10-Q 1 d429592d10q.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 September 28, 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  ¨     (Do not check if a smaller reporting company)    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 October 26, 2012:

 

Title of Each Class

 

Number of Shares

Common Stock, par value $0.01 per share     448,293,513  

 

 

 


Table of Contents

INDEX

 

Part I: Financial Information

  

Item 1. Financial Statements (unaudited)

     3   

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

     42   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     62   

Item 4. Controls and Procedures

     63   

Part II: Other Information

  

Item 1. Legal Proceedings

     64   

Item 1A. Risk Factors

     64   

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

     65   

Item 3. Defaults Upon Senior Securities

     66   

Item 4. Mine Safety Disclosures

     66   

Item 5. Other Information

     66   

Item 6. Exhibits

     67   

Signatures

     68   

Exhibit Index

     69   


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)

 

     September 28,
2012
    December 31,
2011
 

Assets

    

Cash and cash equivalents

   $ 421.4      $ 652.9   

Short-term investments

     221.6        248.6   

Receivables, net

     415.4        457.2   

Inventories

     644.3        637.4   

Other current assets

     121.9        121.6   

Deferred income taxes, net of allowances

     10.4        10.0   
  

 

 

   

 

 

 

Total current assets

     1,835.0        2,127.7   

Property, plant and equipment, net

     1,231.6        1,109.5   

Deferred income taxes, net of allowances

     34.6        34.2   

Goodwill

     198.7        198.7   

Intangible assets, net

     303.9        337.2   

Other assets

     66.1        76.2   
  

 

 

   

 

 

 

Total assets

   $ 3,669.9      $ 3,883.5   
  

 

 

   

 

 

 

Liabilities, Non-Controlling Interests and Stockholders’ Equity

    

Accounts payable

   $ 349.9      $ 451.8   

Accrued expenses

     248.7        239.8   

Income taxes payable

     6.2        7.5   

Accrued interest

     4.1        0.7   

Deferred income on sales to distributors

     149.9        172.0   

Deferred income taxes, net of allowances

     33.9        33.6   

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

     260.9        370.1   
  

 

 

   

 

 

 

Total current liabilities

     1,053.6        1,275.5   

Long-term debt (See Note 6)

     802.5        836.9   

Other long-term liabilities

     252.8        260.1   

Deferred income taxes, net of allowances

     21.4        17.5   
  

 

 

   

 

 

 

Total liabilities

     2,130.3        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, 507,999,924 and 502,452,084 shares issued, 451,678,389 and 451,284,220 shares outstanding, respectively)

     5.1        5.0   

Additional paid-in capital

     3,143.2        3,113.5   

Accumulated other comprehensive loss

     (45.2     (46.7

Accumulated deficit

     (1,154.7     (1,202.3

Less: treasury stock, at cost; 56,321,535 and 51,167,864 shares, respectively

     (437.1     (401.3
  

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity

     1,511.3        1,468.2   

Non-controlling interests in consolidated subsidiaries

     28.3        25.3   
  

 

 

   

 

 

 

Total equity

     1,539.6        1,493.5   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,669.9      $ 3,883.5   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

3


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)

 

     Quarter Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Revenues

   $ 725.5      $ 898.0      $ 2,214.7      $ 2,674.4   

Cost of product revenues

     487.5        636.9        1,473.2        1,904.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     238.0        261.1        741.5        769.6   

Operating expenses:

        

Research and development

     90.1        91.5        279.3        271.8   

Selling and marketing

     44.2        48.4        136.8        149.0   

General and administrative

     36.8        51.9        119.7        151.3   

Amortization of acquisition-related intangible assets

     11.1        10.6        33.3        31.7   

Restructuring, asset impairments and other, net

     11.2        65.4        57.3        82.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     193.4        267.8        626.4        686.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     44.6        (6.7     115.1        82.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses), net:

        

Interest expense

     (13.6     (16.9     (43.4     (52.5

Interest income

     0.3        0.3        1.1        0.8   

Other

     (3.6     (3.1     3.4        (6.6

Loss on debt repurchase or exchange

     (7.8     (5.3     (7.8     (5.3

Gain on SANYO Semiconductor acquisition

     —          —          —          24.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses), net

     (24.7     (25.0     (46.7     (39.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     19.9        (31.7     68.4        43.6   

Income tax provision

     (6.5     (17.3     (17.8     (21.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     13.4        (49.0     50.6        22.3   

Less: Net income attributable to non-controlling interests

     (0.9     (0.4     (3.0     (1.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor Corporation

   $ 12.5      $ (49.4   $ 47.6      $ 20.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss):

        

Net income (loss)

   $ 13.4      $ (49.0   $ 50.6      $ 22.3   

Foreign currency translation adjustments

     (2.1     6.0        0.2        10.4   

Effects of cash flow hedges

     1.8        —          1.1        —     

Unrealized gain (loss) on available-for-sale securities

     (0.2     —          0.1        —     

Amortization of prior service costs of defined benefit plan

     —          —          0.1        0.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     12.9        (43.0     52.1        32.9   

Comprehensive income attributable to non-controlling interests

     (0.9     (0.4     (3.0     (1.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributed to ON Semiconductor Corporation

   $ 12.0      $ (43.4   $ 49.1      $ 31.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 0.03      $ (0.11   $ 0.10      $ 0.05   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.03      $ (0.11   $ 0.10      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

Basic

     454.6        448.8        453.9        445.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     456.2        448.8        458.2        454.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

4


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(unaudited)

 

     Nine Months Ended  
     September 28,
2012
    September 30,
2011
 

Cash flows from operating activities:

    

Net income

   $ 50.6      $ 22.3   

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

    

Depreciation and amortization

     182.7        166.8   

Gain on sale and disposal of fixed assets

     (4.7     (6.9

Non-cash manufacturing expenses associated with favorable supply agreement

     —          80.4   

Non-cash portion of loss on debt repurchase or exchange

     7.8        5.3   

Gain on acquisition of SANYO Semiconductor

     —          (24.3

Amortization of debt issuance costs and debt discount

     1.7        1.8   

Provision for excess inventories

     30.6        18.7   

Non-cash asset impairment charges

     2.1        61.7   

Non-cash share-based compensation expense

     14.7        26.9   

Non-cash interest

     18.7        26.5   

Deferred income taxes

     3.4        (7.2

Other

     (1.4     0.5   

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

    

Receivables

     43.5        9.7   

Inventories

     (36.3     85.9   

Other assets

     (19.2     (2.7

Accounts payable

     (128.8     (98.9

Accrued expenses

     3.8        (44.6

Income taxes payable

     (1.4     8.7   

Accrued interest

     3.4        3.2   

Deferred income on sales to distributors

     (22.1     38.9   

Other long-term liabilities

     (9.7     8.1   
  

 

 

   

 

 

 

Net cash provided by operating activities

     139.4        380.8   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (198.8     (259.3

Proceeds from sales of property, plant and equipment

     5.1        3.3   

Deposits utilized for purchases of property, plant and equipment

     1.6        1.0   

Recovery from insurance on property, plant and equipment

     11.5        —     

Purchase of businesses, net of cash acquired

     —          (17.9

Proceeds from held-to-maturity securities

     288.7        —     

Purchase of held-to-maturity securities

     (261.7     (178.4

Change in restricted cash

     —          142.1   
  

 

 

   

 

 

 

Net cash used in investing activities

     (153.6     (309.2
  

 

 

   

 

 

 

Cash flows from financing activities:

    

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

     4.3        6.1   

Proceeds from exercise of stock options

     6.0        58.3   

Payments of tax withholding for restricted shares

     (8.8     (15.4

Repurchase of common stock

     (22.5     —     

Proceeds from debt issuance

     11.1        64.0   

Payment of capital lease obligations

     (30.6     (28.1

Repayment of long-term debt

     (173.3     (71.0

Repurchase or exchange of convertible notes

     (2.0     (56.2

Capitalized closing costs in connection with convertible notes

     (0.3     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (216.1     (42.3
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1.2     6.7   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (231.5     36.0   

Cash and cash equivalents, beginning of period

     652.9        623.3   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 421.4      $ 659.3   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

5


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 Company uses a thirteen-week fiscal quarter accounting period, for each quarter, with the first quarter ending on the last Friday in March and the fourth quarter ending on December 31. The third quarters ended September 28, 2012 and September 30, 2011 each contained 91 days. The nine months ended September 28, 2012 and September 30, 2011 contained 272 days and 273 days, respectively.

The accompanying unaudited financial statements as of September 28, 2012, and for the three and nine months ended September 28, 2012 and September 30, 2011, respectively, have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America for audited financial statements. Additionally, the balance sheet as of December 31, 2011 was derived from audited financial statements, but also does not include all disclosures required by accounting principles generally accepted in the United States of America. 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 in the United States of America 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 investment 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 statements of comprehensive income for the nine months ended September 30, 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 reported a gain of $58.0 million for the nine months ended September 30, 2011, which was retrospectively adjusted at December 31, 2011 to $24.3 million in accordance with Accounting Standards Codification (“ASC”) 805 Business Combinations.

 

6


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

 

     For the Nine Months Ended
September 30, 2011
 
     As reported      As revised  

Other income (expenses), net:

     

Gain on SANYO Semiconductor acquisition

     58.0         24.3   

Net income attributable to ON Semiconductor Corporation

   $ 54.1       $ 20.4   
  

 

 

    

 

 

 

Net income per common share attributable to ON Semiconductor Corporation

     

Basic

   $ 0.12       $ 0.05   
  

 

 

    

 

 

 

Diluted

   $ 0.12       $ 0.04   
  

 

 

    

 

 

 

Note 2: New Accounting Pronouncements

ASU No. 2012-02, “Intangibles—Goodwill and Other (Topic 350): Testing of Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”)

ASU 2012-02 is intended to reduce the complexity and cost of performing an evaluation of impairment of indefinite-lived intangible assets other than goodwill. Under the new guidance, an entity is permitted to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with ASC Subtopic 350-30 “Intangibles—Goodwill and Other.” The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU 2012-02 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU No. 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”)

ASU 2011-08 is intended to reduce the complexity and cost of performing an evaluation of impairment of goodwill. Under the new guidance, an entity will have the option of first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test will be unnecessary. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this guidance effective in the first quarter of fiscal 2012. The adoption of ASU 2011-08 did not have a material impact on the Company’s Consolidated Financial Statements.

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

 

7


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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.

Note 3: Goodwill and Intangible Assets

Goodwill

The following table summarizes goodwill by relevant operating segment as of September 28, 2012 and December 31, 2011 (in millions):

 

     Balance as of September 28, 2012      Balance as of December 31, 2011  
     Goodwill      Accumulated
Impairment
Losses
    Carrying
Value
     Goodwill      Accumulated
Impairment
Losses
    Carrying
Value
 

Operating Segment:

               

Automotive, Industrial, Medical and Mil-Aero Products Group

   $ 552.4       $ (406.0   $ 146.4       $ 552.4       $ (406.0   $ 146.4   

Computing & Consumer Products Group

     23.5         —          23.5         23.5         —          23.5   

Standard Products Group

     37.7         (8.9     28.8         37.7         (8.9     28.8   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 613.6       $ (414.9   $ 198.7       $ 613.6       $ (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. While management did not identify any triggering events through September 28, 2012 that would require an expedited impairment analysis, the Company’s current projections include assumptions of the duration and severity of the current industry downturn, which could negatively change and, which, in turn, could adversely impact the fair value of the Company’s goodwill, intangible assets and other long-lived assets. As a result, the reporting units containing the goodwill could exceed their carrying value in future impairment tests.

Intangible Assets

Intangible assets, net were as follows as of September 28, 2012 and December 31, 2011 (in millions):

 

     September 28, 2012  
     Original
Cost
     Accumulated
Amortization
    Foreign Currency
Translation  Adjustment
    Accumulated
Impairment
Losses
    Carrying
Value
     Useful Life
(in Years)
 

Intellectual property

   $ 13.9       $ (8.5   $ —        $ —        $ 5.4         5-12   

Customer relationships

     280.3         (86.7     (26.5     (3.2     163.9         5-18   

Patents

     43.7         (15.1     —          —          28.6         12   

Developed technology

     146.2         (47.5     —          (2.0     96.7         5-12   

Trademarks

     14.0         (4.7     —          —          9.3         15   

In-process research and development

     2.5         —          —          (2.5     —        
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Total intangibles

   $ 500.6       $ (162.5   $ (26.5   $ (7.7   $ 303.9      
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

8


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

     December 31, 2011  
     Original
Cost
     Accumulated
Amortization
    Foreign Currency
Translation  Adjustment
    Accumulated
Impairment
Losses
    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 acquisition-related intangible assets amounted to $11.1 million and $33.3 million for the quarter and nine months ended September 28, 2012, respectively, and was $10.6 million and $32.8 million for the quarter and nine months ended September 30, 2011, respectively, none of which was included in cost of product revenues for the quarter ended September 30, 2011 and $1.1 million of which was included in cost of product revenues for the nine months ended September 30, 2011. The Company is currently amortizing fourteen projects having an original cost of $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

   $ 11.4   

2013

     39.7   

2014

     38.5   

2015

     37.4   

2016

     34.4   

Thereafter

     142.5   
  

 

 

 

Total estimated amortization expense

   $ 303.9   
  

 

 

 

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 and nine months ended September 28, 2012 is as follows (in millions):

 

     Restructuring     Impairment      Other      Total  

Quarter ended September 28, 2012

          

2012 global workforce reduction

   $ 7.8      $ —         $ —         $ 7.8   

Executive severance

     —          —           0.5         0.5   

Voluntary retirement program at SANYO Semiconductor

     3.2        —           —           3.2   

Thailand facility closure

     (2.3     —           —           (2.3

Aizu facility closure

     (0.2     2.1         —           1.9   

SANYO Semiconductor consolidation

     0.4        —           —           0.4   

2011 global workforce reduction

     (0.3     —           —           (0.3
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 8.6      $ 2.1       $ 0.5       $ 11.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

     Restructuring     Impairment      Other     Total  

Nine months ended September 28, 2012

         

2012 global workforce reduction

   $ 7.8      $ —         $ —        $ 7.8   

Executive severance

     —          —           0.5        0.5   

Voluntary retirement program at SANYO Semiconductor

     45.7        —           (11.7     34.0   

Thailand facility closure

     2.4        —           —          2.4   

Aizu facility closure

     7.6        2.1         0.1        9.8   

SANYO Semiconductor consolidation

     2.7        —           —          2.7   

2011 global workforce reduction

     (0.1     —           —          (0.1

Acquisition of AMIS Holdings

     0.2        —           —          0.2   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 66.3      $ 2.1       $ (11.1   $ 57.3   
  

 

 

   

 

 

    

 

 

   

 

 

 

The following is a rollforward of the accrued restructuring charges from December 31, 2011 to September 28, 2012 (in millions):

 

     Balance as of
December 31, 2011
     Charges      Usage     Adjustments     Balance as of
September 28, 2012
 

Estimated employee separation charges:

   $ 8.9       $ 61.8       $ (50.9   $ (0.5   $ 19.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Estimated costs to exit:

   $ 8.4       $ 4.5       $ (9.9   $ —        $ 3.0   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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 September 28, 2012, are as follows:

2012 Global Workforce Reduction

In the third quarter of 2012, the Company initiated a global workforce reduction program for cost savings purposes. A total of 172 employees were notified of their termination, of which 118 were exited during the third quarter of 2012. For the quarter and nine months ended September 28, 2012, the Company recorded employee separation charges of approximately $7.8 million related to this program.

As of September 28, 2012, the accrued liability associated with employee separation charges was $4.6 million. The Company expects to incur additional severance and related benefits of $0.2 million related to this plan, which is expected to be completed by the fourth quarter of 2013.

Voluntary Retirement Program at SANYO Semiconductor

In the second quarter of 2012, the Company initiated a voluntary retirement program for employees of SANYO Semiconductor and certain of its subsidiaries. During the second quarter of 2012, a total of 540 employees accepted voluntary retirement packages. Substantially all of these employees were exited by the end of June, with 58 employees having retirement dates during the second half of 2012. For the nine months ended September 28, 2012, the Company recorded employee separation charges of approximately $45.7 million related to this program. As a result of the headcount reduction, the Company adjusted the pension and related retirement liabilities associated with these employees, which resulted in a benefit of $11.7 million, which is recorded as other charges. Due to the significance of these headcount reductions, the Company remeasured the assets and liabilities associated with these retirement plans. See Note 5: “Balance Sheet Information” for additional information relating to the adjustment to the pension and related retirement liabilities associated with this remeasurement.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

As of September 28, 2012, the accrued liability associated with employee separation charges was $1.2 million. The Company expects to incur additional severance of $0.3 million related to outplacement services, which are expected to be completed by the end of 2012. There are 16 employees remaining to be exited by the end of 2012.

Thailand Facility Closure

Cumulative charges of $14.3 million, net of adjustments, have been recognized through September 28, 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 September 28, 2012, no employees remained to be exited. For the nine months ended September 28, 2012, the Company recorded employee separation charges of approximately $1.5 million related to these terminations. Additionally, the Company recorded other charges of $0.9 million, which represented $5.0 million of costs incurred associated with the closure and partial closure of these facilities, partially offset by $3.0 million of additional insurance proceeds and $1.1 million of gain on the sale of fixed assets.

The accrued liability associated with employee separation charges and exit costs as of September 28, 2012 was $0.1 million and $1.2 million, respectively. The Company expects to incur $0.1 million of additional exit costs during the remainder of 2012 for this program. All payments associated with this program are expected to be completed by the end of the first quarter of 2013.

Aizu Facility Closure

Cumulative charges of $79.8 million, net of adjustments, have been recognized through September 28, 2012, related to the announced closure of the Company’s Aizu facility for cost savings purposes. As of September 28, 2012, a total of 206 employees have been notified that their employment with the Company will be terminated due to the closure of the Aizu facility. As of September 28, 2012, 25 employees had been exited. For the nine months ended September 28, 2012, the Company recognized restructuring charges of $7.6 million related to severance benefits for employees required to give further services prior to receiving these termination benefits. Additionally, the Company impaired the carrying value of the Aizu site by $2.1 million to reflect its realizable value based on current negotiations for the sale of the site.

The accrued liability associated with employee separation charges at the Aizu facility was $12.9 million as of September 28, 2012. Additionally, the Company expects to incur additional employee separation charges of approximately $1.2 million for employee outplacement services in 2013 and between $2.0 million to $3.0 million in exit costs.

SANYO Semiconductor Consolidation

Cumulative charges of $12.7 million, net of adjustments, have been recognized through September 28, 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 nine months ended September 28, 2012, the Company recorded an incremental $2.7 million of restructuring charges relating to the consolidation of factories.

The accrued liability associated with the SANYO Semiconductor consolidation program for exit costs as of September 28, 2012 was $1.5 million, with no accrual remaining for employee separation charges. The Company expects to incur no additional charges associated with this program and all payments associated with this program are expected to be completed by the end of the fourth quarter of 2012.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

2011 Global Workforce Reduction

Cumulative charges of $2.4 million, net of adjustments, have been recognized through September 28, 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 third quarter of 2012, one of these employees still remained employed by the Company. We expect that the one remaining notified individual 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 September 28, 2012, the Company had accrued $0.5 million for employee separation charges associated with this activity, and no exit cost accrual. The Company does not expect to incur any more employee separation charges during the remainder of 2012, and all payments associated with the program are expected to be completed by the end of the fourth quarter of 2012.

2011 Closure of the Phoenix, Arizona Wafer Manufacturing Facility

Cumulative charges of $4.3 million have been recognized through September 28, 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 September 28, 2012, all terminations and related termination benefit payments associated with this closure had been completed.

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 December 31, 2011. During the nine months ended September 28, 2012, the Company paid decommissioning costs resulting from the shutdown of a fabrication facility of $0.1 million and $7.5 million related to exit costs.

The remaining accrued liability of $0.3 million associated with exit costs is expected to be completed by the end of the first quarter of fiscal 2013.

Other

In the third quarter of 2012, the Company and its former Chief Financial Officer mutually agreed to his resignation as an officer of the Company for which the Company accrued $0.5 million related to the resignation. We expect the liability will be paid by the end of the fourth quarter of fiscal 2013.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 5: Balance Sheet Information

Balance sheet information consists of the following (dollars in millions):

 

     September 28,
2012
    December 31,
2011
 

Receivables, net:

    

Accounts receivable

   $ 420.8      $ 464.3   

Less: Allowance for doubtful accounts

     (5.4     (7.1
  

 

 

   

 

 

 
   $ 415.4      $ 457.2   
  

 

 

   

 

 

 

Inventories:

    

Raw materials

   $ 74.9      $ 58.8   

Work in process

     397.2        430.8   

Finished goods

     172.2        147.8   
  

 

 

   

 

 

 
   $ 644.3      $ 637.4   
  

 

 

   

 

 

 

Property, plant and equipment, net:

    

Land

   $ 74.2      $ 76.6   

Buildings

     563.1        539.3   

Machinery and equipment

     2,106.1        1,943.0   
  

 

 

   

 

 

 

Total property, plant and equipment

     2,743.4        2,558.9   

Less: Accumulated depreciation

     (1,511.8     (1,449.4
  

 

 

   

 

 

 
   $ 1,231.6      $ 1,109.5   
  

 

 

   

 

 

 

Accrued expenses:

    

Accrued payroll

   $ 117.7      $ 125.2   

Sales related reserves

     58.5        45.5   

Restructuring reserves

     22.3        17.3   

Accrued pension liability

     9.9        11.4   

Other

     40.3        40.4   
  

 

 

   

 

 

 
   $ 248.7      $ 239.8   
  

 

 

   

 

 

 

Accumulated other comprehensive loss:

    

Foreign currency translation adjustments

   $ (46.3   $ (46.5

Unrecognized prior service cost of defined benefit pension plan

     (0.1     (0.2

Effect of cash flow hedges

     1.1        —     

Unrealized gain on available for sale securities

     0.1        —     
  

 

 

   

 

 

 
   $ (45.2   $ (46.7
  

 

 

   

 

 

 

Included in accumulated other comprehensive loss as of September 28, 2012 is $18.6 million of foreign currency translation gains related to the Company’s subsidiary that owns the Aizu facility, which utilizes the Japanese Yen as its functional currency. As further described in Note 4: “Restructuring, Asset Impairments and Other, Net,” the Company intends to close its Aizu facility during the fourth quarter of 2012. After the operational closure is complete, the Company intends 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

(unaudited)

 

Warranty Reserves

The activity related to our warranty reserves for the nine months ended September 28, 2012 and September 30, 2011, respectively, is as follows (in millions):

 

     Nine Months Ended  
     September 28,
2012
    September 30,
2011
 

Beginning Balance

   $ 5.8      $ 3.3   

Provision

     2.5        2.4   

Usage

     (1.8     (0.7
  

 

 

   

 

 

 

Ending Balance

   $ 6.5      $ 5.0   
  

 

 

   

 

 

 

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 September 28, 2012, the total accrued pension liability for underfunded plans was $85.0 million, of which the current portion of $9.9 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 September 28, 2012 and December 31, 2011, the total pension asset for overfunded plans was $10.3 million and $12.4 million, respectively. During the second quarter of 2012, the Company initiated a voluntary retirement program at SANYO Semiconductor and certain of its subsidiaries. As a result of this restructuring, the Company remeasured the pension assets and liabilities associated with the impacted defined benefit plans that resulted in an actuarial loss of $2.4 million. Additionally, the Company recorded a curtailment gain of $6.6 million in restructuring, asset impairments and other, net. The components of the Company’s net periodic pension expense for the quarters ended September 28, 2012 and September 30, 2011 are as follows (in millions):

 

     Quarter Ended     Nine Months Ended  
     September 28,
2012
    September 30,
2011
    September 28,
2012
    September 30,
2011
 

Service cost

   $ 2.9      $ 2.1      $ 8.2      $ 6.5   

Interest cost

     1.4        1.3        4.2        3.9   

Expected return on plan assets

     (0.9     (1.0     (3.3     (3.0

Amortization of prior service cost

     —          0.1        0.1        0.3   

Curtailment gain

     —          —          (6.6     —     

Actuarial loss

     —          —          2.4        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic pension cost

   $ 3.4      $ 2.5      $ 5.0      $ 7.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Multiemployer Defined Benefit Plans

Included in other long-term liabilities as of September 28, 2012 and December 31, 2011 are the estimated liabilities of $137.5 million and $151.0 million, respectively, which represents 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 quarter and nine months ended September 28, 2012 and September 30, 2011, the Company recorded net expenses of $2.5 million and $3.8 million, respectively, and $8.8 million and $14.6 million,

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

respectively, associated with the Company’s participation in the SANYO Electric multiemployer pension plans. Included in the net expenses above for the nine months ended September 28, 2012 is approximately $5.1 million, which is recorded as a gain in restructuring, asset impairments and other, net related to the multiemployer obligations. During the nine months ended September 28, 2012, the Company completed the withdrawal from one of the SANYO Electric multiemployer pension plans and obtained the appropriate governmental approval to withdraw from the other two plans. The Company expects to receive the assets related to these plans from the SANYO Electric multiemployer plans during the fourth quarter of 2012. Upon receipt of the pension assets, the withdrawal will be complete and the Company will report the underfunded liability as part of its accrued pension liabilities. In connection with the withdrawal and associated agreements with SANYO Electric, the Company expects to receive approximately $22.2 million in the fourth quarter of 2012, after the receipt of the pension assets, which is recorded in other current assets as of September 28, 2012.

Note 6: Long-Term Debt

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

 

     September 28,
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 2.11% and 2.33%, respectively (1)

     311.4        339.8   

Zero Coupon Convertible Senior Subordinated Notes due 2024 (net of discount of $0.0 million and $2.0 million, respectively) (2)

     —          94.2   

1.875% Convertible Senior Subordinated Notes due 2025 (net of discount of $1.5 million and $6.6 million, respectively) (3)

     93.5        88.4   

2.625% Convertible Senior Subordinated Notes due 2026 (net of discount of $8.9 million and $24.5 million, respectively) (4)

     123.7        207.9   

2.625% Convertible Senior Subordinated Notes due 2026, Series B (net of discount of $25.6 million and $22.0 million, respectively) (5)

     272.8        176.6   

Loan with Hong Kong bank, interest payable weekly at 1.97% and 2.04%, respectively

     30.0        40.0   

Loans with Philippine banks due 2012 through 2015, interest payable monthly and quarterly at an average rate of 1.95% and 2.01%, respectively

     60.2        68.2   

Loan with Chinese bank due 2014, interest payable quarterly at 3.83% and 4.44%, respectively

     7.0        7.0   

Loans with Japanese banks due 2012 through 2013, interest payable monthly and semi-annually at an average rate of 1.58% and 1.71%, respectively

     1.2        3.5   

Loan with Singapore bank, interest payable weekly at 1.95% and 1.97%, respectively

     10.0        25.0   

Loan with British finance company, interest payable monthly at 1.52% and 2.42%, respectively

     7.7        13.1   

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

     30.2        31.6   

U.S. equipment financing payable monthly through 2016 at 2.94%

     15.1        10.8   

Capital lease obligations

     100.6        100.9   
  

 

 

   

 

 

 

Long-term debt, including current maturities

     1,063.4        1,207.0   

Less: Current maturities

     (260.9     (370.1
  

 

 

   

 

 

 

Long-term debt

   $ 802.5      $ 836.9   
  

 

 

   

 

 

 

 

(1) This loan represents Semiconductor Components Industries, LLC’s (“SCI LLC”) unsecured loan with SANYO Electric, which is guaranteed by the Company.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

(2) The Zero Coupon Convertible Senior Subordinated Notes due 2024 were repaid on April 16, 2012. See below for further 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.

Expected maturities relating to the Company’s long-term debt as of September 28, 2012 are as follows (in millions):

 

         Expected
Maturities
 

Remainder of 2012

     $ 137.7   

2013

       279.4   

2014

       93.0   

2015

       71.5   

2016

       364.5   

Thereafter

       153.3   
    

 

 

 

Total

     $ 1,099.4   
    

 

 

 

For purposes of the table above, the convertible debt issuances are assumed to mature at their respective initial put option dates. The table also reflects the assumed retirement of an aggregate of $526.0 million of principal relating to 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.

2.625% Convertible Senior Subordinated Notes, Series B

On September 4, 2012, the Company exchanged an additional $99.9 million of its 2.625% Convertible Senior Subordinated Notes due 2026 for $99.9 million in par value of 2.625% Convertible Senior Subordinated Notes due 2026, Series B and $2.0 million in cash. Subject to certain other terms and conditions, this exchange extended the debt maturity for the exchanged amount from December 2013 to December 2016. Interest on the notes is payable on June 15 and December 15 of each year, beginning on December 15, 2012. The effective interest rate of the notes is 4.4%. The notes are fully and unconditionally guaranteed on an unsecured senior subordinated basis by certain existing domestic subsidiaries of the Company.

The Company recorded exchange expenses of $0.6 million, which were capitalized as debt issuance costs and are being amortized using the effective interest method through the first put date of December 15, 2016. The notes bear interest at the rate of 2.625% per year from the date of issuance.

For additional information on the rights and preferences and other details associated with the 2.625% Convertible Senior Subordinated Notes, Series B, see “Note 8: Long-Term Debt” of the notes to the Company’s audited consolidated financial statements included in Part IV, Item 15 of the 2011 Form 10-K.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Loss on Debt Repurchase or Exchange

As discussed above, on September 4, 2012, the Company exchanged $99.9 million in par value ($92.8 million of carrying value) of its 2.625% Convertible Senior Subordinated Notes due 2026 for $99.9 million in par value of 2.625% Convertible Senior Subordinated Notes due 2026, Series B and $2.0 million in cash. The cash payment and the $99.9 million of 2.625% Convertible Senior Subordinated Notes due 2026, Series B were allocated between the fair value of the liability component and the equity component of the convertible security. The amount allocated to the extinguishment of the liability component was based on the discounted cash flows using a rate of return an investor would have required on non-convertible debt with other terms substantially similar to the 2.625% Convertible Senior Subordinated Notes due 2026. The remaining consideration was recognized as reacquisition of the equity component.

The difference between the consideration allocated to the liability component and the rest of the net carrying amount of the liability and unamortized debt issuance costs was recorded as a loss on debt exchange of $7.8 million, which included the write-off of $0.6 million in unamortized debt issuance costs. The Company also recorded an adjustment to additional paid-in capital in the amount of $1.9 million for the reacquisition of equity component.

During the quarter ended September 30, 2011, the Company repurchased $53.0 million in par value ($46.6 million of carrying value) of its 2.625% Convertible Senior Subordinated Notes due 2026 for $56.2 million in cash. The cash payment was allocated between the fair value of the liability component and the equity component of the convertible security. The amount allocated to the extinguishment of the liability component was based on the discounted cash flows using a rate of return an investor would have required on non-convertible debt with other terms substantially similar to the 2.625% Convertible Senior Subordinated Notes due 2026. The remaining consideration was recognized as reacquisition of the equity component.

The difference between the consideration allocated to the liability component and the rest of the net carrying amount of the liability and unamortized debt issuance costs was recorded as a loss on debt repurchase of $5.3 million, which included the write-off of $0.5 million in unamortized debt issuance costs. The Company also recorded an adjustment to additional paid-in capital in the amount of $4.8 million for the reacquisition of equity component.

Amendment of the Senior Revolving Credit Facility

On June 28, 2012, the Company amended its Senior Revolving Credit Facility to permit certain derivative transactions related to share repurchase transactions.

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 $96.2 million to the holders of the notes and retired the outstanding obligation.

Debt Guarantees

ON Semiconductor is the sole issuer of 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.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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     Nine Months Ended  
     September 28,
2012
     September 30,
2011
    September 28,
2012
     September 30,
2011
 

Net income (loss) applicable to ON Semiconductor Corporation

   $ 12.5       $ (49.4   $ 47.6       $ 20.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic weighted average common shares outstanding

     454.6         448.8        453.9         445.5   

Add: Incremental shares for:

          

Dilutive effect of share-based awards

     1.6         —          3.2         8.5   

Dilutive effect of convertible notes

     —           —          1.1         0.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     456.2         448.8        458.2         454.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

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

          

Basic:

   $ 0.03       $ (0.11   $ 0.10       $ 0.05   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted:

   $ 0.03       $ (0.11   $ 0.10       $ 0.04   
  

 

 

    

 

 

   

 

 

    

 

 

 

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 shares relating to restricted stock units is calculated by applying the treasury stock method. Share-based awards whose impact is considered to be anti-dilutive under the treasury stock method were excluded from the diluted net income per share calculation. The excluded number of anti-dilutive share-based awards was approximately 18.8 million and 11.0 million for the quarters ended September 28, 2012 and September 30, 2011, respectively, and 15.1 million and 7.4 million for the nine months ended September 28, 2012 and September 30, 2011, respectively.

The dilutive impact related to the Convertible Notes is determined in accordance with the net share settlement requirements prescribed by ASC Topic 260, Earnings Per Share (“ASC 260”). As described in Note 6: “Long-Term Debt,” the Zero Coupon Convertible Senior Subordinated Notes due 2024 were repaid during the second quarter of 2012, and as a result, there were no incremental shares to include. 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.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Equity

Share Repurchase Program

On July 30, 2012, the Company’s Board of Directors (“Board of Directors” or “Board”) conditionally authorized management of the Company to execute a share repurchase program for up to $300.0 million of the Company’s common stock over the three-year period beginning with the final approval date, exclusive of any fees, commissions or other expenses, subject to the approval of a Special Committee of the Board of Directors, which was obtained on August 1, 2012. Under the share repurchase program, the Company may repurchase its common stock from time to time in privately negotiated transactions or in open market transactions, including transactions pursuant to trading plans in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or by any combination of such methods or other methods. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, corporate and regulatory requirements, restrictions under the Company’s debt obligations, and other market and economic conditions. The share repurchase program does not require the Company to purchase any particular amount of common stock and may be suspended or discontinued at any time. All stock repurchased is recorded as treasury stock at cost.

During the quarter ended September 28, 2012, the Company purchased approximately 4.1 million shares of common stock for an aggregate purchase price of approximately $27.0 million, exclusive of fees, commissions and other expenses at a weighted average price per share of $6.51. During the quarter ended September 28, 2012, the Company incurred costs of approximately $0.1 million related to fees, commissions and other expenses for purchases pursuant to the share repurchase program. At September 28, 2012, approximately $273.1 million was available to repurchase common stock pursuant to the share repurchase program. At September 28, 2012, $4.5 million of the $27.0 million amount repurchased remained unpaid and is recorded in accrued expenses. None of these shares had been reissued or retired as of September 28, 2012, but may be reissued or retired by the Company at a later date.

Shares for Restricted Stock Units Tax Withholding

Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the accompanying consolidated financial statements. Shares withheld by the Company 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 and nine months ended September 28, 2012 were $0.5 million and $8.8 million, respectively, for which the Company withheld approximately 0.1 million shares and 1.0 million shares of common stock, respectively, that were underlying the restricted stock units that vested. None of these shares had been reissued or retired as of September 28, 2012, but may be reissued or retired by the Company at a later date.

Non-Controlling Interest

The Company operates an assembly and test operations facility in Leshan, China. This facility is owned by a joint venture company, Leshan-Phoenix Semiconductor Company Limited (“Leshan”), of which the Company owns a majority of the outstanding equity interests. The Company’s investment in Leshan has been consolidated in its financial statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

At December 31, 2011, the non-controlling interest balance was $25.3 million. This balance was increased to $28.3 million at September 28, 2012 due to the non-controlling interest’s $3.0 million share of the earnings for the nine months ended September 28, 2012.

At December 31, 2010, the non-controlling interest balance was $22.0 million. This balance increased to $23.9 million at September 30, 2011 due to the non-controlling interest’s $1.9 million share of the earnings for the nine months ended September 30, 2011.

Note 8: Share-Based Compensation

Total share-based compensation expense related to the Company’s employee stock options, restricted stock units, stock grant awards and employee stock purchase plan for the quarters and nine months ended September 28, 2012 and September 30, 2011 were comprised as follows (in millions):

 

     Quarter Ended      Nine Months Ended  
     September 28,
2012
     September 30,
2011
     September 28,
2012
     September 30,
2011
 

Cost of revenues

   $ 0.5       $ 1.3       $ 2.6       $ 4.9   

Research and development

     0.6         1.6         3.1         5.5   

Selling and marketing

     0.7         1.3         3.1         4.9   

General and administrative

     0.3         1.8         5.9         11.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Share-based compensation expense before income taxes

   $ 2.1       $ 6.0       $ 14.7       $ 26.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Related income tax benefits (1)

     —           —              —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Share-based compensation expense, net of taxes

   $ 2.1       $ 6.0       $ 14.7       $ 26.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

At September 28, 2012, total unrecognized estimated share-based compensation expense, net of estimated forfeitures, related to non-vested stock options granted prior to that date was $9.0 million. At September 28, 2012, total unrecognized share-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock units with time-based service conditions and performance-based vesting criteria granted prior to that date was $27.3 million. The total intrinsic value of stock options exercised during the quarter and nine months ended September 28, 2012 was $0.4 million and $4.1 million, respectively. The Company recorded cash received from the exercise of stock options of $0.7 million and $6.0 million and cash from the issuance of shares under the employee stock purchase plan of $2.0 million and $4.3 million and recorded no related income tax benefits during the quarter and nine months ended September 28, 2012, respectively.

During the nine months ended September 28, 2012, the Company reversed a total of approximately $6.1 million in prior recognized share-based compensation expense for certain of its performance-based restricted stock units whose performance measure attainment was deemed to be improbable. Of the total amount reversed, approximately $2.1 million was reversed during the quarter ended September 28, 2012, where the prior expense was recognized from the grant date through June 29, 2012, the close of the Company’s second quarter of 2012.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 and the weighted average assumptions used in the lattice model to calculate the weighted-average estimated fair value of employee stock options granted during the quarters and nine months ended September 28, 2012 and September 30, 2011 are as follows (annualized percentages):

 

     Quarter Ended      Nine Months Ended  
     September 28,
2012
     September 30,
2011
     September 28,
2012
     September 30,
2011
 

Volatility

     46.9%         48.9%         46.8%         43.6%   

Risk-free interest rate

     0.6%         1.1%         0.8%         1.9%   

Expected term

     5.1 years         4.9 years         4.9 years         4.9 years   

Weighted-average fair value per share

   $ 2.54       $ 3.66       $ 3.06       $ 4.04   

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 options were estimated to be approximately 11.0% and 11.0% in the quarters ended September 28, 2012 and September 30, 2011, respectively, and 11.0% and 11.0% for the nine months ended September 28, 2012 and September 30, 2011, respectively. Pre-vesting forfeitures for restricted stock units were estimated to be approximately 4.0% and 8.0% in the quarters ended September 28, 2012 and September 30, 2011, respectively, and 4.0% and 8.0% for the nine months ended September 28, 2012 and September 30, 2011, respectively.

Employee Stock Purchase Plan

The Company uses the Black-Scholes option-pricing model to calculate the fair value of shares issued under the employee stock purchase plan. The weighted-average fair value of shares issued pursuant to the employee stock purchase plan and the weighted-average assumptions used in the pricing model for the quarters and nine months ended September 28, 2012 and September 30, 2011 are as follows:

 

     Quarter Ended      Nine Months Ended  
     September 28,
2012
     September 30,
2011
     September 28,
2012
     September 30,
2011
 

Volatility

     32.0%         32.0%         50.0%         32.0%   

Risk-free interest rate

     0.07%         0.02%         0.04%         0.06%   

Expected term

     0.25 years         0.25 years         0.25 years         0.25 years   

Weighted-average fair value per share

   $ 1.91       $ 2.29       $ 2.05       $ 2.16   

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 employee stock purchase plan. On May 15, 2012, shareholders

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

approved certain amendments to the Amended and Restated SIP to increase the number of shares of common stock subject to all awards under the Amended and Restated SIP by 33.0 million to 59.1 million, exclusive of shares of common stock subject to awards that were previously granted pursuant to the Company’s 2000 Stock Incentive Plan that have or will become available for grant pursuant to the Amended and Restated SIP. As of September 28, 2012, there was an aggregate of 44.5 million shares of common stock available for grant under the Amended and Restated SIP and 3.4 million shares available for issuance under the employee stock purchase plan.

Stock Options

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

 

     Nine Months Ended September 28, 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

     2.5        7.51      

Exercised

     (1.2     4.89      

Canceled

     (1.5     9.23      
  

 

 

         

Outstanding at September 28, 2012

     18.5      $ 7.74         4.2       $ 4.6   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at September 28, 2012

     14.2      $ 7.78         3.6       $ 4.4   
  

 

 

   

 

 

    

 

 

    

 

 

 

Additional information about stock options outstanding at September 28, 2012 with exercise prices less than or above $6.18 per share, the closing price of the Company’s common stock at September 28, 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 $6.18

     4.7       $ 5.24         1.1       $ 5.93         5.8       $ 5.38   

Above $6.18

     9.5       $ 9.02         3.2       $ 8.45         12.7       $ 8.81   
  

 

 

       

 

 

       

 

 

    

Total outstanding

     14.2       $ 7.78         4.3       $ 7.80         18.5       $ 7.74   
  

 

 

       

 

 

       

 

 

    

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 September 28, 2012, and changes during the nine months ended September 28, 2012 (number of shares in millions):

 

     Nine Months Ended September 28, 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

     3.3        8.32   

Released

     (3.4     5.11   

Forfeited

     (0.9     9.27   
  

 

 

   

Nonvested shares of restricted stock units at September 28, 2012

     8.6      $ 9.09   
  

 

 

   

 

 

 

Stock Grant Awards

During the nine months ended September 28, 2012, the Company granted 0.2 million shares of stock under stock grant awards to certain directors of the Company with immediate vesting and a weighted average grant date fair value of $6.52 per share.

Note 9: Commitments and Contingencies

Leases

The following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of September 28, 2012 (in millions):

 

Remainder of 2012

   $ 7.0   

2013

     22.6   

2014

     19.1   

2015

     15.3   

2016

     13.1   

Thereafter

     45.9   
  

 

 

 

Total

   $ 123.0   
  

 

 

 

Other Contingencies

The Company’s headquarters in Phoenix, Arizona is located on property that is a “Superfund” site, a property listed on the National Priorities List and subject to clean-up activities under the Comprehensive Environmental Response, Compensation, and Liability Act. Motorola, Inc. (“Motorola”), and now Freescale Semiconductor, Inc. (“Freescale”), have been involved in the cleanup of on-site solvent contaminated soil and groundwater and off-site contaminated groundwater pursuant to consent decrees with the State of Arizona. As

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 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 September 28, 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 flows.

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 and has begun implementing groundwater remediation actions. The Company 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 $40.0 million of 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 September 28, 2012. The Company also had outstanding guarantees and letters of credit outside of its senior revolving credit facility totaling $6.2 million as of September 28, 2012.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 $94.6 million as of September 28, 2012. The Company is also a guarantor of SCI LLC’s unsecured loan with SANYO Electric, which had a balance of $311.4 million as of September 28, 2012. See Note 6: “Long-Term Debt” for further information on this loan.

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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

business, financial condition, results of operations or cash flows. Additionally, the Company does not believe that any amounts that it may be required to pay under these indemnities in the future will be material to the Company’s business, financial position, results of operations or cash flows.

Legal Matters

The Company is currently involved in a variety of legal matters that arise in the normal course of business. Based on information currently available, management does not believe that the ultimate resolution of these matters, including the matters described or referred to in the next paragraphs will have a material effect on 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 CorporationC.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 set forth the terms of a settlement which, if approved by the Court, would result in the dismissal of this action. In the Settlement Stipulation, the Company and the other individual defendants 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. The Court entered an order on June 15, 2012, preliminarily approving the terms of the settlement. On August 27, 2012, the Court entered a final judgment and order approving the settlement and dismissing the lawsuit with prejudice, which order was not appealed. The Company believes that this dismissal and related settlement amount 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 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.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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, three 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 Labor Region 1 Court in Lopburi Province in Thailand against SSTH. These cases were consolidated. All the cases are based on the widespread flooding in Thailand that occurred in the fourth quarter of 2011 and affected 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. In September 2012 the company and all plaintiffs, except for one, entered into a confidential settlement agreement to settle these cases. The settlement did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows, and the Company does not expect the one remaining lawsuit to have a material effect on the Company’s consolidated financial position, results of operations, or cash flows. The Company denies the substantive allegations of the one remaining lawsuit and expects to vigorously defend against it.

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 September 28, 2012 and December 31, 2011 (in millions):

 

    Balance as of
September 28, 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

  $ 340.3      $ 340.3      $ 455.3      $ 455.3   

Treasuries

    81.1        81.1        131.1        131.1   

Commercial paper

    —          —          50.9        50.9   

Corporate bonds

    —          —          15.6        15.1   

Other Current Assets

       

Foreign currency exchange contracts

  $ 1.3      $ 1.3      $ 0.7      $ 0.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Foreign currency exchange contracts

  $ —        $ —        $ 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

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

remaining maturities of three months or less when purchased. The Company’s short-term investments balance of $221.6 million is classified as held-to-maturity securities and is carried at amortized cost. There were no unrealized losses on these short-term investments as of September 28, 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.

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 September 28, 2012 and December 31, 2011 are as follows (in millions):

 

     September 28, 2012      December 31, 2011  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Long-term debt, including current portion

           

Convertible Notes

   $ 490.0       $ 540.2       $ 567.1       $ 683.9   

Long-term debt

   $ 427.5       $ 401.7       $ 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 September 28, 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.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

As of September 28, 2012 and December 31, 2011, the Company had outstanding foreign exchange contracts in a net sell position with a net notional amount of $188.3 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 underlying assets, liabilities and transactions to which they are related. The following schedule shows the Company’s net foreign exchange positions in U.S. dollars as of September 28, 2012 and December 31, 2011 (in millions):

 

     September 28, 2012      December 31, 2011  
     Buy (Sell)     Notional Amount      Buy (Sell)     Notional Amount  

Chinese Renminbi

   $ (5.6   $ 5.6       $ (12.8   $ 12.8   

Euro

     (41.5     41.5         (30.8     30.8   

Japanese Yen

     (88.7     88.7         (100.0     100.0   

Malaysian Ringgit

     32.6        32.6         29.4        29.4   

Other Currencies

     14.1        19.9         7.6        30.4   
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ (89.1   $ 188.3       $ (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 September 28, 2012, the counterparties to the Company’s foreign exchange contracts are highly rated financial institutions 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 the quarter and nine months ended September 28, 2012 and September 30, 2011, realized and unrealized foreign currency transaction loss was $3.8 million and $3.1 million, respectively, and a gain of $1.0 million and a loss of $6.6 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 is 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 September 28, 2012 was approximately $45.5 million, which is primarily comprised of cash flow hedges for Malaysian Ringgit/U.S. Dollar and Philippine Peso/U.S. Dollar currency pairs.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

For the quarter and nine months ended September 28, 2012, the Company recorded a gain of $1.8 million and $1.1 million, respectively, recognized in other comprehensive income on derivatives associated with cash flow hedges. As of September 28, 2012, the Company had no liability balances for contracts designated as cash flow hedging instruments which were classified as other liabilities. For the quarter and nine months ended September 30, 2011, there was no cash flow hedging activity. As of September 28, 2012, the Company had asset balances for contracts designated as cash flow hedging instruments of $1.1 million, which were classified as other assets.

As of September 28, 2012 and September 30, 2011, the Company had balances for contracts not designated as hedging instruments of $1.3 million and $1.5 million, respectively, which were classified as other assets. As of September 28, 2012 and September 30, 2011, the Company had no liability balances for contracts not designated as hedging instruments 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 the Nine Months Ended  
     September 28,
2012
    September 30,
2011
 

Non-cash financing activities:

    

Capital expenditures in accounts payable

   $ 84.8      $ 64.3   

Equipment acquired or refinanced through capital leases

   $ 30.2      $ 23.5   

Cash (received) paid for:

    

Interest income

   $ (1.1   $ (0.8

Interest expense

   $ 19.5      $ 21.0   

Income taxes

   $ 15.7      $ 15.7   

Note 13: Segment Information

As of September 28, 2012, the Company was organized into four operating segments, which also represented its 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 and allocation of resources. Subsequent to September 28, 2012, the Company realigned its segments into three operating segments, which also represents its three reporting segments: applications product group, standard products group and SANYO Semiconductor products group. The Company’s year-end reporting will reflect the new segment structure.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Revenues, gross profit and operating income for the Company’s reportable segments for the quarters and nine months ended September 28, 2012 and September 30, 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 the quarter ended September 28, 2012:

             

Revenues from external customers

   $ 146.7       $ 188.8       $ 197.0       $ 193.0      $ 725.5   

Segment gross profit

   $ 57.5       $ 87.8       $ 68.3       $ 37.0      $ 250.6   

Segment operating income (loss)

   $ 25.1       $ 21.1       $ 43.5       $ (21.4   $ 68.3   

For the quarter ended September 30, 2011:

             

Revenues from external customers

   $ 151.1       $ 230.4       $ 221.7       $ 294.8      $ 898.0   

Segment gross profit

   $ 55.7       $ 119.5       $ 69.8       $ 26.5      $ 271.5   

Segment operating income (loss)

   $ 22.3       $ 50.0       $ 39.7       $ (41.9   $ 70.1   

 

     Computing  &
Consumer
Products

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

For the nine months ended September 28, 2012:

             

Revenues from external customers

   $ 421.4       $ 593.3       $ 595.7       $ 604.3      $ 2,214.7   

Segment gross profit

   $ 162.5       $ 279.3       $ 223.3       $ 110.8      $ 775.9   

Segment operating income (loss)

   $ 65.8       $ 71.1       $ 144.0       $ (73.2   $ 207.7   

For the nine months ended September 30, 2011:

             

Revenues from external customers

   $ 473.5       $ 667.8       $ 685.8       $ 847.3      $ 2,674.4   

Segment gross profit

   $ 186.6       $ 336.1       $ 239.1       $ 52.5      $ 814.3   

Segment operating income (loss)

   $ 83.8       $ 120.2       $ 147.3       $ (127.1   $ 224.2   

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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  
     September 28, 2012     September 30, 2011  

Gross profit for reportable segments

   $ 250.6      $ 271.5   

Unallocated amounts:

    

Other unallocated manufacturing costs

     (12.6     (10.4
  

 

 

   

 

 

 

Gross profit

   $ 238.0      $ 261.1   
  

 

 

   

 

 

 

Operating income for reportable segments

   $ 68.3      $ 70.1   

Unallocated amounts:

    

Restructuring and other charges

     (11.2     (65.4

Other unallocated manufacturing costs

     (12.6     (10.4

Other unallocated operating expenses

     0.1        (1.0
  

 

 

   

 

 

 

Operating income (loss)

   $ 44.6      $ (6.7
  

 

 

   

 

 

 

 

     Nine Months Ended  
     September 28, 2012     September 30, 2011  

Gross profit for reportable segments

   $ 775.9      $ 814.3   

Unallocated amounts:

    

Other unallocated manufacturing costs

     (34.4     (44.7
  

 

 

   

 

 

 

Gross profit

   $ 741.5      $ 769.6   
  

 

 

   

 

 

 

Operating income for reportable segments

   $ 207.7      $ 224.2   

Unallocated amounts:

    

Restructuring and other charges

     (57.3     (82.9

Other unallocated manufacturing costs

     (34.4     (44.7

Other unallocated operating expenses

     (0.9     (13.7
  

 

 

   

 

 

 

Operating income

   $ 115.1      $ 82.9   
  

 

 

   

 

 

 

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  
     September 28, 2012      September 30, 2011  

United States

   $ 106.7       $ 136.5   

Other Americas

     7.2         6.0   

United Kingdom

     94.0         111.1   

Belgium

     0.2         0.7   

China

     228.5         267.8   

Japan

     93.9         136.4   

Singapore

     157.3         180.6   

Other Asia/Pacific

     37.7         58.9   
  

 

 

    

 

 

 
   $ 725.5       $ 898.0   
  

 

 

    

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

     Nine Months Ended  
     September 28, 2012      September 30, 2011  

United States

   $ 338.3       $ 398.5   

Other Americas

     20.4         23.3   

United Kingdom

     299.8         328.8   

Belgium

     0.3         3.7   

China

     664.4         815.3   

Japan

     314.2         380.8   

Singapore

     464.3         545.0   

Other Asia/Pacific

     113.0         179.0   
  

 

 

    

 

 

 
   $ 2,214.7       $ 2,674.4   
  

 

 

    

 

 

 

For the quarter and nine months ended September 28, 2012, there were no individual customers which accounted for more than 10.0% of the Company’s total revenues. For the quarter and nine months ended September 30, 2011, there were no individual customers which accounted for more than 10.0% of the Company’s total revenues.

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

 

     September 28,
2012
     December 31,
2011
 

United States

   $ 287.5       $ 257.5   

China

     102.5         96.7   

Other Europe

     141.2         117.9   

Malaysia

     182.7         164.5   

Philippines

     180.5         204.0   

Other Asia/Pacific

     60.1         32.8   

Japan

     132.1         130.2   

Belgium

     69.1         70.0   

Vietnam

     63.0         23.4   

Other Americas

     12.9         12.5   
  

 

 

    

 

 

 
   $ 1,231.6       $ 1,109.5   
  

 

 

    

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 14: Guarantor and Non-Guarantor Statements

ON Semiconductor is the sole issuer of the Convertible Notes. ON Semiconductor’s 100% owned 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 September 28, 2012

           

Cash and cash equivalents

  $ —        $ 156.0      $ —        $ 265.4      $ —        $ 421.4   

Short-term investments

    —          221.6        —          —          —          221.6   

Receivables, net

    —          52.4        —          363.0        —          415.4   

Inventories

    —          44.7        —          606.2        (6.6     644.3   

Other current assets

    —          8.9        —          113.0        —          121.9   

Deferred income taxes, net of allowances

    —          5.5        —          4.9        —          10.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    —          489.1        —          1,352.5        (6.6     1,835.0   

Property, plant and equipment, net

    —          284.8        2.7        946.6        (2.5     1,231.6   

Deferred income taxes, net of allowances

    —          —          —          34.6        —          34.6   

Goodwill

    —          125.8        37.2        35.7        —          198.7   

Intangible assets, net

    —          138.7        —          192.2        (27.0     303.9   

Investments and other assets

    2,009.7        1,374.1        75.4        833.3        (4,226.4     66.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 2,009.7      $ 2,412.5      $ 115.3      $ 3,394.9      $ (4,262.5   $ 3,669.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

  $ —        $ 29.8      $ 0.1      $ 320.0      $ —        $ 349.9   

Accrued expenses

    4.5        51.3        0.8        190.4        1.7        248.7   

Income taxes payable

    —          —          —          6.2        —          6.2   

Accrued interest

    3.8        0.2        —          0.1        —          4.1   

Deferred income on sales to distributors

    —          37.8        —          112.1        —          149.9   

Deferred income taxes, net of allowances

    —          —          —          33.9        —          33.9   

Current portion of long-term debt

    93.4        80.2        0.1        87.2        —          260.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    101.7        199.3        1.0        749.9        1.7        1,053.6   

Long-term debt

    396.4        364.0        —          42.1        —          802.5   

Other long-term liabilities

    —          27.2        0.3        225.3        —          252.8   

Deferred income taxes, net of allowances

    —          5.5        —          15.9        —          21.4   

Intercompany

    0.3        (334.1     (54.4     182.7        205.5        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    498.4        261.9        (53.1     1,215.9        207.2        2,130.3   

Common stock

    5.1        0.3        50.9        201.6        (252.8     5.1   

Additional paid-in capital

    3,143.2        2,598.1        259.2        1,402.9        (4,260.2     3,143.2   

Accumulated other comprehensive loss

    (45.2     (45.1     —          (38.0     83.1        (45.2

Accumulated deficit

    (1,154.7     (402.7     (141.7     612.5        (68.1     (1,154.7

Less: treasury stock, at cost

    (437.1     —          —          —          —          (437.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity (deficit)

    1,511.3        2,150.6        168.4        2,179.0        (4,498.0     1,511.3   

Non-controlling interests in consolidated subsidiaries

    —          —          —          —          28.3        28.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,511.3        2,150.6        168.4        2,179.0        (4,469.7     1,539.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 2,009.7      $ 2,412.5      $ 115.3      $ 3,394.9      $ (4,262.5   $ 3,669.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

As of December 31, 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   

Non-controlling 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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

For the quarter ended September 28, 2012

           

Revenues

  $ —        $ 180.6      $ 3.4      $ 899.1      $ (357.6   $ 725.5   

Cost of product revenues

    —          115.7        0.2        726.8        (355.2     487.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —          64.9        3.2        172.3        (2.4     238.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development

    —          43.5        2.5        44.1        —          90.1   

Selling and marketing

    —          17.3        0.2        26.7        —          44.2   

General and administrative

    —          (35.4     0.2        72.0        —          36.8   

Amortization of acquisition related intangible assets

    —          4.5        —          7.6        (1.0     11.1   

Restructuring, asset impairments and other, net

    —          1.1        0.1        10.0        —          11.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    —          31.0        3.0        160.4        (1.0     193.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    —          33.9        0.2        11.9        (1.4     44.6   

Interest expense

    (9.2     (2.1     —          (2.3     —          (13.6

Interest income

    —          0.2        —          0.1        —          0.3   

Other

    —          (1.8     —          (1.8     —          (3.6

Loss on debt repurchase or exchange

    (7.8     —          —          —          —          (7.8

Equity in earnings

    29.5        4.0        2.0        (0.4     (35.1     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    12.5        34.2        2.2        7.5        (36.5     19.9   

Income tax provision

    —          (7.4     —          0.9        —          (6.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    12.5        26.8        2.2        8.4        (36.5     13.4   

Net income attributable to non-controlling interest

    —          —          —            (0.9     (0.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor Corporation

  $ 12.5      $ 26.8      $ 2.2      $ 8.4      $ (37.4   $ 12.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income:

           

Net income

  $ 12.5      $ 26.8      $ 2.2      $ 8.4      $ (36.5   $ 13.4   

Foreign currency translation adjustments

    (2.1     (2.1     —          (0.7     2.8        (2.1

Effects of cash flow hedges

    1.8        1.8        —          0.3        (2.1     1.8   

Unrealized gain on available-for-sale securities

    (0.2     (0.2     —          —          0.2        (0.2

Amortization of prior service costs of defined benefit plan

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

    12.0        26.3        2.2        8.0        (35.6     12.9   

Comprehensive income attributable to non-controlling interest

    —          —          —          —          (0.9   $ (0.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation:

  $ 12.0      $ 26.3      $ 2.2      $ 8.0      $ (36.5   $ 12.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

36


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

For the quarter ended September 30, 2011

           

Revenues

  $ —        $ 208.8      $ 3.4      $ 1,028.9      $ (343.1   $ 898.0   

Cost of product revenues

    —          133.7        0.2        843.4        (340.4     636.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    —          75.1        3.2        185.5        (2.7     261.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development

    —          57.4        2.7        31.4        —          91.5   

Selling and marketing

    —          17.3        0.3        30.8        —          48.4   

General and administrative

    —          9.0        0.1        42.8        —          51.9   

Amortization of acquisition related intangible assets

    —          4.4        —          7.2        (1.0     10.6   

Restructuring, asset impairments and other, net

    —          1.7        —          63.7        —          65.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    —          89.8        3.1        175.9        (1.0     267.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    —          (14.7     0.1        9.6        (1.7     (6.7

Interest expense

    (12.7     (2.4     —          (1.8     —          (16.9

Interest income

    —          0.1        —          0.2        —          0.3   

Other

    —          (0.3     —          (2.8     —          (3.1

Loss on debt repurchase or exchange

    (5.3     —          —          —          —          (5.3

Equity in earnings

    (31.4     (1.6     0.9        —          32.1        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (49.4     (18.9     1.0        5.2        30.4        (31.7

Income tax provision

    —          (16.6     —          (0.7     —          (17.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (49.4     (35.5     1.0        4.5        30.4        (49.0

Net income attributable to non-controlling interest

    —          —          —          —          (0.4     (0.4