ON Semiconductor Reports Fourth Quarter and 2016 Annual Results

* 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, 2016

   

September
30, 2016

   

December
31, 2015

December
31, 2016

   

December
31, 2015

Reconciliation of GAAP gross profit to non-GAAP gross profit:
GAAP gross profit $ 384.5   $ 329.0   $ 279.9   $ 1,296.9   $ 1,193.2  
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits 3.2 (0.8 ) 3.2 (0.8 )
b) Expensing of appraised inventory at fair market value step up 55.6   11.9     67.5    
Total special items 58.8   11.9   (0.8 ) 70.7   (0.8 )
Non-GAAP gross profit $ 443.3   $ 340.9   $ 279.1   $ 1,367.6   $ 1,192.4  
Reconciliation of GAAP gross margin to non-GAAP gross margin:
GAAP gross margin 30.5 % 34.6 % 33.3 % 33.2 % 34.1 %
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits 0.3 % % (0.1 )% 0.1 % %
b) Expensing of appraised inventory at fair market value step up 4.4 % 1.3 % % 1.7 % %
Total special items 4.7 % 1.3 % (0.1 )% 1.8 % %
Non-GAAP gross margin 35.2 % 35.9 % 33.2 % 35.0 % 34.1 %
Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
GAAP operating expenses $ 328.8   $ 282.3   $ 224.4   $ 1,060.8   $ 932.1  
Special items:
a) Amortization of acquisition related intangible assets (32.9 ) (24.7 ) (34.6 ) (104.8 ) (135.7 )
b) Actuarial gains (losses) on pension plans and other pension benefits (6.8 ) 4.2 (6.8 ) 4.2
c) Restructuring, asset impairments and other, net (4.5 ) (21.8 ) (4.8 ) (33.2 ) (9.3 )
d) Goodwill and intangible asset impairments (2.2 ) (3.8 )
e) Third party acquisition related costs (3.5 ) (17.8 ) (3.3 ) (25.8 ) (3.5 )
Total special items (47.7 ) (64.3 ) (38.5 ) (172.8 ) (148.1 )
Non-GAAP operating expenses $ 281.1   $ 218.0   $ 185.9   $ 888.0   $ 784.0  
 
Reconciliation of GAAP operating income to non-GAAP operating income:
GAAP operating income $ 55.7   $ 46.7   $ 55.5   $ 236.1   $ 261.1  
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits (cost of revenues) 3.2 (0.8 ) 3.2 (0.8 )
b) Expensing of appraised inventory at fair market value step up 55.6 11.9 67.5
c) Amortization of acquisition related intangible assets 32.9 24.7 34.6 104.8 135.7
d) Actuarial (gains) losses on pension plans and other pension benefits (operating expenses) 6.8 (4.2 ) 6.8 (4.2 )
e) Restructuring, asset impairments and other, net 4.5 21.8 4.8 33.2 9.3
f) Goodwill and intangible asset impairments 2.2 3.8
g) Third party acquisition related costs 3.5   17.8   3.3   25.8   3.5  
Total special items 106.5   76.2   37.7   243.5   147.3  
Non-GAAP operating income $ 162.2   $ 122.9   $ 93.2   $ 479.6   $ 408.4  
Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenues) :
GAAP operating margin 4.4 % 4.9 % 6.6 % 6.0 % 7.5 %
Special items:
a) Actuarial (gains) losses on pension plans and other pension benefits (cost of revenues) 0.3 % % (0.1 )% 0.1 % %
b) Expensing of appraised inventory at fair market value step up 4.4 % 1.3 % % 1.7 % %
c) Amortization of acquisition related intangible assets 2.6 % 2.6 % 4.1 % 2.7 % 3.9 %
d) Actuarial (gains) losses on pension plans and other pension benefits (operating expenses) 0.5 % % (0.5 )% 0.2 % (0.1 )%
e) Restructuring, asset impairments and other, net 0.4 % 2.3 % 0.6 % 0.8 % 0.3 %
f) Goodwill and intangible asset impairments % % % 0.1 % 0.1 %
g) Third party acquisition related costs 0.3 % 1.9 % 0.4 % 0.7 % 0.1 %
Total special items 8.5 % 8.0 % 4.5 % 6.3 % 4.2 %
Non-GAAP operating margin 12.9 % 12.9 % 11.1 % 12.3 % 11.7 %
 
Reconciliation of GAAP income before income taxes to non-GAAP income before income taxes:
GAAP income before income taxes 18.2   $ 87.3   $ 40.7   $ 180.6   $ 219.8  
Special items:
a) Actuarial losses (gains) on pension plans and other pension benefits (cost of revenues) 3.2 (0.8 ) 3.2 (0.8 )
b) Expensing of appraised inventory at fair market value step up 55.6 11.9 67.5
c) Amortization of acquisition related intangible assets (operating expenses) 32.9 24.7 34.6 104.8 135.7
d) Actuarial losses (gains) on pension plans and other pension benefits (operating expenses) 6.8 (4.2 ) 6.8 (4.2 )
e) Restructuring, asset impairments and other, net 4.5 21.8 4.8 33.2 9.3
f) Goodwill and intangible asset impairments 2.2 3.8
g) Third party acquisition related costs 3.5 17.8 3.3 25.8 3.5
h) Loss on modification or extinguishment of debt 6.3 6.3 0.4
i) Gain on sale of available-for-sale securities (5.4 )
j) Non-cash interest on convertible notes 6.5 6.6 6.3 26.1 17.5
k) Pre-acquisition interest expense, net 24.4 48.3
l) Adjustment to contingent consideration 0.8 (1.3 ) (0.5 )
m) Gain on divestiture of business   (92.2 )   (92.2 )  
Total special items 113.8   20.0   44.0   231.5   159.8  
Non-GAAP income before income taxes $ 132.0   $ 107.3   $ 84.7   $ 412.1   $ 379.6  

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