01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
ON Semiconductor Corporation, the filer named in this Form 10-K, reported total revenues of $3,906.9 milliona for 2016, an increase from $3,495.8 million in 2015, with the increase attributable to the acquisition of Fairchild, partially offset by lower revenues in the Image Sensor Group.
Net income attributable to ON Semiconductor Corporation was $182.1 millionb, or $0.43 per diluted share, compared with $206.2 million in 2015. Gross margin decreased to 33.2% from 34.1%, reflecting the expensing of a $67.5 million fair market value inventory step-up from the Fairchild acquisition. Operating income declined to $236.1 million from $261.1 million, and interest expense rose to $145.3 million from $49.7 million as a result of debt incurred to fund Fairchild.
The Fairchild Transaction, completed September 19, 2016 for a purchase price of $2,532.2 millionc, was the defining event of the year. It was funded by a $2.4 billion Term Loan "B" Facility, a partial draw on the $600 million Revolving Credit Facility, and cash on hand. Total outstanding indebtedness was $3,806.8 million at December 31, 2016, compared with $1,515.8 million a year earlier.
The company also recorded a $92.2 milliond gain on the divestiture of its ignition IGBT and Thyristor businesses, and a $89.4 million net tax benefit from releasing part of its Japan valuation allowance. Net income was also affected by a $310.8 million tax expense from reversing the prior indefinite reinvestment assertion, partly offset by a $267.9 million benefit from releasing valuation allowance. For the first quarter of 2017, the company estimated revenues of approximately $1,215 to $1,265 million and gross margin of approximately 33.4% to 34.8%.
Cash and cash equivalents were $1,028.1 million at year-end, and cash flow from operating activities was $581.2 million. The company repurchased no shares in 2016, and it redeemed the 2.625% Notes, Series B in January 2017 for approximately $445 million.
02—Key points
Key Highlights
- Total revenues rose to $3,906.9 million in 2016 from $3,495.8 million, driven by the Fairchild acquisition, which contributed $411.5 million of revenue from September 19 to December 31, 2016.
- Net income attributable to ON Semiconductor Corporation was $182.1 million, or $0.43 per diluted share, versus $206.2 million, or $0.48, in 2015.
- Gross margin declined to 33.2% from 34.1%, primarily due to the $67.5 million inventory step-up expensed from the Fairchild acquisition.
- Interest expense increased to $145.3 million from $49.7 million, and total outstanding indebtedness reached $3,806.8 million at December 31, 2016.
- Fairchild Transaction purchase price was $2,532.2 million, funded by the Term Loan "B" Facility, a partial Revolving Credit Facility draw, and cash on hand.
- Income tax benefit of $3.9 million included a $359.8 million valuation allowance reversal offset by a $310.8 million charge from reversing the indefinite reinvestment assertion.
- Q1 2017 outlook: revenues of approximately $1,215 to $1,265 million and gross margin of approximately 33.4% to 34.8%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, On Semiconductor kept $0.05.
- Revenue$3.91B100.0%
- Cost of revenue−$2.61B66.7%
- Gross profit$1.30B33.3%
- Operating costs−$1.05B27.0%
- Operating income$246.8M6.3%
- Interest, other & tax−$64.7M1.7%
- Net income$182.1M4.7%
Where FY2016 revenue went
$3.91B- Cost of revenue: $2.61B, 67% of revenue
- Operating costs: $1.05B, 27% of revenue
- Net income: $182.1M, 4.7% of revenue
- Interest, other & tax: $64.7M, 1.7% of revenue
Kept 4.7% as net incomeNet income $182.1M · 4.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.91B$3.50B | +11.8% |
| Cost of Revenue | $2.61B$2.30B | +13.2% |
| Gross Profit | $1.30B$1.19B | +9.0% |
| Operating Expenses | $1.05B$932.10M | +13.0% |
| Operating Income | $246.80M$261.10M | −5.5% |
| Interest Expense | $145.30M$49.70M | +192.4% |
| Net Income | $182.10M$206.20M | −11.7% |
| EPS (Basic) | $0.44$0.49 | −10.2% |
| EPS (Diluted) | $0.43$0.48 | −10.4% |
| Shares Outstanding (Basic) | 415.20M421.20M | −1.4% |
| Shares Outstanding (Diluted) | 420.00M427.80M | −1.8% |
05—Questions
Frequently Asked Questions
Why did net income decline in 2016 even though revenue grew?
Revenue grew 11.8% to $3,906.9 million, but gross profit benefited less than revenue because gross margin fell to 33.2% from 34.1%, mainly due to the $67.5 million inventory step-up expensed from Fairchild. Operating income fell to $236.1 million from $261.1 million, and interest expense rose to $145.3 million from $49.7 million, which reduced pre-tax income to $180.6 million from $219.8 million.
How much debt did the company take on for the Fairchild acquisition?
The company borrowed $2.4 billion under the Term Loan "B" Facility, which was used with a $200.0 million draw on the Revolving Credit Facility and cash on hand to fund the $2,532.2 million purchase price. Total gross long-term debt was $3,806.8 million at December 31, 2016, compared with $1,515.8 million at December 31, 2015.
What drove the income tax benefit in 2016?
The income tax benefit of $3.9 million reflected the reversal of $359.8 million of valuation allowance against part of U.S. federal and foreign deferred tax assets, plus $1.9 million released for uncertain tax position reserves. These were partly offset by $310.8 million tied to reversing the prior years' indefinite reinvestment assertion and $43.5 million of income and withholding taxes.
Did the company return capital to shareholders in 2016?
No. The company repurchased no common stock during 2016 because it focused on building cash for the Fairchild Transaction. It has neither declared nor paid cash dividends since its initial public offering, and its Amended Credit Agreement permitted up to $100.0 million in cash dividends based on the net leverage ratio as of December 31, 2016.
What is the outlook for the first quarter of 2017?
The company estimated first-quarter 2017 revenues of approximately $1,215 to $1,265 million, with backlog representing about 80% to 85% of anticipated revenues, and gross margin of approximately 33.4% to 34.8%. Its 2.625% Notes, Series B were redeemed in January 2017 for an aggregate payment of approximately $445 million.
06—Continue