10-Q 1 d528322d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 29, 2013

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 April 26, 2013:

 

Title of Each Class

 

Number of Shares

Common Stock, par value $0.01 per share     450,761,359  

 

 

 


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

 

Part I: Financial Information

     4   

Item 1. Financial Statements (unaudited)

     4   

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

     34   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     45   

Item 4. Controls and Procedures

     45   

Part II: Other Information

     47   

Item 1. Legal Proceedings

     47   

Item 1A. Risk Factors

     47   

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

     48   

Item 3. Defaults Upon Senior Securities

     48   

Item 4. Mine Safety Disclosures

     48   

Item 5. Other Information

     48   

Item 6. Exhibits

     49   

Signatures

     50   

Exhibit Index

  

(See the glossary of selected terms immediately following this table of contents for definitions of certain abbreviated terms)


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

FORM 10-Q

GLOSSARY OF SELECTED ABBREVIATED TERMS*

 

Abbreviated Term

  

Defined Term

1.875% Notes

   1.875% Convertible Senior Subordinated Notes due 2025

2.625% Notes

   2.625% Convertible Senior Subordinated Notes due 2026

2.625% Notes, Series B

   2.625% Convertible Senior Subordinated Notes due 2026, Series B

Amended and Restated SIP

   ON Semiconductor Corporation Amended and Restated Stock Incentive Plan

AMIS

   AMIS Holdings, Inc.

ASU

   Accounting Standards Update

ASC

   Accounting Standards Codification

ASIC

   Application Specific Integrated Circuit

Catalyst

   Catalyst Semiconductor, Inc.

CMD

   California Micro Devices Corporation

DSP

   Digital signal processing

ESPP

   ON Semiconductor Corporation 2000 Employee Stock Purchase Plan

FASB

   Financial Accounting Standards Board

Freescale

   Freescale Semiconductor, Inc.

IC

   Integrated circuit

IP

   Intellectual property

IPRD

   In-process research and development

LED

   Light-emitting diode

Motorola

   Motorola Inc.

PulseCore

   PulseCore Holdings (Cayman) Inc.

SANYO Electric

   SANYO Electric Co., Ltd.

SANYO Semiconductor

   SANYO Semiconductor Co., Ltd.

SCI LLC

   Semiconductor Components Industries, LLC

SDT

   Sound Design Technologies Ltd.

SMBC

   Sumitomo Mitsui Banking Corporation

TMOS

   T-metal oxide semiconductor

WSTS

   World Semiconductor Trade Statistics

 

* Terms used, but not defined, within the body of the Form 10-Q are defined in this Glossary.


Table of Contents

PART I: FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions, except share and per share data)

(unaudited)

 

     March 29,
2013
    December 31,
2012
 

Assets

    

Cash and cash equivalents

   $ 537.0      $ 486.9   

Short-term investments

     77.3        144.8   

Receivables, net

     367.2        357.8   

Inventories

     561.4        581.7   

Other current assets

     65.4        111.7   

Deferred income taxes

     9.2        10.5   
  

 

 

   

 

 

 

Total current assets

     1,617.5        1,693.4   

Property, plant and equipment, net

     1,094.2        1,103.3   

Deferred income taxes

     31.6        31.2   

Goodwill

     184.6        184.6   

Intangible assets, net

     248.5        257.0   

Other assets

     56.3        58.9   
  

 

 

   

 

 

 

Total assets

   $ 3,232.7      $ 3,328.4   
  

 

 

   

 

 

 

Liabilities, Non-Controlling Interest and Stockholders’ Equity

    

Accounts payable

   $ 263.0      $ 279.5   

Accrued expenses

     203.0        228.3   

Income taxes payable

     3.4        4.9   

Accrued interest

     5.1        0.6   

Deferred income on sales to distributors

     133.8        134.5   

Deferred income taxes

     22.9        22.9   

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

     242.8        353.6   
  

 

 

   

 

 

 

Total current liabilities

     874.0        1,024.3   

Long-term debt (see Note 6)

     706.8        658.3   

Other long-term liabilities

     215.2        232.2   

Deferred income taxes

     22.8        22.9   
  

 

 

   

 

 

 

Total liabilities

     1,818.8        1,937.7   
  

 

 

   

 

 

 

Commitments and contingencies (See Note 9)

    

ON Semiconductor Corporation stockholders’ equity:

    

Common stock ($0.01 par value, 750,000,000 shares authorized, 511,727,203 and 509,977,999 shares issued, 450,302,333 and 448,824,345 shares outstanding, respectively)

     5.1        5.1   

Additional paid-in capital

     3,167.8        3,156.4   

Accumulated other comprehensive loss

     (50.4     (41.1

Accumulated deficit

     (1,270.3     (1,292.9

Less: treasury stock, at cost; 61,424,870 and 61,153,654 shares, respectively

     (468.6     (466.4
  

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity

     1,383.6        1,361.1   

Non-controlling interest in consolidated subsidiary

     30.3        29.6   
  

 

 

   

 

 

 

Total stockholders’ equity

     1,413.9        1,390.7   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,232.7      $ 3,328.4   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

4


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)

 

     Quarter Ended  
     March 29,
2013
    March 30,
2012
 

Revenues

   $ 661.0      $ 744.4   

Cost of revenues

     456.5        499.2   
  

 

 

   

 

 

 

Gross profit

     204.5        245.2   

Operating expenses:

    

Research and development

     88.4        91.4   

Selling and marketing

     39.8        45.6   

General and administrative

     36.2        42.0   

Amortization of acquisition-related intangible assets

     8.4        11.1   

Restructuring, asset impairments and other, net

     (6.0     11.5   
  

 

 

   

 

 

 

Total operating expenses

     166.8        201.6   
  

 

 

   

 

 

 

Operating income

     37.7        43.6   
  

 

 

   

 

 

 

Other income (expenses), net:

    

Interest expense

     (10.1     (15.7

Interest income

     0.3        0.5   

Other

     0.9        4.7   

Loss on debt exchange

     (3.1     —     
  

 

 

   

 

 

 

Other income (expenses), net

     (12.0     (10.5
  

 

 

   

 

 

 

Income before income taxes

     25.7        33.1   

Income tax provision

     (2.4     (4.1
  

 

 

   

 

 

 

Net income

     23.3        29.0   

Less: Net income attributable to non-controlling interest

     (0.7     (0.8
  

 

 

   

 

 

 

Net income attributable to ON Semiconductor Corporation

   $ 22.6      $ 28.2   
  

 

 

   

 

 

 

Comprehensive income (loss), net of tax:

    

Net income

   $ 23.3      $ 29.0   
  

 

 

   

 

 

 

Foreign currency translation adjustments

     (8.3     4.9   

Effects of cash flow hedges

     (0.9     (0.4

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

     (0.1     0.5   

Amortization of prior service costs of defined benefit plan

     —          0.1   
  

 

 

   

 

 

 

Other comprehensive income (loss)

     (9.3     5.1   
  

 

 

   

 

 

 

Comprehensive income

     14.0        34.1   

Comprehensive income attributable to non-controlling interest

     (0.7     (0.8
  

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation

   $ 13.3      $ 33.3   
  

 

 

   

 

 

 

Net income per common share attributable to ON Semiconductor Corporation:

    

Basic

   $ 0.05      $ 0.06   
  

 

 

   

 

 

 

Diluted

   $ 0.05      $ 0.06   
  

 

 

   

 

 

 

Weighted average common shares outstanding:

    

Basic

     449.5        452.5   
  

 

 

   

 

 

 

Diluted

     452.5        460.6   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

5


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(unaudited)

 

     Quarter Ended  
     March 29,
2013
    March 30,
2012
 

Cash flows from operating activities:

    

Net income

   $ 23.3      $ 29.0   

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

    

Depreciation and amortization

     51.3        61.1   

Gain on sale or disposal of fixed assets

     (7.4     (1.5

Loss on debt exchange

     3.1        —     

Amortization of debt issuance costs

     0.3        0.5   

Provision for excess inventories

     15.9        15.8   

Non-cash share-based compensation expense

     5.8        7.4   

Non-cash interest on convertible notes

     3.1        7.2   

Non-cash foreign currency translation gain

     (21.0     —     

Deferred income taxes

     0.5        3.2   

Other

     0.2        (0.5

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

    

Receivables

     (14.8     27.3   

Inventories

     (5.3     (23.2

Other assets

     37.3        30.2   

Accounts payable

     (9.0     (81.2

Accrued expenses

     (1.1     13.1   

Income taxes payable

     (1.5     (4.7

Accrued interest

     4.5        3.5   

Deferred income on sales to distributors

     (0.7     (18.5

Other long-term liabilities

     0.7        (0.3
  

 

 

   

 

 

 

Net cash provided by operating activities

     85.2        68.4   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (38.9     (50.4

Proceeds from sales of property, plant and equipment

     8.0        1.9   

Deposits utilized for purchases of property, plant and equipment

     1.4        (9.6

Recovery from insurance on property, plant and equipment

     —          11.5   

Proceeds from held-to-maturity securities

     73.5        99.7   

Purchase of held-to-maturity securities

     (6.0     (163.3
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     38.0        (110.2
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from exercise of stock options

     3.8        4.8   

Payments of tax withholding for restricted shares

     (2.2     (5.3

Proceeds from debt issuance

     26.2        2.0   

Payment of capital lease obligations

     (11.5     (11.4

Repayment of long-term debt

     (81.5     (15.6
  

 

 

   

 

 

 

Net cash used in financing activities

     (65.2     (25.5
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (7.9     (5.5
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     50.1        (72.8

Cash and cash equivalents, beginning of period

     486.9        652.9   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 537.0      $ 580.1   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

6


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1: Background and Basis of Presentation

ON Semiconductor Corporation, together with its wholly and majority-owned subsidiaries, (“ON Semiconductor” or the “Company”), is driving innovation in 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, smart grid 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 three months ended March 29, 2013 and March 30, 2012 each contained 88 days and 90 days, respectively.

The accompanying unaudited financial statements as of March 29, 2013 have been prepared in accordance with generally accepted accounting principles in the United States of America for unaudited 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, 2012 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 for audited financial statements. In the opinion of the Company’s management, the interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The footnote disclosures related to the interim financial information included herein are also unaudited. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (“2012 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.

Note 2: Recent Accounting Pronouncements

ASU No. 2013-05—“Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”)

In March 2013, the FASB issued ASU 2013-05, which applies to the release of cumulative translation adjustments into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. ASU 2013-05 provides for the release of the cumulative translation adjustment into net income only if a sale or transfer represents a sale or complete or substantially complete liquidation of an investment in a foreign entity. Pursuant to ASU 2013-05, when a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the parent is required to apply the guidance in ASC Subtopic 830-30 to release any related cumulative translation adjustment into net income. The amendments are effective prospectively for reporting periods beginning after December 15, 2013, however early adoption is permitted. See Note 4: “Restructuring, Asset Impairments and Other, Net” and Note 12: “Changes in Accumulated Other Comprehensive Loss,” for a description of the release of certain of the Company’s cumulative foreign currency translation adjustments to net income.

 

7


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

ASU No. 2013-02—“Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”)

In February 2013, the FASB issued ASU 2013-02, which is intended to improve the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. See Note 12: “Changes in Accumulated Other Comprehensive Loss,” for a description of the reclassification of certain of the Company’s cumulative foreign currency translation adjustments out of accumulated other comprehensive loss.

Note 3: Goodwill and Intangible Assets

Goodwill

The following table summarizes goodwill by relevant operating segment as of March 29, 2013 and December 31, 2012 (in millions):

 

     Balance as of March 29, 2013      Balance as of December 31, 2012  
     Goodwill      Accumulated
Impairment
Losses
    Carrying
Value
     Goodwill      Accumulated
Impairment
Losses
    Carrying
Value
 

Operating Segment:

               

Application Products Group

   $ 547.4       $ (410.2   $ 137.2       $ 547.4       $ (410.2   $ 137.2   

Standard Products Group

     76.0         (28.6     47.4         76.0         (28.6     47.4   

SANYO Semiconductor Products Group

     —           —          —           —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 623.4       $ (438.8   $ 184.6       $ 623.4       $ (438.8   $ 184.6   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

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 March 29, 2013 that would require an expedited impairment analysis, the Company’s current projections include assumptions of current industry and market conditions, which could negatively change, and in turn, may adversely impact the fair value of the Company’s goodwill, intangible assets and other long-lived assets. As a result, the carrying value of the reporting units containing the Company’s goodwill may exceed their fair value in future impairment tests.

Intangible Assets

Intangible assets, net, were as follows as of March 29, 2013 and December 31, 2012 (in millions):

 

     March 29, 2013  
     Original
Cost
     Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Accumulated
Impairment
    Carrying
Value
     Useful Life
(in Years)
 

Intellectual property

   $ 13.9       $ (8.9   $ —        $ (0.4   $ 4.6         5-12   

Customer relationships

     280.3         (95.3     (27.0     (23.0     135.0         5-18   

Patents

     43.7         (17.2     —          (13.7     12.8         12   

Developed technology

     146.2         (55.2     —          (2.4     88.6         5-12   

Trademarks

     14.0         (5.4     —          (1.1     7.5         15   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Total intangibles

   $ 498.1       $ (182.0   $ (27.0   $ (40.6   $ 248.5      
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

8


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

     December 31, 2012  
     Original
Cost
     Accumulated
Amortization
    Foreign Currency
Translation Adjustment
    Accumulated
Impairment
Losses
    Carrying
Value
     Useful Life
(in Years)
 

Intellectual property

   $ 13.9       $ (8.7   $ —        $ (0.4   $ 4.8         5-12   

Customer relationships

     280.3         (91.8     (26.9     (23.0     138.6         5-18   

Patents

     43.7         (16.6     —          (13.7     13.4         12   

Developed technology

     146.2         (51.3     —          (2.4     92.5         5-12   

Trademarks

     14.0         (5.2     —          (1.1     7.7         15   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Total intangibles

   $ 498.1       $ (173.6   $ (26.9   $ (40.6   $ 257.0      
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Amortization expense for acquisition-related intangible assets amounted to $8.4 million and $11.1 million for the quarters ended March 29, 2013 and March 30, 2012, respectively, none of which was included in cost of revenues. 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 IPRD 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):

 

Period

   Estimated
Amortization
Expense
 

Remainder of 2013

   $ 24.7   

2014

     32.6   

2015

     31.7   

2016

     30.6   

2017

     27.7   

Thereafter

     101.2   
  

 

 

 

Total estimated amortization expense

   $ 248.5   
  

 

 

 

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 Company’s Consolidated Statements of Operations and Comprehensive Income for the quarter ended March 29, 2013 is as follows (in millions):

 

     Restructuring      Impairment      Other     Total  

Quarter ended March 29, 2013

          

SANYO Semiconductor Products Group Voluntary Retirement Program

   $ 25.6       $ —         $ (9.0   $ 16.6   

Aizu facility closure

     2.2         —           (22.4     (20.2

Other (1)

     1.8         —           (4.2     (2.4
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 29.6       $ —         $ (35.6   $ (6.0
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Includes charges related to certain reductions in workforce and facility closures which are not considered to be significant.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

The following is a rollforward of the accrued restructuring charges from December 31, 2012 to March 29, 2013 (in millions):

 

     Balance as of
December  31, 2012
     Charges      Usage     Balance as of
March 29, 2013
 

Estimated employee separation charges

   $ 15.5       $ 27.4       $ (16.0   $ 26.9   

Estimated costs to exit

     1.6         2.2         (3.4     0.4   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 17.1       $ 29.6       $ (19.4   $ 27.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

The activity related to the Company’s restructuring, asset impairments and other, net for programs that were either initiated in 2013 or had not been completed as of March 29, 2013, is as follows:

SANYO Semiconductor Products Group Voluntary Retirement Program

In the first quarter of 2013, the Company initiated a voluntary retirement program for certain employees of the Company’s SANYO Semiconductor Products Group (the “Voluntary Retirement Program”). Approximately 500 employees accepted Voluntary Retirement Program packages. Approximately two-thirds had retired by the end of the first quarter of 2013, with approximately 175 employees having retirement dates throughout the remainder of the year.

As a result of these headcount reductions, the Company recognized a $9.0 million pension curtailment gain during the quarter ended March 29, 2013, which is recorded in Restructuring, Asset Impairments and Other, Net. See Note 5: “Balance Sheet Information” for additional information relating to the adjustment to the pension and related retirement liabilities associated with this Voluntary Retirement Program.

As of March 29, 2013, the accrued liability associated with employee separation charges was $19.1 million. The Company expects to incur additional severance charges of approximately $8.8 million offset by pension curtailment gains of approximately $3.9 million related to pension plans for employees effected by the Voluntary Retirement Program which is expected to be completed by the end of 2013.

Aizu Facility Closure

Cumulative charges of $85.8 million, net of adjustments, have been recognized through March 29, 2013, related to the closure of the Company’s Aizu facility for cost savings purposes. Approximately 700 employees have been terminated due to the closure of the Aizu facility. As of March 29, 2013, substantially all of the employees of the Aizu facility had been terminated and approximately $1.4 million was recognized in restructuring and other expenses as a gain on the sale of the Aizu facility.

In connection with the closure and sale of its Aizu facility, the Company released the cumulative foreign currency translation adjustment of $21.0 million related to the Aizu facility, which was recorded as a benefit to Restructuring, Asset Impairments and Other, Net on the Company’s Consolidated Statements of Operations and Comprehensive Income for the quarter ended March 29, 2013. See Note 12: “Changes in Accumulated Other Comprehensive Loss” for information on related amounts reclassified out of accumulated other comprehensive loss during the quarter ended March 29, 2013.

Included in the table above is the accrued liability associated with employee separation charges at the Aizu facility of $4.3 million as of March 29, 2013. Additionally, the Company expects to incur additional exit charges between $1.0 million to $2.0 million during 2013.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 5: Balance Sheet Information

Certain significant amounts included in the Company’s balance sheet as of March 29, 2013 and December 31, 2012 consist of the following (dollars in millions):

 

     March 29,
2013
    December 31,
2012
 

Receivables, net:

    

Accounts receivable

   $ 369.9      $ 360.5   

Less: Allowance for doubtful accounts

     (2.7     (2.7
  

 

 

   

 

 

 
   $ 367.2      $ 357.8   
  

 

 

   

 

 

 

Inventories:

    

Raw materials

   $ 73.8      $ 73.2   

Work in process

     292.7        310.9   

Finished goods

     194.9        197.6   
  

 

 

   

 

 

 
   $ 561.4      $ 581.7   
  

 

 

   

 

 

 

Other current assets:

    

Prepaid expenses

     25.3        24.3   

Value added tax receivables

     16.6        34.3   

Other

     23.5        53.1   
  

 

 

   

 

 

 
     65.4        111.7   
  

 

 

   

 

 

 

Property, plant and equipment, net:

    

Land

   $ 60.5      $ 67.4   

Buildings

     477.4        572.4   

Machinery and equipment

     1,906.7        1,979.4   
  

 

 

   

 

 

 

Total property, plant and equipment

     2,444.6        2,619.2   

Less: Accumulated depreciation

     (1,350.4     (1,515.9
  

 

 

   

 

 

 
   $ 1,094.2      $ 1,103.3   
  

 

 

   

 

 

 

Accrued expenses:

    

Accrued payroll

   $ 85.5      $ 102.9   

Sales related reserves

     54.8        64.9   

Restructuring reserves

     27.3        17.1   

Accrued pension liability

     3.2        7.4   

Other

     32.2        36.0   
  

 

 

   

 

 

 
   $ 203.0      $ 228.3   
  

 

 

   

 

 

 

Warranty Reserves

The activity related to the Company’s warranty reserves for the three months ended March 29, 2013 and March 30, 2012, respectively, is as follows (in millions):

 

     Three Months Ended  
     March 29,
2013
    March 30,
2012
 

Beginning Balance

   $ 10.2      $ 5.8   

Provision

     1.2        0.1   

Usage

     (3.8     (0.2
  

 

 

   

 

 

 

Ending Balance

   $ 7.6      $ 5.7   
  

 

 

   

 

 

 

Defined Benefit Plans

The Company maintains defined benefit plans for certain 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.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

As of March 29, 2013, the total accrued pension liability for underfunded plans was $179.4 million, of which the current portion of $3.2 million was classified as accrued expenses. As of December 31, 2012, the total accrued pension liability for underfunded plans was $201.4 million, of which the current portion of $7.4 million was classified as accrued expenses. As of March 29, 2013 and December 31, 2012, the total pension asset for overfunded plans was $0.1 million and $0.2 million, respectively.

During the first quarter of 2013, the Company initiated the Voluntary Retirement Program for certain employees of its SANYO Semiconductor Products Group. As a result of this restructuring activity, the Company remeasured the related pension assets and liabilities associated with the impacted defined benefit plans, which resulted in an actuarial loss of $13.6 million. Additionally, the Company recorded a curtailment gain of $9.0 million in Restructuring, Asset Impairments and Other, Net. See Note 4: “Restructuring, Asset Impairments and Other, Net” for information on the Company’s restructuring activities.

As a result of the Voluntary Retirement Program, the Company expects to contribute approximately $21.7 million in payments to impacted employees, in addition to the scheduled $27.4 million in estimated 2013 pension plan asset contributions.

The components of the Company’s net periodic pension expense for the quarters ended March 29, 2013 and March 30, 2012 are as follows (in millions):

 

     Quarter Ended  
     March 29,
2013
    March 30,
2012
 

Service cost

   $ 3.7      $ 2.2   

Interest cost

     2.0        1.3   

Expected return on plan assets

     (1.1     (1.0

Amortization of prior service cost

     —          0.1   

Curtailment gain

     (9.0     —     

Actuarial loss

     13.6        —     
  

 

 

   

 

 

 

Total net periodic pension cost

   $ 9.2      $ 2.6   
  

 

 

   

 

 

 

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 6: Long-Term Debt

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

 

     March 29,
2013
    December 31,
2012
 

Senior Revolving Credit Facility (up to $325.0 million)

   $ —        $ —     

Loan with Japanese bank due 2013 through 2018, interest payable quarterly at 2.03% and 2.06%, respectively (1)

     302.0        302.0   

1.875% Notes (2)

     —          73.4   

2.625% Notes (net of discount of $2.9 million and $7.1 million, respectively) (3)

     69.7        125.5   

2.625% Notes, Series B (net of discount of $26.8 million and $24.2 million, respectively) (4)

     330.1        274.2   

Loan with Hong Kong bank, interest payable weekly at 1.96% and 1.96%, respectively

     37.0        30.0   

Loans with Philippine banks due 2013 through 2015, interest payable monthly and quarterly at an average rate of 1.95% and 1.97%, respectively

     43.9        45.8   

Loan with Chinese bank due 2014, interest payable quarterly at 3.39% and 3.41%, respectively

     7.0        7.0   

Loan with Japanese bank due 2013, interest payable monthly at an average rate of 1.56% and 1.58%, respectively

     0.5        0.8   

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

     27.0        15.0   

Loan with British finance company, interest payable monthly at 1.52% and 1.51%, respectively

     2.8        3.3   

U.S. real estate mortgages payable monthly through 2016 at an average rate of 4.86%

     29.4        29.8   

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

     12.9        14.0   

Canada equipment financing payable monthly through 2017 at 3.81%

     7.2        —     

Capital lease obligations

     80.1        91.1   
  

 

 

   

 

 

 

Long-term debt, including current maturities

     949.6        1,011.9   

Less: Current maturities

     (242.8     (353.6
  

 

 

   

 

 

 

Long-term debt

   $ 706.8      $ 658.3   
  

 

 

   

 

 

 

 

(1) This loan represents SCI LLC’s unsecured loan with SMBC, which is guaranteed by the Company. See additional information below under the heading “Note Payable to SMBC.”
(2) The 1.875% Notes were partially redeemed by the Company on December 20, 2012. The balance as of December 31, 2012 for notes submitted for conversion was subject to a 20 consecutive trading-day observation period and was subsequently settled during January 2013.
(3) The 2.625% Notes 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.
(4) The 2.625% Notes, 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 March 29, 2013 are as follows (in millions):

 

Period

       Expected
Maturities
 

Remainder of 2013

     $ 223.3   

2014

       94.8   

2015

       73.4   

2016

       424.5   

2017

       39.0   

Thereafter

       124.3   
    

 

 

 

Total

     $ 979.3   
    

 

 

 

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 $429.5 million of principal relating to the 2.625% Notes and the 2.625% Notes, Series B.

Loss on Debt Exchange

As further described below, the Company recognized a net loss of $3.1 million during the quarter ended March 29, 2013 resulting from the exchange of certain of its 2.625% Notes.

On March 22, 2013, the Company closed an exchange offer for $60.0 million in principal value (approximately $57.4 million of carrying value) of its 2.625% Notes in exchange for $58.5 million in principal value of its 2.625% Notes, Series B, plus accrued and unpaid interest on the 2.625% Notes. Subject to certain other terms and conditions, this exchange extended the first put date, which the Company considers to be the earliest maturity date, for the exchanged amount from December 2013 to December 2016. The exchanged amount of the 2.625% Notes, Series B was allocated between the fair value of the liability component and equity components 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% Notes. The remaining consideration was recognized as re-acquisition of the equity component.

The difference between the consideration allocated to the liability component and the remaining net carrying amount of the liability and unamortized debt issuance costs was recorded as a loss on debt exchange of $3.1 million, which included the write-off of approximately $0.2 million in unamortized debt issuance costs. The Company also recorded an adjustment to additional paid-in capital of approximately $5.9 million, net of adjustments, relating to the exchange of equity components.

For additional information with respect to the Company’s 2.625% Notes and 2.625% Notes, Series B, see Note 6: “Long-Term Debt” of the notes to the Company’s audited consolidated financial statements included in Part IV, Item 15 of the 2012 Form 10-K.

Conversion and Retirement of Debt

On December 19, 2012, the holders of approximately $73.4 million in aggregate outstanding principal amount of the 1.875% Notes submitted their 1.875% Notes for conversion at a rate of 142.8571 shares of the Company’s common stock per $1,000 principal amount of their 1.875% Notes. The Company elected to satisfy its conversion obligation with respect to each $1,000 principal amount of notes tendered for conversion by delivering cash equal to the sum of the daily settlement amount for each of the 20 consecutive trading days during the observation period for the 1.875% Notes on the settlement date, as provided for in the applicable indenture.

On January 28, 2013, the Company settled the conversion obligation on the outstanding 1.875% Notes by delivering approximately $77.5 million in cash to the holders who tendered their 1.875% Notes for conversion. The excess $4.1 million over the $73.4 million in aggregate outstanding principal amount of the 1.875% Notes was attributable to the 1.875% Note’s conversion feature and was recorded as a reduction to additional paid-in capital during the quarter ended March 29, 2013. The settlement of the conversion obligation on January 28, 2013 resulted in the retirement of the obligation under the 1.875% Notes.

Note Payable to SMBC

In January 2011, SCI LLC, as borrower, and the Company, as guarantor, entered into a seven-year, unsecured loan agreement with SANYO Electric to finance a portion of the purchase price for the Company’s acquisition of SANYO Semiconductor and certain related assets in early 2011. The loan had an original principal amount of approximately $377.5 million and had a principal balance of $302.0 million as of December 31, 2012. The loan bears interest at a rate of 3-month LIBOR plus 1.75% per annum and provides for quarterly interest and $9.4 million in principal payments, with the unpaid balance of $122.7 million due in January 2018.

On January 31, 2013, the Company amended and restated its seven-year unsecured loan obligation with SANYO Electric. In connection with the amendment and restatement of the applicable loan agreement, SANYO Electric assigned all of its rights under the loan agreement to SMBC.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

2.625% Notes, Series B

As discussed above, on March 22, 2013, the Company closed an exchange offer for $60.0 million in principal value of its 2.625% Notes in exchange for $58.5 million in principal value of its 2.625% Notes, Series B, plus accrued and unpaid interest on the 2.625% Notes. The notes bear interest at the rate of 2.625% per year from the date of issuance. Interest is payable on June 15 and December 15 of each year, beginning on June 15, 2013. The effective interest rate of the notes is approximately 4.7%. The notes are fully and unconditionally guaranteed on an unsecured senior subordinated basis by certain existing domestic subsidiaries of the Company.

For additional information on the rights and preferences and other details associated with the 2.625% 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 2012 Form 10-K.

Debt Guarantees

ON Semiconductor is the sole issuer of the 1.875% Notes, the 2.625% Notes and the 2.625% Notes, Series B (collectively, the “Convertible Notes”). See Note 15: “Guarantor and Non-Guarantor Statements” for the condensed consolidated financial information for the issuers of the Convertible Notes, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.

Note 7: Earnings Per Share and Equity

Earnings Per Share

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

 

     Quarter Ended  
     March 29,
2013
     March 30,
2012
 

Net income attributable to ON Semiconductor Corporation

   $ 22.6       $ 28.2   
  

 

 

    

 

 

 

Basic weighted average common shares outstanding

     449.5         452.5   

Add: Incremental shares for:

     

Dilutive effect of share-based awards

     3.0         5.1   

Dilutive effect of the Convertible Notes

     —           3.0   
  

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     452.5         460.6   
  

 

 

    

 

 

 

Net income per common share attributable to ON Semiconductor Corporation:

     

Basic

   $ 0.05       $ 0.06   
  

 

 

    

 

 

 

Diluted

   $ 0.05       $ 0.06   
  

 

 

    

 

 

 

Basic net income per common share is computed by dividing net income attributable to ON Semiconductor Corporation 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 12.5 million and 11.3 million for the quarters ended March 29, 2013 and March 30, 2012, 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”). Under the net share settlement calculation, the Company’s

 

15


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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. A dilutive effect occurs when the stock price exceeds the conversion price for each of the Convertible Notes. 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. As described in Note 6: “Long-Term Debt,” the 1.875% Notes were retired during the first quarter of 2013, as a result, there were no incremental shares to consider for these notes.

Equity

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. The Company currently does not collect the applicable employee withholding taxes from employees in connection with the vesting of restricted stock units. 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 applicable amount of the employee withholding taxes due. The Company then pays the applicable withholding taxes in cash. The amount remitted for the quarter ended March 29, 2013 was $2.2 million, for which the Company withheld approximately 0.3 million shares of common stock that were underlying the restricted stock units that vested. None of these shares had been reissued or retired as of March 29, 2013; however, these shares 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.

At December 31, 2012, the non-controlling interest balance was $29.6 million. This balance was increased to $30.3 million at March 29, 2013 due to the non-controlling interest’s $0.7 million share of the earnings for the quarter ended March 29, 2013.

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

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 ESPP for the three months ended March 29, 2013 and March 30, 2012 were comprised as follows (in millions):

 

     Quarter Ended  
     March 29,
2013
     March 30,
2012
 

Cost of revenues

   $ 1.1       $ 1.4   

Research and development

     1.4         1.6   

Selling and marketing

     1.1         1.6   

General and administrative

     2.2         2.8   
  

 

 

    

 

 

 

Share-based compensation expense before income taxes

   $ 5.8       $ 7.4   
  

 

 

    

 

 

 

Related income tax benefits (1)

     —           —     
  

 

 

    

 

 

 

Share-based compensation expense, net of taxes

   $ 5.8       $ 7.4   
  

 

 

    

 

 

 

 

(1) A majority 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.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

At March 29, 2013, total unrecognized estimated share-based compensation expense, net of estimated forfeitures, related to non-vested stock options granted prior to that date was $7.8 million. At March 29, 2013, 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 $53.6 million. The total intrinsic value of stock options exercised during the quarter ended March 29, 2013 was $2.0 million. The Company recorded cash received from the exercise of stock options of $3.8 million and recorded no related income tax benefits during the quarter ended March 29, 2013.

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 three months ended March 29, 2013 and March 30, 2012 are as follows (annualized percentages):

 

     Quarter Ended  
     March 29,
2013
     March 30,
2012
 

Volatility

     45.0%         46.7%   

Risk-free interest rate

     0.8%         0.9%   

Expected term (in years)

     5.1         4.8   

Weighted-average fair value per share

   $ 3.10       $ 3.41   

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 March 29, 2013 and March 30, 2012, respectively. Pre-vesting forfeitures for restricted stock units were estimated to be approximately 4.0% and 4.0% in the quarters ended March 29, 2013 and March 30, 2012, respectively.

Shares Available

As of December 31, 2012, there was an aggregate of 43.7 million shares of common stock available for grant under the Company’s Amended and Restated SIP and 2.6 million shares available for issuance under the ESPP. As of March 29, 2013, there was an aggregate of 39.0 million shares of common stock available for grant under the Amended and Restated SIP and 2.6 million shares available for issuance under the ESPP.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Stock Options

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

 

     Quarter Ended March 29, 2013  
     Number of
Shares
    Weighted Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term (in years)
     Aggregate
Intrinsic Value
(In-The-Money)
 

Outstanding at December 31, 2012

     17.2      $ 7.70         

Granted

     —          —           

Exercised

     (0.8     5.15         

Canceled

     (0.4     8.33         
  

 

 

         

Outstanding at March 29, 2013

     16.0      $ 7.80         4.0       $ 18.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at March 29, 2013

     12.5      $ 7.91         3.5       $ 14.3   
  

 

 

   

 

 

    

 

 

    

 

 

 

Additional information about stock options outstanding at March 29, 2013 with exercise prices less than or above $8.28 per share, the effective closing price of the Company’s common stock at March 29, 2013, 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 $8.28

     6.9       $ 6.21         2.4       $ 6.75         9.3       $ 6.35   

Above $8.28

     5.6       $ 10.03         1.1       $ 8.78         6.7       $ 9.82   
  

 

 

       

 

 

       

 

 

    

Total outstanding

     12.5       $ 7.91         3.5       $ 7.39         16.0       $ 7.80   
  

 

 

       

 

 

       

 

 

    

Restricted Stock Units

Restricted stock units vest over one to three years with service-based requirements or performance-based requirements and are payable in shares of the Company’s common stock upon vesting. The following table presents a summary of the status of the Company’s restricted stock units granted to certain officers and employees of the Company as of March 29, 2013, and changes during the three months ended March 29, 2013 (number of shares in millions):

 

     Quarter Ended March 29, 2013  
     Number of Shares     Weighted Average
Grant Date Fair
Value
 

Nonvested shares of restricted stock units at December 31, 2012

     8.9      $ 8.75   

Granted

     3.8        8.18   

Released

     (1.0     8.47   

Forfeited

     (0.6     8.30   
  

 

 

   

Nonvested shares of restricted stock units at March 29, 2013

     11.1      $ 8.60   
  

 

 

   

 

 

 

 

18


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 9: Commitments and Contingencies

Leases

The following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of March 29, 2013 (in millions):

 

Remainder of 2013

   $ 14.6   

2014

     18.6   

2015

     14.3   

2016

     12.1   

2017

     11.1   

Thereafter

     40.3   
  

 

 

 

Total

   $ 111.0   
  

 

 

 

Other Contingencies

The Company’s headquarters in Phoenix, Arizona is located on property that is a “Superfund” site, which is a property listed on the National Priorities List and subject to clean-up activities under the Comprehensive Environmental Response, Compensation, and Liability Act. Motorola and Freescale have been involved in the cleanup of on-site solvent contaminated soil and groundwater and off-site contaminated groundwater pursuant to consent decrees with the State of Arizona. As part of the Company’s August 4, 1999 recapitalization, 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 have not been, and are not expected to be material.

As a result of its 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. Based on the information available, any costs to the Company in connection with this matter have not been, and are not expected to be material.

The Company’s former manufacturing location 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 has worked with local authorities to implement a remediation plan and expects remaining remediation costs to be covered by insurance. Based on information available, any costs to the Company in connection with this matter have not been, and 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, but not limited to, purchase commitments, agreements to mitigate collection risk, leases, utilities 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 March 29, 2013. The Company also had outstanding guarantees and letters of credit outside of its senior revolving credit facility totaling $4.6 million as of March 29, 2013.

 

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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 $77.4 million as of March 29, 2013. The Company is also a guarantor of SCI LLC’s unsecured loan with SMBC, which had a balance of $302.0 million as of March 29, 2013. 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 IP 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 and its subsidiaries provide for indemnification of directors, officers and other persons in accordance with limited liability agreements, certificates of incorporation, by-laws, articles of association or similar organizational documents, as the case may be. The Company maintains directors’ and officers’ insurance, which should enable it to recover a portion of any future amounts paid.

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

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

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 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.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 10: Fair Value Measurements

Fair Value of Financial Instruments

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 29, 2013 and December 31, 2012 (in millions):

 

     Balance as of
March 29, 2013
     Quoted Prices in
Active Markets (Level 1)
     Balance as of
December 31, 2012
     Quoted Prices in
Active Markets (Level 1)
 

Description

           

Assets:

           

Cash and cash equivalents:

           

Demand and time deposits

   $ 351.3       $ 351.3       $ 385.9       $ 385.9   

Money market funds

     2.9         2.9         —           —     

Treasuries

     182.5         182.5         100.7         100.7   

Corporate bonds

     0.3         0.3         0.3         0.3   

Other Current Assets

           

Foreign currency exchange
contracts

   $ —         $ —         $ 3.2       $ 3.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Foreign currency exchange
contracts

   $ 0.1       $ 0.1       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments have an original maturity to the Company between three months and one year, and are classified as held-to-maturity and are carried at amortized cost as it is the intent of the Company to hold these securities until maturity. Short-term investments classified as held-to-maturity as of the quarters ended March 29, 2013 and December 31, 2012, respectively, were as follows (in millions):

 

     Balance at March 29, 2013      Balance at December 31, 2012  
     Carried at
Amortized Cost
     Unrealized
Gain/(Loss)
     Fair Value      Carried at
Amortized Cost
     Unrealized
Gain/(Loss)
    Fair Value  

Short-term investments-held-to -maturity

                

Commercial paper

   $ 17.5       $ —         $ 17.5       $ 25.5       $ —        $ 25.5   

Corporate bonds

     59.8         0.1         59.9         119.3         (0.1     119.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 77.3       $ 0.1       $ 77.4       $ 144.8       $ (0.1   $ 144.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

The Company’s financial assets are valued using market prices on active markets (Level 1). Level 1 instrument valuations are based on quoted prices for transactions in active exchange markets involving identical assets. Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less when purchased. The Company’s short-term investments balance of $77.3 million is classified as held-to-maturity securities and is carried at amortized cost. There was a $0.1 million unrealized gain on these short-term investments as of March 29, 2013.

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.

Fair Value of Long-Term Debt, Including Current Portion

The carrying amounts and fair values of the Company’s long-term borrowings (excluding capital lease obligations, real estate mortgages and equipment financing) at March 29, 2013 and December 31, 2012 are as follows (in millions):

 

     March 29, 2013      December 31, 2012  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Long-term debt, including current portion

           

Convertible Notes

   $ 399.8       $ 480.1       $ 473.1       $ 530.9   

Long-term debt

   $ 420.2       $ 397.7       $ 403.9       $ 380.6   

 

21


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

The fair value of the Company’s Convertible Notes was estimated based on quoted market prices on active markets (Level 1). The fair value of other long-term debt was estimated based on discounting the remaining principal payments using current market rates for similar debt and consideration of credit and default risk (Level 3) at March 29, 2013 and December 31, 2012.

Note 11: Financial Instruments

Foreign Currencies

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

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

As of March 29, 2013 and December 31, 2012, the Company had outstanding foreign exchange contracts in a net sell position with a net notional amount of $193.2 million and $197.3 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 March 29, 2013 and December 31, 2012 (in millions):

 

     March 29, 2013      December 31, 2012  
     Buy (Sell)     Notional Amount      Buy (Sell)     Notional Amount  

Chinese Renminbi

   $ (1.6   $ 1.6       $ (7.7   $ 7.7   

Euro

     (12.7     12.7         (17.4     17.4   

Japanese Yen

     (120.0     120.0         (123.3     123.3   

Malaysian Ringgit

     33.9        33.9         32.7        32.7   

Other Currencies

     19.0        25.0         10.4        16.2   
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ (81.4   $ 193.2       $ (105.3   $ 197.3   
  

 

 

   

 

 

    

 

 

   

 

 

 

The Company is exposed to credit-related losses if counterparties to its foreign exchange contracts fail to perform their obligations. As of March 29, 2013, 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 three months ended March 29, 2013 and March 30, 2012, realized and unrealized foreign currency transaction gain was $0.7 million and $4.7 million, respectively.

As of March 29, 2013 and March 30, 2012, the Company had balances for contracts not designated as cash flow hedges of zero and $0.4 million, respectively, that were classified as other assets. As of March 29, 2013 and March 30, 2012, the Company had $0.1 million and zero liability balances for these contracts.

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.

 

22


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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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 March 29, 2013 was approximately $68.8 million, which is primarily comprised of cash flow hedges for Malaysian Ringgit/U.S. Dollar and Philippine Peso/U.S. Dollar currency pairs.

For the quarter ended March 29, 2013, the Company recorded a net loss of $0.9 million recognized in other comprehensive income on derivatives associated with cash flow hedges. As of March 29, 2013, the Company had $0.2 million liability balances for contracts designated as cash flow hedging instruments that were classified as other liabilities. For the quarter ended March 30, 2012, the Company had liability balances for contracts designated as cash flow hedging instruments of $0.2 million, that were classified as other liabilities. As of March 29, 2013, the Company had no asset balances for contracts designated as cash flow hedging instruments, that were classified as other assets.

Note 12: Changes in Accumulated Other Comprehensive Loss

Amounts comprising the Company’s accumulated other comprehensive loss and reclassifications for the quarter ending March 29, 2013 as are follows (net of tax of $0, in millions):

 

     Foreign Currency
Translation
Adjustments
    Defined Benefit
Pension Items
    Effects of Cash
Flow Hedges
    Unrealized Gains
and Losses on
Available-for-Sale

Securities
    Total  

Balance as of December 31, 2012

   $ (42.2   $ (0.1   $ 0.8      $ 0.4      $ (41.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) prior to reclassifications

     12.7        —          (1.2     (0.1     11.4   

Amounts reclassified from accumulated other comprehensive loss

     (21.0     —          0.3        —          (20.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive loss

     (8.3     —          (0.9     (0.1     (9.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of March 29, 2013

   $ (50.5     (0.1     (0.1     0.3        (50.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Included in accumulated other comprehensive loss as of December 31, 2012 is approximately $21.0 million relating to the release of cumulative foreign currency translation gains associated with the Company’s subsidiary that owned its 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 closed its Aizu facility during the first quarter of 2013. The liquidation of the Company’s subsidiary that owned its Aizu facility was substantially complete as of March 29, 2013; therefore, the Company has reclassified the associated cumulative foreign currency translation adjustments in its Consolidated Statements of Operations and Comprehensive Income.

 

23


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Amounts which were reclassified from accumulated other comprehensive loss to the Company’s Consolidated Statements of Operations and Comprehensive Income during the quarter ended March 29, 2013 were as follows (net of tax of $0, in millions):

 

     Amounts Reclassified from
Accumulated Other
Comprehensive Loss
   

Affected Line Item Where Net Income is

Presented

Foreign currency translation adjustments

   $ (21.0   Restructuring, asset impairments and other, net

Effects of cash flow hedges

     0.3      Other income and expense (1)
  

 

 

   

Total reclassifications

   $ (20.7  
  

 

 

   

 

(1) Consists of foreign currency exchange contracts. See Note 11: “Financial Instruments” for additional information on the Company’s cash flow hedges.

Note 13: Supplemental Disclosures

Supplemental Disclosure 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 Quarter Ended  
     March 29,
2013
    March 30,
2012
 

Non-cash financing activities:

    

Capital expenditures in accounts payable

   $ 53.2      $ 105.0   

Cash (received) paid for:

    

Interest income

   $ (0.3   $ (0.5

Interest expense

   $ 2.0      $ 8.5   

Income taxes

   $ 2.5      $ 4.6   

Supplemental Disclosure of Business Interruption Insurance Recoveries

During the quarter ended March 29, 2013, the Company recognized income from business interruption insurance claims of approximately $5.0 million associated with the 2011 Thailand flood. The Company has recorded these proceeds as part of cost of revenues in its Consolidated Statement of Operations and Comprehensive Income.

Note 14: Segment Information

As of March 29, 2013, the Company was organized into three operating segments, which also represented its three reporting segments: Application 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 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.

 

24


Table of Contents

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 ended March 29, 2013 and March 30, 2012, respectively, are as follows (in millions):

 

     Application
Products Group
     Standard
Products
Group
     SANYO
Semiconductor
Products Group
    Total  

For the quarter ended March 29, 2013:

          

Revenues from external customers

   $ 245.0       $ 265.2       $ 150.8      $ 661.0   

Segment gross profit

   $ 106.9       $ 94.5       $ 8.6      $ 210.0   

Segment operating income (loss)

   $ 27.5       $ 57.6       $ (45.7   $ 39.4   

For the quarter ended March 30, 2012:

          

Revenues from external customers

   $ 259.9       $ 278.6       $ 205.9      $ 744.4   

Segment gross profit

   $ 114.3       $ 103.0       $ 39.9      $ 257.2   

Segment operating income (loss)

   $ 25.4       $ 62.1       $ (20.4   $ 67.1   

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

 

     Quarter Ended  
     March 29, 2013     March 30, 2012  

Gross profit for reportable segments

   $ 210.0      $ 257.2   

Unallocated amounts:

    

Other unallocated manufacturing costs

     (5.5     (12.0
  

 

 

   

 

 

 

Gross profit

   $ 204.5      $ 245.2   
  

 

 

   

 

 

 

Operating income for reportable segments

   $ 39.4      $ 67.1   

Unallocated amounts:

    

Restructuring and other charges

     6.0        (11.5

Other unallocated manufacturing costs

     (5.5     (12.0

Other unallocated operating expenses

     (2.2     —     
  

 

 

   

 

 

 

Operating income

   $ 37.7      $ 43.6   
  

 

 

   

 

 

 

The Company’s consolidated assets are not specifically assigned to its individual reporting segments. Rather, assets used in operations are generally shared across the Company’s reporting segments. See Note 5: “Balance Sheet Information” for additional information on certain of the Company’s assets.

The Company operates in various geographic locations. Sales to unaffiliated customers have little correlation with the location of manufacturers. It is, therefore, not meaningful to present operating profit by geographical location.

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

 

     Quarter Ended  
     March 29, 2013      March 30, 2012  

Americas

   $ 105.1       $ 120.7   

Japan

     71.7         115.2   

Other Asia/Pacific

     386.4         402.6   

Europe

     97.8         105.9   
  

 

 

    

 

 

 
   $ 661.0       $ 744.4   
  

 

 

    

 

 

 

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

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

 

     March 29,
2013
     December 31,
2012
 

Americas

   $ 277.8       $ 287.8   

Japan

     71.7         78.9   

Other Asia/Pacific

     531.3         525.0   

Europe

     213.4         211.6   
  

 

 

    

 

 

 
   $ 1,094.2       $ 1,103.3   
  

 

 

    

 

 

 

For the quarters ended March 29, 2013 and March 30, 2012, there were no individual customers which accounted for more than 10% of the Company’s total revenues with respect to either quarter.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

Note 15: 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, PulseCore, CMD, SDT, and SANYO Semiconductor (collectively, the “Guarantor Subsidiaries”), fully and unconditionally guarantee, subject to customary releases, on a joint and several basis ON Semiconductor’s obligations under the Convertible Notes. The Guarantor Subsidiaries include SCI LLC, Semiconductor Components Industries of Rhode Island, Inc., as well as 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):

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 29, 2013

(in millions)

 

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

Cash and cash equivalents

   $ —        $ 343.3      $ —        $ 193.7      $ —        $ 537.0   

Short-term investments

     —          77.3        —          —          —          77.3   

Receivables, net

     —          51.0        —          316.2        —          367.2   

Inventories

     —          38.0        —          548.1        (24.7     561.4   

Short-term intercompany receivables

     —          13.7        3.4        —          (17.1     —     

Other current assets

     —          10.7        0.1        54.6        —          65.4   

Deferred income taxes

     —          1.6        —          7.6        —          9.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     —          535.6        3.5        1,120.2        (41.8     1,617.5   

Property, plant and equipment, net

     —          262.7        2.7        831.1        (2.3     1,094.2   

Deferred income taxes

     —          —          —          8.9        22.7        31.6   

Goodwill

     —          111.7        37.2        35.7        —          184.6   

Intangible assets, net

     —          124.5        —          148.9        (24.9     248.5   

Long-term intercompany receivables

     —          1.2        —          —          (1.2     —     

Other assets

     1,786.5        1,446.5        131.1        835.2        (4,143.0     56.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,786.5      $ 2,482.2      $ 174.5      $ 2,980.0      $ (4,190.5   $ 3,232.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

   $ —        $ 32.6      $ 0.1      $ 230.3      $ —        $ 263.0   

Accrued expenses

     —          48.1        0.8        152.4        1.7        203.0   

Income taxes payable

     —          (2.4     —          5.8        —          3.4   

Accrued interest

     3.3        1.8        —          —          —          5.1   

Deferred income on sales to distributors

     —          34.6        —          99.2        —          133.8   

Deferred income taxes

     —          —          —          0.2        22.7        22.9   

Current portion of long-term debt

     69.6        79.6        0.1        93.5        —          242.8   

Short-term intercompany payables

     —          —          —          17.1        (17.1     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     72.9        194.3        1.0        598.5        7.3        874.0   

Long-term debt

     330.0        333.5        —          43.3        —          706.8   

Other long-term liabilities

     —          29.5        0.3        185.4        —          215.2   

Deferred income taxes

     —          1.6        —          21.2        —          22.8   

Long-term intercompany payables

     —          —          —          1.2        (1.2     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     402.9        558.9        1.3        849.6        6.1        1,818.8   

Common stock

     5.1        0.3        50.9        201.6        (252.8     5.1   

Additional paid-in capital

     3,167.8        2,479.2        259.2        1,402.9        (4,141.3     3,167.8   

Accumulated other comprehensive loss

     (50.4     (51.4     —          (43.3     94.7        (50.4

Accumulated deficit

     (1,270.3     (504.8     (136.9     569.2        72.5        (1,270.3

Less: treasury stock, at cost

     (468.6     —          —          —          —          (468.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity

     1,383.6        1,923.3        173.2        2,130.4        (4,226.9     1,383.6   

Non-controlling interest in consolidated subsidiary

     —          —          —          —          30.3        30.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     1,383.6        1,923.3        173.2        2,130.4        (4,196.6     1,413.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,786.5      $ 2,482.2      $ 174.5      $ 2,980.0      $ (4,190.5   $ 3,232.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

(in millions)

 

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

Cash and cash equivalents

   $ —          212.1        —        $ 274.8        —        $ 486.9   

Short-term investments

     —          144.8        —          —          —          144.8   

Receivables, net

     —          45.4        —          312.4        —          357.8   

Inventories

     —          34.5        —          578.4        (31.2     581.7   

Short-term intercompany receivables

     —          —          3.3        17.2        (20.5     —     

Other current assets

     —          10.6        —          101.1        —          111.7   

Deferred income taxes

     —          2.3        —          8.2        —          10.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     —          449.7        3.3        1,292.1        (51.7     1,693.4   

Property, plant and equipment, net

     —          272.0        2.8        830.9        (2.4     1,103.3   

Deferred income taxes

     —          —          —          8.5        22.7        31.2   

Goodwill

     —          111.7        37.2        35.7        —          184.6   

Intangible assets, net

     —          128.2        —          154.7        (25.9     257.0   

Long-term intercompany receivables

     —          310.8        51.0        —          (361.8     —     

Other assets

     1,834.9        1,287.1        78.5        827.3        (3,968.9     58.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,834.9      $ 2,559.5      $ 172.8      $ 3,149.2      $ (4,388.0   $ 3,328.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable

   $ —        $ 24.1        —          255.4        —        $ 279.5   

Accrued expenses

     —          53.0        0.9        172.7        1.7        228.3   

Income taxes payable

     —          —          —          4.9        —          4.9   

Accrued interest

     0.5        —          —          0.1        —          0.6   

Deferred income on sales to distributors

     —          34.2        —          100.3        —          134.5   

Deferred income taxes

     —          —          —          0.1        22.8        22.9   

Current portion of long-term debt

     198.9        80.2        0.1        74.4        —          353.6   

Short-term intercompany payables

     —          20.5        —          —          (20.5     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     199.4        212.0        1.0        607.9        4.0        1,024.3   

Long-term debt

     274.1        344.1        —          40.1        —          658.3   

Other long-term liabilities

     —          27.5        0.3        204.4        —          232.2   

Deferred income taxes

     —          2.4        —          20.5        —          22.9   

Long-term intercompany payables

     0.3        —          —          156.0        (156.3     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     473.8        586.0        1.3        1,028.9        (152.3     1,937.7   

Common stock

     5.1        0.3        50.9        201.6        (252.8     5.1   

Additional paid-in capital

     3,156.4        2,549.3        259.2        1,402.9        (4,211.4     3,156.4   

Accumulated other comprehensive loss

     (41.1     (41.0     —          (34.6     75.6        (41.1

Accumulated deficit

     (1,292.9     (535.1     (138.6     550.4        123.3        (1,292.9

Less: treasury stock, at cost

     (466.4     —          —          —          —          (466.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity

     1,361.1        1,973.5        171.5        2,120.3        (4,265.3     1,361.1   

Non-controlling interest in consolidated subsidiary

     —          —          —          —          29.6        29.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     1,361.1        1,973.5        171.5        2,120.3        (4,235.7     1,390.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,834.9      $ 2,559.5      $ 172.8      $ 3,149.2      $ (4,388.0   $ 3,328.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE QUARTER ENDED MARCH 29, 2013

(in millions)

 

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

Revenues

   $ —        $ 178.1      $ 3.2       $ 947.8      $ (468.1   $ 661.0   

Cost of revenues

     —          112.3        0.2         819.2        (475.2     456.5   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     —          65.8        3.0         128.6        7.1        204.5   

Operating Expenses:

             

Research and development

     —          41.6        2.5         44.3        —          88.4   

Selling and marketing

     —          16.7        0.1         23.0        —          39.8   

General and administrative

     —          5.1        0.2         30.9        —          36.2   

Amortization of acquisition related intangible assets

     —          3.8        —           5.6        (1.0     8.4   

Restructuring, asset impairments and other, net

     —          1.0        —           (7.0     —          (6.0
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     —          68.2        2.8         96.8        (1.0     166.8   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —          (2.4     0.2         31.8        8.1        37.7   

Other income (expenses), net:

             

Interest expense

     (6.1     (2.4     —           (1.6     —          (10.1

Interest income

     —          0.2        —           0.1        —          0.3   

Other

     —          7.8        —           (6.9     —          0.9   

Loss on debt exchange

     (3.1     —          —           —          —          (3.1

Equity in earnings

     31.8        24.9        1.6         (0.1     (58.2     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other income (expenses), net

     22.6        30.5        1.6         (8.5     (58.2     (12.0

Income before income taxes

     22.6        28.1        1.8         23.3        (50.1     25.7   

Income tax provision

     —          2.2        —           (4.6     —          (2.4
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     22.6        30.3        1.8         18.7        (50.1     23.3   

Net income attributable to non-controlling interest

     —          —          —           —          (0.7     (0.7
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to ON Semiconductor Corporation

   $ 22.6      $ 30.3      $ 1.8       $ 18.7      $ (50.8   $ 22.6   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation

   $ 13.3      $ 19.8      $ 1.8       $ 10.1      $ (31.7   $ 13.3   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE QUARTER ENDED MARCH 30, 2012

(in millions)

 

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

Revenues

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

Cost of revenues

     —          116.1        0.2        708.1        (325.2     499.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          69.5        (0.2     185.4        (9.5     245.2   

Operating Expenses:

            

Research and development

     —          43.2        2.6        45.6        —          91.4   

Selling and marketing

     —          17.1        0.2        28.3        —          45.6   

General and administrative

     —          15.2        0.2        26.6        —          42.0   

Amortization of acquisition related intangible assets

     —          4.5        —          7.6        (1.0     11.1   

Restructuring, asset impairments and other, net

     —          —          —          11.5        —          11.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —          80.0        3.0        119.6        (1.0     201.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —          (10.5     (3.2     65.8        (8.5     43.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses), net:

            

Interest expense

     (10.9     (2.3     —          (2.5     —          (15.7

Interest income

     —          0.3        —          0.2        —          0.5   

Other

     —          6.2        —          (1.5     —          4.7   

Equity in earnings

     39.1        34.9        1.9        —          (75.9     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses), net

     28.2        39.1        1.9        (3.8     (75.9     (10.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     28.2        28.6        (1.3     62.0        (84.4     33.1   

Income tax provision

     —          8.5        —          (12.6     —          (4.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     28.2        37.1        (1.3     49.4        (84.4     29.0   

Net income attributable to non-controlling interest

     —          —          —          —          (0.8     (0.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ON Semiconductor Corporation

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to ON Semiconductor Corporation

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

CONDENSED CONSOLIDATING STATEMENT CASH FLOWS

FOR THE QUARTER ENDED MARCH 29, 2013

(in millions)

 

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

Net cash provided by (used in) operating activities

   $ —        $ (10.0   $ —         $ 95.2      $ —        $ 85.2   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

             

Purchases of property, plant and equipment

     —          (3.9     —           (35.0     —          (38.9

Proceeds from sales of property, plant and equipment

     —          0.1        —           7.9        —          8.0   

Deposits utilized for purchases of property, plant and equipment

     —          —          —           1.4        —          1.4   

Proceeds from held-to maturity securities

     —          73.5        —           —          —          73.5   

Purchase of held-to-maturity securities

     —          (6.0     —           —          —          (6.0

Contribution from (to) subsidiaries

     75.9        —          —           —          (75.9     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     75.9        63.7        —           (25.7     (75.9     38.0   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

             

Intercompany loans

     —          (213.3     —           213.3        —          —     

Intercompany loan repayments

     —          378.4        —           (378.4     —          —     

Payments from (to) parent

     —          (75.9     —           —          75.9        —     

Proceeds from exercise of stock options

     3.8        —          —           —          —          3.8   

Payments of tax withholding for restricted shares

     (2.2     —          —           —          —          (2.2

Proceeds from debt issuance

     —          —          —           26.2        —          26.2   

Payment of capital leases obligations

     —          (10.3     —           (1.2     —          (11.5

Repayment of long-term debt

     (77.5     (1.4     —           (2.6     —          (81.5
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (75.9     77.5        —           (142.7     75.9        (65.2
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     —          —          —           (7.9     —          (7.9
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     —          131.2        —           (81.1     —          50.1   

Cash and cash equivalents, beginning of period

     —          212.1        —           274.8        —          486.9   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ —        $ 343.3      $ —         $ 193.7      $ —        $ 537.0   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

 

CONDENSED CONSOLIDATING STATEMENT CASH FLOWS

FOR THE QUARTER ENDED MARCH 30, 2012

(in millions)

 

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

Net cash provided by (used in) operating activities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

            

Purchases of property, plant and equipment

     —          (11.2     (0.5     (38.7     —          (50.4

Proceeds from sales of property, plant and equipment

     —          —          —          1.9        —          1.9   

Deposits utilized for purchases of property, plant and equipment

     —          —          —          (9.6     —          (9.6

Recovery from insurance on property, plant and equipment

     —          —          —          11.5        —          11.5   

Proceeds from held-to maturity securities

     —          99.7        —          —          —          99.7   

Purchase of held-to-maturity securities

     —          (163.3     —          —          —          (163.3

Contribution from subsidiaries

     0.5        —          —          —          (0.5     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     0.5        (74.8     (0.5     (34.9     (0.5     (110.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

            

Intercompany loans

     —          (23.3     —          23.3        —          —     

Intercompany loan repayments

     —          70.2        —          (70.2     —          —     

Payments from (to) parent

     —          (0.5     —          —          0.5        —     

Proceeds from exercise of stock options

     4.8        —          —          —          —          4.8   

Payments of tax withholding for restricted shares

     (5.3     —          —          —          —          (5.3

Repurchase of common stock

     —          —          —          —          —          —     

Proceeds from debt issuance

     —          —          —          2.0        —          2.0   

Payment of capital leases obligations

     —          (11.0     —          (0.4     —          (11.4

Repayment of long-term debt

     —          (1.1     —          (14.5     —          (15.6

Net cash provided by (used in) financing activities

     (0.5     34.3        —          (59.8     0.5        (25.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     —          —          —          (5.5     —          (5.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     —          (71.8     (0.7     (0.3     —          (72.8

Cash and cash equivalents, beginning of period

     —          304.5        (0.2     348.6        —          652.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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

You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (“2012 Form 10-K”), filed with the Securities and Exchange Commission (the “Commission”) on February 26, 2013, and our unaudited consolidated financial statements for the fiscal quarter ended March 29, 2013, included elsewhere in this Form 10-Q. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties, and other factors. Actual results could differ materially because of the factors discussed below or elsewhere in this Form 10-Q. See Part II, Item 1A. “Risk Factors” of this Form 10-Q and Part I, Item 1A. “Risk Factors” of our 2012 Form 10-K.

Company Highlights for the Quarter Ended March 29, 2013