ON Semiconductor Reports First Quarter 2017 Results

 
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

 
      Quarter Ended
March 31, 2017     December 31, 2016     April 1, 2016
Revenues $ 1,436.7 $ 1,261.0 $ 817.2
Cost of revenues (exclusive of amortization shown below) 933.4   876.5   541.7  
Gross profit 503.3 384.5 275.5
Gross margin 35.0 % 30.5 % 33.7 %
Operating expenses:
Research and development 140.0 139.8 98.0
Selling and marketing 77.5 79.4 49.2
General and administrative 68.4 72.2 44.5
Amortization of acquisition-related intangible assets 29.1 32.9 23.7
Restructuring, asset impairments and other, net 0.5 4.5 1.7
Intangible asset impairment 4.4      
Total operating expenses 319.9   328.8   217.1  
Operating income 183.4   55.7   58.4  
Other income (expense), net:
Interest expense (38.4 ) (40.9 ) (15.6 )
Interest income 0.6 0.7 0.3
Loss on debt refinancing and prepayment (26.2 )
Other (4.4 ) 2.7   (1.4 )
Other (expense) income, net (68.4 ) (37.5 ) (16.7 )
Income before income taxes 115.0 18.2 41.7
Income tax provision (36.3 ) 93.5   (5.3 )
Net income 78.7 111.7 36.4
Less: Net income attributable to non-controlling interest (0.5 ) (0.8 ) (0.4 )
Net income attributable to ON Semiconductor Corporation $ 78.2   $ 110.9   $ 36.0  
Net income per common share attributable to ON Semiconductor Corporation:
Basic $ 0.19   $ 0.27   $ 0.09  
Diluted $ 0.18   $ 0.26   $ 0.09  
Weighted average common shares outstanding:
Basic 419.8   417.3   412.6  
Diluted 425.8   426.9   415.5  
 
 
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions)

 
      As of
March 31, 2017     December 31, 2016     April 1, 2016
Assets
Cash and cash equivalents $ 728.9 $ 1,028.1 $ 619.5
Receivables, net 678.2 629.8 428.2
Inventories 1,011.4 1,030.2 759.7
Other current assets 190.6   181.0   94.3  
Total current assets 2,609.1 2,869.1 1,901.7
Property, plant and equipment, net 2,156.1 2,159.1 1,270.4
Goodwill 924.7 924.7 270.6
Intangible assets, net 730.5 762.1 302.3
Deferred tax assets 143.9 138.9 43.2
Other assets 73.1   70.5   66.9  
Total assets $ 6,637.4   $ 6,924.4   $ 3,855.1  
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable $ 464.0 $ 434.0 $ 305.9
Accrued expenses 475.2 405.0 245.2
Deferred income on sales to distributors 109.8 112.9
Current portion of long-term debt 272.8   553.8   525.4  
Total current liabilities 1,212.0 1,502.6 1,189.4
Long-term debt 2,986.8 3,068.5 835.1
Deferred tax liabilities 246.0 288.9 16.9
Other long-term liabilities 194.3   186.5   135.6  
Total liabilities 4,639.1   5,046.5   2,177.0  
 
2.625% Notes, Series B - Redeemable conversion feature 32.9
 
ON Semiconductor Corporation stockholders’ equity:
Common stock 5.5 5.4 5.4
Additional paid-in capital 3,510.6 3,473.3 3,437.0
Accumulated other comprehensive loss (43.1 ) (50.2 ) (41.3 )
Accumulated deficit (381.0 ) (527.3 ) (673.4 )
Less: Treasury stock, at cost (1,116.0 ) (1,078.0 ) (1,073.7 )
Total ON Semiconductor Corporation stockholders’ equity 1,976.0 1,823.2 1,654.0
Non-controlling interest in consolidated subsidiary 22.3   21.8   24.1  
Total stockholders' equity 1,998.3   1,845.0   1,678.1  
Total liabilities and equity $ 6,637.4   $ 6,924.4   $ 3,855.1  
 
 
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA* AND
NET CASH PROVIDED BY OPERATING ACTIVITIES

(in millions)

 
      Quarter Ended
March 31, 2017     December 31, 2016     April 1, 2016
Net income $ 78.7 $ 111.7 $ 36.4
Adjusted for:
Restructuring, asset impairments and other, net 0.5 4.5 1.7
Intangible asset impairment 4.4
Interest expense 38.4 40.9 15.6
Interest income (0.6 ) (0.7 ) (0.3 )
Loss on debt refinancing and prepayment 26.2
Income tax provision (benefit) 36.3 (93.5 ) 5.3
Net income attributable to non-controlling interest (0.5 ) (0.8 ) (0.4 )
Depreciation and amortization 114.3 120.0 80.7
Actuarial losses on pension plans and other pension benefits 10.0
Amortization of fair market value step-up of inventory 9.8 55.6

Sell-through to sell-in adjustment

(59.0 )
Adjustment to contingent consideration 1.5 0.8
Third party acquisition related costs 1.0   3.5   2.5  
Adjusted EBITDA 251.0 252.0 141.5
Increase (decrease):
Restructuring, asset impairments and other, net (0.5 ) (4.5 ) (1.7 )
Interest expense (38.4 ) (40.9 ) (15.6 )
Interest income 0.6 0.7 0.3
Income tax provision (benefit) (36.3 ) 93.5 (5.3 )
Net income attributable to non-controlling interest 0.5 0.8 0.4
Actuarial losses on pension plans and other pension benefits (10.0 )
Amortization of fair market value step-up of inventory (9.8 ) (55.6 )
Third party acquisition related costs (1.0 ) (3.5 ) (2.5 )
Sell-through to sell-in adjustment 59.0
Loss (gain) on sale or disposal of fixed assets 2.9 0.9 (0.1 )
Amortization of debt discount and issuance costs 4.5 4.6 1.0
Write-down of excess inventories 14.2 26.1 17.9
Adjustment to contingent consideration (1.5 ) (0.8 )
Payments for term debt modification (2.4 )
Non-cash asset impairment charges 0.5
Non-cash share-based compensation expense 15.1 14.2 11.6
Non-cash interest on convertible notes 4.7 6.4 6.5
Change in deferred taxes 36.2 (103.6 ) 1.1
Other 1.5 (1.9 ) 1.5
Changes in operating assets and liabilities (91.8 ) 50.5   (41.7 )
Net cash provided by operating activities $ 208.5   $ 229.4   $ 114.9  
Cash flows from investing activities:
Purchases of property, plant and equipment $ (52.7 ) $ (49.9 ) $ (72.9 )
Proceeds from sales of property, plant and equipment 0.2 0.3
Deposits utilized for purchases of property, plant and equipment (0.2 ) (3.1 ) 1.8
Purchase of business, net of cash acquired (0.8 ) (6.8 )
Purchases of held-to-maturity securities (1.6 )    
Net cash used in investing activities $ (55.1 ) $ (59.8 ) $ (70.8 )
Cash flows from financing activities:

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

$ 5.9 $ 4.1 $ 3.6
Proceeds from exercise of stock options 7.5 9.8 1.6
Payments of tax withholding for restricted shares (13.0 ) (1.9 ) (8.0 )
Repurchase of common stock (25.0 )
Proceeds from debt issuance 689.8 5.0 4.5
Purchase of convertible note hedges (144.7 )
Proceeds from issuance of warrants 85.2
Payments of debt issuance and other financing costs (0.8 ) (0.3 ) (1.2 )
Repayment of long-term debt (1,054.4 ) (26.2 ) (38.4 )
Payment of capital lease obligations (5.4 ) (2.7 ) (6.6 )
Dividend to non-controlling shareholder of consolidated subsidiary   (2.4 )  
Net cash used in financing activities $ (454.9 ) $ (14.6 ) $ (44.5 )
Effect of exchange rate changes on cash and cash equivalents $ 2.3   $ (7.4 ) $ 2.3  
Net increase (decrease) in cash and cash equivalents $ (299.2 ) $ 147.6 $ 1.9
Cash and cash equivalents, beginning of period $ 1,028.1   $ 880.5   $ 617.6  
Cash and cash equivalents, end of period $ 728.9   $ 1,028.1   $ 619.5  
 
 
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
ANALYSIS OF GAAP VERSUS NON-GAAP DISCLOSURES

(in millions, except per share and percentage data)

 
      Quarter Ended
March 31, 2017     December 31, 2016     April 1, 2016
Reconciliation of GAAP revenue to non-GAAP revenue:
GAAP revenue $ 1,436.7 $ 1,261.0 $ 817.2
Special items:
a) Sell-through to sell-in adjustment (155.1 )    
Total special items (155.1 )    
Non-GAAP revenue $ 1,281.6   $ 1,261.0   $ 817.2  
Reconciliation of GAAP gross profit to non-GAAP gross profit:
GAAP gross profit $ 503.3   $ 384.5   $ 275.5  
Special items:
a) Actuarial losses on pension plans and other pension benefits 3.2
b) Expensing of appraised inventory at fair market value step up 9.8 55.6
c) Sell-through to sell-in adjustment (59.0 )    
Total special items (49.2 ) 58.8    
Non-GAAP gross profit $ 454.1   $ 443.3   $ 275.5  
Reconciliation of GAAP gross margin to non-GAAP gross margin:
GAAP gross margin 35.0 % 30.5 % 33.7 %
Special items:
a) Actuarial losses on pension plans and other pension benefits % 0.3 % %
b) Expensing of appraised inventory at fair market value step up 0.7 % 4.4 % %
c) Sell-through to sell-in adjustment (0.3 )% % %
Total special items 0.4 % 4.7 % %
Non-GAAP gross margin 35.4 % 35.2 % 33.7 %
Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
GAAP operating expenses $ 319.9   $ 328.8   $ 217.1  
Special items:
a) Amortization of acquisition related intangible assets (29.1 ) (32.9 ) (23.7 )
b) Actuarial losses on pension plans and other pension benefits (6.8 )
c) Restructuring, asset impairments and other, net (0.5 ) (4.5 ) (1.7 )
d) Intangible asset impairments (4.4 )
e) Third party acquisition related costs (1.0 ) (3.5 ) (2.5 )
Total special items (35.0 ) (47.7 ) (27.9 )
Non-GAAP operating expenses $ 284.9   $ 281.1   $ 189.2  
Reconciliation of GAAP operating income to non-GAAP operating income:
GAAP operating income $ 183.4   $ 55.7   $ 58.4  
Special items:
a) Actuarial losses on pension plans and other pension benefits (cost of revenues) 3.2
b) Expensing of appraised inventory at fair market value step up 9.8 55.6
c) Sell-through to sell-in adjustment (59.0 )
d) Amortization of acquisition related intangible assets 29.1 32.9 23.7
e) Actuarial losses on pension plans and other pension benefits (operating expenses) 6.8
f) Restructuring, asset impairments and other, net 0.5 4.5 1.7
g) Intangible asset impairments 4.4
h) Third party acquisition related costs 1.0   3.5   2.5  
Total special items (14.2 ) 106.5   27.9  
Non-GAAP operating income $ 169.2   $ 162.2   $ 86.3  
Quarter Ended
March 31, 2017 December 31, 2016 April 1, 2016
Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenues) :
GAAP operating margin 12.8 % 4.4 % 7.1 %
Special items:
a) Actuarial losses on pension plans and other pension benefits (cost of revenues) % 0.3 % %
b) Expensing of appraised inventory at fair market value step up 0.7 % 4.4 % %
c) Sell-through to sell-in adjustment (2.7 )% % %
d) Amortization of acquisition related intangible assets 2.0 % 2.6 % 2.9 %
e) Actuarial losses on pension plans and other pension benefits (operating expenses) % 0.5 % %
f) Restructuring, asset impairments and other, net % 0.4 % 0.2 %
g) Intangible asset impairments 0.3 % % %
h) Third party acquisition related costs 0.1 % 0.3 % 0.3 %
Total special items 0.4 % 8.5 % 3.4 %
Non-GAAP operating margin 13.2 % 12.9 % 10.6 %
Reconciliation of GAAP income before income taxes to non-GAAP income before income taxes:
GAAP income before income taxes $ 115.0   $ 18.2   $ 41.7  
Special items:
a) Actuarial losses on pension plans and other pension benefits (cost of revenues) 3.2
b) Expensing of appraised inventory at fair market value 9.8 55.6
c) Sell-through to sell-in adjustment (59.0 )
d) Amortization of acquisition related intangible assets (operating expenses) 29.1 32.9 23.7
e) Actuarial losses on pension plans and other pension benefits (operating expenses) 6.8
f) Restructuring, asset impairments and other, net 0.5 4.5 1.7
g) Intangible asset impairments 4.4
h) Third party acquisition related costs 1.0 3.5 2.5
i) Loss on debt refinancing and prepayment 26.2
j) Non-cash interest on convertible notes 4.7 6.5 6.5
k) Adjustment to contingent consideration 1.5   0.8    

Total special items

18.2   113.8   34.4  
Non-GAAP income before income taxes $ 133.2   $ 132.0   $ 76.1  
Reconciliation of Net cash provided by operating activities to free cash flow:
Net cash provided by operating activities $ 208.5 $ 229.4 $ 114.9
Special items:
a) Purchases of property, plant and equipment (52.7 ) (49.9 ) (72.9 )
Total special items (52.7 ) (49.9 ) (72.9 )
Free cash flow $ 155.8   $ 179.5   $ 42.0  
 

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