ON Semiconductor Reports Fourth Quarter and 2018 Annual Results


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

	Quarter Ended									Year Ended
	December 31, 2018			September 28, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Revenue	$	1,503.1		$	1,541.7		$	1,377.5		$	5,878.3		$	5,543.1
Cost of revenue (exclusive of amortization shown below)	933.4			945.1			861.0			3,639.6			3,507.5
Gross profit	569.7			596.6			516.5			2,238.7			2,035.6
Gross margin	37.9		%	38.7		%	37.5		%	38.1		%	36.7		%
Operating expenses:
Research and development	162.2			166.2			158.0			650.7			594.7
Selling and marketing	82.1			83.1			81.0			324.7			316.6
General and administrative	74.5			73.3			71.1			293.3			285.0
Amortization of acquisition-related intangible assets	28.4			28.0			28.8			111.7			123.8
Restructuring, asset impairments and other, net	(3.7		)	4.4			4.7			4.3			20.8
Goodwill and intangible asset impairment	3.5			—			5.4			6.8			13.1
Total operating expenses	347.0			355.0			349.0			1,391.5			1,354.0
Operating income	222.7			241.6			167.5			847.2			681.6
Other income (expense), net:
Interest expense	(32.9		)	(31.2		)	(33.2		)	(128.2		)	(141.2		)
Interest income	2.8			1.3			1.2			6.1			3.0
Loss on debt refinancing and prepayment	—			(0.6		)	(14.3		)	(4.6		)	(47.2		)
Gain on divestiture of business	—			0.4			—			5.0			12.5
Licensing income	3.7			1.0			2.2			36.6			47.6
Other income (expense)	(7.6		)	3.5			(2.4		)	(7.1		)	(8.8		)
Other income (expense), net	(34.0		)	(25.6		)	(46.5		)	(92.2		)	(134.1		)
Income before income taxes	188.7			216.0			121.0			755.0			547.5
Income tax benefit (provision)	(22.7		)	(48.9		)	410.0			(125.1		)	265.5
Net income	166.0			167.1			531.0			629.9			813.0
Less: Net income attributable to non-controlling interest	(0.4		)	(0.2		)	(1.1		)	(2.5		)	(2.3		)
Net income attributable to ON Semiconductor Corporation	$	165.6		$	166.9		$	529.9		$	627.4		$	810.7
Net income per common share attributable to ON Semiconductor Corporation:
Basic	$	0.40		$	0.39		$	1.25		$	1.48		$	1.92
Diluted	$	0.39		$	0.38		$	1.22		$	1.44		$	1.89
Weighted average common shares outstanding:
Basic	416.9			425.5			424.3			423.8			421.9
Diluted	420.0			435.3			433.3			435.9			428.3


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

	December 31, 2018			September 28, 2018			December 31, 2017
Assets
Cash and cash equivalents	$	1,069.6		$	951.0		$	949.2
Receivables, net	686.0			733.0			701.5
Inventories	1,225.2			1,200.6			1,089.5
Other current assets	187.0			212.4			193.0
Total current assets	3,167.8			3,097.0			2,933.2
Property, plant and equipment, net	2,549.6			2,401.1			2,279.1
Goodwill	932.5			932.5			916.9
Intangible assets, net	566.4			595.9			628.3
Deferred tax assets	266.2			259.6			339.1
Other assets	105.1			123.7			98.5
Total assets	$	7,587.6		$	7,409.8		$	7,195.1
Liabilities, Non-Controlling Interest and Stockholders’ Equity
Accounts payable	$	671.7		$	588.3		$	548.0
Accrued expenses	659.1			627.2			612.8
Current portion of long-term debt	138.5			99.2			248.1
Total current liabilities	1,469.3			1,314.7			1,408.9
Long-term debt	2,627.6			2,615.7			2,703.7
Deferred tax liabilities	54.8			60.7			55.1
Other long-term liabilities	241.8			215.3			226.4
Total liabilities	4,393.5			4,206.4			4,394.1
ON Semiconductor Corporation stockholders’ equity:
Common stock	5.6			5.6			5.5
Additional paid-in capital	3,702.3			3,670.3			3,593.5
Accumulated other comprehensive loss	(37.9		)	(35.5		)	(40.6		)
Accumulated earnings	979.6			814.0			351.5
Less: Treasury stock, at cost	(1,478.0		)	(1,275.3		)	(1,131.1		)
Total ON Semiconductor Corporation stockholders’ equity	3,171.6			3,179.1			2,778.8
Non-controlling interest in consolidated subsidiary	22.5			24.3			22.2
Total stockholders' equity	3,194.1			3,203.4			2,801.0
Total liabilities and equity	$	7,587.6		$	7,409.8		$	7,195.1


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

	Quarter Ended									Year Ended
	December 31, 2018			September 28, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Net income	$	166.0		$	167.1		$	531.0		$	629.9		$	813.0
Adjusted for:
Licensing income	(3.7		)	(1.0		)	(2.2		)	(36.6		)	(47.6		)
R&D costs related to licensing income	—			0.5			3.7			7.0			10.0
Restructuring, asset impairments and other, net	(3.7		)	4.4			4.7			4.3			20.8
Goodwill and intangible asset impairment	3.5			—			5.4			6.8			13.1
Interest expense	32.9			31.2			33.2			128.2			141.2
Interest income	(2.8		)	(1.3		)	(1.2		)	(6.1		)	(3.0		)
Loss on debt refinancing and prepayment	—			0.6			14.3			4.6			47.2
Income tax provision (benefit)	22.7			48.9			(410.0		)	125.1			(265.5		)
Net income attributable to non-controlling interest	(0.4		)	(0.2		)	(1.1		)	(2.5		)	(2.3		)
Depreciation and amortization	136.2			127.1			123.4			508.7			481.9
Amortization of fair market value step-up of inventory	0.6			0.2			—			1.0			13.6
Sell-through to sell-in adjustment	—			—			—			—			(59.0		)
Gain on divestiture of business	—			(0.4		)	—			(5.0		)	(12.5		)
Adjustment to contingent consideration	—			—			(0.2		)	(2.1		)	1.8
Actuarial losses on pension plans and other pension benefits	5.8			—			1.9			5.8			1.9
Third party acquisition and divestiture related costs	1.5			0.4			1.0			4.4			3.2
Adjusted EBITDA	358.6			377.5			303.9			1,373.5			1,157.8
Increase (decrease):
Licensing income	3.7			1.0			2.2			36.6			47.6
R&D costs related to licensing income	—			(0.5		)	(3.7		)	(7.0		)	(10.0		)
Restructuring, asset impairments and other, net	3.7			(4.4		)	(4.7		)	(4.3		)	(20.8		)
Interest expense	(32.9		)	(31.2		)	(33.2		)	(128.2		)	(141.2		)
Interest income	2.8			1.3			1.2			6.1			3.0
Income tax benefit (provision)	(22.7		)	(48.9		)	410.0			(125.1		)	265.5
Net income attributable to non-controlling interest	0.4			0.2			1.1			2.5			2.3
Amortization of fair market value step-up of inventory	(0.6		)	(0.2		)	—			(1.0		)	(13.6		)
Sell-through to sell-in adjustment	—			—			—			—			59.0
Adjustment to contingent consideration	—			—			0.2			2.1			(1.8		)
Actuarial losses on pension plans and other pension benefits	(5.8		)	—			(1.9		)	(5.8		)	(1.9		)
Third party acquisition and divestiture related costs	(1.5		)	(0.4		)	(1.0		)	(4.4		)	(3.2		)
Loss (gain) on sale or disposal of fixed assets	(1.2		)	1.2			1.1			2.4			3.9
Amortization of debt discount and issuance costs	3.4			3.1			3.8			13.2			16.0
Payments for term debt modification	—			—			(1.4		)	(1.1		)	(3.8		)
Write-down of excess inventories	20.6			11.3			10.2			55.7			67.0
Share-based compensation expense	18.9			17.9			17.1			78.3			69.8
Non-cash interest on convertible notes	9.5			9.0			8.9			36.1			30.8
Non-cash asset impairment charges	—			2.6			0.6			2.4			7.9
Change in deferred taxes	(10.7		)	36.7			(444.4		)	69.2			(348.3		)
Other	2.0			(2.8		)	(0.4		)	(1.6		)	2.2
Changes in operating assets and liabilities	72.8			(15.2		)	(45.3		)	(125.4		)	(94.0		)
Net cash provided by operating activities	$	421.0		$	358.2		$	224.3		1,274.2			1,094.2
Cash flows from investing activities:
Purchase of property, plant and equipment	$	(132.0	)	$	(130.4	)	$	(175.7	)	$	(514.8	)	$	(387.5	)
Proceeds from sales of property, plant and equipment	30.2			0.3			12.2			36.5			14.3
Deposits utilized (made) for purchases of property, plant and equipment	9.7			8.1			(6.1		)	4.1			(8.2		)
Purchase of business, net of cash acquired	—			(0.2		)	—			(70.9		)	(0.8		)
Purchase of equity interest and assets, net of cash acquired	(4.8		)	—			—			(24.6		)	—
Proceeds from divestiture of business, net of cash transferred	1.1			1.7			—			8.4			20.0
Proceeds from repayment of note receivable	—			—			—			10.2			—
Purchases of held-to-maturity securities	—			—			—			—			(1.6		)
Other	2.2			—			(1.0		)	2.2			(1.0		)
Net cash used in investing activities	$	(93.6	)	$	(120.5	)	$	(170.6	)	$	(548.9	)	$	(364.8	)
Cash flows from financing activities:
Proceeds for the issuance of common stock under the ESPP	$	6.3		$	11.8		$	12.2		$	25.0		$	23.6
Proceeds from exercise of stock options	1.3			0.1			7.1			5.7			18.0
Payment of tax withholding for restricted shares	(2.4		)	(9.3		)	(3.1		)	(31.6		)	(28.1		)
Repurchase of common stock	(200.3		)	(75.0		)	—			(315.3		)	(25.0		)
Proceeds from debt issuance	7.1			0.7			405.0			15.3			1,106.2
Repayment of long-term debt	(18.5		)	(64.5		)	(419.8		)	(298.4		)	(1,831.4		)
Purchase of convertible note hedges	—			—			—			—			(144.7		)
Proceeds from issuance of warrants	—			—			—			—			85.2
Payment of capital lease obligations	(0.3		)	(0.1		)	(1.2		)	(3.6		)	(8.9		)
Payment of contingent consideration	—			—			(3.9		)	—			(3.9		)
Dividend to non-controlling shareholder of consolidated subsidiary	(2.2		)	—			(1.9		)	(2.2		)	(1.9		)
Net cash used in financing activities	$	(209.0	)	$	(136.3	)	$	(5.6	)	$	(605.1	)	$	(810.9	)
Effect of exchange rate changes on cash and cash equivalents	$	0.2		$	(0.6	)	$	(0.1	)	$	0.3		$	2.3
Net increase (decrease) in cash and cash equivalents	$	118.6		$	100.8		$	48.0		$	120.5		$	(79.2	)
Cash, cash equivalents and restricted cash, beginning of period	$	968.5		$	867.7		$	918.6		$	966.6		$	1,045.8
Cash, cash equivalents and restricted cash, end of period	$	1,087.1		$	968.5		$	966.6		$	1,087.1		$	966.6


ON SEMICONDUCTOR CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES (in millions, except per share and percentage data)

			Quarter Ended									Year Ended
			December 31, 2018			September 28, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Reconciliation of GAAP revenue to non-GAAP revenue:
GAAP revenue			$	1,503.1		$	1,541.7		$	1,377.5		$	5,878.3		$	5,543.1
	Special items:
	a)	Sell-through to sell-in adjustment	—			—			—			—			(155.1		)
		Total special items	—			—			—			—			(155.1		)
Non-GAAP revenue			$	1,503.1		$	1,541.7		$	1,377.5		$	5,878.3		$	5,388.0
Reconciliation of GAAP gross profit to non-GAAP gross profit:
GAAP gross profit			$	569.7		$	596.6		$	516.5		$	2,238.7		$	2,035.6
	Special items:
	a)	Sell-through to sell-in adjustment	—			—			—			—			(59.0		)
	b)	Expensing of appraised inventory at fair market value step up	0.6			0.2			—			1.0			13.6
		Total special items	0.6			0.2			—			1.0			(45.4		)
Non-GAAP gross profit			$	570.3		$	596.8		$	516.5		$	2,239.7		$	1,990.2
Reconciliation of GAAP gross margin to non-GAAP gross margin:
GAAP gross margin			37.9		%	38.7		%	37.5		%	38.1		%	36.7		%
	Special items:
	a)	Sell-through to sell-in adjustment	—		%	—		%	—		%	—		%	0.1		%
	b)	Expensing of appraised inventory at fair market value step up	—		%	—		%	—		%	—		%	0.2		%
		Total special items	—		%	—		%	—		%	—		%	0.3		%
Non-GAAP gross margin			37.9		%	38.7		%	37.5		%	38.1		%	36.9		%
Reconciliation of GAAP operating expenses to non-GAAP operating expenses:
GAAP operating expenses			$	347.0		$	355.0		$	349.0		$	1,391.5		$	1,354.0
	Special items:
	a)	Amortization of acquisition-related intangible assets	(28.4		)	(28.0		)	(28.8		)	(111.7		)	(123.8		)
	b)	Restructuring, asset impairments and other, net	3.7			(4.4		)	(4.7		)	(4.3		)	(20.8		)
	c)	Goodwill and intangible asset impairment	(3.5		)	—			(5.4		)	(6.8		)	(13.1		)
	d)	Third party acquisition and divestiture related costs	(1.5		)	(0.4		)	(1.0		)	(4.4		)	(3.2		)
	e)	R&D costs related to licensing income	—			(0.5		)	(3.7		)	(7.0		)	(10.0		)
		Total special items	(29.7		)	(33.3		)	(43.6		)	(134.2		)	(170.9		)
Non-GAAP operating expenses			$	317.3		$	321.7		$	305.4		$	1,257.3		$	1,183.1
Reconciliation of GAAP operating income to non-GAAP operating income:
GAAP operating income			$	222.7		$	241.6		$	167.5		$	847.2		$	681.6
	Special items:
	a)	Sell-through to sell-in adjustment	—			—			—			—			(59.0		)
	b)	Expensing of appraised inventory at fair market value step up	0.6			0.2			—			1.0			13.6
	c)	Amortization of acquisition-related intangible assets	28.4			28.0			28.8			111.7			123.8
	d)	Restructuring, asset impairments and other, net	(3.7		)	4.4			4.7			4.3			20.8
	e)	Goodwill and intangible asset impairment	3.5			—			5.4			6.8			13.1
	f)	Third party acquisition and divestiture related costs	1.5			0.4			1.0			4.4			3.2
	g)	R&D Costs related to licensing income	—			0.5			3.7			7.0			10.0
		Total special items	30.3			33.5			43.6			135.2			125.5
Non-GAAP operating income			$	253.0		$	275.1		$	211.1		$	982.4		$	807.1
*Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenue)* :**
GAAP operating margin			14.8		%	15.7		%	12.2		%	14.4		%	12.3		%
	Special items:
	a)	Sell-through to sell-in adjustment	—		%	—		%	—		%	—		%	(0.7		)%
	b)	Expensing of appraised inventory at fair market value step up	—		%	—		%	—		%	—		%	0.2		%
	c)	Amortization of acquisition-related intangible assets	1.9		%	1.8		%	2.1		%	1.9		%	2.2		%
	d)	Restructuring, asset impairments and other, net	(0.2		)%	0.3		%	0.3		%	0.1		%	0.4		%
	e)	Goodwill and intangible asset impairment	0.2		%	—		%	0.4		%	0.1		%	0.2		%
	f)	Third party acquisition and divestiture related costs	0.1		%	—		%	0.1		%	0.1		%	0.1		%
	g)	R&D Costs related to licensing income	—		%	—		%	0.3		%	0.1		%	0.2		%
		Total special items	2.0		%	2.1		%	3.2		%	2.3		%	2.7		%
Non-GAAP operating margin			16.8		%	17.8		%	15.3		%	16.7		%	15.0		%
Reconciliation of GAAP income before income taxes to non-GAAP income before income taxes:
GAAP income before income taxes			$	188.7		$	216.0		$	121.0		$	755.0		$	547.5
	Special items:
	a)	Sell-through to sell-in adjustment	—			—			—			—			(59.0		)
	b)	Expensing of appraised inventory at fair market value step-up	0.6			0.2			—			1.0			13.6
	c)	Amortization of acquisition-related intangible assets	28.4			28.0			28.8			111.7			123.8
	d)	Restructuring, asset impairments and other, net	(3.7		)	4.4			4.7			4.3			20.8
	e)	Goodwill and intangible asset impairment	3.5			—			5.4			6.8			13.1
	f)	Third party acquisition and divestiture related costs	1.5			0.4			1.0			4.4			3.2
	g)	R&D costs related to licensing income	—			0.5			3.7			7.0			10.0
	h)	Actuarial losses on pension plans and other pension benefits	5.8			—			1.9			5.8			1.9
	i)	Loss on debt refinancing and prepayment	—			0.6			14.3			4.6			47.2
	j)	Non-cash interest on convertible notes	9.5			9.0			8.9			36.1			30.8
	k)	Adjustment to contingent consideration	—			—			(0.2		)	(2.1		)	1.8
	l)	Licensing income	(3.7		)	(1.0		)	(2.2		)	(36.6		)	(47.6		)
	m)	Gain on divestiture of business	—			(0.4		)	—			(5.0		)	(12.5		)
		Total special items	41.9			41.7			66.3			138.0			147.1
Non-GAAP income before income taxes			$	230.6		$	257.7		$	187.3		$	893.0		$	694.6
Reconciliation of GAAP net income to non-GAAP net income:
GAAP net income attributable to ON Semiconductor Corporation			$	165.6		$	166.9		$	529.9		$	627.4		$	810.7
	Special items:
	a)	Sell-through to sell-in adjustment	—			—			—			—			(59.0		)
	b)	Expensing of appraised inventory at fair market value step-up	0.6			0.2			—			1.0			13.6
	c)	Amortization of acquisition-related intangible assets	28.4			28.0			28.8			111.7			123.8
	d)	Restructuring, asset impairments and other, net	(3.7		)	4.4			4.7			4.3			20.8
	e)	Goodwill and intangible asset impairment	3.5			—			5.4			6.8			13.1
	f)	Third party acquisition and divestiture related costs	1.5			0.4			1.0			4.4			3.2
	g)	R&D costs related to licensing income	—			0.5			3.7			7.0			10.0
	h)	Actuarial losses on pension plans and other pension benefits	5.8			—			1.9			5.8			1.9
	i)	Loss on debt refinancing and prepayment	—			0.6			14.3			4.6			47.2
	j)	Non-cash interest on convertible notes	9.5			9.0			8.9			36.1			30.8
	k)	Adjustment to contingent consideration	—			—			(0.2		)	(2.1		)	1.8
	l)	Licensing income	(3.7		)	(1.0		)	(2.2		)	(36.6		)	(47.6		)
	m)	Gain on divestiture of business	—			(0.4		)	—			(5.0		)	(12.5		)
	n)	Adjustment of income taxes	14.5			36.3			(428.9		)	71.9			(333.3		)
		Total special items	56.4			78.0			(362.6		)	209.9			(186.2		)
Non-GAAP net income attributable to ON Semiconductor Corporation			$	222.0		$	244.9		$	167.3		$	837.3		$	624.5
Adjustment of income taxes:
Tax adjustment for Special Items (1)			$	(8.8	)	$	(8.8	)	$	(23.2	)	$	(29.0	)	$	(51.5	)
Other non-GAAP tax adjustment (2)			36.4			45.1			44.2			114.0			168.1
Impact of U.S. tax reform (3)			35.1			—			(449.9		)	35.1			(449.9		)
Impact of U.S. tax method changes			(48.2		)	—			—			(48.2		)	—
			$	14.5		$	36.3		$	(428.9	)	$	71.9		$	(333.3	)

	(1)	Tax impact of non-GAAP Special Items (a-m), calculated using the federal statutory rate of 21%, 21%, and 35% for the quarters and years ended December 31, 2018, September 28, 2018, and December 31, 2017, respectively.

	(2)	The income tax adjustment primarily represents the use of the net operating loss, non-cash impact of not asserting indefinite reinvestment on earnings of our foreign subsidiaries, deferred tax expense not affecting taxes payable, and non-cash expense (benefit) related to uncertain tax positions.

	(3)	Tax impacts of U.S. tax reform legislation, H.R.1, commonly referred to as the Tax Cuts and Jobs Act, and related provisional impacts recorded pursuant to Staff Accounting Bulletin (SAB) No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.



Reconciliation of GAAP diluted share count to non-GAAP diluted share count:
GAAP diluted share count			420.0			435.3			433.3			435.9			428.3
	Special items:
	a)	Dilutive share count attributable to convertible notes	—			(5.9		)	(3.4		)	(7.8		)	(0.9		)
		Total Special items	—			(5.9		)	(3.4		)	(7.8		)	(0.9		)
Non-GAAP diluted share count			420.0			429.4			429.9			428.1			427.4
Non-GAAP diluted earnings per share:
Non-GAAP net income attributable to ON Semiconductor Corporation			$	222.0		$	244.9		$	167.3		$	837.3		$	624.5
Non-GAAP diluted share count			420.0			429.4			429.9			428.1			427.4
Non-GAAP diluted earnings per share			$	0.53		$	0.57		$	0.39		$	1.96		$	1.46
Reconciliation of Net cash provided by operating activities to free cash flow:
Net cash provided by operating activities			$	421.0		$	358.2		$	224.3		$	1,274.2		$	1,094.2
	Special items:
	a)	Purchases of property, plant and equipment	(132.0		)	(130.4		)	(175.7		)	(514.8		)	(387.5		)
		Total special items	(132.0		)	(130.4		)	(175.7		)	(514.8		)	(387.5		)
Free cash flow			$	289.0		$	227.8		$	48.6		$	759.4		$	706.7

« Previous Page 1 | 2 | 3 | 4 | 5 | 6 | 7 Next Page »