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Acquisitions and Divestitures | 12 Months Ended
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Dec. 31, 2016
Business Combinations [Abstract] |
Acquisitions and Divestitures | Note 4: Acquisitions and Divestitures The Company pursues strategic acquisitions from time to time to leverage its existing capabilities and further build its business. Such acquisitions are accounted for as business combinations pursuant to ASC 805 "Business Combinations." Accordingly, acquisition costs are not included as components of consideration transferred, and instead are accounted for as expenses in the period in which the costs are incurred. During the years ended December 31, 2016 and 2015, the Company incurred acquisition-related costs of approximately $25.8 million and $3.5 million, respectively, which are included in operating expenses on the Company's consolidated statements of operations and comprehensive income. 2016 Acquisition On September 19, 2016, the Company acquired 100% of Fairchild Semiconductor International, Inc. ("Fairchild"), whereby Fairchild became a wholly-owned subsidiary of the Company. The purchase price totaled $2,532.2 million in cash and was funded by the Company's borrowings against its Term Loan "B" Facility and a partial draw of the Revolving Credit Facility, as well as with cash on hand. See Note 8: ''Long-Term Debt'' for additional information. The Company acquired Fairchild to expand its product offerings and to create a power semiconductor leader with strong capabilities in a rapidly consolidating semiconductor industry. The acquisition of Fairchild adds highly complementary product lines, allowing the Company to offer the full spectrum of high, medium and low voltage products and expands ON Semiconductor's footprint in wireless communication products, particularly in high efficiency power conversions and USB Type C communication and power delivery. The acquisition also provides the Company with a platform to expand its profitability in a highly fragmented industry. For the period from September 19, 2016 to December 31, 2016 the Company recognized revenue of $411.5 million and net loss of $34.5 million relating to Fairchild, which included charges for the amortization of fair market value step-up of inventory of $67.5 million, the amortization of acquired intangible assets, and restructuring. The following table presents the allocation of the purchase price of Fairchild for the assets acquired and liabilities assumed based on their fair values (in millions):
|  | Initial Estimate |  | Measurement Period Adjustments |  | Final Allocation
Cash and cash equivalents |  | $ | 255.0 |  |  | $ | — |  |  | $ | 255.0 |
Receivables |  | 227.3 |  |  | — |  |  | 227.3 |
Inventories |  | 342.3 |  |  | — |  |  | 342.3 |
Other current assets |  | 59.3 |  |  | 1.7 |  |  | 61.0 |
Property, plant and equipment |  | 813.5 |  |  | 112.3 |  |  | 925.8 |
Goodwill |  | 733.6 |  |  | (77.5 | ) |  | 656.1 |
Intangible assets (excluding IPRD) |  | 423.4 |  |  | (9.8 | ) |  | 413.6 |
In-process research and development |  | 102.4 |  |  | 31.8 |  |  | 134.2 |
Other non-current assets |  | 17.7 |  |  | (4.6 | ) |  | 13.1 |
Total assets acquired |  | 2,974.5 |  |  | 53.9 |  |  | 3,028.4 |
Accounts payable |  | 79.4 |  |  | — |  |  | 79.4 |
Other current liabilities |  | 160.1 |  |  | 8.0 |  |  | 168.1 |
Deferred tax liabilities |  | 167.6 |  |  | 45.9 |  |  | 213.5 |
Other non-current liabilities |  | 35.2 |  |  | — |  |  | 35.2 |
Total liabilities assumed |  | 442.3 |  |  | 53.9 |  |  | 496.2 |
Net assets acquired/purchase price |  | $ | 2,532.2 |  |  | $ | — |  |  | $ | 2,532.2 |
During the fourth quarter, the Company recorded certain measurement period adjustments to the initial estimated purchase price allocation. These adjustments resulted in an immaterial impact to depreciation and amortization expenses during the three months ended September 30, 2016 as Fairchild was in the Company's combined results for only 12 days. These adjustments were among those expected to be made to the initial estimated purchase price allocation based on information obtained during the measurement period and are properly reflected in the Company’s consolidated balance sheet as of December 31, 2016. Acquired intangible assets include $134.2 million of IPRD assets, which are to be amortized over the useful life upon successful completion of the related projects. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The Company utilized a discount rate of 14.5% and cash flows from its significant products are expected to commence from 2017 and beyond. Other acquired intangible assets of $413.6 million are developed technology of $272.7 million (eleven year weighted-average useful life), customer relationships of $135.5 million (fifteen year useful life) and backlog of $3.0 million (six month useful life). The total weighted average amortization period for the acquired intangibles is 12.1 years. The acquisition produced $656.1 million of goodwill of which $366.1 million was assigned to the Power Solutions Group and $289.9 million to the Analog Solutions Group. Goodwill is attributable to a combination of Fairchild's assembled workforce, expectation regarding a more meaningful engagement by the customers due to the scale of the combined Company, and other synergies. Goodwill arising from the Fairchild acquisition is not deductible for tax purposes. During the year ended December 31, 2016, the Company incurred $24.7 million in acquisition related costs for the Fairchild acquisition. These costs were recorded in general and administrative expense in the Consolidated Statements of Operations. See Note 12: ''Commitments and Contingencies'' for information on contingent liabilities assumed from the acquisition of Fairchild. Pro-Forma Results of Operations The following unaudited pro-forma consolidated results of operations for the years ended December 31 2016 and 2015 have been prepared as if the acquisition of Fairchild had occurred on January 1, 2015 and includes adjustments for depreciation expense, amortization of intangibles, interest expense from financing, and the effect of purchase accounting adjustments including the step-up of inventory, as well as $16.9 million in non-recurring acquisition advisory fees (in millions):
|  | Year Ended
|  | December 31, 2016 |  | December 31, 2015
Revenue |  | $ | 4,912.8 |  |  | $ | 4,866.0 |
Net Income |  | $ | 196.6 |  |  | $ | 58.2 |
Net income attributable to ON Semiconductor Corporation |  | $ | 194.2 |  |  | $ | 55.4 |
Net income per common share attributable to ON Semiconductor Corporation: |  |  |  |
Basic |  | $ | 0.47 |  |  | $ | 0.13 |
Diluted |  | $ | 0.46 |  |  | $ | 0.13 |
2016 Divestitures On August 25, 2016, the U.S. Federal Trade Commission (“FTC”) accepted a proposed consent order whereby, prior to the closing of the acquisition of Fairchild, the FTC required the Company to dispose of its ignition planar insulated gate bipolar transistor (“IGBT”) business. In satisfaction of this requirement, on August 29, 2016, the Company sold the ignition IGBT business to Littelfuse, Inc. (“Littelfuse”). On the same day the Company sold its transient voltage suppression diode and switching thyristor product lines (“Thyristor”) to Littelfuse. The sale of the ignition IGBT and Thyristor businesses was for $104.0 million in cash. In connection with the sale, the Company recorded a gain of $92.2 million after, among other things, transferring inventory of $4.1 million to Littelfuse, writing off goodwill of $3.4 million, and deferring $4.3 million of the proceeds representing the fair value of manufacturing services to be recognized in the future. This gain has been presented separately as “Gain on divestiture of business” in the Consolidated Statements of Operations. On December 19, 2016, the Company entered into an Asset Purchase Agreement with HSET Electronic Tech (Hong Kong) Limited to sell certain assets including inventory, technology and licenses related to its Mobile CIS business for $75 million. The proceeds for the divestiture are scheduled to be received in multiple installments in 2017. As the deliverables are due only upon the receipt of each instalment, the divestiture will be accounted for in 2017. The inventory is under production and the technology assets have been classified as assets held for sale and included within other current assets in the consolidated balance sheet as of December 31, 2016. The Company has $13.9 million of inventory that is currently under production which will be sold when the manufacturing process is complete. 2015 Acquisition Axsem On July 15, 2015, the Company acquired 100% of AXSEM for $8.0 million in cash consideration, plus an additional unlimited contingent consideration (the “Earn-out”) with a fair value of $5.0 million as of July 15, 2015. The unlimited Earn-out payment, if any, is based on the achievement of certain revenue targets during two separate measurement periods consisting of the following: (i) the period from the first day of the Company’s third fiscal quarter of 2016 to the last day of the Company’s second fiscal quarter of 2017; and (ii) the period from the first day of the Company’s third fiscal quarter of 2017 to the last day of the Company’s second fiscal quarter of 2018. During the year ended December 31, 2016, due to the revisions of the Company’s expectations of the Earn-out achievement, the Earn-out estimated fair value was reduced by $0.5 million to $4.5 million. 2014 Acquisitions Aptina On August 15, 2014, the Company acquired 100% of Aptina for approximately $405.4 million in cash, subject to customary closing adjustments, of which approximately $2.9 million was paid during the first quarter of 2015. As discussed below, a portion of the $40.0 million of the total consideration remained in escrow as of December 31, 2016. Aptina is incorporated into the Company's Image Sensor Group for reporting purposes. For the period from August 15, 2014 to December 31, 2014, the Company's results of operations include approximately $209.0 million of revenue and a $39.2 million net loss attributable to the acquisition of Aptina, which includes $22.3 million of charges for the amortization of the inventory adjustment to fair market value, $25.5 million for the amortization of acquired intangible assets and $5.9 million for business combination severance charges. The Company expects the acquisition of Aptina to expand the Company's image-sensor business and further strengthen the Company's position in the fast growing segment of image sensors in the automotive and industrial end-markets. The allocation of the purchase price of Aptina was finalized during the quarter ended April 3, 2015. Acquired intangible assets include $51.3 million of IPRD assets, which are to be amortized over the useful life upon successful completion of the related projects. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, reviewing costs incurred for the projects, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. Other acquired intangible assets of $207.8 million include: customer relationships of $126.5 million (two to six year useful life); developed technology of $79.0 million (six year useful life); and trademarks of $2.3 million (six month useful life). Goodwill of $64.4 million was assigned to the Image Sensor Group. Among the factors that contributed to goodwill arising from the acquisition were the potential synergies that are expected to be derived from combining Aptina with the Company’s existing image sensor business. Goodwill is not deductible for tax purposes. Pursuant to the agreement and plan of merger between the Company and the sellers of Aptina (the "Merger Agreement"), $40.0 million of the total consideration was withheld by the Company upon closing and placed into an escrow account to secure against certain indemnifiable events described in the Merger Agreement. The $40.0 million of consideration held in escrow was accounted for as restricted cash as of December 31, 2014. During 2016 and 2015, $1.0 million and $21.2 million of the escrow was released, respectively, with $17.8 million and $18.8 million remaining as of December 31, 2016 and December 31, 2015, respectively. The remaining escrow amounts will be released upon satisfaction of certain outstanding conditions contained in the Merger Agreement. All escrow amounts are treated as restricted cash and are included in other current assets and accrued expenses on the Company's Consolidated Balance Sheet. The following table presents purchase price allocation for the 2014 acquisition of Aptina, including the effects of the measurement period adjustments, recorded in 2015 (in millions):
|  | Purchase Price Allocation
Cash and cash equivalents |  | $ | 30.3 |
Receivables |  | 53.2 |
Inventories |  | 84.8 |
Other current assets |  | 5.7 |
Property, plant and equipment |  | 36.3 |
Goodwill |  | 64.4 |
Intangible assets |  | 207.8 |
In-process research and development |  | 51.3 |
Other non-current assets |  | 2.3 |
Total assets acquired |  | 536.1 |
Accounts payable |  | 66.6 |
Other current liabilities |  | 49.7 |
Other non-current liabilities |  | 14.4 |
Total liabilities assumed |  | 130.7 |
Net assets acquired |  | $405.4
Truesense On April 30, 2014, the Company acquired 100% of Truesense for $95.7 million in cash. Truesense is incorporated into the Company's Image Sensor Group and the allocation of the purchase price was finalized during the year ended December 31, 2014. During the year ended December 31, 2014, the Company recognized revenue of approximately $53.4 million and a net loss of approximately $0.3 million, attributable to the acquisition of Truesense, which includes $4.7 million of charges for the inventory adjustment to fair market value and $10.4 million for the amortization of acquired intangible assets. The following table presents the allocation of the purchase price recorded for the 2014 acquisition of Truesense, including the effects of the measurement period adjustments, recorded in 2015 (in millions):
|  | Purchase Price Allocation
Cash and cash equivalents |  | $ | 4.2 |
Receivables |  | 8.8 |
Inventories |  | 18.3 |
Other current assets |  | 3.6 |
Property, plant and equipment |  | 26.4 |
Goodwill |  | 23.5 |
Intangible assets |  | 35.5 |
In-process research and development |  | 10.2 |
Total assets acquired |  | 130.5 |
Accounts payable |  | 3.8 |
Other current liabilities |  | 6.0 |
Other non-current liabilities |  | 25.0 |
Total liabilities assumed |  | 34.8 |
Net assets acquired |  | $95.7
Goodwill of $23.5 million was assigned to the Image Sensor Group. Among the factors that contributed to goodwill arising from the acquisition were the potential synergies expected to be derived from combining Truesense with the Company’s existing image sensor business. Approximately $2.0 million of the $23.5 million of goodwill as of December 31, 2014 is deductible for tax purposes. Pro Forma Results of Operations (Unaudited) The following unaudited pro forma consolidated results of operations for the year ended December 31, 2014 have been prepared as if the acquisitions of Aptina and Truesense had occurred on January 1, 2013 and includes adjustments for depreciation expense, amortization of intangibles, and the effect of purchase accounting adjustments including the step-up of inventory (in millions, except per share data):
|  | December 31, 2014
Revenues |  | $ | 3,536.4 |
Gross profit |  | $ | 1,213.7 |
Net income attributable to ON Semiconductor Corporation |  | $ | 147.8 |
Net income per common share attributable to ON Semiconductor Corporation: |  |
Basic |  | $ | 0.34 |
Diluted |  | $ | 0.33 |
Included in the unaudited pro forma net income attributable to ON Semiconductor Corporation is $50.8 million for the amortization of acquisition related intangible assets during the year ended December 31, 2014.

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