ON Semiconductor Improves Earnings to Common Stock

November 13, 2005 by Jeff Shepard

ON Semiconductor Corp. (Phoenix, AZ), a supplier of power management solutions, reported that TPG ON Semiconductor Holdings LLC, an affiliated company of Texas Pacific Group (TPG), ON Semiconductor's largest shareholder, has converted its Series A cumulative preferred stock of ON Semiconductor into common stock. The equitization of the preferred stock enhances ON Semiconductor's balance sheet, eliminating approximately $139.2 million currently viewed as debt by the credit-rating agencies.

The conversion of the preferred stock into common stock also eliminates both the convertible redeemable preferred stock dividends and the two-class methodology of calculating earnings in periods in which the company generates net income pursuant to US generally accepted accounting principles beginning in the first quarter of 2006. In the third quarter of 2005, preferred stock dividends totaled approximately $2.7 million, and the allocation of undistributed earnings to preferred shareholders under the two-class methodology totaled approximately $3.3 million.

The conversion of the preferred stock into common stock will initially increase shares of common stock outstanding by approximately 49 million shares. An eight-percent share premium of approximately four million shares of common stock (inducement shares) will be issued to TPG ON Holdings following appropriate clearance under NASDAQ marketplace rules. Upon the conversion of the preferred stock into common stock and the issuance of the inducement shares, the company expects to take a one-time reduction to net income applicable to common stock. Assuming the issuance of the inducement shares, on a net income positive basis under US generally accepted accounting principles, ON Semiconductor expects to have approximately 344 million fully diluted shares.

After the conversion of the preferred stock into common stock, and assuming the payment of the inducement shares in accordance with the NASDAQ marketplace rules, the company expects that TPG's beneficial ownership of the company's common stock would increase from approximately 52.7 percent, or 161.2 million shares, to approximately 53.3 percent, or 165.2 million shares.

"The conversion of the preferred into common stock represents a major milestone for the company, reducing our indebtedness and improving our earnings profile to common stockholders," said ON Semiconductor Senior Vice President and CFO Donald Colvin. "We are happy to continue to improve the earnings performance of our company for shareholders by reducing the financial leakage associated with high-cost debt instruments."