ON Semiconductor Reports Second Quarter 2014 Results

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

       
Quarter Ended Six Months Ended
June 27, 2014   March 28, 2014   June 28, 2013 June 27, 2014   June 28, 2013
Revenues $ 757.6 $ 706.5 $ 688.3 $ 1,464.1 $ 1,349.3
Cost of revenues 484.6   455.7   456.5   940.3   913.0  
Gross profit 273.0 250.8 231.8 523.8 436.3
Gross margin 36.0

%

35.5 % 33.7 % 35.8 % 32.3 %
Operating expenses:
Research and development 84.2 78.1 83.1 162.3 171.5
Selling and marketing 47.9 44.4 43.3 92.3 83.1
General and administrative 44.7 41.0 40.2 85.7 76.4
Amortization of acquisition-related intangible assets 10.4 8.2 8.2 18.6 16.6
Restructuring, asset impairments and other, net 4.1   5.8   6.1   9.9   0.1  
Total operating expenses 191.3   177.5   180.9   368.8   347.7  
Operating income 81.7   73.3   50.9   155.0   88.6  
Other income (expense), net:
Interest expense (7.9 ) (8.1 ) (9.3 ) (16.0 ) (19.4 )
Interest income 0.2 0.2 0.4 0.4 0.7
Other (1.2 ) (0.6 ) 4.1 (1.8 ) 5.0
Loss on debt exchange         (3.1 )
Other income (expense), net (8.9 ) (8.5 ) (4.8 ) (17.4 ) (16.8 )
Income before income taxes 72.8 64.8 46.1 137.6 71.8
Income tax benefit (provision) 16.2   (6.2 ) 2.6   10.0   0.2  
Net income 89.0 58.6 48.7 147.6 72.0
Less: Net income attributable to non-controlling interest (1.0 ) (0.2 ) (1.0 ) (1.2 ) (1.7 )
Net income attributable to ON Semiconductor Corporation $ 88.0   $ 58.4   $ 47.7   $ 146.4   $ 70.3  
Net income per common share attributable to ON Semiconductor Corporation:
Basic $ 0.20   $ 0.13   $ 0.11   $ 0.33   $ 0.16  
Diluted $ 0.20   $ 0.13   $ 0.11   $ 0.33   $ 0.16  
Weighted average common shares outstanding:
Basic 441.1   440.4   450.7   440.7   450.1  
Diluted 444.5   444.5   453.3   444.5   452.9  
 
 

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

           
June 27, 2014 March 28, 2014 December 31, 2013
Assets
Cash and cash equivalents $ 598.9 $ 562.0 $ 509.5
Short-term investments 2.3 55.0 116.2
Receivables, net 437.3 417.1 383.4
Inventories 632.6 613.9 611.8
Other current assets 90.5   89.3   89.3  
Total current assets 1,761.6 1,737.3 1,710.2
Property, plant and equipment, net 1,141.7 1,081.4 1,074.2
Goodwill 211.6 184.6 184.6
Intangible assets, net 245.5 215.3 223.4
Other assets 58.0   68.1   64.6  
Total assets $ 3,418.4   $ 3,286.7   $ 3,257.0  
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable $ 305.4 $ 276.7 $ 276.8
Accrued expenses 231.9 222.1 220.3
Deferred income on sales to distributors 162.6 151.7 140.5
Current portion of long-term debt 169.4   173.7   181.6  
Total current liabilities 869.3 824.2 819.2
Long-term debt 735.5 746.5 760.6
Other long-term liabilities 174.1   176.1   190.4  
Total liabilities 1,778.9   1,746.8   1,770.2  
ON Semiconductor Corporation stockholders’ equity:
Common stock 5.2 5.2 5.2
Additional paid-in capital 3,250.6 3,228.9 3,210.8
Accumulated other comprehensive loss (45.3 ) (46.4 ) (47.4 )
Accumulated deficit (995.7 ) (1,083.7 ) (1,142.1 )
Less: treasury stock, at cost (608.1 ) (597.1 ) (572.5 )
Total ON Semiconductor Corporation stockholders’ equity 1,606.7 1,506.9 1,454.0
Non-controlling interest in consolidated subsidiary 32.8   33.0   32.8  
Total stockholders' equity 1,639.5   1,539.9   1,486.8  
Total liabilities and equity $ 3,418.4   $ 3,286.7   $ 3,257.0  
 
 

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

       
Quarter Ended Six Months Ended
June 27, 2014   March 28, 2014   June 28, 2013 June 27, 2014   June 28, 2013
Net income $ 89.0 $ 58.6 $ 48.7 $ 147.6   $ 72.0
Adjusted for:
Restructuring, asset impairments and other, net 4.1 5.8 6.1 9.9 0.1
Interest expense 7.9 8.1 9.3 16.0 19.4
Interest income (0.2 ) (0.2 ) (0.4 ) (0.4 ) (0.7 )
Loss on debt exchange 3.1
Income tax (benefit) provision (16.2 ) 6.2 (2.6 ) (10.0 ) (0.2 )
Net income attributable to non-controlling interest (1.0 ) (0.2 ) (1.0 ) (1.2 ) (1.7 )
Depreciation and amortization 57.9 52.4 52.3 110.3 103.6
Actuarial losses on pension plans and other pension benefits 13.6
Expensing of appraised inventory at fair market value step up 1.3 1.3
Third party acquisition related costs 3.7   0.3     4.0    
Adjusted EBITDA* 146.5 131.0 112.4 277.5 209.2
Increase (decrease):
Restructuring, asset impairments and other, net (4.1 ) (5.8 ) (6.1 ) (9.9 ) (0.1 )
Interest expense (7.9 ) (8.1 ) (9.3 ) (16.0 ) (19.4 )
Interest income 0.2 0.2 0.4 0.4 0.7
Income tax benefit (provision) 16.2 (6.2 ) 2.6 10.0 0.2
Net income attributable to non-controlling interest 1.0 0.2 1.0 1.2 1.7
Actuarial losses on pension plans and other pension benefits (13.6 )
Expensing of appraised inventory at fair market value step up (1.3 ) (1.3 )
Third party acquisition related costs (3.7 ) (0.3 ) (4.0 )
(Gain) loss on sale or disposal of fixed assets (0.3 ) 0.3 (0.3 ) (7.1 )
Amortization of debt issuance costs 0.4 0.3 0.3 0.7 0.6
Provision for excess inventories 4.7 6.8 24.0 11.5 39.9
Non-cash asset impairment charges 1.8 1.8
Non-cash share-based compensation expense 13.4 8.5 10.6 21.9 16.4
Non-cash interest 1.7 1.6 2.7 3.3 5.8
Non-cash foreign currency translation gain (21.0 )
Reversal of valuation allowance (21.5 ) (21.5 )
Other 0.9 1.8 (6.6 ) 2.7 (5.9 )
Changes in operating assets and liabilities 3.3   (54.8 ) (77.1 ) (51.5 ) (67.0 )
Net cash provided by operating activities $ 151.6   $ 74.9   $ 55.2   226.5   140.4  
 
* 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 Six Months Ended
June 27, 2014   March 28, 2014   June 28, 2013 June 27, 2014   June 28, 2013
Reconciliation of GAAP gross profit to non-GAAP gross profit:
GAAP gross profit $ 273.0   $ 250.8   $ 231.8   $ 523.8   $ 436.3  
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits 6.7
b) Expensing of appraised inventory at fair market value step up 1.3       1.3    
Total special items 1.3       1.3   6.7  
Non-GAAP gross profit $ 274.3   $ 250.8   $ 231.8   $ 525.1   $ 443.0  
Reconciliation of GAAP gross margin to non-GAAP gross margin:
GAAP gross margin 36.0 % 35.5 % 33.7 % 35.8 % 32.3 %
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits % % % % 0.5 %
b) Expensing of appraised inventory at fair market value step up 0.2 % % % 0.1 % %
Total special items 0.2 % % % 0.1 % 0.5 %
Non-GAAP gross margin 36.2 %   35.5 % 33.7 % 35.9 % 32.8 %
Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
GAAP operating expenses $ 191.3   $ 177.5   $ 180.9   368.8   347.7  
Special items:
a) Amortization of acquisition related intangible assets (10.4 ) (8.2 ) (8.2 ) (18.6 ) (16.6 )
b) Actuarial gains (losses) on pension plans and other pension benefits (6.9 )
c ) Restructuring, asset impairments and other, net (4.1 ) (5.8 ) (6.1 ) (9.9 ) (0.1 )
d) Third party acquisition related costs (3.7 ) (0.3 )   (4.0 )  
Total special items (18.2 ) (14.3 ) (14.3 ) (32.5 ) (23.6 )
Non-GAAP operating expenses $ 173.1   $ 163.2   $ 166.6   $ 336.3   $ 324.1  
Reconciliation of GAAP operating income to non-GAAP operating income:
GAAP operating income $ 81.7   $ 73.3   $ 50.9   $ 155.0   $ 88.6  
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits (cost of revenues) 6.7
b) Expensing of appraised inventory at fair market value step up 1.3 1.3
c ) Amortization of acquisition related intangible assets 10.4 8.2 8.2 18.6 16.6
d) Actuarial (gains) losses on pension plans and other pension benefits (operating expenses) 6.9
e) Restructuring, asset impairments and other, net 4.1 5.8 6.1 9.9 0.1
f) Third party acquisition related costs 3.7   0.3     4.0    
Total special items above Total special items 19.5   14.3   14.3   33.8   30.3  
Non-GAAP operating income $ 101.2   $ 87.6   $ 65.2   $ 188.8   $ 118.9  
Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenues) :
GAAP operating margin 10.8 % 10.4 % 7.4 % 10.6 % 6.6 %
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits (cost of revenues) % % % % 0.5 %
b) Expensing of appraised inventory at fair market value step up 0.2 % % % 0.1 % %
c ) Amortization of acquisition related intangible assets 1.4 % 1.2 % 1.2 % 1.3 % 1.2 %
d) Actuarial (gains) losses on pension plans and other pension benefits (operating expenses) % % % % 0.5 %
e) Restructuring, asset impairments and other, net 0.5 % 0.8 % 0.9 % 0.7 % %
f) Third party acquisition related costs 0.5 % % % 0.3 % %
Total special items 2.6 % 2.0 % 2.1 % 2.3 % 2.2 %
Non-GAAP operating margin 13.4 % 12.4 % 9.5 % 12.9 % 8.8 %
Reconciliation of GAAP net income to non-GAAP net income:
GAAP net income attributable to ON Semiconductor Corporation $ 88.0   $ 58.4   $ 47.7   $ 146.4   $ 70.3  
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits (cost of revenues) 6.7
b) Expensing of appraised inventory at fair market value step up 1.3 1.3
c ) Amortization of acquisition related intangible assets (operating expenses) 10.4 8.2 8.2 18.6 16.6
d) Actuarial (gains) losses on pension plans and other pension benefits (operating expenses) 6.9
e) Restructuring, asset impairments and other, net 4.1 5.8 6.1 9.9 0.1
f) Third party acquisition related costs 3.7 0.3 4.0
g) Loss on debt exchange 3.1
h) Non-cash interest on convertible notes 1.7 1.6 2.7 3.3 5.8
i) Adjustment to reflect cash taxes (19.5 ) 0.9   (7.5 ) (18.6 ) (7.6 )
Total special items 1.7   16.8   9.5   18.5   31.6  
Non-GAAP net income $ 89.7   $ 75.2   $ 57.2   $ 164.9   $ 101.9  
Non-GAAP net income per share:
Basic $ 0.20   $ 0.17   $ 0.13   $ 0.37   $ 0.23  
Diluted $ 0.20   $ 0.17   $ 0.13   $ 0.37   $ 0.23  
Weighted average common shares outstanding:
Basic 441.1   440.4   450.7   440.7   450.1  
Diluted 444.5   444.5   453.3   444.5   452.9  
 
Certain of the amounts in the above table may not total due to rounding of individual amounts.
 
Total share-based compensation expense, related to the company’s stock options, restricted stock units, stock grant awards and employee stock purchase plan is included below.
 
 
    Quarter Ended     Six Months Ended
June 27, 2014   March 28, 2014   June 28, 2013 June 27, 2014   June 28, 2013
Cost of revenues $ 1.7 $ 1.4 $ 1.4 $ 3.1 $ 2.5
Research and development 2.2 1.8 1.7 4.0 3.1
Selling and marketing 2.2 1.5 1.6 3.7 2.7
General and administrative 7.3   3.8   5.9   11.1   8.1
Total share-based compensation expense $ 13.4   $ 8.5   $ 10.6   $ 21.9   $ 16.4
 
 

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