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On Semiconductor Annual Report, Year Ended Dec 31, 2007

Filing Date
Filed February 12, 2008
Period End
December 31, 2007
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 12, 2008. Cited figures are marked; the original filing is the authoritative source.

ON Semiconductor Corporation (filed as ON Semiconductor Corporation) reported 2007 net revenues of $1,566.2 milliona, up 2.2 percent from $1,531.8 million in 2006, and net income of $242.2 million, or $0.80 per diluted share, compared with $272.1 million in 2006.

Gross margin declined to 37.7% from 38.5%, mainly due to lower manufacturing services revenue, while operating income fell to $277.2 millionb from $317.0 million. Cash flow from operations was $317.1 million and cash and cash equivalents ended the year at $274.6 million. Total debt was reduced to $1,159.4 million from $1,302.9 million at the end of 2003, and annual interest expense fell from $151.1 million in 2003 to $38.8 million in 2007.

The company is pursuing a merger with AMIS Holdings, Inc., under which each AMIS share would convert into 1.150 ON shares, an estimated $894.1 millionc at announcement. The filing states AMIS holders would own approximately 26% of ON's shares after the merger on a fully diluted basis, and management estimates about $50 million in pre-tax savings in 2009. ON also bought the voltage regulation and thermal monitoring business of Analog Devices for $148.0 million on December 31, 2007, and repurchased 5,000,000 shares in 2007 at $11.05 each.

The company guides first-quarter 2008 revenue down roughly 3% to 7% from fourth-quarter 2007 revenue of $407.9 milliond. Key risks include high leverage, with $1,159.4 million of long-term debt, cyclical semiconductor demand, dilution from the AMIS share issuance, the need to refinance roughly $277.5 million of AMIS debt, and a pending securities class action related to the 2001 IPO. Management concluded internal control over financial reporting was effective as of December 31, 2007, excluding the PTC Business acquired on that date.

02—Key points

Key Highlights

  1. Net revenues rose 2.2% to $1,566.2 million in 2007 from $1,531.8 million in 2006, driven by higher product volume partly offset by average selling prices down about 6.0%.
  2. Net income declined to $242.2 million ($0.80 diluted EPS) from $272.1 million ($0.80 diluted EPS in 2006), with operating income falling to $277.2 million from $317.0 million.
  3. Gross margin decreased to 37.7% from 38.5%, attributed mainly to lower manufacturing services revenue, which fell to $96.4 million from $100.6 million.
  4. Pending AMIS Holdings merger: 1.150 ON shares per AMIS share, valued at $894.1 million at announcement, with AMIS holders expected to own about 26% of ON after closing and about $50 million in pre-tax savings targeted for 2009.
  5. Debt reduced to $1,159.4 million at year-end 2007 from $1,302.9 million at year-end 2003, and interest expense fell to $38.8 million from $151.1 million over the same period.
  6. Acquired Analog Devices' PTC Business on December 31, 2007 for a total cash cost of $148.0 million, including $91.3 million of goodwill.
  7. Operating cash flow was $317.1 million and cash and cash equivalents ended 2007 at $274.6 million; management expects 2008 total cash capital expenditures of $100.0 million to $110.0 million.

03—Questions

Frequently Asked Questions

  1. How did ON Semiconductor perform financially in 2007?

    Net revenues grew 2.2% to $1,566.2 million, and net income was $242.2 million, or $0.80 per diluted share. Gross profit was $590.5 million, essentially flat with $589.0 million in 2006, but operating income fell to $277.2 million from $317.0 million as operating expenses rose to $313.3 million.

  2. What is the status of the AMIS merger and what will it mean for shareholders?

    ON agreed on December 13, 2007 to acquire AMIS Holdings, with each AMIS share converting into 1.150 ON shares. The filing says the deal is expected to close within the first six months of 2008 after shareholder votes scheduled for March 12, 2008. ON stockholders would be substantially diluted, with AMIS holders owning about 26% of the combined company on a fully diluted basis, and ON must repay or refinance about $277.5 million of AMIS debt.

  3. How much debt does ON Semiconductor carry and how has it changed?

    Total debt was $1,159.4 million at December 31, 2007, down from $1,302.9 million at December 31, 2003. Of this, $173.7 million was under senior bank facilities, and $839.0 million was convertible notes and other debt that may be accelerated under covenant provisions. Interest expense dropped to $38.8 million in 2007 from $151.1 million in 2003.

  4. What outlook did management give for the first quarter of 2008?

    Management expects first-quarter 2008 total revenues to decline about 3% to 7% from fourth-quarter 2007 revenues of $407.9 million, with total gross margin of approximately 35.5% to 36.5%. Backlog at the start of the quarter represented over 90% of anticipated first-quarter revenue, and average selling prices are expected to fall about one percent sequentially.

  5. What are the main risks flagged in the filing?

    Key risks include the dilution and integration challenges of the AMIS merger, high leverage with covenant restrictions, cyclicality of the semiconductor industry, the Gresham, Oregon fab's dependence on new products after LSI's minimum purchase commitment ends in 2008, and pending securities class action litigation tied to the company's 2001 IPO underwriting practices.

04—Continue

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