Attached files
file | filename |
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EX-31.1 - EX-31.1 - ON SEMICONDUCTOR CORP | d807651dex311.htm |
EX-31.2 - EX-31.2 - ON SEMICONDUCTOR CORP | d807651dex312.htm |
EX-32.1 - EX-32.1 - ON SEMICONDUCTOR CORP | d807651dex321.htm |
EXCEL - IDEA: XBRL DOCUMENT - ON SEMICONDUCTOR CORP | Financial_Report.xls |
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 issuers 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
Part I: Financial Information | ||||||||
Item 1. |
Financial Statements (unaudited) | 4 | ||||||
Item 2. |
Managements 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 | ||||||
62 | ||||||||
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
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 | ||||||
|
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|
|
|||||
Total assets |
$ | 3,882.2 | $ | 3,257.0 | ||||
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|
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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 | ||||||
|
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|
|
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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 | ||||||
|
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|
|
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Total liabilities |
2,207.9 | 1,770.2 | ||||||
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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 | ||||||
|
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|
|
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Total liabilities and equity |
$ | 3,882.2 | $ | 3,257.0 | ||||
|
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|
|
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 | ||||||||||||
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|
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|
|
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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 | ||||||||||||
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Total operating expenses |
226.5 | 181.9 | 595.3 | 529.6 | ||||||||||||
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Operating income |
57.6 | 67.3 | 212.6 | 155.9 | ||||||||||||
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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 | ) | |||||||||||
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Other income (expense), net |
(9.3 | ) | (10.3 | ) | (26.7 | ) | (27.1 | ) | ||||||||
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Income before income taxes |
48.3 | 57.0 | 185.9 | 128.8 | ||||||||||||
Income tax (provision) benefit |
(6.3 | ) | (4.2 | ) | 3.7 | (4.0 | ) | |||||||||
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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 | ) | ||||||||
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Net income attributable to ON Semiconductor Corporation |
$ | 41.6 | $ | 51.8 | $ | 188.0 | $ | 122.1 | ||||||||
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Comprehensive income (loss), net of tax: |
||||||||||||||||
Net income |
$ | 42.0 | $ | 52.8 | $ | 189.6 | $ | 124.8 | ||||||||
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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 | ||||||||||||
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Other comprehensive income (loss) |
0.7 | 2.5 | 2.8 | (7.5 | ) | |||||||||||
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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 | ) | ||||||||
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Comprehensive income attributable to ON Semiconductor Corporation |
$ | 42.3 | $ | 54.3 | $ | 190.8 | $ | 114.6 | ||||||||
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Net income per common share attributable to ON Semiconductor Corporation: |
||||||||||||||||
Basic |
$ | 0.09 | $ | 0.12 | $ | 0.43 | $ | 0.27 | ||||||||
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Diluted |
$ | 0.09 | $ | 0.11 | $ | 0.42 | $ | 0.27 | ||||||||
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Weighted average common shares outstanding: |
||||||||||||||||
Basic |
440.7 | 449.3 | 440.7 | 449.8 | ||||||||||||
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Diluted |
444.9 | 452.1 | 444.6 | 452.6 | ||||||||||||
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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 | ) | ||||
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Net cash provided by operating activities |
318.8 | 200.3 | ||||||
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Cash flows from investing activities: |
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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 | ) | ||||
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Net cash used in investing activities |
(510.4 | ) | (167.4 | ) | ||||
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Cash flows from financing activities: |
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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 | ) | | |||||
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Net cash provided by (used in) financing activities |
175.4 | (140.4 | ) | |||||
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Effect of exchange rate changes on cash and cash equivalents |
(1.2 | ) | (9.9 | ) | ||||
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Net decrease in cash and cash equivalents |
(17.4 | ) | (117.4 | ) | ||||
Cash and cash equivalents, beginning of period |
509.5 | 486.9 | ||||||
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Cash and cash equivalents, end of period |
$ | 492.1 | $ | 369.5 | ||||
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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 Companys 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 Companys 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 Companys 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 Companys Image Sensor Group was established during the third quarter of 2014, and includes the Companys recent image sensor business acquisition of Aptina, Inc., along with the Companys 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 Companys recent acquisitions. See also Note 15: Segment Information for additional information on the Companys 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 Companys 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 Companys 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 Companys image-sensor business and further strengthens the Companys 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 | |||
|
|
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Accounts payable |
66.8 | |||
Other current liabilities |
51.2 | |||
Other non-current liabilities |
14.5 | |||
|
|
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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 Companys 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 Companys 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 Companys 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 Companys product portfolio targeting industrial end-markets such as machine vision, surveillance, and intelligent transportation systems by complementing the Companys existing high-speed, high-resolution, power-efficient image sensing solutions with Truesenses 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 Companys 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 | |||||||||||
|
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|
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 Companys 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 Companys goodwill, intangible assets and other long-lived assets. As a result, the carrying value of the reporting units containing the Companys 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 | |||||||||||
|
|
|
|
|
|
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|
|
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 LLCs 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 Companys 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 Companys long-term debt, see Note 8: Long-Term Debt of the notes to the Companys 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 Companys 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 Companys 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 Companys 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 Companys Malaysia subsidiary and a Japanese bank. During the quarter ended September 26, 2014, the Companys 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 Companys 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 Companys Vietnam subsidiary and a Japanese bank. During the quarter ended September 26, 2014, the Companys 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
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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 |
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Net income attributable to ON Semiconductor Corporation |
$ | 41.6 | $ | 51.8 | $ | 188.0 | $ | 122.1 | ||||||||
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Basic weighted average common shares outstanding |
440.7 | 449.3 | 440.7 | 449.8 | ||||||||||||
Add: Incremental shares for: |
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Dilutive effect of share-based awards |
4.2 | 2.8 | 3.9 | 2.8 | ||||||||||||
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Diluted weighted average common shares outstanding |
444.9 | 452.1 | 444.6 | 452.6 | ||||||||||||
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Net income per common share attributable to ON Semiconductor Corporation: |
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Basic |
$ | 0.09 | $ | 0.12 | $ | 0.43 | $ | 0.27 | ||||||||
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Diluted |
$ | 0.09 | $ | 0.11 | $ | 0.42 | $ | 0.27 | ||||||||
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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 Companys 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 Companys 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 Companys earnings per share calculations.
Equity
Share Repurchase Program
Information relating to the Companys 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 |
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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 | ) | ||||
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Total cash used for share repurchases |
$ | 22.9 | $ | 26.4 | $ | 53.7 | $ | 35.8 | ||||||||
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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 Companys Consolidated Balance Sheet as of the beginning of the period. |
(3) | Represents unpaid amounts recorded in accrued expenses on the Companys 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 Companys 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 Companys 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 interests $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 interests $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 Companys 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 |
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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 | ||||||||||||
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Share-based compensation expense before income taxes |
$ | 11.1 | $ | 7.0 | $ | 33.0 | $ | 23.4 | ||||||||
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Related income tax benefits (1) |
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Share-based compensation expense, net of taxes |
$ | 11.1 | $ | 7.0 | $ | 33.0 | $ | 23.4 | ||||||||
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(1) | A majority of the Companys 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. |
19
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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 Companys 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) |
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Outstanding at December 31, 2013 |
14.0 | $ | 7.89 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
(3.1 | ) | 6.68 | |||||||||||||
Canceled |
(1.1 | ) | 10.88 | |||||||||||||
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Outstanding at September 26, 2014 |
9.8 | $ | 7.92 | 3.20 | $ | 16.2 | ||||||||||
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Exercisable at September 26, 2014 |
8.1 | $ | 8.01 | 2.91 | $ | 13.0 | ||||||||||
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20
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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 Companys 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 |
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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 | |||||||||||||||
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Total outstanding |
8.1 | $ | 8.01 | 1.7 | $ | 7.58 | 9.8 | $ | 7.92 | |||||||||||||||
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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 Companys common stock upon vesting. The following table presents a summary of the status of the Companys 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 |
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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 | |||||
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Non-vested shares underlying restricted stock units at September 26, 2014 |
9.7 | $ | 8.44 | |||||
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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 | |||
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Total |
$ | 105.3 | ||
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21
Table of Contents
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Environmental Contingencies
The Companys 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 Companys 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 Companys 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 AMISs 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, AMISs 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 Companys 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 Companys 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 LLCs 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 Companys negligence or willful misconduct, or breach of representations and warranties and covenants related to such matters as title to sold assets.
22
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 partys 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 Aptinas and ON Semiconductors 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.
23
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 Companys 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) |
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Description |
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Assets: |
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Cash and cash equivalents: |
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Demand and time deposits |
$ | 436.6 | $ | 436.6 | $ | 447.5 | $ | 447.5 | ||||||||
Money market funds |
55.5 | 55.5 | 62.0 | 62.0 | ||||||||||||
Liabilities: |
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Foreign currency exchange contracts |
$ | 0.2 | $ | 0.2 | $ | 0.1 | $ | 0.1 | ||||||||
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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 |
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Commercial paper |
$ | | $ | | $ | 15.5 | $ | 15.5 | ||||||||
Corporate bonds |
2.8 | 2.8 | 93.7 | 93.7 | ||||||||||||
Government agencies |
| | 7.0 | 7.0 | ||||||||||||
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$ | 2.8 | $ | 2.8 | $ | 116.2 | $ | 116.2 | |||||||||
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The Companys financial assets are valued using market prices on active markets (Level 1). The Companys 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 Companys 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 |
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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 Companys 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 Companys 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 Companys 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 Companys 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 | ||||||||||||
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|
|
|
|
|
|||||||||
$ | 8.4 | $ | 141.7 | $ | 20.9 | $ | 101.7 | |||||||||
|
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|
|
|
|
|
|
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 Companys 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 Companys 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
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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 instruments 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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
Table of Contents
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
The Companys 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 Companys 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 Companys 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 Companys 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 Companys Image Sensor Group was established during the third quarter of 2014, and includes the Companys recent image sensor business acquisition of Aptina along with the Companys 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 Companys recent acquisitions. Previously reported information has been recast to reflect the current reportable segments.
Each of the Companys major product lines has been examined and each product line has been assigned to a reportable segment based on the Companys 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 Companys 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 Companys 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 Companys consolidated assets are not specifically assigned to its individual reporting segments. Rather, assets used in operations are generally shared across the Companys 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 Companys 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 Semiconductors 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 Semiconductors 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 Companys other foreign subsidiaries. ON Semiconductors 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
Table of Contents
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 | ) | | |||||||||||||||||
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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 | ||||||||||||||||||
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Total equity |
1,454.0 | 1,921.0 | 179.8 | 2,252.2 | (4,320.2 | ) | 1,486.8 | |||||||||||||||||
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Total liabilities and equity |
$ | 1,790.2 | $ | 2,575.8 | $ | 180.6 | $ | 3,045.6 | $ | (4,335.2 | ) | $ | 3,257.0 | |||||||||||
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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 | |||||||||||||||||
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Gross profit |
| 49.5 | 3.5 | 227.2 | 3.9 | 284.1 | ||||||||||||||||||
Operating expenses: |
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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 | ||||||||||||||||||
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Total operating expenses |
| 66.7 | 3.5 | 157.3 | (1.0 | ) | 226.5 | |||||||||||||||||
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Operating income (loss) |
| (17.2 | ) | | 69.9 | 4.9 | 57.6 | |||||||||||||||||
Other income (expense), net: |
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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 | ) | | |||||||||||||||||
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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 | ) | |||||||||||||||
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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 | ) | ||||||||||||||||
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Net income attributable to ON Semiconductor Corporation |
$ | 41.6 | $ | 43.6 | $ | 0.5 | $ | 54.7 | $ | (98.8 | ) | $ | 41.6 | |||||||||||
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Comprehensive income attributable to ON Semiconductor Corporation |
$ | 42.3 | $ | 42.6 | $ | 0.5 | $ | 56.6 | $ | (99.7 | ) | $ | 42.3 | |||||||||||
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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 | |||||||||||||||||
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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 | ||||||||||||||||||
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Total operating expenses |
| 41.6 | 3.3 | 138.1 | (1.1 | ) | 181.9 | |||||||||||||||||
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Operating income (loss) |
| (23.0 | ) | 0.3 | 84.0 | 6.0 |