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 April 1, 2011

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 April 29, 2011:

 

Title of Each Class

 

Number of Shares

Common Stock, par value $0.01 per share  

444,711,831

 

 

 


Table of Contents

INDEX

 

Part I: Financial Information

  

Item 1. Financial Statements (unaudited)

     1   

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

     31   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     51   

Item 4. Controls and Procedures

     52   

Part II: Other Information

  

Item 1. Legal Proceedings

     53   

Item 1A. Risk Factors

     56   

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

     57   

Item 3. Defaults Upon Senior Securities

     57   

Item 4. (Removed and Reserved)

     57   

Item 5. Other Information

     57   

Item 6. Exhibits

     57   

Signatures

     60   

Exhibit Index

  


Table of Contents

PART I: FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions, except share and per share data)

(unaudited)

 

     April 1,
2011
    December 31,
2010
 

Assets

    

Cash and cash equivalents

   $ 766.0      $ 623.3   

Receivables, net

     576.3        294.6   

Inventories

     767.5        360.8   

Other current assets

     121.7        63.6   

Deferred income taxes, net of allowances

     16.4        15.7   
                

Total current assets

     2,247.9        1,358.0   
                

Restricted cash

     —          142.1   

Property, plant and equipment, net

     1,061.3        864.3   

Deferred income taxes, net of allowances

     62.3        —     

Goodwill

     199.2        191.2   

Intangible assets, net

     370.7        303.0   

Other assets

     75.4        60.6   
                

Total assets

   $ 4,016.8      $ 2,919.2   
                

Liabilities, Minority Interests and Stockholders’ Equity

    

Accounts payable

   $ 527.8      $ 256.9   

Accrued expenses

     197.5        162.6   

Income taxes payable

     7.2        5.1   

Accrued interest

     4.5        0.8   

Deferred income on sales to distributors

     169.5        149.5   

Deferred income taxes, net of allowances

     62.8        —     

Current portion of long-term debt

     176.8        136.0   
                

Total current liabilities

     1,146.1        710.9   

Long-term debt

     1,095.2        752.8   

Other long-term liabilities

     244.2        49.3   

Deferred income taxes, net of allowances

     21.6        18.2   
                

Total liabilities

     2,507.1        1,531.2   
                

Commitments and contingencies (See Note 10)

    

ON Semiconductor Corporation stockholders’ equity:

    

Common stock ($0.01 par value, 750,000,000 shares authorized, 494,262,714 and 485,904,100 shares issued, 444,437,415 and 436,774,177 shares outstanding, respectively)

     4.9        4.9   

Additional paid-in capital

     3,069.5        3,016.1   

Accumulated other comprehensive loss

     (58.7     (59.1

Accumulated deficit

     (1,139.1     (1,213.9

Less: treasury stock, at cost; 49,825,299 and 49,129,923 shares, respectively

     (389.6     (382.0
                

Total ON Semiconductor Corporation stockholders’ equity

     1,487.0        1,366.0   

Minority interests in consolidated subsidiaries

     22.7        22.0   
                

Total equity

     1,509.7        1,388.0   
                

Total liabilities and equity

   $ 4,016.8      $ 2,919.2   
                

See accompanying notes to consolidated financial statements

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)

 

     Quarter Ended  
     April 1,
2011
    April 2,
2010
 

Revenues

   $ 870.6      $ 550.2   

Cost of product revenues

     628.2        322.1   
                

Gross profit

     242.4        228.1   

Operating expenses:

    

Research and development

     91.1        65.2   

Selling and marketing

     49.4        35.6   

General and administrative

     47.1        31.5   

Amortization of acquisition-related intangible assets

     9.7        7.8   

Restructuring, asset impairments and other, net

     12.4        3.8   
                

Total operating expenses

     209.7        143.9   
                

Operating income

     32.7        84.2   
                

Other income (expenses), net:

    

Interest expense

     (17.8     (16.4

Interest income

     0.3        0.1   

Other

     (0.2     (2.8

Gain on SANYO Semiconductor acquisition

     61.3        —     
                

Other income (expenses), net

     43.6        (19.1
                

Income before income taxes

     76.3        65.1   

Income tax provision

     (0.8     (1.4
                

Net income

     75.5        63.7   

Less: Net income attributable to minority interests

     (0.7     (0.7
                

Net income attributable to ON Semiconductor Corporation

   $ 74.8      $ 63.0   
                

Net income per common share attributable to ON Semiconductor Corporation:

    

Basic

   $ 0.17      $ 0.15   
                

Diluted

   $ 0.16      $ 0.14   
                

Weighted average common shares outstanding:

    

Basic

     441.4        428.1   
                

Diluted

     456.0        440.9   
                

See accompanying notes to consolidated financial statements

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(unaudited)

 

     Quarter Ended  
     April 1,
2011
    April 2,
2010
 

Cash flows from operating activities:

    

Net income

   $ 75.5      $ 63.7   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     52.8        39.7   

Gain on sale and disposal of fixed assets

     (2.1     (2.1

Gain on acquisition of SANYO Semiconductor

     (61.3     —     

Amortization of debt issuance costs and debt discount

     0.6        0.7   

Provision for excess inventories

     1.7        (1.1

Non-cash stock compensation expense

     10.4        13.7   

Non-cash interest

     8.7        8.7   

Non-cash manufacturing expenses associated with favorable supply agreement

     50.0        —     

Deferred income taxes

     3.2        2.3   

Other

     (1.0     (1.0

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

    

Receivables

     (36.0     (32.1

Inventories

     24.7        (17.6

Other assets

     25.1        8.2   

Accounts payable

     (20.6     9.8   

Accrued expenses

     (29.3     5.2   

Income taxes payable

     (3.0     (2.1

Accrued interest

     3.7        3.7   

Deferred income on sales to distributors

     20.0        10.3   

Other long-term liabilities

     2.5        (0.5
                

Net cash provided by operating activities

     125.6        109.5   
                

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (88.7     (41.0

Purchase of businesses, net of cash acquired

     (57.6     (66.8

Deposits utilized for purchases of property, plant and equipment

     —          (0.9

Proceeds from held-to-maturity securities

     —          45.5   

Uses of restricted cash

     142.1        —     
                

Net cash used in investing activities

     (4.2     (63.2
                

Cash flows from financing activities:

    

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

     1.9        1.6   

Proceeds from debt issuance

     15.2        0.2   

Proceeds from exercise of stock options

     41.1        4.5   

Payment of capital lease obligation

     (9.9     (9.2

Purchase of treasury stock

     (7.6     (3.8

Repayment of long-term debt

     (19.6     (4.4
                

Net cash provided by (used in) financing activities

     21.1        (11.1
                

Effect of exchange rate changes on cash and cash equivalents

     0.2        (0.2
                

Net increase in cash and cash equivalents

     142.7        35.0   

Cash and cash equivalents, beginning of period

     623.3        525.7   
                

Cash and cash equivalents, end of period

   $ 766.0      $ 560.7   
                

See accompanying notes to consolidated financial statements

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1: Background and Basis of Presentation

ON Semiconductor Corporation (“ON Semiconductor”), together with its wholly and majority-owned subsidiaries (the “Company”), is a premier supplier of high performance, silicon solutions for energy efficient 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 1, 2011, the Company completed the purchase of SANYO Semiconductor Co. Ltd. (“SANYO Semiconductor”), a subsidiary of SANYO Electric Co. Ltd. (“SANYO Electric”), and certain other assets related to SANYO Electric’s semiconductor business, whereby SANYO Semiconductor became a wholly-owned subsidiary of the Company (see Note 2: “Acquisitions” for further discussion).

On February 27, 2011, the Company completed the purchase of the CMOS Image Sensor Business Unit (“ISBU”) from Cypress Semiconductor Corporation (“Cypress Semiconductor”) (see Note 2: “Acquisitions” for further discussion).

The accompanying unaudited financial statements as of April 1, 2011, and for the three months ended April 1, 2011 and April 2, 2010, 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, 2010, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (“2010 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: Acquisitions

Acquisition of SANYO Semiconductor Co., Ltd.

On January 1, 2011, the Company completed the purchase of SANYO Semiconductor, whereby SANYO Semiconductor became a wholly-owned subsidiary of the Company. The purchase price, which reflects a $19.0 million purchase price adjustment due from SANYO Electric to the Company which is subject to future adjustments, totaled $500.6 million. At the time of acquisition, the Company paid approximately $142.1 million in cash, with the remaining $377.5 million borrowed by the Company, through its subsidiary, Semiconductor Components Industries, LLC (“SCI LLC”), by issuance of a note payable to SANYO Electric.

 

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SANYO Semiconductor designs, manufactures and sells discrete components, hybrid integrated circuits, radio frequency and power related products as well as custom integrated circuits. Many of these devices fall into the Company’s existing product categories, however SANYO Semiconductor expands the Company’s capacity in microcontrollers and extends our custom Application Specific Integrated Circuits (“ASICs”) to integrate power modules and motor devices for the consumer, automotive and industrial end-markets. SANYO Semiconductor also expands the Company’s presence in the Japan market.

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

 

Cash and cash equivalents

   $ 117.1   

Receivables, net

     242.1   

Inventory

     423.9   

Deferred income taxes current

     0.5   

Other current assets

     119.2   

Property, plant and equipment

     148.0   

Deferred income taxes, noncurrent

     60.5   

Intangible assets

     55.7   

Other non-current assets

     14.9   
        

Total assets acquired

     1,181.9   
        

Accounts payable

     (300.0

Deferred income taxes, current

     (70.3

Other current liabilities

     (61.3

Deferred income taxes, noncurrent

     (0.5

Long-term accrued liabilities

     (187.9
        

Total liabilities assumed

     (620.0

Net assets acquired

     561.9   

Gain on acquisition

     (61.3
        
   $ 500.6   
        

The acquisition was accounted for as a business purchase pursuant to Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Under this ASC, acquisition and integration costs are not included as components of consideration transferred, but are accounted for as expenses in the period in which the costs are incurred.

Accounting standards require that when the fair value of the net assets acquired exceeds the purchase price, resulting in a bargain purchase gain, the acquirer must reassess the reasonableness of the values assigned to all of the net assets acquired, liabilities assumed and consideration transferred. The Company has performed such a reassessment and has concluded that the values assigned for the SANYO Semiconductor acquisition are reasonable. Consequently, the Company has recorded a $61.3 million bargain purchase gain on the SANYO Semiconductor acquisition. The Company believes the gain realized in purchase accounting was the result of a number of factors, including the following: SANYO Electric wanting to exit its semiconductor operations, historical losses recognized by SANYO Electric SANYO Electric, viewing this as the best outcome for SANYO Semiconductor and the fact that the Company will incur expenses associated with the transfer and consolidation of certain operations.

The purchase price allocation for the SANYO Semiconductor acquisition is preliminary and is subject to revision pending the receipt of additional information relating to the fair value of assets acquired and liabilities assumed. As of the end of the first quarter, management had not yet completed its evaluation of the fair value of certain assets and liabilities acquired, primarily (i) the final valuation of intangible assets identified as a result of the acquisition, (ii) the final valuation of certain income tax accounts, and (iii) certain retirement plan liabilities assumed in connection with the SANYO Semiconductor business in Japan. Additional information related to the

 

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fair value of the assets acquired and liabilities assumed that is received during the measurement period may have a material impact on the allocation of the purchase price, including values assigned to assets, liabilities and the amount of the gain recognized in connection with the acquisition, which will be adjusted on a retrospective basis.

The $55.7 million of acquired intangible assets were assigned a weighted-average useful life of approximately 7 to 8 years. The intangible assets that make up that amount include: patents of $27.0 million (7-year weighted average useful life), $3.0 million of trademarks (3-year weighted average useful life) and customer relationships of $25.7 million (8-year weighted average useful life). Other current assets acquired includes $80.0 million representing the estimated fair value of a favorable supply arrangement provided by SANYO Electric in the form of operational cost reduction to the acquired business during the period of time it is effectively required to utilize certain SANYO Electric seconded employees and manufacturing facilities in Japan. This asset is being charged to cost of goods sold over the period of benefit, which is estimated to be 5 months.

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; these techniques were 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 is expected to generate over its economic life. The cost approach takes into account the cost to replace (or reproduce) the asset and the effects on the assets 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.

Included in net assets acquired are long-term liabilities representing approximately $46.9 million of assumed underfunded pension obligations relating to existing defined benefit pension plans as well as $136.4 million representing estimated liabilities associated with the Company’s intent to withdraw from the SANYO Electric or affiliate multiemployer defined benefit pension plan in which certain employees participate. The Company is in the process of establishing a defined benefit pension plans which is intended to provide similar retirement benefits as the SANYO Electric sponsored multiemployer plans and expects to withdraw from the SANYO Electric sponsored multiemployer plans by December 31, 2012.

The following unaudited pro forma consolidated results of operations for the quarter ended April 2, 2010 has been prepared as if the acquisition of SANYO Semiconductor had occurred on January 1, 2010 and includes adjustments for depreciation expense, amortization of intangibles and the tax effect of such items (in millions, except per share data):

 

     For Quarter Ended
April 2, 2010
 

Net Revenues

   $ 842.6   

Net Income

   $ 55.2   

Net income per common share—Basic

   $ 0.13   

Net income per common share—Diluted

   $ 0.13   

Acquisition of the CMOS Image Sensor Business Unit from Cypress Semiconductor

On February 27, 2011, the Company completed the purchase of the ISBU from Cypress Semiconductor, which was accounted for as an acquisition of a business. The Company paid approximately $34.1 million in cash. The ISBU purchased from Cypress Semiconductor includes a broad portfolio of high-performance custom and standard image sensors used in multi-megapixel machine vision, linear and two dimensional (2D) bar code imaging, medical x-ray imaging, biometrics, digital photography and cinematography, and aerospace applications. The acquired products include the VITA, LUPA, STAR and IBIS families, which are all well known throughout the industry.

 

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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. These valuation techniques were 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 future cash flows that an asset is expected to generate over its economic life. 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 April 1, 2011, 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 second quarter of the 2011 fiscal year. Any adjustments to the initial allocation are not expected to be material.

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

 

Cash and cash equivalents

   $ 1.5   

Receivables, net

     2.6   

Inventory

     9.2   

Other current assets

     0.4   

Property, plant and equipment

     1.2   

Goodwill

     8.0   

Intangible assets

     11.2   

In-process research and development

     11.2   
        

Total assets acquired

     45.3   
        

Accounts payable

     (5.6

Other current liabilities

     (4.2

Other non-current liabilities

     (1.4
        

Total liabilities assumed

     (11.2
        

Net assets acquired

   $ 34.1   
        

Of the $22.4 million of acquired intangible assets, $11.2 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 or expensed if impaired. 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 17.5% 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 $11.2 million of acquired intangible assets have a weighted-average useful life of approximately 6.1 years. The intangible assets that make up the amount include: customer relationships of $4.2 million (6.0-year weighted average useful life), developed technology of $6.2 million (7.0-year weighted average useful life) and backlog of $0.8 million (0.3-year weighted average useful life).

Of the total purchase price of approximately $34.1 million, approximately $8.0 million was initially allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair

 

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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 the ISBU business with the Company’s existing sensor 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 $8.0 million of goodwill as of April 1, 2011 was assigned to the digital and mixed signal product group, none of which is expected to be deductible for tax purposes.

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

Note 3: 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 2: “Acquisitions” for further discussion).

Goodwill is evaluated for potential impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates – Goodwill” of this Form 10-Q for information concerning this process. The Company will perform its annual impairment analysis as of the first day of the fiscal fourth quarter of each year unless a triggering event would require an expedited analysis. 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. As of April 1, 2011, there were no triggering events which would require the Company to perform an impairment analysis.

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.

 

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A reconciliation of the cost of the goodwill from each of the below acquisition transactions to the carrying value as of April 1, 2011 and December 31, 2010 for each reporting unit that contains goodwill, is as follows, in millions:

 

             Balance as of December 31, 2010     For the Quarter Ended April 1, 2011     Balance as of April 1, 2011  

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

    8.9        —          (8.9     —          —          —          —          8.9        —          (8.9     —     

CMD acquisition:

                       
  

Standard Products:

                     
    

Filter Products

    20.1        —          —          20.1          —          —          20.1        —          —          20.1   

SDT acquisition:

                       
  

Digital & Mixed-Signal Product Group:

                     
    

Medical Products

    8.7        —          —          8.7          —          —          8.7        —          —          8.7   

ISBU acquisition:

                       
  

Digital & Mixed-Signal Product Group:

                     
    

Sensor Products

    —          —          —          —          8.0        —          —          8.0            8.0   
                                                                                            
       $ 615.9      $ (9.8   $ (414.9   $ 191.2      $ 8.0      $ —        $ —        $ 623.9      $ (9.8   $ (414.9   $ 199.2   
                                                                                            

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 less than one year 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 April 1, 2011 and December 31, 2010 (in millions):

 

    April 1, 2011  
    Original
Cost
    Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Impairment     Carrying
Value
    Useful Life
(in Years)
 

Intellectual property

  $ 13.9      $ (7.5   $ —          —        $ 6.4        5-12   

Assembled workforce

    6.7        (6.5     —          —          0.2        5   

Customer relationships

    280.3        (55.8     (27.2     (3.2     194.1        5-18   

Non-compete agreements

    0.5        (0.5     —          —          —          1-3   

Patents

    43.7        (5.6     —          —          38.1        12   

Developed technology

    122.1        (25.5     —          (2.0     94.6        5-12   

Trademarks

    14.0        (1.9     —          —          12.1        15   

In-process research and development

    26.6        —          —          (2.0     24.6        8   

Acquired software

    1.0        (1.0     —          —          —          2   

Backlog

    0.8        (0.2     —          —          0.6        0.3   
                                         

Total intangibles

  $ 509.6      $ (104.5   $ (27.2   $ (7.2   $ 370.7     
                                         

 

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    December 31, 2010  
    Original
Cost
    Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Impairment     Carrying
Value
    Useful Life
(in Years)
 

Intellectual property

  $ 13.9      $ (7.0   $ —        $ —        $ 6.9        5-12   

Assembled workforce

    6.7        (6.1     —          —          0.6        5   

Customer relationships

    250.5        (51.2     (27.2     (3.2     168.9        5-18   

Non-compete agreements

    0.5        (0.5     —          —          —          1-3   

Patents

    16.7        (4.2     —          —          12.5        12   

Developed technology

    113.0        (22.5     —          (2.0     88.5        5-12   

Trademarks

    11.0        (1.7     —          —          9.3        15   

In-process research and development

    18.3        —          —          (2.0     16.3        8   

Acquired software

    1.0        (1.0     —          —          —          2   
                                         

Total intangibles

  $ 431.6      $ (94.2   $ (27.2   $ (7.2   $ 303.0     
                                         

Amortization expense for intangible assets amounted to $10.3 million for the quarter ended April 1, 2011, of which $0.6 million was included in cost of revenues; and $8.4 million for the quarter ended April 2, 2010, of which $0.6 million was included in cost of revenues. The Company is currently amortizing seven projects totaling $8.0 million through developed technology relating to projects that were originally classified as in-process research and development at time of acquisition, but which are now completed, over a weighted average useful life of 11 years. Amortization expense for intangible assets, with the exception of the remaining $24.6 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):

 

     Total  

Remainder of 2011

   $ 32.0   

2012

     40.6   

2013

     35.9   

2014

     35.7   

2015

     34.6   

Thereafter

     167.3   
        

Total estimated amortization expense

   $ 346.1   
        

Note 4: New Accounting Pronouncements Adopted

Adoption of Accounting Standards Update No. 2010-17, “Revenue Recognition—Milestone Method”

In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-17, “Revenue Recognition—Milestone Method,” which is included in ASC 605—Milestone Method of Revenue Recognition. This ASU codifies the consensus reached in Emerging Issues Task Force 08-09, “Milestone Method of Revenue Recognition,” and addresses the accounting when entities enter into revenue arrangements with multiple payment streams for a single deliverable or a single unit of accounting. The pronouncement shall be applied prospectively to milestones achieved in fiscal years, and interim periods within those years, beginning after June 15, 2010, with earlier application and retrospective application permitted. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

 

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Adoption of ASU No. 2010-29, “Business Combinations (Topic 805): Improving Disclosures about Fair Value Measurements

In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements; however, the Company will have additional disclosure requirements related to its current and future acquisitions.

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 2011 or had not been completed as of December 31, 2010, are as follows:

Restructuring Activities Related to the 2011 Acquisition of SANYO Semiconductor

In January 2011, the Company acquired SANYO Semiconductor and announced plans to integrate and restructure the overlapping operations of SANYO Semiconductor and the Company, in part, for cost savings purposes (See Note 2: “Acquisitions” for further discussion). As part of these plans, one factory is being consolidated into other existing factories. During the first quarter of 2011, a total of 280 employees were terminated and the Company recorded employee separation charges of approximately $8.4 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 ended April 1, 2011.

Additionally, during the quarter ended April 1, 2011, the Company recorded exit costs of approximately $1.5 million, related to termination of certain leases, purchase agreements, and items relating to the consolidation of factories.

While the Company has the intention of consolidating the front end manufacturing processes of SANYO Semiconductor with those of the Company over the next 12 to 18 months, the anticipated consolidation and associated costs are still being evaluated. If the Company does proceed with the consolidation, it is likely the Company will incur significant expenses to complete these activities.

 

     December 31,
2010
     Charges      Usage     Adjustments      April 1,
2011
 

Estimated employee separation costs:

             

December 31, 2010 through April 1, 2011

   $ —         $ 8.4       $ (8.4   $ —         $ —     
                                           

Estimated costs to exit:

             

December 31, 2010 through April 1, 2011

   $ —         $ 1.5       $ (1.5   $ —         $ —     
                                           

Restructuring Activities Related to the 2010 Acquisition of California Micro Devices Corporation (“CMD”)

Cumulative charges of $3.6 million, net of adjustments, have been recognized through April 1, 2011, related to the January 2010 announced plans to integrate and restructure the overlapping operations of the CMD business and the Company, in part for cost savings purposes.

Cumulative employee separation charges of $3.5 million, net of adjustments, have been recognized through April 1, 2011. A total of 27 employees, including five former executive officers of CMD, were notified during 2010 that their positions were being eliminated or consolidated, all of which have been terminated. All terminations associated with this plan had been completed by the end of the fourth quarter of fiscal 2010, with the related termination benefits anticipated to be paid out by the end of the first quarter of fiscal 2012.

 

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Cumulative exit costs of $0.1 million have been recognized from the inception of this restructuring activity through April 1, 2011, related to charges incurred to terminate certain lease agreements. 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:

             

December 31, 2010 through April 1, 2011

   $ 1.0       $ —         $ (0.4   $ —         $ 0.6   
                                           

Exit Costs:

             

December 31, 2010 through April 1, 2011

   $ 0.1       $ —         $ —        $ —         $ 0.1   
                                           

Restructuring Activities Related to the 2009 Global Workforce Reduction

Cumulative employee separation charges of $13.0 million, net of adjustments, have been recognized through April 1, 2011, 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, all of which had been terminated as of December 31, 2010. All terminations associated with this plan were completed by the end of the fourth quarter of 2010, and all related termination benefits had been paid out by the end of the first quarter of 2011.

 

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

Cash employee separation charges:

             

December 31, 2010 through April 1, 2011

   $ 0.2       $ —         $ (0.2   $ —         $ —     
                                           

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 $10.0 million of accrued liabilities for estimated costs to exit certain activities of AMIS, of which $0.2 million were for employee separation costs and $9.8 million were for exit costs outstanding as of December 31, 2010. During the three months ended April 1, 2011, the Company paid exit costs associated with the decommissioning costs resulting from the shutdown of a fabrication facility of $0.2 million.

The following is a roll-forward of the accrued liabilities for estimated costs to exit certain activities of AMIS from December 31, 2010 through April 1, 2011:

 

     December 31,
2010
     Usage     Adjustments      April 1,
2011
 

Estimated employee separation costs:

          

December 31, 2010 through April 1, 2011

   $ 0.2       $ —        $ —         $ 0.2   
                                  

Estimated costs to exit:

          

December 31, 2010 through April 1, 2011

   $ 9.8       $ (0.2   $ —         $ 9.6   
                                  

Other

During the quarter ended April 1, 2011, the Company recorded $2.5 million of other costs associated with damaged inventory and other assets due to the Japanese earthquake and tsunami.

 

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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 ended April 1, 2011, is as follows (in millions):

 

     Quarter Ended
April  1,

2011
 

Restructuring

  

2011 Charges:

  

Cash employee separation charges

   $ 8.4   

Exit costs

     1.5   

Other

  

Assets damaged related to Japanese earthquake

     2.5   
        
   $ 12.4   
        

Note 6: Balance Sheet Information

 

     April 1,
2011
    December 31,
2010
 

Receivables, net:

    

Accounts receivable

   $ 583.9      $ 301.9   

Less: Allowance for doubtful accounts

     (7.6     (7.3
                
   $ 576.3      $ 294.6   
                

Inventories:

    

Raw materials

   $ 68.7      $ 49.0   

Work in process

     435.1        210.9   

Finished goods

     263.7        100.9   
                
   $ 767.5      $ 360.8   
                

Other Current Assets:

    

Deposits

   $ 14.6      $ 1.9   

Prepaid Expenses

     23.1        22.2   

Tax Receivables

     20.4        14.9   

Favorable supply agreement from SANYO Electric

     30.0        —     

Miscellaneous Current Assets

     17.1        14.3   

Other

     16.5        10.3   
                
   $ 121.7      $ 63.6   
                

Property, plant and equipment, net:

    

Land

   $ 84.6      $ 48.3   

Buildings

     533.4        484.4   

Machinery and equipment

     1,787.5        1,631.1   
                

Total property, plant and equipment

     2,405.5        2,163.8   

Less: Accumulated depreciation

     (1,344.2     (1,299.5
                
   $ 1,061.3      $ 864.3   
                

Accrued expenses:

    

Accrued payroll

   $ 94.4      $ 73.1   

Sales related reserves

     41.1        36.5   

Restructuring reserves

     10.5        11.3   

Accrued pension liability

     0.6        0.3   

Other

     50.9        41.4   
                
   $ 197.5      $ 162.6   
                

Accumulated other comprehensive loss:

    

Foreign currency translation adjustments

   $ (58.4   $ (58.8

Unrecognized prior service cost of defined benefit pension plan

     (0.1     (0.1

Prior service cost from pension legal plan amendment

     (0.2     (0.2
                
   $ (58.7   $ (59.1
                

 

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Table of Contents

The activity related to the Company’s warranty reserves for the three months ended April 1, 2011 and April 2, 2010, respectively is as follows (in millions):

 

     Quarter Ended  
     April 1,
2011
     April 2,
2010
 

Beginning Balance

   $ 3.3       $ 3.2   

Provision

     0.6         —     

Usage

     —           (0.2
                 

Ending Balance

   $ 3.9       $ 3.0   
                 

The Company maintains defined benefits plans for some of its foreign subsidiaries. The Company recognizes the aggregate amount of all overfunded plans as an assets and the aggregate amount of all underfunded plans as a liability in its financial statements. As of April 1, 2011, the total accrued pension liability for underfunded plans is $ 75.8 million. Included in this amount is $50.5 million for the SANYO Semiconductor portion of the underfunded pension liability which is being assumed by the Company, with the current portion of $0.6 million being classified as accrued expenses. As of December 31, 2010, the total accrued pension liability for underfunded plans was $22.7 million, of which the current portion of $0.3 million was classified as accrued expenses. As of April 1, 2011 and December 31, 2010, the total pension asset for overfunded plans was $12.8 million and $13.4 million, respectively. The components of the Company’s net periodic pension expense for the quarter ended April 1, 2011 and April 2, 2010 are as follows (in millions):

 

     Quarter Ended  
     April 1,
2011
     April 2,
2010
 

Service Cost

   $ 2.3       $ 1.0   

Interest cost

     1.3         0.8   

Expected return on plan assets

     (1.0      (0.8

Amortization of prior service cost

     0.1         0.1   
                 

Total net periodic pension cost

   $ 2.7       $ 1.1   
                 

As of April 1, 2011, the estimated liabilities associated with the Company’s intent to withdraw from certain SANYO Electric multiemployer defined benefit pension plans were $134.8 million. During the quarter ended April 1, 2011, the Company recorded $2.9 million of expense associated with the Company’s participation in the SANYO Electric multiemployer pension plans.

Note 7: Long-Term Debt

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

 

     April 1,
2011
    December 31,
2010
 

U.S. real estate mortgages payable monthly thru Q1 2016 at an average rate of 4.857%

     32.7        33.0   

Loan with Japanese company due 2011 through 2018, interest payable quarterly at 2.0545%

     368.1        —     

Zero Coupon Convertible Senior Subordinated Notes due 2024 (1)

     89.1        87.5   

1.875% Convertible Senior Subordinated Notes due 2025 (2)

     83.7        82.2   

2.625% Convertible Senior Subordinated Notes due 2026 (3)

     415.6        410.1   

Loan with British finance company, interest payable monthly at 2.12291% and 2.18%, respectively

     22.1        13.8   

Loan with Hong Kong bank, interest payable weekly at 2.04% and 2.0325%, respectively

     40.0        40.0   

Loans with Philippine banks due 2011 through 2015, interest payable quarterly at an average rate of 1.82179% and 1.80446%, respectively

     66.2        68.8   

Loans with Chinese banks due 2011 through 2013, interest payable quarterly at an average rate of 4.16629% and 4.23375%, respectively

     34.0        34.0   

Loans with Japanese banks due 2011 through 2013, interest payable monthly and semi-annually at an average rate of 1.5% and 1.44545%, respectively

     6.7        3.9   

Capital lease obligations

     113.8        115.5   
                
     1,272.0        888.8   

Less: Current maturities

     (176.8     (136.0
                
   $ 1,095.2      $ 752.8   
                

 

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Table of Contents

 

(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 of 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 20, 2012.
(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 20, 2013.

Annual maturities relating to the Company’s long-term debt as of April 1, 2011 are as follows (in millions):

 

             Actual
Maturities
 

Remainder 2011

       $154.5  

2012

       264.4   

2013

       505.6   

2014

       70.2   

2015

       41.4   
 

    Thereafter

       235.9   
            
 

Total

     $ 1,272.0   
            

Acquisition Note Payable to SANYO Electric

In January 2011, SCI LLC, as borrower, and the Company, as guarantor, entered into a seven-year, unsecured loan agreement with SANYO Electric to finance a portion of the purchase price of the SANYO Semiconductor acquisition. The loan had an original principal amount of approximately $377.5 million and has a principal balance of $368.1 million as of April 1, 2011, bears interest at a rate of 3-month U.S. Dollar LIBOR plus 1.75% per annum, and provides for quarterly interest and $9.4 million in principal payments, with the unpaid balance of $122.7 million due at the January 2, 2018 maturity date.

January 2011 Japanese Loan

As part of the acquisition of SANYO Semiconductor, one of the Company’s newly acquired Japanese subsidiaries has continued with its existing five-year loan agreement with a Japanese bank (450 million JPY principal) to finance capital equipment purchases. The loan, which had a balance of $2.7 million at April 1, 2011 (225 million JPY principal), bears interest at an annual rate of 1-month Tokyo Interbank Offered Rate (“TIBOR”) plus 1.4% per annum and requires monthly principal payments through September 2013 of approximately $0.1 million (7.5 million JPY principal) along with accrued interest.

March 2011 Chinese Loans

In March 2011, one of the Company’s Chinese subsidiaries entered into a two year loan agreement with a Chinese bank to finance the purchase of raw materials. The loan which has a balance of $7.0 million as of April 1, 2011, bears interest payable quarterly in arrears based on variable 3-month LIBOR plus 3.80% per annum.

 

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Debt Guarantees

ON Semiconductor 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 “Convertible Notes”). ON Semiconductor’s domestic subsidiaries, except those domestic subsidiaries acquired through the acquisitions of AMIS, Catalyst Semiconductor, Inc. (“Catalyst”), PulseCore Holdings (Cayman) Inc. (“PulseCore”), CMD, Sound Design Technologies Ltd. (“SDT”), and SANYO Semiconductor (collectively, the “Guarantor Subsidiaries”), fully and unconditionally guarantee on a joint and several basis ON Semiconductor’s obligations under the Convertible 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. ON Semiconductor’s other remaining subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) are not guarantors of the Convertible Notes. The repayment of the unsecured Convertible Notes is subordinated to the senior indebtedness of ON Semiconductor and the Guarantor Subsidiaries on the terms described in the indentures for such Convertible Notes. Condensed consolidated financial information for the issuer of the Convertible 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 April 1, 2011

           

Cash and cash equivalents

  $ —        $ 430.6      $ (0.2   $ 335.6      $ —        $ 766.0   

Receivables, net

    —          54.9        —          521.4        —          576.3   

Inventories,

    —          48.0        —          714.8        4.7        767.5   

Other current assets

    —          28.0        —          93.7        —          121.7   

Deferred income taxes, net of allowances

    —          5.6        —          10.8        —          16.4   
                                               

Total current assets

    —          567.1        (0.2     1,676.3        4.7        2,247.9   

Property, plant and equipment, net

    —          239.4        2.5        822.6        (3.2     1,061.3   

Deferred income taxes, net of allowances

    —          —          —          62.3        —          62.3   

Goodwill and other intangible assets

    —          292.1        37.2        273.8        (33.2     569.9   

Investments and other assets

    2,080.0        1,428.8        53.2        846.7        (4,333.3     75.4   
                                               

Total assets

  $ 2,080.0      $ 2,527.4      $ 92.7      $ 3,681.7      $ (4,365.0   $ 4,016.8   
                                               

Accounts payable

  $ —        $ 43.8      $ 0.2      $ 483.8      $ —        $ 527.8   

Accrued expenses and other current liabilities

    4.3        137.7        0.9        241.4        1.7        386.0   

Deferred income tax, net of allowances

    —          —          —          62.8        —          62.8   

Deferred income on sales to distributors

    —          36.3        —          133.2        —          169.5   
                                               

Total current liabilities

    4.3        217.8        1.1        921.2        1.7        1,146.1   

Long-term debt

    588.4        429.0        —          77.8        —          1,095.2   

Other long-term liabilities

    —          25.8        0.4        218.0        —          244.2   

Deferred income tax, net of allowances

    —          5.6        —          16.0        —          21.6   

Intercompany

    0.3        (378.0     (50.0     222.2        205.5        —     
                                               

Total liabilities

    593.0        300.2        (48.5     1,455.2        207.2        2,507.1   

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,487.0        2,227.2        141.2        2,226.5        (4,594.9     1,487.0   

Minority interests in consolidated subsidiaries

    —          —          —          —          22.7        22.7   
                                               

Total stockholders’ equity

    1,487.0        2,227.2        141.2        2,226.5        (4,572.2     1,509.7   
                                               

Total liabilities and stockholders’ equity

  $ 2,080.0      $ 2,527.4      $ 92.7      $ 3,681.7      $ (4,365.0   $ 4,016.8   
                                               

 

16


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

As of April 2, 2010

           

Cash and cash equivalents

  $ —        $ 189.1      $ —        $ 371.6      $ —        $ 560.7   

Receivables, net

    —          46.6        —          252.3        —          298.9   

Inventories, net

    —          43.2        —          253.1        1.3        297.6   

Other current assets

    —          6.7        —          41.7        —          48.4   

Deferred income taxes, net of allowances

    —          5.5        —          9.1        —          14.6   
                                               

Total current assets

    —          291.1        —          927.8        1.3        1,220.2   

Property, plant and equipment, net

    —          165.3        2.7        577.4        (3.8     741.6   

Deferred income taxes

    —          —          —          —            —     

Goodwill and other intangible assets

    —          192.7        37.2        329.8        (37.4     522.3   

Investments and other assets

    1,643.1        1,368.7        47.3        26.0        (3,023.4     61.7   
                                               

Total assets

  $ 1,643.1      $ 2,017.8      $ 87.2      $ 1,861.0      $ (3,063.3   $ 2,545.8   
                                               

Accounts payable

  $ —        $ 33.6      $ 0.1      $ 171.0      $ —        $ 204.7   

Accrued expenses and other current liabilities

    7.5        74.7        0.9        175.6        1.7        260.4   

Deferred income on sales to distributors

    —          27.3        —          81.8        —          109.1   
                                               

Total current liabilities

    7.5        135.6        1.0        428.4        1.7        574.2   

Long-term debt

    567.9        208.9        —          46.7        —          823.5   

Other long-term liabilities

    —          18.7        0.3        26.0        —          45.0   

Deferred income taxes, net of allowances

    —          6.3        —          9.1          15.4   

Intercompany

    0.3        (142.7     (48.9     (14.2     205.5        —     
                                               

Total liabilities

    575.7        226.8        (47.6     496.0        207.2        1,458.1   

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,067.4        1,791.0        134.8        1,365.0        (3,290.8     1,067.4   

Minority interests in consolidated subsidiaries

    —          —          —          —          20.3        20.3   
                                               

Total stockholders’ equity

    1,067.4        1,791.0        134.8        1,365.0        (3,270.5     1,087.7   
                                               

Total liabilities and stockholders’ equity

  $ 1,643.1      $ 2,017.8      $ 87.2      $ 1,861.0      $ (3,063.3   $ 2,545.8   
                                               

 

17


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

For the quarter ended April 1, 2011

           

Revenues

  $ —        $ 208.6      $ —        $ 1,003.1      $ (341.1   $ 870.6   

Cost of revenues

    —          154.9        0.3        805.9        (332.9     628.2   
                                               

Gross profit

    —          53.7        (0.3     197.2        (8.2     242.4   
                                               

Research and development

    —          59.3        3.0        28.8        —          91.1   

Selling and marketing

    —          21.4        0.3        27.7        —          49.4   

General and administrative

    —          27.4        0.2        19.5        —          47.1   

Amortization of acquisition related intangible assets

    —          4.4        —          6.3        (1.0     9.7   

Restructuring, asset impairments and other, net

    —          —          —          12.4        —          12.4   
                                               

Total operating expenses

    —          112.5        3.5        94.7        (1.0     209.7   
                                               

Operating income (loss)

    —          (58.8     (3.8     102.5        (7.2     32.7   

Interest expense, net

    (12.9     (2.1     —          (2.5     —          (17.5

Other

    —          4.1        —          (4.3     —          (0.2

Gain (loss) on acquisition

    —          61.4        —          (.1     —          61.3   

Equity in earnings

    87.7        42.6        1.7        —          (132.0     —     
                                               

Income (loss) before income taxes and minority interests

    74.8        47.2        (2.1     95.6        (139.2     76.3   

Income tax provision

    —          12.2        —          (13.0     —          (0.8

Minority interests

    —          —          —          —          (0.7     (0.7
                                               

Net income (loss)

    74.8        59.4        (2.1     82.6        (139.9     74.8   

Net income (loss) attributable to minority interest

    —          —          —          —          —          —     
                                               

Net income (loss) attributable to ON Semiconductor Corporation

  $ 74.8      $ 59.4      $ (2.1   $ 82.6      $ (139.9   $ 74.8   
                                               

Net cash provided by operating activities

  $ —        $ 69.3      $ (0.1   $ 56.4      $ —        $ 125.6   
                                               

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —          (20.9     (0.1     (67.7     —          (88.7

Purchase of a business, net of cash acquired

    —          53.0        —          (110.6     —          (57.6

Increase in restricted cash

    —          142.1        —          —          —          142.1   
                                               

Net cash used in investing activities

    —          174.2        (0.1     (178.3     —          (4.2
                                               

Cash flows from financing activities:

           

Intercompany loans

    —          (375.1     —          375.1        —          —     

Intercompany loan repayments

    —          144.8        —          (144.8     —          —     

Proceeds from debt issuance

    —          —          —          15.2          15.2   

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

    —          1.9        —          —          —          1.9   

Proceeds from exercise of stock options

      41.1        —          —          —          41.1   

Repurchase of Treasury Stock

    —          (7.6     —          —          —          (7.6

Payment of capital lease obligation

    —          (10.0     —          0.1        —          (9.9

Repayment of long term debt

    —          (0.3     —          (19.3     —          (19.6
                                               

Net cash used in financing activities

    —          (205.2     —          226.3        —          21.1   
                                               

Effect of exchange rate changes on cash and cash equivalents

    —          —          —          0.2        —          0.2   
                                               

Net increase (decrease) in cash and cash equivalents

    —          38.3        (0.2     104.6        —          142.7   

Cash and cash equivalents, beginning of period

    —          392.3        —          231.0        —          623.3   
                                               

Cash and cash equivalents, end of period

  $ —        $ 430.6      $ (0.2   $ 335.6      $ —        $ 766.0   
                                               

 

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

For the quarter ended April 2, 2010

           

Revenues

  $ —        $ 172.1      $ —        $ 691.3      $ (313.2   $ 550.2   

Cost of revenues

    —          112.0        0.7        518.7        (309.3     322.1   
                                               

Gross profit

    —          60.1        (0.7     172.6        (3.9     228.1   
                                               

Research and development

    —          13.2        2.5        49.5        —          65.2   

Selling and marketing

    —          14.6        0.2        20.8        —          35.6   

General and administrative

    —          2.3        0.2        29.0        —          31.5   

Amortization of acquisition related intangible assets

    —          4.0        —          4.8        (1.0     7.8   

Restructuring, asset impairments and other, net

    —          —          —          3.8        —          3.8   
                                               

Total operating expenses

    —          34.1        2.9        107.9        (1.0     143.9   
                                               

Operating income (loss)

    —          26.0        (3.6     64.7        (2.9     84.2   

Interest expense, net

    (13.1     (2.8     —          (0.4     —          (16.3

Other

    —          0.8        —          (3.6     —          (2.8

Equity in earnings

    76.1        43.3        1.5        —          (120.9     —     
                                               

Income (loss) before income taxes and minority interests

    63.0        67.3        (2.1     60.7        (123.8     65.1   

Income tax provision

    —          5.3        —          (6.7     —          (1.4
                                               

Net income (loss)

    63.0        72.6        (2.1     54.0        (123.8     63.7   

Net income (loss) attributable to minority interest

    —          —          —          —          (0.7     (0.7
                                               

Net income (loss) attributable to ON Semiconductor Corporation

  $ 63.0      $ 72.6      $ (2.1   $ 54.0      $ (124.5   $ 63.0   
                                               

Net cash provided by operating activities

  $ —        $ 34.9      $ —        $ 74.6      $ —        $ 109.5   
                                               

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —          (15.1     —          (25.9     —          (41.0

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

    —          —          —          (66.8     —          (66.8

Proceeds from sales of property, plant and equipment

    —          —          —          —          —          —     
                                               

Net cash used in investing activities

    —          (15.1     —          (48.1     —          (63.2
                                               

Cash flows from financing activities:

           

Intercompany loans

    —          (239.3     —          239.3        —          —     

Intercompany loan repayments

    —          128.8        —          (128.8     —          —     

Proceeds from debt issuance

    —          —          —          0.2          0.2   

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

    —          1.6        —          —          —          1.6   

Proceeds from exercise of stock options

      4.5        —          —          —          4.5   

Repurchase of Treasury Stock

    —          (3.8     —          —          —          (3.8

Payment of capital lease obligation

    —          (8.0     —          (1.2     —          (9.2

Repayment of long term debt

    —          (0.5     —          (3.9     —          (4.4
                                               

Net cash used in financing activities

    —          (116.7     —          105.6        —          (11.1
                                               

Effect of exchange rate changes on cash and cash equivalents

    —          —          —          (0.2     —          (0.2
                                               

Net increase (decrease) in cash and cash equivalents

    —          (96.9     —          131.9        —          35.0   

Cash and cash equivalents, beginning of period

    —          286.0        —          239.7        —          525.7   
                                               

Cash and cash equivalents, end of period

  $ —        $ 189.1      $ —        $ 371.6      $ —        $ 560.7   
                                               

 

(1) ON Semiconductor is a holding Company and has no operations apart from those of its operating subsidiaries. Additionally, ON Semiconductor 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.

 

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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 ended April 1, 2011 and April 2, 2010, respectively, are as follows (in millions, except per share data):

 

     Quarter Ended  
     April 1,
2011
     April 2,
2010
 

Net income applicable to ON Semiconductor Corporation

   $ 74.8       $ 63.0   
                 

Basic weighted average common shares outstanding

     441.4         428.1   

Add: Incremental shares for:

     

Dilutive effect of stock options

     10.8         11.0   

1.875% convertible senior subordinated notes

     3.8         1.8   
                 

Diluted weighted average common shares outstanding

     456.0         440.9   
                 

Income per common share attributable to ON Semiconductor Corporation

     

Basic:

   $ 0.17       $ 0.15   
                 

Diluted:

   $ 0.16       $ 0.14   
                 

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. 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 excluded from the diluted earnings per share calculation. The excluded option shares were 6.1 million and 13.7 million for the quarters ended April 1, 2011 and April 2, 2010, respectively.

For the quarters ended April 1, 2011 and April 2, 2010, the assumed conversion of the Zero Coupon Convertible Senior Subordinated Notes due 2024 was also excluded in determining diluted net income per share. The Zero Coupon Convertible Senior Subordinated Notes were 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 April 1, 2011 and April 2, 2010, respectively. The excess of fair value over par value is convertible into stock. On April 1, 2011 and April 2, 2010, 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.

For the quarters ended April 1, 2011 and April 2, 2010, 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. On April 1, 2011 and April 2, 2010, 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 April 1, 2011, 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

 

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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 April 1, 2011 were $7.6 million for which the Company withheld 695,376 shares of common stock that were underlying the restricted stock units that vested. None of these shares had been reissued or retired as of April 1, 2011, but may be reissued or retired by the Company at a later date.

At December 31, 2010, the minority interest balance was $22.0 million. This balance increased to $22.7 million at April 1, 2011, due to the minority interest’s $0.7 million share of the earnings for the quarter, which has been reflected in the Company’s consolidated statement of operations for the quarter ended April 1, 2011.

At December 31, 2009, the minority interest balance was $19.6 million. This balance increased to $20.3 million at April 2, 2010 due to the minority interest’s $0.7 million share of the earnings for the quarter, which has been reflected in the Company’s consolidated statement of operations for the quarter ended April 2, 2010.

Note 9: Employee Stock Benefit Plans

At December 31, 2010, there was an aggregate of 24.4 million shares of common stock available for grant under the Company’s Amended and Restated Stock Incentive Plan (“Plan”). At April 1, 2011, there was an aggregate of 18.8 million shares of common stock available for grant under the Company’s Plan.

Stock Options

The weighted-average estimated fair value of stock options granted during the quarters ended April 1, 2011 and April 2, 2010 was $4.22 per share and $3.55 per share, respectively. The weighted-average assumptions associated with the stock options granted during the periods are as follows:

 

     Quarter Ended  
     April 1,
2011
    April 2,
2010
 

Volatility

     41.0     44.1

Risk-free interest rate

     2.1     2.5

Expected term

     4.9 years        5.6 years   

Pre-vesting forfeitures were estimated to be approximately 12% for the quarter ended April 1, 2011, and 12% for the quarter ended April 2, 2010, 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):

 

     Quarter Ended April 1, 2011  
     Number of
Shares
    Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
(in years)
     Aggregate
Intrinsic
Value
(In-The-
Money)
 

Outstanding at December 31, 2010

     27.4      $ 7.44         

Granted

     0.2        10.97         

Exercised

     (5.8     7.05         

Cancellations

     (0.2     7.15         
                

Outstanding at April 1, 2011

     21.6      $ 7.58         4.9       $ 53.6   
                                  

Exercisable at April 1, 2011

     16.8      $ 7.64         4.3       $ 41.7   
                                  

 

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Additional information about stock options outstanding at April 1, 2011 with exercise prices less than or above $9.76 per share, the closing price of the Company’s common stock at April 1, 2011, 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 $9.76

     13.5       $ 6.67         3.9       $ 6.73         17.4       $ 6.68   

Above $9.76

     3.3         11.57         0.9         10.32         4.2         11.32   
                                   

Total outstanding

     16.8       $ 7.64         4.8       $ 7.36         21.6       $ 7.58   
                                   

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 April 1, 2011, and changes during the three months ended April 1, 2011 (number of shares in millions):

 

     Quarter Ended April 1, 2011  
     Number of
Shares
    Weighted
Average
Grant Date
Fair Value
 

Nonvested shares of restricted stock units at December 31, 2010

     12.3      $ 5.19   

Granted

     3.8        10.71   

Released

     (2.2     5.52   

Forfeited

     (0.3     6.18   
                

Nonvested shares of restricted stock units at April 1, 2011

     13.6      $ 6.65   
                

Stock Grant Awards

During the three months ended April 1, 2011, the Company granted 0.04 million shares in stock grant awards with a weighted average grant date fair value of $10.71 per share to non-executive members of the Board of Directors. The awards vested and shares of common stock were issued immediately upon the effective date of the grant.

Employee Stock Purchase Plans

As of April 1, 2011, there were 5.0 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 quarter ended April 1, 2011 and April 2, 2010 were $2.03 per share and $2.12 per share, respectively. The weighted-average assumptions used in the pricing model are as follows:

 

Employee Stock Purchase Plan

   Quarter Ended
April 1, 2011
    Quarter Ended
April 2, 2010
 

Expected life (in years)

     0.25        0.25   

Risk-free interest rate

     0.1     0.1

Volatility

     28.0     46.0

 

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Share-Based Compensation Expense

Total share-based compensation expense, related to the Company’s stock options, restricted stock units, restricted stock awards, stock grant awards, and employee stock purchase plan, recognized for the quarter ended April 1, 2011 and April 2, 2010 was comprised as follows (in millions):

 

     Quarter Ended  
     April 1, 2011      April 2, 2010  

Cost of revenues

   $ 1.9       $ 3.3   

Research and development

     2.0         2.5   

Selling and marketing

     1.9         2.6   

General and administrative

     4.6         5.3   
                 

Share-based compensation expense before income taxes

   $ 10.4       $ 13.7   

Related income tax benefits (1)

     —           —     
                 

Share-based compensation expense, net of taxes

   $ 10.4       $ 13.7   
                 

 

(1) Most of the Company’s share-based compensation relates to its domestic subsidiaries, which have historically experienced recurring net operating losses; therefore, no related tax benefits are recorded.

At April 1, 2011, total unrecognized share-based compensation expense, net of estimated forfeitures, related to non-vested stock options and non-vested restricted stock units granted prior to that date was $10.4 million and $44.8 million, respectively. The total intrinsic value of stock options exercised during the quarter ended April 1, 2011 was $23.5 million. The Company recorded cash received from the exercise of stock options of $41.1 million and cash from issuance of shares under the ESPP of $1.9 million and recorded no related tax benefits during the quarter ended April 1, 2011. The Company issues new shares of stock upon the exercise of stock options, restricted stock units vesting and the completion of a purchase under the ESPP.

Note 10: Commitments and Contingencies

Leases

The following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of April 1, 2011 (in millions):

 

Remainder of 2011

   $ 14.1   

2012

     17.6   

2013

     15.4   

2014

     14.3   

2015

     13.6   

Thereafter

     29.0   
        

Total (1)

   $ 104.0   
        

 

(1) Minimum payments have not been reduced by minimum sublease rentals of $0.1 million due in the future under subleases.

Other Contingencies

The Company’s headquarters and manufacturing facility in Phoenix, Arizona is located on property that is a “Superfund” site, a property listed on the National Priorities List and subject to clean-up activities under the Comprehensive Environmental Response, Compensation, and Liability Act. Motorola, Inc. (“Motorola”), and now Freescale Semiconductor, Inc. (“Freescale”) have been involved in the cleanup of on-site solvent contaminated soil and groundwater and off-site contaminated groundwater pursuant to consent decrees with the State of Arizona. As part of the August 4, 1999 recapitalization, Motorola has retained responsibility for this contamination, and Motorola and Freescale have agreed to indemnify the Company with respect to remediation costs and other costs or liabilities related to this matter.

 

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In the Czech Republic the Company has ongoing remediation projects to respond to releases of hazardous substances that occurred during the years that this facility was operated by government-owned entities. In each case, the remediation project consists primarily of monitoring groundwater wells located on-site and off-site with additional action plans developed to respond in the event activity levels are exceeded at each of the respective locations. The government of the Czech Republic has agreed to indemnify the Company and the respective subsidiaries, subject to specified limitations, for remediation costs associated with this historical contamination. Based upon the information available, total future remediation costs to the Company are not expected to be material.

The Company’s design center in East Greenwich, Rhode Island is located on property that has localized soil contamination. In connection with the purchase of the facility, the Company entered into a Settlement Agreement and Covenant Not To Sue with the State of Rhode Island. This agreement requires that remedial actions be undertaken and a quarterly groundwater monitoring program be initiated by the former owners of the property. Based on the information available, any costs to the Company in connection with this matter are not expected to be material.

As a result of the acquisition of AMIS, the Company is a “primary responsible party” to an environmental remediation and cleanup at AMIS’s former corporate headquarters in Santa Clara, California. Costs incurred by AMIS include implementation of the clean-up plan, operations and maintenance of remediation systems, and other project management costs. However, AMIS’s former parent company, a subsidiary of Nippon Mining, contractually agreed to indemnify AMIS and the Company for any obligation relating to environmental remediation and cleanup at this location. The Company has not offset the receivable from Nippon Mining’s subsidiary against the estimated liability on the consolidated balance sheet. Therefore, a receivable from Nippon Mining’s subsidiary is recorded on the accompanying consolidated balance sheet as of April 1, 2011 related to this matter for approximately $0.1 million. The Company does not believe that the liability and receivable amounts are material to the Company’s consolidated financial position, results of operations or cash flow.

A bank guarantee issued on behalf of the Company under a non-reusable commitment credit with the bank has an outstanding amount of $4.0 million as of April 1, 2011. The Belgian bank that issued the guarantee has the right to create a mortgage on the real property of one of the Company’s European subsidiaries in the amount of $3.0 million but had not done so as of April 1, 2011. The Company also has outstanding guarantees and letters of credit outside of its non-reusable commitment credit totaling $9.2 million as of April 1, 2011.

As part of securing financing in the normal course of business, the Company issued guarantees related to its capital lease obligations and real estate mortgages which totaled approximately $141.1 million as of April 1, 2011. For its operating leases, the Company expects to make cash payments and similarly incur expenses totaling $104.0 million as payments come due. The Company had not recorded any liability in connection with these operating leases, letters of credit and guarantee arrangements.

Based on historical experience and information currently available, the Company believes it will not be required to make payments under the standby letters of credit or guarantee arrangements.

Indemnification Contingencies

The Company is a party to a variety of agreements entered into in the ordinary course of business pursuant to which it may be obligated to indemnify the other parties for certain liabilities that arise out of or relate to the subject matter of the agreements. Some of the agreements entered into by the Company require it to indemnify the other party against losses due to intellectual property infringement, property damage including environmental contamination, personal injury, failure to comply with applicable laws, the Company’s negligence or willful misconduct, or breach of representations and warranties and covenants related to such matters as title to sold assets.

 

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The Company faces risk of exposure to warranty and product liability claims in the event that its products fail to perform as expected or such failure of its products results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of the Company’s designed products are alleged to be defective, the Company may be required to participate in their recall. Depending on the significance of any particular customer and other relevant factors, the Company may agree to provide more favorable indemnity rights to such customer for valid warranty claims.

The Company has, from time to time, been active in merger and acquisition activity. In connection with these mergers or acquisitions, the Company has agreed to indemnify the other party or parties to the merger or acquisition agreement for certain things, limited in most instances, by time and/or monetary amounts.

The Company and its subsidiaries provide for indemnification of directors, officers and other persons in accordance with limited liability agreements, certificates of incorporation, by-laws, articles of association or similar organizational documents, as the case may be. The Company maintains directors’ and officers’ insurance, which should enable it to recover a portion of any future amounts paid.

In addition to the above, from time to time the Company provides standard representations and warranties to counterparties in contracts in connection with sales of its securities and the engagement of financial advisors and also provides indemnities that protect the counterparties to these contracts in the event they suffer damages as a result of a breach of such representations and warranties or in certain other circumstances relating to the sale of securities or their engagement by the Company.

While the Company’s future obligations under certain agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under any of these indemnities have not had a material effect on the Company’s business, financial condition, results of operations or cash flows. Additionally, the Company does not believe that any amounts that it may be required to pay under these indemnities in the future will be material to the Company’s business, financial position, results of operations or cash flows.

Legal Matters

The Company is currently involved in a variety of legal matters that arise in the normal course of business. Based on information currently available, management does not believe that the ultimate resolution of these matters, including the matters described or referred to in the next paragraphs will have a material effect on our financial condition, results of operations or cash flows. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, consolidated financial position, results of operations or cash flows could be materially and adversely affected.

Securities Class Action Litigation

During the period July 5, 2001 through July 27, 2001, the Company was named as a defendant in three shareholder class action lawsuits that were filed in federal court in New York City against it and certain of the Company’s former officers, current and former directors and the underwriters of the Company’s initial public offering. The lawsuits allege violations of the federal securities laws and have been docketed in the U.S. District Court for the Southern District of New York (“District Court”) as: Abrams v. ON Semiconductor Corp., et al., C.A. No 01-CV-6114; Breuer v. ON Semiconductor Corp., et al., C.A. No. 01-CV-6287; and Cohen v. ON Semiconductor Corp., et al., C.A. No. 01-CV-6942. On April 19, 2002, the plaintiffs filed a single consolidated amended complaint that supersedes the individual complaints originally filed. The amended complaint alleges, among other things, that the underwriters of its initial public offering improperly required their customers to pay the underwriters’ excessive commissions and to agree to buy additional shares of the Company’s common stock in the aftermarket as conditions of receiving shares in its initial public offering. The amended complaint further alleges that these supposed practices

 

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of the underwriters should have been disclosed in the Company’s initial public offering prospectus and registration statement. The amended complaint alleges violations of both the registration and antifraud provisions of the federal securities laws and seeks unspecified damages. The Company understands that various other plaintiffs have filed substantially similar class action cases against approximately 300 other publicly-traded companies and their public offering underwriters in New York City, which have all been transferred, along with the case against the Company, to a single federal district court judge for purposes of coordinated case management. The Company believes that the claims against it are without merit and has defended, and intends to continue to defend, the litigation vigorously. The litigation process is inherently uncertain, however, and the Company cannot guarantee that the outcome of these claims will be favorable for the Company.

On July 15, 2002, together with the other issuer defendants, the Company filed a collective motion to dismiss the consolidated, amended complaints against the issuers on various legal grounds common to all or most of the issuer defendants. The underwriters also filed separate motions to dismiss the claims against them. In addition, the parties have stipulated to the voluntary dismissal without prejudice of the Company’s individual former officers and current and former directors who were named as defendants in the litigation, and they are no longer parties to the litigation. On February 19, 2003, the District Court issued its ruling on the motions to dismiss filed by the underwriter and issuer defendants. In that ruling, the District Court granted in part and denied in part those motions. As to the claims brought against the Company under the antifraud provisions of the securities laws, the District Court dismissed all of these claims with prejudice, and refused to allow plaintiffs the opportunity to re-plead these claims. As to the claims brought under the registration provisions of the securities laws, which do not require that intent to defraud be pleaded, the District Court denied the motion to dismiss these claims as to us and as to substantially all of the other issuer defendants as well. The District Court also denied the underwriter defendants’ motion to dismiss in all respects.

In June 2003, upon the determination of a special independent committee of the Company’s Board of Directors, the Company elected to participate in a proposed settlement with the plaintiffs in this litigation. Had it been approved by the District Court, this proposed settlement would have resulted in the dismissal, with prejudice, of all claims in the litigation against the Company and against any of the other issuer defendants who elected to participate in the proposed settlement, together with the current or former officers and directors of participating issuers who were named as individual defendants. This proposed issuer settlement was conditioned on, among other things, a ruling by the District Court that the claims against the Company and against the other issuers who had agreed to the settlement would be certified for class action treatment for purposes of the proposed settlement, such that all investors included in the proposed classes in these cases would be bound by the terms of the settlement unless an investor opted to be excluded from the settlement in a timely and appropriate fashion.

On December 5, 2006, the U.S. Court of Appeals for the Second Circuit (“Court of Appeals”) issued a decision in In re Initial Public Offering Securities Litigation that six purported class action lawsuits containing allegations substantially similar to those asserted against the Company could not be certified as class actions due, in part, to the Court of Appeals’ determination that individual issues of reliance and knowledge would predominate over issues common to the proposed classes. On January 8, 2007, the plaintiffs filed a petition seeking rehearing en banc of this ruling. On April 6, 2007, the Court of Appeals denied the plaintiffs’ petition for rehearing of the Court of Appeals’ December 5, 2006 ruling. The Court of Appeals, however, noted that the plaintiffs remained free to ask the District Court to certify classes different from the ones originally proposed which might meet the standards for class certification that the Court of Appeals articulated in its December 5, 2006 decision. In light of the Court of Appeals’ December 5, 2006 decision regarding certification of the plaintiffs’ claims, the District Court entered an order on June 25, 2007 terminating the proposed settlement between the plaintiffs and the issuers, including the Company.

On August 14, 2007, the plaintiffs filed amended complaints in the six focus cases. The issuer defendants and the underwriter defendants separately moved to dismiss the claims against them in the amended complaints in the six focus cases. On March 26, 2008, the District Court issued an order in which it denied in substantial part the motions to dismiss the amended complaints in the six focus cases.

 

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On February 25, 2009, the parties advised the District Court that they had reached an agreement-in-principle to settle the litigation in its entirety. A stipulation of settlement was filed with the District Court on April 2, 2009. On June 9, 2009, the District Court preliminarily approved the proposed global settlement. Notice was provided to the class, and a settlement fairness hearing, at which members of the class had an opportunity to object to the proposed settlement, was held on September 10, 2009. On October 6, 2009, the District Court issued an order granting final approval to the settlement. Ten appeals were filed objecting to the definition of the settlement class and fairness of the settlement, five of which have been dismissed with prejudice. Two appeal briefs have been filed by the remaining objector groups, and those appeals remain pending. The settlement calls for a total payment of $586 million from all defendants, including underwriters, of which $100 million is allocated to the approximately 300 issuer defendants. Under the settlement, the Company’s insurers are to pay the full amount of the settlement share allocated to the Company, and the Company would bear no financial liability. The Company, as well as the officer and director defendants (current and former) who were previously dismissed from the action pursuant to tolling agreements, is to receive complete dismissal from the case. While the Company can make no assurances or guarantees as to the outcome of these proceedings, based upon its current knowledge, the Company believes that the final result of this action will have no material effect on its consolidated financial position, results of operations or cash flows.

Intellectual Property Matters

The Company faces risk to exposure from claims of infringement of the intellectual property rights of others. In the ordinary course of business, the Company receives letters asserting that its products or components breach another party’s rights. These threats may seek that the Company make royalty payments, that it stop use of such rights, or other remedies.

Prior to the acquisition of AMIS by the Company on March 17, 2008, in January 2003, Ricoh Company, Ltd. (“Ricoh”) filed in the U.S. District Court for the District of Delaware a complaint against AMIS and other parties (including Synopsys, Inc. (“Synopsys”)), alleging infringement of a patent owned by Ricoh. AMIS promptly tendered the defense of this claim to Synopsys, and Synopsys agreed to assume the defense of the case on AMIS’ behalf to the extent that the Synopsys software that AMIS licensed from Synopsys is alleged to constitute the basis of Ricoh’s claim of infringement. The case has been transferred to the U.S. District Court for the Northern District of California. Ricoh is seeking an injunction and damages in an unspecified amount relating to such alleged infringement. The patents relate to certain methodologies for the automated design of custom semiconductors.

The case was scheduled to go to trial in March 2007; however, in December 2006, the court issued an order staying the case pending a re-examination proceeding filed by Synopsys before the U.S. Patent & Trademark Office (“PTO”) challenging the validity of the patent claims at issue in this case. Since that time, Synopsys filed a total of three re-examination petitions with the PTO challenging the validity of the claims at issue. The PTO granted these petitions and consolidated all three re-examinations into one proceeding before a single examiner. The re-examination proceeding was completed in September 2008, and the PTO examiner issued a final rejection of all claims in the asserted patent over prior art. Ricoh has appealed that final rejection to the PTO Board of Appeals, which held a hearing on the appeal on September 29, 2010. The Board of Appeals has yet to issue its written decision on the appeal. In April 2008, the court lifted the stay despite the ongoing re-examination proceeding in the PTO. In September 2008, the court granted defendants’ request to refile a summary judgment motion on non-infringement that had been vacated as moot when the stay was imposed in December 2006. On March 6, 2009, the judge issued a ruling denying the summary judgment motion without prejudice because of a factual dispute over a patent claim element. After an exchange of briefs by the parties related to the disputed claim element, the judge held a further hearing on the matter on June 12, 2009. On October 23, 2009, the judge issued his ruling on the disputed claim element. Based on the judge’s ruling, Synopsys filed another motion for summary judgment on non-infringement on January 8, 2010. A hearing on that motion was held on March 8, 2010 and on April 14, 2010, the judge granted Synopsys’ motion for summary judgment. On April 28, 2010, Ricoh filed a motion for reconsideration on the summary judgment ruling. On May 28, 2010, the judge denied the Ricoh motion and entered final judgment in Synopsys’ favor for non-infringement. Ricoh subsequently filed

 

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a Notice of Appeal on June 23, 2010 and served its brief on appeal on August 31, 2010. Counsel for Synopsys filed its responsive brief on October 29, 2010. Oral arguments occurred in March 2011 and shortly thereafter the appellate court denied the Ricoh appeal and affirmed the district court holding in Synopsys’ favor of non-infringement. The Company believes that the asserted claims are without merit, and even if meritorious, that the Company will be indemnified against damages by Synopsys, and that resolution of this matter will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

Other Litigation Matter

On December 15, 2010, a lawsuit was filed in the United States District Court for the District of Delaware captioned Robert A. Lorber v. Francis P. Barton, George H. Cave, Donald A. Colvin, Curtis J. Crawford, Ph.D., Emmanuel T. Hernandez, Phillip D. Hester, Keith D. Jackson, J. Daniel McCranie, Robert Mahoney, W. John Nelson, Daryl Ostrander, Robert H. Smith, and ON Semiconductor Corporation (C.A. No. 1:10-CV-01101-GMS). The lawsuit was brought by a stockholder of ON Semiconductor Corporation and alleges generally that (1) ON Semiconductor Corporation’s 2010 proxy statement contained materially false and misleading information regarding the Company’s Amended and Restated Stock Incentive Plan (“Plan”) in violation of the federal securities laws; (2) the Plan was defective and, thus, any awards made pursuant to the Plan would not be tax-deductible pursuant to Section 162(m) of the Internal Revenue Code and applicable regulations; and (3) the individual defendants (who are ON Semiconductor Corporation officers and directors) violated their state law fiduciary duties and wasted corporate assets in connection with the adoption of the Plan. The Company has moved to dismiss the lawsuit. The Company denies the substantive allegations made in the lawsuit and intends to vigorously defend against them. While the Company makes no assurances or guarantees as to the outcome of this proceeding, based upon its current knowledge, the Company believes that the final result of this action will have no material effect on its consolidated financial position, results of operations or cash flows.

See Part I, Item 1 “Business-Government Regulation” of the 2010 Form 10-K for information on certain environmental matters.

Note 11: Fair Value of Financial Instruments

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of April 1, 2011 and December 31, 2010 (in millions):

 

     Balance as of
April 1, 2011
     Quoted Prices in
Active Markets (Level 1)
     Balance as of
December 31, 2010
     Quoted Prices in
Active Markets (Level 1)
 

Description

           

Assets:

           

Cash and cash equivalents:

           

Demand and time deposits

   $ 437.1       $ 437.1       $ 309.4       $ 309.4   

Money market funds

     46.1         46.1         46.1         46.1   

Treasuries

     282.8         282.8         267.8         267.8   
                                   

Total cash and cash equivalents

   $ 766.0       $ 766.0       $ 623.3       $ 623.3   

Other Current Assets

           

Foreign currency exchange contracts

     0.4         0.4         1.1         1.1   
                                   

Total financial assets

   $ 766.4       $ 766.4       $ 624.4       $ 624.4   
                                   

Liabilities:

           

Foreign currency exchange contracts

   $ 0.7       $ 0.7       $ 0.6       $ 0.6   
                                   

 

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The Company’s financial assets and liabilities are valued using market prices on active markets (Level 1). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less when purchased.

As of April 1, 2011, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or mortgage-backed securities.

Long-Term Debt, Including Current Portion

The carrying amounts and fair values of the Company’s long-term borrowings (excluding capital lease obligations) at April 1, 2011 and December 31, 2010 are as follows (in millions):

 

     April 1, 2011      December 31, 2010  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Long-term debt, including current portion

           

Convertible Notes - Level 1

   $ 588.4       $ 819.9       $ 579.7       $ 818.0   

Long-term debt - Level 3

   $ 537.0       $ 499.7       $ 160.7       $ 155.1   

The fair value of the Convertible Notes was estimated based on quoted market prices.

The fair value of the long-term debt was estimated based on discounting the par value of the debt over its life for the difference between the debt stated interest rate and current market rates for similar debt at April 1, 2011 and December 31, 2010.

The fair value of Level 3 financial instruments was determined by discounting the remaining payments of the outstanding debt using estimated current rates ranging from 0.93% to 4.11% at April 1, 2011.

Note 12: Segment Information

Revenues, gross profit and operating income for the Company’s reportable segments for the three months ended April 1, 2011 and April 2, 2010, respectively, are as follows (in millions):

 

    Automotive &
Power Group
    Computing &
Consumer
Group
    Digital, Mixed-
Signal  and

Memory
Product
Group
    Standard
Products
Group
    SANYO
Semiconductor
Products Group
    Total  

For quarter ended April 1, 2011:

           

Revenues from external customers

  $ 147.0      $ 133.3      $ 139.0      $ 173.2      $ 278.1      $ 870.6   

Segment gross profit

  $ 55.4      $ 54.4      $ 78.3      $ 66.8      $ 4.4      $ 259.3   

Segment operating income (loss)

  $ 22.8      $ 21.1      $ 26.3      $ 45.0      $ (42.8   $ 72.4   

For quarter ended April 2, 2010:

           

Revenues from external customers

  $ 125.9      $ 124.2      $ 138.6      $ 161.5      $ —        $ 550.2   

Segment gross profit

  $ 44.8      $ 52.9      $ 83.2      $ 60.8      $ —        $ 241.7   

Segment operating income (loss)

  $ 15.6      $ 20.7      $ 34.2      $ 40.1      $ —        $ 110.6   

 

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Depreciation and amortization expense is included in segment operating income. Reconciliations of segment gross profit and segment operating income to the financial statements are as follows (in millions):

 

     Quarter Ended  
     April 1, 2011     April 2, 2010  

Gross profit for reportable segments

   $ 259.3      $ 241.7   

Unallocated amounts:

    

Other unallocated manufacturing costs

     (16.9     (13.6
                

Gross profit

   $ 242.4      $ 228.1   
                

Operating income for reportable segments

   $ 72.4      $ 110.6   

Unallocated amounts:

    

Restructuring and other charges

     (12.4     (3.8

Other unallocated manufacturing costs

     (16.9     (13.6

Other unallocated operating expenses

     (10.4     (9.0
                

Operating income

   $ 32.7      $ 84.2   
                

Revenues by geographic location including local sales and exports made by operations within each area, based on shipments from the respective country, are summarized as follows (in millions):

 

     Quarter Ended  
     April 1, 2011      April 2, 2010  

United States

   $ 127.2       $ 119.2   

Other Americas

     6.2         1.7   

United Kingdom

     109.9         93.4   

Belgium

     0.9         0.1   

China

     269.9         172.2   

Japan

     125.4         13.5   

Singapore

     170.8         130.2   

Other Asia/Pacific

     60.3         19.4   

Other Europe

     —           0.5   
                 
   $ 870.6       $ 550.2   
                 

Property, plant and equipment, net by geographic location, are summarized as follows (in millions):

 

     April 1, 2011      December 31, 2010  

United States

   $ 241.9       $ 223.7   

China

     93.5         97.0   

Europe

     104.1         104.6   

Malaysia

     143.9         137.4   

Other Asia/Pacific

     233.3         178.3   

Japan

     182.7         70.8   

Belgium

     56.9         47.8   

Other Americas

     5.0         4.7   
                 
   $ 1,061.3       $ 864.3   
                 

For the quarter ended April 1, 2011, there was no individual customer which accounted for more than 10% of the Company’s total revenues. For the quarter ended April 2, 2010, one of the Company’s customers accounted for 12% of the Company’s total revenues.

 

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

You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (“2010 Form 10-K”), filed with the Securities and Exchange Commission (“the Commission”) on February 24, 2011, and our unaudited consolidated financial statements for the fiscal quarter ended April 1, 2011, included elsewhere in this Form 10-Q. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks, uncertainties and other factors. Actual results could differ materially because of certain factors discussed below or elsewhere in this Form 10-Q. See Part II, Item 1A. “Risk Factors” of this Form 10-Q and Part I, Item 1A, “Risk Factors” of our 2010 Form 10-K.

Company Highlights for the Quarter Ended April 1, 2011

 

   

Total revenues of approximately $870.6 million

 

   

Historical ON Semiconductor revenue of approximately $592.5 million

 

   

SANYO Semiconductor revenue of approximately $278.1 million

 

   

Net income of $0.16 per fully diluted share

 

   

Historical ON Semiconductor net income of $0.15 per fully diluted share

 

   

SANYO Semiconductor net income of $0.01 per fully diluted share

Executive Overview

This Executive Overview presents summary information regarding our industry, markets and operating trends only. For further information regarding the events summarized herein, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its entirety.

Industry Overview

We participate in unit and revenue surveys and use data summarized by the World Semiconductor Trade Statistics (“WSTS”) group to evaluate overall semiconductor market trends and also to track our progress against the total market in the areas we provide semiconductor components. The most recently published estimates of WSTS project a compound annual revenue growth rate in our total addressable market of approximately 6.4% during 2011 through 2013. These are not our projections and may not be indicative of actual results, but we, like many of our competitors, use this information as helpful, third-party projections and estimates.

Business and Company Overview

We are a premier supplier of high performance, silicon solutions for energy efficient electronics. Our 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. We design, manufacture and market an extensive portfolio of semiconductor components that address the design needs of sophisticated electronic systems and products. Our power management semiconductor components control, convert, protect and monitor the supply of power to the different elements within a wide variety of electronic devices. Our custom application specific integrated circuits use analog, digital signal processing, mixed-signal and advanced logic capabilities to act as the brain behind many of our automotive, medical, military, aerospace, consumer and industrial customers’ unique products. Our data management semiconductor components provide high-performance clock management and data flow management for precision computing and communications systems. Our standard semiconductor components serve as “building block” components within virtually all types of electronic devices. These various products fall into the logic, analog and discrete categories used by WSTS.

 

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We serve a broad base of end-user markets, including power supply, automotive, communications, computer, consumer, medical, industrial, mobile phone and military/aerospace. Applications for our products in markets include portable electronics, computers, game stations, servers, automotive and industrial automation control systems, routers, switches, storage-area networks and automated test equipment.

Our extensive portfolio of devices enables us to offer advanced integrated circuits and the “building block” components that deliver system level functionality and design solutions. Our product portfolio currently comprises approximately 42,000 products and we shipped approximately 10.6 billion units during the first three months of 2011 as compared to approximately 9.1 billion units in the first three months of 2010. We specialize in micro packages, which offer increased performance characteristics while reducing the critical board space inside today’s ever shrinking electronic devices. We believe that our ability to offer a broad range of products provides our customers with single source purchasing on a cost-effective and timely basis.

Acquisitions

Acquisition of SANYO Semiconductor Co., Ltd. (“SANYO Semiconductor”)

On January 1, 2011, we completed the purchase of SANYO Semiconductor, a subsidiary of SANYO Electric Co., Ltd. (“SANYO Electric”), and other assets related to SANYO Electric’s semiconductor business. The purchase price, which reflects a $19.0 million purchase price adjustment due from SANYO Electric to us which is subject to future adjustments, totaled $500.6 million and at the time of the acquisition, we paid approximately $142.1 million in cash, with the remaining $377.5 million borrowed by us, through Semiconductor Components Industries, LLC (“SCI LLC”), by issuance of a note payable to SANYO Electric.

We believe that this acquisition will provide us with access to market-leading Japanese and Asian customers, while providing SANYO Semiconductor customers with access to advanced front-end mixed-signal and analog manufacturing, and ultra high volume back-end facilities. Ultimately, we believe that the combination of SANYO Semiconductor operations with our own will provide it with highly complementary products, customers and geographic regions. See Note 2: “Acquisitions,” Note 5: “Restructuring, Asset Impairment and Other, net,” Note 6: “Balance Sheet” and Note 7: “Long-Term Debt” of the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information about the acquisition of SANYO Semiconductor.

Acquisition of Cypress Semiconductor’s CMOS Image Sensor Business Unit

On February 27, 2011, we completed the purchase of the CMOS Image Sensor Business Unit (“ISBU”) from Cypress Semiconductor Corporation (“Cypress Semiconductor”). The Company paid approximately $34.1 million in cash. The ISBU includes a broad portfolio of high-performance custom and standard CMOS image sensors used in multi-megapixel machine vision, linear and two dimensional (2D) bar code imaging, medical x-ray imaging, biometrics, digital photography and cinematography, and aerospace applications. The acquired products include the VITA, LUPA, STAR and IBIS families, which are well known throughout the industry. See Note 2: “Acquisitions” of the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for additional information about our ISBU acquisition.

Segments

We are organized into five operating segments, which also represent five reporting segments: automotive and power group, standard products group, computing and consumer products group, digital, mixed-signal and memory products group, and the SANYO Semiconductor products group. Each of our major product lines has been assigned to a segment, as illustrated in the table below, based on our operating strategy. Because many products are sold into different end markets, the total revenue reported for a segment is not indicative of actual sales in the end market associated with that segment, but rather is the sum of the revenues from the product lines assigned to that segment. From time to time we reassess the alignment of our product families and devices to our operating segments and may move product families or individual devices from one operating segment to another.

 

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Automotive &
Power Group

  

Computing &
Consumer Products

   Digital, Mixed-
Signal and Memory
Products
   Standard Products    SANYO
Semiconductor
Products
MOSFETs    DC-DC Conversion    Medical    Bipolar Power    Hyper
Analog Automotive    Analog Switches    Integrated Sensor
Products (“ISP”)
   Thyristor    Devices
Auto Power    AC-DC Conversion    Military &
Aerospace
   Small Signal    Hybrid
Integrated
Circuits
LDO & Vregs    Low Voltage    Mixed Signal
ASICs
   Zener    Standard
Mixed-Signal Automotive    Standard Logic    Industrial ASSPs    Protection    LSI Products
   Power Switching    High Frequency    Rectifier    Custom
   Signal & Interface    Foundry and
Integrated
Passive Device
Manufacturing
Services
   Filters    LSI Products
      Memory
Products
     

Customers

We have approximately 432 direct customers worldwide, and we also service approximately 242 significant original equipment manufacturers indirectly through our distributor and electronic manufacturing service provider customers. Our direct and indirect customers include: (1) leading original equipment manufacturers in a broad variety of industries, such as Continental Automotive Systems, Panasonic, Delta, Samsung, Hella, LG Electronics, Motorola Mobility, Motorola Solutions, Boston Scientific, Delphi, Huawei Technology, Seagate Technology, Bosch, Sony Ericsson, Siemens, Visteon, Triquint Semiconductor, and Johnson Controls; (2) electronic manufacturing service providers, such as Flextronics, Jabil, Benchmark Electronic, and Sanmina; and (3) global distributors, such as Avnet, World Peace, Arrow, Wintech, Yosun, EBV Elektronik, and Future.

Operating Facilities

We currently have major design operations in Arizona, Rhode Island, Idaho, California, Texas, Oregon, China, Romania, Switzerland, the Czech Republic, Korea, Belgium, Canada, Germany, India, Ireland, and France, and we currently operate manufacturing facilities in Arizona, Oregon, Idaho, Belgium, China, the Czech Republic, Japan, Malaysia, the Philippines, and Thailand.

With the acquisition of SANYO Semiconductor, we have gained various process and packaging capabilities in various sites in Japan as well as back end assembly and test facilities in the Philippines, China, Thailand and Vietnam. We expect to consolidate SANYO Semiconductor’s Japanese manufacturing facilities from five sites down to two sites, resulting in a footprint of roughly 2 million square feet in fabrication space and approximately 0.4 million in assembly and test space. Outside of Japan, we currently own or lease through SANYO Semiconductor and its subsidiaries approximately 2.3 million square feet of production space. Much of the reductions in assembly and test activities in Japan will be transferred into our existing SANYO Semiconductor or other Company facilities. We expect to continue the existing SANYO Semiconductor plan to shutdown the assembly and test production in its Taiwan and Hong Kong manufacturing locations.

 

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New Product Innovation