10-Q 1 d807651d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 26, 2014

Or

 

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

For the transition period from              to             

(Commission File Number) 000-30419

 

 

ON SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter) 

 

 

 

Delaware   36-3840979

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

5005 E. McDowell Road

Phoenix, AZ 85008

(602) 244-6600

(Address, zip code and telephone number, including area code, of principal executive offices)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the issuer’s class of common stock as of the close of business on October 24, 2014:

 

Title of Each Class

 

Number of Shares

Common Stock, par value $0.01 per share

  435,877,268

 

 

 


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

 

  Part I: Financial Information   
 

Item 1.

   Financial Statements (unaudited)      4   
 

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      40   
 

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      57   
 

Item 4.

   Controls and Procedures      57   
  Part II: Other Information   
 

Item 1.

   Legal Proceedings      59   
 

Item 1A.

   Risk Factors      59   
 

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      60   
 

Item 3.

   Defaults Upon Senior Securities      60   
 

Item 4.

   Mine Safety Disclosures      60   
 

Item 5.

   Other Information      61   
 

Item 6.

   Exhibits      61   

Signatures

     62   

Exhibit Index

     63   

(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

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

KSS

   System Solutions Group back-end manufacturing facility in Hanyu, Japan

LED

   Light-emitting diode

LSI

   Large Scale Integration

Motorola

   Motorola Inc.

OEM

   Original equipment manufacturer

PulseCore

   PulseCore Holdings (Cayman) Inc.

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)

 

     September 26,
2014
    December 31,
2013
 

Assets

    

Cash and cash equivalents

   $ 492.1      $ 509.5   

Short-term investments

     2.8        116.2   

Receivables, net

     488.7        383.4   

Inventories

     724.3        611.8   

Other current assets

     105.3        89.3   
  

 

 

   

 

 

 

Total current assets

     1,813.2        1,710.2   

Property, plant and equipment, net

     1,211.9        1,074.2   

Goodwill

     275.3        184.6   

Intangible assets, net

     480.4        223.4   

Other assets

     101.4        64.6   
  

 

 

   

 

 

 

Total assets

   $ 3,882.2      $ 3,257.0   
  

 

 

   

 

 

 

Liabilities, Non-Controlling Interest and Stockholders’ Equity

    

Accounts payable

   $ 398.7      $ 276.8   

Accrued expenses

     244.0        220.3   

Deferred income on sales to distributors

     167.0        140.5   

Current portion of long-term debt (see Note 7)

     203.3        181.6   
  

 

 

   

 

 

 

Total current liabilities

     1,013.0        819.2   

Long-term debt (see Note 7)

     980.3        760.6   

Other long-term liabilities

     214.6        190.4   
  

 

 

   

 

 

 

Total liabilities

     2,207.9        1,770.2   
  

 

 

   

 

 

 

Commitments and contingencies (See Note 10)

    

ON Semiconductor Corporation stockholders’ equity:

    

Common stock ($0.01 par value, 750,000,000 shares authorized, 521,953,400 and 515,888,942 shares issued, 439,791,222 and 440,250,288 shares outstanding, respectively)

     5.2        5.2   

Additional paid-in capital

     3,269.0        3,210.8   

Accumulated other comprehensive loss

     (44.6     (47.4

Accumulated deficit

     (954.1     (1,142.1

Less: treasury stock, at cost: 82,162,178 and 75,638,654 shares, respectively

     (632.9     (572.5
  

 

 

   

 

 

 

Total ON Semiconductor Corporation stockholders’ equity

     1,642.6        1,454.0   

Non-controlling interest in consolidated subsidiary

     31.7        32.8   
  

 

 

   

 

 

 

Total stockholders’ equity

     1,674.3        1,486.8   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,882.2      $ 3,257.0   
  

 

 

   

 

 

 

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     Nine Months Ended  
     September 26,
2014
    September 27,
2013
    September 26,
2014
    September 27,
2013
 

Revenues

   $ 833.5      $ 715.4      $ 2,297.6      $ 2,064.7   

Cost of revenues

     549.4        466.2        1,489.7        1,379.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     284.1        249.2        807.9        685.5   

Operating expenses:

        

Research and development

     93.4        84.0        255.7        255.5   

Selling and marketing

     51.1        44.2        143.4        127.3   

General and administrative

     48.5        34.5        134.2        110.9   

Amortization of acquisition-related intangible assets

     23.4        8.2        42.0        24.8   

Restructuring, asset impairments and other, net

     10.1        11.0        20.0        11.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     226.5        181.9        595.3        529.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     57.6        67.3        212.6        155.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net:

        

Interest expense

     (8.6     (9.2     (24.6     (28.6

Interest income

     0.2        0.3        0.6        1.0   

Other

     (0.9     (1.4     (2.7     3.6   

Loss on debt exchange

     —          —          —          (3.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

     (9.3     (10.3     (26.7     (27.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     48.3        57.0        185.9        128.8   

Income tax (provision) benefit

     (6.3     (4.2     3.7        (4.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     42.0        52.8        189.6        124.8   

Less: Net income attributable to non-controlling interest

     (0.4     (1.0     (1.6     (2.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to ON Semiconductor Corporation

   $ 41.6      $ 51.8      $ 188.0      $ 122.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss), net of tax:

        

Net income

   $ 42.0      $ 52.8      $ 189.6      $ 124.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustments

     1.9        1.3        1.3        (4.5

Effects of cash flow hedges

     (1.2     1.1        1.5        (3.2

Unrealized loss on available-for-sale securities

     —          0.1        —          0.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     0.7        2.5        2.8        (7.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     42.7        55.3        192.4        117.3   

Comprehensive income attributable to non-controlling interest

     (0.4     (1.0     (1.6     (2.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation

   $ 42.3      $ 54.3      $ 190.8      $ 114.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share attributable to ON Semiconductor Corporation:

        

Basic

   $ 0.09      $ 0.12      $ 0.43      $ 0.27   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.09      $ 0.11      $ 0.42      $ 0.27   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

Basic

     440.7        449.3        440.7        449.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     444.9        452.1        444.6        452.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

5


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(unaudited)

 

     Nine Months Ended  
     September 26,
2014
    September 27,
2013
 

Cash flows from operating activities:

    

Net income

   $ 189.6      $ 124.8   

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

    

Depreciation and amortization

     184.8        156.5   

Gain on sale or disposal of fixed assets

     (0.6     (7.6

Loss on debt exchange

     —          3.1   

Amortization of debt issuance costs

     1.0        0.9   

Provision for excess inventories

     21.1        45.7   

Non-cash share-based compensation expense

     33.0        23.4   

Non-cash interest

     5.1        8.5   

Non-cash asset impairment charges

     1.8        3.5   

Non-cash foreign currency translation gain

     —          (21.0

Reversal of deferred tax asset valuation allowance

     (21.7     —     

Other

     6.2        (5.7

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

    

Receivables

     (46.5     (69.1

Inventories

     (30.1     (64.8

Other assets

     (13.4     18.1   

Accounts payable

     11.2        1.0   

Accrued expenses

     (25.6     (6.3

Deferred income on sales to distributors

     26.5        10.7   

Other long-term liabilities

     (23.6     (21.4
  

 

 

   

 

 

 

Net cash provided by operating activities

     318.8        200.3   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (163.0     (135.1

Proceeds from sales of property, plant and equipment

     0.3        8.6   

Deposits utilized (made) for purchases of property, plant and equipment

     2.0        (1.6

Purchase of businesses, net of cash acquired

     (423.1     —     

Cash placed in escrow

     (40.0     —     

Proceeds from held-to-maturity securities

     116.2        155.7   

Purchases of held-to-maturity securities

     (2.8     (195.0
  

 

 

   

 

 

 

Net cash used in investing activities

     (510.4     (167.4
  

 

 

   

 

 

 

Cash flows from financing activities:

    

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

     4.8        4.1   

Proceeds from exercise of stock options

     20.4        9.5   

Payments of tax withholding for restricted shares

     (6.0     (2.8

Repurchase of common stock

     (53.7     (35.8

Proceeds from debt issuance

     307.5        46.2   

Payment of capital lease obligations

     (31.6     (31.3

Repayment of long-term debt

     (63.3     (130.3

Dividend to non-controlling shareholder of consolidated subsidiary

     (2.7     —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     175.4        (140.4
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1.2     (9.9
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (17.4     (117.4

Cash and cash equivalents, beginning of period

     509.5        486.9   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 492.1      $ 369.5   
  

 

 

   

 

 

 

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-owned and majority-owned subsidiaries (“ON Semiconductor” or the “Company”), uses a thirteen-week fiscal quarter accounting period for each quarter, with the first three quarters ending on the last Friday in March, June and September, and the fourth quarter ending on December 31. The three months ended September 26, 2014 and September 27, 2013 each contained 91 days. The nine months ended September 26, 2014 and September 27, 2013 contained 269 days and 270 days, respectively.

The accompanying unaudited financial statements as of September 26, 2014 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, 2013 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, 2013 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (“2013 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 Company condensed certain prior year amounts in our consolidated financial statements to conform to the current year presentation.

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 following: (i) measurement of valuation allowances relating to trade receivables, inventories and deferred tax assets; (ii) estimates of future payouts for customer incentives, warranties, and restructuring activities; (iii) assumptions surrounding future pension obligations; (iv) fair values of stock options and of financial instruments (including derivative financial instruments); (v) evaluations of uncertain tax positions; and (vi) future cash flows used in the valuation of business combinations and to assess and test for impairment of long-lived assets and, if applicable, goodwill. Actual results could differ from these estimates.

Segments

Effective for the third quarter of 2014, following the Company’s image sensor business acquisitions, the Company announced a change in the way it reports its segment information. Previously reported information has been recast to reflect the current reportable segments. The Company is currently organized into four reporting segments, consisting of its three existing reporting segments, Application Products Group, Standard Products Group and System Solutions Group, as well as a fourth reporting segment, Image Sensor Group. The Company’s Image Sensor Group was established during the third quarter of 2014, and includes the Company’s recent image sensor business acquisition of Aptina, Inc., along with the Company’s existing image sensor business units (including Truesense Imaging Inc.) which were previously reported as part of the Application Products Group. See Note 3: “Acquisitions” for additional information with respect to the Company’s recent acquisitions. See also Note 15: “Segment Information” for additional information on the Company’s reportable segments.

 

Note 2: Recent Accounting Pronouncements

ASU No. 2014-09 - “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”)

In May 2014, the FASB issued ASU 2014-09, which applies to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other standards, superceding the revenue recognition requirements in Topic 605. Pursuant to ASU 2014-09, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange, as applied through a multi-step process to achieve that core principle. The new standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company is currently evaluating the impact that the adoption of ASU 2014-09 may have on the Company’s Consolidated Financial Statements.

 

7


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Note 3: Acquisitions

The Company pursues strategic acquisitions from time to time to leverage its existing capabilities and further build its business. Such acquisitions are accounted for as business combinations pursuant to ASC 805 “Business Combinations.” Accordingly, acquisition costs are not included as components of consideration transferred, but are accounted for as expenses in the period in which the costs are incurred. During the quarter and nine months ended September 26, 2014, the Company incurred acquisition-related costs of approximately $4.0 million and $8.0 million, respectively.

Acquisition of Aptina, Inc. (“Aptina”)

On August 15, 2014, the Company acquired 100% of Aptina for approximately $402.5 million in cash, subject to customary closing adjustments. As discussed below, approximately $40.0 million of the total consideration was held in escrow as of September 26, 2014. During the third quarter of 2014, Aptina was incorporated into the Company’s new Image Sensor Group for reporting purposes. For the period from August 15, 2014 to September 26, 2014, the Company recognized approximately $71.6 million of revenue and a $25.3 million net loss provided by the acquisition of Aptina, which includes charges for the step-up of inventory to fair market value, the amortization of acquired intangible assets and restructuring. The acquisition of Aptina expands the Company’s image-sensor business and further strengthens the Company’s position in the fast growing segment of image sensors in the automotive and industrial end-markets.

The following table presents the initial allocation of the purchase price of Aptina for the assets acquired and liabilities assumed on August 15, 2014 based on their fair values (in millions):

 

      Initial
Estimate
 

Cash and cash equivalents

   $ 30.3   

Receivables

     53.2   

Inventories

     85.3   

Other current assets

     5.7   

Property, plant and equipment

     35.9   

Goodwill

     63.8   

Intangible assets

     183.1   

In-process research and development

     75.4   

Other non-current assets

     2.3   
  

 

 

 

Total assets acquired

     535.0   
  

 

 

 

Accounts payable

     66.8   

Other current liabilities

     51.2   

Other non-current liabilities

     14.5   
  

 

 

 

Total liabilities assumed

     132.5   
  

 

 

 

Net assets acquired

   $ 402.5   
  

 

 

 

Acquired intangible assets include $75.4 million of IPRD assets, which are to be amortized over the useful life upon successful completion of the related projects. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value.

Other acquired intangible assets of $183.1 million include: customer relationships of $132.9 million (five year weighted-average useful life), developed technology of $47.9 million (nine year weighted-average useful life) and trademarks of $2.3 million (6 month useful life).

Goodwill of $63.8 million was assigned to the Image Sensor Group. Among the factors that contributed to goodwill arising from the acquisition were the potential synergies expected to be derived from combining Aptina with the Company’s existing image sensor business. These synergies provide the capability of providing a broad range of high-performance image sensors. Goodwill will not be amortized but instead tested for impairment at least annually (more frequently if certain indicators are present). Goodwill as of September 26, 2014 is not expected to be deductible for tax purposes.

 

8


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

The above represents an initial estimated purchase price allocation only, and is subject to change as the Company finalizes its determination relating to the valuation of net assets acquired from Aptina. Accordingly, future adjustments may impact the initial estimated amount of goodwill and other allocated amounts represented in the table above.

Pursuant to the agreement and plan of merger between the Company and the sellers of Aptina (the “Merger Agreement”), $40.0 million of the total consideration was withheld by the Company and placed into an escrow account to secure against certain indemnifiable events described in the Merger Agreement. The $40.0 million consideration held in escrow was accounted for as restricted cash as of September 26, 2014 and is included in other assets and other long-term liabilities on the Company’s Consolidated Balance Sheet.

Acquisition of Truesense Imaging, Inc. (“Truesense”)

On April 30, 2014, the Company acquired 100% of Truesense for approximately $95.7 million in cash, subject to customary closing adjustments, of which approximately $0.6 million remained unpaid as of September 26, 2014. During the second quarter of 2014, Truesense was incorporated into the Company’s Application Products Group and subsequently migrated to the Image Sensor Group for reporting purposes during the quarter ended September 26, 2014. During the quarter and nine months ended September 26, 2014, the Company recognized revenue of approximately $21.6 million and $34.9 million, respectively, and net income of approximately $1.4 million and $2.0 million, respectively, provided by the acquisition of Truesense. The acquisition of Truesense strengthens the Company’s product portfolio targeting industrial end-markets such as machine vision, surveillance, and intelligent transportation systems by complementing the Company’s existing high-speed, high-resolution, power-efficient image sensing solutions with Truesense’s high-performance image sensors for low-light, low-noise.

The following table presents the initial allocation and subsequent adjustments applied on a retrospective basis to the purchase price of Truesense for the assets acquired and liabilities assumed on April 30, 2014 based on their fair values (in millions):

 

     Initial
Estimate
     Adjustments     Adjusted
Allocation
 

Cash and cash equivalents

   $ 4.2       $ —        $ 4.2   

Receivables

     8.8         —          8.8   

Inventories

     18.8         (0.5     18.3   

Other current assets

     2.6         1.1        3.7   

Property, plant and equipment

     25.6         0.8        26.4   

Goodwill

     27.0         (0.1     26.9   

Intangible assets

     33.1         (0.5     32.6   

In-process research and development

     7.5         0.6        8.1   
  

 

 

    

 

 

   

 

 

 

Total assets acquired

     127.6         1.4        129.0   
  

 

 

    

 

 

   

 

 

 

Accounts payable

     3.8         —          3.8   

Other current liabilities

     5.6         0.3        5.9   

Other non-current liabilities

     23.1         0.5        23.6   
  

 

 

    

 

 

   

 

 

 

Total liabilities assumed

     32.5         0.8        33.3   
  

 

 

    

 

 

   

 

 

 

Net assets acquired

   $ 95.1       $ 0.6      $ 95.7   
  

 

 

    

 

 

   

 

 

 

Acquired intangible assets include $8.1 million of IPRD assets, which are to be amortized over the useful life upon successful completion of the related projects. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value.

Other acquired intangible assets of $32.6 million include: customer relationships of $18.8 million (five year weighted-average useful life) and developed technology of $13.8 million (twelve year weighted-average useful life).

 

9


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Goodwill of $26.9 million was assigned to the Image Sensor Group. Among the factors that contributed to goodwill arising from the acquisition were the potential synergies expected to be derived from combining Truesense with the Company’s existing image sensor business. These synergies provide the capability of providing a broad range of high-performance image sensors to the industrial end-market. Goodwill will not be amortized but instead tested for impairment at least annually (more frequently if certain indicators are present). The $26.9 million of goodwill as of September 26, 2014 is not expected to be deductible for tax purposes.

The above represents an initial estimated purchase price allocation only, and is subject to change as the Company finalizes its determination relating to the valuation of net assets acquired from Truesense. Accordingly, future adjustments may impact the initial estimated amount of goodwill and other allocated amounts represented in the table above.

Pro-Forma Results of Operations

The following unaudited pro-forma consolidated results of operations for the quarters and nine months ended September 26, 2014 and September 27, 2013 have been prepared as if the acquisitions of Aptina and Truesense had occurred on January 1, 2013 and includes adjustments for depreciation expense, amortization of intangibles, and the effect of purchase accounting adjustments, including the step-up of inventory (in millions, except per share data):

 

     Quarter Ended      Nine Months Ended  
     September 26,
2014
     September 27,
2013
     September 26,
2014
     September 27,
2013
 

Revenues

   $ 906.1       $ 877       $ 2,672.2       $ 2,480.0   

Gross profit

   $ 311.7       $ 280.4       $ 925.0       $ 781.5   

Net income attributable to ON Semiconductor Corporation

   $ 35.3       $ 21.1       $ 146.5       $ 55.6   

Net income per common share attributable to ON Semiconductor Corporation:

           

Basic

   $ 0.08       $ 0.05       $ 0.33       $ 0.12   

Diluted

   $ 0.08       $ 0.05       $ 0.33       $ 0.12   

 

Note 4: Goodwill and Intangible Assets

Goodwill

The following table summarizes goodwill by relevant operating segment as of September 26, 2014 and December 31, 2013 (in millions):

 

     Balance as of September 26, 2014      Balance as of December 31, 2013  
     Goodwill      Accumulated
Impairment
Losses
    Carrying
Value
     Goodwill      Accumulated
Impairment
Losses
    Carrying
Value
 

Operating Segment:

               

Application Products Group

   $ 539.9       $ (410.2   $ 129.7       $ 539.9       $ (410.2   $ 129.7   

Standard Products Group

     76.0         (28.6     47.4         76.0         (28.6     47.4   

Image Sensor Group

     98.2         —          98.2         7.5         —          7.5   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 714.1       $ (438.8   $ 275.3       $ 623.4       $ (438.8   $ 184.6   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

10


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

The following table summarizes the change in goodwill from December 31, 2013 to September 26, 2014 (in millions):

 

Net balance as of December 31, 2013

   $ 184.6   

Additions due to business combinations

     90.7   
  

 

 

 

Net balance as of September 26, 2014

   $ 275.3   
  

 

 

 

Goodwill is tested for impairment annually on the first day of the fourth quarter unless a triggering event would require an interim analysis. Adverse changes in operating results and/or unfavorable changes in economic factors used to estimate fair values could result in a non-cash impairment charge in the future. While management did not identify any triggering events through September 26, 2014 that would require an interim 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 September 26, 2014 and December 31, 2013 (in millions):

 

     September 26, 2014  
     Original
Cost
     Accumulated
Amortization
    Foreign Currency
Translation  Adjustment
    Accumulated
Impairment
    Carrying
Value
     Useful Life
(in Years)
 

Intellectual property

   $ 13.9       $ (9.9   $ —        $ (0.4   $ 3.6         5-12   

Customer relationships

     432.0         (127.5     (27.6     (23.0     253.9         5-18   

Patents

     43.7         (20.7     —          (13.7     9.3         12   

Developed technology

     207.9         (82.8     —          (2.4     122.7         5-13   

Trademarks

     16.3         (7.8     —          (1.1     7.4         15   

In-process research and development

     83.5         —          —          —          83.5      
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Total intangibles

   $ 797.3       $ (248.7   $ (27.6   $ (40.6   $ 480.4      
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

     December 31, 2013  
     Original
Cost
     Accumulated
Amortization
    Foreign Currency
Translation  Adjustment
    Accumulated
Impairment
Losses
    Carrying
Value
     Useful Life
(in Years)
 

Intellectual property

   $ 13.9       $ (9.4   $ —        $ (0.4   $ 4.1         5-12   

Customer relationships

     280.3         (105.5     (27.4     (23.0     124.4         5-18   

Patents

     43.7         (19.0     —          (13.7     11.0         12   

Developed technology

     146.2         (66.7     —          (2.4     77.1         5-12   

Trademarks

     14.0         (6.1     —          (1.1     6.8         15   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

Total intangibles

   $ 498.1       $ (206.7   $ (27.4   $ (40.6   $ 223.4      
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

11


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Amortization expense for acquisition-related intangible assets amounted to $23.4 million and $42.0 million for the quarter and nine months ended September 26, 2014, respectively, and $8.2 million and $24.8 million for the quarter and nine months ended September 27, 2013, respectively. Amortization expense for intangible assets, with the exception of the $83.5 million of IPRD assets that will be amortized once the corresponding projects have been completed, is expected to be as follows over the next five years and thereafter (in millions):

 

Period

   Estimated
Amortization
Expense
 

Remainder of 2014

   $ 31.7   

2015

     115.5   

2016

     77.4   

2017

     49.5   

2018

     35.4   

Thereafter

     87.4   
  

 

 

 

Total estimated amortization expense

   $ 396.9   
  

 

 

 

 

Note 5: 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 and nine months ended September 26, 2014 is as follows (in millions):

 

     Restructuring      Impairment      Other     Total  

Quarter ended September 26, 2014

          

System Solutions Group Voluntary Retirement Program

   $ 2.9       $ —         $ —        $ 2.9   

Business combination severance

     4.8         —           —          4.8   

KSS facility closure

     2.5         —           (0.6     1.9   

Other

     0.5         —           —          0.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 10.7       $ —         $ (0.6   $ 10.1   
  

 

 

    

 

 

    

 

 

   

 

 

 
     Restructuring      Impairment      Other     Total  

Nine months ended September 26, 2014

          

System Solutions Group Voluntary Retirement Program

   $ 10.2       $ —         $ (4.5   $ 5.7   

Business combination severance

     4.8         —           —          4.8   

KSS facility closure

     9.2         —           (2.0     7.2   

Other

     1.0         1.3         —          2.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 25.2       $ 1.3       $ (6.5   $ 20.0   
  

 

 

    

 

 

    

 

 

   

 

 

 

The following is a rollforward of the accrued restructuring charges from December 31, 2013 to September 26, 2014 (in millions):

 

     Balance as of
December 31, 2013
     Charges      Usage     Balance as of
September 26, 2014
 

Estimated employee separation charges

   $ 25.2       $ 22.5       $ (40.1   $ 7.6   

Estimated costs to exit

     1.0         2.7         (2.8     0.9   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 26.2       $ 25.2       $ (42.9   $ 8.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

12


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Activity related to the Company’s Restructuring, asset impairments and other, net for programs that had not been completed as of September 26, 2014, is as follows:

System Solutions Group Voluntary Retirement Program

During the fourth quarter of 2013, the Company initiated a voluntary retirement program for employees of certain of its System Solutions Group subsidiaries in Japan (the “Q4 2013 Voluntary Retirement Program”). Approximately 350 employees opted to retire under the Q4 2013 Voluntary Retirement Program of which all employees had exited by September 26, 2014. For the quarter and the nine months ended September 26, 2014, the Company recognized approximately $2.9 million and $10.2 million, respectively, of employee separation charges related to the Q4 2013 Voluntary Retirement Program.

In connection with the Q4 2013 Voluntary Retirement Program, approximately 70 contractor positions were also identified for elimination, of which all had exited by September 26, 2014. During the nine months ended September 26, 2014, an additional 40 positions were identified for elimination, as an extension of the Q4 2013 Voluntary Retirement Program, consisting of 20 employees and 20 contractors, substantially all of which had exited by September 26, 2014.

As a result of the Q4 2013 Voluntary Retirement Program, the Company recognized a pension curtailment benefit associated with the affected employees of zero and $4.5 million during the quarter and nine months ended September 26, 2014, respectively, which is recorded in restructuring, asset impairments and other, net. As of September 26, 2014, the accrued liability for the Q4 2013 Voluntary Retirement Program associated with employee separation charges was $1.6 million. See Note 6: “Balance Sheet Information” for additional information.

During the nine months ended September 26, 2014, the Company initiated further voluntary retirement activities applicable to an additional 60 to 70 positions, for certain of its System Solutions Group subsidiaries in Japan, consisting of employees and contractors. The Company expects to incur an additional $0.2 million in employee separation charges related to this program through the end of 2014. Approximately 10 employees remain to exit under this program.

KSS Facility Closure

On October 6, 2013, the Company announced a plan to close KSS (the “KSS Plan”). Pursuant to the KSS Plan, a majority of the production from KSS was transferred to other of the Company’s manufacturing facilities. The KSS Plan includes the elimination of approximately 170 full time and 40 contract employees. During the quarter ended September 26, 2014, the Company recorded approximately $1.2 million of employee separation charges and $1.3 million of exit costs related to the KSS Plan. The Company expects to record additional KSS Plan severance costs and related employee benefit plan expenses of approximately $0.5 million, along with other exit costs of approximately $2.0 million to $3.0 million. Approximately 25 employees remain to exit under this program.

As a result of the KSS facility closure, the Company recognized a $2.0 million pension curtailment benefit associated with the affected employees during the nine months ended September 26, 2014, which is recorded in Restructuring, asset impairments and other, net. See Note 6: “Balance Sheet Information” for additional information.

As of September 26, 2014, the accrued liability associated with employee separation charges was $5.9 million for the KSS Plan.

Business Combination Severance

Certain Aptina executives that did not have a continuing role subsequent to the acquisition date were terminated upon closing of the August 15, 2014 acquisition of Aptina. During the quarter ended September 26, 2014, the Company recorded approximately $4.8 million of related employee separation charges.

As of September 26, 2014, there was no accrued liability associated with executive severance charges.

 

13


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Note 6: Balance Sheet Information

Certain significant amounts included in the Company’s balance sheet as of September 26, 2014 and December 31, 2013 consist of the following (dollars in millions):

 

     September 26,
2014
    December 31,
2013
 

Receivables, net:

    

Accounts receivable

   $ 490.5      $ 384.4   

Less: Allowance for doubtful accounts

     (1.8     (1.0
  

 

 

   

 

 

 
   $ 488.7      $ 383.4   
  

 

 

   

 

 

 

Inventories:

    

Raw materials

   $ 116.7      $ 89.2   

Work in process

     371.9        319.6   

Finished goods

     235.7        203.0   
  

 

 

   

 

 

 
   $ 724.3      $ 611.8   
  

 

 

   

 

 

 

Other current assets:

    

Prepaid expenses

   $ 31.7      $ 24.8   

Value added and other income tax receivables

     43.9        31.7   

Other

     29.7        32.8   
  

 

 

   

 

 

 
   $ 105.3      $ 89.3   
  

 

 

   

 

 

 

Property, plant and equipment, net (1):

    

Land

   $ 52.0      $ 52.3   

Buildings

     494.2        467.7   

Machinery and equipment

     2,138.7        1,918.4   
  

 

 

   

 

 

 

Total property, plant and equipment

     2,684.9        2,438.4   

Less: Accumulated depreciation

     (1,473.0     (1,364.2
  

 

 

   

 

 

 
   $ 1,211.9      $ 1,074.2   
  

 

 

   

 

 

 

Accrued expenses:

    

Accrued payroll

   $ 109.2      $ 91.3   

Sales related reserves

     65.4        54.2   

Restructuring reserves

     8.5        26.2   

Accrued pension liability

     5.7        10.4   

Accrued interest

     5.2        1.9   

Other

     50.0        36.3   
  

 

 

   

 

 

 
   $ 244.0      $ 220.3   
  

 

 

   

 

 

 

 

(1) Included in property, plant, and equipment are approximately $12.5 million of fixed assets which are held-for-sale as of September 26, 2014.

Warranty Reserves

The activity related to the Company’s warranty reserves for the nine months ended September 26, 2014 and September 27, 2013, respectively, is as follows (in millions):

 

     Nine Months Ended  
     September 26,
2014
    September 27,
2013
 

Beginning Balance

   $ 6.0      $ 10.2   

Provision

     2.0        3.9   

Usage

     (2.3     (8.0
  

 

 

   

 

 

 

Ending Balance

   $ 5.7      $ 6.1   
  

 

 

   

 

 

 

 

14


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

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. As of September 26, 2014, the total accrued pension liability for underfunded plans was $100.0 million, which includes $1.0 million of pension liability acquired as part of the Aptina acquisition. The current portion of $5.7 million was classified as accrued expenses. As of December 31, 2013, the total accrued pension liability for underfunded plans was $128.9 million, of which the current portion of $10.4 million was classified as accrued expenses.

The Company recorded a pension curtailment gain of $0.6 million and $6.5 million included in Restructuring, asset impairments and other, net for the quarter and nine months ended September 26, 2014, respectively, related to the Q4 2013 Voluntary Retirement Program and KSS facility closure. See Note 5: “Restructuring, Asset Impairments and Other, Net” for additional information.

The components of the Company’s net periodic pension expense for the quarters and nine months ended September 26, 2014 and September 27, 2013 are as follows (in millions):

 

     Quarter Ended     Nine Months Ended  
     September 26,
2014
    September 27,
2013
    September 26,
2014
    September 27,
2013
 

Service cost

   $ 2.2      $ 2.9      $ 7.1      $ 9.5   

Interest cost

     1.3        1.6        4.3        5.2   

Expected return on plan assets

     (0.9     (1.1     (2.7     (3.3

Curtailment gain

     (0.6     (0.2     (6.5     (12.1

Actuarial loss

     —          —          —          13.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic pension cost

   $ 2.0      $ 3.2      $ 2.2      $ 12.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Note 7: Long-Term Debt

The Company’s long-term debt consists of the following (dollars in millions):

 

     September 26,
2014
    December 31,
2013
 

Senior Revolving Credit Facility due 2018, interest payable monthly at 1.69% and 2.00%, respectively

   $ 350.0      $ 120.0   

Loan with Japanese bank due 2014 through 2018, interest payable quarterly at 1.99% and 2.00%, respectively (1)

     245.4        273.7   

2.625% Notes, Series B (net of discount of $16.6 million and $21.7 million, respectively) (2)

     340.3        335.2   

Loan with Hong Kong bank, interest payable weekly at 1.90% and 1.91%, respectively

     22.0        40.0   

Loans with Philippine bank due 2014 through 2015, interest payable monthly and quarterly at an average rate of 2.16% and 2.16%, respectively

     35.4        39.2   

Loan with Chinese bank due 2014, interest payable quarterly at 3.34%

     —          7.0   

Loan with Singapore bank, interest payable weekly at 1.40% and 1.94%, respectively

     33.0        15.0   

Loan with British finance company, interest payable monthly at 0.00% and 1.57%, respectively

     —          0.2   

U.S. real estate mortgages payable monthly through 2019 at an average rate of 3.35% and 4.86%, respectively

     55.9        28.1   

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

     6.8        9.5   

Canada equipment financing payable monthly through 2017 at 3.81%

     4.6        5.9   

Canada revolving line of credit, interest payable quarterly at 1.83% and 1.84%, respectively

     15.0        15.0   

Malaysia revolving line of credit, interest payable quarterly at 1.69%

     25.0        —     

Vietnam revolving line of credit, interest payable annually at 2.03%

     4.8        —     
  

 

 

   

 

 

 

Capital lease obligations

     45.4        53.4   
  

 

 

   

 

 

 

Long-term debt, including current maturities

     1,183.6        942.2   

Less: Current maturities

     (203.3     (181.6
  

 

 

   

 

 

 

Long-term debt

   $ 980.3      $ 760.6   
  

 

 

   

 

 

 

 

(1) This loan represents SCI LLC’s unsecured loan with SMBC, which is guaranteed by the Company.
(2) Interest is payable on June 15 and December 15 of each year at 2.625% annually. 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 September 26, 2014 are as follows (in millions):

 

Period

   Expected
Maturities
 

Remainder of 2014

   $ 85.1   

2015

     141.7   

2016

     419.2   

2017

     45.7   

2018

     478.2   

Thereafter

     30.3   
  

 

 

 

Total

   $ 1,200.2   
  

 

 

 

For purposes of the table above, the 2.625% Notes, Series B are assumed to mature at the earliest put date.

For additional information with respect to the Company’s long-term debt, 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 2013 Form 10-K.

 

16


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Senior Revolving Credit Facility

During the third quarter of 2014, the Company drew an incremental amount of approximately $230.0 million on its existing senior revolving credit facility to partially fund the purchase of Aptina. The outstanding balance of the facility as of September 26, 2014 was $350.0 million.

U.S. Real Estate Mortgages

On August 4, 2014, one of the Company’s U.S. subsidiaries entered into an amended and restated loan agreement with a Scottish Bank for approximately $49.4 million, which was secured by certain of the Company’s real estate. The loan bears interest payable monthly at an interest rate of approximately 3.12% per annum, with a balloon payment of approximately $26.7 million in 2019.

Malaysia Revolving Line of Credit

On September 23, 2014, one of the Company’s wholly-owned Malaysia subsidiaries and ON Semiconductor, as guarantor, entered into an unsecured and uncommitted $25.0 million line of credit (the “Malaysia Line of Credit”), the terms of which were set forth in an agreement by and between the Company’s Malaysia subsidiary and a Japanese bank. During the quarter ended September 26, 2014, the Company’s Malaysia subsidiary borrowed the full $25.0 million available under the Malaysia Line of Credit. Borrowings under the Malaysia Line of Credit bear interest based on 3-month LIBOR plus 1.45% per annum, with interest payable corresponding to the drawdown period. The borrowed amount is payable within 21 business days of demand.

Vietnam Revolving Line of Credit

On September 3, 2014, one of the Company’s wholly-owned Vietnam subsidiaries and ON Semiconductor, as guarantor, entered into an unsecured and uncommitted $25.0 million line of credit (the “Vietnam Line of Credit”), the terms of which were set forth in an agreement by and between the Company’s Vietnam subsidiary and a Japanese bank. During the quarter ended September 26, 2014, the Company’s Vietnam subsidiary borrowed approximately $4.8 million under the Vietnam Line of Credit. Borrowings under the Vietnam Line of Credit bear interest based on 12-month LIBOR plus 1.45% per annum, with interest payable corresponding to the drawdown period. The borrowed amount is payable within 5 business days of demand.

Debt Guarantees

ON Semiconductor was the sole issuer of the 2.625% Notes, Series B. See Note 16: “Guarantor and Non-Guarantor Statements” for the condensed consolidated financial information for the issuer of the 2.625% Notes, Series B, the guarantor subsidiaries and the non-guarantor subsidiaries.

 

17


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Note 8: Earnings Per Share and Equity

Earnings Per Share

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

 

     Quarter Ended      Nine Months Ended  
     September 26,
2014
     September 27,
2013
     September 26,
2014
     September 27,
2013
 

Net income attributable to ON Semiconductor Corporation

   $ 41.6       $ 51.8       $ 188.0       $ 122.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average common shares outstanding

     440.7         449.3         440.7         449.8   

Add: Incremental shares for:

           

Dilutive effect of share-based awards

     4.2         2.8         3.9         2.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     444.9         452.1         444.6         452.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per common share attributable to ON Semiconductor Corporation:

           

Basic

   $ 0.09       $ 0.12       $ 0.43       $ 0.27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.09       $ 0.11       $ 0.42       $ 0.27   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 3.8 million and 12.4 million for the quarters ended September 26, 2014 and September 27, 2013, respectively, and 6.2 million and 12.7 million for the nine months ended September 26, 2014 and September 27, 2013, respectively.

The dilutive impact related to the Company’s 2.625% Notes, Series B is determined in accordance with the net share settlement requirements prescribed by ASC Topic 260, Earnings Per Share. Under the net share settlement calculation, the Company’s 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.

Equity

Share Repurchase Program

Information relating to the Company’s share repurchase program is as follows (in millions, except per share data):

 

     Quarter Ended     Nine Months Ended  
     September 26,
2014
    September 27,
2013
    September 26,
2014
    September 27,
2013
 

Number of repurchased shares (1)

     2.6        4.1        5.9        5.6   

Beginning accrued share repurchases (2)

     —          2.7        0.6        —     

Aggregate purchase price

   $ 24.2      $ 30.2      $ 54.4      $ 42.3   

Less: ending accrued share repurchases (3)

   $ (1.3   $ (6.5   $ (1.3   $ (6.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash used for share repurchases

   $ 22.9      $ 26.4      $ 53.7      $ 35.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average purchase price per share (4)

   $ 9.23      $ 7.41      $ 9.25      $ 7.54   

Available for future purchases at period end

   $ 89.0      $ 202.4      $ 89.0      $ 202.4   

 

18


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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

(1) None of these shares had been reissued or retired as of September 26, 2014, but may be reissued or retired by the Company at a later date.
(2) Represents unpaid amounts recorded in accrued expenses on the Company’s Consolidated Balance Sheet as of the beginning of the period.
(3) Represents unpaid amounts recorded in accrued expenses on the Company’s Consolidated Balance Sheet as of the end of the period.
(4) Exclusive of fees, commissions and other expenses.

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 with a fair market value equal to the applicable statutory minimum amount of the employee withholding taxes due are withheld by the Company upon the vesting of restricted stock units to pay the applicable statutory minimum amount of employee withholding taxes and are considered common stock repurchases. The Company then pays the applicable statutory minimum amount of withholding taxes in cash. The amount remitted for the quarter and nine months ended September 26, 2014 was $0.6 million and $6.0 million, respectively, for which the Company withheld approximately 0.1 million and 0.7 million shares of common stock, respectively, that were underlying the restricted stock units that vested. None of these shares had been reissued or retired as of September 26, 2014; however, these shares may be reissued or retired by the Company at a later date.

Non-Controlling Interest

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

At December 31, 2013, the non-controlling interest balance was $32.8 million. This balance was $31.7 million as of September 26, 2014 due to the non-controlling interest’s $1.6 million share of the earnings for the nine months ended September 26, 2014, offset by a $2.7 million dividend paid to the non-controlling shareholder.

At December 31, 2012, the non-controlling interest balance was $29.6 million. This balance increased to $32.3 million at September 27, 2013 due to the non-controlling interest’s $2.7 million share of the earnings for the nine months ended September 27, 2013.

 

Note 9: Share-Based Compensation

Total share-based compensation expense related to the Company’s employee stock options, restricted stock units and ESPP for the quarters and nine months ended September 26, 2014 and September 27, 2013 was comprised as follows (in millions):

 

     Quarter Ended      Nine Months Ended  
     September 26,
2014
     September 27,
2013
     September 26,
2014
     September 27,
2013
 

Cost of revenues

   $ 1.7       $ 1.3       $ 4.8       $ 3.8   

Research and development

     2.2         1.5         6.2         4.6   

Selling and marketing

     2.1         1.4         5.8         4.1   

General and administrative

     5.1         2.8         16.2         10.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Share-based compensation expense before income taxes

   $ 11.1       $ 7.0       $ 33.0       $ 23.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Related income tax benefits (1)

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Share-based compensation expense, net of taxes

   $ 11.1       $ 7.0       $ 33.0       $ 23.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

A majority of the Company’s share-based compensation relates to its domestic subsidiaries; therefore, no related deferred income tax benefits are recorded due to historical net operating losses at those subsidiaries.

 

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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

At September 26, 2014, total estimated unrecognized share-based compensation expense, net of estimated forfeitures, related to non-vested stock options granted prior to that date was $3.4 million. At September 26, 2014, total estimated 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 $54.1 million. The total intrinsic value of stock options exercised during the quarter and nine months ended September 26, 2014 was $1.9 million and $8.3 million, respectively. The Company recorded cash received from the exercise of stock options of $5.0 million and $20.4 million during the quarter and nine months ended September 26, 2014. The Company recorded no related income tax benefits during the quarter and nine months ended September 26, 2014.

Share-Based Compensation Information

Share-based compensation expense recognized in the Consolidated Statements of Operations and 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 and nine months ended September 26, 2014 and September 27, 2013, respectively. Pre-vesting forfeitures for restricted stock units were estimated to be approximately 5.0% and 5.0% in the quarters and nine months ended September 26, 2014 and September 27, 2013, respectively.

Shares Available

As of December 31, 2013, there was an aggregate of 37.4 million shares of common stock available for grant under the Company’s Amended and Restated SIP and 4.3 million shares available for issuance under the ESPP. As of September 26, 2014, there was an aggregate of 35.7 million shares of common stock available for grant under the Amended and Restated SIP and 3.6 million shares available for issuance under the ESPP.

Stock Options

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

 

     Nine Months Ended September 26, 2014  
     Number of
Shares
    Weighted Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term (in years)
     Aggregate
Intrinsic Value

(In-The-Money)
 

Outstanding at December 31, 2013

     14.0      $ 7.89         

Granted

     —          —           

Exercised

     (3.1     6.68         

Canceled

     (1.1     10.88         
  

 

 

         

Outstanding at September 26, 2014

     9.8      $ 7.92         3.20       $ 16.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at September 26, 2014

     8.1      $ 8.01         2.91       $ 13.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Additional information about stock options outstanding at September 26, 2014 with exercise prices less than or above $9.32 per share, the effective closing price of the Company’s common stock at September 26, 2014, follows (number of shares in millions):

 

     Exercisable      Unexercisable      Total  

Exercise Prices

   Number of
Shares
     Weighted
Average
Exercise Price
     Number of
Shares
     Weighted
Average
Exercise Price
     Number of
Shares
     Weighted
Average Exercise
Price
 

Less than $9.32

     6.8       $ 7.41         1.6       $ 7.37         8.4       $ 7.40   

Above $9.32

     1.3       $ 11.09         0.1       $ 11.04         1.4       $ 11.08   
  

 

 

       

 

 

       

 

 

    

Total outstanding

     8.1       $ 8.01         1.7       $ 7.58         9.8       $ 7.92   
  

 

 

       

 

 

       

 

 

    

Restricted Stock Units

Restricted stock units vest over one to three years with service-based requirements or performance-based requirements and are payable in shares of the Company’s common stock upon vesting. The following table presents a summary of the status of the Company’s restricted stock units granted to certain officers and employees of the Company as of September 26, 2014, and changes during the nine months ended September 26, 2014 (number of shares in millions):

 

     Nine Months Ended September 26, 2014  
     Number of Shares     Weighted Average
Grant Date Fair
Value
 

Non-vested shares underlying restricted stock units at December 31, 2013

     10.8      $ 8.52   

Granted

     4.3        9.39   

Released

     (2.2     8.28   

Forfeited

     (3.2     10.10   
  

 

 

   

 

 

 

Non-vested shares underlying restricted stock units at September 26, 2014

     9.7      $ 8.44   
  

 

 

   

 

 

 

Stock Grant Awards

During the nine months ended September 26, 2014, the Company granted approximately 0.1 million shares of stock pursuant to stock grant awards to certain directors of the Company with immediate vesting and a weighted average grant date fair value of $8.66 per share.

 

Note 10: Commitments and Contingencies

Leases

The following is a schedule by year of future minimum lease obligations under non-cancelable operating leases as of September 26, 2014 (in millions):

 

Remainder of 2014

   $ 5.6   

2015

     20.5   

2016

     17.5   

2017

     13.7   

2018

     9.5   

Thereafter

     38.5   
  

 

 

 

Total

   $ 105.3   
  

 

 

 

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Environmental 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 clean-up 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 (the “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 clean-up at AMIS’s former corporate headquarters in Santa Clara, California. Costs incurred by AMIS have included 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 obligations relating to environmental remediation and clean-up 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.

Financing Contingencies

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 September 26, 2014. The Company also had outstanding guarantees and letters of credit outside of its senior revolving credit facility totaling $5.6 million as of September 26, 2014.

As part of securing financing in the normal course of business, the Company issued guarantees related to certain of its capital lease obligations, equipment financing, lines of credit and real estate mortgages, which totaled approximately $114.6 million as of September 26, 2014. The Company is also a guarantor of SCI LLC’s unsecured loan with SMBC, which had a balance of $245.4 million as of September 26, 2014. See Note 7: “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.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

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 economic damage, bodily injury or property damage. 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 rights to such customer for valid defective product 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.

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.

Intellectual Property Matters

We face risk to exposure from claims of infringement of the IP rights of others. In the ordinary course of business, we receive letters asserting that our products or components breach another party’s rights. These threats may seek that we make royalty payments, that we stop use of such rights, or other remedies.

On August 22, 2014, Collabo Innovations, Inc. filed a lawsuit in the U.S. District court for the state of Delaware against ON Semiconductor and two of its subsidiaries alleging that certain of Aptina’s and ON Semiconductor’s image sensor products infringe three U.S. patents. The lawsuit is captioned as: Collabo Innovations, Inc. v. Aptina (U.S.) Inc.. Aptina, LLC, and ON Semiconductor Corporation and seeks unspecified damages for past infringement. The Company has not been served with the complaint and believes the claims stated are without merit. In the event the Company is served, it will defend the litigation vigorously. The litigation process is inherently uncertain, however, and the Company cannot guarantee that the outcome of this matter will be favorable.

 

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Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Note 11: 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 September 26, 2014 and December 31, 2013 (in millions):

 

     Balance as of
September 26, 2014
     Quoted Prices in
Active  Markets (Level 1)
     Balance as of
December 31, 2013
     Quoted Prices in
Active  Markets (Level 1)
 

Description

           

Assets:

           

Cash and cash equivalents:

           

Demand and time deposits

   $ 436.6       $ 436.6       $ 447.5       $ 447.5   

Money market funds

     55.5         55.5         62.0         62.0   

Liabilities:

           

Foreign currency exchange contracts

   $ 0.2       $ 0.2       $ 0.1       $ 0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments have an original maturity to the Company between three months and one year, are classified as held-to-maturity and are carried at amortized cost as the Company has the intent and the ability to hold these securities until maturity. Short-term investments classified as held-to-maturity as of September 26, 2014 and December 31, 2013 were as follows (in millions):

 

     Balance at September 26, 2014      Balance at December 31, 2013  
     Carried at
Amortized Cost
     Fair Value      Carried at
Amortized Cost
     Fair Value  

Short-term investments held-to-maturity

           

Commercial paper

   $ —         $ —         $ 15.5       $ 15.5   

Corporate bonds

     2.8         2.8         93.7         93.7   

Government agencies

     —           —           7.0         7.0   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2.8       $ 2.8       $ 116.2       $ 116.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s financial assets are valued using market prices on active markets (Level 1). The Company’s short-term investments balance of $2.8 million as of September 26, 2014 is classified as held-to-maturity and is carried at amortized cost. There was no unrealized gain or loss on these short-term investments as of September 26, 2014.

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) as of September 26, 2014 and December 31, 2013 are as follows (in millions):

 

     September 26, 2014      December 31, 2013  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Long-term debt, including current portion

           

2.625% Notes, Series B

   $ 340.3       $ 409.6       $ 335.2       $ 392.6   

Long-term debt

   $ 730.6       $ 732.5       $ 510.2       $ 511.4   

The fair value of the Company’s 2.625% Notes, Series B was estimated based on market prices in active markets (Level 1). The fair value of other long-term debt was estimated based on discounting the remaining principal and interest payments using current market rates for similar debt (Level 2) as of September 26, 2014 and December 31, 2013.

 

24


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Note 12: 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 associated with transactions currently on its balance sheet.

As of September 26, 2014 and December 31, 2013, the Company had outstanding foreign exchange contracts with notional amounts of $141.7 million and $101.7 million, respectively. Such contracts were obtained through financial institutions and were scheduled to mature within one to three months from the time purchase. Management believes that these financial instruments should not subject the Company to increased risks from foreign exchange movements because gains and losses on these contracts should offset losses and gains on the underlying assets, liabilities and transactions to which they are related. The following schedule shows the Company’s net foreign exchange positions in U.S. dollars as of September 26, 2014 and December 31, 2013 (in millions):

 

     September 26, 2014      December 31, 2013  
     Buy (Sell)     Notional Amount      Buy (Sell)     Notional Amount  

Euro

   $ (33.6   $ 33.6       $ (30.5   $ 30.5   

Japanese Yen

     (30.2     30.2         (6.7     6.7   

Malaysian Ringgit

     42.5        42.5         35.8        35.8   

Philippine Peso

     19.8        19.8         11.7        11.7   

Other Currencies

     9.9        15.6         10.6        17.0   
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ 8.4      $ 141.7       $ 20.9      $ 101.7   
  

 

 

   

 

 

    

 

 

   

 

 

 

The Company is exposed to credit-related losses if counterparties to its foreign exchange contracts fail to perform their obligations. As of September 26, 2014, 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 quarters ended September 26, 2014 and September 27, 2013, realized and unrealized foreign currency transaction loss was $0.9 million and a gain of $0.1 million, respectively. For the nine months ended September 26, 2014 and September 27, 2013, realized and unrealized foreign currency transaction loss was $2.8 million and a gain of $4.9 million, respectively.

As of September 26, 2014 and December 31, 2013, the Company had balances for contracts not designated as cash flow hedges of $0.2 million and $0.1 million, respectively, that were classified as other liabilities.

Cash Flow Hedges

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

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

 

25


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

All derivatives are recognized on the balance sheet at their fair value and classified based on the instrument’s maturity date. The total notional amount of outstanding derivatives designated as cash flow hedges as of September 26, 2014 was approximately $83.1 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 and nine months ended September 26, 2014, the Company recorded a net gain of $0.4 million and a net loss of $1.0 million, respectively, associated with cash flow hedges recognized as a component of cost of revenues. As of September 26, 2014, the Company had a $0.4 million liability balance for contracts designated as cash flow hedging instruments. As of December 31, 2013, the Company had a $1.8 million liability balance for contracts designated as cash flow hedging instruments that were classified as other liabilities. As of September 26, 2014, the Company had no asset balances for contracts designated as cash flow hedging instruments that were classified as other assets. As of December 31, 2013, the Company had no asset balances for contracts designated as cash flow hedging instruments.

 

Note 13: Changes in Accumulated Other Comprehensive Loss

Amounts comprising the Company’s accumulated other comprehensive loss and reclassifications for the nine months ended September 26, 2014 are as follows (net of tax of $0, in millions):

 

     Foreign Currency
Translation
Adjustments
    Effects of Cash
Flow Hedges
    Unrealized Gains
and Losses on
Available-for-Sale
Securities
     Total  

Balance as of December 31, 2013

   $ (46.0   $ (1.8   $ 0.4       $ (47.4
  

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss) prior to reclassifications

     1.3        2.5        —           3.8   

Amounts reclassified from accumulated other comprehensive loss

     —          (1.0     —           (1.0
  

 

 

   

 

 

   

 

 

    

 

 

 

Net current period other comprehensive gain

     1.3        1.5        —           2.8   
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of September 26, 2014

   $ (44.7   $ (0.3   $ 0.4       $ (44.6
  

 

 

   

 

 

   

 

 

    

 

 

 

Amounts which were reclassified from accumulated other comprehensive loss to the Company’s Consolidated Statements of Operations and Comprehensive Income during the quarter and nine months ended September 26, 2014 and September 27, 2013 respectively, were as follows (net of tax of $0, in millions):

 

     Amounts Reclassified from Accumulated Other Comprehensive Loss  
     Quarter Ended
September 26, 2014
     Nine Months Ended
September 26, 2014
    Affected Line Item Where Net
Income is Presented
 

Effects of cash flow hedges

   $ 0.4       $ (1.0     Cost of revenues   

 

26


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

     Amounts Reclassified from Accumulated Other Comprehensive  Loss
     Quarter Ended
September 27, 2013
    Nine Months Ended
September 27, 2013
    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

     (1.7     (1.4   Other income and expense
  

 

 

   

 

 

   

Total reclassifications

   $ (1.7   $ (22.4  
  

 

 

   

 

 

   

Included in accumulated other comprehensive loss as of September 26, 2014 is approximately $11.2 million of foreign currency translation losses related to the Company’s subsidiary that owns the KSS facility, which utilizes the Japanese Yen as its functional currency. In connection with the previously announced restructuring plan, the Company intends to liquidate and wind-down the legal entity. Upon the substantial liquidation of the KSS entity, the Company will evaluate the need to release any amount remaining in accumulated other comprehensive income to its results of operations, as required by the appropriate accounting standards.

 

Note 14: Supplemental Disclosures

Supplemental Disclosure of Cash Flow Information

Certain of the Company’s non-cash activities along with cash payments for interest and income taxes are as follows (in millions):

 

     For the Nine Months Ended  
     September 26,
2014
    September 27,
2013
 

Non-cash activities:

    

Capital expenditures in accounts payable

   $ 97.4      $ 42.1   

Equipment acquired or refinanced through capital leases

   $ 6.1      $ 2.4   

Cash (received) paid for:

    

Interest income

   $ (0.6   $ (1.0

Interest expense

   $ 15.2      $ 14.2   

Income taxes

   $ 15.5      $ 9.9   

Pursuant to the agreement and plan of merger between the Company and the sellers of Aptina, $40.0 million of the total purchase consideration was withheld by the Company and placed into an escrow account to secure against certain indemnifiable events described in the Merger Agreement. The $40.0 million consideration held in escrow was accounted for as restricted cash as of September 26, 2014 and in included in cash flows from investing activities on the Company’s Consolidated Statement of Cash Flows.

Supplemental Disclosure of Income Tax Information

The income tax benefit for the nine months ended September 26, 2014 included the reversal of $21.7 million of the Company’s previously established valuation allowance against its U.S. deferred tax assets as a result of a net deferred tax liability recorded as part of the Truesense acquisition and the reversal of $3.6 million for reserves and interest for uncertain tax positions in foreign taxing jurisdictions that were effectively settled or for which the statute lapsed during the quarter ended September 26, 2014, partially offset by $19.2 million for income and withholding taxes of certain of our foreign and domestic operations and $2.4 million of new reserves and interest on existing reserves for uncertain tax positions in foreign taxing jurisdictions.

 

27


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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

The Company’s provision for income taxes is subject to volatility and could be adversely impacted by earnings being lower than anticipated in countries that have lower tax rates and earnings being higher than anticipated in countries that have higher tax rates. The Company’s effective tax rate for the quarter and nine months ended September 26, 2014 was 13.0% and a benefit of 2.0%, respectively, which differs from the U.S. statutory federal income tax rate of 35% due to our domestic tax losses and tax rate differential in our foreign subsidiaries, as well as the reversal of valuation allowances and certain reserves and interest for potential liabilities in foreign taxing jurisdictions that were effectively settled or for which the statute lapsed during the quarter and nine months ended September 26, 2014. The Company continues to maintain a full valuation allowance on all of its domestic and substantially all of its Japan related deferred tax assets; however, it is reasonably possible that a substantial portion of the valuation allowance on the Company’s domestic deferred tax assets will be reversed within one year of September 26, 2014, which is not expected to have a material effect on the Company’s cash taxes. As of December 31, 2013, the valuation allowance on our domestic deferred tax assets was approximately $524 million.

 

Note 15: Segment Information

As of September 26, 2014, the Company was organized into four reporting segments, consisting of its three existing reporting segments, Application Products Group, Standard Products Group and System Solutions Group, as well as a fourth reporting segment, Image Sensor Group. The Company’s Image Sensor Group was established during the third quarter of 2014, and includes the Company’s recent image sensor business acquisition of Aptina along with the Company’s existing image sensor business units (including Truesense) which were previously reported as part of the Application Products Group. See Note 3: “Acquisitions” for additional information with respect to the Company’s recent acquisitions. Previously reported information has been recast to reflect the current reportable segments.

Each of the Company’s major product lines has been examined and each product line has been assigned to a reportable 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.

Revenues, gross profit and operating income for the Company’s reportable segments for the quarters and nine months ended September 26, 2014 and September 27, 2013, respectively, are as follows (in millions):

 

     Application
Products Group
     Image Sensor
Group
    Standard
Products
Group
     System Solutions
Group
    Total  

For the quarter ended September 26, 2014:

            

Revenues from external customers

   $ 265.8       $ 103.6      $ 317.3       $ 146.8      $ 833.5   

Segment gross profit

   $ 119.1       $ 23.8      $ 115.8       $ 31.9      $ 290.6   

Segment operating income (loss)

   $ 30.5       $ (17.8   $ 65.0       $ 3.4      $ 81.1   

For the quarter ended September 27, 2013:

            

Revenues from external customers

   $ 260.5       $ 8.5      $ 289.6       $ 156.8      $ 715.4   

Segment gross profit

   $ 114.4       $ 4.6      $ 95.6       $ 34.3      $ 248.9   

Segment operating income (loss)

   $ 31.9       $ (1.5   $ 54.9       $ (3.0   $ 82.3   

 

28


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

     Application
Products Group
     Image Sensor
Group
    Standard
Products
Group
     System Solutions
Group
    Total  

For the nine months ended September 26, 2014:

            

Revenues from external customers

   $ 810.2       $ 139.9      $ 913.9       $ 433.6      $ 2,297.6   

Segment gross profit

   $ 362.2       $ 43.7      $ 332.2       $ 87.9      $ 826.0   

Segment operating income (loss)

   $ 102.1       $ (15.1   $ 185.9       $ (5.4   $ 267.5   

For the nine months ended September 27, 2013:

            

Revenues from external customers

   $ 737.2       $ 28.3      $ 831.2       $ 468.0      $ 2,064.7   

Segment gross profit

   $ 318.4       $ 17.9      $ 296.1       $ 63.4      $ 695.8   

Segment operating income (loss)

   $ 80.2       $ (0.1   $ 177.8       $ (71.7   $ 186.2   

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

 

     Quarter Ended  
     September 26, 2014     September 27, 2013  

Gross profit for reportable segments

   $ 290.6      $ 248.9   

Unallocated amounts:

    

Other unallocated manufacturing costs

     (6.5     0.3   
  

 

 

   

 

 

 

Gross profit

   $ 284.1      $ 249.2   
  

 

 

   

 

 

 

Operating income for reportable segments

   $ 81.1        82.3   

Unallocated amounts:

    

Restructuring and other charges

     (10.1     (11.0

Other unallocated manufacturing costs

     (6.5     0.3   

Other unallocated operating expenses

     (6.9     (4.3
  

 

 

   

 

 

 

Operating income

   $ 57.6      $ 67.3   
  

 

 

   

 

 

 

 

     Nine Months Ended  
     September 26, 2014     September 27, 2013  

Gross profit for reportable segments

   $ 826.0      $ 695.8   

Unallocated amounts:

    

Other unallocated manufacturing costs

     (18.1     (10.3
  

 

 

   

 

 

 

Gross profit

   $ 807.9      $ 685.5   
  

 

 

   

 

 

 

Operating income for reportable segments

     267.5        186.2   

Unallocated amounts:

    

Restructuring and other charges

     (20.0     (11.1

Other unallocated manufacturing costs

     (18.1     (10.3

Other unallocated operating expenses

     (16.8     (8.9
  

 

 

   

 

 

 

Operating income

   $ 212.6      $ 155.9   
  

 

 

   

 

 

 

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 6: “Balance Sheet Information” for additional information.

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.

 

29


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

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  
     September 26, 2014      September 27, 2013  

United States

   $ 125.5       $ 109.0   

Japan

     77.4         70.3   

Hong Kong

     263.9         230.1   

Singapore

     210.4         178.3   

United Kingdom

     126.3         101.9   

Other

     30.0         25.8   
  

 

 

    

 

 

 
   $ 833.5       $ 715.4   
  

 

 

    

 

 

 

 

     Nine Months Ended  
     September 26, 2014      September 27, 2013  

United States

   $ 352.6       $ 306.4   

Japan

     210.0         217.6   

Hong Kong

     692.8         628.0   

Singapore

     580.5         525.6   

United Kingdom

     367.0         302.2   

Other

     94.7         84.9   
  

 

 

    

 

 

 
   $ 2,297.6       $ 2,064.7   
  

 

 

    

 

 

 

For the quarters and nine months ended September 26, 2014 and September 27, 2013, there were no individual customers which accounted for more than 10% of the Company’s total revenues.

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

 

     September 26,
2014
     December 31,
2013
 

United States

   $ 303.6       $ 255.3   

Czech Republic

     114.6         111.1   

Malaysia

     231.3         213.9   

Philippines

     191.6         173.8   

Other

     370.8         320.1   
  

 

 

    

 

 

 
   $ 1,211.9       $ 1,074.2   
  

 

 

    

 

 

 

 

30


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

Note 16: Guarantor and Non-Guarantor Statements

ON Semiconductor is the sole issuer of the 2.625% Notes, Series B. ON Semiconductor’s 100% owned domestic subsidiaries, except those domestic subsidiaries acquired through the acquisitions of AMIS, Catalyst, PulseCore, CMD, SDT, SANYO Semiconductor, Truesense and Aptina (collectively, the “Guarantor Subsidiaries”), fully and unconditionally guarantee, subject to customary releases, on a joint and several basis ON Semiconductor’s obligations under the 2.625% Notes, Series B. 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 2.625% Notes, Series B. The repayment of the unsecured 2.625% Notes, Series B is subordinated to the senior indebtedness of ON Semiconductor and the Guarantor Subsidiaries on the terms described in the indenture for the 2.625% Notes, Series B.

Condensed consolidating financial information for the issuer of the 2.625% Notes, Series B, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries is as follows (in millions):

 

31


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ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 26, 2014

(in millions)

 

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

Cash and cash equivalents

   $ —         $ 185.1       $ —         $ 307.0       $ —        $ 492.1   

Short-term investments

     —           2.8         —           —           —          2.8   

Receivables, net

     —           61.3         —           427.4         —          488.7   

Inventories

     —           49.3         —           667.8         7.2        724.3   

Short-term intercompany receivables

     —           —           4.5         6.2         (10.7     —     

Other current assets

     —           24.0         —           81.3           105.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     —           322.5         4.5         1,489.7         (3.5     1,813.2   

Property, plant and equipment, net

     —           258.6         3.1         951.7         (1.5     1,211.9   

Goodwill

     —           111.6         37.3         126.4         —          275.3   

Intangible assets, net

     —           101.7         —           397.4         (18.7     480.4   

Long-term intercompany receivables

     —           292.6         —           —           (292.6     —     

Other assets

     1,986.9         1,948.9         133.7         876.3         (4,844.4     101.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,986.9       $ 3,035.9       $ 178.6       $ 3,841.5       $ (5,160.7   $ 3,882.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Accounts payable

   $ —         $ 36.6       $ —         $ 362.1       $ —        $ 398.7   

Accrued expenses

     4.0         51.9         0.3         187.8         —          244.0   

Deferred income on sales to distributors

     —           40.9         —           126.1         —          167.0   

Current portion of long-term debt

     —           63.8         —           139.5         —          203.3   

Short-term intercompany payables

     —           10.7         —           —           (10.7     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     4.0         203.9         0.3         815.5         (10.7     1,013.0   

Long-term debt

     340.3         616.7         —           23.3         —          980.3   

Other long-term liabilities

     —           19.1         0.1         195.4         —          214.6   

Long-term intercompany payables

     —           —           —           292.6         (292.6     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     344.3         839.7         0.4         1,326.8         (303.3     2,207.9   

Stockholders’ equity

     1,642.6         2,196.2         178.2         2,514.7         (4,889.1     1,642.6   

Non-controlling interest in consolidated subsidiary

     —           —           —           —           31.7        31.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,642.6         2,196.2         178.2         2,514.7         (4,857.4     1,674.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,986.9       $ 3,035.9       $ 178.6       $ 3,841.5       $ (5,160.7   $ 3,882.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

32


Table of Contents

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2013

(in millions)

 

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

Cash and cash equivalents

   $ —         $ 267.9       $ —         $ 241.6       $ —        $ 509.5   

Short-term investments

     —           116.2         —           —           —          116.2   

Receivables, net

     —           49.8         —           333.6         —          383.4   

Inventories

     —           46.7         —           562.1         3.0        611.8   

Short-term intercompany receivables

     —           —           4.1         7.6         (11.7     —     

Other current assets

     —           17.8         —           71.5         —          89.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     —           498.4         4.1         1,216.4         (8.7     1,710.2   

Property, plant and equipment, net

     —           252.3         3.1         820.6         (1.8     1,074.2   

Goodwill

     —           111.5         37.3         35.8         —          184.6   

Intangible assets, net

     —           113.0         —           132.2         (21.8     223.4   

Long-term intercompany receivables

     —           —           —           3.3         (3.3     —     

Other assets

     1,790.2         1,600.6         136.1         837.3         (4,299.6     64.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,790.2       $ 2,575.8       $ 180.6       $ 3,045.6       $ (4,335.2   $ 3,257.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Accounts payable

   $ —         $ 39.1         0.5         237.2         —        $ 276.8   

Accrued expenses

     1.0         50.8         0.2         168.3         —          220.3   

Deferred income on sales to distributors

     —           32.3         —           108.2         —          140.5   

Current portion of long-term debt

     —           79.3         —           102.3         —          181.6   

Short-term intercompany payables

     —           11.7         —           —           (11.7     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     1.0         213.2         0.7         616.0         (11.7     819.2   

Long-term debt

     335.2         396.1         —           29.3         —          760.6   

Other long-term liabilities

     —           42.2         0.1         148.1         —          190.4   

Long-term intercompany payables

     —           3.3         —           —           (3.3     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     336.2         654.8         0.8         793.4         (15.0     1,770.2   

Stockholders’ equity

     1,454.0         1,921.0         179.8         2,252.2         (4,353.0     1,454.0   

Non-controlling interest in consolidated subsidiary

     —           —           —           —           32.8        32.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,454.0         1,921.0         179.8         2,252.2         (4,320.2     1,486.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 1,790.2       $ 2,575.8       $ 180.6       $ 3,045.6       $ (4,335.2   $ 3,257.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

33


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 SEPTEMBER 26, 2014

(in millions)

 

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

Revenues

   $ —        $ 200.2      $ 3.7      $ 1,130.5      $ (500.9   $ 833.5   

Cost of revenues

     —          150.7        0.2        903.3        (504.8     549.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          49.5        3.5        227.2        3.9        284.1   

Operating expenses:

            

Research and development

     —          24.9        2.9        65.6        —          93.4   

Selling and marketing

     —          20.7        0.2        30.2        —          51.1   

General and administrative

     —          17.2        0.4        30.9        —          48.5   

Amortization of acquisition related intangible assets

     —          3.7        —          20.7        (1.0     23.4   

Restructuring, asset impairments and other, net

     —          0.2        —          9.9        —          10.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —          66.7        3.5        157.3        (1.0     226.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —          (17.2     —          69.9        4.9        57.6   

Other income (expense), net:

            

Interest expense

     (4.2     (2.3     —          (2.1     —          (8.6

Interest income

     —          0.1        —          0.1        —          0.2   

Other

     —          2.4        —          (3.3     —          (0.9

Equity in earnings

     45.8        56.7        0.8        —          (103.3     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

     41.6        56.9        0.8        (5.3     (103.3     (9.3

Income before income taxes

     41.6        39.7        0.8        64.6        (98.4     48.3   

Income tax benefit (provision)

     —          3.9        (0.3     (9.9     —          (6.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     41.6        43.6        0.5        54.7        (98.4     42.0   

Net income attributable to non-controlling interest

     —          —          —          —          (0.4     (0.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to ON Semiconductor Corporation

   $ 41.6      $ 43.6      $ 0.5      $ 54.7      $ (98.8   $ 41.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation

   $ 42.3      $ 42.6      $ 0.5      $ 56.6      $ (99.7   $ 42.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


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 SEPTEMBER 27, 2013

(in millions)

 

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

Revenues

   $ —        $ 157.2      $ 3.7       $ 1,078.9      $ (524.4   $ 715.4   

Cost of revenues

     —          138.6        0.1         856.8        (529.3     466.2   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     —          18.6        3.6         222.1        4.9        249.2   

Operating expenses:

             

Research and development

     —          12.3        2.9         68.8        —          84.0   

Selling and marketing

     —          18.1        0.2         25.9        —          44.2   

General and administrative

     —          7.4        0.2         26.9        —          34.5   

Amortization of acquisition related intangible assets

     —          3.8        —           5.5        (1.1     8.2   

Restructuring, asset impairments and other, net

     —          —          —           11.0        —          11.0   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     —          41.6        3.3         138.1        (1.1     181.9   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —          (23.0     0.3         84.0        6.0        67.3   

Other income (expense), net:

             

Interest expense

     (5.6     (2.4     —           (1.2     —          (9.2

Interest income

     —          0.1        —           0.2        —          0.3   

Other

     —          (1.9     —           0.5        —          (1.4

Equity in earnings

     57.4        79.4        2.3         —          (139.1     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other income (expense), net

     51.8        75.2        2.3         (0.5     (139.1     (10.3

Income before income taxes

     51.8        52.2        2.6         83.5        (133.1     57.0   

Income tax (provision) benefit

     —          8.8        —           (13.0     —          (4.2
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     51.8        61.0        2.6         70.5        (133.1     52.8   

Net income attributable to non-controlling interest

     —          —          —           —          (1.0     (1.0
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to ON Semiconductor Corporation

   $ 51.8      $ 61.0      $ 2.6       $ 70.5      $ (134.1   $ 51.8   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ON Semiconductor Corporation

   $ 54.3      $ 63.5      $ 2.6       $ 71.7      $ (137.8   $ 54.3   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

35


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 NINE MONTHS ENDED SEPTEMBER 26, 2014

(in millions)

 

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

Revenues

   $ —        $ 547.4      $ 11.6      $ 3,154.7      $ (1,416.1   $ 2,297.6