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On Semiconductor Annual Report, Year Ended Dec 31, 2006

Filing Date
Filed February 23, 2007
Period End
December 31, 2006
Security
ON
In the record · 2016–202610-K1110-Q338-K162

ON filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 162 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Oct ’18Oct ’18
  2. Leadership change8-K · Oct ’20Oct ’20
  3. Impairment8-K · Sep ’22Sep ’22
  4. Impairment8-K · Nov ’25Nov ’25

01—Abstract

Summary

Summary of the 10-K filed February 23, 2007. Cited figures are marked; the original filing is the authoritative source.

ON Semiconductor Corporation (NASDAQ: ONNN) reported net income of $272.1 milliona for fiscal 2006 on net revenues of $1,531.8 million, up from $1,260.6 million in 2005.

The company stated this was its highest annual net income since its 1999 recapitalization, and gross margin rose to 38.5% from 33.2%. Results were supported by higher sales volume, the May 2006 purchase of LSI Logic's Gresham, Oregon wafer fab (which added $100.6 millionb of manufacturing services revenue), and a $20.2 million depreciation reduction from extending the useful life of manufacturing equipment from 5 to 10 years. The balance sheet remains highly leveraged.

Total debt was $1,176.0 millionc at year-end, against cash of $268.8 million and a stockholders' deficit of $225.4 million. During 2006 the company reduced debt and interest costs, issued $484.0 million of 2.625% convertible notes due 2026, repurchased 40,415,970 shares for $300.0 million (including 9,749,303 shares from principal stockholder TPG), and reported interest expense of $51.8 million, down from $61.5 million in 2005. Operating cash flow was $349.8 million.

Management expects Q1 2007 revenue of $368.0 to $378.0 milliond and described the semiconductor cycle as highly cyclical, with ongoing pricing pressure and exposure to the Delphi bankruptcy and the Gresham supply contract with LSI. Litigation remains a key uncertainty.

The IPO securities class action has a proposed settlement guaranteeing $1.0 billion in recoveries from participating issuers, but its approval is stayed following a December 2006 Second Circuit ruling that the related cases may not be certified as class actions. The company states it expects insurance proceeds to cover its share and that the outcome should not have a material effect on its financial position.

02—Key points

Key Highlights

  1. Net income of $272.1 million in 2006, the highest annual net income since the 1999 recapitalization, versus $100.6 million in 2005
  2. Net revenues of $1,531.8 million, up from $1,260.6 million in 2005, including $100.6 million of manufacturing services revenue from the Gresham facility
  3. Gross margin of 38.5% in 2006 compared with 33.2% in 2005; operating income rose to $317.0 million from $167.6 million
  4. Total long-term debt of $1,176.0 million at December 31, 2006, reduced from $1,302.9 million at December 31, 2003; interest expense fell to $51.8 million from $151.1 million in 2003
  5. Stockholders' deficit of $225.4 million; cash and cash equivalents of $268.8 million
  6. Repurchased 40,415,970 shares for $300.0 million in December 2006, funded partly by $484.0 million of 2.625% convertible notes due 2026
  7. Q1 2007 revenue guidance of $368.0 to $378.0 million; the company expects average selling prices to decline about two percent

03—Questions

Frequently Asked Questions

  1. How did ON Semiconductor's profitability change in 2006?

    Net income rose to $272.1 million from $100.6 million in 2005. Operating income increased to $317.0 million from $167.6 million, aided by higher sales volume, cost savings, a $20.2 million depreciation reduction from the change in equipment useful life, and a $10.2 million restructuring gain.

  2. How leveraged is the company?

    At December 31, 2006, total long-term debt including current maturities was $1,176.0 million, against cash of $268.8 million and a stockholders' deficit of $225.4 million. The company reported that it was in compliance with its debt covenants at year-end.

  3. What is the status of the IPO securities class action?

    The company is party to IPO allocation class actions. It has elected to participate in a proposed settlement guaranteeing $1.0 billion in recoveries, but court approval is pending. A December 5, 2006 Second Circuit decision that similar cases may not be certified as class actions has left the settlement's viability undetermined, and proceedings are stayed. The company expects insurance proceeds to cover its share.

  4. What risks does the Gresham facility acquisition present?

    The company purchased the Gresham, Oregon facility from LSI Logic for $106.5 million. During the first two years, LSI is the sole customer under a supply contract with minimum guaranteed revenue, and the company expects the acquisition to increase fixed costs by $90 million to $100 million annually. Management said gross margin was negatively affected in 2006 and a similar impact is expected in 2007.

  5. What is the outlook for the company's largest customers and markets?

    Avnet, Arrow and Motorola accounted for approximately 11%, 9% and 7% of 2006 revenues. Automotive customers represented about 16% of revenues, and Delphi, which is in Chapter 11, accounted for less than 3% of revenues. Management expects average selling prices to decline about two percent in Q1 2007 and expects gross margins on product revenues of about 39% in that quarter.

04—Continue

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