01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
ON Semiconductor Corporation reported 2014 revenues of $3,161.8 milliona, up from $2,782.7 million in 2013, driven mainly by the acquisitions of Aptina and Truesense and by higher Application Products Group and Standard Products Group revenue, partly offset by lower System Solutions Group revenue.
Gross margin rose to 34.3% from 33.4%, and net income attributable to ON Semiconductor Corporation was $189.7 millionb, or $0.43 per diluted share, compared with $150.4 million in 2013. Operating income was $228.9 million, and net cash provided by operating activities was $481.3 million. The company spent about $405.4 million on Aptina (completed August 15, 2014) and $95.7 million on Truesense (completed April 30, 2014).
It ended 2014 with $517.8 millionc of cash, cash equivalents and short-term investments and $1,192.6 million of long-term debt including current maturities. On December 1, 2014, it announced a capital allocation policy to return about 80% of free cash flow less debt repayments to shareholders, along with a $1 billion share repurchase program over four years. About $976.0 million remained under that program at year-end.
The System Solutions Group, formerly SANYO Semiconductor, continued to decline and drove most of the 2014 restructuring activity, including voluntary retirement programs and the planned closure of the KSS facility. The filing also reports a revision of prior-period financial statements for 2013 and 2012 to correct errors, including a deferred tax asset in a foreign subsidiary.
02—Key points
Key Highlights
- Revenue rose to $3,161.8 million in 2014 from $2,782.7 million in 2013, with the Image Sensor Group contributing $306.1 million after the Aptina and Truesense acquisitions.
- Gross margin increased to 34.3% from 33.4%, and diluted EPS was $0.43 versus $0.33 in 2013.
- Operating cash flow was $481.3 million in 2014, up from $327.3 million in 2013; capital expenditures were $204.3 million.
- Cash, cash equivalents and short-term investments were $517.8 million at December 31, 2014, against $1,192.6 million of total long-term debt including current maturities.
- The Board announced a capital allocation policy to return about 80% of free cash flow less debt repayments, and a $1 billion repurchase program running four years; 13.9 million shares were repurchased in 2014 for $121.0 million.
- The System Solutions Group revenue declined to $574.9 million from $625.2 million, and restructuring charges totaled $30.5 million in 2014 mainly tied to voluntary retirement programs and the KSS closure.
- The 2014 results include a $9.6 million goodwill and intangible impairment and a $10.5 million restructuring charge in the fourth quarter, and the company reported a revision of 2013 and 2012 financial statements.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, On Semiconductor kept $0.06.
- Revenue$3.16B100.0%
- Cost of revenue−$2.08B65.7%
- Gross profit$1.08B34.3%
- Operating costs−$856.0M27.1%
- Operating income$228.9M7.2%
- Interest, other & tax−$39.2M1.2%
- Net income$189.7M6.0%
Where FY2014 revenue went
$3.16B- Cost of revenue: $2.08B, 66% of revenue
- Operating costs: $856.0M, 27% of revenue
- Net income: $189.7M, 6.0% of revenue
- Interest, other & tax: $39.2M, 1.2% of revenue
Kept 6.0% as net incomeNet income $189.7M · 6.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $3.16B$2.78B | +13.6% |
| Cost of Revenue | $2.08B$1.85B | +12.0% |
| Gross Profit | $1.08B$929.10M | +16.8% |
| Operating Expenses | $856.00M$720.20M | +18.9% |
| Operating Income | $228.90M$208.90M | +9.6% |
| Interest Expense | $34.10M$38.60M | −11.7% |
| Net Income | $189.70M$150.40M | +26.1% |
| EPS (Basic) | $0.43$0.34 | +26.5% |
| EPS (Diluted) | $0.43$0.33 | +30.3% |
| Shares Outstanding (Basic) | 439.50M447.90M | −1.9% |
| Shares Outstanding (Diluted) | 443.50M450.70M | −1.6% |
05—Questions
Frequently Asked Questions
How did ON Semiconductor's revenue and profitability change in 2014?
Revenue increased to $3,161.8 million from $2,782.7 million, mainly due to the Aptina and Truesense acquisitions and higher Application Products and Standard Products revenue. Net income attributable to the company was $189.7 million ($0.43 per diluted share), compared with $150.4 million ($0.33) in 2013. Gross margin was 34.3% versus 33.4%.
What acquisitions did ON Semiconductor complete in 2014 and how were they funded?
The company acquired Aptina for approximately $405.4 million in cash on August 15, 2014, and Truesense for approximately $95.7 million in cash on April 30, 2014. The filing states that it drew approximately $230.0 million on its senior revolving credit facility in the third quarter of 2014 to partly fund the Aptina purchase.
What is the company's capital return policy and how much repurchase authority remains?
On December 1, 2014, the company announced a capital allocation policy to return approximately 80% of free cash flow less repayments of long-term debt to shareholders, subject to various factors and the Board's discretion. A new 2014 Share Repurchase Program authorizes up to $1 billion over four years; approximately $976.0 million remained available at December 31, 2014. The company did not declare or pay cash dividends on its common stock.
What are the main risks and challenges highlighted in the filing?
The filing highlights the cyclical nature of the semiconductor industry, competition, dependence on large customers, and the integration risks of acquisitions, including Aptina's separate internal control systems that the company expects to integrate by the end of 2015. It also cites substantial indebtedness, with $1,192.6 million of long-term debt including current maturities at year-end, and the System Solutions Group's continuing revenue declines and restructuring.
Why did the company revise its prior-period financial statements?
During the fourth quarter of 2014, the company revised its 2013 and 2012 financial statements to record a deferred tax asset in a foreign subsidiary, along with changes in accounting convention for manufacturing variances and other hedging and inventory adjustments. The company determined that the errors were not material to prior interim and annual periods individually, but the cumulative correction was material to 2014, so it revised the earlier years.
06—Continue