01—Abstract
Summary
Summary of the 10-K filed February 24, 2016. Cited figures are marked; the original filing is the authoritative source.
ON Semiconductor Corporation reported revenues of $3,495.8 milliona for 2015, up from $3,161.8 million in 2014, with the increase attributed mainly to a full year of operations from the 2014 acquisitions of Aptina and Truesense, partly offset by lower System Solutions Group revenue.
Net income attributable to ON Semiconductor Corporation was $206.2 millionb, or $0.48 per diluted share, compared with $189.7 million in 2014. Gross margin was 34.1% versus 34.3% in 2014, and operating income rose to $261.1 million from $228.9 million. Cash and cash equivalents were $617.6 million at year-end, against long-term debt including current maturities of $1,393.9 million.
The dominant forward-looking item is the pending acquisition of Fairchild Semiconductor International, Inc. for $20.00c per share in cash, a transaction valued at approximately $2.4 billion. The company plans to fund it with cash on hand, debt or equity issuance, and a committed $2.4 billion term loan plus a $300 million revolver. The filing states the company expects the deal to close late in the second quarter of 2016, and that interest expense will increase substantially starting in the first quarter of 2016.
Fairchild-related shareholder litigation is pending, and a $215 milliond termination fee could be payable under certain circumstances. For the first quarter of 2016, the company estimates revenues of approximately $800 to $840 million and gross margin of approximately 31.8% to 33.8%, excluding any contribution from Fairchild. The company repurchased about 30.4 million shares in 2015 for roughly $347.8 million, and it has a remaining $628.2 million authorization under its 2014 program.
02—Key points
Key Highlights
- Revenue rose to $3,495.8 million in 2015 from $3,161.8 million in 2014, driven mainly by the full-year contribution of the Aptina and Truesense acquisitions.
- Net income attributable to ON Semiconductor Corporation was $206.2 million, or $0.48 per diluted share, versus $189.7 million, or $0.43, in 2014.
- Gross margin was 34.1% in 2015 compared with 34.3% in 2014, primarily due to a larger share of lower-margin Image Sensor Group revenue.
- Pending Fairchild acquisition at $20.00 per share in cash, valued at about $2.4 billion, with financing from a committed $2.4 billion term loan and $300 million revolver; closing expected late in Q2 2016.
- Interest expense rose to $49.7 million in 2015 and is expected to increase substantially from Q1 2016 due to debt tied to the Fairchild transaction.
- Q1 2016 outlook calls for revenue of approximately $800 to $840 million and gross margin of approximately 31.8% to 33.8%, excluding Fairchild.
- Capital return: about 30.4 million shares repurchased in 2015 for approximately $347.8 million, and $628.2 million remains under the 2014 Share Repurchase Program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, On Semiconductor kept $0.06.
- Revenue$3.50B100.0%
- Cost of revenue−$2.30B65.9%
- Gross profit$1.19B34.1%
- Operating costs−$932.1M26.7%
- Operating income$261.1M7.5%
- Interest, other & tax−$54.9M1.6%
- Net income$206.2M5.9%
Where FY2015 revenue went
$3.50B- Cost of revenue: $2.30B, 66% of revenue
- Operating costs: $932.1M, 27% of revenue
- Net income: $206.2M, 5.9% of revenue
- Interest, other & tax: $54.9M, 1.6% of revenue
Kept 5.9% as net incomeNet income $206.2M · 5.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 24, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $3.50B$3.16B | +10.6% |
| Cost of Revenue | $2.30B$2.08B | +10.9% |
| Gross Profit | $1.19B$1.08B | +10.0% |
| Operating Expenses | $932.10M$856.00M | +8.9% |
| Operating Income | $261.10M$228.90M | +14.1% |
| Interest Expense | $49.70M$34.10M | +45.7% |
| Net Income | $206.20M$189.70M | +8.7% |
| EPS (Basic) | $0.49$0.43 | +14.0% |
| EPS (Diluted) | $0.48$0.43 | +11.6% |
| Shares Outstanding (Basic) | 421.20M439.50M | −4.2% |
| Shares Outstanding (Diluted) | 427.80M443.50M | −3.5% |
05—Questions
Frequently Asked Questions
Why did revenue increase in 2015 while the System Solutions Group declined?
The filing attributes the increase mainly to approximately $409.6 million of additional Image Sensor Group revenue from a full year of operations of the 2014 Aptina and Truesense acquisitions. This was partially offset by lower System Solutions Group revenue, which fell to $506.9 million from $574.9 million, and by an average selling price decrease of approximately 8%.
What does the pending Fairchild acquisition mean for the company's debt and interest costs?
The company intends to finance the estimated $2.4 billion cash consideration with cash on hand, debt or equity issuance, and new fully committed debt. The filing states that interest expense is expected to increase substantially starting in Q1 2016, and that debt bearing floating rates would raise costs if interest rates rise.
What risks could prevent the Fairchild transaction from closing?
The filing cites conditions such as the absence of restraining laws or orders, the absence of a material adverse effect, required regulatory approvals, and possible injunctive relief from a putative shareholder class action. It also notes that an intervening offer for Fairchild or the ability to obtain debt financing could affect timing. ON Semiconductor could be required to pay a $215 million termination fee to Fairchild in certain circumstances.
How is the company's cash position and liquidity described?
Cash and cash equivalents were $617.6 million at December 31, 2015, with $240.7 million held in the United States. Total long-term debt including current maturities was $1,393.9 million, and the company believes cash flows and existing cash will be adequate for at least the next 12 months, exclusive of Fairchild requirements.
What is the company's shareholder return policy?
The company adopted a Capital Allocation Policy to return approximately 80 percent of free cash flow, less repayments of long-term debt, to shareholders. Under the 2014 Share Repurchase Program, it intends to repurchase approximately $1.0 billion over four years. It has not declared or paid cash dividends since its initial public offering.
06—Continue