01—Abstract
Summary
Summary of the 10-K filed February 20, 2019. Cited figures are marked; the original filing is the authoritative source.
ON Semiconductor Corporation reported total revenue of $5,878.3 milliona for the year ended December 31, 2018, up from $5,543.1 million in 2017, with the increase attributed mainly to better demand in the Power Solutions Group and Analog Solutions Group.
Gross margin rose to 38.1% from 36.7%, driven by favorable product mix. Net income attributable to ON Semiconductor was $627.4 millionb, or $1.44 per diluted share, compared with $810.7 million in 2017; the 2017 figure was boosted by $449.9 million of U.S. tax reform benefits and a one-time revenue recognition change. Operating income rose to $847.2 million from $681.6 million.
The balance sheet carried $2,939.0 millionc of gross debt at year-end against $1,069.6 million of cash and cash equivalents. Operating cash flow was $1,274.2 million, and capital expenditures were $514.8 million, which management said were elevated at 8% to 9% of revenue and expected to be similar in 2019.
The company repurchased $315.0 milliond of stock under the 2014 program and began a new $1.5 billion four-year repurchase program in December 2018, under which it had bought 4.2 million shares for $71.7 million through February 15, 2019. During 2018 the company acquired SensL for $71.6 million to add LiDAR and single-photon sensing capabilities, and it completed the acquisition of a controlling interest in ON Semiconductor Aizu Co., Ltd. Risk disclosures highlight ongoing exposure to cyclical end markets, customer concentration, U.S.-China tariffs, and extensive patent litigation with Power Integrations, Inc., where the company estimated its range of possible losses for all PI cases at approximately $4 million to $20 million in the aggregate.
02—Key points
Key Highlights
- Revenue rose to $5,878.3 million in 2018 from $5,543.1 million in 2017, led by the Power Solutions Group and Analog Solutions Group.
- Gross margin increased to 38.1% from 36.7%, primarily due to more favorable product mix.
- Net income attributable to ON Semiconductor was $627.4 million ($1.44 diluted EPS), down from $810.7 million in 2017, which included $449.9 million of U.S. tax reform benefits.
- Operating cash flow was $1,274.2 million and capital expenditures were $514.8 million, with capex expected to stay at similar levels in 2019.
- Gross debt totaled $2,939.0 million at December 31, 2018, including a $1,134.5 million Term Loan B and $690.0 million and $575.0 million of convertible notes.
- A new $1.5 billion four-year share repurchase program began December 1, 2018; $315.0 million was repurchased under the prior program in 2018.
- The company acquired SensL for $71.6 million in May 2018 to extend its LiDAR and automotive sensing offerings.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, On Semiconductor kept $0.11.
- Revenue$5.88B100.0%
- Cost of revenue−$3.64B61.9%
- Gross profit$2.24B38.1%
- Operating costs−$1.39B23.7%
- Operating income$847.2M14.4%
- Interest, other & tax−$219.8M3.7%
- Net income$627.4M10.7%
Where FY2018 revenue went
$5.88B- Cost of revenue: $3.64B, 62% of revenue
- Operating costs: $1.39B, 24% of revenue
- Net income: $627.4M, 11% of revenue
- Interest, other & tax: $219.8M, 3.7% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 20, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.88B$5.54B | +6.0% |
| Cost of Revenue | $3.64B$3.51B | +3.8% |
| Gross Profit | $2.24B$2.04B | +10.0% |
| Operating Expenses | $1.39B$1.35B | +2.8% |
| Operating Income | $847.20M$681.60M | +24.3% |
| Interest Expense | $128.20M$141.20M | −9.2% |
| Net Income | $627.40M$810.70M | −22.6% |
| EPS (Basic) | $1.48$1.92 | −22.9% |
| EPS (Diluted) | $1.44$1.89 | −23.8% |
| Shares Outstanding (Basic) | 423.80M421.90M | +0.5% |
| Shares Outstanding (Diluted) | 435.90M428.30M | +1.8% |
05—Questions
Frequently Asked Questions
How did ON Semiconductor's profitability change in 2018?
Operating income increased to $847.2 million from $681.6 million, and gross margin rose to 38.1% from 36.7%. Net income attributable to the company fell to $627.4 million from $810.7 million, mainly because 2017 included a $449.9 million provisional tax benefit from U.S. tax reform and 2018 carried an income tax provision of $125.1 million.
How much debt does the company carry and what are its key maturities?
Gross long-term debt including current maturities was $2,939.0 million at December 31, 2018. The filing lists $138.5 million maturing in 2019, $690.9 million in 2020, $400.0 million in 2021, and $1,709.6 million in 2023. The Revolving Credit Facility of $1.0 billion had $400.0 million outstanding.
What is the company's capital return policy?
Under its Capital Allocation Policy, the company stated it intends to return to stockholders approximately 80 percent of free cash flow, less debt repayments. The 2018 Share Repurchase Program authorizes up to $1.5 billion over four years, and as of December 31, 2018 the full $1.5 billion remained available. Dividends are not paid, and the Amended Credit Agreement caps certain distributions.
What litigation risks does the company face?
The company is in extensive patent litigation with Power Integrations, Inc., with multiple civil cases and USPTO challenges pending. The filing states its estimated range of possible losses for all PI cases is approximately $4 million to $20 million in aggregate, and it believes it has significant and meritorious grounds for judgment in its favor.
06—Continue