UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
August 4, 2010
Date of report (Date of earliest event reported)
ON Semiconductor Corporation
(Exact name of registrant as specified in charter)
| Delaware | 000-30419 | 36-3840979 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (I.R.S. Employer Identification Number) |
| ON Semiconductor Corporation 5005 E. McDowell Road Phoenix, Arizona |
85008 | |
| (Address of principal executive offices) | (Zip Code) |
(602) 244-6600
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operation and Financial Condition.
On August 4, 2010, ON Semiconductor Corporation (the “Company”) announced in a news release its financial performance for the second quarter ended July 2, 2010 and other related material information (“Earnings Release”). A copy of the Earnings Release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
On August 4, 2010, following the dissemination of the Earnings Release, the Company will hold a live conference call at 5:00 p.m. Eastern time (ET) to discuss its financial performance for the second quarter ended July 2, 2010 and other related material information. A copy of the script for this call is attached as Exhibit 99.2 and incorporated herein by reference. The Earnings Release and the call script include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measures prepared in accordance with U.S. GAAP are set forth in the Company’s Earnings Release and posted separately on the Investor Relations page of the Company’s website at http://www.onsemi.com. The Company will provide a real-time audio broadcast of the teleconference on the Investor Relations page of its website at http://www.onsemi.com. The re-broadcast of the call will be available at this site approximately one hour following the live broadcast and will continue to be available for approximately 30 days following the conference call. Investors and interested parties can also access the conference call through a telephone call by dialing (888) 546-9664 (U.S./Canada) or (973) 935-8144 (International) and providing the conference ID number of 85751796. The Company will provide a dial-in replay approximately one hour following the live broadcast that will continue through approximately August 11, 2010. To listen to the teleconference replay, call (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). You will be required to provide the Conference ID Number – which is 85751796.
The information under this Item 2.02 of this report, including Exhibits 99.1 and 99.2, is being furnished under Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to liability of that section nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
Not applicable.
(b) Pro Forma Financial Information
Not applicable.
(c) Shell Company Transactions
Not applicable.
(d) Exhibits
The below exhibits are furnished as part of this report.
| Exhibit No. |
Description | |
| 99.1 | News release for ON Semiconductor Corporation dated August 4, 2010, announcing financial performance for the second quarter ended July 2, 2010 | |
| 99.2 | Conference call script for August 4, 2010 regarding ON Semiconductor Corporation’s financial performance for the second quarter ended July 2, 2010 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ON SEMICONDUCTOR CORPORATION | ||||||
| (Registrant) | ||||||
| Date: August 4, 2010 | By: | /s/ DONALD A. COLVIN | ||||
| Donald A. Colvin | ||||||
| Executive Vice President and Chief Financial Officer | ||||||
EXHIBIT INDEX
The below exhibits are furnished as part of this report.
| Exhibit No. |
Description | |
| 99.1 | News release for ON Semiconductor Corporation dated August 4, 2010, announcing financial performance for the second quarter ended July 2, 2010 | |
| 99.2 | Conference call script for August 4, 2010 regarding ON Semiconductor Corporation’s financial performance for the second quarter ended July 2, 2010 | |
Exhibit 99.1
| Anne Spitza | Ken Rizvi | |
| Corporate Communications | M&A, Treasury & Investor Relations | |
| ON Semiconductor | ON Semiconductor | |
| (602) 244-6398 | (602) 244-3437 | |
| anne.spitza@onsemi.com | ken.rizvi@onsemi.com |
ON Semiconductor Reports Second Quarter of 2010 Results
For the second quarter of 2010, highlights include:
| • | Record quarterly revenues of approximately $583.3 million an increase of approximately 6 percent from the first quarter of 2010 |
| • | Record GAAP gross margin of 41.8 percent |
| • | Record non-GAAP gross margin of 42.5 percent |
| • | GAAP net income of $0.18 per fully diluted share |
| • | Non-GAAP net income of $0.24 per fully diluted share which includes stock based compensation expense |
| • | Prepayment and termination of Senior Secured Credit Facilities totaling approximately $170 million |
| • | Completed the acquisition of Sound Design Technologies, Ltd for approximately $22 million in cash |
| • | Announced the signing of the definitive purchase agreement to acquire SANYO Semiconductor for approximately ¥33.0 billion |
PHOENIX, Ariz. – Aug. 4, 2010 – ON Semiconductor Corporation (Nasdaq: ONNN) today announced that total revenues in the second quarter of 2010 were $583.3 million, an increase of approximately 6 percent from the first quarter of 2010. During the second quarter of 2010, the company reported GAAP net income of $78.7 million, or $0.18 per fully diluted share. The second quarter 2010 GAAP net income included net charges of $24.7 million, or $0.06 per fully diluted share, from special items. Also included in the operating expenses during the second quarter of 2010 was approximately $4 million of acquisition related expenses. The special item details can be found in the attached schedules. During the first quarter of 2010, the company reported a GAAP net income of $63.0 million, or $0.14 per fully diluted share.
Second quarter 2010 non-GAAP net income was $103.4 million, or $0.24 per share on a fully diluted basis and includes stock based compensation expense. First quarter 2010 non-GAAP net income was $85.3 million, or $0.19 per share on a fully diluted basis and includes stock-based compensation expense. A reconciliation of these non-GAAP financial measures (and other non-GAAP measures used elsewhere in this release, such as non-GAAP gross margin and adjusted EBITDA) to the company’s most directly comparable measures prepared in accordance with U.S. GAAP are set forth in the attached schedules and on our website at www.onsemi.com.
On a mix-adjusted basis, average selling prices in the second quarter of 2010 were generally flat when compared to the first quarter of 2010. GAAP gross margin in the second quarter was 41.8 percent. Non-GAAP
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ON Semiconductor Reports Second Quarter of 2010 Results
2 – 2 – 2 – 2
gross margin in the second quarter of 2010 was 42.5 percent and includes stock based compensation expense. GAAP gross margin in the second quarter included a net charge of approximately $3.9 million, or approximately 70 basis points, from special items. The special items details can be found in the attached schedules.
Adjusted EBITDA for the second quarter of 2010 was $143.1 million and includes stock-based compensation expense. Adjusted EBITDA for the first quarter of 2010 was $127.3 million and includes stock-based compensation expense.
“During the second quarter of 2010, we achieved several milestones, including recording our highest quarterly revenues, gross margin percent and net cash from operating activities in the company’s history,” said Keith Jackson, ON Semiconductor president and CEO. “We also successfully prepaid and terminated our Senior Secured Credit Facilities totaling approximately $170 million and exited the quarter with the lowest net debt position in the company’s history at approximately $286 million. In addition to our strong financial results, we signed a definitive purchase agreement to acquire SANYO Semiconductor, moving us closer to our vision of becoming a premier global supplier of high-performance, energy efficient, silicon solutions for green electronics. We look forward to merging this business into ours and continuing our established track record of successfully integrating acquisitions over the last several years. Given SANYO Semiconductor’s similar product profile, our proven capabilities as an industry consolidator, and our established presence in Japan, we believe we can successfully migrate their financial metrics to be more in-line with our recent financial performance. We believe the transaction represents a tremendous opportunity for both ON Semiconductor and SANYO Semiconductor, our employees, our customers and our shareholders.”
THIRD QUARTER 2010 OUTLOOK
“Based upon product booking trends, backlog levels and estimated turns levels, we anticipate that total revenues will be approximately $585 to $610 million in the third quarter of 2010,” Jackson said. “Backlog levels at the beginning of the third quarter of 2010 were up from backlog levels at the beginning of the second quarter of 2010 and represent over 90 percent of our anticipated third quarter 2010 revenues. We expect that average selling prices for the third quarter of 2010 will be approximately flat when compared to the second quarter of 2010. The non-GAAP outlook for the third quarter of 2010 includes stock based compensation expense of approximately $13 to $14 million.”
ON Semiconductor Reports Second Quarter of 2010 Results
3 – 3 – 3 – 3
The following table outlines ON Semiconductor’s third quarter 2010 GAAP and non-GAAP outlook.
ON SEMICONDUCTOR Q3 2010 BUSINESS OUTLOOK
| GAAP |
Special Items *** |
Non-GAAP**** | ||||
| Revenue |
$585 to $610 million | $585 to $610 million | ||||
| Gross Margin |
42.2% to 42.7% | $2 million | 42.5% to 43.0% | |||
| Operating Expenses |
$141 to $145 million | $10 million | $131 to $135 million | |||
| Net Interest Expense / Other Expenses |
$10 million | $10 million | ||||
| Convertible Notes, Non-cash Interest Expense* |
$8 million | $8 million | $0 million | |||
| Tax |
$4 million | $1 million | $3 million | |||
| Fully Diluted Share Count ** |
445 million | 445 million |
| * | Convertible Notes, Non-cash Interest Expense are included in FASB’s Accounting Standards Codification (“ASC”) Topic 470 Debt. |
| ** | Fully diluted share count can vary for, among other things, the actual exercise of options or restricted stock units, the incremental dilutive shares from all of the company’s convertible senior subordinated notes, and the repurchase or the issuance of stock or the sale of treasury shares. Please refer to the table on our website for potential changes to the Fully Diluted Share Count. |
| *** | Special Items can include: restructuring, asset impairments and other, net; expensing of appraised inventory fair market value (FMV) step up; amortization of intangibles; goodwill impairments; income tax adjustments to approximate cash taxes; non-cash interest expense and certain other special items as necessary. |
| **** | Regulation G and other provisions of the securities laws regulate the use of financial measures that are not prepared in accordance with GAAP. We believe these non-GAAP measures provide important supplemental information to investors. We use these measures, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. 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 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 other companies’ non-GAAP financial measures, even if they have similar names. |
TELECONFERENCE
ON Semiconductor will host a conference call for the financial community at 5:00 p.m. Eastern Time (ET) on Aug. 4, 2010 to discuss this announcement and ON Semiconductor’s results for the second quarter of 2010. The company will also provide a real-time audio broadcast of the teleconference on the Investor Relations page of its website at http://www.onsemi.com. The webcast replay will be available at this site approximately one hour following the live broadcast and will continue to be available for approximately 30 days following the conference call. Investors and interested parties can also access the conference call through a telephone call by dialing (888) 546-9664 (U.S./Canada) or (973) 935-8144 (International). In order to join this conference call, you will be required to provide the Conference ID Number – which is 85751796. Approximately one hour following the live broadcast, the company will provide a dial-in replay that will continue to be available through Aug 11, 2010. To listen to the teleconference replay, call (800) 642-1687 (U.S./Canada) or (706) 645-9291 (International). You will be required to provide the Conference ID Number – which is 85751796.
ON Semiconductor Reports Second Quarter of 2010 Results
4 – 4 – 4 – 4
About ON Semiconductor
ON Semiconductor (Nasdaq: ONNN) is a premier supplier of high performance, energy efficient, silicon solutions for green electronics. The company’s broad portfolio of power and signal management, logic, discrete and custom devices helps customers effectively solve their design challenges in automotive, communications, computing, consumer, industrial, LED lighting, medical, military/aerospace and power applications. ON Semiconductor operates a world-class, value-added supply chain and a network of manufacturing facilities, sales offices and design centers in key markets throughout North America, Europe, and the Asia Pacific regions. For more information, visit http://www.onsemi.com.
# # #
ON Semiconductor and the ON Semiconductor logo are registered trademarks of Semiconductor Components Industries, LLC. All other brand and product names appearing in this document are registered trademarks or trademarks of their respective holders. Although the company references its website in this news release, information on the website is not to be incorporated herein.
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements related to the future financial performance of ON Semiconductor and our ability to increase cash flow from current levels. These forward-looking statements are based on information available to us as of the date of this release and current expectations, forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which are beyond our control. In particular, such risks and uncertainties include, but are not limited to, difficulties encountered in integrating acquired businesses; the variable demand and the aggressive pricing environment for semiconductor products; dependence on our company’s ability to successfully manufacture in increasing volumes on a cost-effective basis and with acceptable quality for our current products; the adverse impact of competitive product announcements; revenues and operating performance; poor economic conditions and markets, including the current credit markets; the cyclical nature of the semiconductor industry; changes in demand for our products; changes in inventories at customers and distributors; technological and product development risks; availability of raw materials; competitors’ actions; pricing and gross margin pressures; loss of key customers; order cancellations or reduced bookings; changes in manufacturing yields; control of costs and expenses; significant litigation; risks associated with decisions to expend cash reserves for various uses such as debt prepayment or acquisitions rather than to retain such cash for future needs; risks associated with acquisitions and dispositions (including the pending acquisition of SANYO Semiconductor Co., Ltd); risks associated with leverage and restrictive covenants in debt agreements; risks associated with international operations, including foreign employment and labor matters associated with unions and collective bargaining agreements; the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally; risks related to new legal requirements; risks and costs associated with increased and new regulation of corporate governance and disclosure standards; and risks involving environmental or other governmental regulation. Information concerning additional factors that could cause results to differ materially from those projected in the forward-looking statements is contained in ON Semiconductor’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other of our filings with the Securities and Exchange Commission. These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made.
ON Semiconductor Reports Second Quarter of 2010 Results
5 – 5 – 5 – 5
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
| Quarter Ended | Six Months | |||||||||||||||||||
| July 2, 2010 |
April 2, 2010 |
July 3, 2009 |
July 2, 2010 |
July 3, 2009 |
||||||||||||||||
| Net revenues |
$ | 583.3 | $ | 550.2 | $ | 419.8 | $ | 1,133.5 | $ | 798.9 | ||||||||||
| Cost of revenues |
339.5 | 322.1 | 281.6 | 661.6 | 548.6 | |||||||||||||||
| Gross profit |
243.8 | 228.1 | 138.2 | 471.9 | 250.3 | |||||||||||||||
| Gross margin |
41.8 | % | 41.5 | % | 32.9 | % | 41.6 | % | 31.3 | % | ||||||||||
| Operating expenses: |
||||||||||||||||||||
| Research and development |
60.1 | 65.2 | 50.7 | 125.3 | 94.3 | |||||||||||||||
| Selling and marketing |
36.5 | 35.6 | 28.4 | 72.1 | 57.4 | |||||||||||||||
| General and administrative |
35.3 | 31.5 | 30.0 | 66.8 | 57.3 | |||||||||||||||
| Amortization of acquisition related intangible assets |
8.1 | 7.8 | 7.3 | 15.9 | 14.5 | |||||||||||||||
| Restructuring, asset impairments and other, net |
2.3 | 3.8 | 8.1 | 6.1 | 17.7 | |||||||||||||||
| Total operating expenses |
142.3 | 143.9 | 124.5 | 286.2 | 241.2 | |||||||||||||||
| Operating income |
101.5 | 84.2 | 13.7 | 185.7 | 9.1 | |||||||||||||||
| Other income (expenses), net: |
||||||||||||||||||||
| Interest expense |
(14.5 | ) | (16.4 | ) | (15.7 | ) | (30.9 | ) | (33.4 | ) | ||||||||||
| Interest income |
0.1 | 0.1 | 0.2 | 0.2 | 0.6 | |||||||||||||||
| Other |
(3.4 | ) | (2.8 | ) | (0.5 | ) | (6.2 | ) | (2.7 | ) | ||||||||||
| Loss on debt repurchase |
(0.7 | ) | — | (0.9 | ) | (0.7 | ) | (3.1 | ) | |||||||||||
| Other expenses, net |
(18.5 | ) | (19.1 | ) | (16.9 | ) | (37.6 | ) | (38.6 | ) | ||||||||||
| Income (loss) before income taxes |
83.0 | 65.1 | (3.2 | ) | 148.1 | (29.5 | ) | |||||||||||||
| Income tax benefit (provision) |
(3.4 | ) | (1.4 | ) | 1.0 | (4.8 | ) | (6.2 | ) | |||||||||||
| Net income (loss) |
79.6 | 63.7 | (2.2 | ) | 143.3 | (35.7 | ) | |||||||||||||
| Net income attributable to minority interest |
(0.9 | ) | (0.7 | ) | (0.8 | ) | (1.6 | ) | (1.2 | ) | ||||||||||
| Net income (loss) attributable to ON Semiconductor Corporation |
$ | 78.7 | $ | 63.0 | $ | (3.0 | ) | $ | 141.7 | $ | (36.9 | ) | ||||||||
| Net income (loss) per common share attributable to ON Semiconductor Corporation: |
||||||||||||||||||||
| Basic: |
$ | 0.18 | $ | 0.15 | $ | (0.01 | ) | $ | 0.33 | $ | (0.09 | ) | ||||||||
| Diluted: |
$ | 0.18 | $ | 0.14 | $ | (0.01 | ) | $ | 0.32 | $ | (0.09 | ) | ||||||||
| Weighted average common shares outstanding: |
||||||||||||||||||||
| Basic |
430.3 | 428.1 | 420.7 | 429.2 | 417.1 | |||||||||||||||
| Diluted: |
439.6 | 440.9 | 420.7 | 439.4 | 417.1 | |||||||||||||||
ON Semiconductor Reports Second Quarter of 2010 Results
6 – 6 – 6 – 6
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(in millions)
| July 2, 2010 |
April 2, 2010 |
December 31, 2009 |
||||||||||
| Assets |
||||||||||||
| Cash, cash equivalents and short-term investments |
$ | 467.1 | $ | 560.7 | $ | 571.2 | ||||||
| Receivables, net |
317.2 | 298.9 | 260.9 | |||||||||
| Inventories, net |
321.5 | 297.6 | 269.9 | |||||||||
| Other current assets |
50.9 | 48.4 | 51.5 | |||||||||
| Deferred income taxes, net of allowances |
14.6 | 14.6 | 15.1 | |||||||||
| Total current assets |
1,171.3 | 1,220.2 | 1,168.6 | |||||||||
| Restricted cash |
— | 0.2 | 5.9 | |||||||||
| Property, plant and equipment, net |
784.9 | 741.6 | 705.5 | |||||||||
| Goodwill |
197.3 | 191.7 | 175.4 | |||||||||
| Intangible assets, net |
327.3 | 330.6 | 298.7 | |||||||||
| Other assets |
60.2 | 61.5 | 60.2 | |||||||||
| Total assets |
$ | 2,541.0 | $ | 2,545.8 | $ | 2,414.3 | ||||||
| Liabilities and Stockholders’ Equity |
||||||||||||
| Accounts payable |
$ | 240.1 | $ | 204.7 | $ | 172.9 | ||||||
| Accrued expenses |
156.9 | 141.6 | 135.5 | |||||||||
| Income taxes payable |
1.8 | 2.9 | 5.0 | |||||||||
| Accrued interest |
0.8 | 4.6 | 0.9 | |||||||||
| Deferred income on sales to distributors |
127.8 | 109.1 | 98.8 | |||||||||
| Current portion of long-term debt |
120.5 | 111.3 | 205.9 | |||||||||
| Total current liabilities |
647.9 | 574.2 | 619.0 | |||||||||
| Long-term debt |
632.9 | 823.5 | 727.6 | |||||||||
| Other long-term liabilities |
44.6 | 45.0 | 49.3 | |||||||||
| Deferred income taxes, net of allowances |
16.3 | 15.4 | 13.8 | |||||||||
| Total liabilities |
1,341.7 | 1,458.1 | 1,409.7 | |||||||||
| ON Semiconductor Corporation stockholders’ equity: |
||||||||||||
| Common stock |
4.8 | 4.8 | 4.7 | |||||||||
| Additional paid-in capital |
2,973.1 | 2,939.9 | 2,916.6 | |||||||||
| Accumulated other comprehensive loss |
(63.1 | ) | (65.1 | ) | (64.9 | ) | ||||||
| Accumulated deficit |
(1,362.7 | ) | (1,441.4 | ) | (1,504.4 | ) | ||||||
| Less: treasury stock, at cost |
(374.0 | ) | (370.8 | ) | (367.0 | ) | ||||||
| Total ON Semiconductor Corporation stockholders’ equity |
1,178.1 | 1,067.4 | 985.0 | |||||||||
| Minority interest in consolidated subsidiaries |
21.2 | 20.3 | 19.6 | |||||||||
| Total equity |
1,199.3 | 1,087.7 | 1,004.6 | |||||||||
| Total liabilities and equity |
$ | 2,541.0 | $ | 2,545.8 | $ | 2,414.3 | ||||||
ON Semiconductor Reports Second Quarter of 2010 Results
7 – 7 – 7 – 7
ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA* AND
CASH PROVIDED BY OPERATING ACTIVITIES
(in millions)
| Quarter Ended | Six Months | |||||||||||||||||||
| July 2, 2010 |
April 2, 2010 |
July 3, 2009 |
July 2, 2010 |
July 3, 2009 |
||||||||||||||||
| Net income (loss) |
$ | 79.6 | $ | 63.7 | $ | (2.2 | ) | $ | 143.3 | $ | (35.7 | ) | ||||||||
| Plus: |
||||||||||||||||||||
| Depreciation and amortization |
40.3 | 39.7 | 39.0 | 80.0 | 78.7 | |||||||||||||||
| Interest expense |
14.5 | 16.4 | 15.7 | 30.9 | 33.4 | |||||||||||||||
| Interest income |
(0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | (0.6 | ) | ||||||||||
| Income tax (benefit) provision |
3.4 | 1.4 | (1.0 | ) | 4.8 | 6.2 | ||||||||||||||
| Net income attributable to minority interest |
(0.9 | ) | (0.7 | ) | (0.8 | ) | (1.6 | ) | (1.2 | ) | ||||||||||
| Restructuring, asset impairments and other, net |
2.3 | 3.8 | 8.1 | 6.1 | 17.7 | |||||||||||||||
| Loss on debt repurchase |
0.7 | — | 0.9 | 0.7 | 3.1 | |||||||||||||||
| Expensing of appraised inventory fair market value step up |
3.3 | 3.1 | 2.7 | 6.4 | 5.8 | |||||||||||||||
| Adjusted EBITDA* |
143.1 | 127.3 | 62.2 | 270.4 | 107.4 | |||||||||||||||
| Increase (decrease): |
||||||||||||||||||||
| Interest expense |
(14.5 | ) | (16.4 | ) | (15.7 | ) | (30.9 | ) | (33.4 | ) | ||||||||||
| Interest income |
0.1 | 0.1 | 0.2 | 0.2 | 0.6 | |||||||||||||||
| Income tax benefit (provision) |
(3.4 | ) | (1.4 | ) | 1.0 | (4.8 | ) | (6.2 | ) | |||||||||||
| Net income attributable to minority interest |
0.9 | 0.7 | 0.8 | 1.6 | 1.2 | |||||||||||||||
| Restructuring, asset impairments, and other, net |
(2.3 | ) | (3.8 | ) | (8.1 | ) | (6.1 | ) | (17.7 | ) | ||||||||||
| Expensing of appraised inventory fair market value step up |
(3.3 | ) | (3.1 | ) | (2.7 | ) | (6.4 | ) | (5.8 | ) | ||||||||||
| Stock compensation expense |
15.4 | 13.7 | 16.1 | 29.1 | 28.8 | |||||||||||||||
| Gain on sale or disposal of fixed assets |
(1.6 | ) | (2.1 | ) | 0.9 | (3.7 | ) | (0.4 | ) | |||||||||||
| Amortization of debt issuance costs and debt discount |
0.7 | 0.7 | 0.8 | 1.4 | 1.7 | |||||||||||||||
| Provision for excess inventories |
1.2 | (1.1 | ) | 4.0 | 0.1 | 11.6 | ||||||||||||||
| Non-cash interest expense |
8.3 | 8.7 | 8.4 | 17.0 | 18.3 | |||||||||||||||
| Cash portion of loss on debt repurchase |
— | — | (0.7 | ) | — | (2.4 | ) | |||||||||||||
| Non-cash impairment charges |
— | — | 0.2 | — | 0.2 | |||||||||||||||
| Deferred income taxes |
1.1 | 2.3 | (0.1 | ) | 3.4 | 0.2 | ||||||||||||||
| Other |
0.2 | (1.0 | ) | (0.9 | ) | (0.8 | ) | (1.2 | ) | |||||||||||
| Changes in operating assets and liabilities |
13.0 | (15.1 | ) | (8.1 | ) | (2.1 | ) | (15.9 | ) | |||||||||||
| Net cash provided by operating activities |
$ | 158.9 | $ | 109.5 | $ | 58.3 | $ | 268.4 | $ | 87.0 | ||||||||||
| * | Adjusted EBITDA represents net income (loss) 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 performance metric for the vesting/releasing of certain of our performance based equity awards, and for earning of corporate cash bonuses when applicable. 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. We use this measure, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. 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 Reports Second Quarter of 2010 Results
8 – 8 – 8 – 8
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 | |||||||||||||||||||
| Reconciliation of GAAP gross profit to non-GAAP gross profit: |
July 2, 2010 |
April 2, 2010 |
July 3, 2009 |
July 2, 2010 |
July 3, 2009 |
|||||||||||||||
| GAAP gross profit |
$ | 243.8 | $ | 228.1 | $ | 138.2 | $ | 471.9 | $ | 250.3 | ||||||||||
| Special items: |
||||||||||||||||||||
| a) Expensing of appraised inventory fair market value step up |
3.3 | 3.1 | 2.7 | 6.4 | 5.8 | |||||||||||||||
| b) Amortization of intangibles |
0.6 | 0.6 | 0.5 | 1.2 | 1.1 | |||||||||||||||
| Total Special items |
3.9 | 3.7 | 3.2 | 7.6 | 6.9 | |||||||||||||||
| Non-GAAP gross profit |
$ | 247.7 | $ | 231.8 | $ | 141.4 | $ | 479.5 | $ | 257.2 | ||||||||||
| Reconciliation of GAAP gross margin to non-GAAP gross margin: |
||||||||||||||||||||
| GAAP gross margin |
41.8 | % | 41.5 | % | 32.9 | % | 41.6 | % | 31.3 | % | ||||||||||
| Special items: |
||||||||||||||||||||
| a) Expensing of appraised inventory fair market value step up |
0.6 | % | 0.6 | % | 0.6 | % | 0.6 | % | 0.7 | % | ||||||||||
| b) Amortization of intangibles |
0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | ||||||||||
| Total Special items |
0.7 | % | 0.7 | % | 0.8 | % | 0.7 | % | 0.9 | % | ||||||||||
| Non-GAAP gross margin |
42.5 | % | 42.1 | % | 33.7 | % | 42.3 | % | 32.2 | % | ||||||||||
| Reconciliation of GAAP income (loss) to non-GAAP net income: |
||||||||||||||||||||
| GAAP net income (loss) attributable to ON Semiconductor Corporation |
$ | 78.7 | $ | 63.0 | $ | (3.0 | ) | $ | 141.7 | $ | (36.9 | ) | ||||||||
| Special items: |
||||||||||||||||||||
| a) Expensing of appraised inventory fair market value step up—cost of revenues |
3.3 | 3.1 | 2.7 | 6.4 | 5.8 | |||||||||||||||
| b) Amortization of intangible assets—cost of revenues |
0.6 | 0.6 | 0.5 | 1.2 | 1.1 | |||||||||||||||
| c) Amortization of acquisition related intangible assets—operating expenses |
8.1 | 7.8 | 7.3 | 15.9 | 14.5 | |||||||||||||||
| d) Restructuring, asset impairments and other, net |
2.3 | 3.8 | 8.1 | 6.1 | 17.7 | |||||||||||||||
| e) (Gain) loss on debt prepayment |
0.7 | — | 0.9 | 0.7 | 3.1 | |||||||||||||||
| f) Non-cash interest expense |
8.3 | 8.7 | 8.4 | 17.0 | 18.3 | |||||||||||||||
| g) Cash taxes |
1.4 | (1.7 | ) | (2.3 | ) | (0.3 | ) | — | ||||||||||||
| Total Special items |
24.7 | 22.3 | 25.6 | 47.0 | 60.5 | |||||||||||||||
| Non-GAAP net income |
$ | 103.4 | $ | 85.3 | $ | 22.6 | $ | 188.7 | $ | 23.6 | ||||||||||
| Non-GAAP net income per share: |
||||||||||||||||||||
| Basic |
$ | 0.24 | $ | 0.20 | $ | 0.05 | $ | 0.44 | $ | 0.06 | ||||||||||
| Diluted |
$ | 0.24 | $ | 0.19 | $ | 0.05 | $ | 0.43 | $ | 0.06 | ||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||||||
| Basic |
430.3 | 428.1 | 420.7 | 429.2 | 417.1 | |||||||||||||||
| Diluted: |
439.6 | 440.9 | 433.3 | 439.4 | 425.0 | |||||||||||||||
Total share-based compensation expense, related to the Company’s stock options, restricted stock units, restricted stock awards and employee stock purchase plan is included below.
| Quarter Ended | Six Months Ended | ||||||||||||||
| July 2, 2010 |
April 2, 2010 |
July 3, 2009 |
July 2, 2010 |
July 3, 2009 | |||||||||||
| Cost of revenues |
$ | 3.3 | $ | 3.3 | $ | 4.2 | $ | 6.6 | $ | 7.1 | |||||
| Research and development |
2.7 | 2.5 | 3.1 | 5.2 | 5.5 | ||||||||||
| Selling and marketing |
2.0 | 2.6 | 2.8 | 4.6 | 4.8 | ||||||||||
| General and administrative |
7.0 | 5.3 | 6.0 | 12.3 | 11.4 | ||||||||||
| Restructuring |
0.4 | — | — | 0.4 | — | ||||||||||
| Total share-based compensation expense |
$ | 15.4 | $ | 13.7 | $ | 16.1 | $ | 29.1 | $ | 28.8 | |||||
| (1) | Certain amounts may not total due to rounding of individual components. |
Non-GAAP Measures
To supplement the consolidated financial results prepared under GAAP, ON Semiconductor uses non-GAAP measures which are adjusted from the most directly comparable GAAP results to exclude items related to amortization of intangible assets, amortization of acquisition-related intangibles, expensing of appraised inventory fair market value step up, purchased in-process research and development expenses, restructuring, asset impairments and other, net, goodwill impairment charges, gains and losses on debt prepayment, non-cash interest expense, their related tax effects and certain other special items as necessary. Management does not consider these charges in evaluating the core operational activities of ON Semiconductor. Management uses these non-GAAP measures internally to make strategic decisions, forecast future results and evaluate ON Semiconductor’s current performance. Most analysts covering ON Semiconductor use the non-GAAP measures as well. Given management’s use of these non-GAAP measures, ON Semiconductor believes these measures are important to investors in understanding ON Semiconductor’s current and future operating results as seen through the eyes of management. In addition, management believes these non-GAAP measures are useful to investors in enabling them to better assess changes in ON Semiconductor’s core business across different time periods. These non-GAAP measures are not in accordance with or an alternative to GAAP financial data and may be different from non-GAAP measures used by other companies. Because non-GAAP financial measures are not standardized it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names.
— Non-GAAP gross profit and gross margin. The use of this non-GAAP financial measure allows management to evaluate the gross margin of the company’s core businesses and trends across different reporting periods on a consistent basis, independent of non-cash items including expensing of appraised inventory fair market value step up and amortization of intangible assets. In addition, it is an important component of management’s internal performance measurement and reward process as it is used to assess the current and historical financial results of the business, for strategic decision making, preparing budgets and forecasting future results. Management presents this non-GAAP financial measure to enable investors and analysts to evaluate our revenue generation performance relative to the direct costs of revenue of ON Semiconductor’s core businesses.
— Non-GAAP net income and net income per share. The use of these non-GAAP financial measures allow management to evaluate the operating results of ON Semiconductor’s core businesses and trends across different reporting periods on a consistent basis, independent of non-cash items including amortization of intangible assets, amortization of acquisition-related intangibles, expensing of appraised inventory fair market value step up, purchased in-process research and development expenses, restructuring, asset impairments and other, net, goodwill impairment charges, gains and losses on debt prepayment, non-cash interest expense, their related tax effects and certain other special items as necessary. In addition, they are important components of management’s internal performance measurement and reward process as it is used to assess the current and historical financial results of the business, for strategic decision making, preparing budgets and forecasting future results. Management presents these non-GAAP financial measures to enable investors and analysts to understand the results of operations of ON Semiconductor’s core businesses and to compare our results of operations on a more consistent basis against that of other companies in our industry.
Exhibit 99.2
ON SEMICONDUCTOR CORPORATION
CALL SCRIPT FOR
Q2-10 QUARTERLY CONFERENCE CALL
KEN RIZVI:
Thank you .
Good afternoon and thank you for joining ON Semiconductor Corporation’s second quarter 2010 conference call. I am joined today by Keith Jackson, our President and CEO, and Donald Colvin, our CFO. This call is being webcast on the investor relations section of our website at www.onsemi.com and a replay will be available for approximately 30 days following this conference call, along with our earnings release for the second quarter of 2010. The script for today’s call is posted on our website and will be furnished via a Form 8-K filing.
Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP are in Wednesday,
Wednesday, August 4, 2010
our earnings release and posted separately on our website in the investor relations section. In the upcoming quarter, we will be presenting at the Pacific Crest Technology Forum on August 10 th and the CitiGroup Technology Conference on September 8th.
(SAFE HARBOR)
During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. The words “believe,” “estimate,” “anticipate,” “intend,” “expect,” “plan,” or similar expressions are intended to identify forward-looking statements. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. Important factors relating to our business, including factors that could cause actual results to differ from our forward-looking statements, are described in our Form 10-K, Form 10-Q’s and other filings with the SEC. The company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other factors.
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Now, let’s hear from Donald Colvin, who will provide an overview of the second quarter results.
DONALD…
DONALD COLVIN:
Thanks Ken, and thanks to everyone who is joining us today.
ON Semiconductor Corporation today announced that total revenues in the second quarter of 2010 were approximately $583.3 million, an increase of approximately 6 percent from the first quarter of 2010. During the second quarter of 2010, the company reported GAAP net income of $78.7 million or $0.18 per fully diluted share. The second quarter 2010 GAAP net income included net charges of $24.7 million, or $0.06 per fully diluted share, from special items, which are detailed in schedules included in our earnings press release.
Second quarter 2010 non-GAAP net income was $103.4 million or $0.24 per share on a fully diluted basis and includes stock based compensation expense. During the second quarter of 2010, our GAAP and non-GAAP operating expenses included approximately $4 million of acquisition expenses related to our M&A activities that were not previously forecasted.
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We exited the second quarter of 2010 with cash and cash equivalents of approximately $467.1 million, a decline of approximately $94 million from the previous quarter. We also exited the quarter with the lowest net debt position in the company’s history at approximately $286 million. In the second quarter, the company prepaid approximately $170 million of Senior Secured Credit Facilities and used cash of approximately $22 million for the acquisition of Sound Design Technologies on June 9th.
At the end of the second quarter, total days sales outstanding were flat with the first quarter of 2010 at approximately 50 days. ON Semiconductor’s internal inventory increased slightly from first quarter levels on a days basis to approximately 86 days. Included in our total internal inventory is approximately $22 million of inventory related to our acquisitions or bridge inventory built related to our announced closures of front-end manufacturing lines. Net of the bridge inventory and inventory from recent acquisitions, our inventory days would have been approximately 80 days in the second quarter.
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Distribution inventories remained low at approximately 8 weeks exiting the second quarter.
Cash capital expenditures during the second quarter of 2010 were approximately $53 million bringing year-to-date capital expenditures to $94 million. We currently anticipate spending total capital expenditures for 2010 of approximately $200 million of which approximately $30 million will be for buildings.
Now I would like to turn it over to Keith Jackson for additional comments on the business environment.
KEITH…
KEITH JACKSON:
Thanks Don. Now for an overview of our end-markets.
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END MARKETS
During the second quarter of 2010, our end market splits were as follows: the Computing end-market represented approximately 26 percent of second quarter 2010 sales. The Automotive end-market represented approximately 20 percent of second quarter sales. The Industrial, Military and Aerospace end-market represented approximately 19 percent of sales. The Consumer Electronics end-market represented approximately 17 percent of sales. The Communications end-market, which includes wireless and networking, represented approximately 15 percent of sales and Medical represented approximately 3 percent of sales.
TOP OEM CUSTOMERS
On a direct billings basis, no individual ON Semiconductor product OEM customer represented more than 5 percent of second quarter sales. Our top 5 product OEM customers during the second quarter were: Continental Automotive Systems, Delta, Hella, Motorola and Samsung.
GEOGRAPHIC SEGMENTS
On a geographic basis, our contribution from sales in Asia represented approximately 61 percent of revenue. Our sales in the Americas represented approximately 23 percent of revenue and Europe represented approximately 16 percent of revenue during the quarter.
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CHANNEL BREAKOUT
Looking across the channels, direct sales to OEMs represented approximately 46 percent of second quarter 2010 revenue. Sales through the distribution channel were approximately 45 percent of second quarter revenue and the EMS channel represented approximately 9 percent of revenue.
REVENUE BREAK-OUT
During the second quarter, ON Semiconductor revenues broken out by our product groups were as follows. The Standard Products Group represented approximately 33 percent of sales. The Automotive and Power Group represented approximately 24 percent of second quarter sales. The Computing and Consumer Group represented approximately 23 percent of sales and the Digital & Mixed-signal Product Group represented approximately 20 percent of sales. We will publish the quarterly revenue, gross margin and operating margin break-out of these segments in our Form 10-Q for this period.
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COMPANY/PRODUCT HIGHLIGHTS
We achieved several milestones during the second quarter of 2010, including recording our highest quarterly revenues, gross margin percent and net cash from operating activities in the company’s history. We achieved historic revenue highs during the second quarter in three of our key end-markets – Automotive, Computing and Industrial.
Now, turning to our end-market and product line results:
In the Automotive end-market, we had another strong quarter of growth with revenues growing by approximately 8 percent sequentially versus the first quarter of 2010. Revenues in this end-market have exceeded prior highs driven by more electronic content per vehicle and a normalization of inventory levels throughout this supply chain. During the quarter, we continued to see growth from our next generation solutions for emissions reduction, fuel economy improvement and enhanced lighting, safety, connectivity and infotainment power delivery systems. One notable success has been the introduction of our first
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Application Specific IC for China’s automotive industry. This smart power ASIC was developed for a key automotive customer in the region for use in a lighting application and integrates more than 70 components on to a single chip. This achievement reinforces the overall success of our Solutions Engineering Centers – the newest of which we opened earlier this year in Shanghai to support automotive customers throughout the Asia-Pacific region.
The Industrial and Military/Aerospace end-market represented the strongest sequential growth of all of our end-markets in the second quarter of 2010 growing by approximately 11 percent sequentially.
Similar to the Automotive end-market, the Industrial and Military/Aerospace end-market exceeded prior highs. During the quarter we continued to see growth in our custom analog, mixed signal and ASIC products for this end-market. A convergence of connected building automation systems with energy efficiency initiatives are driving demand for wired communications over IP, embedded control and motor control, and sensors for proximity, ambient light and imaging applications.
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In the Computing end-market we continue to see strong demand for our energy efficient power management solutions, audio amplifiers, protection devices, thermal management and standard products, from key customers in both desktops and notebooks. The computing end-market experienced 5 percent sequential growth from the first quarter of 2010 due to a combination of worldwide PC production ramps by key customers, continued adoption of Windows 7, and corporate refresh efforts. In addition, the second quarter represented the strongest computing end-market revenue in the company’s history at approximately $149 million. During the quarter we continued to make inroads with design wins into next generation notebooks, tablet PCs and desktops with key manufacturers driven by our buck and boost converters, SenseFET and MOSFET products.
Exiting the second quarter, ON Semiconductor is well positioned to capitalize on a number of end-market growth factors including increased vehicle demand in Asia, ongoing market acceptance of
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Android-based handheld products, the increased worldwide shipment of PCs, and strong ramps in both Smartphones and LED backlighting in TVs. Within the Smartphone market, we have a full suite of products driving sales growth including our protection devices, audio amplifiers, LED drivers, USB switches and the medium scale IC integration to enable next generation handsets.
On the acquisition front, we successfully completed the acquisition of Sound Design Technologies, Ltd. for approximately $22 million in cash. This solidifies our position as a leading supplier of ultra-low-power DSP technology for hearing aids and consumer audio processing applications.
And on July 15th, we announced the definitive purchase agreement to acquire SANYO Semiconductor for approximately 33 billion Yen. We anticipate this acquisition to close before the end of the year. Annualized revenue of the combined entity would be approximately $3.5 billion. SANYO Semiconductor is currently operating at approximately breakeven today, and based on current revenue run rates, our goal is to
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deliver in excess of $30 million in quarterly pre-tax income from SANYO Semiconductor approximately eighteen months post close. Given SANYO Semiconductor’s similar product profile, our proven abilities as an industry consolidator, and our established presence in Japan, we believe over time, we can successfully migrate their financial metrics to be more in-line with our recent financial performance.
We believe the acquisition of SANYO Semiconductor will move ON Semiconductor closer to our vision of becoming a premier global supplier of high-performance, energy efficient, silicon solutions for green electronics. The transaction represents a tremendous opportunity for both ON Semiconductor and SANYO Semiconductor, our employees, our customers and our shareholders and we look forward to reporting on our progress over the coming quarters.
Now, I would like to turn it back over to Donald for other comments and our other forward-looking guidance —
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DONALD…
DONALD COLVIN:
Thanks Keith.
THIRD QUARTER 2010 OUTLOOK
Based upon current product booking trends, backlog levels and estimated turns levels, we anticipate that total revenues will be approximately $585 to $610 million in the third quarter of 2010. Backlog levels at the beginning of the third quarter of 2010 were up from backlog levels at the beginning of the second quarter of 2010 and represent over 90 percent of our anticipated third quarter 2010 revenues. We expect that average selling prices for the third quarter of 2010 will be approximately flat compared to the second quarter of 2010.
We expect cash capital expenditures of approximately $50 million in the third quarter of 2010.
For the third quarter, we expect GAAP gross margin of approximately 42.2 to 42.7 percent. Our GAAP gross margin in the third quarter will be negatively impacted from, among other, expensing of appraised inventory fair market value step up associated with our acquisitions. We expect non-GAAP gross margin of approximately 42.5
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to 43.0 percent. For the third quarter of 2010, we also expect total GAAP operating expenses of approximately $141 million to $145 million. Our GAAP operating expenses include the amortization of intangibles, restructuring, asset impairments and other charges which total approximately $10 million. We also expect total non-GAAP operating expenses of approximately $131 to $135 million. We anticipate GAAP net interest expense and other expenses will be approximately $18 million for the third quarter of 2010 which includes non-cash interest expense of approximately $8 million. We anticipate our non-GAAP net interest expense and other expenses will be approximately $10 million. GAAP taxes are expected to be approximately $4 million and cash taxes are expected to be approximately $3 million. We also expect stock based compensation expense of approximately $13 to $14 million in the third quarter of 2010 of which approximately $3 to $4 million is expected to be in cost of goods sold and the remaining in operating expenses. This expense is included in our non-GAAP financial measures.
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Our current fully diluted share count is approximately 445 million shares based on the current stock price. Further details on share count and EPS calculations are provided regularly in our quarterly and annual reports on Form 10-Q and Form 10-K.
With that, I would like to start the Q&A session.
Thank you and “ ” please open up the line for questions.
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