9.82 per share at July 2, 2010 and July 3, 2009, respectively. The excess of fair value over par value is convertible into stock. As of July 2, 2010 and July 3, 2009, the Company’s common stock traded below $9.82; thus, the effects of an assumed conversion would have been anti-dilutive and therefore were excluded.

 

26


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

For the quarter and six months ended July 2, 2010 and July 3, 2009, the assumed conversion of the 2.625% convertible senior subordinated notes was also excluded in determining diluted net income per share. The 2.625% convertible senior subordinated notes are convertible into cash up to the par value of $484.0 million, based on a conversion price of $10.50 per share. The excess of fair value over par value is convertible into stock. As of July 2, 2010 and July 3, 2009, the Company’s common stock traded below $10.50; thus, the effects of an assumed conversion would have been anti-dilutive and therefore were excluded.

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 July 2, 2010 and July 3, 2009, 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.

Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the accompanying consolidated financial statements. Shares withheld upon the vesting of restricted stock units to pay applicable employee withholding taxes are considered common stock repurchases. Upon vesting, the Company currently does not collect the applicable employee withholding taxes from employees. Instead, the Company automatically withholds, from the restricted stock units that vest, the portion of those shares with a fair market value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the applicable withholding taxes in cash. The amounts remitted in the quarter ended July 2, 2010 were $3.2 million for which the Company withheld 416,402 shares of common stock, that were underlying the restricted stock units that vested. None of these shares had been reissued or retired as of July 2, 2010, but may be reissued or retired by the Company at a later date.

At December 31, 2009, the minority interest balance was $19.6 million. This balance increased to $21.2 million at July 2, 2010 due to the minority interest’s $0.9 million and $1.6 million share of the earnings for the quarter and six months, respectively, which has been reflected in the Company’s consolidated statement of operations for the quarter and six months ended July 2, 2010.

At December 31, 2008, the minority interest balance was $17.3 million. This balance increased to $18.5 million at July 3, 2009 due to the minority interest’s $0.8 million and $1.2 million share of the earnings for the quarter and six months, respectively, which has been reflected in the Company’s consolidated statement of operations for the quarter and six months ended July 3, 2009.

See Note 14: “Subsequent Events” for discussion of potential issuance of common stock relating to the pending SANYO Semiconductor acquisition.

Note 9: Employee Stock Benefit Plans

At December 31, 2009 there was an aggregate of 20.6 million shares of common stock available for grant under the Company’s stock option and restricted stock unit plans which subsequently expired on February 17, 2010. An amended and restated stock incentive plan was approved by the Company’s shareholders at the annual shareholder meeting on May 18, 2010. At July 2, 2010 there was an aggregate of 26.9 million shares of common stock available for grant under the Company’s new amended and restated stock incentive plan.

 

27


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Stock Options

The weighted-average estimated fair value of stock options granted during the quarters and six months ended July 2, 2010 was $2.94 per share and $3.09 per share, respectively. The weighted-average estimated fair value of stock options granted during the quarter and six months ended July 3, 2009 was $4.10 per share and $3.28 per share, respectively. The weighted-average assumptions associated with the stock options granted during the periods are as follows:

 

     Quarter Ended
     July 2,
2010
   July 3,
2009

Volatility

   48.5%    49.9%

Risk-free interest rate

   2.2%    2.8%

Expected term

   4.9 years    5.3 years
     Six Months Ended
     July 2,
2010
   July 3,
2009

Volatility

   47.4%    73.6%

Risk-free interest rate

   2.3%    1.9%

Expected term

   5.1 years    5.1 years

Pre-vesting forfeitures were estimated to be approximately 12% for the quarter and six months ended July 2, 2010, and 12% for the quarter and six months ended July 3, 2009, based on historical experience.

A summary of stock option transactions for all stock option plans is as follows (in millions, except per share and term data):

 

     Six Months Ended July 2, 2010
     Number
of

Shares
    Weighted-
Average
Exercise
Price
   Weighted -
Average
Remaining
Contractual
Term
(in years)
   Aggregate
Intrinsic
Value
(In-The-
Money)
          
          
          
          

Outstanding at December 31, 2009

   29.4      $ 7.48      

Assumed in acquisitions

   2.9        8.23      

Grants

   0.3        7.05      

Exercised

   (1.3     5.68      

Cancellations

   (1.7     12.49      
              

Outstanding at July 2, 2010

   29.6      $ 7.33    5.2    $ 15.6
                        

Exercisable at July 2, 2010

   23.1      $ 7.40    4.5    $ 13.4
                        

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Additional information about stock options outstanding at July 2, 2010 with exercise prices less than or above $6.31 per share, the closing price of the Company’s common stock at July 2, 2010, is as follows (number of shares in millions):

 

     Exercisable    Unexercisable    Total

Exercise Prices

   Number
of

Shares
   Weighted
Average
Exercise
Price
   Number
of

Shares
   Weighted
Average
Exercise
Price
   Number
of

Shares
   Weighted
Average
Exercise
Price
                 
                 
                 

Less than $6.31

   9.1    $ 4.84    3.4    $ 5.65    12.5    $ 5.06

Above $6.31

   14.0    $ 9.06    3.1    $ 8.71    17.1    $ 9.00
                       

Total outstanding

   23.1    $ 7.40    6.5    $ 7.11    29.6    $ 7.33
                       

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 common 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 July 2, 2010, and changes during the quarter and six months ended July 2, 2010 (number of shares in millions):

 

     Quarter Ended July 2,
2010
     Number of
Shares
    Weighted-
Average
Grant Date
Fair Value
    
    
    

Nonvested shares of restricted stock units at December 31, 2009

   15.1      $ 4.17

Granted

   2.8        8.12

Released

   (2.8     4.08

Forfeited

   (0.3     4.57
            

Nonvested shares of restricted stock units at July 2, 2010

   14.8      $ 6.65
            

During the six months ended July 2, 2010, the Company granted 0.1 million shares in restricted stock awards with a weighted average grant date fair value of $8.16 per share to members of the Board of Directors. The awards vested and were issued immediately upon the effective date of the grant.

 

29


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

 

Employee Stock Purchase Plans

As of July 2, 2010, there were 5.8 million shares available for issuance under the 2000 Employee Stock Purchase Plan (“ESPP”). The weighted-average fair value of shares issued under the ESPP during the quarters and six months ended July 2, 2010 and July 3, 2009 were $1.82 per share and $1.48 per share, and $1.95 per share and $2.06 per share, respectively. The weighted-average assumptions used in the pricing model are as follows:

 

     Quarter Ended     Six Months Ended  

Employee Stock Purchase Plan

   July 2,
2010
    July 3,
2009
    July 2,
2010
    July 3,
2009
 

Expected life (in years)

   0.25      0.25      0.25      0.25   

Risk-free interest rate

   0.2   0.2   0.1   0.2

Volatility

   38.0   96.0   42.0   108.0

Share-Based Compensation Expense

Total share-based compensation expense, related to the Company’s stoc