ON Semiconductor Reports Fourth Quarter and 2013 Annual Results


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

	Quarter Ended									Year Ended
	December 31, 2013			September 27, 2013			December 31, 2012			December 31, 2013			December 31, 2012
Revenues	$	718.0		$	715.4		$	680.2		$	2,782.7		$	2,894.9
Cost of revenues	465.1			466.2			469.8			1,844.3			1,943.0
Gross profit	252.9			249.2			210.4			938.4			951.9
Gross margin	35.2		%	34.8		%	30.9		%	33.7		%	32.9		%
Operating expenses:
Research and development	78.7			84.0			88.2			334.2			367.5
Selling and marketing	43.9			44.2			44.1			171.2			180.9
General and administrative	37.6			34.5			40.9			148.5			160.6
Amortization of acquisition-related intangible assets	8.3			8.2			11.1			33.1			44.4
Restructuring, asset impairments and other, net	22.1			11.0			108.0			33.2			165.3
Goodwill and intangible asset impairment	—			—			49.5			—			49.5
Total operating expenses	190.6			181.9			341.8			720.2			968.2
Operating income (loss)	62.3			67.3			(131.4		)	218.2			(16.3		)
Other income (expenses), net:
Interest expense	(10.0		)	(9.2		)	(12.7		)	(38.6		)	(56.1		)
Interest income	0.3			0.3			0.4			1.3			1.5
Other	(0.5		)	(1.4		)	2.4			3.1			5.8
Loss on debt exchange	—			—			—			(3.1		)	(7.8		)
Other income (expenses), net	(10.2		)	(10.3		)	(9.9		)	(37.3		)	(56.6		)
Income (loss) before income taxes	52.1			57.0			(141.3		)	180.9			(72.9		)
Income tax (provision) benefit	(9.7		)	(4.2		)	4.4			(13.7		)	(13.4		)
Net income (loss)	42.4			52.8			(136.9		)	167.2			(86.3		)
Less: Net income attributable to non-controlling interest	(0.5		)	(1.0		)	(1.3		)	(3.2		)	(4.3		)
Net income (loss) attributable to ON Semiconductor Corporation	$	41.9		$	51.8		$	(138.2	)	$	164.0		$	(90.6	)
Net income (loss) per common share attributable to ON Semiconductor Corporation:
Basic	$	0.09		$	0.12		$	(0.31	)	$	0.37		$	(0.20	)
Diluted	$	0.09		$	0.11		$	(0.31	)	$	0.36		$	(0.20	)
Weighted average common shares outstanding:
Basic	442.5			449.3			448.6			447.9			452.6
Diluted	445.2			452.1			448.6			450.7			452.6


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

	December 31, 2013			September 27, 2013			December 31, 2012
Assets
Cash and cash equivalents	$	509.5		$	369.5		$	486.9
Short-term investments	116.2			184.1			144.8
Receivables, net	383.4			419.2			357.8
Inventories	611.8			585.3			581.7
Other current assets	89.3			87.6			122.2
Total current assets	1,710.2			1,645.7			1,693.4
Property, plant and equipment, net	1,074.2			1,092.9			1,103.3
Goodwill	184.6			184.6			184.6
Intangible assets, net	223.4			231.8			257.0
Other assets	64.6			93.7			90.1
Total assets	$	3,257.0		$	3,248.7		$	3,328.4
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	276.8		$	259.2		$	279.5
Accrued expenses	220.3			224.7			256.7
Deferred income on sales to distributors	140.5			145.2			134.5
Current portion of long-term debt	181.6			249.0			353.6
Total current liabilities	819.2			878.1			1,024.3
Long-term debt	760.6			659.4			658.3
Other long-term liabilities	177.2			209.5			255.1
Total liabilities	1,757.0			1,747.0			1,937.7
ON Semiconductor Corporation stockholders’ equity:
Common stock	5.2			5.1			5.1
Additional paid-in capital	3,210.8			3,195.2			3,156.4
Accumulated other comprehensive loss	(47.4		)	(48.6		)	(41.1		)
Accumulated deficit	(1,128.9		)	(1,170.8		)	(1,292.9		)
Less: treasury stock, at cost	(572.5		)	(511.5		)	(466.4		)
Total ON Semiconductor Corporation stockholders’ equity	1,467.2			1,469.4			1,361.1
Non-controlling interest in consolidated subsidiary	32.8			32.3			29.6
Total stockholders' equity	1,500.0			1,501.7			1,390.7
Total liabilities and equity	$	3,257.0		$	3,248.7		$	3,328.4


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, 2013			September 27, 2013			December 31, 2012			December 31, 2013			December 31, 2012
Net income (loss)	$	42.4		$	52.8		$	(136.9	)	$	167.2		$	(86.3	)
Adjusted for:
Restructuring, asset impairments and other, net	22.1			11.0			108.0			33.2			165.3
Goodwill and intangible asset impairment	—			—			49.5			—			49.5
Interest expense	10.0			9.2			12.7			38.6			56.1
Interest income	(0.3		)	(0.3		)	(0.4		)	(1.3		)	(1.5		)
Loss on debt exchange	—			—			—			3.1			7.8
Income tax provision (benefit)	9.7			4.2			(4.4		)	13.7			13.4
Net income attributable to non-controlling interest	(0.5		)	(1.0		)	(1.3		)	(3.2		)	(4.3		)
Depreciation and amortization	55.3			52.9			60.9			211.8			243.6
Actuarial (gains) losses on pension plans and other pension benefits	(7.4		)	—			8.2			6.2			11.6
SANYO Semiconductor inventory item	—			—			—			—			8.0
SANYO Semiconductor purchase agreement	—			—			—			—			(2.2		)
Adjusted EBITDA*	131.3			128.8			96.3			469.3			461.0
Increase (decrease):
Restructuring, asset impairments and other, net	(22.1		)	(11.0		)	(108.0		)	(33.2		)	(165.3		)
Interest expense	(10.0		)	(9.2		)	(12.7		)	(38.6		)	(56.1		)
Interest income	0.3			0.3			0.4			1.3			1.5
Income tax (provision) benefit	(9.7		)	(4.2		)	4.4			(13.7		)	(13.4		)
Net income attributable to non-controlling interest	0.5			1.0			1.3			3.2			4.3
Actuarial gains (losses) on pension plans and other pension benefits	7.4			—			(8.2		)	(6.2		)	(11.6		)
SANYO Semiconductor inventory item	—			—			—			—			(8.0		)
SANYO Semiconductor purchase agreement	—			—			—			—			2.2
Loss (gain) on sale or disposal of fixed assets	0.8			(0.5		)	(4.8		)	(6.8		)	(9.5		)
Amortization of debt issuance costs	0.4			0.3			0.4			1.3			2.1
Provision for excess inventories	6.2			5.8			21.3			51.9			51.9
Non-cash asset impairment charges	4.5			2.9			100.9			8.0			103.0
Non-cash share-based compensation expense	8.9			7.0			5.8			32.3			20.5
Non-cash interest	2.7			2.7			4.7			11.2			23.4
Non-cash foreign currency translation gain	—			—			—			(21.0		)	—
Other	1.2			0.8			(6.7		)	(4.5		)	(4.7		)
Changes in operating assets and liabilities	4.6			(64.8		)	41.5			(127.2		)	(125.3		)
Net cash provided by operating activities	$	127.0		$	59.9		$	136.6		327.3			276.0

* 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, 2013			September 27, 2013			December 31, 2012			December 31, 2013			December 31, 2012
Reconciliation of GAAP gross profit to non-GAAP gross profit:
GAAP gross profit			$	252.9		$	249.2		$	210.4		$	938.4		$	951.9
	Special items:
	a)	Actuarial (gains) losses on pension plans and other pension benefits	(2.7		)	—			0.5			4.0			3.1
	b)	SANYO Semiconductor inventory item	—			—			—			—			8.0
		Total special items	(2.7		)	—			0.5			4.0			11.1
Non-GAAP gross profit			$	250.2		$	249.2		$	210.9		$	942.4		$	963.0
Reconciliation of GAAP gross margin to non-GAAP gross margin:
GAAP gross margin			35.2		%	34.8		%	30.9		%	33.7		%	32.9		%
	Special items:
	a)	Actuarial (gains) losses on pension plans and other pension benefits	(0.4		)%	—		%	0.1		%	0.1		%	0.1		%
	b)	SANYO Semiconductor inventory item	—		%	—		%	—		%	—		%	0.3		%
		Total special items	(0.4		)%	—		%	0.1		%	0.1		%	0.4		%
Non-GAAP gross margin			34.8		%	34.8		%	31.0		%	33.9		%	33.3		%
Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
GAAP operating expenses			$	190.6		$	181.9		$	341.8		720.2			968.2
	Special items:
	a)	Amortization of acquisition related intangible assets	(8.3		)	(8.2		)	(11.1		)	(33.1		)	(44.4		)
	b)	Actuarial gains (losses) on pension plans and other pension benefits	4.7			—			(7.7		)	(2.2		)	(8.5		)
	c)	Restructuring, asset impairments and other, net	(22.1		)	(11.0		)	(108.0		)	(33.2		)	(165.3		)
	d)	Goodwill and intangible asset impairments	—			—			(49.5		)	—			(49.5		)
		Total special items	(25.7		)	(19.2		)	(176.3		)	(68.5		)	(267.7		)
Non-GAAP operating expenses			$	164.9		$	162.7		$	165.5		$	651.7		$	700.5
Reconciliation of GAAP net income to non-GAAP net income:
GAAP net income attributable to ON Semiconductor Corporation			$	41.9		$	51.8		$	(138.2	)	$	164.0		$	(90.6	)
	Special items:
	a)	Actuarial (gains) losses on pension plans and other pension benefits (cost of revenues)	(2.7		)	—			0.5			4.0			3.1
	b)	SANYO Semiconductor inventory item	—			—			—			—			8.0
	c)	Amortization of acquisition related intangible assets (operating expenses)	8.3			8.2			11.1			33.1			44.4
	d)	Actuarial (gains) losses on pension plans and other pension benefits (operating expenses)	(4.7		)	—			7.7			2.2			8.5
	e)	Restructuring, asset impairments and other, net	22.1			11.0			108.0			33.2			165.3
	f)	Goodwill and intangible asset impairments	—			—			49.5			—			49.5
	g)	SANYO Semiconductor purchase agreement	—			—			—			—			(2.2		)
	h)	Loss on debt exchange	—			—			—			3.1			7.8
	i)	Non-cash interest on convertible notes	2.7			2.7			4.7			11.2			23.4
	j)	Adjustment to reflect cash taxes	6.7			1.7			(6.3		)	0.8			(4.2		)
		Total special items	32.4			23.6			175.2			87.6			303.6
Non-GAAP net income			$	74.3		$	75.4		$	37.0		$	251.6		$	213.0
Non-GAAP net income per share:
		Basic	$	0.17		$	0.17		$	0.08		$	0.56		$	0.47
		Diluted	$	0.17		$	0.17		$	0.08		$	0.56		$	0.47
Weighted average common shares outstanding:
		Basic	442.5			449.3			448.6			447.9			452.6
		Diluted	445.2			452.1			450.0			450.7			456.1

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