10-Q 1 d309062d10q.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 March 30, 2012

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, zip code 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 the 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 26, 2012:

 

Title of Each Class

 

Number of Shares

Common Stock, par value $0.01 per share     454,082,151  

 

 

 


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

     47   

Item 4. Controls and Procedures

     48   

Part II: Other Information

  

Item 1. Legal Proceedings

     49   

Item 1A. Risk Factors

     49   

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

     50   

Item 3. Defaults Upon Senior Securities

     50   

Item 4. Mine Safety Disclosures

     50   

Item 5. Other Information

     50   

Item 6. Exhibits

     51   

Signatures

     52   

Exhibit Index

     53   


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)

 

     March 30,
2012
    December 31,
2011
 

Assets

    

Cash and cash equivalents

   $ 580.1      $ 652.9   

Short-term investments

     312.2        248.6   

Receivables, net

     425.3        457.2   

Inventories

     633.7        637.4   

Other current assets

     76.8        121.6   

Deferred income taxes, net of allowances

     10.3        10.0   
  

 

 

   

 

 

 

Total current assets

     2,038.4        2,127.7   

Property, plant and equipment, net

     1,155.5        1,109.5   

Deferred income taxes, net of allowances

     30.1        34.2   

Goodwill

     198.7        198.7   

Intangible assets, net

     325.8        337.2   

Other assets

     80.7        76.2   
  

 

 

   

 

 

 

Total assets

   $ 3,829.2      $ 3,883.5   
  

 

 

   

 

 

 

Liabilities, Minority Interests and Stockholders’ Equity

    

Accounts payable

   $ 408.6      $ 451.8   

Accrued expenses

     238.5        239.8   

Income taxes payable

     2.8        7.5   

Accrued interest

     4.2        0.7   

Deferred income on sales to distributors

     153.5        172.0   

Deferred income taxes, net of allowances

     29.6        33.6   

Current portion of long-term debt (See Note 6)

     377.1        370.1   
  

 

 

   

 

 

 

Total current liabilities

     1,214.3        1,275.5   

Long-term debt (See Note 6)

     811.9        836.9   

Other long-term liabilities

     247.4        260.1   

Deferred income taxes, net of allowances

     21.1        17.5   
  

 

 

   

 

 

 

Total liabilities

     2,294.7        2,390.0   
  

 

 

   

 

 

 

Commitments and contingencies (See Note 9)

    

ON Semiconductor Corporation stockholders’ equity:

    

Common stock ($0.01 par value, 750,000,000 shares authorized, 505,423,125 and 502,452,084 shares issued, 453,664,087 and 451,284,220 shares outstanding, respectively)

     5.1        5.0   

Additional paid-in capital

     3,125.6        3,113.5   

Accumulated other comprehensive loss

     (41.6     (46.7

Accumulated deficit

     (1,174.1     (1,202.3

Less: treasury stock, at cost; 51,759,038 and 51,167,864 shares, respectively

     (406.6     (401.3
  

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity

     1,508.4        1,468.2   

Minority interests in consolidated subsidiaries

     26.1        25.3   
  

 

 

   

 

 

 

Total equity

     1,534.5        1,493.5   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,829.2      $ 3,883.5   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

1


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)

 

     Quarter ended  
     March 30,
2012
    April 1,
2011
 

Revenues

   $ 744.4      $ 870.6   

Cost of product revenues

     499.2        628.2   
  

 

 

   

 

 

 

Gross profit

     245.2        242.4   

Operating expenses:

    

Research and development

     91.4        91.1   

Selling and marketing

     45.6        49.4   

General and administrative

     42.0        47.1   

Amortization of acquisition-related intangible assets

     11.1        9.7   

Restructuring, asset impairments and other, net

     11.5        12.4   
  

 

 

   

 

 

 

Total operating expenses

     201.6        209.7   
  

 

 

   

 

 

 

Operating income

     43.6        32.7   
  

 

 

   

 

 

 

Other income (expenses), net:

    

Interest expense

     (15.7     (17.8

Interest income

     0.5        0.3   

Other

     4.7        (2.5

Gain on SANYO Semiconductor acquisition

     —          24.3   
  

 

 

   

 

 

 

Other income (expenses), net

     (10.5     4.3   
  

 

 

   

 

 

 

Income before income taxes

     33.1        37.0   

Income tax provision

     (4.1     (0.8
  

 

 

   

 

 

 

Net income

     29.0        36.2   

Less: Net income attributable to minority interests

     (0.8     (0.7
  

 

 

   

 

 

 

Net income attributable to ON Semiconductor Corporation

   $ 28.2      $ 35.5   
  

 

 

   

 

 

 

Comprehensive income:

    

Net income

   $ 29.0      $ 36.2   

Foreign currency translation adjustments

     4.9        0.4   

Effects of cash flow hedges

     (0.4     —     

Unrealized gain on available-for-sale securities

     0.5        —     

Amortization of prior service costs of defined benefit plan

     0.1        —     
  

 

 

   

 

 

 

Comprehensive income

     34.1        36.6   

Comprehensive income attributable to minority interests

     (0.8     (0.7
  

 

 

   

 

 

 

Comprehensive income attributed to ON Semiconductor Corporation:

   $ 33.3      $ 35.9   
  

 

 

   

 

 

 

Net income per common share attributable to ON Semiconductor Corporation:

    

Basic

   $ 0.06      $ 0.08   
  

 

 

   

 

 

 

Diluted

   $ 0.06      $ 0.08   
  

 

 

   

 

 

 

Weighted average common shares outstanding:

    

Basic

     452.5        441.4   
  

 

 

   

 

 

 

Diluted

     460.6        456.0   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

2


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(unaudited)

 

     Quarter ended  
     March 30,
2012
    April 1,
2011
 

Cash flows from operating activities:

    

Net income

   $ 29.0      $ 36.2   

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

    

Depreciation and amortization

     61.1        52.8   

Gain on sale and disposal of fixed assets

     (1.5     (2.1

Non-cash manufacturing expenses associated with favorable supply agreement

     —          50.0   

Gain on acquisition of SANYO Semiconductor

     —          (24.3

Amortization of debt issuance costs and debt discount

     0.5        0.6   

Provision for excess inventories

     15.8        1.7   

Non-cash stock compensation expense

     7.4        10.4   

Non-cash interest

     7.2        8.7   

Deferred income taxes

     3.2        3.2   

Other

     (0.5     (1.0

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

    

Receivables

     27.3        (36.0

Inventories

     (23.2     24.7   

Other assets

     30.2        25.1   

Accounts payable

     (81.2     (18.3

Accrued expenses

     13.1        (29.3

Income taxes payable

     (4.7     (3.0

Accrued interest

     3.5        3.7   

Deferred income on sales to distributors

     (18.5     20.0   

Other long-term liabilities

     (0.3     2.5   
  

 

 

   

 

 

 

Net cash provided by operating activities

     68.4        125.6   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (50.4     (88.7

Purchase of businesses, net of cash acquired

     —          (57.6

Proceeds from sales of property, plant and equipment

     1.9        —     

Deposits utilized for purchases of property, plant and equipment

     (9.6     —     

Recovery from insurance on property, plant and equipment

     11.5        —     

Proceeds from held-to-maturity securities

     99.7        —     

Purchase of held-to-maturity securities

     (163.3     —     

Change in restricted cash

     —          142.1   
  

 

 

   

 

 

 

Net cash used in investing activities

     (110.2     (4.2
  

 

 

   

 

 

 

Cash flows from financing activities:

    

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

     —          1.9   

Proceeds from debt issuance

     2.0        15.2   

Proceeds from exercise of stock options

     4.8        41.1   

Payment of capital lease obligation

     (11.4     (9.9

Purchase of treasury stock

     (5.3     (7.6

Repayment of long-term debt

     (15.6     (19.6
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (25.5     21.1   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (5.5     0.2   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (72.8     142.7   

Cash and cash equivalents, beginning of period

     652.9        623.3   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 580.1      $ 766.0   
  

 

 

   

 

 

 

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.

The accompanying unaudited financial statements as of March 30, 2012, and for the three months ended March 30, 2012 and April 1, 2011, 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, 2011 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (“2011 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.

Revision of Prior Period Financial Statements

The Company has retrospectively adjusted the consolidated statement comprehensive income for the quarter ended April 1, 2011, primarily related to adjustments to the purchase price allocation of the SANYO Semiconductor Co. Ltd. (“SANYO Semiconductor”) acquisition, which resulted in a reduction of the gain on the SANYO Semiconductor acquisition. The Company originally reported a gain of $61.3 million which has been retrospectively adjusted to $24.3 million.

The following table presents the effects of the above adjustments on the Company’s consolidated statements of comprehensive income (in millions):

 

     For the Quarter Ended April 1, 2011  
     As reported     As revised  

Other income (expenses), net:

    

Other

   $ (0.2   $ (2.5

Gain on SANYO Semiconductor acquisition

     61.3        24.3   

Net income attributable to ON Semiconductor Corporation

   $ 74.8      $ 35.5   
  

 

 

   

 

 

 

Net income per common share attributable to ON Semiconductor Corporation

    

Basic

   $ 0.17      $ 0.08   
  

 

 

   

 

 

 

Diluted

   $ 0.16      $ 0.08   
  

 

 

   

 

 

 

 

4


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Note 2: Goodwill and Intangible Assets

Goodwill

The following table summarizes the original goodwill by relevant operating segment as of March 30, 2012 and December 31, 2011 (in millions):

 

    Balance as of March 30, 2012     Balance as of December 31, 2011  
    Original
Goodwill
    Accumulated
Amortization
    Accumulated
Impairment
Losses
    Carrying
Value
    Original
Goodwill
    Accumulated
Amortization
    Accumulated
Impairment
Losses
    Carrying
Value
 

Operating Segment:

               

Automotive, Industrial, Medical and Mil-Aero

  $ 556.6      $ (4.2   $ (406.0   $ 146.4        556.6        (4.2     (406.0     146.4   

Computing & Consumer Products

    29.1        (5.6     —          23.5        29.1        (5.6     —          23.5   

Standard Products

    37.7        —          (8.9     28.8        37.7        —          (8.9     28.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 623.4      $ (9.8   $ (414.9   $ 198.7      $ 623.4      $ (9.8   $ (414.9     198.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill is tested for impairment annually on the first day of the fourth quarter 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 March 30, 2012, there were no triggering events which would require the Company to perform an impairment analysis.

Intangible Assets

Intangible assets, net were as follows as of March 30, 2012 and December 31, 2011 (in millions):

 

    March 30, 2012  
    Original
Cost
    Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Impairment     Carrying
Value
    Useful Life
(in Years)
 

Intellectual property

  $ 13.9      $ (8.2   $ —        $ —        $ 5.7        5-12   

Customer relationships

    280.3        (77.0     (26.8     (3.2     173.3        5-18   

Patents

    43.7        (12.0     —          —          31.7        12   

Developed technology

    146.2        (39.2     —          (2.0     105.0        5-12   

Trademarks

    14.0        (3.9     —          —          10.1        15   

In-process research and development

    2.5        —          —          (2.5     —       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total intangibles

  $ 500.6      $ (140.3   $ (26.8   $ (7.7   $ 325.8     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

5


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

    December 31, 2011  
    Original
Cost
    Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Impairment     Carrying
Value
    Useful Life
(in Years)
 

Intellectual property

  $ 13.9      $ (8.0   $ —        $ —        $ 5.9        5-12   

Customer relationships

    280.3        (71.9     (26.5     (3.2     178.7        5-18   

Patents

    43.7        (10.4     —          —          33.3        12   

Developed technology

    145.6        (35.5     —          (2.0     108.1        5-12   

Trademarks

    14.0        (3.4     —            10.6        15   

In-process research and development

    3.1        —          —          (2.5     0.6     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total intangibles

    500.6        (129.2     (26.5     (7.7     337.2     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Amortization expense for intangible assets amounted to $11.1 million for the quarter ended March 30, 2012, none of which was included in cost of revenues; and was $10.3 million for the quarter ended April 1, 2011, of which $0.6 million was included in cost of revenues. The Company is currently amortizing fourteen projects totaling $33.4 million through developed technology relating to projects that were originally classified as in-process research and development at the time of acquisition, but which now have been completed and are being amortized over a weighted average useful life of 8.5 years. Amortization expense for intangible assets, is expected to be as follows over the next five years, and thereafter (in millions):

 

     Total  

Remainder of 2012

   $ 33.3   

2013

     39.7   

2014

     38.5   

2015

     37.4   

2016

     34.4   

Thereafter

     142.5   
  

 

 

 

Total estimated amortization expense

   $ 325.8   
  

 

 

 

Note 3: New Accounting Pronouncements

ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”) and ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”)

ASU 2011-05 allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminated the previous option to report other comprehensive income and its components in the statement of changes in equity. While ASU 2011-05 changes the presentation of comprehensive income, there were no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The Company adopted this guidance effective in the first quarter of fiscal 2012. The adoption of ASU 2011-05 and the deferrals in ASU 2011-12 did not have a material impact on the Company’s Consolidated Financial Statements.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Note 4: Restructuring, Asset Impairments and Other, Net

A summary description of the activity included in the “Restructuring, Asset Impairments and Other, Net” caption on the consolidated statement of comprehensive income for the quarter ended March 30, 2012 is as follows (in millions):

 

     Restructuring      Other      Total  

Three months ended March 30, 2012

        

Thailand facility closure

   $ 1.5       $ 1.8       $ 3.3   

Aizu facility closure

     5.8         0.1         5.9   

SANYO Semiconductor consolidation

     —           2.3         2.3   
  

 

 

    

 

 

    

 

 

 

Total

   $ 7.3       $ 4.2       $ 11.5   
  

 

 

    

 

 

    

 

 

 

The following is a rollforward of the accrued restructuring charges from December 31, 2011 to March 30, 2012 (in millions):

 

     Balance as of
December 31, 2011
     Charges      Usage     Adjustments     Balance as of
March 30, 2012
 

Estimated employee separation charges:

   $     8.9       $     7.3       $ (1.5   $ (0.8   $ 13.9   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Estimated costs to exit:

   $     8.4       $     2.4       $ (0.5   $ —        $ 10.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

The activity related to the Company’s restructuring, asset impairments and other, net for programs that were either initiated in 2012 or had not been completed as of March 30, 2012, are as follows:

Thailand Facility Closure

Cumulative charges of $15.2 million, net of adjustments, have been recognized through March 30, 2012, related to the 2011 announced plan to close our probe, assembly and test operations in Ayutthaya, Thailand and to partially close our Bang Pa In, Thailand facility as a result of the flooding in these regions. During the fourth quarter of 2011, a total of approximately 1,600 employees were asked to resign due to such closures. As of March 30, 2012, a total of 45 employees remained to be exited. For the quarter ended March 30, 2012, the Company recorded employee separation charges of approximately $1.5 million related to these terminations. Additionally, the Company recorded net other charges of $1.8 million, which represented $2.3 million of costs incurred associated with the closure and partial closure of these facilities, partially offset by $0.5 million of additional insurance proceeds. These charges have been included in restructuring, asset impairments and other, net on the consolidated statement of comprehensive income for the three months ended March 30, 2012.

The accrued liability associated with employee separation charges as of March 30, 2012 was $0.8 million.

Aizu Facility Closure

Cumulative charges of $75.9 million, net of adjustments, have been recognized through March 30, 2012, related to the announced closure of the Company’s Aizu facility, for cost savings purposes. As of March 30, 2012, a total of 207 employees were notified that their employment with the Company would be terminated due to the closure of the Aizu facility. As of March 30, 2012, none of these employees had been exited. For the quarter ended March 30, 2012, the Company recognized restructuring charges of $5.8 million related to severance benefits for employees required to give further services prior to receiving these termination benefits. Additionally, the Company recorded $0.1 million of additional exit costs associated with this closure. These charges have been included in restructuring, asset impairments and other, net on the consolidated statement of comprehensive income for the three months ended March 30, 2012.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

The accrued liability associated with employee separation charges at the Aizu facility as of March 30, 2012 was $11.5 million. Additionally, the Company expects to incur additional employee separation charges of $2.8 million and $2.9 million of exit costs during the remainder of 2012 associated with this closure.

SANYO Semiconductor Consolidation

Cumulative charges of $12.3 million, net of adjustments, have been recognized through March 30, 2012, related to the 2011 announced plans to integrate and restructure the operations of SANYO Semiconductor and the Company, in part, for cost savings purposes. For the quarter ended March 30, 2012, the Company recorded an incremental $2.3 million of exit costs relating to the consolidation of factories. These charges have been included in restructuring, asset impairments and other, net on the consolidated statement of comprehensive income for the three months ended March 30, 2012.

2011 Global Workforce Reduction

Cumulative charges of $2.5 million, net of adjustments, have been recognized through March 30, 2012 related to the announced plans to reduce worldwide personnel for cost savings purposes. During the third quarter of 2011, a total of 42 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 first quarter of 2012, six of these employees still remained employed by the Company. We expect that all remaining notified individuals will be officially separated from the Company in the fourth quarter of 2012, with all related benefit payments being made in the same period. As of March 30, 2012, the Company had accrued $1.4 million for employee separation charges associated with this activity.

2011 Closure of the Phoenix, Arizona Wafer Manufacturing Facility

Cumulative charges of $4.3 million, have been recognized through March 30, 2012, 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. 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 March 30, 2012, 10 of these employees remained employed by the Company. The Company had $0.1 million accrued for employee separation charges for the remaining 10 employees who are expected to be separated by the end of the third quarter of 2012.

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

The Company had $8.1 million of accrued liabilities for estimated costs to exit certain activities of AMIS which was acquired in March 2008, of which $0.1 million were for employee separation costs and $8.0 million were for exit costs outstanding as of March 30, 2012. During the quarter ended March 30, 2012, the Company paid decommissioning costs resulting from the shutdown of a fabrication facility of $0.1 million. All payments related to these activities are expected to be completed by the end of the third quarter of fiscal 2012.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Note 5: Balance Sheet Information

 

     March 30, 2012     December 31, 2011  
     (in millions)     (in millions)  

Receivables, net:

    

Accounts receivable

   $ 431.6      $ 464.3   

Less: Allowance for doubtful accounts

     (6.3     (7.1
  

 

 

   

 

 

 
   $ 425.3      $ 457.2   
  

 

 

   

 

 

 

Inventories:

    

Raw materials

   $ 61.8      $ 58.8   

Work in process

     414.2        430.8   

Finished goods

     157.7        147.8   
  

 

 

   

 

 

 
   $ 633.7      $ 637.4   
  

 

 

   

 

 

 

Property, plant and equipment, net:

    

Land

   $ 74.3      $ 76.6   

Buildings

     537.7        539.3   

Machinery and equipment

     1,997.6        1,943.0   
  

 

 

   

 

 

 

Total property, plant and equipment

     2,609.6        2,558.9   

Less: Accumulated depreciation

     (1,454.1     (1,449.4
  

 

 

   

 

 

 
   $ 1,155.5      $ 1,109.5   
  

 

 

   

 

 

 

Accrued expenses:

    

Accrued payroll

   $ 127.9      $ 125.2   

Sales related reserves

     53.8        45.5   

Restructuring reserves

     24.2        17.3   

Accrued pension liability

     9.8        11.4   

Other

     22.8        40.4   
  

 

 

   

 

 

 
   $ 238.5      $ 239.8   
  

 

 

   

 

 

 

Accumulated other comprehensive loss:

    

Foreign currency translation adjustments

   $ (41.6   $ (46.5

Unrecognized prior service cost of defined benefit pension plan

     (0.1     (0.2

Effect of cash flow hedges

     (0.4     —     

Unrealized gain on available for sale securities

     0.5        —     
  

 

 

   

 

 

 
   $ (41.6   $ (46.7
  

 

 

   

 

 

 

Included in accumulated other comprehensive loss as of March 30, 2012, and December 31, 2011, is $18.9 million and $18.5 million, respectively, of foreign currency translation gains related to our Aizu, Japan facility. As further described in Note 4: “Restructuring, Asset Impairments and Other, Net,” the Company intends to close its Aizu, Japan facility during 2012. After the operational closure is complete, the Company will proceed to liquidate and wind-down the legal entity. As required by accounting standards, when the liquidation is substantially complete, the Company will recognize in results of operations any amount remaining in accumulated other comprehensive income.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Warranty Reserves

The activity related to our warranty reserves for the three months ended March 30, 2012 and April 1, 2011, respectively, is as follows (in millions):

 

     Quarter Ended  
     March 30, 2012     April 1, 2011  

Beginning Balance

   $ 5.8      $ 3.3   

Provision

     0.1        0.6   

Usage

     (0.2     —     
  

 

 

   

 

 

 

Ending Balance

   $ 5.7      $ 3.9   
  

 

 

   

 

 

 

Defined Benefit Plans

The Company maintains defined benefit plans for some of its foreign subsidiaries. The Company recognizes the aggregate amount of all overfunded plans as assets and the aggregate amount of all underfunded plans as liabilities in its financial statements. As of March 30, 2012, the total accrued pension liability for underfunded plans was $67.5 million, of which the current portion of $9.8 million was classified as accrued expenses. As of December 31, 2011, the total accrued pension liability for underfunded plans was $83.3 million, of which the current portion of $11.4 million, was classified as accrued expenses. As of March 30, 2012 and December 31, 2011, the total pension asset for overfunded plans was $12.5 million and $12.4 million, respectively. The components of the Company’s net periodic pension expense for the quarters ended March 30, 2012 and April 1, 2011 are as follows (in millions):

 

     Quarter Ended  
     March 30, 2012     April 1, 2011  

Service cost

   $ 2.2      $ 2.3   

Interest cost

     1.3        1.3   

Expected return on plan assets

     (1.0     (1.0

Amortization of prior service cost

     0.1        0.1   
  

 

 

   

 

 

 

Total net periodic pension cost

   $ 2.6      $ 2.7   
  

 

 

   

 

 

 

Multiemployer Defined Benefit Plans

Included in other long-term liabilities as of March 30, 2012 and December 31, 2011, are the estimated liabilities of $140.1 million and $151.0 million, respectively, which represent the Company’s estimated portion of underfunded pension obligations relating to certain employees participating in certain SANYO Electric Co. Ltd., (“SANYO Electric”) multiemployer defined benefit pension plans from which the Company intends to withdraw. During the quarters ended March 30, 2012 and April 1, 2011, the Company recorded $2.9 million and $2.9 million, respectively, of expense associated with the Company’s participation in the SANYO Electric multiemployer pension plans.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Note 6: Long-Term Debt

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

 

     March 30, 2012     December 31, 2011  

Senior Revolving Credit Facility (up to $325.0 million)

   $ —        $ —     

Loan with a Japanese company due 2012 through 2018, interest payable quarterly at 2.22% and 2.33%, respectively (1)

     330.3        339.8   

Zero Coupon Convertible Senior Subordinated Notes due 2024 (net of discount of $0.3 million and $2.0 million, respectively) (2)

     95.9        94.2   

1.875% Convertible Senior Subordinated Notes due 2025 (net of discount of $4.9 million and $6.6 million, respectively) (3)

     90.1        88.4   

2.625% Convertible Senior Subordinated Notes due 2026 (net of discount of $21.6 million and $24.5 million, respectively) (4)

     210.8        207.9   

2.625% Convertible Senior Subordinated Notes due 2026, Series B (net of discount of $21.1 million and $22.0 million, respectively) (5)

     177.5        176.6   

Loan with Hong Kong bank, interest payable weekly at 1.99% and 2.04%, respectively

     40.0        40.0   

Loans with Philippine banks due 2012 through 2015, interest payable monthly and quarterly at an average rate of 2.01% and 2.01%, respectively

     65.5        68.2   

Loans with Chinese bank due 2013, interest payable quarterly at 4.33% and 4.44%, respectively

     7.0        7.0   

Loans with Japanese banks due through 2013, interest payable monthly and semi-annually at an average rate of 1.72% and 1.71%, respectively

     3.1        3.5   

Loan with Singapore bank, interest payable weekly at 1.97% and 1.97%, respectively

     27.0        25.0   

Loan with British finance company, interest payable monthly at 1.95% and 2.42%, respectively

     10.9        13.1   

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

     31.2        31.6   

U.S. equipment financing payable monthly through 2015 at 3.23%

     10.1        10.8   

Capital lease obligations

     89.6        100.9   
  

 

 

   

 

 

 

Long-term debt, including current maturities

     1,189.0        1,207.0   

Less: Current maturities

     (377.1     (370.1
  

 

 

   

 

 

 

Long-term debt

   $ 811.9      $ 836.9   
  

 

 

   

 

 

 

 

(1) This loan represents Semiconductor Component Industries, LLC (“SCI LLC”) unsecured loan with SANYO Electric, which is guaranteed by the Company.
(2) 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. See Note 15: “Subsequent Events” of this Form 10-Q for the discussion of the retirement of the Zero Coupon Convertible Senior Subordinated Notes due 2024.
(3) 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.
(4) 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.
(5) The 2.625% Convertible Senior Subordinated Notes due 2026, Series B may be put back to the Company at the option of the holders of the notes on December 15 of 2016 and 2021 or called at the option of the Company on or after December 20, 2016.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Expected maturities relating to the Company’s long-term debt as of March 30, 2012 are as follows (in millions):

 

         Expected
Maturities
 

Remainder of 2012

       353.7   

2013

       328.6   

2014

       75.3   

2015

       63.5   

2016

       262.2   

Thereafter

       153.6   
    

 

 

 

Total

     $ 1,236.9   
    

 

 

 

For purposes of the table above, the convertible debt issuances are assumed to mature at their respective put dates. The table also reflects aggregate principal payments of $622.2 million relating to the Zero Coupon Convertible Senior Subordinated Notes due 2024, the 1.875% Convertible Senior Subordinated Notes due 2025, the 2.625% Convertible Senior Subordinated Notes due 2026 and the 2.625% Convertible Senior Subordinated Notes due 2026, Series B.

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, the 2.625% Convertible Senior Subordinated Notes due 2026 and the 2.625% Convertible Senior Subordinated Notes due 2026, Series B (collectively, the “Convertible Notes”). See Note 14: “Guarantor and Non-Guarantor Statements” for the condensed consolidated financial information for the issuer of the Convertible Notes, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.

Note 7: Earnings Per Share and Equity

Earnings Per Share

Calculations of net income per common share attributable to ON Semiconductor are as follows (in millions, except per share data):

 

     Quarter Ended  
     March 30, 2012      April 1, 2011  

Net income applicable to ON Semiconductor Corporation

   $ 28.2       $ 35.5   
  

 

 

    

 

 

 

Basic weighted average common shares outstanding

     452.5         441.4   

Add: Incremental shares for:

     

Dilutive effect of stock options and awards

     5.1         10.8   

Dilutive effect of convertible notes

     3.0         3.8   
  

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     460.6         456.0   
  

 

 

    

 

 

 

Net income per common share attributable to ON Semiconductor Corporation

     

Basic:

   $ 0.06       $ 0.08   
  

 

 

    

 

 

 

Diluted:

   $ 0.06       $ 0.08   
  

 

 

    

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Basic income per common share is computed by dividing net income attributable to ON Semiconductor by the weighted average number of common shares outstanding during the period.

The number of incremental shares from the assumed exercise of stock options and assumed issuance of restricted stock units is calculated by applying the treasury stock method. Common shares related to the employee stock options where the exercise price exceeded the average market price of the Company’s common shares for the period have been anti-dilutive and were excluded from the diluted net income per share calculation. The excluded option shares were 11.3 million and 6.1 million for the quarters ended March 30, 2012 and April 1, 2011, respectively.

The incremental shares related to the Company’s Zero Coupon Convertible Senior Subordinated Notes due 2024, 2.625% Convertible Senior Subordinated Notes due 2026 (including Series B notes), and the 1.875% Convertible Senior Subordinated Notes due 2025 (collectively, the “Convertible Notes”) is determined in accordance with the net share settlement requirements prescribed by ASC Topic 260, Earnings Per Share (“ASC 260”). Under the net share settlement calculation, the Convertible Notes are assumed to be convertible into cash up to the par value, with the excess of par value being convertible into common stock. The dilutive effect occurs when the stock price exceeds the conversion price for each of the Convertible Notes, as of the end of the period, or as described in ASC 260, for year-to-date calculations. In periods when the share price is lower than the conversion price, the impact is anti-dilutive and therefore has no impact on the Company’s earnings per share calculations.

Equity

Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the accompanying consolidated financial statements. Shares withheld upon the vesting of restricted stock units to pay applicable employee withholding taxes are considered common stock repurchases. Upon vesting, the Company currently does not collect the applicable employee withholding taxes from employees. Instead, the Company automatically withholds, from the restricted stock units that vest, the portion of those shares with a fair market value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the applicable withholding taxes in cash. The amounts remitted in the quarter ended March 30, 2012 were $5.3 million, for which the Company withheld 591,174 shares of common stock that were underlying the restricted stock units that vested. None of these shares had been reissued or retired as of March 30, 2012, but may be reissued or retired by the Company at a later date.

At December 31, 2011, the minority interest balance was $25.3 million. This balance was increased to $26.1 million at March 30, 2012 due to the minority interest’s $0.8 million share of the earnings for the quarter.

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.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Note 8: Share-Based Compensation

Total share-based compensation expense related to the Company’s employee stock options, restricted stock units and employee stock purchase plan (“ESPP”) for the quarters ended March 30, 2012 and April 1, 2011 were comprised as follows (in millions):

 

     Quarter Ended  
     March 30, 2012      April 1, 2011  

Cost of revenues

   $ 1.4       $ 1.9   

Research and development

     1.6         2.0   

Selling and marketing

     1.6         1.9   

General and administrative

     2.8         4.6   
  

 

 

    

 

 

 

Share-based compensation expense before income taxes

   $ 7.4       $ 10.4   
  

 

 

    

 

 

 

Related income tax benefits (1)

     —           —     
  

 

 

    

 

 

 

Share-based compensation expense, net of taxes

   $ 7.4       $ 10.4   
  

 

 

    

 

 

 

 

(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 March 30, 2012, total unrecognized estimated share-based compensation expense, net of estimated forfeitures, related to non-vested stock options granted prior to that date was $10.0 million. At March 30, 2012, total unrecognized share-based compensation expense, net of forfeitures, related to non-vested restricted stock units with time-based service conditions and performance-based vesting criteria granted prior to that date was $45.9 million. The total intrinsic value of stock options exercised during the quarter ended March 30, 2012 was $3.4 million. The Company recorded cash received from the exercise of stock options of $4.8 million and no related tax benefits during the quarter ended March 30, 2012.

Share-Based Compensation Information

The fair value of each option grant is estimated on the date of grant using a lattice-based option valuation model. The lattice-based model uses: (1) a constant volatility; (2) an employee exercise behavior model (based on an analysis of historical exercise behavior); and (3) the treasury yield curve to calculate the fair value of each option grant.

The weighted-average estimated fair value of employee stock options granted during the quarters ended March 30, 2012 and April 1, 2011 was $3.41 per share and $4.22 per share, respectively, and was calculated using the lattice-based model with the following weighted-average assumptions (annualized percentages):

 

     Quarter Ended  
     March 30, 2012      April 1, 2011  

Volatility

     46.7%         41.0%   

Risk-free interest rate

     0.9%         2.1%   

Expected term

     4.8 years         4.9 years   

Share-based compensation expense recognized in the Consolidated statement of comprehensive income is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Pre-vesting forfeitures for stock

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

options were estimated to be approximately 11% and 12% in the quarters ended March 30, 2012 and April 1, 2011, respectively. Pre-vesting forfeitures for restricted stock units were estimated to be approximately 4% and 12% in the quarters ended March 30, 2012 and April 1, 2011, respectively.

Shares Available

As of December 31, 2011, there was an aggregate of 17.4 million shares of common stock available for grant under the Company’s Amended and Restated Stock Incentive Plan (the “Amended and Restated SIP”) and 4.1 million shares available for issuance under the ESPP. As of March 30, 2012, there was an aggregate of 11.5 million shares of common stock available for grant under the Amended and Restated SIP and 4.1 million shares available for issuance under the ESPP.

Stock Options

A summary of stock option transactions follows (in millions except per share and term data):

 

     Quarter Ended March 30, 2012  
     Number of
Shares
    Weighted-Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term (in years)
     Aggregate
Intrinsic Value
(In-The-Money)
 

Outstanding at December 31, 2011

     18.7      $ 7.70         

Granted

     1.4        8.40         

Exercised

     (0.9     4.99         

Canceled

     (0.2     7.63         
  

 

 

   

 

 

       

Outstanding at March 30, 2012

     19.0      $ 7.88         4.6       $ 29.8   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at March 30, 2012

     14.8        7.84         4.1       $ 25.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Additional information about stock options outstanding at March 30, 2012 with exercise prices less than or above $9.01 per share, the closing price of the Company’s common stock at March 30, 2012, 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 $9.01

     8.5       $ 6.04         3.5       $ 7.74         12.0       $ 6.54   

Above $9.01

     6.3       $ 10.28         0.7       $ 9.73         7.0       $ 10.22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Outstanding

     14.8       $ 7.84         4.2       $ 8.07         19.0       $ 7.88   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Restricted Stock Units

Restricted stock units vest over one to three years with service-based requirements or performance-based requirements and 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 and employees of the Company as of March 30, 2012, and changes during the three months ended March 30, 2012 (number of shares in millions):

 

     Quarter Ended March 30, 2012  
     Number of Shares     Weighted-Average
Grant Date Fair
Value
 

Nonvested shares of restricted stock units at December 31, 2011

     9.6      $ 7.95   

Granted

     3.1        8.40   

Released

     (2.0     5.75   

Forfeited

     (0.1     8.69   
  

 

 

   

 

 

 

Nonvested shares of restricted stock units at March 30, 2012

     10.6      $ 8.49   
  

 

 

   

 

 

 

Note 9: Commitments and Contingencies

Leases

The following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of March 30, 2012 (in millions):

 

Remainder of 2012

     24.3   

2013

     20.6   

2014

     16.8   

2015

     14.1   

2016

     12.3   

Thereafter

     26.6   
  

 

 

 

Total

   $ 114.7   
  

 

 

 

Other Contingencies

The Company’s headquarters in Phoenix, Arizona are 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 Company’s August 4, 1999 recapitalization (“Recapitalization”), Motorola 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.

As part of the Recapitalization, the Company was granted various manufacturing facilities, one of which was located in the Czech Republic. In regards to this site, the Company has ongoing remediation projects to respond to releases of hazardous substances that occurred prior to the Recapitalization 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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

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 March 30, 2012 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.

The Company’s facility in Aizu, Japan is located on property where soil and ground water contamination has been detected. The Company believes that the contamination originally occurred during a time when the facility was operated by a prior owner. The Company is working with local authorities to determine the appropriate remediation actions and expects remediation costs, subject to certain limitations, to be indemnified pursuant to an agreement between the Company and the prior owner or covered by insurance subject to a deductible. Based on information available, any costs to the Company in connection with this matter are not expected to be material.

In the normal course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties initiated by either the Company or its subsidiaries, as required for transactions such as material purchase commitments, agreements to mitigate collection risk, leases or customs guarantees. The Company’s senior revolving credit facility includes a $40.0 million availability for the issuance of letters of credit. A $0.2 million letter of credit was outstanding under the senior revolving credit facility as of March 30, 2012. A bank guarantee issued on behalf of the Company under a non-reusable commitment credit with the bank has an outstanding amount of $3.6 million as of March 30, 2012. 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 March 30, 2012. The Company also had outstanding guarantees and letters of credit outside of its senior revolving credit facility and its non-reusable commitment credit totaling $10.1 million as of March 30, 2012.

As part of securing financing in the normal course of business, the Company issued guarantees related to its receivables financing, capital lease obligations and real estate mortgages which totaled approximately $110.1 million as of March 30, 2012. The Company is also a guarantor of SCI LLC’s unsecured loan with SANYO Electric, which had a balance of $330.3 million as of March 30, 2012. See Note 6: “Long-Term Debt” for further information on this loan.

 

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For its operating leases, the Company expects to make cash payments and similarly incur expenses totaling $114.7 million as payments come due. The Company has 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 that in the foreseeable future 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.

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 claims or occurrences, 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 advisers 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.

 

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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 the Company’s financial condition, results of operations or cash flows. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company’s business, consolidated financial position, results of operations or cash flows could be materially and adversely affected.

On December 15, 2010, a lawsuit was filed in the United States District Court for the District of Delaware (the “Court”) 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 and alleges generally that (1) ON Semiconductor’s 2010 proxy statement contained materially false and misleading information regarding the Amended and Restated SIP in violation of the federal securities laws; (2) the Amended and Restated SIP was defective and, thus, any awards made pursuant to the Amended and Restated SIP 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 officers and directors) violated their state law fiduciary duties and wasted corporate assets in connection with the adoption of the Amended and Restated SIP. The Company moved to dismiss the lawsuit. On March 2, 2012, the parties entered into a stipulation of settlement (the “Settlement Stipulation”) that sets forth the terms of a settlement which, if approved by the Court, will result in the dismissal of this action. In the Settlement Stipulation, the Company and the other individual defendants have denied and continue to deny that they committed any of the wrongful acts alleged in this lawsuit, and maintain that they have diligently, scrupulously, and meticulously complied with their fiduciary and other legal duties. On March 2, 2012, the parties submitted for the Court’s approval the Settlement Stipulation and other papers needed to effect a resolution of this lawsuit. While the Company makes no assurances or guarantees as to the outcome of this proceeding, based upon our current knowledge, the Company believes that the final result of this action will have no material effect on our consolidated financial position, results of operations, or cash flows.

In the normal course of business, the Company faces risk of exposure to warranty and product liability claims. Related to this, the Company (through its subsidiary SANYO Semiconductor) has received a request from one of its customers to pay to the customer an amount currently estimated by the customer to be approximately $20.0 million in respect of costs incurred or to be incurred by the customer and its customers in remedying certain alleged failures of SANYO Semiconductor products sold to the customer prior to the Company’s acquisition of SANYO Semiconductor. The Company is conducting investigations and evaluations of this matter, including fact finding and assessing possible liability, available defenses, mitigating circumstances and possible third party indemnity coverage. It is difficult to predict with certainty the ultimate loss exposure to ON Semiconductor; however, management believes that a number of defenses are available to the Company and it would expect to defend itself vigorously against any formal claim that may be asserted. While the Company makes no assurances or guarantees as to the outcome of this claim, based upon its current knowledge, the Company believes that the final result of this matter will have no material effect on its consolidated financial position, results of operations, or cash flows.

On December 27, 2011, 112 former employees of the Company’s subsidiary SANYO Semiconductor Thailand (“SSTH”), whose manufacturing operations were located in the Rojana Industrial Park in Ayutthaya, Thailand (“Rojana Park”), filed complaints with the Labor Region 1 Court in Lopburi Province in Thailand, seeking damages against SSTH for unfair termination under Thailand’s labor laws. On January 19, 2012, four additional former employees filed similar complaints with the Labor Region 1 Court in Lopburi Province in Thailand against SSTH. On March 19, 2012, 46 additional former employees filed similar complaints with the

 

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Labor Region 1 Court in Lopburi Province in Thailand against SSTH. All the cases are based on the widespread flooding in Thailand that occurred in the fourth quarter of 2011 and affected the Rojana Park. The floods severely damaged SSTH’s buildings, equipment and other property at its Rojana Park location. As a result, the Company decided to cease SSTH’s operations in Thailand and SSTH asked its employees to resign. The lawsuits seek a total of approximately $25.4 million, which includes alleged damages for: (1) wages calculated based on the employee’s last wage rate from the date of termination through the date of retirement; (2) mental anguish; (3) lost bonuses; and/or (4) other damages. The Company is currently evaluating the facts and legal issues and it is difficult at this time to predict with certainty the ultimate loss exposure to ON Semiconductor for this matter. The Company denies the substantive allegations of the lawsuits and expects to vigorously defend against them.

See Part I, Item 1 “Business-Government Regulation” of the 2011 Form 10-K for information on certain environmental matters.

Note 10: Fair Value of Financial Instruments

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 30, 2012 and December 31, 2011 (in millions):

 

    March 30, 2012     Quoted Prices in
Active Markets (Level 1)
    Balance as of
December 31, 2011
    Quoted Prices in
Active Markets (Level 1)
 

Description

       

Assets:

       

Cash and cash equivalents:

       

Demand and time deposits

  $ 431.0      $ 431.0      $ 455.3      $ 455.3   

Treasuries

    92.6        92.6        131.1        131.1   

Commercial paper

    54.2        54.2        50.9        50.9   

Corporate bonds

    2.3        2.3        15.6        15.1   

Other Current Assets

       

Foreign currency exchange contracts

  $ 0.4      $ 0.4      $ 0.7      $ 0.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Foreign currency exchange contracts

  $ 0.2      $ 0.2      $ 0.1      $ 0.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

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. The Company’s short-term investments balance of $312.2 million is classified as held-to-maturity securities and is carried at amortized cost, which excludes $0.2 million of unrealized losses as of March 30, 2012.

The carrying amounts of other current assets and liabilities, such as accounts receivable and accounts payable, approximate fair value based on the short-term nature of these instruments.

As of March 30, 2012, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or mortgage-backed securities.

 

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Long-Term Debt, Including Current Portion

The carrying amounts and fair values of the Company’s long-term borrowings (excluding capital lease obligations, real estate mortgages and equipment financing) at March 30, 2012 and December 31, 2011 are as follows (in millions):

 

     March 30, 2012      December 31, 2011  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Long-term debt, including current portion

           

Convertible Notes

   $ 574.3       $ 716.5       $ 567.1       $ 683.9   

Long-term debt

   $ 483.9       $ 453.3       $ 496.6       $ 462.0   

The fair value of the Convertible Notes was estimated based on quoted market prices. The fair value of other long-term debt was estimated based on discounting the remaining principal and interest payments using current market rates for similar debt and consideration of credit and default risk at March 30, 2012 and December 31, 2011.

Note 11: Financial Instruments

Foreign Currencies

As a multinational business, the Company’s transactions are denominated in a variety of currencies. When appropriate, the Company uses forward foreign currency contracts to reduce its overall exposure to the effects of currency fluctuations on its results of operations and cash flows. The Company’s policy prohibits trading in currencies for which there are no underlying exposures, or entering into trades for any currency to intentionally increase the underlying exposure.

The Company primarily hedges existing assets and liabilities and cash flows associated with transactions currently on its balance sheet.

As of March 30, 2012 and December 31, 2011, the Company had net outstanding foreign exchange contracts in a sell position with a net notional amount of $170.2 million and $203.4 million, respectively. Such contracts were obtained through financial institutions and were scheduled to mature within three months. Management believes that these financial instruments should not subject the Company to increased risks from foreign exchange movements because gains and losses on these contracts should offset losses and gains on the assets, liabilities and transactions being hedged. The following schedule shows the Company’s net foreign exchange positions in U.S. dollars as of March 30, 2012 and December 31, 2011 (in millions):

 

     March 30, 2012      December 31, 2011  
     Buy (Sell)     Notional Amount      Buy (Sell)     Notional Amount  

Chinese Renminbi

   $ (8.4   $ 8.4       $ (12.8   $ 12.8   

Euro

     (38.2     38.2         (30.8     30.8   

Japanese Yen

     (68.5     68.5         (100.0     100.0   

Malaysian Ringgit

     29.4        29.4         29.4        29.4   

Other Currencies

     6.9        25.7         7.6        30.4   
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ (78.8   $ 170.2       $ (106.6   $ 203.4   
  

 

 

   

 

 

    

 

 

   

 

 

 

The Company is exposed to credit-related losses if counterparties to its foreign exchange contracts fail to perform their obligations. As of March 30, 2012, the counterparty on the Company’s foreign exchange contracts

 

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is a highly rated financial institution and no credit-related losses are anticipated. Amounts payable or receivable under the contracts are included in other current assets or accrued expenses in the accompanying consolidated balance sheet. For March 30, 2012 and April 1, 2011, realized and unrealized foreign currency transaction gains/losses totaled a gain of $4.7 million and a loss of $2.5 million, respectively.

Cash Flow Hedges

The Company is exposed to global market risks associated with fluctuations in interest rates and foreign currency exchange rates. The Company addresses these risks through controlled management that includes the use of derivative financial instruments to economically hedge or reduce these exposures. The Company does not enter into derivative financial instruments for trading or speculative purposes.

The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies will be adversely affected by changes in exchange rates. The Company enters into forward contracts that are designated as foreign-currency cash flow hedges of selected forecasted payments denominated in currencies other than U.S. dollars. All the contracts mature within 12 months and upon maturity the amount recorded in accumulated other comprehensive income are reclassified into earnings.The Company documents all relationships between designated hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions.

All derivatives are recognized on the balance sheet at their fair value and classified based on the instrument’s maturity date. The total notional amount of outstanding derivatives designated as cash flow hedges as of March 30, 2012, was approximately $46.0 million, which is primarily comprised of cash flow hedges for Malaysian Ringgit/U.S. Dollar, and Philippine Peso/U.S. Dollar currency pairs.

For the quarter ended March 30, 2012, the Company recorded a loss of $0.4 million, recognized in other comprehensive income on derivatives associated with cash flow hedges. As of March 30, 2012 the Company had liability balances for contracts designated as cash flow hedging instruments of $0.2 million, which were classified as other liabilities. For the quarter ended April 1, 2011, there was no cash flow hedging activity.

As of March 30, 2012 and April 1, 2011, the Company had balances for contracts not designated as hedging instruments of $0.4 million and $0.4 million, which was classified as other assets. Additionally, as of April 1, 2011, the Company had liability balances for contracts not designated as hedging instruments of $0.7 million, which were classified as other liabilities.

Note 12: Supplemental Disclosures of Cash Flow Information

The Company’s non-cash financing activities and cash payments for interest and income taxes are as follows (in millions):

 

     For Quarters Ended  
     March 30, 2012     April 1, 2011  

Non-cash financing activities:

    

Capital expenditures in accounts payable

   $ 105.0      $ 55.1   

Equipment acquired or refinanced through capital leases

   $ —        $ 8.3   

Cash (received) paid for:

    

Interest income

   $ (0.5   $ (0.3

Interest expense

   $ 8.5      $ 9.1   

Income taxes

   $ 4.6      $ 2.1   

 

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Note 13: Segment Information

The Company is organized into four operating segments, which also represent four reporting segments: computing and consumer products group, automotive, industrial, medical and mil-aero products group, standard products group and SANYO Semiconductor products group. Each of the Company’s major product lines has been examined and each product line has been assigned to a segment, as illustrated in the table below, based on the Company’s operating strategy. Because many products are sold into different end-markets, the total revenue reported for a segment is not indicative of actual sales in the end-market associated with that segment, but rather is the sum of the revenue from the product lines assigned to that segment. These segments represent the Company’s view of the business and as such are used to evaluate progress of major initiatives.

Revenues, gross profit and operating income for the Company’s reportable segments for the quarters ended March 30, 2012 and April 1, 2011, respectively, are as follows (in millions):

 

     Computing &
Consumer
Products
Group
     Automotive, Industrial,
Medical and Mil-Aero
Products Group
     Standard
Products
Group
     SANYO
Semiconductor
Products Group
    Total  

For quarter ended March 30, 2012:

             

Revenues from external customers

   $ 138.3       $ 203.4       $ 196.8       $ 205.9      $ 744.4   

Segment gross profit

   $ 52.5       $ 91.3       $ 73.5       $ 39.9      $ 257.2   

Segment operating income (loss)

   $ 20.9       $ 19.7       $ 46.9       $ (20.4   $ 67.1   

For quarter ended April 1, 2011:

             

Revenues from external customers

   $ 155.7       $ 208.7       $ 228.1       $ 278.1      $ 870.6   

Segment gross profit

   $ 63.7       $ 104.3       $ 86.2       $ 4.4      $ 258.6   

Segment operating income (loss)

   $ 27.4       $ 32.5       $ 54.6       $ (42.8   $ 71.7   

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  
     March 30, 2012     April 1, 2011  

Gross profit for reportable segments

   $ 257.2      $ 258.6   

Unallocated amounts:

    

Other unallocated manufacturing costs

   $ (12.0   $ (16.2
  

 

 

   

 

 

 

Gross profit

   $ 245.2      $ 242.4   
  

 

 

   

 

 

 

Operating income for reportable segments

   $ 67.1      $ 71.7   

Unallocated amounts:

    

Restructuring and other charges

     (11.5     (12.4

Other unallocated manufacturing costs

     (12.0     (16.2

Other unallocated operating expenses

     —          (10.4
  

 

 

   

 

 

 

Operating income

   $ 43.6      $ 32.7   
  

 

 

   

 

 

 

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

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  
     March 30,
2012
     April 1,
2011
 

United States

   $ 111.3       $ 127.2   

Other Americas

     9.4         6.2   

United Kingdom

     105.8         109.9   

Belgium

     0.1         0.9   

China

     218.3         269.9   

Japan

     115.2         125.4   

Singapore

     143.5         170.8   

Other Asia/Pacific

     40.8         60.3   
  

 

 

    

 

 

 
   $ 744.4       $ 870.6   
  

 

 

    

 

 

 

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

 

     March 30,
2012
     December 31,
2011
 

United States

   $ 261.0       $ 257.5   

China

     94.5         96.7   

Other Europe

     129.0         117.9   

Malaysia

     172.6         164.5   

Philippines

     209.6         204.0   

Other Asia/Pacific

     82.4         56.2   

Japan

     125.3         130.2   

Belgium

     68.4         70.0   

Other Americas

     12.7         12.5   
  

 

 

    

 

 

 
   $ 1,155.5       $ 1,109.5   
  

 

 

    

 

 

 

For the quarters ended March 30, 2012, and April 1, 2011, there was no individual customer which accounted for more than 10.0% of the Company’s total revenues.

 

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Note 14: Guarantor and Non-Guarantor Statements

ON Semiconductor is the sole issuer of the Convertible Notes. ON Semiconductor’s domestic subsidiaries, except those domestic subsidiaries acquired through the acquisitions of AMIS, Catalyst Semiconductor, Inc., PulseCore Holdings (Cayman) Inc., California Micro Devices, Sound Design Technologies, 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 and 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 March 30, 2012

           

Cash and cash equivalents

  $ —        $ 232.7      $ (0.9   $ 348.3      $ —        $ 580.1   

Short-term investments

    —          312.2        —          —          —          312.2   

Receivables, net

    —          56.9        —          368.4        —          425.3   

Inventories

    —          35.8        —          605.5        (7.6     633.7   

Other current assets

    —          9.9        —          66.9        —          76.8   

Deferred income taxes, net of allowances

    —          5.5        —          4.8        —          10.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    —          653.0        (0.9     1,393.9        (7.6     2,038.4   

Property, plant and equipment, net

    —          258.3        2.7        897.3        (2.8     1,155.5   

Deferred income taxes, net of allowances

    —          —          —          30.1        —          30.1   

Goodwill

    —          125.7        37.3        35.7        —          198.7   

Intangible assets, net

    —          147.8        —          207.1        (29.1     325.8   

Investments and other assets

    2,086.9        1,341.2        61.0        852.9        (4,261.3     80.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 2,086.9      $ 2,526.0      $ 100.1      $ 3,417.0      $ (4,300.8   $ 3,829.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

  $ —        $ 31.3      $ —        $ 377.3      $ —        $ 408.6   

Accrued expenses

    —          56.8        0.8        179.2        1.7        238.5   

Income taxes payable

    —          (8.4     —          11.2        —          2.8   

Accrued interest

    3.8        0.2        —          0.2        —          4.2   

Deferred income on sales to distributors

    —          39.7        —          113.8        —          153.5   

Deferred income taxes, net of allowances

    —          —          —          29.6        —          29.6   

Current portion of long-term debt

    186.0        70.9        —          120.2        —          377.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    189.8        190.5        0.8        831.5        1.7        1,214.3   

Long-term debt

    388.4        375.3        —          48.2        —          811.9   

Other long-term liabilities

    —          25.8        0.4        221.2        —          247.4   

Deferred income taxes, net of allowances

    —          5.5        —          15.6        —          21.1   

Intercompany

    0.3        (303.2     (51.5     148.9        205.5        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    578.5        293.9        (50.3     1,265.4        207.2        2,294.7   

Common stock

    5.1        0.3        50.9        147.2        (198.4     5.1   

Additional paid-in capital

    3,125.6        2,716.6        238.4        1,359.5        (4,314.5     3,125.6   

Accumulated other comprehensive loss

    (41.6     (41.6     —          (34.5     76.1        (41.6

Accumulated deficit

    (1,174.1     (443.2     (138.9     679.4        (97.3     (1,174.1

Less: treasury stock, at cost

    (406.6     —          —          —          —          (406.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,508.4        2,232.1        150.4        2,151.6        (4,534.1     1,508.4   

Minority interests in consolidated subsidiaries

    —          —          —          —          26.1        26.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,508.4        2,232.1        150.4        2,151.6        (4,508.0     1,534.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 2,086.9      $ 2,526.0      $ 100.1      $ 3,417.0      $ (4,300.8   $ 3,829.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

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

As of December 31, 2011

           

Cash and cash equivalents

  $ —          304.5        (0.2   $ 348.6        —        $ 652.9   

Short-term investments

    —          248.6        —          —          —          248.6   

Receivables, net

    —          64.7        —          392.5        —          457.2   

Inventories

    —          36.2        —          599.3        1.9        637.4   

Other current assets

    —          7.5        —          114.1        —          121.6   

Deferred income taxes, net of allowances

    —          5.5        —          4.5        —          10.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    —          667.0        (0.2     1,459.0        1.9        2,127.7   

Property, plant and equipment, net

    —          255.2        2.3        854.5        (2.5     1,109.5   

Deferred income taxes, net of allowances

    —          —          —          34.2        —          34.2   

Goodwill

    —          125.7        37.3        35.7        —          198.7   

Intangible assets, net

    —          152.3          215.0        (30.1     337.2   

Investments and other assets

    2,036.2        1,303.5        59.1        846.9        (4,169.5     76.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 2,036.2      $ 2,503.7      $ 98.5      $ 3,445.3      $ (4,200.2   $ 3,883.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

  $ —        $ 32.8        0.1        418.9        —        $ 451.8   

Accrued expenses

    —          61.0        0.8        176.3        1.7        239.8   

Income taxes payable

    —          (0.1     —          7.6        —          7.5   

Accrued interest

    0.6        —          —          0.1        —          0.7   

Deferred income on sales to distributors

    —          43.7        —          128.3        —          172.0   

Deferred income taxes, net of allowances

    —          —          —          33.6        —          33.6   

Current portion of long-term debt

    182.6        74.1        —          113.4        —          370.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    183.2        211.5        0.9        878.2        1.7        1,275.5   

Long-term debt

    384.5        393.8        —          58.6        —          836.9   

Other long-term liabilities

    —          26.6        0.4        233.1        —          260.1   

Deferred income tax, net of allowances

    —          5.5        —          12.0        —          17.5   

Intercompany

    0.3        (318.2     (54.5     166.9        205.5        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    568.0        319.2        (53.2     1,348.8        207.2        2,390.0   

Common stock

    5.0        0.3        50.9        146.9        (198.1     5.0   

Additional paid-in capital

    3,113.5        2,711.2        238.4        1,359.2        (4,308.8     3,113.5   

Accumulated other comprehensive loss

    (46.7     (46.7     —          (39.2     85.9        (46.7

Accumulated deficit

    (1,202.3     (480.3     (137.6     629.6        (11.7     (1,202.3

Less: treasury stock, at cost

    (401.3     —          —          —          —          (401.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,468.2        2,184.5        151.7        2,096.5        (4,432.7     1,468.2   

Minority interests in consolidated subsidiaries

    —          —          —          —          25.3        25.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,468.2        2,184.5        151.7        2,096.5        (4,407.4     1,493.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 2,036.2      $ 2,503.7      $ 98.5      $ 3,445.3      $ (4,200.2   $ 3,883.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

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

For the quarter ended March 30, 2012

           

Revenues

  $ —        $ 185.6      $ —        $ 893.5      $ (334.7   $ 744.4   

Cost of product revenues

    —          116.1        0.2        708.1        (325.2     499.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —          69.5        (0.2     185.4        (9.5     245.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development

    —          43.2        2.6        45.6        —          91.4   

Selling and marketing

    —          17.1        0.2        28.3        —          45.6   

General and administrative

    —          15.2        0.2        26.6        —          42.0   

Amortization of acquisition related intangible assets

    —          4.5        —          7.6        (1.0     11.1   

Restructuring, asset impairments and other, net

    —          —          —          11.5        —          11.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    —          80.0        3.0        119.6        (1.0     201.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    —          (10.5     (3.2     65.8        (8.5     43.6   

Interest expense

    (10.9     (2.3     —          (2.5     —          (15.7

Interest income

    —          0.3        —          0.2        —          0.5   

Other

    —          6.2        —          (1.5     —          4.7   

Equity in earnings

    39.1        34.9        1.9        —          (75.9     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    28.2        28.6        (1.3     62.0        (84.4     33.1   

Income tax provision

    —          8.5        —          (12.6     —          (4.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    28.2        37.1        (1.3     49.4        (84.4     29.0   

Net income attributable to minority interest

    —          —          —          —          (0.8     (0.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor Corporation

  $ 28.2      $ 37.1      $ (1.3   $ 49.4      $ (85.2   $ 28.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income:

           

Net income

  $ 28.2      $ 37.1      $ (1.3   $ 49.4      $ (84.4   $ 29.0   

Foreign currency translation adjustments

    4.9        0.8        —          4.1        (4.9     4.9   

Effects of cash flow hedges

    (0.4     (0.4     —          —          0.4        (0.4

Unrealized gain on available-for-sale securities

    0.5        —          —          0.5        (0.5     0.5   

Amortization of prior service costs of defined benefit plan

    0.1        —          —          0.1        (0.1     0.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

    33.3        37.5        (1.3     54.1        (89.5     34.1   

Comprehensive income attributable to minority interest

    —          —          —          —          (0.8   $ (0.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation:

  $ 33.3      $ 37.5      $ (1.3   $ 54.1      $ (90.3   $ 33.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

  $ —        $ (31.3   $ (0.2   $ 99.9      $ —        $ 68.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —          (11.2     (0.5     (38.7     —          (50.4

Proceeds from sales of property, plant and equipment

    —          —          —          1.9        —          1.9   

Deposits utilized for purchases of property, plant and equipment

    —          —          —          (9.6     —          (9.6

Recovery from insurance on property, plant and equipment

    —          —          —          11.5        —          11.5   

Proceeds from held-to-maturity securities

    —          99.7        —          —          —          99.7   

Purchase of held-to-maturity securities

    —          (163.3     —          —          —          (163.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —          (74.8     (0.5     (34.9     —          (110.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

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

Cash flows from financing activities:

           

Intercompany loans

    —          (23.3     —          23.3        —          —     

Intercompany loan repayments

    —          70.2        —          (70.2     —          —     

Proceeds from debt issuance

    —          —          —          2.0        —          2.0   

Proceeds from exercise of stock options

    —          4.8        —          —            4.8   

Payment of capital lease obligation

    —          (11.0     —          (0.4       (11.4

Purchase of treasury stock

    —          (5.3     —          —          —          (5.3

Repayment of long term debt

    —          (1.1     —          (14.5     —          (15.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    —          34.3        —          (59.8     —          (25.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

          (5.5       (5.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    —          (71.8     (0.7     (0.3     —          (72.8

Cash and cash equivalents, beginning of period

    —          304.5        (0.2     348.6          652.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

  $ —        $ 232.7      $ (0.9   $ 348.3      $ —        $ 580.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    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 product 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

    (12.9     (2.2     —          (2.7     —          (17.8

Interest income

    —          0.1        —          0.2        —          0.3   

Other

    —          4.1        —          (6.6     —          (2.5

Gain (loss) on SANYO Semiconductor acquisition

    —          24.3        —          —          —          24.3   

Loss on debt repurchase

    —          —          —          —          —          —     

Equity in earnings

    48.4        42.6        1.7        —          (92.7     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    35.5        10.1        (2.1     93.4        (99.9     37.0   

Income tax provision

    —          12.2        —          (13.0     —          (0.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    35.5        22.3        (2.1     80.4        (99.9     36.2   

Net income (loss) attributable to minority interest

    —          —          —          —          (0.7     (0.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor Corporation

  $ 35.5      $ 22.3      $ (2.1   $ 80.4      $ (100.6   $ 35.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

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

Comprehensive income (loss):

           

Net income (loss)

  $ 35.5      $ 22.3      $ (2.1   $ 80.4      $ (99.9   $ 36.2   

Foreign currency translation adjustments

    0.4        0.4        —          —          (0.4     0.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

    35.9        22.7        (2.1     80.4        (100.3     36.6   

Comprehensive income attributable to minority interests

    —          —          —          —          (0.7     (0.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to ON Semiconductor Corporation

  $ 35.9      $ 22.7      $ (2.1   $ 80.4      $ (101.0   $ 35.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

Purchase of 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 issuance of common stock under the employee stock purchase plan

    —          1.9        —          —          —          1.9   

Proceeds from debt issuance

    —          —          —          15.2        —          15.2   

Proceeds from exercise of stock options

    —          41.1        —          —          —          41.1   

Payment of capital lease obligation

    —          (10.0     —          0.1        —          (9.9

Purchase of treasury stock

    —          (7.6     —          —          —          (7.6

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

See also Note 9: “Commitments and Contingencies—Other Contingencies” for further discussion of the Company’s guarantees.

Note 15: Subsequent Events

Retirement of the Zero Coupon Convertible Senior Subordinated Notes due 2024

On April 16, 2012, the Company exercised its call option relating to its Zero Coupon Convertible Senior Subordinated Notes due 2024. As a result, the Company paid the gross principal amount of approximately $96.2 million to the holders of the notes and retired the outstanding obligation.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

 

Voluntary Retirement Program at SANYO Semiconductor Subsidiaries

On April 13, 2012 the Company initiated a voluntary retirement program for employees of certain of its SANYO Semiconductor subsidiaries. Under the program, the Company intends to reduce the employment levels at these subsidiaries by up to approximately 500 employees. The ultimate cost of the program will depend on several factors, including the years of service and salary levels of employees that apply for early retirement under the program. Given the voluntary nature of the program, the costs associated with the program will be recorded when the retirement offer is accepted by the impacted employees. The Company estimates recording a charge ranging from $40.0 million to $50.0 million related to this program during the second quarter of 2012. This estimated charge excludes amounts related to the pension benefit impact that may be recognized subsequent to the employees’ retirement. The Company’s pension and related benefit plans allow for benefit payment elections by the employee and the Company’s pension liability balances reflect actuarial assumptions related to these elections. As these employees make their actual elections at retirement, the pension obligation will be determined and as a result the Company will record an adjustment to the pension liability to reflect the impact of employee elections as compared to the actuarial assumptions. Accordingly, the Company cannot reasonably estimate the related impact until the employee elections are known.

 

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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, 2011 (“2011 Form 10-K”), filed with the Securities and Exchange Commission (the “Commission”) on February 22, 2012, and our unaudited consolidated financial statements for the fiscal quarter ended March 30, 2012, 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 risk, uncertainties, and other factors. Actual results could differ materially because of the 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 2011 Form 10-K.

Company Highlights for the Quarter Ended March 30, 2012

 

   

Total revenues of $744.4 million

 

   

Gross margin of 32.9 percent

 

   

Net income per fully diluted share of $0.06

Executive Overview

This Executive Overview presents summary information regarding our industry, markets, business 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 growth rate in our total addressable market of approximately 4.9% during 2012 through 2014. 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 Overview

We are a 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, smart grid 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 (“ASICs”) 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, discrete, image sensors and memory categories used by the WSTS group.

We serve a broad base of end-user markets, including automotive, communications, computing, consumer, medical, industrial, smart grid and military/aerospace. Applications for our products in these markets include portable electronics, computers, game consoles, servers, automotive and industrial control systems, LED lighting, power supplies, networking and telecommunications gear and automated test equipment.

 

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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 comprises approximately 40,500 products and we shipped approximately 8.9 billion units in the first three months of 2012 as compared to 10.6 billion units in the first three months of 2011. 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, global manufacturing network and logistics provides our customers with single source purchasing on a cost-effective and timely basis.

Segments

We are organized into four operating segments, which also represent four reporting segments: computing and consumer products group; automotive, industrial, medical and mil-aero products group; standard products group; and 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.

Customers

We have approximately 417 direct customers worldwide, and we also service approximately 275 significant original equipment manufacturers (“OEMs”) indirectly through our distributor and electronic manufacturing service provider customers. Our direct and indirect customers include: (1) leading OEMs in a broad variety of industries, such as Continental Automotive Systems, Delta, Samsung, Hella, Delphi, LG Electronics, Motorola Mobility, Motorola Solutions, Panasonic, Schneider, GE, Honeywell, Broadcom, Siemens, Nokia, Cisco Systems, and Sony Ericsson; (2) electronic manufacturing service providers, such as Flextronics, Celestica, Benchmark Electronic, and Jabil; and (3) global distributors, such as Arrow, Avnet, EBV Elektronik, Future, World Peace and Yosun.

Operating Facilities

Our primary domestic design operations are located in Arizona, California, Idaho, Oregon, Rhode Island and Texas, as well as foreign design operations in Belgium, Canada, China, the Czech Republic, France, Germany, India, Ireland, Korea, Romania and Switzerland. Additionally, we currently operate domestic manufacturing facilities in Idaho and Oregon and have foreign manufacturing facilities in Belgium, Canada, China, the Czech Republic, Japan, Malaysia, the Philippines and Vietnam.

New Product Innovation

As a result of our research and development initiatives, we introduced 285 new product families in 2011. During the first three months of 2012, we introduced an additional 68 new product families. Our new product development efforts continue to be focused on building solutions in power management that appeal to customers in focused market segments and across multiple high growth applications. As always, it is our practice to regularly re-evaluate our research and development spending, to assess the deployment of resources and to review the funding of high growth technologies. We deploy people and capital with the goal of maximizing our investment in research and development in order to position ourselves for continued growth. As a result, we often invest opportunistically to refresh existing products in our commodity logic, analog, memory and discrete products. We invest in these initiatives when we believe there is a strong customer demand or opportunities to innovate our current portfolio in high growth markets and applications.

Business and Macroeconomic Environment

We have recognized efficiencies from implemented restructuring activities and programs and continue to implement profitability enhancement programs to improve our cost structure; however, the semiconductor

 

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industry has traditionally been highly cyclical and has often experienced significant downturns in connection with, or in anticipation of, declines in general economic conditions. Over the past year, we believe the business environment has experienced significant uncertainty and volatility in the United States and Europe along with softening demand. These factors combined with the on-going impact of the flooding in Thailand, have either impacted us directly or have affected our customers and suppliers, which in turn has affected our business, including sales, our production capacity, and results of operations.

Outlook

ON Semiconductor Q2 2012 Outlook

Based upon product booking trends, backlog levels, and estimated turns levels, we estimate that our revenues will be approximately $745.0 million to $785.0 million in the second quarter of 2012. Backlog levels for the second quarter of 2012 represent approximately 80% to 85% of our anticipated second quarter 2012 revenues. We estimate average selling prices for the second quarter of 2012 will be down approximately 1% to 2% compared to the first quarter of 2012. For the second quarter of 2012, we estimate that gross margin as a percentage of revenues will be approximately 34% to 35%. See also Note 15: “Subsequent Events” of the notes to our unaudited consolidated financial statements found elsewhere in this Form 10-Q for information on the voluntary retirement program at certain SANYO Semiconductor subsidiaries that was initiated on April 30, 2012 and is expected to result in a charge ranging from $40.0 million to $50.0 million during the second quarter of 2012.

Results of Operations

Quarter Ended March 30, 2012 Compared to Quarter ended April 1, 2011

The following table summarizes certain information relating to our operating results that has been derived from our unaudited consolidated financial statements for the quarters ended March 30, 2012 and April 1, 2011. The amounts in the following table are in millions:

 

     Quarter Ended    

 

 
     March 30, 2012     April 1, 2011     Dollar Change  

Revenues

   $ 744.4      $ 870.6      $ (126.2

Cost of revenues

     499.2        628.2        (129.0
  

 

 

   

 

 

   

 

 

 

Gross profit

     245.2        242.4        2.8   

Operating expenses:

      

Research and development

     91.4        91.1        0.3   

Selling and marketing

     45.6        49.4        (3.8

General and administrative

     42.0