ON Semiconductor Reports Fourth Quarter and 2014 Annual Results

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)

       
Quarter Ended Year Ended

December 31,
2014

 

September 26,
2014(1)(2)

 

December 31,
2013(1)

December 31,
2014

 

December 31,
2013(1)

Revenues $ 864.2   $ 833.5   $ 718.0 $ 3,161.8   $ 2,782.7
Cost of revenues (exclusive of amortization shown below) 586.5   552.6   467.6   2,076.9   1,853.6  
Gross profit 277.7 280.9 250.4 1,084.9 929.1
Gross margin 32.1 % 33.7 % 34.9 % 34.3 % 33.4 %
Operating expenses:
Research and development 110.9 93.4 78.7 366.6 334.2
Selling and marketing 56.6 51.1 43.9 200.0 171.2
General and administrative 46.7 48.5 37.6 180.9 148.5
Amortization of acquisition-related intangible assets 28.8 21.0 8.3 68.4 33.1
Restructuring, asset impairments and other, net 10.0 10.1 22.1 30.0 33.2
Goodwill and intangible asset impairment 4.6       4.6    
Total operating expenses 257.6   224.1   190.6   850.5   720.2  
Operating income 20.1   56.8   59.8   234.4   208.9  
Other income (expense), net:
Interest expense (9.5 ) (8.6 ) (10.0 ) (34.1 ) (38.6 )
Interest income 0.9 0.2 0.3 1.5 1.3
Other (2.3 ) (1.2 ) (1.3 ) (4.4 ) 1.5
Loss on debt exchange         (3.1 )
Other income (expense), net (10.9 ) (9.6 ) (11.0 ) (37.0 ) (38.9 )
Income before income taxes 9.2 47.2 48.8 197.4 170.0
Income tax (provision) benefit (3.5 ) (6.3 ) (10.5 ) 0.2   (16.4 )
Net income 5.7 40.9 38.3 197.6 153.6
Less: Net income attributable to non-controlling interest (0.8 ) (0.4 ) (0.5 ) (2.4 ) (3.2 )
Net income attributable to ON Semiconductor Corporation $ 4.9   $ 40.5   $ 37.8   $ 195.2   $ 150.4  
Net income per common share attributable to ON Semiconductor Corporation:
Basic $ 0.01   $ 0.09   $ 0.09   $ 0.44   $ 0.34  
Diluted $ 0.01   $ 0.09   $ 0.08   $ 0.44   $ 0.33  
Weighted average common shares outstanding:
Basic 435.9   440.7   442.5   439.5   447.9  
Diluted 440.2   444.9   445.2   443.5   450.7  
(1) Amounts have been revised. See "Revision to Previously Issued Financial Statements" above.
(2)

The Company has retrospectively adjusted certain amounts shown above for the quarter ended September 26, 2014 related to adjustments to the purchase price allocation of our recent acquisitions.

 
 

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(in millions)

           

December 31,
2014

September 26,
2014 (1)(2)

December 31,
2013 (1)

Assets
Cash and cash equivalents $ 511.7 $ 492.1 $ 509.5
Short-term investments 6.1 2.8 116.2
Receivables, net 417.5 488.7 383.4
Inventories 729.9 720.1 608.8
Other current assets 140.5   105.3   89.3  
Total current assets 1,805.7 1,809.0 1,707.2
Property, plant and equipment, net 1,204.5 1,212.3 1,074.2
Goodwill 269.9 274.5 184.6
Intangible assets, net 457.4 486.5 223.4
Other assets 109.3   142.0   104.4  
Total assets $ 3,846.8   $ 3,924.3   $ 3,293.8  
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable $ 378.2 $ 398.5 $ 276.8
Accrued expenses 287.9 245.4 220.3
Deferred income on sales to distributors 165.1 167.0 140.5
Current portion of long-term debt 209.6   203.3   181.6  
Total current liabilities 1,040.8 1,014.2 819.2
Long-term debt 983.0 980.3 760.6
Other long-term liabilities 170.1   216.4   190.4  
Total liabilities 2,193.9   2,210.9   1,770.2  
ON Semiconductor Corporation stockholders’ equity:
Common stock 5.2 5.2 5.2
Additional paid-in capital 3,281.2 3,269.0 3,210.8
Accumulated other comprehensive loss (41.5 ) (44.6 ) (47.4 )
Accumulated deficit (910.1 ) (915.0 ) (1,105.3 )
Less: treasury stock, at cost (702.8 ) (632.9 ) (572.5 )
Total ON Semiconductor Corporation stockholders’ equity 1,632.0 1,681.7 1,490.8
Non-controlling interest in consolidated subsidiary 20.9   31.7   32.8  
Total stockholders' equity 1,652.9   1,713.4   1,523.6  
Total liabilities and equity $ 3,846.8   $ 3,924.3   $ 3,293.8  
(1) Amounts have been revised. See "Revision to Previously Issued Financial Statements" above.
(2)

The Company has retrospectively adjusted certain amounts shown above for the quarter ended September 26, 2014 related to adjustments to the purchase price allocation of our recent acquisitions.

 
 

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA* AND
NET CASH PROVIDED BY OPERATING ACTIVITIES
(in millions)

       
Quarter Ended Year Ended

December 31,
2014

 

September 26,
2014 (1)(2)

 

December 31,
2013 (1)

December 31,
2014

 

December 31,
2013 (1)

Net income $ 5.7 $ 40.9 $ 38.3 $ 197.6 $ 153.6
Adjusted for:
Restructuring, asset impairments and other, net 10.0 10.1 22.1 30.0 33.2
Goodwill and intangible asset impairment 4.6 4.6
Interest expense 9.5 8.6 10.0 34.1 38.6
Interest income (0.9 ) (0.2 ) (0.3 ) (1.5 ) (1.3 )
Loss on debt exchange 3.1
Income tax provision (benefit) 3.5 6.3 10.5 (0.2 ) 16.4
Net income attributable to non-controlling interest (0.8 ) (0.4 ) (0.5 ) (2.4 ) (3.2 )
Depreciation and amortization 86.4 72.1 55.3 268.8 211.8
Actuarial losses on pension plans and other pension benefits 12.3 (7.4 ) 12.3 6.2
Expensing of appraised inventory at fair market value step up 12.8 12.9 27.0
Third party acquisition related costs 0.1   4.0     8.1    
Adjusted EBITDA* 143.2 154.3 128.0 578.4 458.4
Increase (decrease):
Restructuring, asset impairments and other, net (10.0 ) (10.1 ) (22.1 ) (30.0 ) (33.2 )
Interest expense (9.5 ) (8.6 ) (10.0 ) (34.1 ) (38.6 )
Interest income 0.9 0.2 0.3 1.5 1.3
Income tax (provision) benefit (3.5 ) (6.3 ) (10.5 ) 0.2 (16.4 )
Net income attributable to non-controlling interest 0.8 0.4 0.5 2.4 3.2
Actuarial losses on pension plans and other pension benefits (12.3 ) 7.4 (12.3 ) (6.2 )
Expensing of appraised inventory at fair market value step up (12.8 ) (12.9 ) (27.0 )
Third party acquisition related costs (0.1 ) (4.0 ) (8.1 )
(Gain) loss on sale or disposal of fixed assets (0.8 ) (0.3 ) 0.8 (1.4 ) (6.8 )
Amortization of debt issuance costs 0.4 0.3 0.4 1.4 1.3
Write-down of excess inventories 19.5 9.6 6.2 40.6 51.9
Non-cash asset impairment charges 4.1 4.5 5.9 8.0
Non-cash share-based compensation expense 12.8 11.1 8.9 45.8 32.3
Non-cash interest 1.9 1.8 2.7 7.0 11.2
Non-cash foreign currency translation gain (21.0 )
Reversal of valuation allowance (1.6 ) (0.2 ) (23.3 )
Other 3.3 3.8 15.4 8.9 11.8
Changes in operating assets and liabilities 26.2   (46.8 ) (5.5 ) (74.6 ) (129.9 )
Net cash provided by operating activities $ 162.5   $ 92.3   $ 127.0   481.3   327.3  
(1) Amounts have been revised. See "Revision to Previously Issued Financial Statements" above.
(2) The Company has retrospectively adjusted certain amounts shown above for the quarter ended September 26, 2014 related to adjustments to the purchase price allocation of our recent acquisitions.
* Adjusted EBITDA represents net income before interest expense, interest income, provision for income taxes, depreciation and amortization expense and special items. We use the adjusted EBITDA measure for internal managerial evaluation purposes, as a means to evaluate period-to-period comparisons and as a performance metric for the vesting/releasing of certain of our performance-based equity awards. Adjusted EBITDA is a non-GAAP financial measure. Regulation G and other provisions of the securities laws regulate the use of financial measures that are not prepared in accordance with generally accepted accounting principles. We believe this measure provides important supplemental information to investors. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance.
 

We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that – when taken together with GAAP results and the reconciliations to corresponding GAAP financial measures that we also provide in our press releases – provide a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with non-GAAP financial measures used by our company or other companies, even if they have similar names.

 
 

ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
ANALYSIS OF GAAP VERSUS NON-GAAP DISCLOSURES
(in millions, except per share and percentage data)

         
Quarter Ended Year Ended

December 31,
2014

 

September 26,
2014 (1)(2)

 

December 31,
2013 (1)

December 31,
2014

 

December 31,
2013 (1)

Reconciliation of GAAP gross profit to non-GAAP gross profit:
GAAP gross profit $ 277.7   $ 280.9   $ 250.4   $ 1,084.9   $ 929.1  
Special items:
a) Actuarial losses (gains) on pension plans and other pension benefits 3.9 (2.7 ) 3.9 4.0
b) Expensing of appraised inventory at fair market value step up 12.8   12.9     27.0    
Total special items 16.7   12.9   (2.7 ) 30.9   4.0  
Non-GAAP gross profit $ 294.4   $ 293.8   $ 247.7   $ 1,115.8   $ 933.1  
Reconciliation of GAAP gross margin to non-GAAP gross margin:
GAAP gross margin 32.1 % 33.7 % 34.9 % 34.3 % 33.4 %
Special items:
a) Actuarial losses (gains) on pension plans and other pension benefits 0.5 % % (0.4 )% 0.1 % 0.1 %
b) Expensing of appraised inventory at fair market value step up 1.5 % 1.5 % % 0.9 % %
Total special items 2.0 % 1.5 % (0.4 )% 1.0 % 0.1 %
Non-GAAP gross margin 34.1 % 35.2 % 34.5 % 35.3 % 33.5 %
Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
GAAP operating expenses $ 257.6   $ 224.1   $ 190.6   850.5   720.2  
Special items:
a) Amortization of acquisition related intangible assets (28.8 ) (21.0 ) (8.3 ) (68.4 ) (33.1 )
b) Actuarial (losses) gains on pension plans and other pension benefits (8.4 ) 4.7 (8.4 ) (2.2 )
c) Restructuring, asset impairments and other, net (10.0 ) (10.1 ) (22.1 ) (30.0 ) (33.2 )
d) Goodwill and intangible asset impairments (4.6 ) (4.6 )
e) Third party acquisition related costs (0.1 ) (4.0 )   (8.1 )  
Total special items (51.9 ) (35.1 ) (25.7 ) (119.5 ) (68.5 )
Non-GAAP operating expenses $ 205.7   $ 189.0   $ 164.9   $ 731.0   $ 651.7  
Reconciliation of GAAP operating income to non-GAAP operating income:
GAAP operating income $ 20.1   $ 56.8   $ 59.8   $ 234.4   $ 208.9  
Special items:
a) Actuarial losses (gains) on pension plans and other pension benefits (cost of revenues) 3.9 (2.7 ) 3.9 4.0
b) Expensing of appraised inventory at fair market value step up 12.8 12.9 27.0
c) Amortization of acquisition related intangible assets 28.8 21.0 8.3 68.4 33.1
d) Actuarial losses (gains) on pension plans and other pension benefits (operating expenses) 8.4 (4.7 ) 8.4 2.2
e) Restructuring, asset impairments and other, net 10.0 10.1 22.1 30.0 33.2
f) Goodwill and intangible asset impairments 4.6 4.6
g) Third party acquisition related costs 0.1   4.0     8.1    

 

Total special items 68.6   48.0   23.0   150.4   72.5  
Non-GAAP operating income $ 88.7   $ 104.8   $ 82.8   $ 384.8   $ 281.4  
Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenues) :
GAAP operating margin 2.3 % 6.8 % 8.3 % 7.4 % 7.5 %
Special items:
a) Actuarial losses (gains) on pension plans and other pension benefits (cost of revenues) 0.5 % % (0.4 )% 0.1 % 0.1 %
b) Expensing of appraised inventory at fair market value step up 1.5 % 1.5 % % 0.9 % %
c) Amortization of acquisition related intangible assets 3.3 % 2.5 % 1.2 % 2.2 % 1.2 %
d) Actuarial losses (gains) on pension plans and other pension benefits (operating expenses) 1 % % (0.7 )% 0.3 % 0.1 %
e) Restructuring, asset impairments and other, net 1.2 % 1.2 % 3.1 % 0.9 % 1.2 %
f) Goodwill and intangible asset impairments 0.5 % % % 0.1 % %
g) Third party acquisition related costs % 0.5 % % 0.3 % %
Total special items 7.9 % 5.8 % 3.2 % 4.8 % 2.6 %
Non-GAAP operating margin 10.3 % 12.6 % 11.5 % 12.2 % 10.1 %
Reconciliation of GAAP net income to non-GAAP net income:
GAAP net income attributable to ON Semiconductor Corporation $ 4.9   $ 40.5   $ 37.8   $ 195.2   $ 150.4  
Special items:
a) Actuarial losses (gains) on pension plans and other pension benefits (cost of revenues) 3.9 (2.7 ) 3.9 4.0
b) Expensing of appraised inventory at fair market value step up 12.8 12.9 27.0
c) Amortization of acquisition related intangible assets (operating expenses) 28.8 21.0 8.3 68.4 33.1
d) Actuarial losses (gains) on pension plans and other pension benefits (operating expenses) 8.4 (4.7 ) 8.4 2.2
e) Restructuring, asset impairments and other, net 10.0 10.1 22.1 30.0 33.2
f) Goodwill and intangible asset impairments 4.6 4.6
g) Third party acquisition related costs 0.1 4.0 8.1
h) Loss on debt exchange 3.1
i) Non-cash interest on convertible notes 1.9 1.8 2.7 7.0 11.2
j) Adjustment to reflect cash taxes 0.9   (0.6 ) 7.5   (18.3 ) 3.5  
Total special items 71.4   49.2   33.2   139.1   90.3  
Non-GAAP net income $ 76.3   $ 89.7   $ 71.0   $ 334.3   $ 240.7  
Non-GAAP net income per share:
Basic $ 0.18   $ 0.20   $ 0.16   $ 0.76   $ 0.54  
Diluted $ 0.17   $ 0.20   $ 0.16   $ 0.75   $ 0.53  
Weighted average common shares outstanding:
Basic 435.9   440.7   442.5   439.5   447.9  
Diluted 440.2   444.9   445.2   443.5   450.7  
(1) Amounts have been revised. See "Revision to Previously Issued Financial Statements" above.
(2) The Company has retrospectively adjusted certain amounts shown above for the quarter ended September 26, 2014 related to adjustments to the purchase price allocation of our recent acquisitions.
 
 

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