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

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended July 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 July 29, 2011:

 

Title of Each Class

  

Number of Shares

Common Stock, par value $0.01 per share   

448,318,913

 

 

 


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

     39   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     65   

Item 4. Controls and Procedures

     65   

Part II: Other Information

  

Item 1. Legal Proceedings

     67   

Item 1A. Risk Factors

     67   

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

     68   

Item 3. Defaults Upon Senior Securities

     68   

Item 4. (Removed and Reserved)

     68   

Item 5. Other Information

     68   

Item 6. Exhibits

     68   

Signatures

     69   

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)

 

     July 1,
2011
    December 31,
2010
 

Assets

    

Cash and cash equivalents

   $ 756.6      $ 623.3   

Short-term investments

     112.2        0   

Receivables, net

     575.8        294.6   

Inventories

     749.2        360.8   

Other current assets

     86.2        63.6   

Deferred income taxes, net of allowances

     16.9        15.7   
  

 

 

   

 

 

 

Total current assets

     2,296.9        1,358.0   
  

 

 

   

 

 

 

Restricted cash

     0        142.1   

Property, plant and equipment, net

     1,150.9        864.3   

Deferred income taxes, net of allowances

     67.4        0   

Goodwill

     199.2        191.2   

Intangible assets, net

     359.0        303.0   

Other assets

     76.4        60.6   
  

 

 

   

 

 

 

Total assets

   $ 4,149.8      $ 2,919.2   
  

 

 

   

 

 

 

Liabilities, Minority Interests and Stockholders’ Equity

    

Accounts payable

   $ 528.9      $ 256.9   

Accrued expenses

     221.4        162.6   

Income taxes payable

     3.4        5.1   

Accrued interest

     0.9        0.8   

Deferred income on sales to distributors

     187.7        149.5   

Deferred income taxes, net of allowances

     65.2        0   

Current portion of long-term debt

     286.7        136.0   
  

 

 

   

 

 

 

Total current liabilities

     1,294.2        710.9   

Long-term debt

     998.7        752.8   

Other long-term liabilities

     247.0        49.3   

Deferred income taxes, net of allowances

     22.3        18.2   
  

 

 

   

 

 

 

Total liabilities

     2,562.2        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, 498,334,304 and 485,904,100 shares issued, 448,106,855 and 436,774,177 shares outstanding, respectively)

     5.0        4.9   

Additional paid-in capital

     3,098.0        3,016.1   

Accumulated other comprehensive loss

     (54.5     (59.1

Accumulated deficit

     (1,090.3     (1,213.9

Less: treasury stock, at cost; 50,227,449 and 49,129,923 shares, respectively

     (394.1     (382.0
  

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity

     1,564.1        1,366.0   

Minority interests in consolidated subsidiaries

     23.5        22.0   
  

 

 

   

 

 

 

Total equity

     1,587.6        1,388.0   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,149.8      $ 2,919.2   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

1


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)

 

     Quarter Ended     Six Months Ended  
     July 1,
2011
    July 2,
2010
    July 1,
2011
    July 2,
2010
 

Revenues

   $ 905.8      $ 583.3      $ 1,776.4      $ 1,133.5   

Cost of product revenues

     639.7        339.5        1,267.9        661.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     266.1        243.8        508.5        471.9   

Operating expenses:

        

Research and development

     89.2        60.1        180.3        125.3   

Selling and marketing

     51.2        36.5        100.6        72.1   

General and administrative

     52.3        35.3        99.4        66.8   

Amortization of acquisition-related intangible assets

     11.4        8.1        21.1        15.9   

Restructuring, asset impairments and other, net

     5.1        2.3        17.5        6.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     209.2        142.3        418.9        286.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     56.9        101.5        89.6        185.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses), net:

        

Interest expense

     (17.8     (14.5     (35.6     (30.9

Interest income

     0.2        0.1        0.5        0.2   

Other

     5.7        (3.4     5.5        (6.2

Loss on debt repurchase

     0        (0.7     0        (0.7

Gain on SANYO Semiconductor acquisition

     0        0        69.1        0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses), net

     (11.9     (18.5     39.5        (37.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     45.0        83.0        129.1        148.1   

Income tax provision

     (3.2     (3.4     (4.0     (4.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     41.8        79.6        125.1        143.3   

Less: Net income attributable to minority interests

     (0.8     (0.9     (1.5     (1.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to ON Semiconductor Corporation

   $ 41.0      $ 78.7      $ 123.6      $ 141.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income:

        

Net income

   $ 41.8      $ 79.6      $ 125.1      $ 143.3   

Foreign currency translation adjustments

     0.1        2.0        4.4        1.8   

Amortization of prior service costs of defined benefit plan

     0        0        0.2        0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     41.9        81.6        129.7        145.1   

Comprehensive income attributable to minority interests

     (0.8     (0.9     (1.5     (1.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation

   $ 41.1      $ 80.7      $ 128.2      $ 143.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share attributable to ON Semiconductor Corporation:

        

Basic

   $ 0.09      $ 0.18      $ 0.28      $ 0.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.09      $ 0.18      $ 0.27      $ 0.32   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

Basic

     446.2        430.3        443.8        429.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     461.5        439.6        460.0        439.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

2


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(unaudited)

 

     Six Months Ended  
     July 1,
2011
    July 2,
2010
 

Cash flows from operating activities:

    

Net income

   $ 125.1      $ 143.3   

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

    

Depreciation and amortization

     109.9        80.0   

Gain on sale and disposal of fixed assets

     (5.1     (3.7

Non-cash manufacturing expenses associated with favorable supply agreement

     80.4        0   

Non-cash portion of loss on debt repurchase

     0        0.7   

Gain on acquisition of SANYO Semiconductor

     (69.1     0   

Amortization of debt issuance costs and debt discount

     1.2        1.4   

Provision for excess inventories

     3.8        0.1   

Non-cash stock compensation expense

     20.9        29.1   

Non-cash interest

     17.6        17.0   

Deferred income taxes

     (9.2     3.4   

Other

     (0.6     (0.8

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

    

Receivables

     (32.5     (47.0

Inventories

     43.6        (34.9

Other assets

     4.3        7.0   

Accounts payable

     (52.2     30.6   

Accrued expenses

     (17.3     18.1   

Income taxes payable

     (1.7     (3.2

Accrued interest

     0.1        (0.1

Deferred income on sales to distributors

     38.2        29.0   

Other long-term liabilities

     4.2        (1.6
  

 

 

   

 

 

 

Net cash provided by operating activities

     261.6        268.4   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (173.5     (93.5

Purchase of businesses, net of cash acquired

     (17.9     (90.2

Deposits utilized for purchases of property, plant and equipment

     0        (0.9

Proceeds from sales of property, plant and equipment

     3.3        0   

Proceeds from held-to-maturity securities

     0        45.5   

Purchase of held-to-maturity securities

     (112.2     0   

Uses of restricted cash

     142.1        0   
  

 

 

   

 

 

 

Net cash used in investing activities

     (158.2     (139.1
  

 

 

   

 

 

 

Cash flows from financing activities:

    

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

     4.0        3.3   

Proceeds from debt issuance

     41.3        23.2   

Proceeds from exercise of stock options

     57.1        7.3   

Payment of capital lease obligation

     (18.6     (15.3

Purchase of treasury stock

     (12.1     (7.0

Repayment of long-term debt

     (43.8     (199.5
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     27.9        (188.0
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     2.0        0.1   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     133.3        (58.6

Cash and cash equivalents, beginning of period

     623.3        525.7   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 756.6      $ 467.1   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

3


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1: Background and Basis of Presentation

ON Semiconductor Corporation (“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 July 1, 2011, and for the three and six months ended July 1, 2011 and July 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 paid SANYO Electric $142.1 million in cash (using restricted cash as of December 31, 2010) and issued a $377.5 million note payable to SANYO Electric, through its subsidiary Semiconductor Components (“SCI LLC”), whereby SANYO Semiconductor became a wholly-owned subsidiary of the Company. In the second quarter of 2011, the Company received $39.7 million in cash from SANYO Electric of which $19.0 million had been recognized as of April 1, 2011. These amounts represented adjustments for working capital and pension levels, as defined in the purchase agreement. As a result of these adjustments, the purchase price has been reduced to $479.9 million as of July 1, 2011. The purchase price may be subject to future adjustments, primarily related to pension and related benefit liabilities.

 

4


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 and subsequent adjustments applied on a retrospective basis estimated fair values of the net assets acquired of SANYO Semiconductor (in millions):

 

     Initial
Estimate
    Adjustments     Revised
Estimate
 

Cash and cash equivalents

   $ 117.1      $ 0      $ 117.1   

Receivables, net

     242.1        0        242.1   

Inventory

     423.9        (5.0     418.9   

Deferred income taxes current

     0.5        0        0.5   

Other current assets

     119.2        0        119.2   

Property, plant and equipment

     148.0        (1.3     146.7   

Deferred income taxes, noncurrent

     60.5        0        60.5   

Intangible assets

     55.7        0        55.7   

Other non-current assets

     14.9        0        14.9   
  

 

 

   

 

 

   

 

 

 

Total assets acquired

     1,181.9        (6.3     1,175.6   
  

 

 

   

 

 

   

 

 

 

Accounts payable

     (300.0     0        (300.0

Deferred income taxes, current

     (70.3     0        (70.3

Other current liabilities

     (61.3     (6.6     (67.9

Deferred income taxes, noncurrent

     (0.5     0        (0.5

Long-term accrued liabilities

     (187.9     0        (187.9
  

 

 

   

 

 

   

 

 

 

Total liabilities assumed

     (620.0     (6.6     (626.6

Net assets acquired

     561.9        (12.9     549.0   

Gain on acquisition

     (61.3     (7.8     (69.1
  

 

 

   

 

 

   

 

 

 

Purchase price

   $ 500.6      $ (20.7   $ 479.9   
  

 

 

   

 

 

   

 

 

 

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. In the first quarter ended April 1, 2011, the Company originally reported a gain of $61.3 million which has been retrospectively adjusted to $69.1 million as reflected in the table above. The increase in the gain is the result of $20.7 million received from SANYO Electric in the second quarter of 2011, as well as certain adjustments to conform to the Company’s accounting policies. Consequently, the Company has recorded a $69.1

 

5


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 wanted to exit its semiconductor operations, historical losses recognized by SANYO Electric, SANYO Electric viewed 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 second quarter, management had not yet completed its evaluation of the fair value of certain assets and liabilities acquired, primarily (i) certain retirement plan liabilities assumed in connection with the SANYO Semiconductor business in Japan. (ii) the final valuation of certain asset retirement obligations identified as a result of the acquisition and (iii) the final valuation of certain income tax accounts. Additional information related to the 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 8.8 years. The intangible assets that make up that amount include: patents of $27.0 million (5.5-year weighted average useful life), $3.0 million of trademarks (3-year weighted average useful life) and customer relationships of $25.7 million (13-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 has been charged to cost of goods sold over the period of benefit, which was estimated to be 5 months. The amortization totaled $80.4 million as a result of foreign currency exchange rate changes over the recognition period.

The estimated 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 estimated portion of underfunded pension obligations relating to certain employees participating in the SANYO Electric or affiliate multiemployer defined benefit pension plan from which the Company intends to withdraw. The Company is in the process of establishing defined benefit pension plans which are 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.

 

6


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

The following unaudited pro forma consolidated results of operations for the quarter and six months ended July 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
July 2, 2010
     For Six Months Ended
July 2, 2010
 

Net Revenues

   $ 899.8       $ 1,742.4   

Net Income

   $ 56.8       $ 155.2   

Net income per common share—Basic

   $ 0.13       $ 0.36   

Net income per common share—Diluted

   $ 0.13       $ 0.35   

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.

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.

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   
  

 

 

 

 

7


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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets 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 July 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 recent and historical acquisitions.

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 July 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 regularly

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

reviews 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.

A reconciliation of the original goodwill from each of the Company’s acquisitions to the carrying value as of July 1, 2011 and December 31, 2010 for each reporting unit that contains goodwill, is as follows (in millions):

 

Acquisition

  

Operating

Segment

 

Reporting Unit

  Balance as of December 31, 2010     For the Six Months Ended July 1, 2011     Balance as of July 1, 2011  
       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   $ 0      $ 17.6      $ 0      $ 0      $ 0      $ 21.8      $ (4.2   $ 0      $ 17.6   
  

Computing & Consumer Products:

                     
    

Signal & Interface

    29.1        (5.6     0        23.5        0        0        0        29.1        (5.6     0        23.5   

Leshan additional interest:

                     
  

Standard Products:

                     
    

Small Signal

    3.8        0        0        3.8        0        0        0        3.8        0        0        3.8   

AMIS acquisition:

                     
  

Digital & Mixed-Signal Product Group:

                     
    

Industrial

    238.7        0        (214.7     24.0        0        0        0        238.7        0        (214.7     24.0   
    

Foundry

    146.2        0        (131.4     14.8        0        0        0        146.2        0        (131.4     14.8   
    

Medical

    79.7        0        (59.9     19.8        0        0        0        79.7        0        (59.9     19.8   
    

Military/Aerospace

    44.8        0        0        44.8        0        0        0        44.8        0        0        44.8   

Catalyst acquisition:

                     
  

Standard Products:

                     
    

Memory Products

    14.1        0        0        14.1        0        0        0        14.1        0        0        14.1   

PulseCore acquisition:

                     
  

Digital & Mixed-Signal Product Group:

                     
    

Protection Products

    8.9        0        (8.9     0        0        0        0        8.9        0        (8.9     0   

CMD acquisition:

                     
  

Standard Products:

                     
    

Filter Products

    20.1        0        0        20.1        0        0        0        20.1        0        0        20.1   

SDT acquisition:

                     
  

Digital & Mixed-Signal Product Group:

                     
    

Medical Products

    8.7        0        0        8.7        0        0        0        8.7        0        0        8.7   

ISBU acquisition:

                     
  

Digital & Mixed-Signal Product Group:

                     
    

Sensor Products

    0        0        0        0        8.0        0        0        8.0        0        0        8.0   
      

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       $ 615.9      $ (9.8   $ (414.9   $ 191.2      $ 8.0      $ 0      $ 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.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Intangible assets, net were as follows as of July 1, 2011 and December 31, 2010 (in millions):

 

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

Intellectual property

  $ 13.9      $ (7.9   $ 0      $ 0      $ 6.0        5-12   

Assembled workforce

    6.7        (6.7     0        0        0        5   

Customer relationships

    280.1        (60.3     (27.5     (3.2     189.1        5-18   

Non-compete agreements

    0.5        (0.5     0        0        0        1-3   

Patents

    43.7        (7.1     0        0        36.6        12   

Developed technology

    130.0        (29.6     0        (2.0     98.4        5-12   

Trademarks

    14.0        (2.5     0        0        11.5        15   

In-process research and development

    19.4        0        0        (2.0     17.4        8   

Acquired software

    1.0        (1.0     0        0        0        2   

Backlog

    0.8        (0.8     0        0        0        0.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total intangibles

  $ 510.1      $ (116.4   $ (27.5   $ (7.2   $ 359.0     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

Intellectual property

  $ 13.9      $ (7.0   $ 0      $ 0      $ 6.9        5-12   

Assembled workforce

    6.7        (6.1     0        0        0.6        5   

Customer relationships

    250.5        (51.2     (27.2     (3.2     168.9        5-18   

Non-compete agreements

    0.5        (0.5     0        0        0        1-3   

Patents

    16.7        (4.2     0        0        12.5        12   

Developed technology

    113.0        (22.5     0        (2.0     88.5        5-12   

Trademarks

    11.0        (1.7     0        0        9.3        15   

In-process research and development

    18.3        0        0        (2.0     16.3        8   

Acquired software

    1.0        (1.0     0        0        0        2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total intangibles

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Amortization expense for intangible assets amounted to $11.9 million and $22.2 million for the quarter and six months ended July 1, 2011, of which $0.5 million and $1.1 million was included in cost of revenues; and $8.7 million and $17.1 million for the quarter and six months ended July 2, 2010, of which $0.6 million and $1.2 million was included in cost of revenues. The Company is currently amortizing eight projects totaling $15.2 million through developed technology relating to projects that were originally classified as in-process research and development at the time of acquisition, but which are now completed, over a weighted average useful life of 10.0 years. Amortization expense for intangible assets, with the exception of the remaining $17.4 million of in-process research and development assets that will be amortized once the corresponding projects have been completed, is expected to be as follows over the next five years, and thereafter (in millions):

 

     Total  

Remainder of 2011

   $ 27.5   

2012

     40.6   

2013

     35.9   

2014

     35.7   

2015

     34.6   

Thereafter

     167.3   
  

 

 

 

Total estimated amortization expense

   $ 341.6   
  

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 4: New Accounting Pronouncements

Accounting Standards Update No. 2011-04—“Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles and IFRSs” (“ASU No. 2011-04”)

ASU No. 2011-04 generally provides a uniform framework for fair value measurements and related disclosures between Generally Accepted Accounting Principles and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011, which for the Company will be its first quarter of 2012. The Company is currently evaluating the impact No. ASU 2011-04 will have on its financial statements.

Accounting Standards Update No. 2011-05—“Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”)

ASU No. 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (for the Company this will be its first quarter 2012), with early adoption permitted. The Company believes the adoption of this update will change the order in which certain financial statements are presented and provide additional detail on those financial statements when applicable, but will not have any other impact on its financial statements.

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.

Adoption of ASU No. 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations”

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

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 affected the Company’s disclosure related to its 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 Closure of the Phoenix, Arizona Wafer Manufacturing Facility

In the second quarter of 2011, the Company proceeded with its previously announced plans to close the Phoenix, Arizona wafer manufacturing facility for cost saving purposes. During the second quarter of 2011, a total of 166 employees were notified that their employment with the Company would be terminated due to their positions being eliminated or consolidated in connection with this restructuring. As of the end of the second quarter, all of these employees still remain employed by the Company. The Company recorded employee separation charges of approximately $2.5 million related to these terminations. These charges have been included in restructuring, asset impairment and other, net on the consolidated statement of operations for the quarter and six months ended July 1, 2011. We expect that all of these notified individuals will be officially separated and exited from the Company during the third and fourth quarter of 2011, with all related benefit payments being made in the same periods.

Additionally, during the second quarter ended July 1, 2011, the Company recorded exit costs of approximately $0.3 million, related to the decommissioning of the Phoenix, Arizona wafer manufacturing facility.

 

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

Estimated employee separation costs (in millions):

              

December 31, 2010 through July 1, 2011

   $ 0       $ 2.5       $ 0       $ 0       $ 2.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Estimated costs to exit (in millions):

              

December 31, 2010 through July 1, 2011

   $ 0       $ 0.3       $ 0       $ 0       $ 0.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restructuring Activities Related to the 2011 Acquisition of SANYO Semiconductor

Cumulative charges of $9.9 million, net of adjustments, have been recognized through July 1, 2011, related to the 2011 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 assembly and test facility is being consolidated into other existing factories. During the first and second 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 six months ended July 1, 2011.

During the six months ended July 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.

 

12


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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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.

 

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

Estimated employee separation costs (in millions):

             

December 31, 2010 through July 1, 2011

   $ 0       $ 8.4       $ (8.4   $ 0       $ 0   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Estimated costs to exit (in millions):

             

December 31, 2010 through July 1, 2011

   $ 0       $ 1.5       $ (1.5   $ 0       $ 0   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

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 July 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 July 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.

Cumulative exit costs of $0.1 million have been recognized from the inception of this restructuring activity through July 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
 

Estimated employee separation charges (in millions):

             

December 31, 2010 through July 1, 2011

   $ 1.0       $ 0       $ (0.7   $ 0       $ 0.3   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Estimated costs to exit (in millions):

             

December 31, 2010 through July 1, 2011

   $ 0.1       $ 0       $ 0      $ 0       $ 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 July 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
 

Estimated employee separation charges (in millions):

             

December 31, 2010 through July 1, 2011

   $ 0.2       $ 0       $ (0.2   $ 0       $ 0   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 six months ended July 1, 2011, the Company paid exit costs associated with the decommissioning costs resulting from the shutdown of a fabrication facility of $0.3 million. All payments related to these activities are expected to be completed by the end of the first quarter of fiscal 2012.

 

     December 31,
2010
     Usage     Adjustments      July 1,
2011
 

Estimated employee separation costs (in millions):

          

December 31, 2010 through July 1, 2011

     0.2       $ 0      $ 0       $ 0.2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Estimated costs to exit (in millions):

          

December 31, 2010 through July 1, 2011

   $ 9.8       $ (0.3   $ 0       $ 9.5   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other

During the quarter and six months ended July 1, 2011, the Company recorded $2.3 million and $4.8 million, respectively, of other costs associated with damaged inventory and other assets due to the Japanese earthquake and tsunami.

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 July 1, 2011, is as follows (in millions):

 

    

Quarter Ended
July 1,

          2011           

    

Six Months Ended
July 1,

            2011             

 

Restructuring

     

2011 Charges:

     

Estimated employee separation charges

   $ 2.5       $ 10.9   

Exit costs

     0.3         1.8   

Other

     

Assets damaged related to Japanese earthquake

     2.3         4.8   
  

 

 

    

 

 

 
   $ 5.1       $ 17.5   
  

 

 

    

 

 

 

 

14


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 6: Balance Sheet Information

 

     July 1,
2011
    December 31,
2010
 

Receivables, net:

    

Accounts receivable

   $ 584.2      $ 301.9   

Less: Allowance for doubtful accounts

     (8.4     (7.3
  

 

 

   

 

 

 
   $ 575.8      $ 294.6   
  

 

 

   

 

 

 

Inventories:

    

Raw materials

   $ 70.2      $ 49.0   

Work in process

     440.6        210.9   

Finished goods

     238.4        100.9   
  

 

 

   

 

 

 
   $ 749.2      $ 360.8   
  

 

 

   

 

 

 

Other Current Assets:

    

Deposits

   $ 3.2      $ 1.9   

Prepaid Expenses

     33.3        22.2   

Tax Receivables

     24.1        14.9   

Other

     25.6        24.6   
  

 

 

   

 

 

 
   $ 86.2      $ 63.6   
  

 

 

   

 

 

 

Property, plant and equipment, net:

    

Land

   $ 85.0      $ 48.3   

Buildings

     556.2        484.4   

Machinery and equipment

     1,890.8        1,631.1   
  

 

 

   

 

 

 

Total property, plant and equipment

     2,532.0        2,163.8   

Less: Accumulated depreciation

     (1,381.1     (1,299.5
  

 

 

   

 

 

 
   $ 1,150.9      $ 864.3   
  

 

 

   

 

 

 

Accrued expenses:

    

Accrued payroll

   $ 118.3      $ 73.1   

Sales related reserves

     42.6        36.5   

Restructuring reserves

     12.9        11.3   

Accrued pension liability

     0.3        0.3   

Other

     47.3        41.4   
  

 

 

   

 

 

 
   $ 221.4      $ 162.6   
  

 

 

   

 

 

 

Accumulated other comprehensive loss:

    

Foreign currency translation adjustments

   $ (54.3   $ (58.8

Unrecognized prior service cost of defined benefit pension plan

     (0.2     (0.1

Prior service cost from pension legal plan amendment

     0        (0.2
  

 

 

   

 

 

 
   $ (54.5   $ (59.1
  

 

 

   

 

 

 

 

15


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

 

       Six Months Ended    
     July 1,
2011
    July 2,
2010
 

Beginning Balance

   $ 3.9      $ 3.2   

Provision

     1.2        0.4   

Usage

     (0.5     (0.1
  

 

 

   

 

 

 

Ending Balance

   $ 4.6      $ 3.5   
  

 

 

   

 

 

 

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 July 1, 2011, the total accrued pension liability for underfunded plans is $ 76.9 million. Included in this amount is $51.2 million for the SANYO Semiconductor portion of the underfunded pension liability which was assumed by the Company. As of December 31, 2010, the total accrued pension liability for underfunded plans was $22.7 million. As of July 1, 2011 and December 31, 2010, the total pension asset for overfunded plans was $12.2 million and $13.4 million, respectively. The components of the Company’s net periodic pension expense for the quarter and six months ended July 1, 2011 and July 2, 2010 are as follows (in millions):

 

       Quarter Ended         Six Months Ended    
     July 1,
2011
    July 2,
2010
    July 1,
2011
    July 2,
2010
 

Service cost

   $ 2.1      $ 1.0      $ 4.4      $ 2.0   

Interest cost

     1.3        0.8        2.6        1.6   

Expected return on plan assets

     (1.0     (0.8     (2.0     (1.6

Amortization of prior service cost

     0.1        0.1        0.2        0.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic pension cost

   $ 2.5      $ 1.1      $ 5.2      $ 2.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

As of July 1, 2011, the estimated liabilities associated with the Company’s estimated portion of underfunded pension obligations relating to certain employees participating in certain SANYO Electric multiemployer defined benefit pension plans from which the Company intends to withdraw, were $136.3 million. During the quarter and six months ended July 1, 2011, the Company recorded $2.9 million and $5.8 million of expense associated with the Company’s participation in the SANYO Electric multiemployer pension plans.

 

16


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 7: Long-Term Debt

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

 

     July 1,
2011
    December 31,
2010
 

U.S. real estate mortgages payable monthly through the first quarter 2016 at an average rate of 4.857%

   $ 32.4      $ 33.0   

Loan with a Japanese company due 2011 through 2017, interest payable quarterly at 1.99575%

     358.6        0   

Zero Coupon Convertible Senior Subordinated Notes due 2024 (1)

     90.8        87.5   

1.875% Convertible Senior Subordinated Notes due 2025 (2)

     85.2        82.2   

2.625% Convertible Senior Subordinated Notes due 2026 (3)

     421.3        410.1   

Loan with British finance company, interest payable monthly at 2.57605% and 2.18%, respectively

     16.0        13.8   

Loan with Hong Kong bank, interest payable weekly at 1.96725% and 2.0325%, respectively

     35.0        40.0   

Loan with Singapore bank, interest payable weekly at 1.96%

     15.0        0   

Loans with Philippine banks due 2011 through 2015, interest payable quarterly at an average rate of 1.78401% and 1.80446%, respectively

     73.5        68.8   

Loans with Chinese banks due 2011 through 2013, interest payable quarterly at an average rate of 4.11040% and 4.23375%, respectively

     34.0        34.0   

Loans with Japanese banks due 2011 through 2013, interest payable monthly & semi-annually at an average rate of 1.47403% and 1.44545%, respectively

     6.2        3.9   

Capital lease obligations

     117.4        115.5   
  

 

 

   

 

 

 
     1,285.4        888.8   

Less: Current maturities

     (286.7     (136.0
  

 

 

   

 

 

 
   $ 998.7      $ 752.8   
  

 

 

   

 

 

 

 

(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 July 1, 2011 are as follows (in millions):

 

         Actual
Maturities
 

Remainder 2011

       101.2   

2012

       321.2   

2013

       513.9   

2014

       71.5   

2015

       60.7   

Thereafter

       216.9   
    

 

 

 

Total

     $ 1,285.4   
    

 

 

 

 

17


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

June 2011 Philippine Loan

In June 2011, one of the Company’s Philippine subsidiaries entered into a $10.0 million short-term loan agreement with a Philippine bank with proceeds to be used for working capital requirements. The loan, which had a balance of $10.0 million as of July 1, 2011, bears interest payable monthly based on 1-month London Interbank Offered Rate (“LIBOR”) plus 1.625% per annum. The balance is due in December 2011 unless the loan is renewed.

May 2011 Singapore Loan

In May 2011, one of the Company’s Asian subsidiaries entered into a $35.0 million loan agreement with a Singapore bank pursuant to which the bank purchased accounts receivables, with recourse. In accordance with generally accepted accounting principles in the United States, the purchased assets remained on our balance sheet as of July 1, 2011. The loan, which had a balance of $15.0 million as of July 1, 2011, bears interest payable weekly at 1 month Singapore Interbank Offered Rate (“SIBOR”) plus 1.75% per annum. The loan amount is subject to an eligible borrowing calculation as defined in the loan agreement.

March 2011 Chinese Loan

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

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 had a principal balance of $358.6 million as of July 1, 2011. The loan bears interest at a rate of 3-month London Interbank Offered Rate (“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 in January 2018.

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 $2.5 million at July 1, 2011 (202.5 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.

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

 

18


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 other 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 July 1, 2011

           

Cash and cash equivalents

  $ 0      $ 489.1      $ 0      $ 267.5      $ 0      $ 756.6   

Short-term investments

    0        112.2        0        0        0        112.2   

Receivables, net

    0        54.7        0        521.1        0        575.8   

Inventories, net

    0        50.4        0        691.4        7.4        749.2   

Deferred income taxes, current

    0        5.6        0        11.3        0        16.9   

Other current assets

    0        12.6        0        73.6        0        86.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    0        724.6        0        1,564.9        7.4        2,296.9   

Property, plant and equipment, net

    0        261.0        2.4        890.6        (3.1     1,150.9   

Deferred income taxes

    0        0        0        67.4        0        67.4   

Goodwill and other intangible assets

    0        287.1        37.2        266.1        (32.2     558.2   

Investments and other assets

    2,162.3        1,516.7        54.8        847.0        (4,504.4     76.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 2,162.3      $ 2,789.4      $ 94.4      $ 3,636.0      $ (4,532.3   $ 4,149.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

  $ 0      $ 43.2      $ 0.1      $ 485.6      $ 0      $ 528.9   

Accrued expenses and other current liabilities

    91.4        150.4        0.8        268.1        1.7        512.4   

Deferred Tax Liabilities

    0        0        0        65.2        0        65.2   

Deferred income on sales to distributors

    0        42.6        0        145.1        0        187.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    91.4        236.2        0.9        964.0        1.7        1,294.2   

Long-term debt

    506.5        417.9        0        74.3        0        998.7   

Other long-term liabilities

    0        25.5        0.4        221.1        0        247.0   

Deferred Income Taxes

    0        5.6        0        16.7        0        22.3   

Intercompany

    0.3        (207.4     (53.9     55.5        205.5        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    598.2        477.8        (52.6     1,331.6        207.2        2,562.2   

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,564.1        2,311.6        147.0        2,304.4        (4,763.0     1,564.1   

Minority interests in consolidated subsidiaries

    0        0        0        0        23.5        23.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    1,564.1        2,311.6        147.0        2,304.4        (4,739.5     1,587.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $ 2,162.3      $ 2,789.4      $ 94.4      $ 3,638.1      $ (4,532.3   $ 4,149.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

As of December 31, 2010

           

Cash and cash equivalents

  $ 0      $ 392.3      $ 0      $ 231.0      $ 0      $ 623.3   

Receivables, net

    0        47.4        0        247.2        0        294.6   

Inventories, net

    0        48.0        0        299.9        12.9        360.8   

Other current assets

    0        14.9        0        48.7        0        63.6   

Deferred income taxes, net of allowances

    0        5.6        0        10.1        0        15.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    0        508.2        0        836.9        12.9        1,358.0   

Restricted cash

    0        142.1        0        0        0        142.1   

Property, plant and equipment, net

    0        221.0        2.6        644.1        (3.4     864.3   

Deferred income taxes

    0        0        0        0        0        0   

Goodwill and other intangible assets

    0        291.1        37.2        200.3        (34.4     494.2   

Investments and other assets

    1,946.6        1,131.2        51.4        830.0        (3,898.6     60.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,946.6      $ 2,293.6      $ 91.2      $ 2,511.3      $ (3,923.5   $ 2,919.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

  $ 0      $ 43.4      $ 0.1      $ 213.4      $ 0      $ 256.9   

Accrued expenses and other current liabilities

    0.6        116.0        0.8        185.4        1.7        304.5   

Deferred income on sales to distributors

    0        33.7        0        115.8        0        149.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    0.6        193.1        0.9        514.6        1.7        710.9   

Long-term debt

    579.7        103.0        0        70.1        0        752.8   

Other long-term liabilities

    0        21.1        0.4        27.8        0        49.3   

Deferred income taxes, net of allowances

    0        5.6        0        12.6        0        18.2   

Intercompany

    0.3        (123.8     (53.4     (28.6     205.5        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    580.6        199.0        (52.1     596.5        207.2        1,531.2   

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,366.0        2,094.6        143.3        1,914.8        (4,152.7     1,366.0   

Minority interests in consolidated subsidiaries

    0        0        0        0        22.0        22.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    1,366.0        2,094.6        143.3        1,914.8        (4,130.7     1,388.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $ 1,946.6      $ 2,293.6      $ 91.2      $ 2,511.3      $ (3,923.5   $ 2,919.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

For the Quarter ended July 1, 2011

           

Revenues

  $ 0      $ 198.9      $ 7.4      $ 1,057.5      $ (358   $ 905.8   

Cost of revenues

    0        135.5        0.2        865.2        (361.2     639.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    0        63.4        7.2        192.3        3.2        266.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development

    0        48.7        2.7        37.8        0        89.2   

Selling and marketing

    0        17.9        0.3        33        0        51.2   

General and administrative

    0        22.9        0.3        29.1        0        52.3   

Amortization of acquisition related intangible assets

    0        4.6        0        7.9        (1.1     11.4   

Restructuring, asset impairments and other, net

    0        2.8        0        2.3        0        5.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    0        96.9        3.3        110.1        (1.1     209.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    0        (33.5     3.9        82.2        4.3        56.9   

Interest expense, net

    (13.1     (1.7     0        (2.8     0        (17.6

Other

    0        (0.8     0        6.5        0        5.7   

Gain (loss) on debt prepayment

    0        0        0        0        0        0   

Gain (loss) on acquisition

    0        0.1        0        (0.1     0        0   

Equity in earnings

    54.1        91.1        1.8        0        (147.0     0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and minority interests

    41.0        55.2        5.7        85.8        (142.7     45.0   

Income tax provision

    0        10.1        0        (13.3     0        (3.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    41.0        65.3        5.7        72.5        (142.7     41.8   

Net income (loss) attributable to minority interest

    0        0        0        0        (0.8     (0.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor

  $ 41.0      $ 65.3      $ 5.7      $ 72.5      $ (143.5   $ 41.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

For the Quarter ended July 2, 2010

           

Revenues

  $ 0      $ 167.6      $ 0      $ 729.8      $ (314.1   $ 583.3   

Cost of revenues

    0        119.1        0.6        538.2        (318.4     339.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    0        48.5        (0.6     191.6        4.3        243.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development

    0        10.4        2.2        47.5        0        60.1   

Selling and marketing

    0        15.0        0.2        21.3        0        36.5   

General and administrative

    0        5.7        0.2        29.4        0        35.3   

Amortization of acquisitions related intangible assets

    0        4.2        0        4.9        (1.0     8.1   

Restructuring, asset impairments and other, net

    0        0        0        2.3        0        2.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    0        35.3        2.6        105.4        (1.0     142.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    0        13.2        (3.2     86.2        5.3        101.5   

Interest expense, net

    (12.5     (1.7     0        (0.2     0        (14.4

Loss on debt repurchase

    0        (0.7     0        0        0        (0.7

Other

    0.1        (0.8     0        (2.7     0        (3.4

Equity in earnings

    91.1        76.8        2.3        0        (170.2     0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and minority interests

    78.7        86.8        (0.9     83.3        (164.9     83.0   

Income tax provision

    0        2.0        0        (5.4     0        (3.4

Minority interests

    0        0        0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    78.7        88.8        (0.9     77.9        (164.9     79.6   

Net income (loss) attributable to minority interest

    0        0        0        0.1        (1.0     (0.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

For the six months ended July 1, 2011

           

Revenues

  $ 0      $ 398.7      $ 7.5      $ 2,069.3      $ (699.1   $ 1,776.4   

Cost of revenues

    0        271.8        0.5        1,689.7        (694.1     1,267.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    0        126.9        7.0        379.6        (5.0     508.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development

    0        93.8        5.6        80.9        0        180.3   

Selling and marketing

    0        36.9        0.5        63.2        0        100.6   

General and administrative

    0        49.4        0.4        49.6        0        99.4   

Amortization of acquisition related intangible assets

    0        9.1        0        14.1        (2.1     21.1   

Restructuring, asset impairments and other, net

    0        2.8        0        14.7        0        17.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    0        192.0        6.5        222.5        (2.1     418.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    0        (65.1     0.5        157.1        (2.9     89.6   

Interest expense, net

    (26.0     (3.8     0        (5.3     0        (35.1

Other

    0        3.4        0        2.1        0        5.5   

Gain (loss) on acquisition

    0        69.2        0        (0.1     0        69.1   

Equity in earnings

    149.6        133.5        3.5        0        (286.6     0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and minority interests

    123.6        137.2        4.0        153.8        (283.7     129.1   

Income tax provision

    0        11.1        0        (15.1     0        (4.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    123.6        148.3        4.0        138.7        (283.7     125.1   

Net income (loss) attributable to minority interest

    0        0        0        0        (1.5     (1.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor Corporation

  $ 123.6      $ 148.3      $ 4.0      $ 138.7      $ (282.2   $ 123.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

  $ 0      $ (157.7   $ 0.1      $ 419.2      $ 0      $ 261.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    0        (42.8     (0.1     (130.6       (173.5

Funds deposited for purchases of property, plant and equipment

    0        0        0        0        0        0   

Proceeds from sales of held-to-maturity securities 2

    0        0        0        0        0        0   

Purchase of a business, net of cash acquired

    0        69.1        0        (87     0        (17.9

Increase in restricted cash

    0        142.1        0        0        0        142.1   

Proceeds from sales of property, plant and equipment

    0        0.1        0        3.2        0        3.3   

Purchases of held-to-maturity securities

    0        (112.2     0        0        0        (112.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    0        56.3        (0.1     (214.4     0        (158.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Intercompany loans

    0        (89.9     0        89.9        0        0   

Intercompany loan repayments

    0        258.1        0        (258.1     0        0   

Proceeds from debt issuance

    0        0        0        41.3          41.3   

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

    0        4.0        0        0        0        4.0   

Proceeds from exercise of stock options

      57.1        0        0        0        57.1   

Repurchase of Treasury Stock

    0        (12.1     0        0        0        (12.1

Dividends to minority shareholder of consolidated subsidiary

    0        0        0        0        0        0   

Equity injections from Parent

    0        0        0        0        0        0   

Subsidiary declared dividend

    0        0        0        0        0        0   

Payment of capital lease obligation

    0        (18.4     0        (0.2     0        (18.6

Repayment of long term debt

    0        (0.6     0        (43.2     0        (43.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

    0        198.2        0        (170.3     0        27.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

    0        0        0        2.0        0        2.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    0        96.8        0        36.5        0        133.3   

Cash and cash equivalents, beginning of period

    0        392.3        0        231.0        0        623.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

  $ 0      $ 489.1      $ 0      $ 267.5      $ 0      $ 756.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

For the six months ended July 2, 2010

           

Revenues

  $ 0      $ 339.7      $ 0      $ 1,421.1      $ (627.3   $ 1,133.5   

Cost of revenues

    0        231.1        1.3        1,056.9        (627.7     661.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    0        108.6        (1.3     364.2        0.4        471.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development

    0        23.6        4.7        97.0        0        125.3   

Selling and marketing

    0        29.6        0.4        42.1        0        72.1   

General and administrative

    0        8.0        0.4        58.4        0        66.8   

Amortization of acquisition related intangible assets

    0        8.2        0        9.7        (2.0     15.9   

Restructuring, asset impairments and other, net

    0        0        0        6.1        0        6.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    0        69.4        5.5        213.3        (2.0     286.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    0        39.2        (6.8     150.9        2.4        185.7   

Interest expense, net

    (25.6     (4.5     0        (0.6     0        (30.7

Loss on debt repurchase

    0        (0.7     0        0        0        (0.7

Other

    0.1        0        0        (6.3     0        (6.2

Equity in earnings

    167.2        120.1        3.8        0        (291.1     0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and minority interests

    141.7        154.1        (3.0     144.0        (288.7     148.1   

Income tax provision

    0        7.3        0        (12.1     0        (4.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    141.7        161.4        (3.0     131.9        (288.7     143.3   

Net income (loss) attributable to minority interest

    0        0        0        0.1        (1.7     (1.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor Corporation

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

  $ 0      $ 123.9      $ 0      $ 144.5      $ —        $ 268.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    0        (28.3     0        (65.2     0        (93.5

Funds deposited for purchases of property, plant and equipment

    0        0        0        (0.9     0        (0.9

Proceeds from sales of held-to-maturity securities

    0        0        0        45.5        0        45.5   

Purchase of a business, net of cash acquired

    0        0        0        (90.2     0        (90.2

Proceeds from sales of property, plant and equipment

    0        0        0        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    0        (28.3     0        (110.8     0        (139.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Intercompany loans

    0        (358.1     0        358.1        0        0   

Intercompany loan repayments

    0        282.9        0        (282.9     0        0   

Proceeds from debt issuance

    0        0        0        23.2        0        23.2   

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

    0        3.3        0